Village Farms reports Q4 EPS (20c), consensus (2c)

Reports Q4 revenue $74.2M, consensus $69.79M. “Our Canadian Cannabis business remains the undisputed leader in that market, with record sales and another quarter of positive adjusted EBITDA and cash flow in the fourth quarter,” said Michael DeGiglio, President and Chief Executive Officer. “We reclaimed the number two national market share rank across all categories and are steadily closing the gap on the top position. Record retail branded sales were complemented by another especially strong quarter for non-branded wholesale sales. In our non-branded wholesale channel, we took advantage of improved supply conditions and pricing created by the shift of many of our peers to asset light models, significantly reducing our non-brand-spec inventory. While these close out sales are temporarily affecting gross margin and adjusted EBITDA, they are generating additional cash flow, and will support more efficient, higher cash conversion inventory turnover this year and beyond. We are encouraged by early signs of a more favorable operating environment for our Canadian Cannabis segment. Reduction in biomass oversupply, recent stabilization of retail pricing, more aggressive actions to address ballooning delinquent excise duties, and recommendations to change the excise duty to 10% of sales will benefit the industry’s profit potential, and especially our business as a profitable leader. Village Farms paid C$78 million in excise duties in 2023 on sales of C$232 million – an effective rate of nearly 34%. On the international front, earlier this year we started the build out of our first production facility in the Netherlands, where we are proud to be the only North American participant in the first legal recreational cannabis market in a major European country. Production is targeted to begin later this year. We expanded our export program for the European medical market to the United Kingdom, with additional markets expected to be added this year. Notably, recent positive progress around German medical use regulation provides us with additional opportunity going forward as the market grows. In our U.S. Cannabis business, we generated positive adjusted EBITDA and positive cash flow. Within our Fresh Produce business, we achieved our goal of positive adjusted EBITDA for the year, with another quarter of significant year-over-year improvement. Our produce business is stable, and we are working toward sustainable profitability and cash flow. We are executing on our plan with respect to customer profitability, continuous cost improvement and operational efficiency. Our Fresh Produce expertise and a portion of our Texas-based assets remain a transformational opportunity to replicate our success in Canada in the next iteration of US high-THC cannabis regulation. The fourth quarter closed a year in which each of our core businesses delivered positive adjusted EBITDA. Our strong momentum through the back half of 2023 has accelerated in 2024, marking a great start to a year that we believe will see new levels of performance across our businesses.”