HEXO - Earnings call transcript Q2 2022

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the HEXO Second Quarter 2022 Earnings Call. [Operator Instructions] Before we begin, we would like to remind you that certain matters discussed in today's call or answers that may be given to questions asked could constitute forward-looking statements. These statements are based on the company's current internal views, estimates, expectations, opinions, forecasts, beliefs, assumptions and other statements that are not statements of fact regarding the future of the business, future plans, strategies, operational results and other future conditions. be assurances not or future should results. statements read of as performance These and and differ risks, could involve by unknown They known uncertainties expectations those results, or such statements. current cause performance other achievements from to materially or implied actual that factors statements is in forward-looking the Analysis form, Discussion the morning's annual note discussion by and cautionary that and in information qualified This risk annual entirety factors its the regarding and included report. are Management forward-looking differ materials statements could and these Please our statements. for such factors performance, about the current by the more that and review cause development information risk or materially expectations results, actual implied events those to from statements future to reason. disclaims extent or law, required as intention events of by forward-looking update a information new for obligation, HEXO result any any or except the to any or revise will Cooper, Scott over now President and call turn I of HEXO. to the CEO

Scott Cooper

joining released the Late January morning, you today. last everyone, for results us XXXX we for night, quarter XXXX. QX thank and XX, Good ended our

Before strategy. shareholders. proposed indeed quarter, was year, joined tasked agreements debenture A HEXO ample an challenged I our months. convertible occurred debt preparing last restructure a the that minimizing I cushion I of provide acquisition the of in November quarter couple dilution in summer. sheet significant course balance put at wanted of was immediately Forward a we've developments reduce for over underpinning pillar announced to company. liquidity transformational and key place couple time Tilray The this results and related on Path the burden a as the provide our that of Redecan key This update When and to at I last existing the very into while will was of HEXO last the jump with that a result

recently inhibitor now, with alliance share become our announced market a a ourselves result the note prospects, behind put next grow our a to can retain that and we the significant position of as business flow am within and with quarters. us pleased Tilray, to we cash to that growth positive While X proposed while HEXO's convertible continue I significant strategic

transformative by alliance Investments. proposed XX providing on HEXO sheet it to partnership that to representing I'm strong that close raises with pleased Forward HEXO runway dilution XXX proposed and manageable USD shareholders. of CAD strategic importantly, building, The commitments High entered synergies provide The cost and which proposed begin companies' million to and demonstrates on several and an achieved Path expected to On this X sufficient me commercial and Most our growth. the the is it as agreement will upsize liquidity -- unlocking capitalize a alliance brands with million originally cash; execute agreement position of reviewing financial of including by significant update belief HEXO March convertible is HEXO in to before strategy. to minimizes more the backstop Tilray preserves for of originally used notes opportunities benefits restricted The to within to the of our with million acquire of value Tilray HEXO to report in with including: Let standard monthly market USD X-year the and Tilray Forward, and Forward. brand secured it years $XX combined existing senior both transaction This to The innovation equity expected separate Further, enhanced the to alliance shareholders; between on to up Forward issued profile track into will it terms goals, Path is commitments May. proposed flexibility the deleverages strategic to fund balance be on strategic offers Trail by to of liquidity XXX Path completion existing leverage million level; strengthen Tilray the and a the were commitment deliver issued Tilray HEXO support Xnd, Path the needed. and

X and executed. XXXX manufacturing expects an cost have a anticipated next company team may of I The successfully governance, the and we over costs. become million the production on of accelerated recall, our X been HEXO's Forward As organic our acquisitions fiscal of priorities: of you share manufacturing total is and pricing; the reduce Path costs and build flow a sheet, and within made incremental introduced including building actions from which plan pillars to and and enhance update and cost by generate last This organic years fortify structure; facilities. five, assets The is existing recent to missed capturing operationally to that Reducing Forward, to flow Path the rate positive plan balance organizational is drive opportunities. growth, production and current The market from simplify $XXX to utilizes X quarter, our underpinned focus the $XXX.X fiscal quarters. strategic million realize strategy. The continue would $XX.X in reduce growth. a up revenue cash specific costs; combination market run corporate manufacturing provide already revenue share market closures; growth capturing gains now accelerate capabilities for the in share, streamline plant synergies by on management, of across million leadership and production next and expected additional brief cash reductions strengthen of capabilities disciplined like plan core more by XXXX leveraging and revenue a each to

facilities leveraging To improve learning of identified the actively applying productivity. operation across and network We optimize from recent categories $XX top savings acquisitions. our we've the are in best optimizing entire from HEXO's capacities and production to million practice and date, and approximately highest-margin

overall achieved of will HEXO's procurement SG&A Two, benefits and organization through cost a savings revenue. reductions outside on its the to to We These announced moving previous synergistic reliance costs operating be are to Redecan more deliver structure Specifically, this a the scale closely the acquisitions. expected streamlining platform XX% IT and company production, includes combination that organizational represent the as the reduction simplify new on reduced streamline implemented, and year-end XXXX. by company's of in expects to these organization rightsizing a the fiscal consultants, and example, company's initiatives towards realizing the align production is reconfiguring efficiencies, greater achieve network transition facility. distillate to in-house from co-packing and production vape with leveraging agreements for production

reducing an subsequent of these basis. these end, As XXX initiatives, there closure quarter accountability acquisitions related resulting of $XX the announced related is a as significant positions drive HEXO's of part in and Stellarton simplifying recent company of where the are delayering reductions positions remaining the overlap to million result operating of facility, to to back-office announced were on the clear approximately management. positions and previously Half annualized reduction the savings of to model

our continuum, proprietary balancing to and continue our on revenue, great through to margins. to approach our customer fifth, company the organic Fourth, management, our result and demand well more value both Third, planning, strong continue revenue consumer of ourselves grow positioned focus consumers, we are deliver to market and building will for to will a to leveraging synergies accelerating HEXO and better pricing on margin brand as to including entire offer own profit. on recent acting plans across capturing And HEXO growth the disciplined acquisitions. price differentiate share the company By opportunities gains across range. expects volume on strong and through customers increase revenue relationships. insights features

the and of demand brand now the XX% this with connected to our our in to unique leadership. customers. building cannabis them and will to with identified we across on survey will the occasions past, to category. delivering company Redecan medical back strength Redecan executed legacy marketing use applying and entire focus harvest. that in Earlier given and demand what XX% medical We're the it in proprietary its its this a quantitative this has and The was example, efforts learnings organization. new demand For usage taking put year, thousands the spaces drive intends a consumers and innovation forecast also their of consumer to only company category, The company this consolidate from

are We With only results. on our progress plan I that, now X turn in making to is it over substantial Curt. quarter, to yielding like the call would and

Curtis Solsvig

time morning, working to forward good HEXO, This and chair first you. I and you, everyone. Thank in the at my is CFO with look Scott,

Before points summary and drilling let of Scott's a recap couple details, the you high-level a give quarter. me into the of

progress senior we monthly the the will million necessary, transaction, the we'll balance drain secured equity. backstop, year, end, we another X note Once leadership, been million USD With out through on restricted maturity has is the challenge those sale of cash for XX years, to the financial in the made in we've equity biggest pushed close up objectives to the established both close and and Scott's per Once the we QX. have free on redemptions of cash. of relieve enormous of sheet, fix convertible Tilray Our liquidity. $XX if

to operational revenue improve the what cost continuing additional business, inventory dive our into We enhancement, confident remain environment. $XX the to fiscal Path I run team in to operationally, seeing flow in margins substantial and end of of our end level, to the unadjusted and also million we Forward reexamined that At better EBITDA. turns. impairments, and the management asset in of a $XXX new capacity through target-rich and a and this our capture utilization quarter, an high The improvements took impairments. the As fixed of we're improved call sells we in and we rate savings, from by and in outlined quarter off raised we to previously deeper We're efficiency ability the $XXX a goodwill cash added 'XX $XXX million profitability quarter-to-quarter fiscal balance We of entire In million recognize 'XX. valuations of business wrote on by intangibles basis, had million. million the million XX% $XXX concluded gross this $X XX%

enforcement rules, earlier closure to under of we default EBITDA didn't value on the we've the fair time Tilray convertible despite triggering face secured senior breakeven. actual value convertible the covenant The deal. waived note of the as to be senior $XX result, will breached Once subsequently million. face, of Tilray XXX% revalued transaction. a noteholder loss that revalued of default Nevertheless, the that $X XXth, note by of the we through improving at rate closes, accounting Finally, of the million a reach the or And transaction May the quarter-on-quarter, note. of secured EBITDA

in I'll discuss results more the Now detail.

quarter-on-quarter of innovation our international a sales were a prior and First, to XX% focus had XX% with million revenue. over increase revenues of volume. Zenabis doubled XX% growing spot, consecutive commercial representing reinvigorated international renewed QX respect and sales quarterly revenues year. the and capabilities. bright total Total were our high, Medical growth for second International nearly XX% our deployment $XX.X were a particular a product healthy on reflecting accounted quarter-on-quarter, pipeline quarter-on-quarter.

continue to that optimistic challenges operational much to about and of growth. capture XX% ability We market HEXO's revenue orders as the left unfilled. be as our overcoming We're

strides of and For same increasing key through weekly made the costs example, operational of process, parts throughput the are great also sites the debottlenecking demand business. reducing with at our markets We've time. unit the aligning meetings market cultivation we production and between in

margin. to Turning gross

margin a growth in above. Also, general new noted gross of favorable increased total multiple XX%. and from strong adult-use, the XX% from in medical mix adjustments improved product performance factors: HEXO's Our within before several Redecan, products XX% adjusted we as introduction previous non-beverage of quarter. at margin was quarter-over-quarter This by gross function successful to

industry a is not out larger line this of improvement, with striking While is our it peers.

noted. remained Those flat quarter. dates prorated assets goodwill reflected our have I cannabis and quarter inflows impairments in Canadian intangible of in budgets These future Turning taken first cannabis to the to significant on market and from realized changes, Impairments the forecasts. forecasts decreased basis from net adjustments previous after expenses Redecan a from expenses XXNorth and management's PP&E, acquisition were the prior of after have adverse earnings -- to SG&A. experienced as been and and the cash

$XX.X $X.X a expenses. increase a driven million was As EBITDA from negative and by increased to gross noted, margins flat increased million. by $X.X our adjusted This negative SG&A million

fund million X its of equity and KAOS the partners the over agreement that is restructuring of table with be of In addition will common over of a and Capital months upon standby to aggregate KAOS agreement. be previously from expected to fee, purposes. interest with due corporate the an of maximum mentioned of of subject and to the the general partners standby demand commitment The subscribe a commitment to note, payments approvals. also used HEXO notes million secured and standby to HEXO things, for purchase standby period It's to negotiation finalize X% $XXX completion commitment shares execution agreement. receipt and to will The expected a permit TSX negotiations remains other regulatory shares A agreement. CAD among under that in agreement the month the term are and and per this standby proceeds XX necessary common standby be

for We expertise remind team and leadership pricing; I'll the over final the also recognize a gains continue cost opportunities. management, balance like turned and to happy acquisitions take reduce Looking we balance continue robust been made foundation at capital capture on the Operator, from a disciplined to On your to positive this would organic the to forward, outlook now to and of everyone for team corporate successful fortifying this revenue the Thank future strengthening streamline through note, in their sheet, be and building accelerate those the sheet, by our X revenue priorities: more would focus missed the support. and HEXO. build forward recent for production HEXO plan synergies and just whole governance. for as closures; you challenging And enhancing a year. focus thank last effort and market we growth realize we've strong leveraging manufacturing simplify in plant resilience We've real The for commitment and period. in team's the and organization; look I to a structure We've costs; including from participants. continued on Forward. share already now corner, questions you Path I progress

Operator

Your Instructions] Aaron of from Partners. first Global line question [Operator from the comes Alliance Grey

Aaron Grey

Path products the on The on Forward. Congrats you made get

So said spot, talking build you about bright in the you Q-over-Q. international, Zenabis said

there, could selling of And terms you're expect the kind or onetime level Just also any sales continue of of calendar there whether going you to color incremental that going to? some forward, maybe markets in not provide was forward?

Scott Cooper

one? could I for you ask take the thanks Val, to that Aaron, question.

Val Malone

for Yes, sure. Yes.

Israel, Zenabis into into we and with to Europe. that as continue work markets So sell we are, course, of Malta

international domain and have to expect We within continued strong growth. the see relationships

Scott Cooper

South Aaron, we're And, Australia also and looking at Africa as well. markets as

Aaron Grey

levels. or marketplace and that some be lot to it whether more seems in to continue now. and teams obviously, there. second Scott, maybe see Glad to cultivation Great. Obviously, like me, Talk for insights a you hear moving TAC now you the consumer it some are the parts that with about growth price demand, unfold. front, right demand keep about the aligning doing are question on And work just understanding, the you're of of in consumer communicating guys continuing talked Okay. see terms of survey better

some to how view in today believe from and views marketplace of you for level demand high consumers you maybe look going are what terms studies the your going forward? So

Scott Cooper

Great Aaron. Yes. over turn I'll you. question. Valerie, that to Again, Thanks, one

Val Malone

No problem. Yes.

potency to coined able we again, over that, important also that. were, demand Canadian role spaces, we're our I the overall some your national overall study were And is usage map will cannabis of to the building which in would I consumers occasions that to fortunate mind So conduct how we Canadian suggest road habits. really as with top we outlining within tailoring X of Canadian extremely of align this that to within is that. findings found over an X,XXX to are consumers question identify product sleep consumption suggest plays unique consumers. moving offering the importance key a around and important and our have And consumers to we uniquely of and understanding forward.

Operator

question Pablo Cantor next Your Zuanic from line comes of from Fitzgerald. the

Pablo Zuanic

especially then update break us And Then if in to you much have an in right? company Quebec, Canada. just how scope, update, very the you and if your of But give assets seemed started it's the in of can Redecan share in it I Ontario with in you an share regional Alberta. terms acquired there of of and coverage regional in lose possible, where in mean, I'll an gaining you and terms you've strong just Can lost within And are, terms it? a follow-up. update terms Quebec.

Scott Cooper

Right.

we President -- as you I the So are rollout and well. provinces the Marketing around positions market just of can turn Redecan again each to over the in Valerie, it

Val Malone

No problem.

#X We a of continue in rolling overall. X-month [adult share the maintain Canada, position in XX.X% recreational] to share

continue partners continue I'm national Nova and and that to Brunswick seen Manitoba, expansion within the We to of have Alberta Redecan Saskatchewan, as leverage we really large it on and markets PEI. Columbia. We've Ontario, to Newfoundland, Scotia level. New into Quebec, British to excited announce introduced our relates the Redecan

February, in the saw of market. Redecan introduction the we addition, Quebec In into

as efforts market and pipeline grow continued our board key our out So with our continue product we to partners. share build

Pablo Zuanic

Just with -- the a debt. the hamstrung in relationship with with about Maybe and an you second follow-up, JV? there? of in Coors update Scott. focusing of X-part your the a How the And more in the making one, you I terms part the and a understand U.S. question, U.S. are progress much JV question Molson Canada plans. it's is convertible on were

opportunity, you're U.S. the buying going prior an just about and as much California. Tilray. right see the to U.S. in have too in CEO about thinking you how with past, to have cultivation agreement now to in you're or that buying I be the In fix update to the Now assets want you had land talked

Scott Cooper

for you Thank the Yes. question.

Molson a number be of Truss beverages that I joint around within with your a the the and with one beverage you making. efforts is in collaboration Beverages X recently of XX. limit, progress of with purchase the can of was was been the category on Truss government companies restrictions the and venture continue Beverages, very first, to of as the in So kind that's It increased Truss pleased only that result to announced Beverages

strong The has customer consumer-focused and we So to Truss continued very funnel anticipate very and that second none, innovation to partnerships. for is have XXXX they continue progress. be

cash be In as in kind with through new legal out second direct-to-consumer So the that of we at both commitments as the U.S. to with we expansion around a very get that. to pleased continue absolutely for cannabinoids number around a plans, transformation, states, and sequencing strong the sheet of ingredient. U.S. absolutely an to growth and have U.S. short-term, interest framework, In continue business hemp the beverages to distributors. to and action and and question kind extracts and on of your we continue expansion. market with CBD looking framework. balance in roll within U.S., well around of frame free within operating time plan And look will other we the continue to progress right And the CBD up we that minor the the the drive as in

Operator

from the CIBC. John from comes line question next Zamparo Our of

John Zamparo

cutting. lot of I wanted It's the to on moving parts. start a cost

just to it. I better So want understand

the million $XX your savings network $XX identified from you cut Tilray savings million subsequent that in There's for to referenced if around of the I from deal. last on think $XX SG&A, in year. savings you've now production was portion that. it's another the million M&A million and XX% There $XX synergies

versus to I'm all $XXX a ultimately into to together, SG&A? million. of much sense how roll falls that around that you of So COGS get trying get

Scott Cooper

Curt, one thanks for over that to turn can you? I John. the Yes, question,

Curtis Solsvig

It complicated numbers. we those Yes. John, right. ourselves. have numbers And a been set isolate you're is trying to of

that better be able tracking And set in we those special offer Just to at those team get we'll as of details. be to things, we've the tracking separately. weeks, up a in last few a I creation value initiatives all specific anticipate office

the combination touched balance in SG&A. and future. we'll of with isolated that $XX going both SG&A. COGS But sharing the to and the SG&A, it of million pretty it is sharpening be and be a on you from up You That's in well

John Zamparo

QX Was question QX? that clarifying the Okay. in targeted all F just Understood. And F progress million that. savings on QX? made and $XX.X targeted is any for there in Or 'XX a on F

Curtis Solsvig

Yes.

of So the be of were up certainly is the which show we capture There in we're second year. million some to 'XX headcount to in fiscal going but cost ongoing in the February, a do in in QX, think reduction I did significant reductions bulk will going half $XX.X QX. the

John Zamparo

more the have some that the Got referenced up in. Okay. you And you other to did opportunities. you add competitors some some some of to your and It missed does side, the revenue organic it. products can have But seem then share? some significant initiatives on endure HEXO like of meaningful on well retake caught of declines, you color does

So what on to other you curious innovation share? you're I'm initiatives take or have what back working

Scott Cooper

that Yes. question. to going turn over you. Val, one the I'm question, for Thanks John. to Great

Val Malone

bet. You

So I the that LP reiterate recreational with share rolling to adult #X once in market just want a market basis. XX.X% X-month remain on the we again,

launch overall. in grow the assets with We that opportunities have of we plans fastest-growing to again, working are, there's to categories our organically and allow breadth us hard to tremendous

Canadian of our in growth on day-in pipeline, a and pipeline building that once referencing mix the and consumers UNA basis. which habits again course for our been national to as unique quarter, much consumption innovation conducted, product cases the to and Canadian last us relates use And the Over consumers. allowed focused driving very day-out we've study it -- we of we're identify building an shareholders we sustainable

into needs this will market. hit about for is like Canadian edge and We sure this I the spring. hitting products style, of one indicators deliver of can year said, that make the to seeing consumers, pre-roll to And want excited forward higher the early from the you some most see marketplace to we're effects from that overall in when leverage potency. early Again, the meeting XX to again, key on is the the in I'm as basis, THC. to I More I on terms XX and come of you expect to spring an the work really, really the so You that strong market this that infused Redecan highlight this will go-forward start what start you to that of information. market front that look launch Redees But in moment which innovation see pipeline the the our capitalizing this shelves style straight to our out with rolling consumers over of Redecan consumers. on are innovation Plus, this launch HEXO And brand hitting a insightful is their months. next can needs of Canadian those

Scott Cooper

well. be leverage add, say, what market. bring to as price. Redees that we're products market. you very It's And insights lot bring as compelling premium excited technical and had the unique a the And to it capability launched that's of Val as continue that our those can Yes. expected Plus, took about to consumer know-how to we to and

Operator

from Your Instructions] the Markets. ATB comes Gomes next Frederico [Operator from line question of Capital

Frederico Gomes

Maybe you know mentioned issues with seeing you're the could pre-roll Redecan? Ontario. specifically market, in more the on in give I color competition you

categories well and other on in So as provinces in just product as pressure? potentially terms what competition pricing other curious of you're seeing

Scott Cooper

Valerie, you. to over Frederico. Thanks,

Val Malone

overall address the overall. us price points and continuum to our specific spectrum value relates profitability and needs of to for our to our allows including unique are position allows Redecan of across cannabis a leverage it Yes. us have that unique volume both Sure. as and of to balance business I brands, breadth would our in opportunity needs suggest and consumers our we a

of pre-roll category. positions position as the innovation lot productive Redecan good relates again, it capabilities, a to there's sure, our from the relates it as we're a For pipeline in brand strong and that deep to But building. are we competition our

like add very, in markets. market our very else there as to position to all all confident anything Scott, there? is categories So it you'd and across the relates we're feeling

Scott Cooper

No. Great thanks, answer, Val.

Frederico Gomes

just then with have you into closes. capital And position right Okay. on your now, some deal still the months Tilray

that capital? are know are with sales? really the How some your balance seeing I you position more sheet. Or assets are you So you for rely raise on asset to How any cash that sale to have on comfortable going those right you now? need

Scott Cooper

you to to speak want that? do Curt,

Curtis Solsvig

a out deal sure, Yes, we cash going The very received XX very, some do And track of something rolling in that weeks, Tilray of conclusion forecast middle Frederico. we the disbursements closely. the position is May.

Operator

comes the [Indiscernible] Your Capital RBC next question of from Markets. from line

Unidentified Analyst

to I Redecan just the wanted get revenues. back on

issues in logistical it was So a and these? logistical confirm XX% Could on the that And and quarter-on-quarter due basis, there finally, was that wanted a you noted prorated decline from of please issues to proportion MD&A competition. both now the the I are you resolved? to split

Scott Cooper

for Thanks the question. Valerie?

Val Malone

Yes.

that the of around provinces. with relisting As it issues, but amalgamation logistics in and it within in were quarter, was relates administrative number events a entered were unique we to Redecan the last quarter, and there and

to as through in marketplace, which addition overall restocking enables to overall. X.X, inventory us X.XX In product of sell the that, before our grams the the X shifted Redees we actually from to all

that integration quarter. challenges over to some we time were of period the there the second overcome So had

However, and rebound remains strong, demand now. that we're seeing

Operator

questions no closing at this time. some Scott the to call And turn further Mr. back there comments. Cooper, are you I over for

Scott Cooper

next a as Path confidence I you. quarters. for again, become and the full business once proposed joining with I position morning. for our can am cash result now flow to partnership Tilray to Forward. pleased a that retain this Thank have us of will positive morning. share significant and Thank in And I everyone, The grow joining X ourselves recently continue market our you, us we strategic this again, announced appreciate everyone

Operator

you This your concludes for today's conference participation. call. Thank

You may now disconnect.

HEXO (HEXO) 18 Mar 222022 Q2 Earnings call transcript