Research Note - Deveron Corp. (FARM:TSXV,$0.58|BUY $1.50 TARGET) Q2 Financials Beat Revenue Expectations

Yesterday after market close, Deveron reported record Q2 financial results that beat our expectations on revenue. Deveron posted +64% organic growth and +183% total revenue growth, driven by both data collection and analytics revenue, carbon products, and Farm Dog’s new features. This quarter included a one-month contribution from A&L Labs Canada, which added ~$2M in revenue. We remind readers that A&L’s revenues are seasonally weighted to the back half of the year, thus providing an even larger step-change in revenue in Q3 and Q4. We continue to expect strong organic growth through H2/22 as improving crop yields and decreasing costs becoming increasingly important to farmers that have been challenged with inflationary pressures and the Canadian government attempts to limit fertilizer use.


Highlights from the quarter include:


  • Revenue of $5.2M (+183% YoY including +64% organic growth) vs. our estimate of $3.8M and $1.8M in the same quarter last year. $1.5M of revenue was generated from data collection (+93% YoY) and $3.7M of revenue was generated from data analytics (+247% YoY). The outsized growth in the analytics segment plays into the theme of Deveron’s revenue shifting to a SaaS model.

  • Gross profit of $3.2M (61% margin) vs. our estimate of $2.5M (66% margin) and $1.3M (69% margin) last year.

  • Adjusted EBITDA of -$2.0M vs. our estimate of -$0.6M and -$0.6M in the same quarter last year. The miss was driven by investments in digital products, engineering and expanding the sales team.

  • FARM ended the quarter with a cash balance of $9.0M.


Outlook: Deveron expects to be adjusted EBITDA positive in H2/22 given the ~$12M annual EBITDA contribution from A&L (in line with our expectations). Deveron has begun bundling its lab testing and analytics products for enterprise customers and continues to execute on its integration initiatives. The M&A pipeline remains strong at $55M in revenue over 24 months. Acquisitions: On May 24th, Deveron acquired 67% of A&L Canada Laboratories. A&L is one of the largest soil and tissue laboratories in Canada, operating a 54K sf facility with 106 employees. Deveron acquired 67% of A&L for $50.3M, comprised of $34.8M in cash, $8.0M in promissory notes and $7.5M in stock. The cash portion was financed using $10M in convertible debentures and $28M in debt. FARM has the option to acquire the remaining 33% of A&L on the three-year anniversary of closing. In FY2021, A&L posted $26.7M in revenue (+7% YoY) and $11.6M in EBITDA (43% margin), equating to 2.7x sales and 6.3x EBITDA. For a deeper dive on A&L and the acquisition, please refer to our previous note.


20220823 - M Partners - FARM - Q2 Results
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