Realized initial benefits of Integration Initiatives, with SG&A as a percent of revenue declining 908 basis points in Q2 2022 from Q1 2022
In five months, Valens has actioned
Achieved double-digit revenue growth in Green Roads,
Top 10 licensed producer in
Valens reiterates its objective of achieving positive adjusted EBITDA(2) by Q4 2022
"The second quarter of 2022 clearly shows that we are executing on our 2022 objectives showing both modest revenue growth in the quarter and a meaningful decline in both cash burn and SG&A expenses. This is expected to accelerate in future quarters as the majority of cost savings from our Integration Initiatives have not been fully realized as these initiatives were executed part way through Q2 and into Q3 2022" said
"The largest takeaway in the quarter is that we were able to achieve these strides forward despite a revenue decline in our largest segment, provincial sales, where we experienced absent depletion weeks as we transitioned our brand from Verse to Versus," Robson continued. "Despite the temporary setback in provincial sales, we continue to see strong sell-through for our brands at retail as we were able to expand market share across all product categories. More importantly, momentum has reaccelerated in June with record monthly provincial sales as well as seeing strong visibility into our pipeline of purchase orders into July. During Q2, we experienced strong growth in all other categories of our business with double-digit growth quarter over quarter in our US Green Roads CBD and B2B segments, as well as a large increase in international sales," he said.
"Encouragingly, we've continued to make progress against our Integration Initiatives, having actioned
Second Quarter Fiscal 2022 Highlights:
- Net revenue increased 3.5% to
$24.0 million in Q2 2022 from$23.2 million in Q1 2022, driven by double digit growth in both Green Roads and B2B, which was partially offset by a decline in provincial sales. Despite the slower growth in net revenue quarter-over-quarter, SG&A declined 6.2% or 908 basis points Q2 2022 from Q1 2022. - Provincial sales decreased 14.8% to
$9.2 million in Q2 2022 from$10.8 million in Q1 2022. The decline was partially attributable to absent depletion weeks as we rebranded from Verse to Versus. Additionally,$0.5 million of provincial sales revenue generated towards the end of May was pushed into Q3 2022 due to an in-transit adjustment. Encouragingly, provincial sales rebounded strongly in June with record monthly revenue. - Green Roads revenue increased 11.8% to
$5.7 million in Q2 2022 from$5.1 million in Q1 2022, primarily driven by a 15.9% increase in direct-to-consumer e-commerce sales over the same period resulting from higher traffic and conversion rates to the Company's online store and an increase in international sales. Direct-to-consumer e-commerce sales contributed 56% in Q2 2022, a slight increase from Q1 2022. - B2B increased 11.1% in Q2 2022 to
$7.0 million from$6.3 million in Q1 2022. The increase was primarily driven by higher demand in bulk sales. - International revenue increased to
$1.1 million in Q2 2022 from$0.4 million in Q1 2022. The sequential revenue increase was driven by growth inAustralia . - Other revenue sources include
Valens Labs and Pommies Cider which increased 66.7% in Q2 2022 to$1.0 million from$0.6 million in Q1 2022, with the increase attributable to higher third-party analytical testing services for international markets.
The following table of financial highlights is presented in Canadian dollars, except for percentages
Three months ended Q1 2022 | Three months ended Q2 2022 | Percentage Change Q1 2022 to Q2 2022 | |
Net Revenue | +3.5 % | ||
Provincial Sales | -14.8 % | ||
Green Roads | +11.8 % | ||
B2B | +11.1 % | ||
International | +175.0 % | ||
Other | +66.7 % |
Canadian Market Share(3)
Category | Objective 2022 | Rank | Three months Q1 2022 | Three months Q2 2022 |
|
Overall | 2.8 % | 3.2 % | +40bps | ||
Flower | Top 10 | #9 | 2.9 % | 3.6 % | +70bps |
Pre-Rolls | Top 10 | #15 | 1.7 % | 1.8 % | +10bps |
Edibles | Top 5 | #10 | 2.9 % | 3.1 % | +20bps |
Vapes | Top 5 | #7 | 3.5 % | 3.7 % | +20bps |
Beverages | Top 5 | #4 | 9.9 % | 10.9 % | +100bps |
Five months into our Integration Initiatives, we have actioned
Of the
- Net revenue of
$24.0 million in Q2 2022, representing an increase of 3.5% over Q1 2022 - Adjusted gross profit(1) was
$3.4 million , or 14.0% of net revenue in Q2 2022, compared to$3.4 million , or 14.6% of net revenue, in Q1 2022. - Despite flat adjusted gross profit(1) in the quarter, we implemented numerous initiatives during Q2 2022 which position Valens for improvement in adjusted gross margin(1) in coming quarters. These initiatives include optimizing biomass and input sourcing, commissioning new automation such as flower packing, among others.
- SG&A decreased 6.2% to
$20.9 million , or 87% of net revenue in Q2 2022, compared to$22.3 million , or 96% of net revenue in Q1 2022. - The reduction in SG&A was primarily due to lower wages and salaries related to headcount realignment across the organization.
- Valens had a
$1.4 million non-cash charge related to risk on B2B receivables in the quarter. Without this non-cash charge SG&A would have declined to$19.5 million , or 81% of net revenue in Q2 2022 - Adjusted EBITDA(2) was
$(15.9) million , in Q2 2022 compared to$(17.6) million in Q1 2022. - The improvement in adjusted EBITDA was attributable to lower SG&A with adjusted gross profit(1) flat quarter over quarter.
- Without the
$1.4 million non-cash charge related to risk on B2B receivables in the quarter, EBITDA would have been$(14.4) million in Q2 2022 compared to$(17.6) million in Q1 2022. - Cash flow from operations and cash flow from investing showed a combined large improvement of
$4.8 million quarter over quarter. - Valens had cash and marketable securities of
$26.1 million at the end of Q2 2022. The Q2 2022 cash and marketable securities position does not include the expected monetization of assets that is valued at~$5 million on the balance sheet. - Valens expects Q3 2022 cash flow from operations between
$(9) million to$(12.5) million .
During the three months ended
The following table of financial highlights is presented in thousands of Canadian dollars, except for percentages, per share figures and Canadian recreational market share.
Three months ended | Three months ended May | |
Q1 2022 | Q2 2022 | |
Gross Revenue | ||
Net Revenue | ||
Gross Profit | ||
Gross Profit Margin | 8.5 % | N/A |
Adjusted Gross Profit (1) | ||
Adjusted Gross Profit Margin % (1) | 14.6 % | 14.0 % |
Adjusted EBITDA (2) | ||
Adjusted EBITDA % (2) | N/A | N/A |
Net Income (Loss) | ||
Basic/Diluted Income (Loss) Per Share | ||
Quarterly Canadian Recreational Market Share | 2.8 % | 3.2 % |
- Management utilizes this measure to provide a representation of performance in the period by excluding the inventory impairment measurement adjustments and impacts of biological asset changes as required by IFRS. Adjusted gross profit is a non-GAAP ratio, which management believes provides useful information as it represents gross profit for management purposes based on costs to manufacture, package and ship inventory sold, exclusive of any impairments due to changes in internal or external influences impacting the net realizable value of inventory and non-cash items. See reconciliation of "Adjusted Gross Profit (non-GAAP measure)" in the Company's Management's Discussion and Analysis for the quarter ended
May 31, 2022 . - The Company has identified adjusted EBITDA as a relevant industry performance indicator. Adjusted EBITDA is a non-GAAP financial measure used by management that does not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. Management defines adjusted EBITDA as loss for the period, as reported, adjusted for financing costs (net), recovery of income taxes, depreciation and amortization, share-based payments, fair value and realized biological assets changes, foreign exchange gains, inventory valuation allowance, remeasurement of contingent consideration, restructuring charges, gains and losses on disposal of capital assets, gains and losses on marketable securities and derivatives, and non-recurring and transaction costs. Management believes this measure provides useful information as it is a commonly used measure in the capital markets to approximate operating earnings. See reconciliation of "Adjusted EBITDA (non-GAAP measure)" in the Company's Management's Discussion and Analysis for the three months ended
May 31, 2022 .
- Entered into an agreement with Signifi Solutions, to place cloud-managed Green Roads smart kiosks in various premium mall locations in bustling retail markets in the
U.S. The agreement includes 12 premium mall locations with the potential for an additional 60 mall location in 2022. Kiosks will include a full assortment of Green Roads products customized at helping consumers with various wellness needs. - Subsequent to quarter-end, Valens secured an exclusive cannabis partnership with ColdHaus Distribution ("ColdHaus"), providing integrated logistics solutions for Valens-branded cannabis products across
Ontario ,Alberta , andBritish Columbia . Pursuant to the two-year partnership, ColdHaus in conjunction with Valens will be responsible for store level representation, brand advocacy, distribution route coverage and retail staff education to drive brand visibility and commercial retail presence. - Subsequent to quarter-end, Valens enhanced its adult recreational market portfolio with the launch of Bon Jak, an exclusive cannabis brand in
Quebec , designed to deliver unique user experience to target consumers.
"While the recent market volatility and rising interest rates have disproportionately impacted growth companies, we have made significant progress on several objectives over the last six months," said
Fallows continued, "In Q2 2022, we saw sequential improvement in our adjusted EBITDA, as we began to realize the initial benefits of our Integration Initiatives. Most importantly, we expect to see the bulk of the savings from these initiatives in the coming quarters, as we continue down the path to becoming adjusted EBITDA positive by Q4 2022."
Key Objectives for 2022:
- Grow adult recreational market share in
Canada by seeking to become a top 5 Player in vapes, edibles and beverages and a top 10 player in flower products. - Unlock our potential in the
U.S. and international markets through the Green Roads platform acquired inApril 2021 . - Seek to achieve positive adjusted EBITDA by Q4 by improving the gross margin and SG&A profile of the business through our Integration Initiatives which are based on a combination of cost efficiencies, realization of M&A synergies and greater levels of automation and process standardization.
- Reduce cash burn through improvements in adjusted EBITDA, working capital management and monetization of non-core assets.
- Development of the Company's
U.S. THC strategy as permissible under federal regulations.
Revenue & EBITDA Guidance 2023:
- Minimum revenue of
CAD$225 million - Adjusted EBITDA margins greater than 10%
This press release is intended to be read in conjunction with the Management's Discussion and Analysis ("MD&A") for the period and the accompanying Financial Statements and notes, available under the Company's profile on SEDAR at www.sedar.com and the Company's Form 6-K, which will be furnished on EDGAR (www.sec.gov/edgar.shtml).
The Company will host a conference call tomorrow,
Toll-Free: 1-877-407-0792
Toll / International: 1-201-689-8263
*Participants should request The Valens Company Earnings Call or provide conference ID: 13731030.
The call will be available via webcast on the Valens investor page of the Company website at https://thevalenscompany.com/investors/ or at this link. Please visit the website at least 15 minutes prior to the call to register, download, and install any necessary audio software. A replay of the call will be available on the Valens investor page approximately two hours after the conference call has ended.
At Valens, it's Personal.
Sources:
3 Based on Hifyre data for
The
All information included in this press release, including any information as to the future financial or operating performance and other statements of The
The risks and uncertainties that may affect forward-looking statements include, among others, the inability to meet the Minimum Bid Requirement or comply with Nasdaq's other listing standards within the prescribed time period, which could result in the delisting of the common shares, Canadian regulatory risk, Australian regulatory risk,
In addition to the foregoing assumptions, the 2023 revenue guidance of
View original content to download multimedia:https://www.prnewswire.com/news-releases/the-valens-company-reports-second-quarter-fiscal-2022-financial-results-301586218.html
SOURCE The
© Canada Newswire, source