Good morning, ladies and gentlemen. Welcome to the Village Farms International Third Quarter 2023 Financial Results Conference Call. This morning, Village Farms issued a news release reporting its financial results for the third quarter ended September 30, 2023. That news release, along with the company's financial statements are available on the company's Web site at villagefarms.com under the Investors 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 one 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 material 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 summary of these underlying assumptions, risks and uncertainties is contained in the company's various securities filings with the SEC and Canadian regulators, including its Form 10-K MD&A for the year ended December 31, 2022 and 10-Q for the quarter ended September 30, 2023, which will be available on EDGAR and SEDAR+. These forward-looking statements are made as of today's date. And except as required by applicable securities law, we undertake no 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.

Thanks, Liz. Good morning, and thank you for joining us for today's call. With me are Steve Ruffini, our Chief Financial Officer; Ann Gillin Lefever, Vice President of Corporate Affairs; and Patti Smith, Vice President of Corporate Control. As per our usual format, Steve and I will review the operating highlights and financial results for the quarter and then open the call for questions. So turning to the third quarter, I am pleased with the contributions from each of our businesses, particularly the across the board execution on improved profitability and cash flow, which is a true test to the sustainable business model. We generated positive cash flow in each of our operating segments, that's bottom line cash flow not just from operations, not adjusted, pure cash flow. Each of our Canadian and US cannabis businesses also delivered a positive adjusted EBITDA and net income. And our fresh produce operations saw another quarter of significant year-over-year improvement, also with positive adjusted EBITDA. I am also pleased with trends at the retail shelf, which are a true test of whether everything we do resonates with the consumer. I am proud to report that for the month of October, we regained a number two share nationally in Canadian cannabis, recovering from the number four share at the beginning of the quarter. And more on this in a moment. The consolidated results were a further narrowing of a net loss to just $0.01 per share, another quarter of positive adjusted EBITDA and positive cash generation on a consolidated basis. These results are not possible without the business acumen, commitment and contributions from each of our team members, and I am grateful every day for the Village Farms team's determination, and I am confident in our continued execution. Starting with our Canadian cannabis business.…

Thanks, Mike. As Mike noted, another quarter of solid performances from each of our businesses. Consolidated net loss for the quarter narrowed to $1.3 million or a $0.01 earnings per share from a net loss of $8.7 million or $0.10 per share for the same period last year. Notably, each quarter of this year has posted a sequential improvement over the prior. Consolidated sales for Q3 were $69.5 million compared with $71.1 million. The 2% decrease was largely the result of slightly lower cannabis sales compared to the same period last year, as well as the small negative impact on FX due to a stronger US dollar in Q3 2023 versus Q3 2022 as the USD is our reporting currency. We delivered another quarter of positive consolidated adjusted EBITDA in Q3 at $3.2 million, up $5.4 million improvement from the negative $2.2 million in Q3 last year. The improvement was driven mainly by fresh produce but also higher EBITDA from our US cannabis business as well as lower corporate costs. I will now turn to our Canadian cannabis results. As usual, I will discuss these in Canadian dollars to assist in year-over-year comparisons, absent the impact of exchange rate fluctuations. As Mike noted, our Canadian cannabis operations delivered another quarter of positive EBITDA, as well as positive cash flow and positive earnings. Total Canadian cannabis sales were 38.7 million compared with 39.8 million for Q3 last year. Breaking is down into its component parts, retail branded sales, which comprise about 80% of total Canadian cannabis sales for Q3 were $31 million, down slightly from 32.8 million in Q3 2022. International exports from Canada were down slightly to 900,000 compared to 1.1 million in Q3 last year. Export sales for the year-to-date were up 162% compared to the same period last…

Thanks, Steve. For 30 plus years, we have built Village Farms with a deep and reverent respect for cultivation as the core from which to build our business. Some refer to us as farmers. More recently, we were described as low cost or value growers who had no clue how to build brands. This quarter and in fact 2023 year-to-date challenges this simplistic viewpoint. It shows how deep experience and resulting competitive advantage in cultivation is enabling indeed funding leadership roles in critical areas that separate the best consumer goods companies from everyone else. Getting cultivation right as we are proving out is providing us with bandwidth to innovate and other critical functions which are now driving sustainable, profitable market share and cash flow. Importantly, these are the same pillars of success that will be the foundation as we look to expand our Canadian model as new cannabis markets open around the world. It's a continuing growth opportunity we farmers are very excited about. So operator, I'll turn it over to you for any questions at this point. Thank you.

[Operator Instructions] Our first question will come from the line of Aaron Grey with Alliance Global Partners.

Mike, I want to kind of jump off where you left off in terms of kind of proving out that CPG capability and going on beyond just kind of the produce that you had mentioned. So if you can speak to how you're viewing brand architecture today, particularly with the launch of value brand Fraser Valley, which we understand was necessary to compete with some of the pricing pressure. Some of the third party does imply some of the mix shift from Pearson Farms to Fraser. So I just want to get some color in terms of how are you seeing the premium mainstream value mix evolving within the category and then as well within your own portfolio as we continue to see the industry evolve here?

Yes, it's somewhat is testing. I mean, we really focus on consumer insights before we launch our brand. So clearly, with Fraser Valley, that was a segment, especially on the West Coast, but now resonates on the East coast or at least in Ontario where we had sort of the number one launch there with Fraser Valley. And then the quality of Fraser Valley is just exceptional. So the quality and the pricing resonated well and it's become a strong player for us. But equally, we launched Soar a year ago, which is in that premium category and we never expected the premium category to be more than 5% or 10% with the current economic situation, but it's doing very well. And then third, that's put some pressure on our Pearson Farm brand. But I think it's an ebb and flow and the economy has a lot to do with it. So we continue to innovate. The other side of it is really newness within those brands. And keep in mind that ROSE LifeScience has a number of brands that are resonating very well, not just in Quebec but in other provinces going forward. And now we continue to drive newness innovation. We need to know where we're going to be in 2025 right now with our launches. And it takes a lot of energy, a lot of effort, a lot of time and money, you have to continue to trial. And we're actually working on some very unique things, which we'll probably talk about in the next quarter going forward. But I hope that gives you some color.

And then same question for me on non-branded sales. We saw a nice uptick sequentially. So was that driven more by a one-off sale, is there a new line of business you expect to generate from there on a reoccurring basis? You kind of alluded to that in prepared remarks. So just fair to say, some of that increase in mix. And then also on the other part of that on gross margin. Some of the pressure we saw in that sequentially, was that driven by some of the non-branded mix? So just how we think about that sales going forward in terms of new generating business on a reoccurring basis, and then how any type of gross margin impact we have there?

No, actually gross margin -- we're very satisfied with the gross margin on our B2B business. Extremely satisfied. We made a strategic decision at the beginning of this year to sort of open up. We wanted to prove internally to the company as well as to our consumers and distributors and the provinces that we can be a very strong branded company. And I think we proved that out, we continue to prove it out. So that there was a big focus on just being very myopic on the branding side. However, we are focused on cash flow generation. Those were the marching orders early on. And strategically, we decided let's open up our [B&B] business. We have capacity, the margins are good., that's not the reason we see margin change. And then we were watching the dynamics in the industry. There was a lot of flower available and slowly that seemed to be driving up a number of companies change their model to a light asset model. And if we can drive greater profitability, greater revenue, greater sales, we are going to take that business on. And of course, for international, in a way that's B2B as well. So this just parallels that very nicely and we're going to continue moving forward B2B.

Our next question will come from the line of Eric Des Lauriers with Craig-Hallum.

I was hoping you could drill in a bit more into some of the changes in produce this quarter. So I was thinking of some moving parts here. One of the profitability drivers here is the increase in volumes it sounds like. I am wondering if you could also just help us to understand or perhaps just kind of drill in a bit more deeply into some of the operational improvements that you have made. I know recently you have kind of spoken about AI investments for produce. If you could kind of just give us an update overall on the operational improvements that you have made in that segment and sort of how to think about perhaps the difference in operating expenses versus cost of goods sold kind of going forward, where should we look to see some of that improvement going forward? Thanks.

Well, I think, look, last year was the worst year we had in produce in 33 years. So it was a very difficult year. But it was really driven by a number of factors. It was a perfect storm. Inflationary pressures that really started post-COVID that were astronomical. When you look at diesel fuel shipping 1,000 plus trucks a year that's in our cost of sales. It was crazy. Everything went ballistic. Fertilizer costs were up 65%, 70%, corrugated costs for all the packages across the board, and labor skyrocketed across the board, even based on our foreign worker program, Department of Labor continues to drive costs up 7% a year. So all that was happening while we were battling the virus. And we are always in agriculture dealing with items out of our control viruses, bacterias, insect so on, but this was sort of one of the worst I've ever seen. Thank god. We're seeing -- we're putting in every day more and more tolerance, more varieties that are tolerant, which means they may get the virus but they can tolerate it, and that's very important. And we are now starting to see the first of totally resisted varieties. So it’s taken a long time. Even once the resistance gene was ready to be spliced into the new varieties, it still takes 11 turns of growing parent-after-parent-after-parent till it’s finally in there. So we had to be patient about it. So that's probably the biggest impact. Simultaneously, we talked about putting AI systems that work concurrent as like a very strong co-pilot with our growers that are monitoring thousands of data points every second of the day, every day of the year. That is a big help. We have also invested this year alone close to $4 million in…

If I could just kind of double click on that a bit more. So obviously, granted that we are dealing with commodities here and no one's in charge of pricing. Do you feel that perhaps once this new technology is kind of fully layered in in 2024 that you sort of have what you need now to reach a sustainably profitable produce business or are there other areas that you may look to kind of drive down costs going forward before you're kind of -- you feel sort of comfortable that at least from what's in your control that you're kind of out of the woods here?

Yes, I do. The only thing -- the only uncertainty would be where inflation goes. And even our interest rates on our loans have skyrocketed over the years. So there's not been one area that hasn't been had a negative effect. And I think as for example, even though our interest rate that we pay on our produce business is not directly tied to operational efficiencies and excellence, it does matter. So I think 2024 is really a very strong pivotal year for us to get to sustainable profitability going forward. I feel pretty solid on that.

And just last question from me. Just looking for an update on the potential sale of the greenhouse in Texas.

Don't have anything to report. We're working it. We're not just sitting on our laurels. But I think, with the economy the way it is, some other things that have happened in the industry, we just have to be patient. But as you can see what Steve reported where our cash position is and our working capital. So that will eventually go and it'll be a nice day that we'll have to reinvest hopefully in 2024.

Our next question comes from the line of Mike Regan with Excelsior Equities.

In terms of -- we've seen a lot of the capacity start to -- some of your competitors trying to shut down capacity in Canada, and it's interesting that some of that swing capacity for cannabis will be planted as tomatoes. Now, I guess, are you starting to see any impact on sort of the reduction in capacity then allowing you to potentially actually add to that capacity, or is it just more that you're getting so much improvements on your yields that you don't need to -- you can reduce that swing capacity and just generate some cash out of it?

Yes, we're finally seeing -- sometimes things never change and then there's a domino effect. And maybe 2024 is that year of reckoning within excess capacity that we've seen for so many years in a Canadian marketplace. So we are seeing -- well, a lot of companies have publicly reported that they're either not going to participate in the Canadian cannabis retail market, maybe focus on overseas or other cannabis markets. Some have indicated that they will be a light asset model and so on. And that's fine. We have nothing good or bad to say. But if they're a potential customer and we could work with them to the mutual benefit, because our driver is positive cash flow, increased revenues, while we're looking at our own expansion and profitable market share, we're going to do so. So we are seeing some changes happening. I think, what was out there for companies just trying to generate cash without being profitable, it’s not very durable. So it's got to change. So we're definitely going to participate in that. Now keep in mind, we do have excess capacity, because as Steve reported, our yields have been increasing. We said that five years ago that growing is a continuous improvement process. You get better at it, hopefully, you get better at it, and you could drive your yields up, which drives your costs down. So we're in a good position. We have excess square footage we can put to use. We're very focused now. Now that we've reached sort of profitability and a market share position in Canada, now we're very serious about going international. I think, some companies maybe went international before Canada was right. We had a different approach. Let's get Canada right and going and then go international. So we're really looking forward to increased penetration in the international market in 2024 and we have the capacity to do so. So I think we could service our own needs, we could be a B2B and we could definitely drive international capacity as well going into 2024 and 2025.

And then as a quick follow-up, we've written about how Ontario has changed the pricing structure for the licensed producers and the retailers there, the benefit of licensed producers and the retailers, and it's still been early. But is there any commentary on how you're seeing those pricing changes and volume changes in -- or any volume changes in Ontario at this point?

As you point out, the mark up changed at the end of September, so really no impact on Q3 at all. We have great transparency with the pricing structure in Ontario and some of the other provinces to date, so it's been a whole month. We have benefited from the change. We've decided as a company to keep our pricing the same at retail. So we effectively, the way it works, we'll realize a 100% of the margin decreased by OCS. So we'll see a 3% to 5% increase in our margins in OCS. What other LPs are doing or not doing, we think most will follow us. But it remains to be seen whether people will chase prices down or we have decided to keep the margin to ourselves.

[Operator Instructions] Our next question will come from the line of Eric Livshits with ATB Capital Markets.

So given the positive cash flow generation this quarter, I am just wondering, do you see this as somewhat of a turning point in cash flow generation for the company, or should we expect cash flows to kind of just be more bumpy in the quarters ahead? Thank you.

Well, I think they may be somewhat lumpy in the quarters ahead, but on the positive side, that's how focus is positive cash generation. If our market share slips, it’s because we don't deem it profitable market share. We are just not gonna chase it. Those days, I think, are over, and we could see what that's done to a number of companies just chasing unprofitable market share. So with our very parochial focus on profitable market share, I think we are going to stay positive, we are driving our costs down. Now it may not be steady every single quarter but probably won't be. But I think, overall, on an annual basis, we can say we are going to be to the positive side.

I would now like to turn the call back to Ann for another question.

Thanks, Liz. Before we conclude, we wanted to highlight a question that came in via email, related to the Canadian distribution model and the purchasing policies of large provincial buyers. It’s a great multi part question from a clearly engaged shareholder that we appreciated getting. What the question boils down to is, whether we and other LPs are missing out on sales due to ordering practices of the provincial buyers?

Thanks, Ann. And the question to that, the short answer is no. We have excellent relationships with all the provinces and territories we supply. We know all boards are working hard to ensure market demand is met with their supply and we are working closely with them to provide much more accurate forecasting and trying to maximize product penetration to meet their demand. So I think it is a synergistic opportunity for us. And it’s still a nascent industry. So we are not always getting it right, but we are working together and getting better together to the benefit of us but ultimately to the benefit of the consumer. So hope that suffices. So thank you, Liz, and thanks everyone for joining us today. We look forward to speaking to you on our next call going forward for year-end and fourth quarter. Thank you all.

This concludes today's conference call. Thank you for participating. You may now disconnect.