The report is showing (continually) increased revenues, a boost in both assets and expenses, and a near-elimination of short-term debt.
In addition, the company has released another press release after market hours, announcing a $10M Bought Deal financing.
First, let’s look at the financial highlights directly from their initial release:
- Revenue of $1,393,234, growth of 26.6% over the prior quarter and 322% year over year
- Gross margin of 39.2% over a nine-month period; an improvement from 28.7% in 2019
- Production volume sold of 126,293 lbs. in the three-month period, an increase of 37.2% compared to the prior quarter
- Total assets of $15,770,938, including a cash balance of $8,139,684 compared to $405,610 in the prior year
- Outstanding debt has been reduced to a remaining balance of $40,000
- Net loss was $4,497,107 for the third quarter or $0.06 per common share
- Adjusted EBITDA loss of $3,138,595 in the quarter or $0.04 per common share
And now, we will dive into the details from the latest earnings report and subsequent financing!
1. Balance Sheet Changes
The Very Good Food Co. had an explosive quarter, to say the least. With cash-on-hand increasing from $3.5M to $8M and total assets more than doubling from $6.8M to $15.8M, VERY has come a long way from their pre-public position as a single “butcher shop” in Victoria, BC.
Lease liabilities have increased from $2M to $5M, though the current portion of this liability has actually decreased from $240K to $150K. VERY’s outstanding debt has also been essentially wiped out, with only $40,000 of loans payable remaining.
Altogether, the updated balance sheet is aligned with expectations, though the figures seem quite astounding when put on paper. The company’s equity financing activities have allowed them to eliminate their debt, massively increase their asset base, and set them up for rapid expansion into next year.
2. Net Loss for the Period
One of the most important things to understand is that The Very Good Food Company is a growth-company in an astoundingly fast-paced period of expansion. For that reason, it should be expected that the company is spending cash and running a loss – after all, you have to spend money to make money.
With that said, the company spent nearly $4.5M over Q3 for expansion by signing facilities, hiring employees, settling debt, and other operating activities. This includes moving along with the two previously announced facilities and the signing of another.
With an expectation for the most recently announced facility to come online in Q1 2021, we didn’t expect any substantial revenue increase this period, as the only way to alleviate the current cap on their revenue is to continue improving throughput at their Victoria facility. VERY, however, had different plans and managed to increase their top-line revenue by more than 26% over the period by improving efficiency at their Victoria facility. This success alone bolsters our confidence in their Engineering Operations team, headed by Olga Milman, making us optimistic for their future operations.
3. Bought Deal Financing
Apt investors could look at the released financials and immediately know that VERY was going to be completing a new financing. With their current cash run rate, timeline until the Rupert facility comes online, and cost of operations, VERY needed additional capital to keep their growth trajectory on track.
What did surprise, however, was the speed at which the company announced the equity raise. Directly on the back of their financial report, VERY announced their $10M Bought Deal financing.
VERY has chosen to pursue an offering by way of a short-form prospectus, which means they are completing a financial audit and report prior to the purchasing of these offered shares so that all information is current at the time of the raise. This method of financing is the most labor-intensive for the company but allows shareholders to freely trade their shares as soon as the placement is complete and gives non-accredited (aka, not just high net worth) investors the opportunity to invest.
The company is going to raise $10,000,200 through the sale of 2,857,200 shares at a price of $3.50/share (with a half-share warrant at $4.50/share). This financing values the company at approximately $335M and has the potential to establish $3.50 as a short-term price floor for the Canadian stock. There is also an over-allotment option that we’re expecting will be filled, selling an additional $1,500,030 of stock, with the same terms.
Prior to the financing, the company’s fully diluted share count is 96M outstanding, with 88.65M currently outstanding, as per the Q3 financial report. This means that the raise equals a maximum of 5.5% dilution for shareholders in the company, but could also mean that they do not have to raise additional capital in the near- to mid-term. This amount will bridge their operations until the Rupert facility comes online, wherein increased revenues could see the company quickly return to profitability.
Follow the Links Below for the Full Releases
The Very Good Food Company Reports Third Quarter Fiscal 2020 Results
Vancouver, British Columbia–(Newsfile Corp. – November 16, 2020) – The Very Good Food Company Inc. (CSE: VERY) (OTCQB: VRYYF) (FSE: 0SI) (“VERY” or the “Company”) today announced its third quarter (“Q3”) financial results for the period ended September 30, 2020... continue reading.
The Very Good Food Company Announces $10 Million Bought Deal Offering
VANCOUVER, BC, Nov. 16, 2020 /CNW/ – The Very Good Food Company Inc. (CSE: VERY) (“VERY” or the “Company”) is pleased to announce that it has entered into an agreement with Canaccord Genuity Corp. (the “Underwriter”), acting as lead underwriter and sole bookrunner, pursuant to which the Underwriter has agreed to purchase, on a bought deal basis, an aggregate of 2,857,200 units of the Company (the “Units”) at a price of $3.50 per Unit (the “Issue Price”) for aggregate gross proceeds to the Company of $10,000,200 (the “Offering“)… continue reading.
Disclaimer: The Very Good Food Company is a communications client of Edge Investments, and we own shares in the company.