Village Farms International, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Performance: Excluding the inventory impairment, Q4 was one of the strongest quarters in the past four years. Total Q4 revenues were $83 million, up 11% year-over-year, and full-year revenues were $336 million, up 18% year-over-year.
• Canadian Cannabis: Strong market share in Canada, moving to #2 in Pre-Roll and #6 in vapes nationally. Launched Super Toast all-in-one vapes, which became #6 nationally and #2 in Ontario. Took a $10.5 million non-cash write-down of suboptimal vape inventory. International medicinal exports in Q4 were up 113% year-over-year.
• Fresh Produce: Benefited from new cultivation technologies like AI and machine automation. Received $3.5 million in other income from vendor settlements related to the tomato brown rugose virus.
• International Cannabis: Q4 exports to international medical markets were up 113% year-over-year. Dutch operations: first harvest from Drachten facility, broke ground on Phase 2 cultivation facility in Groningen to quadruple production.
• Operational Updates: Optimizing Canadian cannabis resources for efficiency, refinancing fresh produce debt and cannabis debt, and discussing with Dutch lenders for Leli Holland operations.

Segment Performance

• Canadian Cannabis: Q4 net sales increased 10% year-over-year in Canadian dollars. Excluding the $10.5 million inventory write-down, adjusted EBITDA was positive. Retail branded sales were flat, while non-branded sales grew 20% year-over-year. International medicinal exports in Q4 were up 127% year-over-year in Canadian dollars. Excluding the inventory impairment, gross margin for Canadian cannabis would have been in the 30%-40% target range.
• Fresh Produce: Q4 sales were $43.3 million, up 17% year-over-year. Benefited from $3.5 million of other income related to vendor settlements from the tomato brown rugose virus. Adjusted EBITDA was $4.1 million, and net income was approximately $2 million.
• US Cannabis: Q4 revenues were $4.6 million, up 17% sequentially. Gross margin was 70%, and adjusted EBITDA was positive $300,000.
• Clean Energy: Ended 2024 on pace to deliver approximately $2 million in net income to consolidated results in 2025.

Guidance

• Expect to triple international medicinal export sales in 2025.
• Phase 2 cultivation facility in the Netherlands is expected to be planted out in the fourth quarter of 2025, quadrupling annual production capabilities.
• Clean Energy is on track to deliver approximately $2 million in net income to consolidated results in 2025.
• Refinancing of produce debt and cannabis debt is in progress, with expectations to complete by specific deadlines.

Risks

• Tariff impacts on fresh produce sales if implemented, with potential to pass on 25% tariffs to customers.
• Potential power constraints for other operators in the Netherlands, but Village Farms has a 6 MW power supply.
• Regulatory risks in international markets, including changing deadlines for coffee shops in the Netherlands to buy 100% from licensed suppliers.

Question and Answer

Q: On inventory impairment impact on revenue and top-line, and branded sales commentary A: Inventory write-down didn't impact revenue. Branded sales were flat as the company moved away from lower tier products, but the launch of Super Toast vapes was successful.

Q: Allocation of product to Canada vs international, market share in Canada A: Canada is the foundation, not shortshipping, but focusing on profitable categories. Will hold/share selectively in profitable categories in Canada, with most incremental product going to international markets.

Q: Holland operations status, coffee shop buying, international growth route-to-market A: 7 licensed producers in the Netherlands, coffee shops to buy 100% from license holders by April 7th. International growth is a focus, but details on route-to-market weren't elaborated on the call.

Q: International sales growth guidance, split between Netherlands and other markets A: Tripling international medicinal export sales doesn't include the Netherlands (RAC segment).

Q: Canadian cannabis market oversupply risk A: Limited biomass in the Canadian market, and high-quality flower will have steady demand due to quality-driven consumer preferences