8-K: Village Farms International Reports Record Q4 Sales and Improved Profitability

Village Farms International announced record consolidated sales for the fourth quarter of 2023, alongside significant improvements in adjusted EBITDA and cash flow.

Summary

• Village Farms International reported its financial results for the fourth quarter and year ended December 31, 2023, showing a 7% increase in consolidated sales to $74.2 million for the quarter.
• The company's net loss improved to ($22.5 million), or ($0.20) per share, compared to a loss of ($49.3 million), or ($0.54) per share, in the same quarter of the previous year.
• Adjusted EBITDA improved to ($0.7 million) from ($11.8 million) year-over-year, and cash used was $5.2 million compared to $1.5 million.
• The Canadian Cannabis segment saw a 15% increase in net sales to $32.0 million, with a gross margin of 23% compared to 1% in the prior year, and adjusted EBITDA of $1.5 million compared to a loss of $6.4 million.
• The U.S. Cannabis business generated $5.1 million in net sales, with a gross margin of 66% and adjusted EBITDA of $0.4 million.
• The Fresh Produce segment reported sales of $37.1 million, with a net loss of ($4.0 million) and adjusted EBITDA of ($0.6 million).
• For the full year, the company's net loss per share narrowed to ($0.29), adjusted EBITDA improved significantly to $7.6 million, and cash flow from operations improved to $5.3 million.
• The Canadian Cannabis business delivered a 20-fold increase in net income and a 10-fold increase in adjusted EBITDA for the year.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with significant improvements in key financial metrics and strategic growth initiatives. While there are still losses, the trend is clearly positive, and the company is positioning itself for future growth.

Positives

• The company achieved record consolidated sales for the fourth quarter.
• The net loss per share narrowed significantly for both the quarter and the full year.
• Adjusted EBITDA improved substantially year-over-year.
• The Canadian Cannabis segment saw significant sales growth and improved profitability.
• The company reclaimed the number two national market share position in the Canadian cannabis market.
• The U.S. Cannabis business achieved positive adjusted EBITDA and cash flow.
• The Fresh Produce business achieved positive adjusted EBITDA for the year.
• All core businesses generated positive adjusted EBITDA for the full year.
• The company is expanding into the European cannabis market with a production facility in the Netherlands and exports to the UK.
• The company is seeing improved supply conditions and pricing in the Canadian cannabis market.

Negatives

• The company still reported a net loss for the quarter and the full year.
• Consolidated cash used was $5.2 million for the quarter.
• The Fresh Produce segment reported a net loss for the quarter.
• Gross margin for the Canadian Cannabis segment was reduced by sales of non-brand-spec inventory.
• The company's consolidated adjusted EBITDA was still negative for the quarter.

Risks

• The company's results may be affected by global inflation and supply chain shortages.
• The cannabis industry is subject to regulatory risks and changes.
• The company faces competition in all of its business segments.
• The company's expansion into new markets may be subject to risks and uncertainties.
• The company is vulnerable to rising energy costs and other inflationary pressures.
• The company is subject to foreign exchange exposure and risks associated with cross-border trade.

Future Outlook

The company believes that 2024 will see new levels of performance across its businesses, with strong momentum from the back half of 2023 accelerating into the new year. Production in the Netherlands is targeted to begin later in 2024 with initial sales in early 2025.

Management Comments

• Our Canadian Cannabis business remains the undisputed leader in that market, with record sales and another quarter of positive adjusted EBITDA and cash flow in the fourth quarter, said Michael DeGiglio, President and Chief Executive Officer.
• We reclaimed the number two national market share rank across all categories and are steadily closing the gap on the top position.
• We are encouraged by early signs of a more favorable operating environment for our Canadian Cannabis segment.
• Our produce business is stable, and we are working toward sustainable profitability and cash flow.
• Our strong momentum through the back half of 2023 has accelerated in 2024, marking a great start to a year that we believe will see new levels of performance across our businesses.

Industry Context

The company's performance is set against a backdrop of a changing cannabis market, with a shift towards asset-light models by some competitors, creating opportunities for Village Farms in the wholesale channel. The company is also positioning itself to take advantage of regulatory changes in Europe and the US.

Comparison to Industry Standards

• Village Farms' Canadian cannabis business, Pure Sunfarms, is one of the largest cannabis operations globally, and is a low-cost greenhouse producer, which gives it a competitive advantage over other producers.
• The company's ability to achieve positive adjusted EBITDA in all core businesses is a positive sign compared to other cannabis companies that are still struggling with profitability.
• The company's expansion into the Netherlands is a significant move, as it is the only North American participant in the first legal recreational cannabis market in a major European country, giving it a first-mover advantage.
• The company's focus on international markets, particularly Europe, is in line with the trend of cannabis companies seeking growth opportunities outside of North America.
• The company's produce business is stable, and the company is working towards sustainable profitability and cash flow, which is a positive sign compared to other produce companies that are facing challenges.

Stakeholder Impact

• Shareholders will be encouraged by the improved financial results and the company's strategic growth initiatives.
• Employees may benefit from the company's improved financial performance and expansion into new markets.
• Customers will benefit from the company's continued focus on product quality and innovation.
• Suppliers may benefit from the company's increased sales and production.
• Creditors may be reassured by the company's improved financial performance and cash flow.

Next Steps

• The company will continue to build out its production facility in the Netherlands.
• The company will continue to expand its export program for the European medical market.
• The company will continue to advance the internalization of gummy production in the U.S. cannabis business.
• The company will continue to re-purpose its Delta 2 facility back to producing tomatoes.
• The company will continue the sale process for its Monahans greenhouse facility.
• The company will operationalize the Delta, British Columbia Renewable Natural Gas (RNG) Project.

Key Dates

Keywords

cannabis, produce, adjusted EBITDA, sales, net loss, Pure Sunfarms, CBD, international, excise duties, greenhouse