Village Farms International, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Unaudited consolidated results are presented in U.S. dollars. The company operates produce, Canadian cannabis, U.S. CBD/cannabis, and clean-energy businesses.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Sales | $64.7 million | $70.2 million; down 8% |
| Gross margin | $12.3 million; 19% of sales | $9.9 million; 14% of sales |
| Net loss attributable to Village Farms | $6.6 million; $0.06 per share | $6.5 million; $0.07 per share |
| Adjusted EBITDA | $0.5 million | Loss of $6.1 million |
| Operating cash flow | Use of $3.7 million | Use of $9.6 million |
| Investing cash flow | Use of $1.1 million | Use of $8.7 million |
| Cash and restricted cash | $34.9 million | $21.7 million at December 31, 2022 |
| Working capital | $80.3 million | $60.8 million at December 31, 2022 |
| Debt | $52.0 million of term debt plus $4.0 million drawn on the operating line | Term debt was $53.5 million at December 31, 2022; operating line draw was $7.5 million |
Gross margin improved principally because produce performance recovered from the prior-year period. SG&A was $17.4 million, down from $17.9 million; interest expense rose to $1.1 million from $0.7 million. The company raised approximately $23.3 million net in a January share-and-warrant offering, contributing to higher cash and working capital. Outstanding shares increased to 110.2 million from 91.8 million at year-end.
Material changes and segment results
- Produce: Sales declined 16% to $34.6 million, mainly after losing two supply-partner growers and reducing certain own-grown planting area. Higher selling prices and lower production and freight costs helped lift gross margin to $0.6 million from a $4.3 million loss. Adjusted EBITDA remained negative at $1.0 million, but improved from a $6.2 million loss.
- Canadian cannabis: Sales rose 15% to $25.1 million, driven by branded and international sales; branded sales increased 40%. Gross margin fell to $8.5 million from $9.5 million, while Adjusted EBITDA improved to $3.9 million from $2.1 million. Excise taxes were $13.8 million, up from $9.0 million.
- U.S. cannabis/CBD: Sales fell 29% to $5.0 million amid lower direct-to-consumer sales and competition from hemp-derived cannabinoid products. Adjusted EBITDA moved to a $0.2 million loss from $0.6 million of income.
- Consolidated sales fell despite Canadian cannabis growth, as produce sales declined $6.8 million and U.S. cannabis sales declined $2.1 million.
Outlook, risks, and unusual items
- Management said existing cash, expected operating cash flows, available credit, and potential ATM sales should fund working capital, debt repayments, contractual obligations, and planned capital spending for the next 12 months. This is management’s assessment, not a guarantee.
- Pure Sunfarms’ loans were extended after quarter-end from February 2024 to February 2026. The company reported compliance with credit covenants at March 31, 2023, but noted it had previously obtained a waiver for an FCC annual covenant test and could not assure compliance at the next test.
- Management expected the Delta renewable natural gas project to begin operations in mid-2023. It had begun seeking a buyer for its Monahans, Texas greenhouse and filed an application for a Texas medicinal-cannabis license; neither outcome was assured.
- The company cited cannabis-market price pressure, Canadian excise taxes, inflation and energy costs, interest-rate and foreign-exchange exposure, regulatory uncertainty, and financing needs among its risks. It reported no legal proceedings considered material.
- Disclosure controls were deemed ineffective because of a material weakness in controls over goodwill and intangible-asset recoverability calculations. Remediation had begun, with completion expected by December 31, 2023. Management reported no financial-statement impact from the identified weakness.
- Adjusted EBITDA is a non-GAAP measure and may not be comparable across companies. No specific full-year financial guidance was provided in the filing text.
Investor verification points
- Review the produce segment’s ability to restore sales and achieve positive operating performance after losing supply partners.
- Track Canadian cannabis margins, excise-tax burden, non-branded pricing, and whether international sales develop as planned.
- Assess liquidity, variable-rate debt costs, covenant compliance at the next FCC test, and the effect of the offering and warrants on dilution.
- Verify progress on the Delta RNG project, the Monahans facility sale process, and the Texas license application.
- Monitor remediation and independent effectiveness of the material-weakness controls, particularly for goodwill and intangible-asset valuations.