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 the high tide in Q2 2024 unaided 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 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. Please go ahead.

Thank you, operator. Good morning everyone and welcome to High Tide 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. Mayank Mahajan, Chief Financial Officer. On June 14, 2024, the company released unaudited highlights from its financial and operational results for the second fiscal quarter that ended April 30, 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 meeting of the applicable securities laws and are based on assumptions, expectations, and estimates and projections as 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 June 13, 2024, our latest annual information form, and our latest management discussion and analysis, each filed with securities regulatory authorities at CDARplus.ca or on EDGAR at www.sec.gov. or on the company's website at www.hightideinc.com, 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 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 CDAR Plus and EDNR. It is now my absolute pleasure to introduce Mr. Raj Grover, President and Chief Executive Officer of High Tide, Thank you, Mr. Grover. You may begin.

Thank you, Crystal, and good morning, everyone. Welcome to High Tide, Inc.' 's financial results conference call for the second fiscal quarter that ended April 30, 2024. I will begin with some big picture comments regarding the quarter and our strategy before Mayank and I dig deeper into the numbers. As you can see from the press release and financials file last night, Q2 was another stellar quarter for High Tide. Of particular note, we generated $9.4 million of free cash flow, which was more than the prior two quarters combined. Our 7.5% of our revenue this quarter flowed down to free cash flow, a level we are incredibly proud of. While quarterly amounts fluctuate, particularly due to working capital considerations, we have now generated $22.7 million in free cash over the past year, which translates to an 8% yield versus our enterprise value. I'm especially proud of these results, which came in in the face of several insolvencies across the cannabis sector, including many cannabis retailers. Continuing the upward momentum in our financials, I note that even after $7.5 million in non-cash depreciation and amortization, we generated positive net income in Q2, representing a hugely important milestone that we have been targeting for some time. Revenue of $124.3 million was up 5% year over year, led by our core bricks and mortar segment, which rose 11%. We achieved a big milestone this quarter, as it was for the first time our 12-month trailing revenue exceeded $500 million, maintaining our status as having the most cannabis revenue of any company in Canada, a position we have held for almost two years now. While consolidated revenue was lower by 3% sequentially this quarter, this was due to Q2 traditionally being a slower post-holiday quarter and consisting of two fewer days than Q1. In this context, I'm very encouraged that our bricks and mortar revenue was consistent sequentially despite the two fewer days. Given that we are a product of our environment and not immune to the macro picture, I'm glad to report that we continue to outperform our peers. While total industry sales were down 4.4% sequentially in Q2 versus Q1, I know that our total four-wall sales rose 0.5%. Our adjusted EBITDA was up 52% year-over-year to $10 million, representing the 17th straight quarter where it has been positive. I'm very pleased that we were able to repeat the strong adjusted EBITDA margin level of 8.1% we generated in Q1 during Q2, despite the fact that we had two fewer days to make sales in the quarter, while many of our expenses are fixed in nature. This represented a big increase versus the 5.6% adjusted EBITDA margin we generated in Q2 last year. All of these advancements were happening at high tide when unfortunately many other cannabis companies are going under, illustrating how competitive the environment is while we continue to dominate through our innovative discount club model. In the past few weeks alone, Shiny Bud and 420 filed intentions to make bankruptcy proposals, raising uncertainty about the future of 66 combined locations. Yet we have kept growing our market share in these conditions. Our market share in the five provinces in which Cannacabana operates rose to 10.9% in Q2 from 10.4% in Q1 and 9.9% in Q2 2023. In our two largest markets, we represented 20% market share in Alberta and 10% in Ontario. When we launched the discount club model, many people were skeptical that this model would work. Some doubted our ability to ever reach a million members or that anyone would pay to shop in a cannabis store. The value offered to our customers and the resourcefulness and execution of our team has made our discount club model a huge success and a primary reason for our outperformance. I'm particularly proud of our elite membership base. Despite raising prices from $30 a year to $35 today, we have now surpassed 44,000 paid members, which is up from 32,000 last quarter, representing the fastest pace of onboarding since we launched the program and up 226% year-over-year and 38% sequentially. Our total membership base in the Cabana Club has now surpassed 1.43 million members, which is up 38% year-over-year and 8% sequentially. As we pledge to investors, now that we have proven the ability to sustainably generate free cash flow from operations, we have accelerated the pace of store growth. We have added 10 new stores all organically so far in calendar 2024, which puts us on track to meet our originally communicated target of 20 to 30 stores for this calendar year and almost matches the 12 stores we added in all of calendar 2023. But the growth won't stop here. Our team has already set the table for many more organic store openings, which will be spread fairly evenly over the course of the rest of this year to ensure that the cash drag from new stores is manageable, allowing us to continue generating more free cash. We are also in active discussions regarding potential M&A transactions, which would be strategic in nature and accretive to our shareholders. As a reminder, the vast majority of the potential targets we see are frankly not worth pursuing. We are very selective about the transactions we enter into to ensure that they're financially strong in their own right before we look to improve their output once we take over, instead of looking to acquire and fix turnaround stories. It has been and continues to be a buyer's market, and given our character and market leadership, we simply won't overpay just to get deals done unlike other operators in the market. Given the discussions we are engaged in, should they come to fruition, M&A transactions could contribute to us significantly surpassing our stated target of adding 20 to 30 locations this year. It's been a busy couple of weeks at high tide. In addition to preparing to release our quarterly results, yesterday we also announced that we have entered into a binding subscription agreement for $15 million in subordinate debt. We have discussed how underleveraged our balance sheet is, with our gross debt just 0.7 times our adjusted EBITDA run rate, and that we could benefit from more leverage. I'm very pleased to see that even in this tough environment, high tides operational progress and creditworthiness is being noticed. As part of this financing, we will receive $10 million up front, expected to close in the coming weeks, and the remaining $5 million in November, which provides meaningful optionality regarding how to deal with our unsecured debt due at the end of December without paying interest during the interim. This financing also includes an accordion feature for a potential further $10 million should we deem it prudent to pursue. On the topic of cash, supported by our strong free cash flow, we ended the quarter with a record $34.5 million, up 54% versus a year ago and 20% sequentially. It is also worth noting that investors seem to be catching on to Hightight's superior operational performance. In fact, High tide is among the best performing cannabis stocks over the past 12 months, garnering more and more institutional interest. I will now go over the highlights from the financials and Mayank will do a deeper dive. Revenue for Q2 was $124.3 million, up 5% year over year and 3% lower sequentially due to a seasonally slower quarter, which also has two fewer days. Our bricks and mortar segment led the way, up 11% year over year. In the month of March, our average store was on an annual revenue run rate of $2.6 million, which compares to our average peer revenue of just $1 million in the provinces where we operate. In Ontario, the largest market and the focus of our future expansion, our outperformance was even more pronounced. Excluding newer stores open three months or less, which are still ramping up, the average Canna Cabana store was on a $3.4 million annual revenue run rate, versus the average of our peers in the province, which was just $923,000. Our same-store sales were up 4% year-over-year in Q2, while our daily same-store sales also ticked slightly higher sequentially. This was largely a symptom of a slower overall market in which we continue to outperform as total sales in the five provinces in which we operate were down 4.4% sequentially, including the impact of new store growth. as per Statistics Canada and High Fire data. Our unique discount club model has driven a total increase in same-store sales of 111% in March 2024 compared to October 2021. In contrast, total retail sales, including the impact of new store growth across the five provinces where we operate, were up only 27%. Taking into account the increase in the number of stores, the average operator experienced a 10% decline while we posted a 111% gain. Consolidated gross margins were 28.4% in Q2 2024, which was our highest level in the last nine quarters, as compared to 26.7% in Q2 2023 and 28.1% in the previous quarter. While many of our overhead expenses are fixed, such as rent and insurance, I'm very proud that we were able to reduce our total overhead expenses, excluding depreciation by $547,000 sequentially to mitigate the slightly lower revenue from having two fewer days. Of note, our general and administration expenses fell to 4.5% of revenue in Q2 versus 5.2% in the prior year and was consistent sequentially. adjusted EBITDA was $10 million for the quarter. We are exceptionally proud to have maintained our adjusted EBITDA margin at 8.1% for the second straight quarter and marking a large gain compared to 5.6% in Q2 2023. Our income from operations was positive $2 million this quarter, marking a huge improvement from a loss of $2.6 million in Q2 2023. I'm very proud that this trend flowed all the way down to net income which turned positive this quarter despite the $7.5 million non-cash depreciation impact and two fewer days. As always, our government relations team has been hard at work and delivering results. In particular, the industry has received several pieces of good news on the regulatory front in Alberta where we have our widest footprint at 79 stores as well as our headquarters. The Minister of Red Tape Reduction, Dale Nelly, recently approved rec changes to allow cannabis pop-up stores at adult-only festivals and trade shows. This is something we hope to take advantage of in the coming months, and we are already in discussions with several partners to help us execute this vision. Staying with Alberta, the AGLC has moved to allow private label products, We look forward to working with our LP partners to bring our proprietary and high-margin brands such as Cabana Cannabis Co. and Queen of Bud to Alberta in the coming months. Finally, Manitoba recently announced a six-month moratorium on issuing new controlled access cannabis licenses while it reviews their future moving forward. This is something that we had been advocating for as these licenses were primarily being used by Winnipeg-based companies convenience and grocery stores to sell cannabis without having to age restrict their entire premise. Several gas station chains were also looking at entering the cannabis retail market using these licenses. Moving forward, it is our hope that Manitoba will restrict these licenses to small, under-serviced rural and northern communities only. Along with the Retail Cannabis Council of Manitoba, we remain in active discussions with the Manitoba government on this file. These earnings capped off a monumental week for Hightide and sets the table for new highs to come. Our balance sheet has never been stronger. We now have an agreement for another $15 million in debt financing. Our free cash flow profile is fully proven, having accumulated $22.7 million over the past year while continuing to grow our market share. Although we are already the largest company by cannabis revenue in Canada and second largest cannabis retailer by store count globally, we are always trying to expand our lead and reach more potential Cabana Club members in communities across the country. We expect that our ever-strengthening market positioning will continue to generate more and more investor interest. Of course, this stellar execution does not happen by itself. It takes a dedicated and strong team to hustle and grind every day to make all of this happen. I am so thankful for all of their efforts. The newest senior addition to our team is Mayank Mahajan, It has been a real pleasure working with Mayank and I'm confident that he has the skills to help us reach the new heights that we are clearly aiming for. Mayank, welcome to the Hightight family and over to you for your comments and a deeper dive into the numbers.