Village Farms International, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Financial amounts are in U.S. dollars unless noted. Village Farms operates produce, Canadian cannabis, U.S. CBD/cannabis products, and renewable energy businesses.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 / prior period |
|---|---|---|
| Sales | $78.077 million | $64.656 million; up 21% |
| Gross profit / margin | $15.513 million / 19.9% | $12.300 million / 19.0% |
| SG&A | $16.387 million | $17.405 million |
| Loss before tax | $2.359 million | $6.081 million |
| Net loss attributable to Village Farms shareholders | $2.852 million; $0.03 per share | $6.636 million; $0.06 per share |
| Adjusted EBITDA | $3.591 million | $0.519 million |
| Cash from operating activities | Used $0.050 million | Used $3.668 million |
| Capital expenditures | $1.876 million | $1.076 million |
At March 31, cash and cash equivalents were $26.685 million, plus $5.000 million restricted cash. Working capital was $78.177 million, compared with $79.612 million at year-end 2023. Cash, cash equivalents and restricted cash declined $3.606 million during the quarter. Long-term debt was $46.083 million and the operating line of credit had $4.000 million drawn; reported debt carrying values totaled $50.083 million including that line. The company reported compliance with credit-facility covenants at quarter-end.
Business and segment results
| Segment | Sales | Gross profit | Adjusted EBITDA |
|---|---|---|---|
| Produce | $36.094 million | $3.310 million | $2.028 million |
| Canadian cannabis | $37.446 million | $9.508 million | $4.073 million |
| U.S. cannabis/CBD | $4.537 million | $2.695 million | Loss of $0.615 million |
| Energy | No sales reported | Not reported | Loss of $0.020 million |
Canadian cannabis sales rose 49%, but gross margin declined to 25% from 34%, reflecting non-branded inventory and a greater contribution from a lower-margin brand. Canadian excise duties were $15.222 million. Produce sales increased 4%, while gross margin improved to 9% from 2% on lower greenhouse and freight costs and higher supply-partner sales. U.S. cannabis sales fell 9%; gross margin declined to 59% from 65%, amid weaker direct-to-consumer demand and product-mix changes.
Material changes, outlook and risks
- Consolidated sales increased 21%, led by Canadian cannabis growth; gross profit rose 26%. The shareholder net loss narrowed 57%, chiefly on stronger produce results and lower SG&A. Adjusted EBITDA improved, but is a company-defined non-GAAP measure.
- Operating cash use narrowed substantially year over year, although working-capital changes used $3.290 million in Q1 2024. The company spent $1.876 million on capital expenditures, including the Netherlands facility build-out.
- Management said existing cash, expected operating cash generation and available credit were expected to fund working capital, debt repayments and planned capital expenditures for the next 12 months. No quantified full-year earnings or revenue guidance was provided.
- The Delta renewable natural gas project began operations in April 2024 and management said it immediately began contributing incremental profitability. Cannabis production at the Netherlands facility is targeted to start in Q4 2024. The Texas medicinal cannabis license application remains pending; the Monahans greenhouse is under sale process, with other potential uses also being evaluated.
- Management cited competition, variable product pricing, regulation, financing needs, interest rates, inflation, foreign exchange and execution risks. The company disclosed a material weakness in internal control related to goodwill and intangible-asset valuation; remediation was underway, with implementation expected by December 31, 2024. Disclosure controls were not effective as of March 31, 2024.
- The company had received a waiver for non-compliance with one FCC financial covenant at December 31, 2023. It was compliant at March 31, 2024, but cautioned that future compliance or a waiver at the next annual test cannot be assured. The company reported no current legal proceedings it considers material.
Important facts for investors to verify
- Whether improved produce and Canadian cannabis performance continues, and whether Canadian cannabis margins recover despite excise duties and non-branded sales.
- Cash generation, working-capital needs, debt maturities and covenant compliance, particularly the FCC annual test scheduled for December 31, 2024.
- Progress and capital requirements for the Netherlands facility, Delta RNG contribution, Texas license application and Monahans sale process.
- Remediation and independent assessment of the disclosed internal-control material weakness.
- Adjusted EBITDA definitions and reconciliations, and the assumptions supporting management’s 12-month liquidity assessment and deferred tax assets.