Village Farms International, Inc.

Good morning, ladies and gentlemen. Welcome to the Village Farms International's second quarter 2024 financial results conference call. This morning, Village Farms issued a news release reporting its financial results for the second quarter ended June 30th, 2024. That news release, along with the company's financial statements, are available on the company's website at villagefarms.com under the investors heading. Please note that today's call is being broadcast live over the internet and will be archived for replay both by telephone and via the internet beginning approximately one hour following completion of the call. Details of how to access the replays are available in today's news release. Before we begin, let me remind you that forward-looking statements may be made today during or after the formal part of this conference call. Certain material assumptions were applied in providing these statements of which are beyond our control. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in forward-looking statements. A summary of those underlying assumptions, risks, and uncertainties is contained in the company's various securities filings with the SEC and Canadian regulators, including its Form 10-K MD&A for the year ended December 31, 2023, and 10-Q for the quarter ended June 30, 2024. which will be available on EDGAR and CDER+. Those forward-looking statements are made at today's date and except as required by applicable securities law, we undertake no obligation to publicly update or revise any such statements. I would now like to turn the call over to Michael DiGiglio, Chief Executive Officer of Village Farms International. Please go ahead, Mr. DiGiglio.

Thank you, Tonya. Good morning and thank you for joining us today. With me are Steve Perfini, Chief Financial Officer, and Gillian Lefevre, Chief Operating Officer, and Patty Smith, Corporate Controller. So Q2 is another strong quarter for Village Farms, with record consolidated sales driven by Canadian cannabis, which reported a new quarterly sales record, and fresh produce, which tied its second highest quarterly sales in the last five years. I'm very pleased with the continued growth in Canadian cannabis. which is broad-based across our brands, form factors, and geographies. Total net sales grew 45% year-over-year, all organically, without acquisitions, to $56 million. Branded retail sales grew 35%, and we were once again profitable with positive cash flow from operations of $7.2 million Canadian dollars. In Q1, we noted that we had the fastest growing market share of the top five Canadian LPs. In Q2, we were the only top five producer to grow share, the only one. We are now less than two percentage points from the number one market share rank in Canada. Importantly, our market growth is diversified across leading brands, multiple cannabis form factors, consumer segments, and geographies. So let me give you a few examples which show the depth of our business model. We are the fastest growing producer in pre-rolls year to date. In just the last 12 months, with investment and innovation and a renewed focus on assortment and pricing, our brilliant team has expanded our share on the national pre-roll market by just under three percentage points to nearly 8% of the market. Our game-changing high-depth pre-rolls remain a true innovation in the category, and we are also gaining share through our focus on quality inputs across all of our pre-rolls. Super Toast, our milled flour brand, continues its outstanding performance, despite the milled category being very competitive with a well-entrenched leader. It's the third fastest-growing brand nationally, despite selling in just four provinces, and growth is accelerating. We have 20% share of the mill category nationally, 25% in Ontario, and that's despite launching just one year ago. We have a 94% repeat purchase rate among our consumers. In May, Super Toast Sergeant Pineapple took over as the top mill SKU in Ontario. This is a great example of extending our quality and into new categories that resonate with our consumers. We are also building share across different consumer price points. In the premium segment, our SOAR brand continues to excel. Strong performance in flour is being complimented by innovation in the infused pre-roll category. SOAR's Pineapple God is the fourth best-selling premium SKU nationally. Finally, we continue to innovate in flour with new strains that delight our consumers. We had the number one flour products nationally in both Q1 and Q2 of this year. Our Fraser Valley's Donny Burger and Pure Lane Big Pleasures were in that category. We recently launched three new cultivars in British Columbia under our grower-led Trials by Pure Sun Farms strategy with its unique limited release small batch offerings. In addition, our new in-house bred Pure Sun Farms Kush God strain derived from two Village Farms iconic parent strains, Pink Kush and Pineapple God, and our new Pure Sun Farms Gold Face Drain have each added meaningful to market share with demand outstripping initial expectations. Another important metric is the geographical ranking which tells us our products are resonating across Canada's many consumer preferences. We are strengthening our number one and two position in Ontario and Quebec. We are now tied to the number two rank in British Columbia, moving up two positions in the last year. And in Alberta, we improved our rank to fourth. That's up four positions from eight this time last year. And we are also growing our international export business. Q2 is another good quarter with solid contributions from Germany and the United Kingdom as these countries ramp up and become an increasingly bigger proportion of our export sales. Notably, in Germany, we have seen higher demand following the regulatory change there in April. Sales to Australia overall are growing. While those reported as international sales decreased from Q2 last year, total Australian sales, including those that get reported as non-branded due to the nature of the customer, grew fourfold from Q2 last year. Our flower strategy has proven successful in Canada and is now doing the same internationally. In the Netherlands, we are just months away from the start of production for our Dutch consumers. The program recently completed its startup phase, expanding the number of municipalities in the Netherlands in which legal cannabis can be sold in coffee shops from 2 to 10. I just returned from there, and I am so impressed with the build-out. It's an incredible facility, and I'm very excited about our future in the Netherlands. We look forward to our first sales in Q1 2025. Now turn to fresh produce, which also delivered strong sales growth despite temporary pricing pressure on the back half of the quarter. Steve's going to provide more detail, but I would like to highlight a couple of trends that set this business up for an improved second half as pricing recovers. First, our gross margin for the first six months of the year has improved by over 150 basis points despite the pricing challenge. The underlying cost structure continues to improve And second, volumes are stronger, which will drive improved results as pricing recovers. This quarter, we added more partner sales than we had, and we had higher yields in our Texas operations. Both are important to maintaining the value of a fresh business with our customers and consumers to be able to share assets with our cannabis strategy. In short, we are expanding our asset-like growth strategy in fresh to supplement our cannabis plans. A question I get asked is, why invest in fresh produce? The answer is simple. The business has great value as a top five North American produce marketer, and the rollout of permissible cannabis in the U.S., either NASDAQ permitted or Texas-based, is taking longer than we predicted in the last four years. Our excellence as operators stem from our deep cultivation expertise. I'll turn the call over to Steve now to review the financials and then come back. Steve?

Thanks, Mike. Starting with their consolidated results, total sales grew 19% year-over-year to $92.1 million, a strong top-line growth in both Canadian cannabis and fresh produce. Net loss was $23.5 million, or 21 cents per share, paired with a net loss of $1.4 million last year. This quarter's net loss breakdowns as follows. Approximately half, or $12 million, was a non-cash impairment charge on our U.S. cannabis business. Roughly a third, or $8.3 million, was driven by our produce business due to poor market pricing, which I will give more color on. And $2.1 million was due to incentive stock compensation issued in the quarter. Consolidated adjusted EBITDA was negative $3.6 million, compared with negative $1.1 million for Q2 last year, excluding the $5.6 million settlement of a legal matter that contributed to our prior period produce results. Let's look at the business segments starting with fresh produce. Q2 sales increased 7% year-over-year to $47 million, equaling our second-best quarter in the last five years due to higher volumes at our Texas greenhouses and the strategic addition of third-party volume, which were partially offset by pricing. Tomato pricing swung dramatically lower in the back half of the quarter, driving a larger-than-expected operating loss. Adjusted EBITDA was negative $6.4 million. For context, prices in May and June were 31% lower than the January to April period and 11% below our forecast. Historically, May-June pricing is around 20% lower than the first four months of the year due to the seasonality of industry supply. Our ongoing focus on cost efficiencies and yield expansion drove a meaningful improvement in our gross loss for the first half of the year. In fact, on our own produce facilities, without an incremental Q2 third-party supply loss, we would have been very close to a break-even gross margin for the first six months of the year. Just a reminder that we strongly encourage analysts and investors to look at our produce business the way we do, on a full-year basis. as quarterly adjustments in cost of sales can distort any quarter due to the accounting for our annual crop cycle. With the current improved pricing environment, partially due to seasonality and partly due to supply issues within the industry, coupled with further improvements in our cultivation technologies, including AI, we expect significantly improved performance for fresh produce for the balance of 2024. Canadian cannabis delivered another quarter of record sales, record retail branded sales, and a strong quarter for non-branded sales. These drove another quarter of positive adjusted EBITDA and operating cash flow of Canadian $7.2 million. Importantly, this cash flow is enabling us to self-fund our first Netherlands facility and fund the acquisition of the additional 10% ownership of Rose during the quarter. Total net sales grew 45% year over year to Canadian $55.8 million. Retail branded sales grew 38% to Canadian $41.8 million. Non-branded sales tripled to Canadian $11.3 million as we continue to be opportunistic in the improved B2B pricing environment to reduce non-branded spec biomass inventory and generate cash. This has become an interesting opportunity as other operators continue to shutter production and move to asset-light models. We will continue to take advantage as long as it makes sense for our branded and international sales channels, which will always come first. It was another good quarter for international export sales, which were 2.1 million, up 11% from Q2 last year. The first half of this year has been our best period for ongoing international sales to date, excluding those periods with load in to new countries. We remain on track to deliver solid year-over-year growth this year. Canadian cannabis gross margin improved from Q1 to 26%. Excluding low margin non-branded spec B2B sales, gross margin for Q2 was 28%, reflecting a higher proportion of value brand sales, mostly Fraser Valley and Pure Lime, as compared to prior year. SG&A expense as percentage of sales for Q2 improved to 22%, or 28% driven by higher sales. Q2 adjusted EBITDA for Canadian cannabis was 6.6 million was in line with Q2 last year. Before moving on from Canadian cannabis, I would be remiss if I didn't point out the significant excise taxes we are paying as we expand our branded business. Our excise tax for Q2 was Canadian 27 million and for the six months was Canadian $54 million, by far our largest single expenditure for our cannabis business. Very few can build sustainable, profitable business in Canada with such a tax. An excise tax of 30 to 40% is a burdensome tax in any industry, let alone a young and developing industry. Until there is change, we will continue to see CCAA activity occurring within the industry, with thousands of jobs lost, or continued creative ways for some to try to circumvent their unpaid excise taxes. Supply is not only drying up in Canada due to some moving to asset-light models, but others are simply going dark due to the burdensome excise tax. Turning to our U.S. cannabis business, Q2 sales were $4.3 million with a gross margin of 71%. Our sales continue to be impacted by the proliferation of unregulated hemp-based products, most notably synthetic products, and in response, a growing number of states that are severely restricting intoxicating hemp-based products to essentially ban synthetic hemp products, which in turn has negatively impacted our responsible GMP-produced natural hemp products sold under our CB distillery brand. During Q2, we completed the internalization of gummy production to support margin, quality, and future innovation for this consumer-preferred format. We are progressing on multiple initiatives to reinvigorate our sales, recognizing the consumer needs clear messaging about the use of synthetic cannabinoids. Q2 adjusted EBITDA was negative 240,000 with a net loss excluding the $11.9 million intangible asset impairment of $303,000, both were improvements over Q1. Turning to consolidated cash flows in the balance sheet, we generated cash flow from operations of $5.7 million compared with the use of cash in operations of $5.2 million in Q2 last year. The primary driver of the improvement was the reduction in our cannabis inventory. For those that read our financial statements, our finished goods cannabis inventory is down 30% since the end of last year. We ended Q2 with cash of $29.7 million and working capital of $6.1 million. Total term debt at the end of Q2 was $44 million, split approximately equally between fresh produce debt due May 2027 and cannabis debt with maturity starting in February 2026. During the quarter, we amended and extended The agreement for our $10 million revolving line for fresh produce, which has a current balance of $4 million with a May 2027 maturity date. We also have in place a Canadian $15 million cannabis line of credit, which is currently not drawn on. We remain comfortable with our net debt level at $18.7 million. And with that, I will now turn the call back to Mike. Hey, thanks.