Village Farms International Reports Improved Third Quarter 2017 Financial Results and Provides Cannabis Joint Venture Update

Village Farms International, Inc. (TSX: VFF) (OTCQX:VFFIF) today announced its financial results for the third quarter and nine-month periods ended September 30, 2017. 

Highlights for the Third Quarter of 2017:
(Note amounts in U.S. Dollars unless otherwise indicated)

• Sales increased 6% to $44.7 million from $42.0 million for the third quarter of 2016;
• EBITDA increased by 78% to $1.0 million from $0.5 million for the third quarter of 2016; and,
• Net income was $0.3 million, or $0.01 per share, compared with a net (loss) of ($1.4 million), or ($0.04) per share, for the third quarter of 2016.

Cannabis Joint Venture (Pure Sunfarms) Update:

• On September 14, 2017, the application for a “second site” cultivation license under the Access to Cannabis for Medical Purposes Regulations (ACMPR) for Pure Sunfarms Corp.’s (“Pure Sunfarms”) Delta facility was submitted to Health Canada. That application was subsequently accepted for review by Health Canada on September 18, 2017; and,
• Pure Sunfarms commenced physical conversion of the 1.1 million square foot greenhouse facility in Delta, British Columbia and expects to complete conversion of the first 250,000 square foot quadrant in February 2018 such that, subject to the receipt of cultivation and sales licenses from Health Canada, it expects to begin selling dried cannabis on or before July 2018 and to have all four quadrants commercially producing in the fourth quarter of 2019.

“Our cannabis joint venture, Pure Sunfarms, is making rapid progress towards commercial production at its 1.1 million square foot greenhouse facility in Delta, British Columbia,” said Michael DeGiglio, Chief Executive Officer, Village Farms International, Inc. “In September, the application for a “second site” cultivation license for the Delta facility was submitted to Health Canada and quickly accepted for review. Physical conversion of the greenhouse facility is now underway and progressing on schedule, such that completion of the first 250,000 square foot quadrant is targeted for February 2018. Subject to the receipt of cultivation and sales licenses from Health Canada, Pure Sunfarms expects to begin selling dried cannabis in July 2018.”

“Cannabis production is a significantly more profitable use of the Delta 3 greenhouse operations,” added Mr. DeGiglio. “Using conservative market pricing and yield assumptions, we estimate cannabis production at the Pure Sunfarms facility, which equates to approximately 10% of Village Farms’ total growing area, will generate more revenue than our Company currently generates – and at EBITDA margins in excess of 50%. We remain confident in the Pure Sunfarms’ ability to ramp to 75,000 kg of production in 2020 and, at full production achieve a cost of production including depreciation of less than $1.00 per gram.”

“Our incumbent produce business performed well in the third quarter, highlighted by a 6% year-over-year increase in revenue, 78% year-over-year growth in EBITDA and positive net income, despite continued pricing pressures on commoditized tomato varieties. We continue to benefit from our focus on cost of production per pound, which was 6% lower at the Company’s facilities than for the third quarter last year, and marked our sixth quarter of improvement in the last seven.”

Financial Summary
(in thousands of U.S. Dollars unless otherwise indicated)

Consolidated Financial Performance
(In thousands of U.S. dollars, except per Share amounts)

Third Quarter 2017 Operational Discussion:
(in thousands of U.S. Dollars unless otherwise indicated)

Sales 

Sales for the three months ended September 30, 2017 increased by $2,690, or 6%, to $44,735 from $42,045 for the three months ended September 30, 2016. The increase in sales is primarily due to an increase in the Company’s facilities product volume of 17% partially offset by a decrease in supply partner product volume of (13%) and a decrease in the selling price of tomatoes of (2%). The revenues from the Company’s facilities increased by 12% as tomato pounds were higher by 16% and cucumber pieces were higher by 33%. The Company’s tomato production increased during the three months ended September 30, 2017 versus the same period in 2016 due a change in the cropping schedule in the Company’s Marfa facility. 

The 2017 third quarter tomato price decrease was primarily due to a 10% increase in the production of lower priced non-specialty tomato varieties. Cucumber pricing increased by 5% and pepper pricing decreased by (13%) in the third quarter of 2017 versus the comparable quarter in 2016.    

Cost of Sales

Cost of sales for the three months ended September 30, 2017 increased by $2,071, or 5%, to $42,400 from $40,329 for the three months ended September 30, 2016. The increase is due to increased product volumes at the Company’s facilities versus the same period in 2016. The cost per pound for the Company’s facilities during the quarter was 6% lower versus the same quarter in 2016. 

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended September 30, 2017 were flat at $3,358 from $3,349 for the three months ended September 30, 2016. 

Change in Biological Asset

The net change in fair value of the biological asset for the three months ended September 30, 2017 increased by $109 to $529 from $420 for the three months ended September 30, 2016. The increase is due to a lower starting biological asset value at July 1, 2017 versus July 1, 2016. The fair value of the biological asset as at September 30, 2017 was $5,305 as compared to $6,540 as at September 30, 2016 due to lower production and lower selling price in October 2017 versus October 2016. 

(Loss) from Operations

(Loss) from operations for the three months ended September 30, 2017 was ($494), which was an improvement of $719 from a loss of ($1,213) for the three months ended September 30, 2016. The improved operating results is due to increased sales, an increase in change in fair value of the biological asset, partially offset by higher cost of sales in the third quarter of 2017 versus the third quarter of 2016. 

Interest Expense, net

Interest expense, net, for the three months ended September 30, 2017 decreased by ($17), to $689 from $706 for the three months ended September 30, 2016. 

Income Taxes (recovery)

Income tax recovery for the three months ended September 30, 2017 was ($1,584) compared to income tax recovery of ($521) for the three months ended September 30, 2016. The income tax recovery for the three months ended September 30, 2017 is attributable to management’s change in estimate for the tax on the book gain on the contribution of assets to the joint venture.

Net Income (loss)

Net Income (loss) for the three months ended September 30, 2017 improved by $1,719 to net income of $294 from a net (loss) of ($1,425) for the three months ended September 30, 2016 as a result of improved operating results and an increase in the income taxes recovery. 

Share of (loss) from Joint Venture

The Company’s share of the loss from Pure Sunfarms for the three months ended September 30, 2017 is ($220), which was comprised of legal, consulting fees and travel expenses.

EBITDA

EBITDA for the three months ended September 30, 2017 increased by $429, or 78%, to $976 from $547 for the three months ended September 30, 2016, principally as a result of improved operating results. See the EBITDA calculation in “Non-IFRS Measures – Reconciliation of Net Income to EBITDA.”

Non-IFRS Measures

References in this press release to “EBITDA” are to earnings before interest, taxes, depreciation, amortization, foreign currency exchange gains and losses on translation of long-term debt, unrealized change in biological asset, stock compensation, share of loss from joint venture, and gains and losses on asset sales. EBITDA is a cash flow measure that is not recognized under IFRS and does not have a standardized meaning prescribed by IFRS. Therefore, EBITDA may not be comparable to similar measures presented by other issuers. Investors are cautioned that EBITDA should not be construed as an alternative to net income or loss determined in accordance with IFRS as an indicator of the Company’s performance or to cash flows from operating, investing and financing activities as measures of liquidity and cash flows. Management believes that EBITDA is an important measure in evaluating the historical performance of the Company.  

Reconciliation of Net Income to EBITDA 

The following table reflects a reconciliation of net income (loss) to EBITDA, as presented by the Company:

Conference Call

Village Farms’ management team will host a conference call today, Monday, November 13, 2017, at 11:00 a.m. ET (8:00 a.m. PT) to discuss its third quarter 2017 financial results. Participants can access the conference call by telephone by dialing (647) 427-7450 or (888) 231-8191, or via the Internet at http://bit.ly/2iMRYgU.

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Michael Berger is Managing Partner of StoneBridge Partners, LLC and Founder of Mushroomstocks.com. Prior to entering the cannabis industry, Michael was an Equity Research Analyst at Raymond James Financial covering the Energy Sector. Michael has been featured in publications such as The Street, Bloomberg, US Money News, and hosts various cannabis events across North America.

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