Q3 2025 Village Farms International Inc Earnings Call
2.
Good morning, ladies and gentlemen, welcome to village farms. International third quarter 2025 Financial results conference call this morning. Village farms issued a news release reporting, its Financial results for the third quarter ended, September 30th 2025
Under the Investor's 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 1 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 summer of the a summary of these underlying assumptions risk and uncertainty is contained in the company's very security values with the SEC and Canadian Regulators including its form 10K. Mdna for the year, ended December 31st 2024 and 10 Q for the quarter ended. September 30th 2025, which will be available on Edgar and Cedar Plus
These forward-looking statements are made of today's date and except as required by applicable Securities laws. We undertake no obligation to obligation to publicly update or revise any such 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, Sheri. Good morning, everyone. And thank you for joining us today.
with me on the call or Steve ruffini of Chief Financial Officer and Gillan LeFevre of Chief Operating Officer
Patty, Smyth our corporate controller and Saint Gibbons, senior vice president of corporate affairs.
I'll begin with a review of highlights from the third quarter.
That Steve will review the financials in more detail before I provide some last closing comments.
as we discussed in this morning's,
Uh, earnings release. Our third quarter was another 1 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 as we continue, executing and scaling a profitable Global Enterprise.
today's results, only 3 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 that income from continuing operations was 10.8 million or 9 cents. A share an increase of almost 10% sequentially compared to the record we sent last quarter.
For the second consecutive quarter, we also achieved new records for adjusted EPA.
Adjusted EBIT from continuing operations was $20.7 million, representing 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 and 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.
In enabling us to deliver these levels of performance.
What we believe it comes from 3 critical factors first is our capabilities as a premier provider of quality and consistent cannabis flour 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.
Folio to its 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 analysts' analysis and consumer feedback suggested that the quality of our flowers 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 tears of the market, and our core pure Sun Farms brand, has experienced steady growth in market share since last December.
We're pleased to see relative stability and overall share performance. As we begin to anniversary the implementation of these changes, we look 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 Topline performance. As we've observed, the past 7 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, increasing International demand and we believe we've expanded market share sequentially in this market. During each of the past 4 quarter.
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 Conte to continue expanding into new markets as additional countries around the world in 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 regular 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 continue 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 and scaling out, Delta BC, production campus, partly thanks to our nearly 40-year track record and 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 anticipated to 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.
Time. 45% about Greenhouse capacity in Canada, will be in full cannabis production. Leaving our largest 60 acre. Delta 1 Greenhouse facility available for future phase conversion, cannabis beginning as early as 2027.
If we deem necessary.
As many of you know, increasing global demand for cannabis is currently resulting 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 account.
And along with improvements in our operating efficiency helped us achieve record. Gross margin when improved profitability in all our various sales channels. During the third quarter,
Excuse me.
Due to a variety of factors, which Steve will discuss momentarily.
Our Q3 sales growth, improved gross, margin performance and continued cost discipline resulted in a 309%. Increase in adjusted evida and 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 accountability.
In the Netherlands. Our first facility in D reached full production capacity during Q3 and sales, increase 44% sequentially with healthy, profitability and cash generation.
We also expanded our Market penetration and 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 1 of the world's most famed cannabis markets,
Construction of our second and large Dutch facility.
Which will increase our total production capacity in Netherlands. 5-fold is progressing on schedule. 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 Lely Holland over the course of the next few quarters to support this growth.
However, as the phase 2 facility comes online,
Through the first half of the 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 for roughly flat after accounting for sales commissions, paid to Vanguard Foods LP.
Our ongoing Proto segment is now comprised almost entirely about Delta, 1, green operations, which historically has generated positive, net income, and cash flow and can still be converted to a cannabis facility in the future.
A second and third quarters will always be our seasonally strongest quarters for produce. Net income improved more than 4-fold in Q3 to 1.3 million in adjusted eidon. Proved nearly 50% to 2.5 million from 1.7 million
Our us cannabis and clean.
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 are for us a clear opportunity to replicate our success in Canada. If, and when us regulations allow
Finally, as noted this morning, sir on, 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, a 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 Enterprises 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.
this 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, adjust the Evita.
From continuing operations was 20.7 Million compared with 4.7 million in Q3 of last year, resulting in adjusted, evida 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 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 compared to the prior year.
And we also benefited from increased International export sales lower packaging inputs improve improved productivity and higher crop yields during the past summer growing season.
Estimated SG&A expenses as a percentage of sales were 20% in 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 sgna costs.
Turning now to our recreational cannabis business in the Netherlands.
Q3 saw our second full quarter of sales from our Ley, Holland operations. Sales were $3.6 million, with adjusted EVA of $1.3 million. Both are meaningful increases quarter over quarter and firmly in line with our expectations.
With our Phase 1 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 2 facility.
Turning now to our U.S. canvas business, Q3 sales of $3.3 million continue 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 adjustment 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 operations 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 would the exclusive sales agent for our produce as well as for others,
We were up $1 million to $1.3 million, with our adjusted VA 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, 1 greenhouse and half of our Delta 2 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 9 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 10-Q this morning. In August, we paid down $3 million of our 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
share repurchase program that our board approved with 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.
Well, thank you, Steve.
And thanks and congratulations to all the village team members around the world whose hard work.
Tenacity and integrity are continuing to raise the bar for ourselves and our industry.
In addition to delivering record profitability in the Canadian cannabis industry, our performance this quarter also surpasses the profitability of any us operators, who have reported thus far in this current earning seasons.
Village farms is now 1 of the most profitable accountable businesses on planet Earth and we remain highly motivated to exceed our own expectations.
We are growing our business organically, funding our growth with our own cash generated from operations. We believe we still have a considerable amount of future organic growth catalysts on our horizon.
We are confident in our ability to continue driving growth in revenue, and Ibiza, supported by our proven operational and Manufacturing. Expertise our culture of cost discipline, and continuous Improvement. And of course, through the continued excellence and Leadership of our people.
I'm I'm incredibly proud of all the progress. Our teams have made together this year.
And know that we are all looking forward to another strong year of growth in 2026.
Operated, that includes a prepared remarks and we'll take questions now.
Thank you. As a reminder, to ask a question, please press star, 1, 1, 1 on your telephone and wait for your name to be announced to withdraw your question. Press star, 1, 1, 1 again. Due to time restraints, we ask that you please limit yourself to 1 question and 1 follow-up question. You may then return to the queue. Please stand by while we compile the Q&A roster.
And our first question will come from the line of Aaron gray with Alliance Global Partners. Your line is open.
Hi, good morning. Uh thank you for the questions and congrats on the the strong quarter here.
The first question for me, I want to talk a bit about cannabis gross margin 56%. Uh, you talked about some of the year-over-year Improvement, but I want to talk even sequentially. Write some very strong Improvement. So some of the drivers you saw there, you know, we think about International mix, you know. It's pretty similar code of recorder, but still saw, you know, some pretty meaningful expansion there. So is there some improvements in pricing and mix within International with some of the more meaningful operating efficiency? So just some of the specific drivers and in terms of some of the sequential Trends there and then how best to think about that gross margin going forward and how sustainable gross margins you know more close to these levels are thank you.
So that improved efficiency and productivity resulted in higher crop yields. We normally achieve higher yields in the summer than in the winter. Favorable pricing, as I mentioned, compared to the prior year is tied to mostly a function of...
SKU mix which, uh, mentioned on the call.
Um, lower packaging, inputs and improved margins. And, of course, uh, International export, which has solid margins. Those were
Key drivers to those results, and you want to add some color. I think you covered it, okay? Thank you.
Great margin. You know, we, as we said, our sweet spot is always dated 40% because you have to look long term. There's always different
Uh, EV and flows in the market. But uh,
We are always trying to exceed that but we're not really changing uh that guidance between 30 and 40. This was a strong quarter for us and and we certainly take it and and we're going to always strive to exceed but we're we're going to stick to those uh that sweet spot. We mentioned uh consistently over the last few years.
Okay, great, appreciate that. And then on the international front, uh, more thinking about the Top Line, you know, can you mention in terms of the competitive environment, maybe some of you mentioned that you haven't had as many issues. But have some of the supply challenges from some uh of your peers you're hearing about or some of the quality issues has that provided you, you know, more of an opportunity to take meaningful, you know, share gains within the past 2 quarters. And you know how's it seems like you think that's pretty sustainable over the near to medium term you know with Delta um second half of Delta 2 coming along and even some emphasis to potential for Delta 1 coming online uh in 2027. So it's maybe talking about some of the Dynamics you're seeing internationally and what's making you so constructive at least in the near to medium-term for some continued opportunities there. Thanks.
yeah, well, I think, you know,
We're doing an afternoon.
No, it's going to be interesting to see how it segments from the commercial side. Innovation side to cultivation. But at this stage cultivation rules, I mean, at the end of the day, you have to be able to consistently perform super high quality every single day.
Uh, and we always strive to do that at the lowest possible possible. Original business model.
Uh, was based on that.
The team is executing.
Uh, so
Uh without having consistent solid good quality, you know nothing else really matters that. Coupled with eug MP the team is executed brilliantly. Uh we had a uh renewal after our first 3 years with flying colors and we're actually expanding thato, EU GMP processing side for the future. Uh and then you know first and then coupled with its not so much of. As I said in my comments, 1 2 3, you have to have all 3. It's sort of like a 3-legged stool. If 1 of those legs fall off your top all over and the final 1 is the execution of the team, both on the commercial International side and on a cultivation manufacturing side. And I think that's what we've communicated from day 1 when we got into cannabis. And uh it's a matter of how well you can execute.
Okay, great. Appreciate the call. Go ahead and jump back in the queue.
1 moment for our next question.
That will come from the line of feder, Rico Gomes with ATB Capital markets. Your line is open.
Hi, good morning. Uh, congrats on the outstanding quarter here. I think for getting the questions. Uh, first question on the Netherlands? Um, you know, very strong performance in a distributed out there, so I guess just two questions there. 1) Is the gross margin decline a bit sequentially? So could you talk about what drove that decline? If it's really related to mix, or investments, or something else? And then 2) second question on the Netherlands as well. Uh, you know that you have a 30% to 40% gross margin target for Canadian cannabis, but I'm curious about if you have the same sort of target for the Netherlands, long term. Thanks.
Stable going forward. Uh, so I think that's, uh, shouldn't reflect that we're coming off on gross margin in any given quarter over the long term.
Thank you. Um, and then second question on on Germany.
Um, you mentioned, you you gained market share sequentially there in each of the past, the 4 quarters. So, um, could you provide, maybe, you know, a number in terms of where you think your market share is right now and and uh whether you think that, you know, market share momentum is going to continue, uh, you know, in terms of gaining share sequentially over the next few quarters.
well, you know, I'm never going to first of all, we're not putting out what we think the market share is but I
I wouldn't be surprised if uh, we're number 1 in in whatever that market share number is and the reason I don't want to comment it is because it's they really are no clear statistics as of yet. So I would be just summing it at this point, but I believe we're by far the number 1, uh, market share in Germany. And I think for the reasons I mentioned earlier and then my remarks well in to answer, Aaron's question as well. Um,
I think that, uh,
We took an approach, you know?
In less control, what we can control. And that's where we believe we differentiate ourselves. We didn't look at Portugal. We thought Portugal was a, a risk and a liability. Both in supply chain, regular regulatory side. So we just built our business, uh, for Europe, based on our own production, our own people direct to our customers. And I think, uh,
You know, that seems to be a winning formula at this point in time, and I believe the German market's going to continue to grow.
Uh, as well going forward.
Thank you very much.
1 moment for our next question.
And that will come from the line of Pablo zuanic, with zuanic and Associates your line is now open.
Thank you and good morning, everyone. Look, my my question is uh really a 3-part question on Texas. Um I mean obviously in my in my interpretation the the regulatory changes in the medical program. There are are quite favorable.
Specially for the for the 3 in there, right there? Maybe 15 more licenses issued but uh,
There will be a bit of a lag a time a time lag. For those new licenses not even clear when they will be issued.
So I just want to have a sense of how aggressive is is village farms willing to be in Texas, um, in terms of Mana activity and and and and what could that mean for your NASDAQ listing? How would you think about that? Because when will you get you know, kind of big growth with ndl? It seems rather companies have not been willing to give up their National listing. Uh but I mean, what can you say publicly on these topics? Thank you.
Well, good morning, Pablo.
I'm gonna first with Steve answer. A couple of the first points on Texas and then we could kind of come back to some others. So, uh,
Regarding the Republic of Texas, Steve comments. Yeah, we're, we're certainly anticipating, uh, an excited, um, and understand that the Department of Public Safety is still online to issue its licenses.
In on December 1st. So we should hopefully know something, but that would be 12 additional not to be. Yeah. 12 additional. Um, so you know, we'll, we'll, we'll see if they keep on their timeline. Uh, we've heard nothing to the contrary of that. Uh, Texas has improved its medicinal, um, definition, uh, and expanded, the the illnesses
Um, can access the system that being said, it's not quite as open as something like Florida, but we are certainly excited about the opportunity.
Yeah, and I think regarding NASDAQ, we feel very confident that we can find a suitable.
Uh, structure going forward? Uh, we've been working on that for a couple of years, so, uh, when and if we probably move forward. But we're not going to jeopardize at any time on that sick listing problem.
And if you can correct me if I'm wrong, in terms of a uh the percent, the relevance of Quebec to your business uh on the recreational side. Thank you.
Pablo, good morning. It's am. Um, Quebec very important but your numbers on the high side, it's not 40% of total cannabis.
Um we've traditionally been a little bit higher than than the the spread of uh Revenue across provinces just to give you some sense of that. Um, there are some changes coming Vape is 1 of the big changes. We think the sqdc is in a great job of assessing where their, um, not able to grab the illicit or Legacy market share. And that was, this is going to be a big form factor to move into the private Market or sorry, the, the legal Market. Um, and we are participating in that as we go forward.
Right. Thank you. Look, I'm going to ask, are you sir? When I know it's only 2, but let me break the rule this 1 time, um, on on the Dutch side, I know that there's 10 licenses on the production side, but it seems that not all of them are up and running some of them have problems. It seems that you are 1 of the few. That's actually expanding capacity in this case, what? 5 times. So seems that you're in a very good position, right? And there are other people that maybe started first but in a weaker position now, do you want to come comment on the competitive? Landscape on the production side in in Holland right now?
Sure, um, well, I think 8 or, in production, 2 more will be coming on in the next, uh, quarter or so.
Uh I think of the 10 1 will probably be more of a light asset model. Uh there are issues with others uh quite a few that I've heard of
um,
But that can always be an opportunity for us. But, you know, we're very focused on, uh, getting, uh, as I said, this next facility will increase our capacity five-fold. So our focus is getting it up and running.
Uh, crawl, walk, run, and then, uh, we'll see what opportunities lie ahead. We are very excited about those opportunities in the future in the Netherlands for us.
As well. Couple. Okay. All right. Thank you. Thank you.
Thank you. I'm showing no further questions at the in the queue. At this time, I would now like to turn the call back over to Mr. Dillio, for any closing remarks
Thank you.
Okay, thank you again, for joining us today. And we hope you have a wonderful holiday season. We look forward to our next update for year. End in March.
And uh wishing everybody uh a happy New Year as well. Thank you operator.
This concludes today's program. Thank you all for participating. You may now. Disconnect