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Village Farms International, Inc. (VFF)·Q2 2024 Earnings Summary

Executive Summary

  • Record consolidated sales of $92.1M (+19% YoY) driven by Canadian Cannabis (+45% YoY to $40.7M), but GAAP net loss widened to $(23.5)M ($(0.21) EPS) on a $11.9M U.S. Cannabis goodwill/intangibles impairment and weaker produce pricing .
  • Canadian Cannabis delivered another quarter of positive adjusted EBITDA ($4.8M) and operating cash flow ($5.4M), with retail branded sales up 38% and continued share gains; gross margin moderated to 26% due to opportunistic non-branded inventory monetization .
  • Fresh Produce sales rose 7% to $47.1M, but adjusted EBITDA turned to $(6.4)M on sharp tomato price declines late in the quarter; management guided to significantly improved performance in Q3–Q4 on seasonal/pricing recovery and efficiencies (AI, yield) .
  • No formal numerical guidance was issued; strategic catalysts include Netherlands production start in Q4’24 and first sales in Q1’25, ongoing international export growth, and possible Canadian excise tax reforms (management emphasized excise burden and industry supply tightening) .

What Went Well and What Went Wrong

What Went Well

  • Canadian Cannabis momentum: Net sales +45% YoY to $40.7M with retail branded +38% and exports +11%; adjusted EBITDA steady at $4.8M and operating cash flow +38% to $5.4M. “We grew retail branded sales by 35%... solidified our number two national market share rank in pre-rolls…” — CEO Michael DeGiglio .
  • Market share expansion: Only top-five LP to grow share sequentially; #1 dried flower share, #2 pre-rolls; strengthened provincial ranks in BC (tied #2), Alberta (#4), Ontario (#1), Quebec (#2) .
  • International setup: Netherlands facility on track (production Q4’24, first sales Q1’25); strong export contributions with demand tailwinds in Germany post-April regulatory change .

What Went Wrong

  • GAAP earnings hit by impairment: $11.9M goodwill/intangible impairment in U.S. Cannabis; segment net loss $(12.3)M vs. prior-year income, amid headwinds from unregulated hemp/synthetic products .
  • Produce pricing pressure: Tomato pricing fell 31% May–June vs. Jan–Apr, 11% below forecast, driving Fresh adjusted EBITDA to $(6.4)M and segment net loss $(8.3)M despite higher volumes and expanded third-party supply .
  • Canadian Cannabis margin compression: Gross margin declined to 26% (vs. 38% LY) due to deliberate clearing of non-brand-spec inventory through wholesale; excise tax burden remained substantial (CAD 27.1M in Q2) .

Financial Results

Consolidated performance (trend and YoY)

MetricQ4 2023Q1 2024Q2 2024
Revenue ($USD Millions)$74.225 $78.077 $92.182
Net Income ($USD Millions)$(22.483) $(2.852) $(23.549)
Diluted EPS ($USD)$(0.20) $(0.03) $(0.21)
Adjusted EBITDA ($USD Millions)$(0.658) $3.591 $(3.559)

Segment sales and profitability

SegmentQ4 2023 Sales ($M)Q1 2024 Sales ($M)Q2 2024 Sales ($M)Q4 2023 Adj. EBITDA ($M)Q1 2024 Adj. EBITDA ($M)Q2 2024 Adj. EBITDA ($M)
Canadian Cannabis$32.043 $37.446 $40.745 $1.491 $4.073 $4.818
U.S. Cannabis$5.064 $4.537 $4.297 $0.437 $(0.615) $(0.240)
VF Fresh (Produce)$37.118 $36.094 $47.019 $(0.604) $2.028 $(6.350)
Clean Energy$0.000 $0.000 $0.121 $(0.058) $(0.020) $0.061
Corporate———$(1.924) $(1.875) $(1.848)

Canadian Cannabis KPIs

KPI (CAD unless noted)Q4 2023Q1 2024Q2 2024
Net Sales ($USD M)$32.0 $37.4 $40.7
Retail Branded Sales (CAD $M)$56.1 $59.7 $68.9
International Sales (CAD $M)$1.1 $2.0 $2.1
Non-Branded Sales (CAD $M)$7.9 $8.7 $11.3
Excise Taxes (CAD $M)$22.2 $20.5 $27.1
Gross Margin %23% 25% 26%
Adjusted EBITDA ($USD M)$1.5 $4.1 $4.8
Cash Flow from Operations ($USD M)$0.6 $4.6 (Free Cash Flow) $5.4

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Netherlands production startQ4 2024Start production in Q4 2024 “Production to start in months; first sales Q1 2025” Maintained timeline; clarified first sales
Fresh Produce performance2H 2024Expect improvement as efficiencies/automation ramp “Significantly improved performance in Q3–Q4” on pricing recovery, yield, AI Raised qualitative confidence
Canadian Cannabis gross marginOngoingTarget 30–40% range 28% branded in Q2; target 30–40% maintained Maintained
Produce segment FY EBITDAFY 2024Not specified“Good EBITDA in second half, but not breakeven for full year” Clarified downside

Note: No formal quantitative ranges for revenue, EPS, margins, OpEx, OI&E, or tax rates were issued; management provided qualitative directional commentary .

Earnings Call Themes & Trends

TopicQ4 2023 (Previous-2)Q1 2024 (Previous-1)Q2 2024 (Current)Trend
Canadian market shareReclaimed #2 nationally; record retail branded sales Fastest-growing top-5; #2 pre-rolls; record share in April Only top-five LP to grow share sequentially; further gains across provinces Improving
Excise tax/regulatoryAggressive excise enforcement; reform discussion; benefit potential Disappointed no change in April budget; continued review Burdensome 30–40% excise; industry CCAA/supply contraction Mixed (policy slow; enforcement rising)
International (Netherlands, EU)Build-out started; Q4’24 production, Q1’25 sales goal On target for Q4’24 production; Germany partial legalization positive “Months away” from production; “first sales in Q1 2025”; demand in Germany/UK rising Advancing
Fresh produce pricing/supplyWinter pricing delayed; improvement into Jan–Mar; EBITDA improvement Profitability in Q1; positive EBITDA; efficiencies and AI referenced Pricing fell late Q2; expect significantly improved 2H Recovering in 2H
Technology/AIOperational efficiencies planned Cultivation technologies including AI to benefit produce Implementing AI for cultivation improvements Scaling use
U.S. Cannabis dynamicsPositive adj. EBITDA; impairment in Q4 Internalizing gummy production; CBD headwinds $11.9M impairment; internalization complete; synthetic hemp competition Challenged
Supply dynamics (asset-light)Peers shifting to asset-light; wholesale opportunity Opportunistic wholesale monetization Others shuttering; B2B pricing rising; supports retail stabilization Tightening supply

Management Commentary

  • “We are driving strong momentum in our Canadian Cannabis business… solidified our number two national market share rank in pre-rolls and further strengthened share in key provinces.” — CEO Michael DeGiglio .
  • “Total sales grew 19% year-over-year to $92.1 million… Approximately half or $12 million was a noncash impairment… roughly $8.3 million driven by our produce business… and $2.1 million due to incentive stock compensation.” — CFO Steve Ruffini .
  • “Excluding low-margin nonbranded spec B2B sales, gross margin for Q2 was 28%… we still support our range of guidance of 30% to 40%.” — CFO Steve Ruffini .
  • “We expect production to start in just a few months in the Netherlands and… our first sales in the first quarter of next year.” — CEO Michael DeGiglio .
  • “We are very actively looking at expanding our cultivation cannabis capacity… converting the other half of Delta 2.” — CFO Steve Ruffini .
  • “An excise tax of 30% to 40% is a burdensome tax in any industry… very few can build a sustainable, profitable business in Canada with such a tax.” — CFO Steve Ruffini .

Q&A Highlights

  • Retail branded sales velocity: Growth driven by quality/innovation, not timing; some out-of-stocks due to demand exceeding expectations .
  • Margin outlook: Branded gross margin ~28% in Q2; management reiterates 30–40% target as mix normalizes and SKU optimization continues .
  • Produce outlook: Price weakness in May–June; seasonal/supply dynamics support improved profitability in 2H’24; full-year produce EBITDA not breakeven despite stronger H2 .
  • Canadian pricing/mix: Retail price per gram declines stabilizing; B2B pricing increasing; supply reductions (asset-light, closures, exports) supporting pricing .
  • Netherlands profitability: Expect solid profitability with no excise tax and favorable pricing; initial supply likely sold out across ~85 coffee shops served by 10 licensees .

Estimates Context

  • Wall Street consensus via S&P Global was unavailable at the time of retrieval; estimate comparisons versus consensus (Revenue, EPS, EBITDA) are not included in this recap due to lack of accessible data.

Key Takeaways for Investors

  • Canadian Cannabis is the engine: Sustained share gains across categories/provinces with positive adj. EBITDA and cash generation; watch branded mix normalization for margin recovery into the 30–40% range .
  • Impairment masks fundamentals: GAAP loss reflects U.S. Cannabis goodwill/intangible impairment rather than core Canadian performance; monitor U.S. regulatory trajectory and CBD competitive landscape .
  • Produce reset sets up H2: Pricing shock compressed Q2, but management expects significantly improved Q3–Q4 aided by seasonality and operational efficiencies (AI, yields); track weekly pricing and margin cadence .
  • International optionality: Netherlands Q1’25 revenue start and growing EU demand (Germany/UK) create near-term growth vectors; capacity expansion (Delta 2) offers domestic scaling .
  • Excise tax overhang: Heavy excise burden (CAD 27.1M Q2) continues to pressure Canadian margins; enforcement and potential reform could be a structural catalyst for profitability and industry consolidation .
  • Balance sheet/cash: Operating cash flow improved; net debt comfortable; self-funding Netherlands underscores capital discipline .
  • Trading lens: Near-term stock reaction likely toggles between impairment headline and Canadian Cannabis momentum; catalysts include Netherlands production milestone, Q3 produce margin recovery, and any Canadian excise policy developments .