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Research Note - Deveron Corp. (FARM:TSXV|BUY $1.50 TARGET) - Q3 Financials Miss Expectations ; Late Farm Season To Blame

Yesterday after market close, Deveron reported Q3 financial results that missed our expectations on revenue and EBITDA. Deveron posted +62% organic growth and +347% total revenue growth, driven by analytics revenue. The quarter was a miss based on our expectations due to the later than expected farming season/harvest, which prevented collection of samples. The anticipated revenues and EBITDA which we did not see come through in Q3 are expected to instead come through in Q4. As of the end of Q3, FARM had been busy on the fields collecting samples for processing. Fixed costs associated with collection, and revenue recognition based on delivery of samples led to a negative effect on EBITDA. Since FARM is an AG-tech business, we have the expectation that occasional unexpected meteorological events will delay otherwise expected revenues towards the end of the farming season.


Highlights from the quarter include:


  • Revenue of $7.2M (+347% YoY including +62% organic growth) vs. our estimate of $10.0M and $1.6M in the same quarter last year. $0.7M of revenue was generated from data collection (flat YoY) and $6.4M of revenue was generated from data analytics (+647% YoY). The outsized growth in the analytics segment show progress in the fundamental shift to an analytics-based business.

  • Gross profit of $4.3M (60% margin) vs. our estimate of $6.3M (63% margin) and $1.0M (63% margin) last year.

  • Adjusted EBITDA of -$1.0M vs. our estimate of $0.5M and -$1.5M in the same quarter last year. Samples collected which had not yet been delivered affected Adjusted EBITDA.

  • FARM ended the quarter with a cash balance of $4.1M.


Outlook: We expect revenues and EBITDA to be mostly made up in Q4 because of the late farming season/harvest. We see the delayed revenue as exactly that; there is no reason to believe at this point the income has disappeared.


Government Contracts: On October 12th, 2022, FARM announced that they had been named as a key partner in a multiyear US$7.5M USDA initiative. FARM agreed to provide US$2M in collection service and soil analytics. On October 18th 2022, FARM announced that based on the success of the initial year of the project, the USDA expanded its enterprise agreement supporting USDA by US$900K. The total contract value now stands at US$2.7M.

20221122 - M Partners - FARM - Q3 Results
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