Sign in

You're signed outSign in or to get full access.

VF

Village Farms International, Inc. (VFF)·Q1 2024 Earnings Summary

Executive Summary

  • Consolidated sales rose 21% year over year to $78.1M, net loss per share improved to $(0.03), and adjusted EBITDA increased six-fold to $3.6M .
  • Canadian Cannabis delivered record net sales of C$50.5M (+49% YoY), with retail branded sales up 28%; management highlighted continued expansion of the #2 national market share position and a record in April .
  • Fresh Produce returned to profitability on higher sales, posting $0.1M net income and $2.0M adjusted EBITDA, while U.S. Cannabis margin compressed amid synthetic hemp competition and lack of FDA clarity .
  • Near-term catalysts: Netherlands production to begin in Q4 2024 with first sales in Q1 2025; RNG project commenced operations in April 2024 and expected to contribute starting Q2 .
  • Wall Street consensus estimates from S&P Global were unavailable due to an access limit; estimate comparisons are not included. Values would be retrieved from S&P Global if accessible.

What Went Well and What Went Wrong

What Went Well

  • Canadian Cannabis achieved several sales records with profitability and cash flow; “Retail branded sales grew 28%…record net sales of over $50 million in Q1” .
  • Market share gains: “fastest growing producer among the top five LPs…moved into the number two national market share position in the pre-roll category and expanded its number one…in dried flower” .
  • Product innovation: “High Def pre rolls…THC of 36% to 44%…no concentrates…initial response…exceeding expectations” and “SuperToast…now the second best-selling milled brand in Ontario” .

What Went Wrong

  • Canadian Cannabis gross margin fell to 25% from 34% YoY due to lower-margin sales of non-brand-spec inventory in the wholesale channel .
  • U.S. Cannabis faced headwinds from synthetic hemp (Delta products) and regulatory uncertainty, leading to adjusted EBITDA loss of $(0.6)M and net loss of $(0.7)M .
  • Consolidated results were still negative at the bottom line, with net loss of $(2.9)M and foreign exchange loss of $(0.9)M, despite operating improvements .

Financial Results

Consolidated Performance vs Prior Quarters

MetricQ3 2023Q4 2023Q1 2024
Sales ($USD Millions)$69.5 $74.2 $78.1
Net Income (Loss) ($USD Millions)$(1.3) $(22.5) $(2.9)
Diluted EPS ($USD)$(0.01) $(0.20) $(0.03)
Adjusted EBITDA ($USD Millions)$3.2 $(0.7) $3.6

Segment Breakdown

SegmentSales ($USD M) Q3 2023Sales ($USD M) Q4 2023Sales ($USD M) Q1 2024Adj. EBITDA ($USD M) Q3 2023Adj. EBITDA ($USD M) Q4 2023Adj. EBITDA ($USD M) Q1 2024
VF Fresh (Produce)$35.7 $37.1 $36.1 $0.8 $(0.6) $2.0
Cannabis Canada$28.8 $32.0 $37.4 $4.6 $1.5 $4.1
Cannabis U.S.$5.0 $5.1 $4.5 $0.2 $0.4 $(0.6)
Clean Energy———$(0.06) $(0.06) $(0.02)
Corporate———$(2.3) $(1.9) $(1.9)

Canadian Cannabis Channel Mix and Margins

Metric (C$ Millions unless noted)Q3 2023Q4 2023Q1 2024
Retail Branded Sales (C$)$50.3 $56.1 $59.7
International Sales (C$)$0.9 $1.1 $2.0
Non-Branded Sales (C$)$6.0 $7.9 $8.7
Other (C$)$0.8 $0.7 $0.6
Less: Excise Taxes (C$)$(19.3) $(22.2) $(20.5)
Net Sales (C$)$38.7 $43.6 $50.5
Gross Margin % (Canadian Cannabis)35% 23% 25%
Free Cash Flow (C$)$5.1 $0.4 $6.3
Adjusted EBITDA (C$)$6.2 $2.1 $5.5

U.S. Cannabis and Fresh Produce Margins (Selected)

MetricQ3 2023Q4 2023Q1 2024
U.S. Cannabis Gross Margin %64% 66% 59%
Fresh Produce Sales ($USD M)$35.7 $37.1 $36.1
Fresh Produce Net Income ($USD M)$(1.0) $(4.0) $0.1

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Canadian Cannabis Gross Margin Target2024Expect Q1 at low end of 30–40% range Excluding non-branded sales, Q1 gross margin 31% (low end of target); overall gross margin 25% due to wholesale mix Maintained (execution clarity)
SG&A as % of Sales (Canadian Cannabis)20242024 SG&A-to-sales to be a couple hundred bps lower than 2023 (25.6%) Q1 SG&A 21% of sales; 2024 ratio expected a couple points lower than last year Lowered
International Export Sales2024Lumpy; goal ~10% contribution over time On track for solid YoY growth in 2024; shipments to 4 countries Maintained/Improving
Netherlands Program (Leli Holland)Q4 2024 / Q1 2025Production start Q4 2024; first sales early 2025 Reiterated: production Q4 2024; sales Q1 2025 Maintained
Clean Energy (Delta RNG)2024In process of being operationalized; expected to contribute Began operations in April 2024; expected to contribute profitability beginning Q2 Raised (from pending to operational)
U.S. Gummies InternalizationQ2 2024Nearing completion; insourcing to sustain ~60%+ gross margin Completion on track for Q2 2024; supports consistency of supply and gross profit Maintained

Earnings Call Themes & Trends

TopicQ3 2023 (Prior Two Quarters)Q4 2023 (Prior Quarter)Q1 2024 (Current Period)Trend
Excise tax enforcement/reformHighlighted tax burden and industry dynamics; regained #2 share Noted recommendations for 10% ad valorem and enforcement of delinquent duties Disappointed no change in April budget; continued advocacy; enforcement still evolving Toward enforcement; reform possible
Wholesale/non-branded strategyWholesale demand firmed; monetized inventory; impact on margins Heavy non-branded mix reduced GM but improved cash flow Opportunistic spot sales; lower margins; excluding wholesale, GM 31% Normalizing; mix-managed
International expansion (EU/APAC)Added U.K.; focus on Germany; nine strains exported Netherlands build-out commenced; UK exports launched Netherlands production Q4 2024; shipments to four countries; on track for export growth Accelerating
Product innovation (pre-rolls, vapes, brands)Launched Super Toast and high-THC 1g vape Premium Soar infused blunts; record retail branded sales High-Def pre-rolls 36–44% THC; strong demand; brand house strategy Expanding
Produce recovery & virus mitigationYear-to-date adjusted EBITDA improvement; virus-resistant strains adoption Positive adjusted EBITDA for year; operational investments Net income positive; AI-aided cultivation; automation for labor savings Sustained improvement
U.S. CBD headwinds/regulatoryStable margins; positive EBITDA; awaiting FDA clarity Positive EBITDA; subscription sales 69% Gross margin 59%; EBITDA loss; competition from synthetic hemp; gummy insourcing on track Mixed; awaiting policy
Technology/AI in operations—Capex for automation and efficiency Invested in latest cultivation technologies including AI in Fresh Increasing adoption

Management Commentary

  • “Q1 was especially strong for our Canadian cannabis business. Retail branded sales grew 28%…driving a record net sales of over $50 million in Q1” – Michael DeGiglio, CEO .
  • “We moved into the #2 position nationally in pre-rolls…High Def pre rolls…THC of 36% to 44%…There is nothing else like it on the market” – Michael DeGiglio .
  • “Net loss improved to negative $2.9 million or $0.03 per share…Adjusted EBITDA improved by $3.1 million to $3.6 million” – Stephen Ruffini, CFO .
  • “Excluding [non-branded] sales, gross margin was 31% at the low end of our annual 30% to 40% target range…SG&A as a percentage of sales for Q1 improved to 21%” – Stephen Ruffini .
  • “Production…in the Netherlands…start in the fourth quarter of 2024 with revenues in the first quarter 25” – Michael DeGiglio .
  • “The Delta, British Columbia Renewable Natural Gas Project began operations [in April], which immediately began contributing incremental profitability” – Company release and CFO .

Q&A Highlights

  • Wholesale dynamics: Q1 wholesale sales were primarily spot; limited small contracts; opportunistic given tighter supply and quality dispersion; B2B is supportive but secondary to brand building .
  • Branded portfolio strategy: House of brands across value and premium (Pure Sunfarms, Fraser Valley, SuperToast, Soar); focus on innovation and profitability; extend brands internationally .
  • Produce sustainability: Profitability improvements driven by transition to virus-resistant varieties and operational excellence; produce will remain strategic for cultivation know-how .
  • CRA enforcement impact: Too early to quantify pricing effects; broader drivers include cost and quality; enforcement/garnishment vary by case .
  • Netherlands timing: Planting and production Q4 2024; revenues start Q1 2025 .
  • Margins and pre-rolls: Aim for 30–40% GM; infusion and non-infused PRs; High-Def sold out rapidly; inventory management target ≤6 months .
  • U.S. CBD/Regulatory: Synthetic hemp competition and lack of FDA clarity pressuring revenue; insourcing gummies to sustain margins and supply .
  • U.S. strategy/Nasdaq: Active dialogue on permissible pathways; measured approach; Texas assets provide scale when legalization allows .

Estimates Context

  • S&P Global consensus for Q1 2024 (Revenue, EPS, EBITDA) was unavailable due to an access limit; as a result, actual vs. consensus comparisons are not included. Values would be retrieved from S&P Global if accessible.

Key Takeaways for Investors

  • Canadian Cannabis momentum is strong: net sales up 49% YoY and retail branded +28%, with sustained share gains across dried flower and pre-rolls, underpinning cash generation and profitability .
  • Mix matters: lower-margin wholesale sales aided cash and inventory turns but compressed segment margins; excluding wholesale, GM sits at 31% within the 30–40% target—watch mix normalization into 2H .
  • Product innovation is resonating: High-Def pre-rolls and brand extensions are catalysts for share and pricing power in profitable categories .
  • Fresh Produce recovery supports consolidated stability: positive EBITDA and net income with AI/automation investments providing operating leverage; expect typical seasonality in Q2 .
  • International optionality building: Netherlands (Q4’24 production/Q1’25 sales) and EU medical exports offer medium-term growth vectors with favorable tax and supply chain design .
  • RNG adds incremental profitability starting Q2: new revenue stream diversifies cash flows and supports balance sheet .
  • U.S. CBD headwinds persist pending FDA clarity; insourcing gummies and subscription model help stabilize margins—monitor regulatory developments and potential U.S. THC entry pathways .