Rich last profiled The Valens Company (TSXV:VLNS) (OTCQX:VLNCF) a month ago. Back then, the company had just signed two extraction and supply agreements, giving it plenty of funding for 2020.
Today, Rich looks at the results of the company’s fourth-quarter and fiscal year 2019. This period ended on November 30 and resulted in a “record” performance for Valens, a global leader in the end-to-end development and manufacturing of innovative, cannabinoid-based products.
“This is one of my favorite companies in the cannabis space,” says Rich. “It was one of my top picks, and I think it’s just got so much potential. It’s a darling, and I’m very happy to see these numbers.”
The Valens Company Reports Q4 Adjusted EBITDA of $17.7 Million
Highlights from Valens’ report on its Q4 and fiscal 2019 performance include an increase in both quarterly and annual revenues. Quarterly revenue increased to $30.6 million, an 86.0% increase over the previous quarter, and annual revenue came in at $58.1 million for fiscal 2019.
The company also reported revenue of $1.25 per gram of input in the fourth quarter of 2019. This is an increase from $0.61 per gram of input in the third quarter of 2019.
Gross profit increased to $41.4 million, or 71.2% of revenue for the fiscal year 2019. For the fourth quarter of 2019, gross profit increased to $22.6 million, or 73.8% of revenue. This compares positively to $12.8 million, or 77.8% of revenue for the previous quarter.
Total adjusted EBITDA for 2019 was $27.4 million. This helps The Valens Company retain a strong balance sheet with $58.7 million in cash and short-term investments, as well as a working capital position of $88.2 million.
Tyler Robson, CEO of Valens, said:
“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 … 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.”
The company’s white-label contracts include major retailers such as BRNT, Shoppers Drug Mart, and Iconic Brewing.
Thinner Margins as Valens Shift Business Model
Though The Valens Company’s Q4 adjusted EBITDA of $17.7 million is impressive for any company in the cannabis space, it’s a thinner margin compared to the adjusted EBITDA of $9.8 million, or 59.4% of revenue in Q3.
Robson says the company “expects this type of margin contraction to continue” in the quarters ahead. This is because Valens will shift towards becoming a next-generation product company, offering increased opportunity and greater EBITDA per input gram but a more conservative margin profile.
“The Valens Company has proven it can be done,” says Rich. “You can actually grow and change and become profitable in the cannabis sector. This is the hottest extraction company, and these are great numbers.”
Jeff Fallows, President of Valens, adds that the company recently received its first international purchase order. This order is for white label products and will be delivered to customers in Australia.
Fallows believes the company’s operations will gain momentum as it uses funds from its current contracts to secure new ones.
What do you think? Is The Valens Company the cannabis stock to watch in 2020? Will other companies in the sector follow its example and start showing revenue? Let us know your opinion!
Featured image: DepositPhotos © Fotofabrika