SNDL Inc.

there will be a question and answer session. To participate, you will need to press star 11 on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, simply press star 11 again. Please be advised that today's conference is being recorded. Now it's my pleasure to turn the call over to Zach George. The floor is yours.

Good morning and welcome to S&DL's Q4 and full year 2024 financial and operational results conference call. 2024 has been a year of records for S&DL, and we are pleased to report record full year net revenue, gross profit, gross margin, as well as positive cash flow and free cash flow. Our cannabis segments continue to show strong momentum, achieving steady revenue gains for the 12th consecutive quarter, and we continue to grow well ahead of market averages. Our liquor segment revenue was impacted by a market slowdown, although we are proud of how our team managed to improve margins and cost efficiencies to deliver record profitability and cash flow growth. In fact, despite volume headwinds, our liquor segment has never performed better than under our stewardship. We achieved all-time high gross profit and gross margin for both the full year and the fourth quarter. driven by multiple productivity and cost optimization initiatives across all areas of the organization. It is worth mentioning the significant step up in margins and profitability from our cannabis operations segment that delivered four consecutive quarters of positive gross profit, ending the year delivering a fourth quarter gross margin of 27.2%. Free cash flow was positive this quarter, driving the company's first year of achieving positive free cash flow. We are pleased to have met our stated goal for the year, achieving a positive $9 million. This is the ultimate proof that our growth trajectory, coupled with operational and financial discipline, is a winning formula capable of delivering sustainable and improved value to our shareholders. During the last few months, we continued to announce additional strategic initiatives that we expect to drive SMDL towards long-term growth and incremental profitability. These include the privatization of NOVA through the acquisition of the remaining minority equity interest and the acquisition of INDIVA, which positions SNDL as the largest manufacturer of infused edibles in Canada. Additionally, we were happy to see the approval from the Florida Department of Health for the transfer of the parallel license, a key milestone to complete the restructuring process. We also acquired a 5.4% participation in high-tides equity, and reactivated our share repurchase program, retiring 10.8 million S&DL shares. And last but not least, we are announcing today our application for listing on the Canadian Stock Exchange, which will provide our shareholders additional flexibility and optionality as we continue to grow and evolve. Our balance sheet continues to be a key competitive advantage, enabling us to allocate capital thoughtfully across both organic and inorganic investments. We ended the year with $218 million in unrestricted cash and zero outstanding debt. Over to you, Alberto, to share more insights about our financial performance.

Thank you, Zach. I want to remind everyone that the amounts discussed today are denominated in Canadian dollars unless otherwise stated. Certain amounts referred to during this call are non-GAAP and non-IFRS measures. For definitions of these measures, please refer to SMDL's management discussion and analysis document. Reviewing our Q4 2024 financial highlights, we continue to see improvements in net revenue, gross profit, gross margin, and free cash flow. Net revenue in the fourth quarter of 2024 reached a record $257.7 million. a 3.7% increase compared to Q4 of last year. This was driven by a combined cannabis business growth of 16.5%, which included contributions from our recent India acquisition, partly upset by declines in our legal retail segment. Gross profit of $68.8 million reflects an $11.5 million increase, or 20% growth year-over-year, resulting in 360 basis point improvement in gross margin. This translates to another quarter of record gross margin reaching 26.7%. Adjusted operating income for the quarter was impacted by a $65.7 million non-cast negative fair value adjustment to our downstream investment, driven by increased market risk following the unfavorable Florida vote and lower operational performance from the invested companies. Excluding this impact, we would have delivered positive adjusted operating income for the first time in a quarter. highlighting our undeniable operational improvements. Free cash flow was positive for the quarter, reaching $11.6 million. This contributed to positive free cash flow for the full year, exceeding our guidance as mentioned by Zach. Our full year financial results show progress across all metrics year over year. Net revenue reached a record $920 million, representing 1.3% growth compared to the prior year. This was driven by our combined cannabis business growing a healthy 10.6%, partly upset by declines in our liquor segment. Gross profit reached 240 million, also a new record with a significant 26% growth compared to the prior year, resulting in a full year gross margin record of 26.1%, or 520 basis points improvement compared to 2023. Adjusted operating income, while positive when compared to 2023, shows the impact of the previously mentioned fourth quarter negative fair value adjustment. The biggest highlight is the positive $8.9 million free cash flow in 2024, exceeding our break-even guidance and representing a $70 million improvement compared to 2023. Our historical quarterly performance evolution shows a clear upward trend, indicative of our continuous focus on growth and efficiency improvements. The only anomaly is the Q4 2024 adjusted operating income. However, it is important to note that excluding the downstream fair value adjustment, the variable has turned positive for the quarter. Looking at the contributions from each segment to both Q4 and full year across our main financial KPIs, we can see how in both the fourth quarter and the full year, the net revenue decline in liquor is impacting the overall consolidated results. despite the strong performance from cannabis. The corporate segment is related to the revenue elimination for cannabis operation sales into our own retail. This revenue elimination increased as a result of our cannabis business growth. In terms of gross profit, liquor retail shows a marginal decline in the fourth quarter and positive growth in the full year, despite the larger revenue shortfall. Cannabis retail contributes with improvements in both the quarter and the year. Finally, cannabis operations drives most of the growth with an impressive $11 million improvement in Q4 and $42 million in the full year. All of these elements add up to a significant 20% and 26% growth in gross profit in Q4 and full year, respectively. When looking at adjusted operating income, we can see how liquor retail, cannabis retail, and particularly cannabis operations contribute to important improvements. while the investment segment is impacted by the Q4 fair value adjustment to our Sunstream assets. Free cash flow is positive at $11.6 million in the fourth quarter of 2024 and $8.9 million for the full year, both significant step-ups compared to 2023, driven primarily by improvements in the quality of earnings while working capital creates a year-over-year drag as we reported greater working capital reductions in 2023 than in 2024. As we examined the drivers of free cash flow in the fourth quarter of 2024 and the full year, we first noticed the negative Q4 net income of 67.2 million, primarily driven by the downstream fair value adjustment. Since this is a non-cash item in our P&L, it is offset by non-cash at-backs. Our inventory optimization initiatives enabled us to reduce inventory balances in the fourth quarter by 4.7 million, and by a total of 6 million for the full year, contributing to the positive free cash flow generation in both periods. The full year increase in other working capital is driven by reductions in accounts payable, as we have resolved some legacy liabilities strengthening our balance sheet position. Liquor retail net revenue in the fourth quarter was reaching the highest point in the year driven by seasonality, is still impacted by continuous market headwinds, resulting in a decline of 3.4% compared to the fourth quarter of 2023. Despite this revenue softness, gross margin expansion coupled with the store efficiency optimization initiatives contributed to a significant improvement in the bottom line, reaching nearly 22% in Q4 and 41% in the full year. In the case of the leaker segment, adjusted operating income and operating income are the same, as we did not have any intangible impairments or restructuring costs in the segment. Cannabis retail reported record financial performance in both top and bottom lines for the fourth quarter and the full year. Net revenue in Q4 2024 reached $83.2 million, representing a 10.7% increase compared to the prior year. This growth was mainly driven by same-store sales growth of 6.3%, new store openings, and incremental revenue from our Dutch love stores acquired earlier in the year. For the full year, net revenue reached $311.7 million. representing a 7.5% growth year-over-year and the same-store sales growth of 3.5%. In this segment, we're making strategic investments in promo activity. While impacting gross margin, particularly in the fourth quarter, these investments are enabling us to strengthen our market position and capture incremental market share. Adjusted operating income increased significantly in both the quarter and the full year. driven by gross profit growth and our focus on driving cost efficiencies. Additionally, we're lapping an unfavorable Q4 2023 fixed asset impairment. Our cannabis operations segment has seen a massive transformation during 2024, resulting in significant improvements and new records in financial performance across all lines. With net revenue reaching $37.1 million in the fourth quarter and $109.5 million for the full year, We're posting growth rates of 42% and 26% compared to the prior year, respectively. This includes a $7.5 million contribution from INDIVA in the last two months of the year. Gross profit has been transformed by the incremental revenue, and in particularly, by our productivity pipeline. This is allowing us to report positive gross margin for four consecutive quarters. exiting the year with 27.2% in the fourth quarter and achieving a 19.9% for the full year. Both operating income and adjusted operating income posted positive results in the fourth quarter and the full year, marking a significant milestone for the segment. In summary, we have achieved record numbers across multiple categories, showcasing dynamic growth in our cannabis business and significant improvements in profitability. We exceeded our guidance by delivering positive free cash flow for the year. while continuing to work on initiatives to further elevate our performance in 2025 and beyond. Now, over to Zach for additional highlights from the quarter within our strategic framework pillars.