Q2 2023 Hexo Corp Earnings Call

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Speaker 1: Please wait for the next available operator.

Speaker 2: Thank you for calling me. I have the name of the conference you're calling to join.

Speaker 3: calling in for a hexa-corp earnings call.

Speaker 2: Thank you. Can we have the spelling of your first and last name, please?

Speaker 3: Yes, sure. Of course, it's Rachel Smith. That's R-A-C-H-E-L.

Speaker 3: Smith is SMI TH.

Speaker 2: Thank you. May I have your company name, please?

Speaker 3: Company name is AIERA. That's A-I-E-R-A.

Speaker 2: Thank you, I'll connect you now.

Speaker 4: That's a great question. Thank you so much. Appreciate that. And then just one more quick one for me. Just on the cash flow generation profile. So a lot of you guys inflected into positive territory from operations. It looks like though when you look at the dynamics, there's pretty big swing still in working capital that are causing, you know, for some of the cases that we're seeing in the industry. So I'm wondering if you could talk about that. I think it's a great question. I think it's a great question. I think it's a great question.

From quarter to quarter.

You see a significant drop while was flat from Q4 to Q1, and so we very aggressively.

Proved our cash collection efforts and then changed our invoicing procedures, a bid to basically move up those payment cycles.

That coupled along with if you look at our SG&A footprint and just overall footprint those expenses are down.

Quite quite significantly so we're happy on how that is how that is how that is trending in the business hopefully that answers your question.

Got it alright, thanks, a lot guys.

Yeah.

Again, Thats Star one if you would like to ask a question. The next question is from Frederico Gomez with <unk> capital markets. Your line is open.

Hi, Good morning, Charlie and Judith Thank you for taking my question.

In terms of your balance sheet.

Capital needs you mention your ATM is there any specific reason why you have decided not to start using that yet just given that you seem pretty close to breaching our covenant there and second part here is just if you decide to use that ATM going forward or are just some sort of other equity raise.

How would that impact the conversion price of the senior notes held by Q right. Thank you.

Yeah.

Yeah.

Yes. This is Charlie Thank you said Rico AR for the ATM one of the reasons that we've taken a look right now not tapping into the ATM was during this price.

More that was going on for lack of better words, we needed to establish what the new baseline was going to be as we look through to to what our cash consumption would be and also how low we could take our our cash burn from a standpoint of our cost takeout and our savings. In addition, with the new the velocity of the new <unk>.

Trains coming on it really does reset what the balance of the business was looking like we've been really fortunate.

With both are our primary debt holder, which is till ray.

But then all of our partners that we work with are about supporting us as we go through from a standpoint of.

What we would need from cash what we would need from a standpoint of working together.

To ensure that we have enough cash to run the operations and then I think most importantly is when you look at like till right Theyre not only an investor in US there also a primary customer for us too and so there's lots of ways that we can work together to address this capital needs at the ATM is clearly one of them we've had a number of <unk>.

Banks that we've that we've had discussions about for investment. So the good news is we have a number of options. The goal here was is to live within our means right now and as I said, a number of quarters ago. The goal for our operations has always been to be self sustained and so that's that's kind of still of the mindset that we have.

Right now Joyce any color you want to add.

We're continuously working with our board and internal management to evaluate all strategic financing opportunities. So whether that's the a T M. Whether that's a HELOC or other means that's always on the table and under evaluation.

Thank you I'll hop back in queue.

Okay.

Yeah.

The next question is from Aaron Grey with Alliance Global Partners. Your line is open.

Hi, good morning, and I. Thank you for the questions.

So first one for me just wanted to get some content that we think the impact might be of some of the changes that ocs is making.

And whether or not that impact might be more so for the retailers or some of it might flow through do you is that they look to reduce the margin that they're taking and then you know whether or not any of that give back Mike just flow right down to continued pricing pressure or do you think that might end up falling due to your guys' profitability as well.

That's a great question.

From a standpoint of all the boards have been really active about reaching out to us.

I don't think anybody was.

I don't think anybody was surprised with the price war in the magnitude that went on in the last five months.

The damage that can occur to the industry is significant because no one wins in a price war.

So I think one of the areas with the Ocs, taking a lower margin and resetting is clearly to help quite a bit of the retailers. There is a lot of the especially smaller independent retailers are bleeding from a standpoint of just the plethora of retailers that are on the market right now and undercutting.

One another.

I think from a standpoint of the harvest tanks on what we look at it is I can't say on the industry and the others, but we look at the discipline of the business as the business should be profitable the business should have a point of differentiation in every product line that it brings to the market and you should charge a fair value that doesn't.

Our charge the premium the highest it also means I'm not the lowest in the industry, but it should be fair our products are all priced in a good spot where we're in a fair area.

A fair price point as far as our margins go.

We've done an incredible job within the operations of getting cost out to where I feel very comfortable.

With the statement that if we're not the we're one of the lowest cost operators in the industry as such it allows you to take that volatility of when people do silliness like to get into a price war and they should be more disciplined in that.

The back side of that is if theres additional margin that comes out by the by the board by the governments, what it should allow us to take away from the illicit market because the illicit market had a fantastic growth this past year and as a result, they have plowed it in throughout the.

And it has taken away some quite a bit of the growth. So that's one of the key things that we work with and hopefully the government continues to take on is to curb this illicit market. That's a good question.

[laughter].

Okay, great no. Thanks, very much of that do you have answered that's helpful. I'll jump back in the queue.

Thank you.

Yeah.

Again as a reminder, the star one if you'd like to ask a question.

And it looks like we have no further questions at this time I'll turn it.

Back over to Charlie Bowman for any closing remarks.

Yeah.

Just wanted to say thank you to everybody in the time it was a dynamic.

Nine months that we've gone through and from a standpoint of walking us.

The opportunity to go through what our quarter. Two results are I just wanted to say, thank you and I know from time to time, we have analyst calls that are scheduled up any additional questions. They have will be more than willing to take on thank you very much and I hope everybody has a fantastic Friday.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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