Village Farms(US:VFF)2025-05-12 21:11PART I - FINANCIAL INFORMATION Item 1. Financial Statements The company's Q1 2025 results show decreased assets, a wider net loss of $6.7 million, and a post-quarter privatization of its Fresh Produce segment Condensed Consolidated Statements of Financial Position (Assets) (In thousands USD) | | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total current assets | $104,874 | $116,019 | | Total non-current assets | $272,230 | $273,287 | | Total assets | $377,104 | $389,306 | Condensed Consolidated Statements of Financial Position (Liabilities and Equity) (In thousands USD) | | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total current liabilities | $54,561 | $62,219 | | Total non-current liabilities | $64,590 | $63,129 | | Total liabilities | $119,151 | $125,348 | | Total shareholders' equity | $248,337 | $254,005 | Condensed Consolidated Statements of Operations | (In thousands USD, except per share data) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Sales | $77,074 | $78,077 | | Gross profit | $11,340 | $15,513 | | Loss before taxes | $(6,132) | $(2,359) | | Net loss attributable to VFF shareholders | $(6,703) | $(2,852) | | Basic and Diluted loss per share | $(0.06) | $(0.03) | Condensed Consolidated Statements of Cash Flows | (In thousands USD) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(6,376) | $(50) | | Net cash used in investing activities | $(2,839) | $(1,876) | | Net cash used in financing activities | $(384) | $(1,442) | | Net decrease in cash | $(9,506) | $(3,606) | | Cash, end of period | $15,125 | $31,685 | - The company operates through subsidiaries including Village Farms Fresh (produce), Pure Sunfarms (Canadian cannabis), Balanced Health (U.S. CBD), VF Clean Energy, and Leli Holland (Netherlands cannabis)2330 - The company received a Nasdaq notification for not meeting the minimum bid price requirement and has until October 13, 2025, to regain compliance252627 - Subsequent to quarter end, the company announced the privatization of certain Fresh Produce assets for $40 million in cash and a 37.9% equity interest in a new joint venture, Vanguard91 - Subsequent to quarter end, the company entered into new and amended credit facilities with more favorable covenants for its FCC Term Loan and Pure Sunfarms operations8889 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Q1 2025 saw a 1% sales decrease and a 27% gross profit drop, driven by Produce segment losses but offset by strong Cannabis segment performance Executive Overview and Recent Developments The company is focusing on its global cannabis operations, highlighted by strong international sales growth and the privatization of its Produce segment - The company's vision is to be an international leader in plant-based consumer products, leveraging its experience in fresh produce for cannabis markets94 - Canadian Cannabis segment maintained a top-three market share in Canada and returned to its targeted gross margin range of 30-40%112 - International medical cannabis sales increased 285% year-over-year in Q1, with distribution expanded to New Zealand117 - Netherlands Cannabis (Leli Holland) commenced sales to Dutch coffeeshops in February 2025 and broke ground on a Phase II facility to quintuple production capacity104114 - Subsequent to quarter end, the company announced a transaction to privatize its Produce segment operations for $40 million and a 37.9% equity interest in a new joint venture, Vanguard Food LP114 Consolidated Results of Operations Consolidated Q1 2025 sales decreased 1% to $77.1 million, with a 27% drop in gross profit leading to a wider net loss of $6.7 million Consolidated Financial Performance (Q1 2025 vs Q1 2024) | (In thousands USD) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Sales | $77,074 | $78,077 | | Gross profit | $11,340 | $15,513 | | Loss before taxes | $(6,132) | $(2,359) | | Net loss attributable to VFF | $(6,703) | $(2,852) | | Adjusted EBITDA | $81 | $3,591 | - The 1% decrease in sales was primarily due to lower Canadian and U.S. Cannabis sales, partially offset by a slight increase in VF Fresh sales124 - The 27% decrease in gross profit was mainly caused by a $7.6 million decline in VF Fresh gross profit, which was partially offset by a $3.0 million increase in Canadian Cannabis gross profit126 - Selling, general and administrative (SG&A) expenses increased by 2% to $16.8 million, representing 22% of sales127 Segmented Results of Operations Performance varied widely by segment, with strong profitability in Canadian Cannabis contrasting sharply with a significant loss in the Produce segment Segment Operating (Loss) Income (Q1 2025 vs Q1 2024) | (In thousands USD) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Produce (VF Fresh) | $(7,157) | $617 | | Cannabis - Canada | $3,713 | $1,804 | | Cannabis - U.S. | $58 | $(711) | | Clean Energy | $325 | $(20) | | Cannabis - Netherlands | $(238) | $(363) | Segment Sales (Q1 2025 vs Q1 2024) | (In thousands USD) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Produce (VF Fresh) | $37,421 | $36,094 | | Cannabis - Canada | $34,837 | $37,446 | | Cannabis - U.S. | $3,904 | $4,537 | | Clean Energy | $426 | $0 | | Cannabis - Netherlands | $486 | $0 | Canadian Cannabis Segment Despite a 7% sales decrease, the segment's gross margin improved to 36%, driving a significant increase in net income to $3.0 million - Net sales decreased by 7% to $34.8 million, impacted by a $2.3 million unfavorable currency fluctuation and a planned reduction in value-branded product sales137138 - Gross margin improved to 36% from 25% YoY, due to a better sales mix with higher volumes of international and non-brand flower, and lower sales of value brands144 - International sales grew 259%, driven by strong export volumes to Germany138 - Adjusted EBITDA increased 64% to $6.7 million from $4.1 million in Q1 2024, reflecting the improved margins147 U.S. Cannabis Segment The segment achieved profitability with a net income of $58k despite a 14% sales decrease, driven by significant cost reductions - Net sales decreased 14% to $3.9 million due to new state restrictions on CBD sales and competition from unregulated hemp products149 - The segment achieved net income of $58k, compared to a net loss of ($711k) in Q1 2024153 - The improved profitability was driven by a 26% decrease in SG&A expenses due to more efficient marketing and contract renegotiations152 - Adjusted EBITDA improved to $114k from a loss of ($615k) in the prior-year quarter154 Netherlands Cannabis Segment The newly operational segment recorded $486k in sales with a 41% gross margin, resulting in a net loss of $242k for its inaugural quarter - The segment commenced sales in Q1 2025 and was not operational in Q1 2024155 Q1 2025 Financial Results | Metric | Amount (in thousands USD) | | :--- | :--- | | Net Sales | $486 | | Cost of Sales | $285 | | Gross Profit | $201 | | Gross Margin | 41% | | Net Loss | $(242) | | Adjusted EBITDA | $77 | Produce Segment - VF FRESH The segment's sales rose 4% but a 27% surge in costs led to a gross loss of $4.3 million and a net loss of $7.8 million - Sales increased 4% to $37.4 million, driven by a 39% increase in volume from supply partners, but partially offset by lower average selling prices for tomatoes (-15%) and peppers (-34%)163164 - Cost of sales increased 27% to $41.7 million, primarily due to a negative crop impact from dust storms at company-owned greenhouses and higher costs from supply partners165 - The segment recorded a gross loss of ($4.3 million) and a net loss of ($7.8 million), a significant decline from a gross profit of $3.3 million and net income of $0.1 million in Q1 2024166168 - Adjusted EBITDA was negative ($5.1 million) compared to a positive $2.0 million in the prior-year quarter169 Liquidity and Capital Resources The company maintains sufficient liquidity with $15.1 million in cash and has subsequently amended credit facilities for more favorable terms - At March 31, 2025, cash and cash equivalents were $15.1 million and working capital was $50.3 million170 - The company was not in compliance with certain financial covenants at Dec 31, 2024, but received waivers and subsequently amended covenants to be more favorable in April 2025171175 - On April 17, 2025, Pure Sunfarms replaced its existing loans with a new C$37.4 million secured credit facility, including a C$27.4 million term loan and a C$10.0 million revolving facility, maturing in February 2028183184 Summary of Cash Flows (Three Months Ended March 31) | (in Thousands USD) | 2025 | 2024 | | :--- | :--- | :--- | | Cash used in Operating activities | $(6,376) | $(50) | | Cash used in Investing activities | $(2,839) | $(1,876) | | Cash used in Financing activities | $(384) | $(1,442) | Non-GAAP Measures Consolidated Adjusted EBITDA fell to $81k from $3.6 million, as a large loss in the Produce segment offset strong Cannabis segment earnings - Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, and amortization (EBITDA), further adjusted for items like foreign currency exchange effects and share-based compensation193 Reconciliation of Net Loss to Adjusted EBITDA (Consolidated) | (in thousands USD) | For the Three Months Ended March 31, 2025 | For the Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net loss | $(6,703) | $(2,852) | | Amortization and depreciation | 4,973 | 4,558 | | Foreign currency exchange (gain) loss | (18) | 775 | | Interest expense, net | 631 | 711 | | Provision for income taxes | 983 | 320 | | Share-based compensation | 145 | 405 | | Other adjustments | 70 | (326) | | Adjusted EBITDA | $81 | $3,591 | Adjusted EBITDA by Segment (Q1 2025) | (in thousands USD) | Adjusted EBITDA | | :--- | :--- | | Produce (VF Fresh) | $(5,122) | | Cannabis - Canada | $6,698 | | Cannabis - U.S. | $114 | | Clean Energy | $325 | | Cannabis - Netherlands | $77 | | Corporate | $(2,011) | | Total | $81 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rate fluctuations on its $44.2 million of variable-rate debt and CAD/USD foreign exchange volatility - The company is exposed to interest rate risk on its variable-rate debt, which totaled approximately $44.2 million as of March 31, 2025205206 - The company is exposed to foreign exchange risk due to its Canadian operations, where a $0.10 increase in the Canadian dollar exchange rate would result in a net foreign exchange gain of approximately $4.4 million208 Item 4. Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2025, having remediated previously identified material weaknesses - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025211 - The company has remediated the previously identified material weaknesses related to IT general controls (user access, change management) and manual journal entry controls at its Produce segment213214 - Remediation actions included enhancing IT risk assessments, limiting privileged user access, and implementing stricter review and approval controls for manual journal entries214216 PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is engaged in ordinary course legal proceedings, none of which are considered material to its business - The Company is engaged in ordinary course legal proceedings, none of which are considered material to the business217 Item 1A. Risk Factors Key risks include potential Nasdaq delisting due to low stock price and the uncertainty of realizing benefits from the Produce segment privatization - The company's common shares may be delisted from Nasdaq if it does not regain compliance with the minimum bid price requirement of US$1.00 by the extended deadline of October 13, 2025219220 - Delisting from Nasdaq would likely decrease liquidity, increase stock price volatility, and adversely affect the ability to raise capital221 - The company may fail to realize the expected benefits of privatizing its Fresh Produce segment, as it will have only a minority interest and limited control over the new joint venture222 Item 2. Unregistered Sale of Securities and Use of Proceeds The company did not repurchase any of its common shares during the three months ended March 31, 2025 - The Company did not repurchase any of its Common Shares during the three months ended March 31, 2025223 Item 3. Defaults Upon Senior Securities Not applicable Item 4. Mine Safety Disclosures Not applicable Item 5. Other Information During the quarter ended March 31, 2025, no director or officer of the company adopted or terminated a Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the quarter226 Item 6. Exhibits This section lists the exhibits filed with the report, including amended credit agreements, officer certifications, and XBRL data files - Exhibits filed include an Amended and Restated Credit Agreement with Farm Credit Canada, a new Credit Agreement for Pure Sunfarms, and certifications by the Principal Executive and Financial Officers227