Valens GroWorks Corp. Archives - Green Market Report

While other cannabis companies are restructuring, saddled with mountains of debt and lower than expected revenues, Valens GroWorks (TSXV: VLNS) (OTCQX: VLNCF) delivered a solid fourth quarter and fiscal year earnings report. Valens reported after the market closed on Monday that its revenue increased to $58.1 million for the fiscal year 2019. For the fourth quarter of 2019 revenue increased to $30.6 million, an 86.0% increase over the third quarter and above the high-end of the guidance range announced on December 16, 2019.

Net income for the quarter increased 14% to $4.4 million and earnings per share were $0.04. The company delivered adjusted EBITDA of $27.4 million for the fiscal year 2019. For the fourth quarter of 2019, adjusted EBITDA was $17.7 million, or 57.7% of revenue, compared to adjusted EBITDA of $9.8 million, or 59.4% of revenue, in the third quarter. The company ended the year with a strong balance sheet with $58.7 million in cash and short-term investments and a net working capital position of $88.2 million as of November 30, 2019.

“In Fiscal 2019 we added significant scale to our operations and became the largest white label product development, manufacturing and third-party extraction company in Canada,” said Tyler Robson, CEO of Valens. “Our multi-year extraction contracts with industry leading players positioned us as the partner of choice in the industry and drove significant revenue, gross profit, and adjusted EBITDA growth.”

White Label Business

During the second half of 2019, Valens worked with a number of its clients to process white label products in preparation for the launch of edibles and concentrates for Cannabis 2.0. Valens signed a multi-year white label agreement with BRNT Ltd, a leading, premium, cannabis ancillary company, to launch a line of unique cannabis vape pens in Canada. The company also announced receipt of its first international purchase orders of white label products to customers in Australia. Based on the purchase orders received, the initial shipments will consist of three SKUs of tinctures, totaling over 3,000 units, and are expected to be shipped in Q2, pending receipt of necessary import and export permits.

“In the second half of 2019, we broadened our offering to include white-label product development and we now produce a broad portfolio of safe, consistent and innovative products to help our partners build brands and differentiate themselves in the market,” added Robson. “These white-label product development initiatives contributed to record revenues in the fourth quarter of 2019 as new and existing customers pushed to roll out Cannabis 2.0 oil-based products into the market.”

Biomass Details

The company processed 61,394 kilograms of dried cannabis and hemp biomass in fiscal 2019, of which 24,426 kilograms of dried cannabis and hemp biomass was processed in the fourth quarter of 2019. During the second half of 2019, The revenue-per-gram of input increased to $1.25/gram in the fourth quarter of 2019, compared to $0.61/gram in the third quarter of 2019. The company said that revenue-per-gram is expected to increase throughout 2020 as product development contracts continue to grow in number, and revenue from extraction contracts contributes to a lesser proportion of total revenue.

Robson added, “Our margins in the fourth quarter also remained strong and were only slightly lower than our Q3 results.  However, we do expect this type of margin contraction to continue in the coming quarters as we build out our infrastructure and execute on our strategic shift towards becoming a next-generation product company that offers increased opportunity and greater EBITDA per input gram but a more conservative margin profile.  This strategic shift is now well underway and our white label contracts now outnumber our extraction contracts, and include top-tier names such as BRNT, Shoppers Drug Mart and Iconic Brewing.”

Jeff Fallows, President of Valens, said, “As expected, our shift to smaller processing lots to facilitate a broad entry of Cannabis 2.0 products by our customers resulted in stable processing volumes in the quarter and a corresponding increase in our revenue per gram of input.  The rapid growth we experienced in the fourth quarter resulted in an increase in our receivables and as of November 30, 2019, we had $34.4 million of trade receivables outstanding.  However, despite operating with an elevated working capital position for a brief period of time, the Company has subsequently collected or has trade payables outstanding with the same customers representing 81% of the trade receivables balance. In short, we continue to enjoy a strong working relationship with our customers and the strength of our balance sheet continues to provide us with the flexibility to drive growth both organically and through acquisitions in domestic and international markets. In February 2020, we achieved a milestone when we announced purchase orders for our first international shipments of white label products to customers in Australia. We are now at an inflection point and expect our operations to gain momentum as we execute on existing contracts and secure new ones at this pivotal time in the market’s evolution.”

Valens GroWorks Corp. (TSXV: VGW) (OTCQX: VGWCF)  gave revenue guidance for the fourth quarter of 2019 in the range of $27 million to $30 million. This is a big jump sequentially for the company as it delivered revenue of $16.5 million in the third quarter of 2019.

“I couldn’t be more thrilled to share revenue guidance for Valens’ fourth quarter, which I believe is only starting to show the power of our platform,” says Tyler Robson, CEO of Valens. “The reason we have built five different types of extraction in house is so that we can facilitate being a one-stop for our customers by having the means to produce a large variety of next-generation white label products. This quarter shows the flexibility of our operations and represents an inflection point in our acceleration into “Cannabis 2.0″ oil-based products. Through the incredible demand we are seeing, we expect white label sales to continue to ramp up as we increase the number of white label contracts and volume of the contracts themselves.”

Valens also said that it expects to report that it has extracted over 24,400 kilograms of cannabis and hemp biomass in the fourth quarter of 2019. “This is roughly in-line with the amount of biomass processed in Q3 2019 and reflects the anticipated shift in focus to white label manufacturing and the demand from our customers to launch a breadth of “Cannabis 2.0″ products into the market. This breadth of products translated into smaller lot sizes and resulted in a temporary pause from the volume ramp seen in previous quarters but also resulted in a significant increase in our revenue per gram of input performance.”

NCIB

In addition to giving a heads up on the increasing revenue, Valens said it is planning to launch a Normal Course Issue Bid or NCIB for the purchase and cancellation of up to 6,275,204 shares, representing approximately 5.0% of the issued and outstanding Shares, calculated on a non-diluted basis.  The NCIB is expected to run for a period of one year from when it is formally commenced.

The company said it believes that the NCIB is a prudent and appropriate approach to maximize shareholder value. Having an NCIB in place will provide the company with the flexibility to purchase shares, from time to time, at the company’s discretion, as part of its capital management strategy, subject to applicable black-out periods and trading restrictions. The NCIB will be funded with cash on hand and the company’s current positive cash flow from operations.

Following the close of the market on Tuesday, cannabis extraction product company Valens GroWorks Corp. (TSXV: VGW) (OTC: VGWCF)  reported its financial results for the third quarter of fiscal 2019 with revenue increasing 87.1% to $16.5 million over last year’s $2.2 million for the same time period. Revenues increased 641.4% sequentially over the previous quarter’s revenue of $8.8 million.

The company delivered net income of $5.9 million (or $0.05 per share basic and diluted) in the third quarter, compared to a net loss of $10.5 million (or a loss of $0.10 per share basic and diluted) in the second quarter of 2019.

“We are extremely pleased with the roll-out of our business plan and the continued scale-up in the Company’s extraction operations which have allowed us to continue our aggressive quarter over quarter growth in volumes, revenue, adjusted EBITDA and net income,” said Tyler Robson, CEO of Valens. “While we anticipate that our margins in future quarters will continue a strong upward trend from the levels seen in previous quarters, especially as our volumes continue to ramp and efficiencies are realized, margins in the third quarter were aided, in part, by a one-time contract opportunity which we do not anticipate recurring in future quarters. Finally, our net income in the quarter has made us the most profitable public company in the Canadian cannabis sector with the highest net income margin (excluding biological asset fair value adjustments).”

Valens also noted that it has a strong balance sheet with $69.2 million in cash and cash equivalents and short-term investments and a net working capital position of $84.1 million as of August 31, 2019.

Processing Details

During the quarter, Valens said it processed 26,625 kilograms of dried cannabis and hemp biomass which was a 212% increase over the second quarter of 2019. Valens said it had already processed 13,423 kilograms of biomass in the first 45 days of the fourth quarter. “During the early part of the quarter, we worked with a number of our clients to process smaller, higher revenue white label product lots in preparation for the launch of edibles and concentrates later this year. This is anticipated to result in higher revenue per gram of input compared to previous quarters. Volumes are expected to accelerate into the back half of the fourth quarter, particularly as we begin to process larger white label lots for sale in 2020 and resume the processing of our previously announced contracted volumes.”

After the quarter ended, Valens signed an agreement to become the first third-party processor to supply Shoppers Drug Mart with cannabis oil products for their online medical cannabis site. The company also signed its first beverage agreement with Iconic Brewing to manufacture 2.5 million cannabis beverages over the term of the 5-year agreement.

“We have a clear strategic vision for the Company and with our strong balance sheet and demonstrated cash flow generating capabilities, we are well-positioned to achieve that vision,” said Jeff Fallows, President of Valens. “In the near term, we are focussed on delivering on our existing contracts with industry-leading partners, like Shoppers Drug Mart, to provide innovative white-label product development and manufacturing services for vape cartridges, tinctures, gel capsules, beverages, and topicals. Looking to the future, we will to continue to make strategic capital investments, both domestically and internationally, to improve our technical capabilities and grow our intellectual property portfolio as well as expand the Valens platform to new and strategic markets with the objective of creating long term value for our shareholders and all of our stakeholders.”