Village Farms International Reports Financial Results for First Quarter 2023
- Canadian Cannabis Business Maintains Number Two Market Share Position Nationally, Including Number Two Position in Quebec
- Canadian Cannabis Retail Branded Sales Increase 40% Year-Over-Year, Again Significantly Outpacing Market Growth
- Canadian Cannabis Business Added Third Export Market with Launch in Germany
- Fresh Produce Business Delivered Third Consecutive Quarter of Significant Improvement
VANCOUVER, British Columbia, May 10, 2023 (GLOBE NEWSWIRE) — Village Farms International, Inc. (“Village Farms” or the “Company”) (NASDAQ: VFF) today announced its financial results for the first quarter ended March 31, 2023. All figures are in U.S. dollars unless otherwise indicated.
Management Commentary
The first quarter was a solid start to 2023 as continued strong growth in our Canadian Cannabis business and steady sequential performance in our US Cannabis business were complemented by another quarter of significantly improved results in our Fresh Produce business.
Michael DeGiglio, Chief Executive Officer, Village Farms.
“Our Canadian Cannabis business delivered 40% year-over-year growth in Retail Branded sales for the first quarter, once again significantly outpacing overall market growth, as we maintained our number two market share position nationally and were one of just three of the top 10 producers to expand market share from the same period last year1. Combined with our ongoing focus on production efficiency and cost management, we achieved our 18th consecutive quarter of positive adjusted EBITDA, with a year-over-year increase of 95%.”
“Canada continues to be an exceptionally difficult environment in which to operate a legal cannabis business profitably, most notably due to the absurd level of taxation relative to all other consumer products, including similarly regulated products like alcohol. The excessive, flat per-gram excise tax is handcuffing the very businesses that can ensure that this historical piece of Canadian legislation is a long-term success. At the same, it is enabling the illicit market to not only survive but flourish. We are disappointed that the federal government has not yet chosen to revisit cannabis taxation in the context of the economic realities of the market, while concurrently choosing to limit proposed tax increases in the already favourably taxed alcohol industry. We implore the federal government to address fair and equitable taxation for the cannabis industry to support safe, regulated product in the hands of adults, and a healthy and competitive legal market that supports profitable investment in jobs and local communities.”
“We continue to focus on, and excel in, what we can control. We are focused on leveraging our commercial, branding and innovation capabilities for additional opportunities in growing, profitable cannabis categories to continue to drive sales growth and market share gains. Importantly, higher margin, rationally taxed export sales from our Canadian Cannabis business grew more than nine-fold year-over-year as we add international markets, including the launch this week of Village Farms-grown products in Germany. We will continue to leverage and exploit our premier unmatched low-cost, high quality Canadian cannabis production, track record of success and reputation to aggressively pursue export and other international opportunities, especially in the face of the challenging Canadian market economics.”
“In our Fresh Produce business, again this quarter we achieved considerable improvement in our operations, which drove a $6.6 million turnaround in adjusted EBITDA. We are benefitting from the first steps in our multi-part plan to return this strategic and important part of our business to profitability. The much improved first quarter, helped by some macro-environment stabilization, continues to support our confidence in substantially improved financial performance from Fresh Produce for this year.”
1 Based on estimated retail sales from HiFyre, other third parties and provincial boards.
First Quarter Financial Highlights
(All comparable periods are for the first quarter of 2022 unless otherwise stated)
Consolidated
- Consolidated sales decreased 8% year-over-year to $64.7 million from $70.2 million;
- Operating loss before tax was ($6.1 million) compared with ($8.3 million);
- Consolidated net loss was ($6.6 million), or ($0.06) per share, compared with ($6.5 million), or ($0.07) per share;
- Consolidated adjusted EBITDA, a non-GAAP measure, improved to $0.5 million from negative ($6.1 million); and,
- The Pure Sunfarms revolving and non-revolving credit facilities were extended to a maturity date of February 7, 2026 under the same terms, conditions and covenants as the original facilities maturing on February 7, 2024.
Cannabis Segment
- Total Cannabis segment net sales increased 4% year-over-year to $30.1 million, representing 47% of total Village Farms’ sales;
- Total Cannabis segment net loss was ($0.5 million), compared to net income of $1.3 million; and,
- Total Cannabis segment adjusted EBITDA was $3.8 million compared with $2.7 million.
Canadian Cannabis (Pure Sunfarms and Rose LifeScience)
- Canadian Cannabis net sales increased 23% (on a constant currency basis) to a $25.1 million (C$34.0 million) from $21.8 million (C$27.6 million);
- Canadian Cannabis retail branded sales increased 40%;
- Canadian Cannabis international (export) sales increased 943%;
- Canadian Cannabis gross margin was 33%;
- Canadian Cannabis net loss was ($0.1 million) compared with net income of $1.0 million; and,
- Canadian Cannabis adjusted EBITDA increased 95% (on a constant currency basis) to $3.9 million (C$5.3 million).
U.S. Cannabis (Balanced Health Botanicals)
- U.S. Cannabis net sales were $5.0 million, with gross margin of 65.1%, net loss of ($0.4 million) and adjusted EBITDA loss of ($0.1 million).
Village Farms Fresh (Produce)
- Sales were $34.6 million compared with $41.3 million;
- Net loss was ($2.6 million) compared with a net loss of ($5.6 million); and,
- Adjusted EBITDA improved significantly to negative ($1.0 million) from negative ($6.2 million) and was the third consecutive quarter of significant sequential improvement.
Strategic Growth and Operational Highlight
Canadian Cannabis
- Remained the number two ranked cannabis producer nationally and Rose LifeScience remained the number two producer for Quebec by market share for the first quarter of 20231;
- Remained the number one ranked cannabis producer in the dried flower category in Canada; and,
- Rose LifeScience added HEXO to its commercialization and distribution portfolio for Quebec.
1 Based on estimated retail sales from HiFyre, other third parties and provincial boards.
U.S. Cannabis
- Balanced Health Botanicals again received an A-rating by NSF, a highly reputable third-party assessor of production safety standards; and,
- Village Farms filed an application for a Texas medicinal cannabis license subsequent to quarter end. The Company is encouraged by the potential to contribute its cannabis expertise, decades of investment in Texas and deep agriculture roots to any future plans by the State to award additional licenses. If awarded, the Company will work with the listing authorities with respect to an acceptable ownership structure.
International Cannabis
- Pure Sunfarms’ first shipment to Germany was successfully received by a local partner subsequent to quarter end and is now available to German medicinal patients. In addition, both Israeli and German partners have placed follow on orders.
Canadian Cannabis Performance Summary
1 Adjusted gross margin for Q1 2022 excludes C$2.6 million (US$2.1 million) positive inventory adjustment from the revaluation of inventory to fair value. Adjusted gross margin is not a recognized earnings measure and does not have a standard meaning prescribed in by GAAP.
2 SG&A for Q1 2023 includes share-based compensation of C$260,000 compared with C$464,000 for Q1 2022.
3 Adjusted EBITDA is not a recognized earnings measure and does not have a standard meaning prescribed in by GAAP.
Canadian Cannabis’ Percent of Sales by Channel
Presentation of Financial Results
The Company’s financial statements for the three months ended March 31, 2023, as well as the comparative period for 2022, have been prepared and presented under United States Generally Accepted Accounting Principals (“GAAP”).
RESULTS OF OPERATIONS
(In thousands of U.S. dollars, except per share amounts, and unless otherwise noted)
1 Adjusted EBITDA is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP. Therefore, Adjusted EBITDA may not be comparable to similar measures presented by other issuers. Management believes that Adjusted EBITDA is a useful supplemental measure in evaluating the performance of the Company because it excludes non-recuring and other items that do not reflect our business performance. Adjusted EBITDA includes the Company’s 70% interest in Rose LifeScience since acquisition.
We caution that our results of operations for the three months ended March 31, 2023 and 2022 may not be indicative of our future performance, particularly in light of global inflation and lingering supply-chain shortages due to the Ukrainian conflict.
SEGMENTED RESULTS OF OPERATIONS
(In thousands of U.S. dollars, except per share amounts, and unless otherwise noted)
1 Adjusted EBITDA is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP. Therefore, Adjusted EBITDA may not be comparable to similar measures presented by other issuers. Management believes that Adjusted EBITDA is a useful supplemental measure in evaluating the performance of the Company because it excludes non-recuring and other items that do not reflect our business performance. Adjusted EBITDA includes the Company’s 70% interest in Rose LifeScience.
A detailed discussion of our consolidated and segment results can be found in the 10Q MD&A on the Village Farms website under Financial Reports (https://villagefarms.com/financial-reports/) within the Investors section.
Reconciliation of Net Income to Adjusted EBITDA
The following tables reflects a reconciliation of net income to Adjusted EBITDA, as presented by the Company:
1 The purchase price adjustment reflects the (C$2,594) US$2,050 positive inventory adjustment from the revaluation of inventory to fair value at the acquisition date of November 2, 2020.
2 Adjusted EBITDA is not a recognized earnings measure and does not have a standardized meaning prescribed by GAAP. Therefore, Adjusted EBITDA may not be comparable to similar measures presented by other issuers. Management believes that Adjusted EBITDA is a useful supplemental measure in evaluating the performance of the Company because it excludes non-recurring and other items that do not reflect our business performance. Adjusted EBITDA includes the 70% interest in Rose LifeScience since acquisition and 65% interest in VFH.
This press release is intended to be read in conjunction with the Company’s Consolidated Financial Statements (“Financial Statements”) and Management’s Discussion & Analysis (“MD&A”) for the three months ended March 31, 2023 in the Company Form 10-Q, which will be filed on (www.sec.gov/edgar.shtml) and SEDAR (www.sedar.com) and will be available at www.villagefarms.com.
Conference Call
Village Farms’ management team will host a conference call to discuss its first quarter financial results today, Wednesday May 10, 2023, at 8:30 a.m. ET. Participants can access the conference call via a webcast at Village Farms First Quarter 2023 Conference Call Webcast or on the Company website at Village Farms – Events. Participants wanting to access the conference call by telephone must register in advance at Village Farms First Quarter 2023 Conference Call to receive telephone dial-in information.
The live question and answer session will be limited to analysts, however others are invited to submit their questions ahead of the conference call via email at investorrelations@villagefarms.com. Management will address questions received via email as part of the conference call question and answer session as time permits.
Conference Call Archive Access Information
For those unable to participate in the conference call at the scheduled time, it will be archived for replay beginning approximately one hour following completion of the call on Village Farms’ web site at http://villagefarms.com/investor-relations/investor-calls.
About Village Farms International
Village Farms leverages decades of experience as a large-scale, Controlled Environment Agriculture-based, vertically integrated supplier for high-value, high-growth plant-based Consumer Packaged Goods opportunities, with a strong foundation as a leading fresh produce supplier to grocery and large-format retailers throughout the US and Canada, and new high-growth opportunities in the cannabis and CBD categories in North America and selected markets internationally.
In Canada, the Company’s wholly-owned Canadian subsidiary, Pure Sunfarms, is one of the single largest cannabis operations in the world, the lowest-cost greenhouse producer and one of Canada’s best-selling brands. The Company also owns 70% of Québec-based Rose LifeScience, a leading third-party cannabis products commercialization expert in the Province of Québec.
In the US, wholly-owned Balanced Health Botanicals is one of the leading CBD brands and e-commerce platforms in the country. Subject to compliance with all applicable US federal and state laws and stock exchange rules, Village Farms plans to enter the US high-THC cannabis market via multiple strategies, leveraging one of the largest greenhouse operations in the country (more than 5.5 million square feet in West Texas), as well as the operational and product expertise gained through Pure Sunfarms’ cannabis success in Canada.
Internationally, Village Farms is targeting selected, nascent, legal cannabis and CBD opportunities with significant medium- and long-term potential, with an initial focus on the Asia-Pacific region and Europe.
