SNDL Inc.

Good morning and welcome to SNDL's year-end and fourth quarter 2023 financial results conference call. This morning, SNDL issued a press release announcing their financial results for the year-end and fourth quarter ended on December 31st, 2023. This press release is available on the company's website at sndl.com and filed on EDGAR and CDAR as well. The webcast replay of the conference call will also be available on the SNDL.com website. SNDL has also posted a supplementary investor presentation along with a shareholder letter from Chief Executive Officer Zach George on its SNDL.com website. Presenting on this morning's call, we have Zach George, Chief Executive Officer, Alberto Perdero, Chief Financial Officer, Tank Rander, President, Liquor Retail, and Tyler Robson, President, Cannabis. Before we start, I would like to remind investors that certain matters discussed in today's conference call or answers that may be given to questions could constitute forward-looking statements. Actual results could differ materially from those anticipated. Risk factors that could affect results are detailed in the company's financial reports and other public filings that are made available on CDAR and EDGAR. Additionally, all financial figures mentioned are in Canadian dollars unless otherwise indicated. We will now make prepared remarks and then we'll move on to analyst questions. I would now like to turn the call over to Zach George. Please go ahead.

Good morning, everyone, and thank you for joining us on our full year and fourth quarter 2023 earnings call. 2023 was a transformational year for SMDL. marked by several financial milestones, including record revenue and gross profit. The year began with a remarkable year-over-year revenue growth of almost 1,000% in Q1 of 2023, which was then followed by positive free cash flow generation of 18 million in the second half of the year. 2023 net revenue reached a record 909 million, a 28% increase from the previous year, while growth profits surged to a record 190 million, up 36% from the prior year. S&DL's team has worked to build a scaled and diversified platform that we believe will be the basis for the creation of sustainable shareholder value. Our operations include award-winning liquor and cannabis retail banners, broad manufacturing capabilities, and a uniquely positioned non-consolidated exposure to U.S. cannabis operators. with a fair value of more than half a billion dollars. We are also in the process of monetizing a number of real estate and credit assets that will continue to feed and strengthen our industry-leading balance sheet. The acquisition of Valens in January of 2023 was a key tactical move for SMDL, enhancing our upstream capabilities in Canadian cannabis. We now have manufacturing capabilities across all major product categories and continue to drive automation and labor efficiencies. We have exited exposure to high-cost owned cultivation and leaned into procurement opportunities. Integrating Valens' operation into our infrastructure has led to significant synergies, resulting in approximately $22 million in annualized cost savings. These savings stem from better capacity utilization and various cost reduction initiatives, including the optimization of our cultivation footprint. Our progress is reflected in the steady sequential improvement of our gross profit over the year. We expect our cannabis operations segment to deliver additional operating efficiencies in 2024 and are excited by growth opportunities in B2B and international markets. We've continued to build upon the stable foundation of our liquor retail segment with a focus on margin enhancement. We've achieved this through the launch of our data program, the refinement of inventory management practices, and growth in private label offerings. These initiatives have been pivotal in optimizing our operations within this segment. We also reach record results in revenue, gross profit, and cash flow within our cannabis retail segment. The increase showcases the company's efforts in continued margin expansion initiatives and data program enhancements. In 2023, we streamlined our investment portfolio by divesting from equity securities and certain credit exposures. As of year end, the company held a portfolio of cannabis-related investments with a carrying value of $572 million, including $538 million to Sunstream. S&DL's joint venture, Sunstream Bancorp, launched Sunstream USA Group in the third quarter. This new entity is designed to hold the post-reorganized equity of SkyMint and Parallel, which include licenses in Florida, Michigan, Massachusetts, and Texas. It is structured to exclude voting or operational control, enabling S&DL to preserve its NASDAQ listing until further regulatory reform allows for the consolidation of these exposures. The establishment of Sunstream USA Group represents a compliant, arm's-length expansion ensuring that S&DL does not engage in plant touching activities while participating in a multi-state cannabis platform. The restructuring of SkyMint and Parallel results in simplified capital structures, the elimination of certain material liabilities, and improved competitive positioning. The closing of these transactions will provide Sunstream USA Group with the optionality to access third-party investors, engage in industry consolidation through mergers and acquisitions, and gain critical consumer insights. The structure of Sunstream USA Group is being reviewed by NASDAQ to align with all U.S. compliance and governance standards. While many Canadian operators make promotional statements regarding future U.S. dominance, S&DL is the only Canadian licensed producer with cannabis enterprise exposure in the U.S. at this scale. We look forward to updating shareholders on these developments in the near future. As mentioned in my shareholder letter, which can be found on our website, SMDL maintains a debt-free balance sheet with a market capitalization of around $530 million, well below our cash and credit investments valued at $767 million, and without any consideration for our operating segments, which continue to show both revenue growth and margin improvement. We believe that the company's recent market valuation does not reflect SMDL's intrinsic value and that the valuation gap is so significant that investors purchasing shares today could potentially be acquiring substantial asset value at a low or even negative cost on an applied basis. Considering the broader Canadian cannabis industry context and the CRA's garnishments to combat an estimated $300 million in unpaid excise taxes, S&DL's financial health places us in an enviable position with our debt-free, cash-rich balance sheet with no tax arrears, We expect to benefit from the financial instability of peers who will struggle to consistently deliver product to provincial boards and end markets on a profitable basis. Our steadfast consumer-centric approach and unwavering commitment to quality and regulated products remain the bedrock of our strategy. Our demonstrated success with both mergers and acquisitions and organic growth has laid the foundation for our team to build momentum and strive for excellence in execution. Looking ahead to 2024, we are well positioned for expansion, utilizing the extensive scale of our platform to drive sustained value creation for our shareholders. We are focused on realizing efficiencies and margin expansion across our segments with quality of consumer experience at the forefront of our endeavors. Finally, I want to express my gratitude to the entire SMDL team for their dedication in 2023. The outstanding results we achieved are a testament to your hard work and commitment to our vision. To our investors, this is a team that wants to win. We have significant work ahead, but the undeniable improvement in our results is driving conviction in our ability to push harder as we aggressively pursue our performance goals and outcomes. I will now pass the call to Alberto to provide more information on our financial results. Thank you, Zach.

I want to remind you all that amounts discussed today are denominated in Canadian dollars unless otherwise stated. Certain amounts referred to on this call are non-GAAP and non-IFRS measures. For definitions of these measures, please refer to SMDL's management discussion and analysis document. Since joining SMDL team in July, I have seen significant progress, not just in terms of our financials, but for our organization as a whole. We have navigated the challenges of the regulated products industry and made a strong improvement in how we operate and how we manage our finances. Our focus has been on strengthening the balance sheet, enhancing cash flow generation, and driving profitable growth. Through several strategic initiatives and disciplined financial and operational management, we're improving our cost structure and sharpening our capital allocation. Not only have we redesigned our operating governance and financial planning processes, We have also realigned the finance structures and attracted key talent to drive value creation while increasing the efficiency of our back office. It is exciting to see how these changes are already having positive impact in 2024. Now let's dive into our consolidated financial performance for Q4 2023. Our net revenue reached $249 million, or 3% growth from $240 million in the same quarter last year. This includes a revenue elimination entry of $12 million that we introduced as of the third quarter of 2023. Without this adjustment, our net revenue growth in the fourth quarter would have been 8%. I am particularly proud to highlight our gross profit for the quarter, which sets a new record of $57 million, or 23% of sales. This compares to $44 million in Q4 2022. This significant improvement is a testament to our supply chain optimization efforts, including the strategic decision to close our old Alberta cultivation facility announced in October. Chains in cash and cash equivalent was negative $7 million, compared to the negative $12 million in the fourth quarter of 2022, a 42% improvement. We achieved a positive free cash flow of $1.4 million in the quarter, showcasing the effective cash management despite the usual increase in working capital associated with the holiday season. This reflects our second consecutive quarter of positive free cash flow in 2023. Our operating income saw a loss of $85 million, which includes $29 million of restructuring costs and restructuring-related asset write-offs, and also $29 million of goodwill impairments. This is a 45% improvement over the 155 million loss we reported in the fourth quarter of 2022. Lastly, our adjusted EBITDA was a positive 3.5 million, a 147% improvement from the loss reported in the last quarter of 2022. This improvement is a clear indicator of our commitment to streamlining operations and enhancing our financial health. Turning to our annual performance. I am pleased to report several record achievements in 2023. Our net revenue reached an all-time high of $909 million, up 28% from $712 million in 2022. Gross profit for the year also hit a new record at $190 million, or 21% of our sales. This is a significant increase of 36% compared to the $140 million, or 20% of sales we reported last year. This is a testament to our improved cost management and operational efficiency. Pensing cash and cash equivalents was negative 84.5 million in 2023, compared to the negative 279 million, 70% year-over-year improvement. A highlight for the year was achieving positive free cash flow in the third and fourth quarters, totaling 17.7 million. This includes an impressive $16.3 million in the third quarter and $1.4 million in the fourth quarter, as mentioned earlier, demonstrating our ability to generate cash while continuing to invest in growth. Our operating income showed a loss of $163 million for the year, which includes restructuring charges of $20 million and asset impairments of $55 million, as well as streamlining our operations to enable future profitable growth. Despite this, we have seen a remarkable 53% improvement from the previous year's loss of $348 million. Finally, our adjusted EBITDA from continuing operations increased to $29 million in 2023, a significant improvement from a loss of $16 million in 2022. I will let Tank and Tyler provide more details on the Q4 and year-end 2023 results for the liquor retail and cannabis operations segments. but I would like to comment on the results for our cannabis retail segment. Cannabis retail revenue includes operations of NOVA retail stores for the period of March 31st, 2022 to December 31st, 2022. In Q4 2023, our cannabis retail segment witnessed a 10% increase in net revenue, reaching $75 million compared to the $68 million in the same quarter of the previous year. and same-store sales increased by 2%. Gross profit was $20 million, or 27% of sales, making a 27% increase from the previous year. Our proprietary data licensing program generated $4.2 million in Q4 2023. For the year end 2023, for our cannabis retail segment, we achieved a record net revenue of $290 million. making a significant 41% increase from the 206 million reported in 2022. Equally noteworthy is the record gross profit from this segment, which reached 74 million, or 25% of sales in 2023. This represents a substantial 56% year-over-year increase from 47 million, or 23% of sales in 2022. These figures highlight our successful margin expansion initiatives and operational efficiencies. Additionally, our proprietary data licensing program generated $12.3 million in revenue in 2023, up 193% from $4.2 million in 2022. Finally, looking at our investments and equity positions in the year end 2023. As of the end of 2023, the company has deployed capital into cannabis-related credit investments with current value of $572 million. including $538 million through the downstream joint venture. In 2023, our investment portfolio generated a positive operating income of $12 million, a significant improvement from the $91 million loss in the previous year. Despite a minor decrease in interest and fee revenue to $14 million from $17 million, our equity-accounted investments showed a notable recovery. contributing $6.8 million in profits compared to $43 million loss in 2022. The company financial health is strong, supported by $766 million in unrestricted cash, marketable securities, and investments, leading to an annual value of $1.2 billion. It is also important to highlight that we have not raised any cash through the share offering since June 2021. And to date, the company has no debt. SMDL's Board of Directors approved extending the company's shared repurchase program to November 20, 2024. The company's shared repurchase program continues to be available to lower the outstanding share flow. Management will continue to assess opportunities to utilize the program to the extent we believe it is in the best interest of our shareholders. For the three months ended December 31st, 2023, the company did not purchase common shares for cancellation. Our results this year represent another solid step towards executing our business strategy, our culture of financial rigor and continuous improvement, and the hard work and dedication of our employees. Looking ahead, we're committed to continuing our path of fiscal responsibility and strategic growth. Our goals are clear, to deliver value to our shareholders to invest in innovation and growth opportunities, and to strengthen our market position. I will now pass the talk to Tank to provide an update on our liquor retail results.