Village Farms International, Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Vanguard Transaction: Signed a definitive agreement to privatize majority of fresh produce division into Vanguard Foods LP, retaining 37.9% ownership and receiving $40 million cash. Believes the transaction will unlock long-term value for both cannabis and produce businesses.
• Canadian Cannabis: Had a strong quarter with higher margin medical export sales growing 285% YOY, gross margin expanded to targeted range of 30% - 40%. International medical sales, including new markets like New Zealand, contributed to growth.
• Netherlands Operations: Leli Holland had first quarter revenue contribution from recreational sales, adjusted EBITDA margin 15.8%. Phase two of Netherlands operation, a new state-of-the-art indoor facility, expected to be completed in Q1 next year and quadruple production capacity.
• US Cannabis: Stabilized despite regulatory headwinds, with Q1 sales trending lower but gross margin at 66% and returned to positive adjusted EBITDA.
• Dust Storms Impact: Texas facilities' dust storms caused a $4.3 million incremental non-cash accounting charge to VF Fresh cost of sales, increasing cost per pound at Fort Davis facility by 31%.

Segment Performance

• Canadian cannabis: Net sales were CAD50 million, with higher margin medical export sales growing 285% year-over-year in Q1. Gross margin expanded from 25% in Q1 2024 to 36% in Q1 2025, adjusted EBITDA increased 75% to 9.6 million Canadian dollars, and net income rose 291% to 4.3 million Canadian dollars.
• US cannabis: Q1 sales were 3.9 million, with a healthy gross margin of 66% and returned to positive adjusted EBITDA despite regulatory headwinds.
• Village Farms Clean Energy: Generated 300,000 in net income from royalty payments.
• VF Fresh: Consolidated revenues were $77 million, slightly down 1% from prior year due to lower Canadian cannabis revenues and a $4.3 million incremental non-cash accounting charge to cost of sales from dust storms in Texas facilities.

Guidance

• Expect to provide proforma financial performance and outlook after the Vanguard transaction closes in the second quarter.
• Plan to continue building infrastructure, monitor US market optionality, and consider further expansion in Canada for 2026 and beyond.
• Focus on building out the Netherlands operation and driving organic growth in Canada, including export sales.

Risks

• Dust Storms: Dust storms in Texas facilities had a significant impact on VF Fresh, resulting in a $4.3 million incremental non-cash accounting charge to cost of sales and a 31% increase in cost per pound at Fort Davis facility.
• Regulatory Headwinds: US cannabis business faced challenges due to state-level actions on unregulated hemp products, though the segment was stabilized and efforts were underway to reinvigorate sales.

Question and Answer

Q: Talked about balance sheet, capital allocation and M&A opportunities.

A: Steve Ruffini mentioned building war chest, monitoring US market for optionality, focusing on organic growth in Canada, driving export sales, and building out the Netherlands.

Q: About produce assets post transaction.

A: Steve Ruffini explained remaining produce assets are D1 and Delta, with D1 being the most profitable facility.

Q: About Netherlands capacity and pricing.

A: Michael DeGiglio said phase two of Netherlands operation will quadruple production capacity, and pricing in Netherlands is in line with expectations.

Q: About Holland coffee shops and hemp co-manufacturing.

A: Steve Ruffini said coffee shops in Holland must buy legal product as of April 7th, and there is an opportunity for co-manufacturing hemp products.