Village Farms International, Inc.

Good morning, ladies and gentlemen. Welcome to Village Farms International's second quarter 2026 financial results conference call. This morning, Village Farms issued a news release reporting its financial results for the second quarter ended June 30, 2026. 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 by 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, 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 MD&A for the year ended December 31, 2025, and 10-Q for the quarter ended June 30, 2026, which will be available on EDGAR and CDAR+. These forward-looking statements are made as of today's date and, except as required by applicable securities law, we undertake no obligation to publicly update or revise any statements. I would now like to turn the call over to Michael DeGiglio, Chief Executive Officer of Village Farms International. Please go ahead, Mr. DeGiglio.

Thank you, Liz, and good morning, everyone, and thank you for joining us for our second quarter results. With me today are Steve Ruffini, our Chief Financial Officer, Ann Gillin Lefever, our Chief Operating Officer, and Sam Gibbons, our Senior Vice President, Corporate Affairs and Investor Relations. I will begin with my customer review of our highlights from the quarter, then Steve will review the segments and financials in more detail before I make some last closing comments. Our second quarter results continue to demonstrate the strength of our expanding global cannabis platform driven by record cannabis revenues as we continue growing in target markets and product categories in the countries we currently operate in. We delivered our fifth consecutive quarter of positive net income and earnings per share since we privatized our legacy produce business last year. And as we noted in this morning's press release, we're having a record year of production in our Delta British Columbia facilities which has contributed to stronger margin performance. Consolidated net sales growth was strong and we achieved record cannabis harvest yields from our Delta facilities through the first half of 2026 without including the first harvest from our Delta II expansion. Record yields combined with greater operating efficiencies have resulted in lower cost of production and favorable sales mix also helped drive nearly 10 percentage points of year-over-year gross margin expansion, which translated to strong operating leverage as adjusted EBITDA and net income both meaningfully outpaced total sales growth. I will also note that when excluding a one-time $4.3 million vendor settlement, which was tied to our legacy produce business, Our EBITDA received in the second quarter of last year as a comparison. Consolidated adjusted EBITDA increased meaningfully year-over-year to 15.4 million with a record Q2 cannabis segment performance. Moving on, in Canada, we've gained traction on our efforts to grow market share in convenience product categories. and for the first time our brands have achieved top 10 market share in all major categories with continued growth in vapes and infused pre-rolls. We've discussed our focus on strengthening our position in convenience product categories for several quarters and we're encouraged by this progress which has been entirely organic and builds in-house capabilities which will apply to non-Canadian markets as well in the future. It was also another record quarter of international export sales, which grew 74% year-over-year and 43% sequentially, as we continue to benefit from our competitive advantage with the world's largest EU GMP-certified cannabis facility. We discussed on last quarter's call that we believe EU GMP-certified product is a competitive advantage which drives strong growth and profitability and we're pleased to prove it with today's results. This is an underappreciated village farm strength strategically built over the past five years into the supply chain for our international customers. Without giving complete details for competitive reasons, our own sales mix of GACP to EU GMP certified product has improved significantly since we completed the facility upgrades we discussed last quarter. As we stated, these upgrades made our Delta campus the world's largest EU GMP certified facility by total compliant product volume and our higher sales mix of EU GMP certified product improved our margins during the second quarter. Some of our peers have discussed these challenges on their earnings call publicly for the first time over the last couple of weeks. and we've been saying demand for EEGMP compliant product is continuing to increase. Importantly, the German market continues to grow and so has our share of the total market thus far in 2026. We most recently held four of the top 10 market share strains and based on our own internal research, we believe we have the widest pharmacy distribution of any cultivator with product in Germany today. We have a strong growing share of Europe's total addressable cannabis market, and we remain very excited about the opportunities we see in the UK and Australia, and we continue to expect that we will enter new European jurisdictions in the second half of this year. For a quick reminder of our Delta II expansion project, the Delta II expansion is the conversion of the second half of the 1.1 million square foot Delta II greenhouse. As previously stated, we are completing the conversion in phases, one half of the expansion at a time. The first half is completed and in production, and the second half conversion will commence on September 1st. We continue to expect that we will harvest an incremental 15 metric tons of production from this D2 expansion this year, with an additional 25 tons harvested from the expansion in 2027. will be on a full 40 metric ton run rate starting with the third quarter of 27 and with the full 40 tons of incremental capacity available beginning fiscal 2028. Once completed, the D2 expansion will bring out total annualized production in Delta to approximately 160 metric tons of dried, trimmed flour annually. All of this will drive further economies of scale Cost efficiencies and improved flexibility to meet demand from our customers, consumers, and patients in Canada and around the world where we operate. As a reminder, any future conversion of our Delta 1 greenhouse would more than double our annualized production capacity. Turning now to our recreational cannabis business in the Netherlands. We are continuing to maintain strong distribution with participating coffee shops and have been focused on expanding our product assortment to create more value for coffee shop owners who are looking to differentiate their menus. We remain incredibly excited about the Netherlands market and feedback from participating municipalities and coffee shop owners about the pilot program has been overwhelmingly positive thus far. The government is expected to issue a report with an internal review of the program later this summer, and we're quite optimistic that this will also reflect positively on the program. As we discussed on last quarter's call, we experienced a slight delay with final approvals of our Phase II facility, but we did begin cultivating in the chronogen facility in Q2. Chronogen is expected to ramp up to its full production capacity over the course of the next few quarters, positioning us for another step function of growth next year. We're committed to being a strong community partner and employer and believe there is tremendous long-term upside potential for Village Farms in the program if it is ultimately expanded, which could increase the total addressable market in the Netherlands for our products by nearly tenfold compared to where we are today. In summary, we are pleased with our second quarter results which continue to reflect our disciplined execution. We closed the second quarter in a strong position with $73 million in cash after completing the previously disclosed equity placement with U.S. institutional investors. We believe increasing institutional ownership alongside the support of retail shareholders will be critical for the global cannabis industry to succeed. and we believe both will benefit long-term from their investment in village farms. With capital expenditures from our Canadian and Netherlands expansions nearly complete, we are in an excellent position to deliver stronger free cash flow and continuing growing of our cash balance during the second half of this year. This concludes my introductory remarks and now I'll turn the call over to Steve. Steve?

Thanks, Mike. I'll start with a review of our consolidated Q2 results. All figures referenced reflect U.S. dollars unless otherwise noted. Consolidated net sales increased 27% sequentially and 7% year-over-year to $64 million, driven by continued international growth. Consolidated net income from continuing operations was $7.2 million, or $0.06 per share, The unfavorable variance compared to last year was the result of a one-time vendor settlement of $4.3 million received in the second quarter of last year. Excluding this impact, net income from continuing operations would have increased significantly as a result of our record Q2 performance. Consolidated adjusted EBITDA from continuing operations was $15.4 million, or 24% of sales, compared to $17.1 million for 28.5% of sales in Q2 of last year, with the unfavorable variance similarly driven by last year's vendor settlement. Excluding this impact, consolidated adjusted EBITDA would have increased approximately 20%. Turning now to our cannabis segment. Total net sales was 53.5 million for a 5% increase versus Q2 of last year. The year-on-year improvement was driven by the strong performance in our international medical exports, which increased 74% over Q2 of last year and 43% sequentially, predominantly from village farms taking a larger share of the German market. As we discussed last quarter, we experienced a slight delay in the commencement of operations at our Phase II facility in the Netherlands, but Q2 sales increased 35% year-over-year to $3.3 million. Rotigen is now operational and will begin contributing to stronger growth. As Mike mentioned, we expect Rotigen to ramp to full production capacity by the end of Q1, positioning for continued growth through 2027. Cannabis gross margin was 51%, up 900 basis points from 42% in Q2 of last year. reflecting a favorable product mix, increased operating efficiencies, and a lower cost of production at our Delta production campus. Total SG&A as a percentage of sales was 28% compared to 23% in Q2 of last year, reflecting an update to the company's transfer pricing policies as well as higher commercial and marketing expenses. The update to our transfer pricing policy is directly attributable to the sale of our produce business a year ago, So a higher percentage of our corporate expenses are now directly allocated to our cannabis business versus prior years. Q2 adjusted EBITDA from continuing operations for cannabis improves 16% to a record of $15.3 million from $13.1 million in Q2 of last year, resulting in adjusted EBITDA margin of 29%. Q2 cash flow from cannabis operations was positive $8.9 million compared to a positive $19.2 million in Q2 of last year, the variance driven by Canadian income tax payments, which did not occur during the prior year, as well as changes in non-cash working capital items as terms on export sales are generally longer than in the Canadian market and as we expand our production footprint in Delta II. We believe we are the first and only major Canadian public cannabis LP in the position of paying corporate income taxes, which remains a testament to the strength of our operating capabilities and the sign of a sustainable, long-term, profitable platform. As we do each quarter, I will point out that in Q2, we also paid Canadian excise taxes on our retail branded sales of 15 million, nearly 40% of gross retail branded sales. Turning to the balance sheet, where I'll note that we no longer carry a restricted cash balance after the completion of the one-year escrow period as part of our produce transaction last May. We ended the first half of the year with cash of approximately $73 million. For the first six months, we generated close to $21 million from continuing operations before working capital adjustments. Working capital adjustments were significant in the first six months of this year. In particular, due to the payment of essentially a full year and a half of Canadian income taxes, totaling $17 million, and that's in U.S. dollars. During the first six months, we also spent $15 million in CapEx, paid $31 million in excise taxes, as well as $7 million in share buybacks, and completed a $15 million equity placement with two key U.S. institutional investors. We remain very comfortable with our long-term debt level, which was approximately $40 million at a blended interest rate of 5.6% as of June 30, 2026. During the quarter, we do done an incremental in Canadian dollars $8.3 million on our Pearson Farms credit facility to support our Delta facility upgrades and technology enhancements. We're in a net cash position of $33 million, and as Mike mentioned, we expect to grow our cash balance for the remainder of the year with stronger free cash flow during the second half. Our board and management will continue to evaluate capital allocation decisions on a quarterly basis, and we expect to maintain a balanced approach to capital allocation to drive returns to shareholders. I will now turn the call back to Mike for some closing comments.