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The Valens Company Inc. (VLNS) reported its Q1 FY 2022 financial results for the period ended February 28, 2022, today. The results were as follows:

Q1 Financial Highlights

(The following table of financial highlights is presented in thousands of Canadian dollars, except for percentages, per share figures, and Canadian recreational market share.)

Operational Highlights

• became the #10 ranked LP in Canada with a 3.1% overall market share in February 2022, compared to 2.4% in November 2021 in Alberta, British Columbia, Saskatchewan and Ontario  based on Hifyre data;
• became the #9 ranked supplier in the edible market with 3.3% edible market share in February 2022, compared to 2.7% in November 2021 in Alberta, British Columbia, Ontario  and Saskatchewan based on Hifyre data;
• became the #4 ranked supplier of cannabis-infused beverages with 11.1% market share in February 2022, compared to 9.3% in November 2021 in Alberta, British Columbia,  Ontario and Saskatchewan based on Hifyre data;
• became the #9 ranked supplier in the flower market with 3.5% market share in February 2022, compared to 2.5% in November 2021 in Alberta, British Columbia, Saskatchewan and Ontario based on Hifyre data;
• BC God Bud became the #1 best-selling SKU across all product categories in Alberta, British Columbia, Ontario and Saskatchewan during the first two months of 2022 as per Hifyre data;
• made significant progress with approximately $9.5 million of the first $10 million in annual cost efficiencies now actioned. The Company expects to realize these benefits towards the end of the second fiscal quarter of 2022, after accounting for one-time costs, with the majority expected to be realized in the second half of fiscal 2022 and of the $9.5M actioned,
  • approximately 67%, or $6.4 million, of the cost savings are coming through SG&A, of which almost half were driven from synergies of acquisitions, while the remaining were related to organizational realignment at Valens. This is expected to positively impact SG&A in future quarters, after accounting for one-time costs.
  • approximately 33%, or $3.1 million, was driven by operational efficiencies including automation, process standardization and supplier optimization which is expected to positively impact margins in the second half of the year.
• Commenced trading on the Nasdaq Capital Market;
• enhanced adult recreational market portfolio with the launch of two new brands, Versus and Contraband, designed to meet the needs of target consumers in the value and premium markets respectively;
• signed the first beverage manufacturing partnership agreement since the launch of the Pommies facility and successfully completed first shipments of cannabis-infused beverages to Ontario, British Columbia, Alberta Manitoba and Yukon;
• accelerated Valens’ international expansion strategy by entering into two strategic agreements with PMI Mexico, and one of the main drug suppliers of the Mexican government under which Valens will manufacture CBD-infused and uninfused Predilife probiotic products for PMI globally.

Management Commentary

Tyler Robson, Chief Executive Officer, Co-Founder and Chair of The Valens Company, said:

• “...Valens delivered strong top line growth despite many headwinds in the marketplace and this performance reinforces the importance of Valens now diversified business lines across provincial sales, B2B LP sales, and Green Roads sales....and this allows us to deliver more sustainable growth.
• 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.
• 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.
• 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...
• 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.”

Jeff Fallows, President of The Valens Company, said,

• “In Q1 2022, 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.”

Key Performance Indicators and Revenue Guidance:

Key Objectives for 2022:

1. 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.
2. Unlock its potential in the U.S. and international markets through the Green Roads platform acquired in April 2021.
3. Seek to achieve positive adjusted EBITDA by Q4 by improving the gross margin and SG&A profile of the business.
4. Reduce cash burn through improvements in adjusted EBITDA, working capital management and monetization of non-core assets.
5. Development of the Company’s U.S. THC strategy as permissible under federal regulations.

Revenue & EBITDA Guidance 2023:

1. Minimum revenue of CAD$225 million
2. Adjusted EBITDA margins greater than 10%

Stock Performance

Valen's stock is DOWN -44.5% YTD (as of April 8th) and DOWN -137.7% from its calendar 2021 high.