Village Farms International, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• The second quarter was transformational, with record profitability. The company announced and closed the privatization of ~1/3 of produce assets, generating $40 million in cash proceeds.
• International exports increased almost 700% YOY, achieving the full-year target of tripling 2024 international export sales in the first half.
• Board approved conversion of the remaining 550,000 square feet of Delta 2 greenhouse in BC to cannabis cultivation, with an expected investment of ~CAD 10 million, funded by cash on hand and operational cash flows, and full production by Q1 2027.
• Canadian cannabis gross margin was 39%, at the high end of the target range. Recreational sales in the Netherlands showed strong momentum with Phase 1 facility at full capacity. U.S. cannabis gross margin improved despite regulatory headwinds.

Segment Performance

• Canadian Cannabis Segment: Consolidated net sales increased 10% YOY to CAD 61.4 million. Canadian cannabis gross margin was 39%, at the top of the target range of 30%-40%. Adjusted EBITDA from continuing operations was CAD 16.5 million, up 150% YOY.
• Recreational Cannabis in the Netherlands: Q2 sales were $2.5 million with adjusted EBITDA of $1.2 million. Phase 1 facility reached full operational capacity.
• U.S. Cannabis Business: Q2 sales were $3.8 million. Gross margin improved to 63% due to internalization of gummy production, resulting in a small positive adjusted EBITDA.
• Remaining Produce Segment: Sales increased 2% YOY to $8.6 million. Net income from continuing produce operations improved to $4.3 million from a loss, and adjusted EBITDA from continuing produce operations was $6.4 million.

Guidance

• Board approved conversion of Delta 2 greenhouse to cannabis cultivation, with investment ~CAD 10 million funded by cash on hand and operational cash flows.
• Expect second half of 2025 sales to be similar to the first half, driven by continued growth in international markets.
• Delta 2 conversion to start in November 2025, with full production by Q1 2027.

Risks

• Regulatory uncertainties in various markets, such as Germany's telemedicine reforms and Portugal's stricter standards.
• Potential oversupply in cannabis markets if not managed properly.
• Dependence on international market growth and Canadian regulatory dynamics affecting sales and margins.

Question and Answer

• Q: Aaron Grey on Delta 2 expansion and international growth A: Michael DeGiglio and Ann Lefever discussed the low investment risk of converting Delta 2, matching supply with demand, and continued growth in international markets, noting they are not worried about oversupply and are focused on fulfilling customer needs.
• Q: Doug Cooper on segment EBITDA and Canadian market dynamics A: Steve Ruffini and Ann Lefever addressed segment EBITDA figures, Canadian market dynamics, and M&A potential, mentioning organic growth and strategic considerations for M&A.
• Q: Frederico Gomes on Canadian cannabis gross margins and second half growth A: Stephen Ruffini and Ann Lefever discussed potential margin upside from SKU and customer mix, cost base improvement from unit volume, and second half growth drivers including continued international growth and Leli's ramp-up.