Village Farms International Reports First Quarter 2022 Financial Results

Published: May 11, 2022

Village Farms International Reports First Quarter 2022 Financial Results

Village Farms International, Inc.announced its financial results for the first quarter ended March 31, 2022.  All figures are in U.S. dollars unless otherwise indicated.

“The first quarter of 2022 once again demonstrated the strength and earnings power of both our Canadian and U.S. Cannabis businesses,” said Michael DeGiglio, Chief Executive Officer, Village Farms International.  “In what is a typically soft season for retail sales in Canada, both Pure Sunfarms and Rose gained share in their respective focus markets, and delivered a 14th consecutive quarter of positive adjusted EBITDA for Canadian Cannabis.  Pure Sunfarms’ products continue to resonate with consumers, as our continued focus on quality, innovation and new product launches strengthen what has become one of the most respected and trusted brands in the Canadian market..”

“Our U.S. Cannabis segment delivered a solid performance, highlighted by a strong gross margin and positive adjusted EBITDA contribution. The integration of Balanced Health into the Village Farms family is progressing very well and confirms our belief in both the potential within the existing cannabinoid business and the significant near- and long-term opportunities in both the low-THC and high-THC product categories.”

First Quarter Financial Highlights
(All comparable periods are for First Quarter, 2021)

Consolidated

  • Consolidated sales increased 34% year-over-year to $70.2 million from $52.4 million;
  • Consolidated net loss was ($6.5 million), or ($0.07) per share, compared with ($7.4 million), or ($0.10) per share; and,
  • Consolidated adjusted EBITDA was negative ($6.1 million) compared with positive adjusted EBITDA of $0.4 million.

Cannabis
  • Total Cannabis segment net sales increased 65% year-over-year to $28.8 million, representing 41% of total Village Farms sales; and,
  • Total Cannabis segment adjusted EBITDA increased 9% year-over-year to $2.7 million.


Canadian Cannabis (Pure Sunfarms and Rose LifeScience) Financial Summary for the Three Months Ended March 31, 2022 and March 31, 2021

  • Canadian Cannabis net sales increased 25% year-over-growth with a gross margin of 34% (within the Company’s stated target range) and adjusted EBITDA of $2.1 million (C$2.7 million).

Canadian Cannabis Performance Summary

(millions except % metrics)

Three Months Ended March 31,

2022

2021

Change of C$

C$

US$

C$

US$

Total Gross Sales

$40.7

$32.1

$30.8

$24.3

+32%

Total Net Sales

$27.6

$21.8

$22.1

$17.5

+25%

Total Cost of Sales 1

$18.1

$14.3

$15.8

$12.5

+15%

Gross Margin 1

$9.5

$7.5

$6.3

$5.0

+50%

Gross Margin % 1

34%

34%

29%

29%

+17%

SG&A

$8.8

$6.9

$5.0

$4.0

-75%

Share-based compensation

$0.5

$0.4

$1.4

$1.1

+67%

Net income (loss) 

$1.3

$1.0

($3.6)

($2.8)

+135%

Adjusted EBITDA 2

$2.7

$2.1

$3.1

$2.5

-15%

Adjusted EBITDA Margin 2

10%

10%

14%

14%

-29%

  1. Total cost of sales and gross margin for Q1 2022 excludes the (C$2,594) US$2,050 positive inventory adjustment and Q1 2021 excludes the C$3,493 (US$2,778) inventory adjustment charge 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 standard meaning prescribed in by GAAP. See “Non-GAAP Measures” below.
Canadian Cannabis’ Percent of Sales by Product Group 1

Three months ended
March 31,

Channel

2022

2021

Retail, Flower

67%

71%

Retail, Derivatives

8%

13%

Wholesale, Flower and Trim

25%

16%

   1. Excludes Rose LifeScience commission-based revenue.


Strategic Growth and Operational Highlights
  • Pure Sunfarms received EU GMP certification for its 1.1 million square foot Delta 3 cannabis production facility, permitting Pure Sunfarms to export EU GMP-certified medical cannabis to importers and distributors in international markets that require EU GMP certification;
  • Pure Sunfarms launched 29 new SKUs across four product categories and remained the top-selling brand of dried flower products in key markets of OntarioAlberta and British Columbia*;
  • Based on third-party data, it is estimated Rose LifeScience is a top-three Licensed Producer in Quebec; and,
  • The integrations of Balanced Health Botanicals (acquired in the third quarter of 2021) and Rose LifeScience (acquired in the fourth quarter of 2021) are proceeding well. Each company expanded its product offerings in the first quarter of 2022:
    • Balanced Health’s brand, CBDistillery, launched its hemp extract in more than 1,000 Pet Smart stores in the U.S. through its partnership with leading pet supplement brand, Zesty Paws; and,
    • Rose launched 14 new cannabis SKUs and shipments of own brands increased 85% compared to the fourth quarter of 2021.

*Based on OCS market data for the quarter ended March 31, 2022 and sales information provided by Buddi retail store data from over 300 retailers across Alberta and British Columbia as of March 31, 2022.


Presentation of Financial Results
The Company’s financial statements for the three months ended March 31, 2022, as well as the comparative periods for 2021, have been prepared and presented under United States Generally Accepted Accounting Principals (“GAAP”). Balanced Health was acquired on August 16, 2021 and their results are presented in the operations of our consolidated wholly-owned subsidiaries for the three months ended March 31, 2022. The Company acquired 70% of Rose LifeScience on November 15, 2021 and their results are presented in the operations of our consolidated wholly-owned subsidiaries and the minority interest is presented in Net Income (Loss) Attributable to Non-controlling Interests, Net of Tax for the three months ended March 31, 2022.

RESULTS OF OPERATIONS
(In thousands of U.S. dollars, except per share amounts, and unless otherwise noted)

Consolidated Financial Performance

For the three months ended March 31,

2022 (3)

2021 (3)

Sales

$

70,156

$

52,396

Cost of sales

(60,252)

(50,089)

Gross margin

9,904

2,307

Selling, general and administrative expenses

(16,971)

(8,092)

Share-based compensation

(964)

(1,998)

Interest expense

(683)

(741)

Interest income

110

3

Foreign exchange gain (loss)

319

(504)

Other expense, net

(8)

(69)

Gain on disposal of assets

Recovery of income taxes

1,666

1,839

Loss from consolidated entities

(6,627)

(7,255)

Less: net loss attributable to non-controlling interests, net of tax

162

Loss from equity method investments

(52)

(127)

Net loss attributable to Village Farms International Inc.

$

(6,517)

$

(7,382)

Adjusted EBITDA (4)

$

(6,111)

$

404

Basic loss per share

$

(0.07)

$

(0.10)

Diluted loss per share

$

(0.07)

$

(0.10)

3. For the three months ended March 31, 2022, Balanced Health’s financial results are fully consolidated in the financial results of the Company. For the three months ended March 31, 2022, Village Farms’ share of Rose LifeScience’s financial results are fully consolidated in the financial results of the Company with the minority non-controlling interest presented in net loss attributable to non-controlling interests, net of tax.

4. 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 Company’s 70% interest in Rose LifeScience since acquisition and 65% interest in VFH.

We caution that our results of operations for the three months ended March 31, 2022 and 2021 may not be indicative of our future performance, particularly in light of the ongoing COVID-19 pandemic. We are currently unable to assess the ultimate impact of the COVID-19 pandemic on our business and our results of operations for future periods.

Discussion of Financial Results

SEGMENTED RESULTS OF OPERATIONS

(In thousands of U.S. dollars, except per share amounts, and unless otherwise noted)

For the Three Months Ended March 31, 2022

VF Fresh
(Produce)

Cannabis-
Canada
 (5)

Cannabis-
U.S.
 (5)

Clean
Energy

Corporate

Total

Sales

$

41,349

$

21,769

$

7,043

$

(5)

$

$

70,156

Cost of sales

(45,520)

(12,259)

(2,331)

(142)

(60,252)

Selling, general and administrative expenses

(3,140)

(6,933)

(4,296)

(32)

(2,570)

(16,971)

Share-based compensation

(367)

(95)

(502)

(964)

Other (expense) income, net

(30)

(746)

(6)

520

(262)

Recovery of (provision for) income taxes

1,715

(639)

590

1,666

(Loss) income from consolidated entities

(5,626)

825

321

(185)

(1,962)

(6,627)

Less: net loss attributable to non-controlling interests, net of tax

162

162

Loss from equity method investments

(52)

(52)

Net (loss) income

(5,626)

987

269

(185)

(1,962)

(6,517)

Adjusted EBITDA (6)

$

(6,201)

$

2,104

$

580

$

(59)

$

(2,535)

$

(6,111)

Basic (loss) income per share

$

(0.06)

$

0.01

$

0.00

$

(0.00)

$

(0.02)

$

(0.07)

Diluted (loss) income per share

$

(0.06)

$

0.01

$

0.00

$

(0.00)

$

(0.02)

$

(0.07)

For the Three Months Ended March 31, 2021

VF Fresh
(Produce)

Cannabis-
Canada
 (5)

Cannabis-
U.S.
 (5)

Clean
Energy

Corporate

Total

Sales

$

34,867

$

17,460

$

$

69

$

$

52,396

Cost of sales

(34,150)

(15,248)

(691)

(50,089)

Selling, general and administrative expenses

(2,551)

(3,966)

(32)

(1,543)

(8,092)

Share-based compensation

(1,094)

(904)

(1,998)

Other expense, net

(256)

(630)

(12)

(413)

(1,311)

Recovery of income taxes

505

644

690

1,839

Loss from consolidated entities

(1,585)

(2,834)

(666)

(2,170)

(7,255)

Less: net loss attributable to non-controlling interests, net of tax

Loss from equity method investments

(127)

(127)

Net loss

(1,585)

(2,834)

(127)

(666)

(2,170)

(7,382)

Adjusted EBITDA (6)

$

(492)

$

2,534

$

(79)

$

(16)

$

(1,543)

$

404

Basic loss per share

$

(0.02)

$

(0.04)

$

(0.00)

$

(0.01)

$

(0.03)

$

(0.10)

Diluted loss per share

$

(0.02)

$

(0.04)

$

(0.00)

$

(0.01)

$

(0.03)

$

(0.10)

5. For the three months ended March 31, 2022, Balanced Health’s financial results are fully consolidated in the financial results of the Company. For the three months ended March 31, 2022, Village Farms’ share of Rose LifeScience’s financial results are fully consolidated in the financial results of the Company with the minority non-controlling interest presented in net loss attributable to non-controlling interests, net of tax.

6. 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 Company’s 70% interest in Rose LifeScience since acquisition and 65% interest in VFH.

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 table reflects a reconciliation of net income to Adjusted EBITDA, as presented by the Company:

For the three months ended March 31,

(in thousands of U.S. dollars)

2022 (9)

2021 (9)

Net loss

$

(6,517)

$

(7,382)

Add:

    Amortization

2,702

3,412

    Foreign currency exchange (gain) loss

(319)

504

    Interest expense, net

573

738

    Recovery of income taxes

(1,666)

(1,839)

    Share-based compensation

964

1,998

    Interest expense for JVs

13

14

    Amortization for JVs

94

34

    Foreign currency exchange loss for JVs

29

    Purchase price adjustment (10)

(2,050)

2,925

    Amortization of deferred financing

66

Adjusted EBITDA (11)

$

(6,111)

$

404

Adjusted EBITDA for JVs (12)

$

(25)

$

(79)

Adjusted EBITDA excluding JVs

$

(6,086)

$

483

9. For the three months ended March 31, 2022 and March 31, 2021, Pure Sunfarms is fully consolidated in the financial results of the Company. For the period January 1, 2022 to March 31, 2022, Balanced Health is fully consolidated in the financial results of the Company. For the period January 1, 2022 to March 31, 2022, Village Farms’ share of Rose LifeScience’s financial results are fully consolidated in the financial results of the Company.

10. The purchase price adjustment reflects the non-cash accounting charge to cost of sales resulting from the revaluation of Pure Sunfarms’ inventory to fair value at the acquisition date.

11. 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.

12. The Adjusted EBITDA for JVs consists of the VF Hemp Adjusted EBITDA for the three months ended March 31, 2022 and 2021.

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 and year ended March 31, 2022 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.

Our Response to the Ongoing Coronavirus Pandemic
In March 2020, the World Health Organization declared the outbreak of the COVID-19 virus a global pandemic. This outbreak continues to cause major disruptions to businesses and markets worldwide as the virus continues to spread. Several countries as well as certain states and cities within the United States and Canada have enacted temporary closures of businesses, issued quarantine or shelter-in-place orders and taken other restrictive measures. In response to the COVID-19 pandemic, the Company implemented safety protocols and procedures to protect its employees, its subcontractors, and its customers. These protocols take into consideration guidance from state and local government agencies as well as the Centers for Disease Control and Prevention and other public health authorities.

As of May 9, 2022, all of the Company’s operations are operating normally, however, the extent to which COVID-19 and the related global economic crisis affect the Company’s business, results of operations and financial condition, will depend on future developments that are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and any recovery period, future actions taken by governmental authorities, central banks and other third parties (including new financial regulation and other regulatory reform) in response to the pandemic, and the effects on our produce, clients, vendors and employees. Village Farms continues to service its customers amid uncertainty and disruption linked to COVID-19 and is actively managing its business to respond to the impact.

About Village Farms International, Inc.
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.

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