High Tide Inc.

This call will begin shortly. If you would like to register a question at any time, please press star 1 on your telephone keypad. Thank you. Thank you. Ladies and gentlemen, thank you for standing by. The high-tiding year-end 2023 earnings call will begin shortly. If you would like to register a question at any time, please press star 1 on your telephone keypad. Thank you. Good morning. My name is Elliott, and I'll be your conference operator today. At this time, I would like to welcome everyone to the High Tides, Inc.' 's year-end 2023 Audited 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. And I'll turn the call over to Crystal Defoe.

Thank you, operator. Good morning, everyone, and welcome to High Tidings quarterly earnings calls. Please note that all earnings discussed on this call are presented on an audited basis. Joining me today on the call are Mr. Raj Grover, President and Chief Executive Officer, and Mr. Sergio Patino, Chief Financial Officer. On January 29, 2024, the company released audited highlights from its financial and operational results. for the fiscal year ended and fourth quarter that ended October 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 statements of historical facts, constitute forward-looking information or forward-looking statements within the meaning of the 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 January 29, 2024, our latest information form, and our latest management discussion and analysis, each filed with the securities regulatory authorities at cdarplus.ca or on EDGAR at www.sec.gov or on the company's website at www.hightideinc.com and which are hereby incorporated by reference herein. Although these forward-looking statements reflect management's current beliefs and reasonable assumptions based on the currently available information to management as of the date to hear of, 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 results. For any reconciliation of non-GAAP measures, measured and discussed, please consult our latest management discussion and analysis filed on CDART 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 now begin.

Thank you, Crystal, and good morning, everyone. Welcome to Hightide Inc.' 's Financial Results Conference call for the fiscal year-end and fourth quarter that ended October 31, 2023. I will begin with some big picture comments regarding the quarter and our strategy before Sergio and I dig deeper into the numbers. Fiscal 2023 was a pivotal year for Hightight. During the three preceding years, we were in hyper growth mode, adding about 35 to 40 stores a year focused on organic build outs in premier locations, supplemented by strategic and accretive M&A. A few months into calendar 2023, we assessed the state of the industry, our competitive positioning within it, and capital market realities, and therefore we decided to take a different path. Cash insolvency had become paramount matters for investors, and we wanted to reassure them by showcasing the free cash flow potential of our enterprise. Fortunately, due to the moves we had made since 2018, we didn't need to add 40 to 50 stores in 2023 to reach the scale to generate positive financial outcomes. We already had it. Accordingly, we made the decision to meaningfully slow growth and prove to investors that our existing base of stores could generate free cash flow, and we set the goal to demonstrate this to the market by the end of calendar 2023. In our third quarter ended July, we generated $4.1 million of free cash flow, meeting our goal five months ahead of schedule. Today, we announced our fourth quarter ended October, which showed that our Q3 results weren't a fluke or one-trick pony. In fact, free cash flow grew by a massive 40% sequentially to $5.7 million. Annualizing this figure results in a free cash flow yield of 11% of our enterprise value as of Friday's close. Capital markets now have even more evidence that our team has built a business that is focused on execution and growing our industry-leading position, not how to find the funds to keep the lights on. While we were reaping the fruits from the decisions made in prior years, three of our public competitors in Canadian retail cannabis disappeared during 2023, and some others are currently on the brink. Looking ahead, our objective is to re-accelerate growth a few notches from our internally generated free cash flow, and we have already started doing so. We opened four stores in the first seven months of 2023 and eight stores in the last five months of the year, funded from our free cash flow. Our expectation is to open 20 to 30 stores in calendar 2024 via a combination of organic bills and M&A while remaining free cash flow positive. We have generated just shy of $10 million in free cash flow in the last six months, which has allowed us to achieve a rare combination of ending the quarter with a record cash balance, increasing our store footprint, as well as reducing debt. Yet our shares currently trade at an EB to last quarter annualized adjusted EBITDA multiple of just 6.2 times. a level we believe is quite attractive. I would like to remind investors that I led a round of insider buying in November 2023 as well as in March 2023. I remain the largest shareholder and I've never sold a share. Fiscal 2023 continued an established string of exceptional performance for Hightide. Revenue for the year was $487.7 million ending at a pace quickly approaching $510 million versus $31.3 million in fiscal 2019 our first fiscal year end as a public company. In fact, we have never reported a sequential decline in quarterly revenue during the five years since we have been public. We have now posted 15 straight quarters of positive adjusted EBITDA while setting new records in each of the past five quarters, excluding the impact of the removal of the SRF in Manitoba in Q3 2023. While it has been a string of very successful years, I firmly believe that the best is yet to come for Hightide. Most importantly, we were fully supportive of the transformational regulatory change in Ontario a month ago, where the government raised the cap of the number of stores any one entity can own from 75 to 150 effective January 1, 2024. While we ran a corporate store network, others were using a franchise model as a loophole to get around the cap and have more than 75 stores. Now the playing field is clear and leveled for everybody, and the total addressable market for us in the largest province has doubled. We ended fiscal 2023 with 52 stores in Ontario and have 54 today. With this key change, we now have the ability to add almost 100 stores, which should be a game changer for our operations and financial profile. Our average Ontario store generated $3.6 million of annualized revenue in October, which compares to $1.1 million of our peers in the province. And our market share was 9% in Ontario during the month. We look forward to continuing to profitably expand by adding 96 more stores in the province to our store network via both organic and acquisitive growth. We have already identified about 20 sites we plan to build out, the majority of which are in Ontario. While we remain hungry for expansion into other international legal markets coming over the horizon, this positive development in Ontario should fuel years of meaningful growth ahead for Hightide right here in Canada. Innovation is the key to what we do at Hightide. Whether you're talking about our discount club model, fast tender technology, or our altogether magazine circulated to over 1.28 million Cabana Club members, helping to provide visibility and exposure to the latest and greatest trending cannabis brands, we are always on the cutting edge, trying new things to stay ahead of our competition, and we are succeeding. With a full year behind us since launch, I'm very happy to report that Elite continues to do very well, and that uptake is accelerating. we have breached the 28,000 elite member mark as of today, up 49% or 9,200 members since we reported this metric on September 14, 2023, with our Q3 results representing the fastest onboarding pace since we launched elite a year ago. I'm very pleased to report that our elite membership is up 367% over the past year, Our Cabana Club has also swelled to over 1.28 million members today, up 35% versus the prior year and 16% sequentially. We are 163 stores strong across the country today. In Alberta, our average store was in a $2.2 million run rate in October and held a 19% market share versus our peers, which averaged a $1.1 million run rate. We just opened our first store in Fort McMurray over the weekend. We are very excited about it and expect it to be one of our better performing stores in Alberta. Our market share across the five provinces in which we have a presence was 10% for the quarter. Our long-term goal is to have 15% market share in the markets where we operate, although that will be difficult to obtain in British Columbia, where we are currently limited to the cap of eight stores until there's a regulatory change. I will now go over the highlights from the financials, and Sergio will do a deeper dive. Revenue for Q4 was $127.1 million, representing an annual pace quickly approaching $510 million and up 17% year over year and 2% sequentially. Recall that we only opened three stores during the quarter, one of which was only open for nine days. Consolidated gross margins were 26% in Q4, which was fairly consistent versus 27% in the fourth fiscal quarter of 2022, and equal to the third fiscal quarter of 2023, excluding the impact from Manitoba's SRF. We're very happy with how the benefits of scale and active cost control initiatives resulted in an improved financial profile in 2023 versus 2022, and how we held the line on expenses during Q4. For example, salaries, wages, and benefits were 11.6% of revenue during 2023, representing a meaningful decline versus 12.3% in 2022. In Q4 2023, the percentage was 11.6%, representing a big improvement from 12.1% in Q4 2022 and equal to the full year average for 2023. Similarly, general and administration expenses represented 5.5% of revenue in 2023 versus 7.3% in 2022. And in Q4 2023, the figure was 5.3%, much better than 7.4% in Q4 2022 and lower than the full year average for 2023. Adjusted EBITDA for Q4 2023 was $8.4 million, which excluding the one-time benefit from the elimination of the social responsibility fee in Manitoba of $2.4 million in Q3 2023 was a record level and up 7% sequentially and up 67% year over year. We performed our annual impairment testing during Q4. driven primarily by a global post-pandemic slowdown in e-commerce sales to which our e-commerce assets have not been immune. Unfortunately, we had to incur non-cash impairment charges, primarily relating to brands and goodwill of $34.3 million. While we are not happy with this development, I stress that this has to do solely with e-commerce assets and does not relate at all to our core bricks and mortar business in Canada, which represents over 91% of our revenue and frankly continues to get stronger with each passing quarter. Specifically, I note that our income from operations, excluding these non-cash charges, turned positive in Q4. Now let's look at the competitive nature of the industry. Our model continues to stand out as the clear winner. In the two years since we introduced our innovative discount club concept, our same-store sales have risen a remarkable 110%. In contrast, total retail sales across Canada, excluding Quebec, where there is no private sector cannabis retail, were up only 28%. During the two year period, the industry store count has risen 38%, suggesting that while our same store sales were up 110%, the average operator in the country has witnessed a 7% decline. We are definitely seeing the impact of competition in the market and our superior positioning. We are regularly going into more saturated areas and provided we can get top tier real estate, which usually isn't a problem given our strong financial covenant and existing landlord relationships, we find that even in these competitive markets, the value proposition offered by the Cabana Club model is making these new stores winners relatively quickly. At the same time, we're seeing store closures and no shortage of opportunities from operators hoping we will simply take the keys of their money-losing stores, which of course is not our model. We only act on high-quality real estate, opening up newer pockets of customers for us and featuring a healthy financial profile. There are still many cities where we don't have a Canna Cabana. 2024 will be a year where we look to take action on such opportunities. In conclusion, Q4 was another quarter of solid execution and growth for Hightide, which of course could not have been achieved without the dedication of our strong team. The outlook of our future remains very bright, featuring years of expansion ahead in Ontario, likely followed by international markets such as Germany and the U.S. opening up. We were the top-performing Canadian cannabis stock in 2023, and I remain excited about our prospects for 2024 and beyond. I would now like to turn it over to Sergio Patino, our Chief Financial Officer, for his comments and a deeper dive into the numbers.