Valens Revenue Not Keeping Up With Losses

After the market closed on Wednesday, The Valens Company Inc. (TSX: VLNS) (Nasdaq: VLNS) reported its first quarter fiscal year 2022 financial results for the period ending February 28, 2022. Valens reported that net revenue increased 26.1% sequentially to $23.2 million in the first quarter from $18.4 million in the fourth quarter. The company said it benefited from strong Canadian operations, which represented 73.7%of total sales in the first quarter.

Net Losses Grow

The net losses increased to $25 million over the previous quarter’s net loss of $21 million. The company did say it planned to reduce cash burn through improvements in adjusted EBITDA, working capital management and monetization of non-core assets.

Tyler Robson, Chief Executive Officer, Co-Founder and Chair of The Valens Company, said: “The results from the first quarter demonstrate that Valens’ underlying business has passed an inflection point. Valens delivered strong top line growth despite many headwinds in the marketplace. This performance reinforces the importance of Valens now diversified business lines across provincial sales, B2B LP sales, and Green Roads sales. Diversified business lines are now allowing us to deliver more sustainable growth. To that point, we delivered another quarter of strong provincial sales as we continue to grow our recreational market share, with the launch of Versus and Contraband. We are also pleased to report that our B2B segment has returned to growth, and we remain optimistic that this platform will continue to strengthen as our partners optimize their manufacturing processes amid both industry and economic headwinds. Our Green Roads US CBD business saw a modest decline in revenue primarily due to normal seasonal trends, with December being historically its slowest month.”

Robson continued, “As expected, adjusted EBITDA declined quarter over quarter due to an inefficient cost structure that had not yet benefited from our Integration Initiatives announced in late February and a change in sales mix that saw a lower percentage of sales come from our higher margin Green Roads business and greater percentage of our sales come from our B2B customers. In addition, we took the opportunity to exit some higher priced inventory through the B2B channel and reposition our holdings to better support the anticipated growth in future quarters. These factors also resulted in lower gross margins in the quarter. Importantly, subsequent to quarter end, we are already seeing the benefits of our Integration Initiatives and anticipate realizing improvements to our cost structure in the back half of the year. It was also encouraging to see gross margin improvements in provincial sales despite significant retail price compression and increases in supply chain costs in the quarter. Overall, our business remains on track to deliver on our objectives in 2022, and we reiterate our target to achieve positive adjusted EBITDA in Q4 2022.”

Outlook

Valens gave revenue & EBITDA Guidance for 2023 saying it would have minimum revenue of C$225 million and adjusted EBITDA margins greater than 10%.

Jeff Fallows, President of The Valens Company, said, “In Q1 2022, we took action to align our Company to current market conditions and deliver the value we saw in the acquisitions and other strategic changes we made in 2021. More specifically, we implemented a series of Integration Initiatives aimed at driving efficiencies throughout the organization and right sizing our cost structure to ensure we remain nimble and aggressive in a competitive market. With these initiatives now firmly underway and following our recent CDN$32.3 million financing we believe we have the branded product portfolio, manufacturing capabilities and balance sheet strength to pursue our key strategic objectives in 2022.”

One comment

  • michael mclaughlin

    April 15, 2022 at 9:24 am

    Maybe going big in cannabis is NOT the way. Many (or most) of the large companies still are not making money. They borrowed too much, acquired inefficent companies with debt and are struggling. What happens when the price of weed falls? These companies are one price reduction away from BK.

    Reply

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