Village Farms International, Inc.

Good morning, ladies and gentlemen. Welcome to Village Farms International 3rd Quarter 2025 Financial Results Conference Call. This morning, Village Farms issued a news release reporting its financial results for the 3rd quarter ended September 30, 2025. That news release, along with the company's financial statements, are available on the company's website at villagefarms.com under the Investors Headings. 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 materials assumptions were applied in providing these statements, many 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 these 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 MDNA for the year ended December 31, 2024, and 10-Q for the quarter ended September 30, 2025, which will be available on EDGAR and CEDAR+. These forward-looking statements are made of today's date and accept as required by applicable securities laws. We undertake no obligation to publicly update or revise any such statements. I would now like to turn the call over to Michael DiGilio, Chief Executive Officer of Village Farms International. Please go ahead, Mr. DiGilio.

Thank you, Cherie. Good morning, everyone, and thank you for joining us today. With me on the call are Steve Ruffini, our Chief Financial Officer, and Gillian Lefevre, our Chief Operating Officer, Patty Smith, our Corporate Controller, and Sam Gibbons, Senior Vice President. corporate affairs I'll begin with a review of highlights from the third quarter then Steve will review the financials in more detail before I provide some last closing comments as we discussed in this morning's earnings release our third quarter was another one of many records for village farms our last quarter's call we talked about our confidence in the sustainability of the positive trends we were seeing across the business and as we continue executing and scaling a profitable global enterprise. Today's results, only three months later, validate the expectations we discussed, and we remain confident that our competitive strengths, combined with the incremental growth catalyst we see on horizon, position us for a very strong future. Consolidated net sales increased 21% year over year in Q3. And net income from continuing operations was $10.8 million, or $0.09 a share, an increase of almost 10% sequentially compared to the record we set last quarter. For the second consecutive quarter, we also achieved new records for adjusted EBITDA and adjusted EBITDA margin from continuing operations of $20.7 million and 31% of sales. and we continue to see excellent cash conversion with consolidated cash flow from operations of $24.4 million, another record for Village Farms. Our Canadian cannabis business delivered 29% year-over-year growth in net sales, reaching a new high of $64.1 million in Q3, driven by strong performance in our targeted channels, improving sales mix, which has led to higher average pricing, and continued momentum in the International Medical Export Division, which we were up more than 750% year over year. What is enabling us to deliver these levels of performance? Well, we believe it comes from three critical factors. First is our capabilities as a premier provider of quality and consistent cannabis flower at scale and at the lowest cost. Second is our commitment to manufacturing excellence and our EU GMP capabilities. And finally, it's a tremendous execution of our global team. Our execution on all fronts has been paramount to our success and all the Village Farm team members are worthy of considerable praise. Canadian cannabis retail sales were in line with our expectations with stronger contribution margin from retail branded sales in Q3 driven by our recent success in aligning our product portfolio towards higher margin SKUs. As a reminder, we first began discussing our plan to realign our product offerings towards the end of last year, as our analysis and consumer feedback suggested the quality of our flour should command a higher price point. Since that time, we've observed significant improvements in profitability. And because of our deliberate move away from some value-oriented tiers of the market and our core PureSun Farms brand has experienced steady growth in market share since last December. We're pleased to be seeing relative stability in overall share performance as we begin to anniversary the implementation of these changes. And we're looking forward to benefiting from expanded production capacity next year which will enable us to continue supporting growth in the Canadian market. Our non-branded wholesale channel in Canada continue to show consistent top line performance as we've observed the past seven quarters. And as mentioned previously, our international medical business continued to expand rapidly during the third quarter with over 750% sales growth year over year. Germany continues to be a driver of increasing international demand, and we believe we've expanded market share sequentially in this market during each of the past four quarters. Based on local government data and internal estimates, we believe Village Farms is now the largest exporter of medical cannabis to Europe, and that will well position long-term to continue expanding into new markets as additional countries around the world embrace the many benefits of regulated cannabis. I also want to make clear that international business did not experience any disruptions to deliveries or order flow during the third quarter. And in fact, the German government recently increased its import limit of medical cannabis by an additional 70 metric tons. As a reminder, our Delta British Columbia facility has been EU GMP certified since 2022. This certification was recently renewed, which underscores our rigorous commitment to our operational excellence and enables us to ship directly to partners across the world who are seeking GMP flour. We have never shipped through Portugal, having identified this as a compliance and supply chain risk some time ago. Our consistent product quality, potency, and reliability of on-time delivery of our products continues to differentiate Village Farms from our competitors on the global stage. And we expect to expand to multiple new international jurisdictions during the first half of next year. As a reminder to investors who may be new to our story, we are only using approximately 35% of our nearly 5 million square feet of advanced greenhouses in Canada for cannabis production today. We have proven our playbook in scaling out Delta BC production campus, partly thanks to our nearly 40-year track record in highly intensive agriculture. And we have a strong labor force that knows how to execute and operate these facilities efficiently. To support continued growth in Canada and abroad, the 40 metric ton capacity expansion project we announced last quarter is now underway. and we anticipate it will increase our annual production capacity in Canada by approximately 33%. The incremental capacity is expected to begin coming online in Q2 of next year and be fully ramped in early 2027. At that time, 45% of our greenhouse capacity in Canada will be in full cannabis production, leaving our largest 60-acre Delta One greenhouse facility available for future phase conversion to cannabis beginning as early as 2027 if we deem necessary. As many of you know, increasing global demand for cannabis has currently resulted in a relatively supply-constrained environment in the domestic Canadian market for much of the past year. These dynamics have supported an improved pricing environment in Canada. And along with improvements in our operating efficiency, helped us achieve record gross margin with improved profitability in all our various sales channels during the third quarter. Excuse me. Canadian cannabis gross margin of 56% was above the high end of our targeted range due to a variety of factors which Steve will discuss momentarily. Our Q3 sales growth improved gross margin performance and continued course discipline resulted in a 309% increase in adjusted EBITDA in Canadian cannabis to 19.3 million, or 41% of sales. We believe this sets an all-time quarterly record in profitability from continuing operations of any public Canadian cannabis company. In the Netherlands, our first facility in Drockton reached full production capacity during Q3 and sales increased 44% sequentially with healthy profitability and cash generation. We also expanded our market penetration in coffee shops sequentially with our products now in 91% of participating coffee shops, and we are continuing to introduce new products, including several hash offerings and pre-rolls that we anticipate will enjoy popularity in one of the world's most famed cannabis markets. Construction of our second and large Dutch facility, which will increase our total production capacity in the Netherlands fivefold, is progressing on schedule and remains on track to begin operating in late Q1 of next year. We have been increasing headcount in the Netherlands during the fall to prepare for this expansion, and we anticipate incremental operating expenses at Lelyhallen over the course of the next few quarters to support this growth. However, as the phase two facility comes online through the first half of next year, we expect our Netherlands business to be a strong driver of revenue growth for us in 2026 and to help us maintain relative strength in our overall margin performance as compared to a majority of our public cannabis company peers. In our produce business, sales were roughly flat after accounting for sales commissions paid to Vanguard Foods LP. Our ongoing produce segment is now comprised almost entirely of our Delta-1 greenhouse operations, which historically has generated positive net income and cash flow and can still be converted to a cannabis facility in the future. Our second and third quarters will always be our seasonally strongest quarters for produce. Net income improved more than fourfold in Q3 to 1.3 million, and adjusted EBITDA improved nearly 50%. to 2.5 million from 1.7 million. Our U.S. cannabis and clean energy segments also performed in line with our expectations during the quarter. We are pleased with the incremental net income that clean energy contributes to the company, and we continue to believe that these segments, despite being small portions of our business today, there is meaningful potential for both of these businesses to provide investors with additional upside, which we further believe differentiates village farms as an attractive investment opportunity. As a reminder, for anyone new to our story, we still have certain greenhouse assets in West Texas that we believe offer us a clear opportunity to replicate our success in Canada if and when U.S. regulations allow. Finally, as noted on this morning's earnings call, we closed the quarter with approximately $88 million in cash on our balance sheet. reflecting an increase of nearly 23 million since the end of Q2, following another quarter of strong free cash flow generation. Finally, our significantly improved cash flow generation profile and balance sheet strength gave our board of directors confidence to implement a share purchase, repurchase program at the end of September as part of our balanced approach to capital allocation to drive shareholder returns. We believe we are in an excellent position to continue growing and investing behind our business, and we see significant opportunities for us to continue profitably scaling our global cannabis enterprise in 2026 and beyond. I'll turn the call over to Steve to review the financials now.

Steve? Thanks, Mike. As a reminder, as of May 30th, some of our produce assets were privatized and are now classified as discontinued operations. Reported financial results for comparative prior periods have been adjusted accordingly. I'll start with a review of our consolidated results. Consolidated net sales increased 21% to 66.7 million, driven by growth in our Canadian cannabis segment, as well as the second full quarter of contribution from our recreational cannabis sales in the Netherlands. Net income from continuing operations improved to $10.8 million, or $0.09 per share, compared to a net loss of $800,000, or $0.01 per share, in Q3 of last year. Consolidated adjusted EBITDA from continuing operations was $20.7 million, compared with $4.7 million in Q3 of last year, resulting in adjusted EBITDA margin of 31% in the quarter. compared to 8.5% in Q3 of last year. Our cash flow from operations improved to 24.4 million compared with 6.1 million in Q3 of last year. Turning now to our segmented results, I will start with Canadian cannabis, which I will discuss in Canadian dollars for comparative purposes. Total net sales were 64.1 million for a 29% increase versus Q3 last year. The year-on-year improvement was driven by strong performances in our targeted channels, improved pricing, and continued momentum in our international medical exports, which increased 758% from Q3 last year to 16.3 million. Canadian retail branded sales were 37 million, in line with our expectations following the realignment of our product portfolio to higher margin SKUs. Canadian cannabis gross margin was 56%, up from 26% in Q3 last year, and well above the high end of our target range of 30% to 40%. As Mike mentioned earlier, our improved gross margin was helped by favorable pricing as compared to the prior year, And we also benefited from increased international export sales, lower packaging inputs, improved productivity, and higher crop yields during the past summer growing season. SG&A expenses as a percentage of sales were 20%, an improvement of 22% last year as we continue to drive efficiencies throughout our Canadian cannabis operations. Q3 adjusted EBITDA for Canadian cannabis improved 309% year-over-year to our strongest performance ever at $26.6 million, resulting in an adjusted EBITDA margin of 41%, which was more than triple the 13% of last year. Cash flow from operations increased 339% to $26.8 million, our strongest quarter of operating cash flow since we expanded into Canadian cannabis in 2017. Finally, as we do each quarter, I will point out that in Q3, we paid Canadian excise taxes on our retail branded sales of 21.6 million, nearly 40% of retail branded sales and almost double our SG&A costs. Turning now to our recreational cannabis business in the Netherlands. Q3 saw our second full quarter of sales from our Lely Holland operations. Sales were 3.6 million with adjusted EBITDA of 1.3 million. Both meaningful increases quarter over quarter and firmly in line with our expectations. With our phase one facility now operating at full capacity, we expect our Netherlands sales performance in Q4 to be similar to Q3. Although with increased operating expenses, which Mike mentioned, will be rising into Q1 as we get ahead of our larger phase two facility. Turning now to our US cannabis business, Q3 sales of 3.3 million continues to reflect the impact of various state actions dealing with the ongoing proliferation of unregulated hemp products. Gross margin was down slightly year over year at 60%, resulting in a small negative adjusted EBITDA for the quarter. Having stabilized this business amidst strong regulatory headwinds, we are working on a number of initiatives to invigorate sales of our responsible GMP-produced natural hemp products. In our continuing produce operation, sales decreased 10% year-over-year to $12.8 million, although this is a result of incurring a sales commission in 2025 to our privatized produce business. In previous years, we were the exclusive sales agent for our produce as well as for others. However, our net income from continuing operations was up $1 million to $1.3 million, with our adjusted EBITDA margin improving to $2.5 million. I will remind investors that our produce operations in Q3 and through the remainder of this year reflect contributions from our Delta I greenhouse and half of our Delta II greenhouse. the Delta 2 tomato crop is being pulled this week for us to commence the conversion to cannabis production, which will bring our total operational square footage of cannabis production in Delta to 2.2 million square feet. Turning to consolidated cash flows in the balance sheet, total cash flow from operations was 46.7 million through the first nine months of the year. We ended Q3 with cash of nearly $88 million, which includes restricted cash of $5 million, with a net cash position of $53 million. Our total debt at the end of Q3 was $35 million. As noted in our 10Q this morning, in August we paid down $3 million of U.S. term debt as part of the produce privatization transaction. We had a blended borrowing rate of approximately 6.5% at the end of the quarter with additional debt capacity as we evaluate the most efficient ways to fund our growth. Our healthy cash flow and strengthening balance sheet will enable us to continue supporting future expansion projects. And as Mike mentioned, we'll also support the $10 million share repurchase program that our board approved at the end of September. The program provides for the purchase of up to just under 5.7 million common shares, or 5% of our issued and outstanding shares as of the date of the announcement. Our management team and board believe this reflects a prudent and balanced approach to capital allocation to drive returns to shareholders. I will now turn the call back to Mike for some closing comments.