High Tide Inc.

Thank you for your patience, everyone. The Q1 2024 High Tide Inc. will begin shortly. We'll be right back. Good morning. My name is Drew and I'll be your conference operator today. At this time, I would like to welcome everyone to Hightide Inc's Q1 2024 Audited Financial and Operational Results Conference Call. All lights 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 the time for you to queue up for the question and answer session. I will now turn the call over to your host, Crystal Defoe.

Thank you, Operator. Good morning everyone and welcome to Highside Inc's 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 March 15, 2024, the company released unaudited highlights from its financial and operational results for the fiscal quarter-ended January 31st, 2024. 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 annual information form and our latest management discussions and analysis, each filed with securities regulatory authorities at cedarplus.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 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 on such forward-looking results for any reconciliation of non-GAAP measures measured and discussed Please consult our latest management discussion and analysis filed on CDAR Plus and EDGAR. Now, it is my true 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 Hightide Inc.' 's Financial Results Conference Call for the first fiscal quarter that ended January 31, 2024. I will begin with some big-picture comments regarding the quarter and our strategy before Sergio and I dig deeper into the numbers. As you can see from the press release and financials filed on Friday, Q1 was another solid quarter for Hightight, marked by record revenue, record adjusted EBITDA, and meaningful free cash flow generation. Income from operations was also a record, and we broke even on net income, which is another huge milestone for our company and one that I'm especially proud of. We have never posted a quarter where revenue declined sequentially, and adjusted EBITDA has now been positive for 16 consecutive quarters, including six straight quarters where it reached new highs. As investors are probably aware, our focus for the past year has been on generating positive free cash flow. This is an anomaly in the Canadian cannabis sector, and our results are a source of pride. We generated $3.6 million of free cash flow in Q1 and $13.3 million during the last three quarters. In our view, this cash flow profile represents a tremendous feat considering we have been growing the business during this period. And as we have done effectively no M&A over the past year, this growth has been all organic. In calendar 2023, we purposefully slowed growth to reach our objective of becoming free cash flow positive as we only opened 13 stores during the year, versus 30 to 40 in prior years. We expect growth to re-accelerate during this calendar year. We are optimistic that M&A will resume this year. However, it has been slower than we would like so far, largely due to a lack of companies for sale that are quality candidates. As we are anticipating to add more stores to our network over the course of the year, we are excited about the revenue growth potential it will help create. According to a recent report by ATB Financial, Hightide already has the second largest non-franchise cannabis retail footprint across North America at 165 locations. Our performance over the past few years has really been a standout within Canadian cannabis retail. The discount club model we launched a few years ago has grown and evolved, and our innovation has helped create a personality of our own. This revolutionary model, tailored to our company's unique retail ecosystem, has allowed us to exceed 10% market share in Q1 in the five provinces in which we operate, making us the largest retail player in the country. Our market share in Alberta was over 19% during Q1. Particularly given the increase in the store cap in Ontario from 75 to 150, we now see a clear path to 15% market share in the five provinces where we have stores in the long term. We are very pleased to see Cabana Club enrollment continue to expand, and it has now grown to over 1.32 million loyal members. Elite onboarding has reached its fastest pace since initial launch, with approximately 4,000 new members added since we reported Q4, as we reached a total of over 32,000 paid members. We have increased the Elite offerings in our stores just as we said we would. as they now reflect 12% of in-store inventory geared towards our paid members versus less than 2% a year ago. Ongoing and in the long term, our goal is to have 20% to 30% of our SKU offerings targeting our elite members. We expect Elite to continue to grow as we onboard more Elite products, which gives our base of Cabana Club members more reasons to upgrade to Elite. With the start of a new fiscal year, we have provided enhanced segmented disclosure so investors can better appreciate the main drivers of our business and how they performed. We now explicitly break out our bricks and mortar revenue and e-commerce revenue. While our consolidated revenue increased 8% year-over-year in Q1, investors can now see that our bricks and mortar revenue was up 16% during this period. Our bricks and mortar stores are the core focus of the company as they represent over 90% of our total revenue and are doing even better than what our headline consolidated revenue suggests. Our e-commerce businesses continue to lag as revenue here has declined. It weighs on our consolidated revenue growth. Being proactive, we have been aggressively taking costs out of the system in this segment, and we have maintained positive EBITDA within our e-commerce portfolio similar to a year ago. This is one reason why, while consolidated revenue only grew 1% sequentially, our consolidated adjusted EBITDA rose 25%. I'm particularly proud of our consolidated adjusted EBITDA margin. It has been increasing at a significant pace, growing from 4.7% in Q1 last year to 6.6% in Q4 2023, and now reaching 8.1% this quarter. This gives us comfort that we will reach double-digit adjusted EBITDA margin in the long term, which has been our goal. I will now go over the highlights from the financials and Sergio will do a deeper dive. Revenue for Q1 was $128.1 million representing an annual pace exceeding $510 million and up 8% year-over-year and 1% sequentially. Our bricks and mortar segment led the way up 16% year-over-year. In the month of December, our average store was on an annual revenue run rate of $2.7 million which compares to average peer revenue of $1.2 million in the provinces in which we operate. In Ontario, the largest market and the focus of our future expansion, our outperformance was even more pronounced, with the average Kanakabana being on a $3.5 million annual revenue run rate, which was 3.1 times that of our provincial peers at $1.2 million. Our same store sales were up 7% year over year in Q1. While our same-store sales remained consistent sequentially, it was largely a symptom of a slower overall market in which we continued to outperform as our total sales in the five provinces in which we operate were down 6% sequentially as per Statistics Canada and High Fire data. Consolidated gross margins were 28% in Q1 2024, which compared to 27% throughout all of 2023 and 26% in Q4 2023. Here again, our bricks and mortar segment posted gains with a gross margin of 27% in Q1 2024, up from 23% in Q1 2023. We once again held the line on expenses and reaped the benefits of operating leverage this quarter. While revenue increased by $10 million versus Q1 2023, our overhead expenses actually decreased by $2.9 million. In particular, our general and administration expenses fell by $1.9 million and represented just 4.4% of revenue this quarter, down meaningfully from 6.3% in Q1 2023 and 5.3% in Q4 2023. I'm very happy to see this percentage continue to fall and believe it's exceptional within our industry. Adjusted EBITDA was a record $10.4 million for the quarter, up 25% sequentially, despite only 1% increase in revenue. We also saw meaningful improvements year over year as Q1 2024's level was 90% higher than Q1 2023, which itself was up 86% versus Q1 2022. Again, we are very pleased with our adjusted EBITDA margin of 8.1% as it underscores the long-term benefits of our innovative discount club model, the leverage from our scale and our strict cost controls. Finally, as much as we usually talk about adjusted EBITDA, I would like to highlight that we also generated very meaningful EBITDA prior to adjustments for items such as share based compensation and loss on re-evaluation of debentures of $8.4 million, which was a 78% increase over last year's Q1. Similarly, we set a record high in our income from operations which was positive $2.8 million this quarter, marking a huge improvement from a loss of $3.9 million in Q1 2023. In fact, we also broke even on net income. Our free cash flow was $3.6 million during the quarter, which marked a large reversal from negative $847,000 a year ago. As a reminder, our goal is to re-accelerate growth going forward while remaining free cash flow positive. However, the amount of free cash flow may fluctuate in any given quarter given the working capital requirements and the impact of getting new stores to maturity. For example, I highlight that in this quarter, our accounts payable and accrued liabilities balance decreased by $5.4 million, which weighed meaningfully on our Q1 free cash flows. Nevertheless, over the past three quarters, we have generated over $13 million in free cash flow, which when annualized translates to a 10% free cash flow yield on our enterprise value as at Friday's close. We have taken steps to continue to fortify our supply chain. Last month, our value and distribution subsidiary signed an agreement with the Manitoba Liquor and Lotteries Corporation to be a distributor of cannabis products to cannabis retailers in Manitoba. This is one more step in the direction of being as vertical as we can to make the most of our cannabis ecosystem. As well, on Friday, we announced the acquisition of the Queen of Bud brand and its well-known selectively curated cannabis product portfolio. Queen of Bud has an extensive customer base, particularly among women, with unique offerings such as its roast petal blunts and crystal-inspired SKUs. This is a solid brand addition to our international roster. With this acquisition, we can sell cannabis in Canada under the Queen of Bud brand via white label agreements as opposed to having to make large capex investments and deal with the overhead and administration expenses with growing it. Also, Queen of Bud has a wide range of ancillary products that we can sell internationally on our existing platforms. I'm very excited with the potential we have with this brand, and in usual high-type fashion, we made this acquisition for a very reasonable price of just $1 million. While it may not be obvious by looking at market caps, we continue to have the highest cannabis revenue of any Canadian company and our Q1 results once again demonstrated the strength of our brand and how we outperformed our peers. Our unique Discount Club concept has driven a total increase in same-store sales of 103% in January 2024 compared to October 2021. Whereas total retail sales across Canada, excluding Quebec, where there's no private sector cannabis retail, were up only 21%. That's almost a five times out performance. Incorporating the increase in our store counts during the period, the average operator experienced a 14% decline while we posted a 103% gain. We see a stark disconnect between our fundamentals as shown by our string of record-setting quarters and our current share valuation, which now reflects an EBITDA last quarter annualized EBITDA multiple of just 4.2 times based on Friday's close. This is why during our fiscal Q1, many of the insiders led by me acquired more Hightight shares in the open market. We believe in what we are building here at Hightight, a global cannabis retail powerhouse. We have an immediate opportunity we plan to seize right here in Canada, focused on Ontario, where we plan to add over 90 more stores. Concurrently, we continue to monitor progress in Germany, which we believe will represent the next wave of growth for Hightide. Phase 1 of Germany's legalization plan has passed the German Parliament. We look forward to Phase 2, which would allow for profit retail cannabis stores, possibly by mid-2025. We were honored to be named on the prestigious TSX Venture 50 list for the second time in three years last month. Exciting things continue to happen at high tide. I would like to thank our team for their dedication to getting us to where we have reached today and their diligent work to strive towards newer highs tomorrow. I will now turn it over to Sergio Patino, our Chief Financial Officer, for his comments and a deeper dive into the numbers.