Village Farms International, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unless otherwise noted, amounts are U.S. dollars in thousands. The company operates produce, Canadian cannabis, U.S. CBD/cannabis, and energy businesses.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Sales | $69,510 | $71,056 | $211,378 | $224,115 |
| Gross margin | $14,621 | $8,374 | $38,420 | $24,601 |
| Gross margin percentage | 21.0% | 11.8% | 18.2% | 11.0% |
| SG&A | $15,822 | $17,794 | $49,980 | $54,245 |
| Net loss attributable to shareholders | $(1,299) | $(8,745) | $(9,315) | $(51,817) |
| Adjusted EBITDA, non-GAAP | $3,248 | $(2,233) | $8,243 | $(20,642) |
- Q3 sales declined 2% year over year, while gross margin increased 75%. Nine-month sales declined 6%, while gross margin rose 56%.
- Q3 improvement reflected stronger produce results and lower costs and SG&A. The nine-month net-loss comparison also benefited from the absence of $29.8 million in 2022 impairments and a $5.6 million vendor settlement in 2023 related to ToBRFV losses.
- Nine-month segment sales: Produce $114.1 million, Canadian Cannabis $82.0 million, and U.S. Cannabis $15.3 million. Produce gross margin remained slightly negative for the nine-month period at $(0.7) million, but improved substantially from 2022. Canadian Cannabis generated $3.9 million net income; U.S. Cannabis reported a $0.1 million net loss.
Cash, liquidity, debt, and capital
- Cash, cash equivalents, and restricted cash totaled $40.5 million at September 30, 2023, including $5.0 million of restricted cash. Working capital was $84.3 million.
- Nine-month operating cash flow was $6.8 million, versus cash used of $13.2 million in 2022. Investing used $3.5 million; financing provided $15.6 million. Capital expenditures were $4.4 million.
- Long-term debt was $49.1 million and the operating line of credit had $4.0 million drawn. Debt carried material variable-rate exposure; the filing reports a 9.2% weighted-average rate on term loans. The company said it complied with credit-facility covenants at quarter end, but noted the FCC covenant’s next annual test was December 31, 2023 and compliance could not be assured.
- January 2023 offering of 18.35 million shares and accompanying warrants generated approximately $23.3 million net proceeds. Shares outstanding increased from 91.8 million at December 31, 2022 to 110.2 million at September 30, 2023. The company reported no ATM share sales during the first nine months.
Developments, outlook, and risks
- Management said existing cash, operating cash generation, available credit, and potential ATM availability were expected to support working capital, debt payments, contractual obligations, and planned capital expenditures for the next 12 months; additional financing may also be pursued. This is forward-looking and not a guarantee.
- The company began a sale process for its Monahans, Texas greenhouse and expected initial indications of interest in Q4 2023. It also began converting half of its Delta 2 facility back to tomato production for 2024.
- The Delta renewable natural gas project was in final commercialization stages. Management described a 20-year City of Vancouver contract commencing in Q4 2023, with a five-year extension option; the partner is to sell RNG and the company is to receive a royalty.
- Canadian Cannabis maintained a top-three overall market-share position and number-two position in dried flower, according to third-party sources cited by the company. Nine-month international sales rose to $3.8 million, while Canadian excise taxes reached $41.7 million and remained a significant cost.
- Material risks include the uncertain U.S. regulatory framework for CBD and cannabis, product-price and demand pressure, agricultural and ToBRFV risks, inflation and energy costs, variable interest rates, foreign exchange, financing needs, and Nasdaq listing compliance. Nasdaq extended the minimum-bid-price compliance deadline to April 15, 2024; delisting remains possible if compliance is not regained.
- Disclosure controls were deemed ineffective at September 30, 2023 due to a previously identified material weakness in controls over goodwill and intangible-asset recoverable-value calculations. Remediation was underway, with completion expected by December 31, 2023. No material legal proceedings were identified.
Most important facts to verify
- Whether operating cash flow and liquidity remain sufficient, considering debt maturities and the FCC covenant test.
- Whether the Monahans sale proceeds, Delta 2 conversion, and RNG project proceed on the stated timetable and economics.
- Whether produce margins sustain improvement and whether ToBRFV-related losses recur.
- Whether Canadian cannabis pricing, excise-tax burden, and international sales support margins; and whether U.S. CBD sales stabilize amid regulatory uncertainty.
- Whether the company completes control remediation and regains Nasdaq minimum-bid-price compliance by April 15, 2024.
- Adjusted EBITDA is a company-defined non-GAAP measure and is not directly comparable across issuers; assess it alongside GAAP losses and cash flow.