Valens GroWorks Corp., a global innovator in the end-to-end development and manufacturing of innovative, cannabinoid-based products, is pleased to report its financial results for its fourth quarter and fiscal year ended November 30, 2019.
Key Financial Highlights of the Fourth Quarter and Fiscal Year 2019
- Revenue increased to $58.1 million for the fiscal year 2019. For the fourth quarter of 2019 revenue increased to $30.6 million, an 86.0% increase over the third quarter and above the high-end of the guidance range announced on December 16, 2019.
- Revenue of $1.25 per gram of input in the fourth quarter of 2019, compared to $0.61 per gram of input in the third quarter of 2019.
- Gross profit increased to $41.4 million, or 71.2% of revenue for the fiscal year 2019. For the fourth quarter of 2019, gross profit increased to $22.6 million, or 73.8% of revenue, compared to $12.8 million, or 77.8% of revenue for the third quarter of 2019.
- Adjusted EBITDA(1) was $27.4 million for the fiscal year 2019. For the fourth quarter of 2019, adjusted EBITDA was $17.7 million, or 57.7% of revenue, compared to adjusted EBITDA of $9.8 million, or 59.4% of revenue, in the third quarter.
- Strong balance sheet with $58.7 million in cash and short-term investments and a net working capital position of $88.2 million as at November 30, 2019.
“In Fiscal 2019 we added significant scale to our operations and became the largest white label product development, manufacturing and third-party extraction company in Canada,” said Tyler Robson, CEO of Valens. “Our multi-year extraction contracts with industry leading players positioned us as the partner of choice in the industry and drove significant revenue, gross profit and adjusted EBITDA growth. In the second half of 2019, we broadened our offering to include white label product development and we now produce a broad portfolio of safe, consistent and innovative products to help our partners build brands and differentiate themselves in the market. These white label product development initiatives contributed to record revenues in the fourth quarter of 2019 as new and existing customers pushed to roll out Cannabis 2.0 oil-based products into the market. Our margins in the fourth quarter also remained strong and were only slightly lower than our Q3 results. However, we do expect this type of margin contraction to continue in the coming quarters as we build out our infrastructure and execute on our strategic shift towards becoming a next generation product company which offers increased opportunity and greater EBITDA per input gram but a more conservative margin profile. This strategic shift is now well underway and our white label contracts now outnumber our extraction contracts, and include top-tier names such as BRNT, Shoppers Drug Mart and Iconic Brewing.”
Key Operating Highlights of the Fourth Quarter and Fiscal Year 2019
- 61,394 kilograms of dried cannabis and hemp biomass was processed in fiscal 2019, of which 24,426 kilograms of dried cannabis and hemp biomass was processed in the fourth quarter of 2019. During the second half of 2019, Valens worked with a number of its clients to process white label products in preparation for the launch of edibles and concentrates for Cannabis 2.0. As a result, revenue-per-gram of input increased to $1.25/gram in the fourth quarter of 2019, compared to $0.61/gram in the third quarter of 2019. Revenue-per-gram is expected to increase throughout 2020 as product development contracts continue to grow in number, and revenue from extraction contracts contributes to a lesser proportion of total revenue.
- Subsequent to the year end, the Company began formulating and manufacturing 19 SKUs across 3 different product lines and expects this to grow rapidly throughout 2020 to meet demand from its customers for Cannabis 2.0 products, including vape pens, edibles, concentrates, cannabis-infused beverages, topicals, tinctures, and capsules.
- In the fourth quarter, Valens signed a multi-year white label agreement with BRNT Ltd, a leading, premium, cannabis ancillary company, to launch a line of unique cannabis vape pens in Canada. Under the terms of the agreement, Valens will provide high-quality cannabis extracts, filling services and national distribution of a line of custom-formulated BRNT-branded vape pens.
- In the fourth quarter, Valens acquired Pommies Cider Co., a leading Ontario-based beverage company and mature micro-processing license applicant for total consideration of C$7.6 million, subject to achieving certain milestones. The acquisition accelerates Valens’ commercial-scale entry into the high-growth beverages and edibles market in Canada.
- In the fourth quarter, the Company signed an agreement to become the first third party processor to supply Medical Cannabis by Shoppers, the online medical cannabis eCommerce site of Shoppers Drug Mart with cannabis oil products.
- In the fourth quarter, the Company signed its first beverage agreement with Iconic Brewing to manufacture 2.5 million cannabis beverages over the term of the 5-year agreement. The Company continues to be engaged in active discussions with additional partners to provide extraction services and expand our existing relationships to add further value-added product development and white label services.
- Subsequent to the year end, the Company entered an amended manufacturing and sales licence agreement with SōRSE Technology Corporation (“SōRSE”) which grants Valens an exclusive licence to use the proprietary SōRSE emulsion technology to produce, market, package, sell and distribute cannabis infused products in Canada, the United Kingdom, Europe, Australia and Mexico.
- Subsequent to the year end, the Company also announced receipt of its first international purchase orders of white label products to customers in Australia. Based on the purchase orders received, the initial shipments will consist of three SKUs of tinctures, totaling over 3,000 units, and are expected to be shipped in Q2, pending receipt of necessary import and export permits.
Jeff Fallows, President of Valens, said, “As expected, our shift to smaller processing lots to facilitate a broad entry of Cannabis 2.0 products by our customers resulted in stable processing volumes in the quarter and a corresponding increase in our revenue per gram of input. The rapid growth we experienced in the fourth quarter resulted in an increase in our receivables and as at November 30, 2019 we had $34.4 million of trade receivables outstanding. However, despite operating with an elevated working capital position for a brief period of time, the Company has subsequently collected or has trade payables outstanding with the same customers representing 81% of the trade receivables balance. In short, we continue to enjoy a strong working relationship with our customers and the strength of our balance sheet continues to provide us with the flexibility to drive growth both organically and through acquisitions in domestic and international markets. In February 2020, we achieved a milestone when we announced purchase orders for our first international shipments of white label products to customers in Australia. We are now at an inflection point and expect our operations to gain momentum as we execute on existing contracts and secure new ones at this pivotal time in the market’s evolution.”