– Pure Sunfarms Continues its Record of
Positive Adjusted EBITDA in Each of the Ten Quarters Since
Commencing Sales – Pure Sunfarms Once Again the Top Selling Dried
Flower Brand with OCS for First Quarter –
VANCOUVER, BC, May 10, 2021 /CNW/ - Village Farms
International, Inc. ("Village Farms" or the "Company") (NASDAQ:
VFF) (TSX: VFF) today announced its financial results for the first
quarter ended March 31, 2021.
All figures are in U.S. dollars unless otherwise
indicated.
The Company's financial statements for the three months ended
March 31, 2021, as well as the
comparative periods for 2020, have been prepared and presented
under United States Generally Accepted Accounting Principals
("GAAP"). On March 31, 2021, Village
Farms owned 100% of Pure Sunfarms Corp. ("Pure Sunfarms"), as the
full acquisition of the remaining interest in Pure Sunfarms
occurred November 2, 2020.
Accordingly, for the three months ended March 31, 2021, Pure Sunfarms' financial results
are consolidated with Village Farms' results. For the three
months ended March 31, 2020, Pure
Sunfarms is accounted for on a proportionate basis within "Equity
Earnings from Unconsolidated Entities".
Pure Sunfarms' First Quarter and Other Recent
Highlights
(Dollar Amounts are Before Village Farms'
Proportionate Share)
- Achieved its third consecutive quarter of sequential growth in
its priority sales channel, Retail Branded Sales, of 20% or
greater;
- Achieved its tenth consecutive quarter of positive Adjusted
EBITDA; and,
- Was the top selling brand of dried flower products with the
Ontario Cannabis Store (OCS) (by kilograms sold and dollars sold)
for the quarter ended March 31, 2021
and remained the top-selling brand of dried flower products with
the OCS (by kilograms sold and dollars sold) since retail branded
sales launch in October 2019.
*Market share performance and data cited has been calculated by
Pure Sunfarms from sales information provided by OCS.
Village Farms' Consolidated Financial Summary for the Three
Months Ended March 31, 2021 and
March 31, 2020 and Corporate
Highlights
($US millions except
per share metric)
|
Three Months Ended
March 31,
|
|
2021
|
2020
|
Change
|
Sales1
|
$52.4
|
$32.1
|
+63%
|
Produce
|
$34.9
|
$32.0
|
+9%
|
Cannabis
|
$17.4
|
$0.0
|
N/A
|
Village Farms Clean
Energy
|
$0.1
|
$0.1
|
0%
|
Net (Loss)
Income1
|
($7.4)
|
$4.2
|
-276%
|
(Loss) Income Per
Share1
|
($0.10)
|
$0.08
|
-225%
|
Adjusted EBITDA1
2
|
$0.4
|
$1.1
|
-63%
|
Produce
|
($0.6)
|
($0.4)
|
-50%
|
Cannabis
|
$2.5
|
$2.8
|
-9%
|
Village Farms Clean
Energy
|
$0.0
|
$0.0
|
0%
|
Corporate
|
($1.5)
|
($1.3)
|
-15%
|
1.
|
Sales, Net Income,
Income (Loss) per share and Adjusted EBITDA includes results from
Pure Sunfarms pursuant to the Company's statutory reporting
requirements.
|
2.
|
Adjusted EBITDA is
not a recognized earnings measure and does not have a standard
meaning prescribed by GAAP. See "Non-GAAP Measures"
below.
|
- Produce sales increased 9%, however, Produce Adjusted EBITDA
decreased 50% as a result of lower pricing as the tomato industry
is experiencing one of the lowest pricing environments for
tomatoes-on-the-vine and beefsteak varieties in the past ten
years;
- Completed a registered direct offering with certain
institutional investors for the purchase and sale of an aggregate
of 10,887,097 common shares at a purchase price of US$12.40 (approximately C$15.70) per Common Share for gross proceeds of
approximately US$135 million
(approximately C$171 million);
- Received warrant exercise proceeds of US$17.7 million resulting in the issuance of
3,045,283 additional common shares. The warrants were issued as
part of the September 2020 Registered
Direct equity offering. As of the date of this news release,
1,652,830 warrants remain outstanding;
- Repaid in full the C$19.9 million
(approximately US$15.6 million)
promissory note, plus accrued interest of C$621,534.25 (approximately US$486,849.78), that the Company issued to
Emerald Health Therapeutics, Inc. as partial consideration for the
November 2020 acquisition of the
remaining common shares of Pure Sunfarms that the Company did not
own; and,
- Was added to the S&P/TSX Composite Index (Consumer Staples
sector) prior to trading on March 22,
2021.
- Increased the equity investment in Altum International Pty Ltd
from 6.6% to just under 12% as a capital efficient means to
participate in international opportunities in the Asia-Pacific region.
- Village Farms amended the Operating Loan terms to extend the
credit agreement with an amended line of credit of C$10,000 and maturity date of May 7, 2024.
Pure Sunfarms' Financial Summary for the Three Months Ended
March 31, 2021 and March 31, 2020 (Before Village Farms'
Proportionate Share)
(millions except %
metrics)
|
Three Months Ended
March 31,
|
|
|
2021
|
2020
|
Change of
C$
|
|
C$
|
US$
|
C$
|
US$
|
|
Total Gross
Sales
|
$30.8
|
$24.3
|
$21.5
|
$15.7
|
+43%
|
Total Net
Sales
|
$22.1
|
$17.5
|
$18.0
|
$13.1
|
+23%
|
Gross Margin
4
|
29%
|
29%
|
52%
|
52%
|
-44%
|
SG&A
|
$5.0
|
$4.0
|
$3.3
|
$2.4
|
-56%
|
Share-based
compensation
|
$1.4
|
$1.1
|
$0.0
|
$0.0
|
N/A
|
Net (loss) income
3
|
($3.6)
|
($2.8)
|
$8.6
|
$6.2
|
-142%
|
Adjusted EBITDA
5
|
$3.1
|
$2.5
|
$6.7
|
$4.9
|
-53%
|
Adjusted EBITDA
Margin 5
|
14%
|
14%
|
37%
|
37%
|
-62%
|
3.
|
Net income includes
C$6,044 (US$4,348) of debt forgiveness income as an outcome of the
"Settlement Agreement" in March 2020 between Pure Sunfarms, Emerald
Health Therapeutics and the Company.
|
4.
|
Gross margin for 2021
excludes the C$3,679 (US$2,925) inventory adjustment charge from
the revaluation of inventory to fair value at the acquisition date
of November 2, 2020.
|
5.
|
Adjusted EBITDA is
not a recognized earnings measure and does not have a standard
meaning prescribed in by GAAP. See "Non-GAAP Measures"
below.
|
Pure Sunfarms' Percent of Sales by Product Group
|
Three months ended
March 31,
|
Channel
|
2021
|
2020
|
Retail,
Flower
|
71.0%
|
47.3%
|
Retail, Oil & 2.0
Product
|
12.8%
|
0.0%
|
Wholesale, Flower and
Trim
|
16.2%
|
52.7%
|
Management Commentary
"The first quarter of 2021 was yet another strong quarter for
Pure Sunfarms, which delivered its third consecutive quarter of
strong sequential growth in our priority sales channel, Retail
Branded Sales – up 20% from the fourth quarter – and is especially
encouraging given the softness in the Canadian market due to
pandemic restrictions, which stalled sales growth for the rest of
the industry," said Michael
DeGiglio, CEO, Village Farms. "Our continuing strong
momentum was again driven by Pure Sunfarms' leading market share
performance in dried flower1, which remains by far the
largest product category, with our brand success firmly rooted in
our reputation for premium quality products at an everyday
price. This, combined with our best-in-class operations,
low-cost production and prudent SG&A management enabled Pure
Sunfarms to deliver its tenth consecutive quarter of positive
Adjusted EBITDA – every quarter since commencing sales in late
2018."
"As we look ahead, our 1.1 million square foot Delta 3 facility
is operating at full capacity, and with expected strong growth
demand we look forward to significantly expanding our production
capacity in the coming months, with plans to increase capacity by
50% by year end and double it in the second half of 2022. All
of this positions Pure Sunfarms – with our existing assets and
operations – to meaningfully and sustainably grow its profitability
over both the short- and long-terms."
"Our continued success and leadership in Canada provide great confidence in our U.S.
and international cannabis plans. We continue to monitor the
regulatory progress in the U.S. in terms of our opportunity to
legally participate in what we believe will be a different market
environment that will position experienced, new entrants for
success. We are confident that our unparalleled large-scale,
low-cost cultivation capabilities, alongside one of the largest
high-tech greenhouse footprints in the country, will provide a
meaningful advantage to capitalize on this significant opportunity.
We will do so strategically, with prudence and our unwavering
commitment to return on investment. In tandem, internationally, we
continue to pursue targeted, strategic opportunities for the
long-term that, again, meet our thresholds for return on
investment."
1. With the Ontario
Cannabis Store for both the first quarter of 2021 and the period
since launch in October 2019 (by kilograms sold and dollars
sold).
|
COVID-19 Update
All Village Farms' production facilities in Texas, British
Columbia, and Pure Sunfarms' facilities in Canada remain open and operational. The
Company has experienced a small number of COVID-19 illnesses at its
facilities, however, the Company's protocols were followed and
there has been no material disruption to operations. Village Farms
and Pure Sunfarms adhere to the highest health and safety standards
in their operations and each has put in place heightened hygiene
practices and safety protocols, including more stringent cleaning
and sanitization, and are taking appropriate precautions throughout
all operations as per the recommendations of health
authorities. The Company will continue to enhance and evolve
such practices and protocols as the situation warrants.
Summary Statutory Results
(in thousands of U.S.
Dollars unless otherwise indicated)
|
For the three
months ended March 31,
|
|
2021
6
|
|
2020
6
|
Sales
|
$ 52,396
|
|
$ 32,112
|
Cost of
sales
|
(50,089)
|
|
(31,347)
|
Selling, general and
administrative expenses
|
(8,092)
|
|
(3,921)
|
Share-based
compensation
|
(1,998)
|
|
(529)
|
Interest
expense
|
(741)
|
|
(537)
|
Interest
income
|
3
|
|
383
|
Foreign exchange
loss
|
(504)
|
|
(926)
|
Gain on settlement
agreement
|
-
|
|
4,681
|
Other (expense)
income
|
(69)
|
|
39
|
Loss on disposal of
assets
|
-
|
|
(6)
|
Recovery of income
taxes
|
1,839
|
|
1,012
|
Equity (losses)
earnings from unconsolidated entities
|
(127)
|
|
3,229
|
Net (loss)
income
|
($ 7,382)
|
|
$ 4,190
|
Adjusted EBITDA
7
|
$ 404
|
|
$ 1,096
|
(Loss) income per
share – basic
|
($ 0.10)
|
|
$ 0.08
|
(Loss) income per
share – diluted
|
($ 0.10)
|
|
$ 0.08
|
|
|
6.
|
For the three months
ended March 31, 2021, Pure Sunfarms is fully consolidated in the
financial results of the Company. For the three months ended March
31, 2020, Village Farms share of Pure Sunfarms earnings are
reflected in equity (losses) earnings from unconsolidated
entities.
|
7.
|
Adjusted EBITDA is
not a recognized earnings measure and does not have a standard
meaning prescribed in by GAAP. Therefore, Adjusted EBITDA may not
be comparable to similar measures presented by other issuers. See
"Non-GAAP Measures" for a definition and reconciliation of Adjusted
EBITDA to net income (loss), the nearest comparable measurement
under GAAP. Management believes that Adjusted EBITDA is a useful
supplemental measure in evaluating the performance of the Company.
Adjusted EBITDA includes the Company's majority non-controlling
interest in Pure Sunfarms (through November 1, 2020), and 65%
interest in VFH.
|
Discussion of Financial Results
A discussion of our consolidated results for the three months
ended March 31, 2021 and 2020 is
included below. The consolidated results include all three of our
operating segments, which include produce, cannabis and energy,
along with all public company expenses. Pure Sunfarms was acquired
in its entirety on November 2, 2020;
for the three months ended March 31,
2021, the operating results of Pure Sunfarms are
consolidated in our Consolidated Statements of Income (Loss), and
for the three months ended March 31,
2020, Pure Sunfarms' results are included in equity earnings
from unconsolidated entities in our Consolidated Statements of
Income (Loss).
We also present a discussion of the operating results of Pure
Sunfarms, before any allocation to Village Farms, which were not
consolidated in our financial results for the three months ended
March 31, 2020 but were consolidated
in our results for the three months ended March 31, 2021. As a result of the Pure Sunfarms
Acquisition, Pure Sunfarms recognized an increase in the fair value
of its inventory on-hand on the acquisition date, resulting in a
$2,925 charge to cost of sales in the
first quarter of 2021 and a $3,295
charge to cost of sales in the fourth quarter of 2020 from the
revaluation of its inventory to fair value. This is a non-cash
accounting charge to cost of sales and should be adjusted for when
analyzing the actual operational results of Pure Sunfarms.
Consolidated Results
Three Months Ended March 31,
2021 Compared to Three Months Ended March 31,
2020
Sales
Sales for the three months ended March
31, 2021 were $52,396 as
compared to $32,112 for the three
months ended March 31, 2020. The
increase in sales was primarily due to the inclusion of Pure
Sunfarms' Q1 2021 revenues of $17,460
and an increase in produce supply partner sales of $4,139, partially offset by a decrease in our own
produce sales of ($1,234) and VFCE
power sales of ($81). The tomato
produce industry is currently experiencing one of the lowest
pricing environments for tomatoes-on-the-vine and beefsteak
varieties in the past ten years.
The produce supply partner sales increase was due to higher
volumes of pounds sold of tomatoes, peppers, cucumbers and
mini-cucumbers. The decrease in our own produce sales was due to a
(24%) decrease in the average selling price of tomatoes in the
three months ended March 31, 2021
versus March 31, 2020, partially
offset by a 14% increase in our own production volume. The price
decrease is the result of a market supply overage caused by lower
retail purchase demand along with an increase in Canadian tomato
production from new acreage under light in 2021.
Cost of Sales
Cost of sales for the three months ended March 31, 2021 were $50,089 as compared to $31,347 for the three months ended March 31, 2020. The increase in cost of sales was
primarily due to the addition of Pure Sunfarms' Q1 2021 cost of
sales of $15,248, an increase in
produce supply partner costs of $3,282 and higher clean energy costs of
$356, partially offset by a decrease
in our own production cost of sales. The Q1 2021 cost of sales for
Pure Sunfarms includes a $2,925
charge from the revaluation of its inventory to fair value at
acquisition date. The increase in produce supply partner cost of
sales was driven by higher volumes of pounds sold. The decrease in
our own production costs was driven by lower cost per pound
production at two of our Texas
facilities and better utilization of our transportation and
handling cost, primarily due to greenhouse management efficiency
efforts.
Gross Margin
Gross margin for the three months ended March 31, 2021 increased $4,467 to $5,232,
for a 10% gross margin (excluding the $2,925 charge from the revaluation of Pure
Sunfarms' inventory to fair value at acquisition date) in
comparison to $765, for a 2% gross
margin, for the three months ended March 31,
2020. Gross margin (excluding the revaluation charge)
increased primarily due to the inclusion of Pure Sunfarms' 2021
gross margin of $5,137. The lower
produce gross margin was primarily due to lower prices for tomatoes
in Q1 2021.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three
months ended March 31, 2021 increased $4,171 to $8,092
compared to $3,921 for the three
months ended March 31, 2020. The
increase was primarily due to the inclusion of Pure Sunfarms'
expenses of $3,966 and an increase in
corporate expenses, primarily related to public company costs such
as investor relations, legal and regulatory fees, listing fees for
the TSX , the January 2021 equity
raise, and incremental costs of U.S. reporting compliance.
Share-based Compensation
Share-based compensation expenses for the three months ended
March 31, 2021 were $1,998 as compared to $529 for the three months ended March 31, 2020. The increase in share-based
compensation was primarily due to the vesting of performance share
grants for Pure Sunfarms' management of $1,094 in Q1 2021 versus nil in Q1 2020, along
with the cost of stock options issued in December 2020.
Net Income/(Loss)
Net loss for the three months ended March
31, 2021 was ($7,382) as
compared to net income of $4,190 for
the three months ended March 31,
2020. The decrease in net income is primarily due to a lower
gross margin from Pure Sunfarms (which includes the $2,925 charge from the revaluation of its
inventory to fair value at acquisition date) and higher
company-wide selling, general and administrative expenses and
share-based compensation in the three months ended March 31, 2021 as compared to March 31, 2020, which also included a gain from
the Settlement Agreement of $4,681 in
March 2020.
Adjusted EBITDA
Adjusted EBITDA for the three months ended March 31, 2021 was $404 compared to $1,096 for the three months ended March 31, 2020. The decrease in Adjusted EBITDA
was primarily due to lower operating results of both Pure Sunfarms
and the produce business. See the reconciliation of Adjusted
EBITDA to net income in "Non-GAAP Measures—Reconciliation of Net
Earnings to Adjusted EBITDA".
Cannabis Segment Results – Pure Sunfarms (in C$)
Pure Sunfarms' comparative analysis are based on the
consolidated results of Pure Sunfarms for the three months ended
March 31, 2021, December 31, 2020, and March 31, 2020, not accounting for the percentage
owned by Village Farms. As a result of the Pure Sunfarms
Acquisition, Pure Sunfarms recognized an increase in the fair value
of its inventory on-hand on the acquisition date, resulting in a
C$3,679 charge to cost of sales in
the first quarter of 2021 and a C$4,223 charge to cost of sales in the fourth
quarter of 2020 from the revaluation of its inventory to fair
value. This is a non-cash accounting charge to cost of sales and
should be adjusted for when analyzing the actual operational
results of Pure Sunfarms. Please see "Reconciliation of U.S.
GAAP Results to Proportionate Results" for a presentation of Pure
Sunfarms' proportionate results for the periods ended March 31, 2021 and March
31, 2020.
Three Months Ended March 31,
2021 Compared to Three Months Ended December 31,
2020
Sales
Pure Sunfarms' net sales for the three months ended March 31, 2021 were C$22,092 as compared to C$22,527 for the three months ended December 31, 2020. The sequential net sales
decrease was primarily due to a (49%) decrease in non-branded sales
partially offset by a 20% increase in branded sales. For the three
months ended March 31, 2021, 71% of
revenue was generated from branded flower and 13% of revenue from
tinctures and Cannabis 2.0 products (branded cannabis oil, edibles
and vapes) as compared to 56% of revenue from branded flower and
12% of revenue from tinctures and Cannabis 2.0 products for the
three months ended December 31, 2020.
For the three months ended March 31,
2021, non-branded sales represent 16% of revenues compared
to 32% for the three months ended December
31, 2020.The decrease in non-branded sales between periods
was driven primarily by an oversaturated wholesale market combined
with the impact of several provincial boards initiating stock
keeping unit ("SKU") rationalization and management of their
March 31, 2021 fiscal year-end
inventory levels, which decreased demand from other licensed
producers ("LP") in the wholesale market.
Cost of Sales
Pure Sunfarms' cost of sales for the three months ended
March 31, 2021 were C$15,600 (excluding the purchase price inventory
adjustment of C$3,679) as compared to
C$13,853 (excluding the purchase
price inventory adjustment of C$4,223) for the three months ended December 31, 2020. The increase in cost of sales
between periods was driven by the higher volume of branded sales
which require incremental costs for manufacturing, packaging and
distribution.
Gross Margin
Gross margin for the three months ended March 31, 2021 decreased (C$2,182) to C$6,492 for a 29% gross margin (excluding the
purchase price inventory adjustment of C$3,679) in comparison to C$8,674 for a 39% gross margin (excluding the
purchase price inventory adjustment of C$4,223) for the three months ended December 31, 2020. The decrease in gross margin
between periods was primarily due to the increase in cost of sales
associated with the higher volume of branded sales in 2021 that
require incremental costs for manufacturing, packaging and
distribution.
Selling, General and Administrative Expenses
Pure Sunfarms' selling, general and administrative expenses for
the three months ended March 31, 2021 were C$5,024 compared to C$5,753 for the three months ended December 31, 2020. The decrease in selling,
general and administrative expenses for the three months ended
March 31, 2021 in comparison to the
three months ended December 31, 2020
was primarily due to a reduction in marketing spend and lower
professional fees, such as legal and consulting services, partially
offset by additional headcount to support the growth of Pure
Sunfarms.
Share-based Compensation
Share-based compensation expenses for the three months ended
March 31, 2021 were C$1,392 as compared to C$78 for the three months ended December 31, 2020. The increase in share-based
compensation is due to the vesting of performance share grants for
Pure Sunfarms' management as well as the incremental cost of stock
options issued in December 2020.
Net Income/(Loss)
Pure Sunfarms' net loss for the three months ended March 31, 2021 was (C$3,592) as compared to (C$2,224) for the three months ended December 31, 2020. The Q1 2021 net loss includes
a C$3,679 charge and the Q420 net
loss includes a $4,223 charge from
the revaluation of its inventory to fair value at acquisition date.
The higher net loss between comparable periods was driven by lower
gross margin, largely attributable to a lower average selling price
for non-branded sales and increased share-based compensation,
partially offset by lower selling, general and administrative
expenses.
Adjusted EBITDA
Adjusted EBITDA for the three months ended March 31, 2021 and December 31, 2020 was C$3,125 and C$2,959, respectively. The increase in Adjusted
EBITDA was driven by higher net sales and lower selling, general
and administrative expenses in the three months ended March 31, 2021 as compared to the three months
ended December 31, 2020. The three
months ended December 31, 2020 also
included a C$991 write-off of the
note receivable from Emerald as part of the PSF acquisition.
Three Months Ended March 31,
2021 Compared to Three Months Ended March 31,
2020
Sales
Pure Sunfarms' net sales for the three months ended March 31, 2021 were C$22,092 as compared to C$18,004 for the three months ended March 31, 2020. The period-over-period net sales
increase was comprised of a 117% increase in branded sales,
partially offset by a (62%) decrease in non-branded sales. For the
three months ended March 31, 2021,
71% of revenue was generated from branded flower and 13% of revenue
from tinctures and Cannabis 2.0 products as compared to 47% of
revenue from branded flower for the three months ended March 31, 2020. Pure Sunfarms had not begun
selling Cannabis 2.0 products in the period ended March 31, 2020. For the three months ended
March 31, 2021, non-branded sales
represent 16% of revenues compared to 53% for the three months
ended March 31, 2020. The decrease in
non-branded sales between periods was driven primarily by an
oversaturated wholesale market combined with the impact of several
provincial boards initiating SKU rationalization and management of
their March 31, 2021 fiscal year-end
inventory levels, which decreased demand from other LPs in the
wholesale market.
Cost of Sales
Pure Sunfarms' cost of sales for the three months ended
March 31, 2021 were C$15,600 (excluding the purchase price inventory
adjustment of C$3,679) as compared to
C$8,607 for the three months ended
March 31, 2020. The increase in cost
of sales between periods was driven by the higher volume of branded
sales which require incremental costs for manufacturing, packaging
and distribution.
Gross Margin
Gross margin for the three months ended March 31, 2021 decreased (C$2,905) to C$6,492 for a 29% gross margin (excluding the
purchase price inventory adjustment of C$3,679) in comparison to C$9,397 for a 52% gross margin for the three
months ended March 31, 2020. The
decrease in gross margin between comparable periods was primarily
due to price compression in the wholesale market over the past
twelve months combined with the increase in cost of sales
associated with a higher volume of branded sales which require
incremental costs for manufacturing, packaging and
distribution.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three
months ended March 31, 2021 increased $1,787 or (55%) to C$5,024 compared to C$3,237 for the three months ended March 31, 2020. The increase in selling, general
and administrative expenses was mostly due to incremental sales
support and marketing for the higher volume of branded sales in Q1
2021 along with additional headcount to support the growth of Pure
Sunfarms.
Share-based Compensation
Share-based compensation expenses for the three months ended
March 31, 2021 were C$1,392 as compared to nil for the three months
ended March 31, 2020. The increase in
share-based compensation was primarily due to the vesting of
performance share grants for Pure Sunfarms' management and Pure
Sunfarms' management not being part of the Company until
November 2020.
Gain on Settlement of Net Liabilities
Pure Sunfarms recognized income of C$6,044 in the first quarter of 2020 as an
outcome of the March 2, 2020
Settlement Agreement between Pure Sunfarms, Emerald Health and the
Company. This gain is Pure Sunfarms' forgiveness of the shareholder
loan and accrued interest owed by Emerald offset by the
extinguishment of the Supply Agreement and any amounts receivable
under it, which included a C$8,100
receivable from Emerald for sales made in 2019.
Net Income/(Loss)
Pure Sunfarms' net loss for the three months ended March 31, 2021 was (C$3,592) as compared to net income of
C$8,553 for the three months ended
March 31, 2020. The Q1 2021 net loss
includes a C$3,679 charge from the
revaluation of its inventory to fair value at acquisition date. The
decrease in net income between periods was primarily due to lower
gross margin, higher selling, general and administrative expenses
and share-based compensation in Q1 2021, while Q1 2020 also
included the gain on the settlement of net liabilities of
C$6,044.
Adjusted EBITDA
Adjusted EBITDA for the three months ended March 31, 2021 and March
31, 2020 was C$3,125 and
C$6,726, respectively. The lower
EBITDA between comparable periods was primarily due to lower
non-branded sales and lower gross margin in Q1 2021 as compared to
Q1 2020. For the three months ended March
31, 2020, the average selling price for non-branded sales
was higher than the three months ended March
31, 2020 as the wholesale market faced oversaturation in
2021.
Non-GAAP Measures
References in this news release to "Adjusted EBITDA" are to
earnings (including the equity in earnings of the joint ventures)
before interest, taxes, depreciation and amortization ("EBITDA"),
as further adjusted to exclude foreign currency exchange gains and
losses on translation of long-term debt, unrealized gains on the
changes in the value of derivative instruments, share-based
compensation, gains and losses on asset sales and other adjustments
set forth in "Reconciliation of Net Income to Adjusted EBITDA"
below. Adjusted EBITDA is a cash flow measure that is not
recognized under GAAP and does not have a standardized meaning
prescribed by GAAP. Therefore, Adjusted EBITDA may not be
comparable to similar measures presented by other issuers.
Investors are cautioned that Adjusted EBITDA should not be
construed as an alternative to net income or loss determined in
accordance with GAAP as an indicator of our performance or to cash
flows from operating, investing, and financing activities as
measures of liquidity and cash flows. Management believes
that Adjusted EBITDA is an important measure in evaluating the
historical performance of the Company.
We also present Adjusted EBITDA, earnings per share and diluted
earnings per share on a proportionate segment basis. Each of the
components of Adjusted EBITDA, on a proportionate segment basis
(which include our proportionate share of the Pure Sunfarms and VFH
operations), are presented in the tables below that present a
reconciliation of GAAP results to proportionate results. We believe
that the ability of investors to assess our overall performance may
be improved by the disclosure of proportionate segment Adjusted
EBITDA, earnings per share and diluted earnings per share, given
that our joint ventures represent a significant percentage of our
net income.
Reconciliation of Net Income to Adjusted EBITDA
The following table reflects a reconciliation of net income to
Adjusted EBITDA, as presented by the Company:
(in thousands of
U.S. dollars)
|
For the three
months
ended March 31,
|
|
2021
(9)
|
|
2020
(9)
|
Net (loss)
income
|
($ 7,382)
|
|
$ 4,190
|
Add:
|
|
|
|
Amortization
|
3,412
|
|
1,530
|
Foreign
currency exchange loss
|
504
|
|
926
|
Interest
expense, net
|
738
|
|
154
|
Recovery of
income taxes
|
(1,839)
|
|
(1,012)
|
Share-based
compensation
|
1,998
|
|
529
|
Interest
expense for JVs
|
14
|
|
293
|
Amortization
for JVs
|
34
|
|
301
|
Foreign
currency exchange loss for JVs
|
-
|
|
102
|
Income taxes
provision from JVs
|
-
|
|
1,269
|
Gain on
settlement agreement
|
-
|
|
(4,681)
|
Acquisition
purchase price adjustment (10)
|
2,925
|
|
-
|
JV gain on
settlement of net liabilities
|
-
|
|
(2,496)
|
Gain on
disposal of assets
|
-
|
|
(9)
|
Adjusted EBITDA
(11)
|
$
404
|
|
$ 1,096
|
Adjusted EBITDA for
JVs (See table below)
|
($
79)
|
|
$ 2,683
|
Adjusted EBITDA
excluding JVs(produce)
|
$ 483
|
|
($ 1,587)
|
|
|
|
|
Breakout of JV's
Adjusted EBITDA
(in thousands of
U.S. dollars)
|
For the three
months
ended March 31,
|
|
2021
|
|
2020
|
Pure Sunfarms
Adjusted EBITDA
|
$
-
|
|
$ 2,778
|
VFH Adjusted
EBITDA
|
(79)
|
|
(95)
|
Total JV's Adjusted
EBITDA
|
($
79)
|
|
$ 2,683
|
|
|
9.
|
For the three months
ended March 31, 2021, Pure Sunfarms is fully consolidated in the
financial results of the Company. For the three months ended March
31, 2020, our share of Pure Sunfarms earnings is reflected in
equity earnings from unconsolidated entities.
|
10.
|
The purchase price
adjustment reflects the non-cash accounting charge to cost of sales
resulting from the revaluation of Pure Sunfarms' inventory to fair
value at the acquisition date.
|
11.
|
Adjusted EBITDA is
not a recognized earnings measure and does not have a standardized
meaning prescribed by GAAP. Therefore, Adjusted EBITDA may not be
comparable to similar measures presented by other issuers.
Management believes that Adjusted EBITDA is a useful supplemental
measure in evaluating the performance of the Company. Adjusted
EBITDA includes the Company's majority non-controlling interest in
Pure Sunfarms (through November 1, 2020), and 65% interest in
VFH.
|
Reconciliation of U.S. GAAP Results to Proportionate
Results
The following tables are a reconciliation of the GAAP results to
the proportionate results (which include our proportionate share of
Pure Sunfarms ("Cannabis") and VFH ("Hemp") operations). The
tables reflect the full statements of income for Pure Sunfarms and
VFH multiplied by the ownership percentage of the Company (versus
presenting the results of these joint ventures in Equity Earnings
from Unconsolidated Entities):
|
For the three
months ended March 31, 2021
|
(in
thousands of U.S. dollars)
|
Produce
|
|
Cannabis12
|
|
Hemp12
|
|
Total
|
|
|
|
|
|
|
|
|
Sales
|
$ 34,936
|
|
$ 17,460
|
|
$
-
|
|
$ 52,396
|
Cost of
sales
|
(34,841)
|
|
(15,248)
|
|
(48)
|
|
(50,137)
|
Gross
margin
|
95
|
|
2,212
|
|
(48)
|
|
2,259
|
Selling, general and
administrative expenses
|
(4,126)
|
|
(3,966)
|
|
(65)
|
|
(8,157)
|
Share-based
compensation
|
(904)
|
|
(1,094)
|
|
-
|
|
(1,998)
|
Other expense
net
|
(681)
|
|
(630)
|
|
(14)
|
|
(1,325)
|
Loss before
taxes
|
(5,616)
|
|
(3,478)
|
|
(127)
|
|
(9,221)
|
Recovery of
(provision for) income taxes
|
1,195
|
|
644
|
|
-
|
|
1,839
|
Net loss
|
($ 4,421)
|
|
($ 2,834)
|
|
($ 127)
|
|
($ 7,382)
|
Adjusted
EBITDA13
|
($ 2,051)
|
|
$
2,534
|
|
($
79)
|
|
$
404
|
(Loss) income per
share – basic
|
($ 0.06)
|
|
($ 0.04)
|
|
($ 0.00)
|
|
($ 0.10)
|
(Loss) income per
share – diluted
|
($ 0.06)
|
|
($ 0.04)
|
|
($ 0.00)
|
|
($ 0.10)
|
|
|
|
|
|
|
|
|
|
For the three
months ended March 31, 2020
|
(in
thousands of U.S. dollars)
|
Produce
|
|
Cannabis12
|
|
Hemp12
|
|
Total
|
|
|
|
|
|
|
|
|
Sales
|
$ 32,112
|
|
$ 7,442
|
|
$ 98
|
|
$ 39,652
|
Cost of
sales
|
(31,347)
|
|
(3,557)
|
|
(120)
|
|
(35,024)
|
Gross
margin
|
765
|
|
3,885
|
|
(22)
|
|
4,628
|
Selling, general and
administrative expenses
|
(3,921)
|
|
(1,348)
|
|
(117)
|
|
(5,386)
|
Share-based
compensation
|
(529)
|
|
-
|
|
-
|
|
(529)
|
Gain on settlement
agreement
|
4,681
|
|
-
|
|
-
|
|
4,681
|
Gain on settlement of
net liabilities
|
-
|
|
2,496
|
|
-
|
|
2,496
|
(Loss) gain on
disposal of assets
|
(6)
|
|
5
|
|
10
|
|
9
|
Other expense
net
|
(1,041)
|
|
(238)
|
|
(173)
|
|
(1,452)
|
(Loss) income before
taxes
|
(51)
|
|
4,800
|
|
(302)
|
|
4,447
|
Recovery of
(provision for) income taxes
|
1,012
|
|
(1,269)
|
|
-
|
|
(257)
|
Net income
(loss)
|
$ 961
|
|
$ 3,531
|
|
($ 302)
|
|
$ 4,190
|
Adjusted
EBITDA13
|
($ 1,587)
|
|
$ 2,778
|
|
($ 95)
|
|
$ 1,096
|
Income (loss) per
share – basic
|
$ 0.02
|
|
$ 0.07
|
|
($ 0.01)
|
|
$ 0.08
|
Income (loss) per
share – diluted
|
$ 0.02
|
|
$ 0.07
|
|
($ 0.01)
|
|
$ 0.08
|
|
|
|
|
12.
|
The adjusted
consolidated financial results have been adjusted to include our
share of sales and expenses from Pure Sunfarms and VFH on a
proportionate accounting basis, on which management bases its
operating decisions and performance evaluation. GAAP does not allow
for the inclusion of the joint ventures on a proportionate basis.
These results include additional non-GAAP measures such as Adjusted
EBITDA.
|
|
|
The adjusted results
are not generally accepted measures of financial performance under
GAAP. Our method of calculating these financial performance
measures may differ from other companies and accordingly, they may
not be comparable to measures used by other companies.
|
|
13.
|
Adjusted EBITDA is
not a recognized earnings measure and does not have a standard
meaning prescribed in by GAAP. See "Non-GAAP Measures"
above.
|
This press release is intended to be read in conjunction with
the Company's Consolidated Financial Statements ("Financial
Statements") and Management's Discussion & Analysis
("MD&A") for the three months and year ended March 31, 2021 in the Company Form 10-Q, which
will be filed on (www.sec.gov/edgar.shtml) and SEDAR
(www.sedar.com) and will be available at www.villagefarms.com.
Conference Call
Village Farms' management team will host a conference call
today, Monday, May 10-, 2021, at
8:30 a.m. ET to discuss its financial
results. Participants can access the conference call by
telephone by dialing (647) 427-7450 or (888) 231-8191, or via the
Internet at: https://bit.ly/3dGm67Z.
For those unable to participate in the conference call at the
scheduled time, it will be archived for replay both by telephone
and via the Internet beginning approximately one hour following
completion of the call. To access the archived conference call by
telephone, dial (416) 849-0833 or (855) 859-2056 and enter the
passcode 7179724 followed by the pound key. The telephone
replay will be available until Monday, May
17, 2021 at midnight (ET). The conference call will
also be archived on Village Farms' website
at http://villagefarms.com/investor-relations/investor-calls.
About Village Farms International, Inc.
Village Farms is one of the largest and longest-operating
greenhouse growers in North America. The Company leverages
decades of experience in large-scale, low-cost intensive
agriculture as a vertically integrated produce supplier to pursue
high-value, high-growth plant-based Consumer Packaged Goods
opportunities in cannabis and CBD in North America and
select markets internationally.
The Company's wholly owned Canadian
subsidiary, British-Columbia-based Pure Sunfarms is currently
one of the single largest cannabis operations in the world, one of
the lowest-cost greenhouse producers and one of the best-selling
brands in Canada.
In the U.S., subject to compliance with all applicable U.S.
federal and state laws, Village Farms is pursuing a strategy to
become a leading developer and supplier of branded and
white-labeled CBD products targeting major retailers and consumer
packaged goods companies. Village Farms has one of the largest
greenhouse operations in the country and is strategically
positioned to utilize its agricultural experience and Pure
Sunfarms' operational and product expertise, to pursue potential
high-THC cannabis opportunities when legally permitted to do
so.
Internationally, Village Farms evaluates and targets select,
nascent, legal cannabis and CBD opportunities with significant
long-term potential, with an initial focus on
the Asia-Pacific region through its investment
in Australia-based Altum International.
Cautionary Statement Regarding Forward-Looking
Information
This press release contains forward-looking statements within
the meaning of the United States Private Securities Litigation
Reform Act of 1995, Section 27A of the Securities Act of 1933, as
amended, (the "Securities Act") and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and is
subject to the safe harbor created by those sections. This press
release also contains "forward-looking information" within the
meaning of applicable Canadian securities law. We refer to such
forward-looking statements and forward-looking information
collectively as "forward-looking statements". Forward-looking
statements may relate to the Company's future outlook or financial
position and anticipated events or results and may include
statements regarding the financial position, business strategy,
budgets, expansion plans, litigation, projected production,
projected costs, capital expenditures, financial results, taxes,
plans and objectives of or involving the Company. Particularly,
statements regarding future results, performance, achievements,
prospects or opportunities for the Company, the greenhouse
vegetable industry or the cannabis industry are forward-looking
statements. In some cases, forward-looking information can be
identified by such terms as "outlook", "may", "might", "will",
"could", "should", "would", "occur", "expect", "plan",
"anticipate", "believe", "intend", "try", "estimate", "predict",
"potential", "continue", "likely", "schedule", "objectives", or the
negative or grammatical variation thereof or other similar
expressions concerning matters that are not historical facts. The
forward-looking statements in this press release are subject to
risks that may include, but are not limited to: our limited
operating history, including that of Pure Sunfarms and our start-up
operations of growing hemp in the United States; the
legal status of Pure Sunfarms' cannabis business; risks relating to
obtaining additional financing, including our dependence upon
credit facilities; potential difficulties in achieving and/or
maintaining profitability; variability of product pricing; risks
inherent in the cannabis, hemp and agricultural businesses; the
ability of Pure Sunfarms to cultivate and distribute cannabis
in Canada; existing and new governmental regulations,
including risks related to regulatory compliance and licenses
(e.g., Pure Sunfarms' ability to obtain licenses for its Delta 2
greenhouse facility as well as additional licenses under the
Canadian act respecting cannabis to amend to the Controlled Drugs
and Substances Act, the Criminal Code and other Acts, S.C. 2018, c.
16 (Canada) for its Delta 3
greenhouse facility), and changes in our regulatory requirements;
risks relating to conversion of our greenhouses to cannabis
production for Pure Sunfarms; risks related to rules and
regulations at the U.S. federal (Food and Drug Administration and
United States Department of Agriculture), state and municipal
levels with respect to produce and hemp; retail consolidation,
technological advances and other forms of competition;
transportation disruptions; product liability and other potential
litigation; retention of key executives; labor issues; uninsured
and underinsured losses; vulnerability to rising energy costs;
environmental, health and safety risks, foreign exchange exposure,
risks associated with cross-border trade; difficulties in managing
our growth; restrictive covenants under our credit facilities;
natural catastrophes; the ongoing and developing COVID-19 pandemic;
and tax risks.
The Company has based these forward-looking statements on
factors and assumptions about future events and financial trends
that it believes may affect its financial condition, results of
operations, business strategy and financial needs. Although the
forward-looking statements contained in this press release are
based upon assumptions that management believes are reasonable
based on information currently available to management, there can
be no assurance that actual results will be consistent with these
forward-looking statements. Forward-looking statements necessarily
involve known and unknown risks and uncertainties, many of which
are beyond the Company's control, that may cause the Company's or
the industry's actual results, performance, achievements, prospects
and opportunities in future periods to differ materially from those
expressed or implied by such forward-looking statements. These
risks and uncertainties include, among other things, the factors
contained in the Company's filings with securities regulators,
including this press release. In particular, we caution you that
our forward-looking statements are subject to the ongoing and
developing circumstances related to the COVID-19 pandemic, which
may have a material adverse effect on our business, operations and
future financial results.
When relying on forward-looking statements to make decisions,
the Company cautions readers not to place undue reliance on these
statements, as forward-looking statements involve significant risks
and uncertainties and should not be read as guarantees of future
results, performance, achievements, prospects and opportunities.
The forward-looking statements made in this press release relate
only to events or information as of the date on which the
statements are made in this press release. Except as required by
law, the Company undertakes no obligation to update or revise
publicly any forward-looking statements, whether as a result of new
information, future events or otherwise, after the date on which
the statements are made or to reflect the occurrence of
unanticipated events.
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SOURCE Village Farms International, Inc.