The Valens Company Reports Financial Results for the Second Quarter of Fiscal 2020

Published: July 20, 2020

The Valens Company Reports Financial Results for the Second Quarter of Fiscal 2020

The Valens Company Inc., a global innovator in the end-to-end development and manufacturing of innovative, cannabinoid-based products, is pleased to report its second quarter financial results for the period ended May 31, 2020.

Key Financial Highlights of the Second Quarter of 2020

  • Revenue for the second quarter of 2020 was $17.6 million, a 100.3% increase from $8.8 million in the second quarter of 2019.
  • Gross profit increased to $6.3 million, or 35.8% of revenue, for the three months ended May 31, 2020, compared to $5.1 million, or 57.9% of revenue in the same period in fiscal 2019.
  • Adjusted EBITDA(1) was $2.7 million, or 15.3% of revenue, for the second quarter of 2020, compared to $2.0 million, or 23.0% of revenue, in the second quarter of 2019.
  • Strong balance sheet with $45.1 million in cash and short-term investments and a net working capital position of $90.5 million as of May 31, 2020.

Corporate Highlights

  • The common shares and certain warrants of The Valens Company were uplisted to the Toronto Stock Exchange under the trading symbols “VLNS” and “VLNS.WT” on April 16, 2020, at which time they were delisted from the TSX Venture Exchange.
  • The Company repurchased and cancelled 43,600 common shares (“Shares”) through its normal course issuer bid (“NCIB”) during the second quarter of 2020 at prices ranging from $2.24 – $2.25 per share. The Company continues to believe its share price is undervalued as compared to its industry peer group and the Company may further use the NCIB to repurchase additional Shares in the coming quarters.
  • On May 29, 2020, the Company entered into a syndicated credit facility (the “Credit Facility”) with Canadian Imperial Bank of Commerce (“CIBC”) as Co-Lead Arranger and Administrative Agent, and ATB Financial (“ATB”) as Co-Lead Arranger (together, the “Lenders”). Under the terms of the credit facility, the Lenders have agreed to provide The Valens Company up to C$40 million of secured debt financing, of which C$20 million was drawn at May 31, 2020.
  • Subsequent to the quarter end, the Company completed its name change to ‘The Valens Company Inc.,’ to further signal its position as a global leader in the end-to-end development and manufacturing of cannabinoid-based products and better reflect the strategic vision of the business.

“Although the slowdown across the cannabis industry during the second quarter led to a decrease in toll extraction revenue and bulk winterized and distillate product oil sales, we are pleased to see revenue from our custom manufacturing, white label, and co-packing agreements grow quarter over quarter. Our increasing number of agreements in these segments is expected to drive revenue in the second half of fiscal 2020 as we bring on more partners who recognize the value in our bespoke manufacturing capabilities,” said Tyler Robson, CEO of The Valens Company. ”

“As we see increased demand from provincial suppliers with the expansion of our customers’ cannabis 2.0 product lines, we continue to create, manufacture, and distribute new and innovative product formats. This includes our recent internal record of launching a new product in only 44 days. In the second quarter, we shifted our focus to extracting Valens-owned cannabis and hemp biomass, processing over 30,000 kilograms to prepare for anticipated inventory requirements for 2.0 product offerings. We plan to continue to leverage attractive biomass pricing to increase margins in our custom manufacturing and white label segments going into 2021. Moving through the second half of fiscal 2020, we remain focused on demonstrating the value of Valens’ platform as it integrates into the supply chain of leading companies looking to bring customized, innovative products to Canadian consumers.”

Key Operating Highlights

  • The Valens Company manufactured a record of 36 SKUs in the second quarter of 2020, compared to 9 SKUs in the first quarter of 2020.
  • The Valens Company launched a line of cannabis-infused beverages, produced under a white label agreement with A1 Cannabis Company (a subsidiary of Iconic Brewing) in Canada.
  • The Valens Company produced and bottled 30,000 bottles (1,300 litres) of hand sanitizer liquid at its Kelowna facility to help combat the COVID-19 pandemic.
  • The Valens Company signed a distribution agreement with Cannvalate Pty Ltd. (“Cannvalate”), Australia’s largest medicinal cannabis distributor and clinical research organization. The partnership provides the Company the platform to establish initial operations, pursue required licensing, and bring Valens’ high quality, innovative, oil-based products to a growing medical patient base and broader consumer categories as the Australian market evolves. The Company is expected to initially monetize the agreement with Cannvalate through shipments of a broad range of products from its facility in Canada to Australia.
  • Subsequent to the end of the quarter:
    • The Company entered a partnership with TREC Brands Inc. to manufacture vape pens across three existing TREC brands; Thumbs Up Brand, WINK, and Blissed, with the potential to later produce other innovative products. The TREC agreement follows a royalty-based payment structure.
    • The Company entered an initial five-year manufacturing and distribution agreement with Verse Cannabis to launch the largest, premium concentrate offering in Canada, including a range of high-quality products, such as vapes, oils, crumble, live resin vape pens and water-based products leveraging SōRSE by Valens emulsion technology. The Verse agreement follows a royalty-based payment structure.
    • The Company launched a premium, disposable vape line, “Made By,” in partnership with BRNT Ltd. (“BRNT”). The Company also announced a strategic amendment to its existing royalty-based custom manufacturing agreement with BRNT, including a partnership on a new product line of 510 thread vape cartridges.
    • The Company entered an initial two-year royalty-based agreement with High 12 Brands (“High 12”) to develop and manufacture a premium line of vape products under the DAIZE brand portfolio. The DAIZE brand of vape products will offer experienced consumers unique and potent formulations with premium cannabis oil made from a curated selection of sought-after cannabis strains. The High 12 agreement follows a royalty-based payment structure.
    • The Company entered into a two-year royalty-based agreement with FPS Brands Inc. (“FPS Brands”) to develop and manufacture a craft line of hemp-derived CBD products under the ufeelu portfolio. The initial product offering will include cannabis oils, vapes and tinctures. The FPS Brands agreement follows a royalty-based payment structure.

Jeff Fallows, President of The Valens Company, said, “The COVID-19 pandemic has presented significant challenges  with many of our customers experiencing reduced workforces, decreases in cultivation output, and a resulting reduction in demand for extraction services, which we expect to continue into the third fiscal quarter. However, the flexibility of our platform and diverse customer base has helped us navigate these challenges. Since the end of the quarter, we have experienced positive momentum from securing several custom manufacturing partnerships to launch a breadth of new products and showcase more of our product development capabilities. These new contracts give us more visibility into future earnings growth in our custom manufacturing and white label segment which we anticipate will ramp up in the second half of fiscal 2020. We have the most advanced 2.0 platform to manufacture differentiated products, which is demonstrated by the growth and diversity of our product development pipeline, making us a one-stop shop for our customers.”

The following table of financial highlights is presented in thousands of Canadian dollars, except per share, biomass extracted and number of SKUs manufactured amounts.

Three-months
ended May 31,
2020; Q2 2020

Three-months
ended
February 29,
2020; Q1 2020

Three-months
ended November
30, 2019; Q4

2019

Three-months
ended August
31, 2019; Q3
2019

Three-months
ended May 31,
2019; Q2

2019

Revenue $

17,627

31,980

30,624

16,462

8,800

Gross Profit $

6,318

18,086

22,594

12,807

5,099

Gross Profit %

35.8%

56.6%

73.8%

77.8%

57.9%

Adjusted EBITDA $ (1)

2,699

14,282

17,669

9,772

2,023

Adjusted EBITDA % (1)

15.3%

44.7%

57.7%

59.4%

23.0%

Net income (loss) $

(3,528)

2,543

4,466

5,893

(10,530)

Net income (loss) %

N/A

8.0%

14.6%

35.8%

N/A

Basic / diluted income (loss) per share $

(0.03)

0.02

0.04

0.05

(0.10)

Biomass extracted (Kilograms)

30,059

19,962

24,426

26,625

8,547

Number of SKUs manufactured

36

9

6

2

(1)

Adjusted EBITDA is a non-GAAP measure used by management that does not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies.  Management defines adjusted EBITDA as income (loss) and comprehensive income (loss) from operations, as reported, before interest, tax, depreciation and amortization, and adjusted for removing share-based payments, unrealized gains and losses from short term investments and other one-time and non-cash items including impairment losses.  Management believes adjusted EBITDA is a useful financial metric to assess its operating performance on an adjusted basis as described above. See reconciliation of “Adjusted EBITDA (non-GAAP measure)” in the Company’s Management’s Discussion and Analysis for the period ended May 31, 2020 for additional information.

The management’s discussion and analysis for the period and the accompanying financial statements and notes are available under the Company’s profile on SEDAR at www.sedar.com

The Valens Company’s investor deck can be found specifically at http://thevalenscompany.com/investors/.