High Tide Inc.

Good morning, my name is Carla and I will be your conference operator today. At this time I would like to welcome everyone to Hightide Inc third quarter of 2023 unaudited financial and operational results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer session. Instructions will be provided at that time for you to queue up for the question and answer session. I will now turn the call over to your host, Crystal Defoe. Please go ahead when you're ready.

Very good. Thank you, operator. Good morning, everyone, and welcome to the High Tide Inc. quarterly earnings call. Please note that all earnings discussed on this call are presented on an unaudited basis. Joining me on the call today are Mr. Raj Grover, President and Chief Executive Officer, and Mr. Sergio Patino, Chief Financial Officer. On September 14th, 2023, the company released unaudited highlights from its financial and operational results for the third quarter that ended July 31st, 2023. Before we begin, please let me remind you that during the course of this conference call, High Tides Management may make statements including with respect to management's expectations or estimates of future performance. All such statements, other than the statements of historical facts, constitute forward-looking information or forward-looking statements within the meaning of all applicable securities laws and are based on assumptions, expectations, estimates, and projections as of the date hereof. Specific forward-looking statements include, without limitation, all disclosures regarding future results of operations, economic conditions, and anticipated courses of action. For more information on the company's risks and uncertainties related to forward-looking statements, please refer to the company's press release dated September 14th, 2023, our latest annual information form, and our latest management discussion and analysis, each filed with securities regulatory authorities on CDAR.com or on EDGAR at www.sec.gov or on the company's website, at www.highsideinc.com, which are hereby incorporated by reference herein. Although these forward-looking statements reflect management's current beliefs and reasonable assumptions based on the information currently available to management as of the date hereof, we cannot be certain that the actual results will be consistent with the forward-looking statements in the future. There can be no assurance that actual outcomes will not differ materially from these results. Accordingly, we caution you not to place undue reliance upon such forward-looking statements and results. For any reconciliation of non-GAAP measures measured and discussed, please consult our latest management discussion and analysis filed on CEDAR Plus and EDGAR. It is now my pleasure to introduce Mr. Raj Grover, President and Chief Executive Officer of Hightide. Thank you. Mr. Grover, you may begin.

Thank you, Crystal, and good morning, everyone. Welcome to Hightight Inc's financial results conference call for the third quarter ended July 31st, 2023. I will begin with some big picture comments regarding the quarter and our strategy before Sergio and I dig deeper into the numbers. Those of you who have tracked our company for some time have seen our execution and that time and time again, we do what we say we are going to do. We have a long history of under-promising and over-delivering in a big way at Hightide, and it was no different this time. Specifically, early this year, we publicly stated our goal to be free cash flow positive by the end of the calendar year. Last night, we announced that we achieved this goal in a meaningful way with $4.1 million in free cash flow, and with this being the July quarter, we reached this milestone five months ahead of schedule. Not only is this a very impressive feat in its own right, but being free cash flow positive considerably insulates us from whatever the capital markets bring, and it is rare for companies in this industry on both sides of the border to achieve this significant milestone. Over the past several years, we have proven that we know how to grow. We have put up strong same store sales numbers above our peers, organically built dozens of locations, and entered into a lot of M&A along the way. to building the largest business by revenue and market share in Canadian cannabis. This has been driven by our continuous innovative thinking, which led to the launch of our unique discount club model two years ago, our elite paid membership tier almost a year ago, and as announced yesterday, the unveiling of Cabanalytics Consumer Insights. CCI is an extension of our highly successful Cabanalytics business and data insights platform, which subject to relevant provincial and federal regulations, we expect will provide another high margin opportunity for our company through targeted ad revenue generation. This should also help further solidify our relationship and loyalty loop with our club members, product innovators, brand manufacturers, and licensed producers. We have never posted a sequential decrease in revenue while now generating 14 straight quarters of positive adjusted EBITDA. Last night's results proved that our existing operations can also generate meaningful free cash. And now that we have clearly demonstrated this, we plan to shift a little further across the spectrum towards growth this quarter and into 2024. We plan to remain free cash flow positive going forward. Although the amount may fluctuate in any given quarter as we pick along the spectrum of growth and cash flow generation, as well as keeping working capital changes in mind, amongst other considerations. We also made another promise to the market at the beginning of the year that our annual revenue run rate would exceed half a billion dollars by the end of the fiscal year. While we were almost there during Q3, our current run rate has us exceeding that threshold today, once again ahead of our previously communicated timeline. Our same-store sales have been very strong and continue to outpace our peers. With no acquisitions this quarter or last quarter, I highlight that these results were generated entirely from our organic operations. Further, while the market added close to 100 locations since the end of April, we only added four stores, yet we maintained our national market share of 9.5%, excluding the province of Quebec in Q3. Putting it all together, our stores in Ontario, Canada's largest cannabis market, generated 3.4 times the revenue of our provincial peers in June. Nationally, our stores were on a run rate of $2.8 million in June, compared to the national average of our peers, excluding Quebec, of just $1.2 million. Our customer reach continues to expand as we now have over 1.1 million loyal Cabana Club members, which remains by far the largest bricks and mortar cannabis loyalty program in the country. Elite sign-ups have accelerated, exactly as predicted, as we continue to add more elite-focused in-store offerings and related inventory into our retail network. We added 5,300 Elite members since our Q2 call, totaling over 18,800 members today. Whereas on our Q2 call, we announced that we added 4,000 members and similarly 3,500 members on our Q1 call. As a reminder, not only does Elite help further solidify customer loyalty, but it represents a high margin recurring revenue stream for shareholders. Our innovation does not stop at Elite. Continued innovation is in our DNA. Yesterday morning, we announced that we have taken the core of our Kabanalytics business and data insights platform and launched Kabanalytics Consumer Insights, a digital monthly publication. CCI will consist of a magazine-style extensive report which highlights market trends, analyze multiple different ways, providing data-driven insights regarding what brands and products are trending in our international ecosystem by category, price point, potency, etc. as well as educational and blog-style features relevant to cannabis enthusiasts and the canna-curious alike, and this will be provided for free to our customers every month. CCI will also feature product innovation from LPs, the hottest consumption accessories and cannabinoid brands throughout each issue and eventually other aspects of the cannabis ecosystem, such as cannabis seeds, growing equipment, and hydroponics. Subject to regulatory approvals, we expect that we will be able to, over time, charge these companies to advertise to reach this captive and targeted, extremely relevant base of 1.1 million users and growing. Eventually, we plan to roll this out to our 4.6 million total customers worldwide, including 3 million customers in the US. As you can see, while most operators are trying to play catch up, We are constantly innovating, seeing how else we can leverage our strengths and points of differentiation and have it create more benefits for both our customers and our shareholders. Another obvious point of differentiation in our unique ecosystem is fast tender, which we will touch upon shortly. So big picture, you can see that we are doing great in Canada due to our model and the strength of our teams. Now that there is the prospect of very real reform in the U.S., we are excited to one day, hopefully soon, successfully export our innovative discount club model with all of these innovative and exciting features there as well. I will now go over the highlights from the financials, and Sergio will do a deeper dive. Revenue for the quarter was $124.4 million, just shy of a $500 million annual run rate, and up 30% year-over-year and 5% sequentially, led by our same-store sales, which were up 8% sequentially. Over the last seven quarters, our same-store sales are up a tremendous 114%. Consolidated gross margins were 28% in Q3, whereas they were 27% in each of the preceding four quarters. Once again, it was the margins in our bricks and mortar cannabis business in Canada, which accounts for 90% of our total revenue, that posted sequential gains again for the sixth straight quarter. You will recall that we highlighted the results of our meaningful cost controls during last quarter's conference call. These efforts to constantly tighten our ship are ongoing. our SG&A as a percentage of revenue has fallen in each of the past three consecutive quarters from 7% in Q4 2022 to just 5% in Q3 2023. At the same time, the investments we have made in deploying our proprietary fast tender technology are bearing fruit. Increasing adoption of fast tender has contributed towards reducing our salaries, wages, and benefits as a percentage of revenue to just 11.1% this quarter down from 12% a year ago and 11.8% sequentially. All these percentage points add up as they flow down to a stronger EBITDA figure. Adjusted EBITDA for the quarter was a record $10.2 million. For context, we generated adjusted EBITDA of $14.6 million during all of fiscal 2022. We are tremendously pleased with this figure and note that it is up 140% year over year and 55% from Q2, which was already a record level at that time. Note that this includes a one-time benefit from the elimination of the social responsibility fee in Manitoba of $2.4 million this quarter. Even without this figure, adjusted EBITDA would have been $7.8 million, still a record level. Finally, our loss from operations, which I note includes $8.5 million of non-cash depreciation and amortization was only $662,000 this quarter, within striking distance of breakeven. This was also a big improvement from $4.7 million in Q3 last year and $2.6 million in Q2 of this year. Competition continues to create struggles for many of our peers, more of which are unfortunately going out of business. Accordingly, opportunities large and small keep coming our way, some of which have been quite high profile. We have shown over the past several years that whether companies are thriving, just alive, or in creditor protection, we know how to buy businesses intelligently on terms that best suit our needs, making sure that we make moves that make sense for our shareholders, and not chase and do whatever it takes to always be the highest bidder at any cost. With next month marking the fifth anniversary of cannabis legalization in Canada, we expect that such opportunities will only accelerate. So we believe there will be ample M&A candidates out there, many of which are worth buying at attractive and accretive multiples. Accordingly, we expect to be more active in M&A in the coming months. Once again, we have proven that our existing business has the scale and strength to generate meaningful free cash flow. Looking ahead, it's time to responsibly step a little harder on the gas towards organic growth while still remaining free cash flow positive. We have signed several high-quality leases, particularly in Ontario, including many in the new and exciting market of Mississauga, which we are currently building out, supported by this internal free cash generation. These quarterly results, which were best in our history, and the robust outlook for our business could not have been achieved without the dedication of our strong team. In particular, I would like to congratulate Sergio Patino, who was recently appointed as our permanent chief financial officer. I'm excited for what more we can do together. Sergio, over to you for your comments.