SNDL Inc.

Good morning and welcome to SNDL's first quarter 2025 financial results conference call. This morning, SNDL issued a press release announcing their financial results for the 2025 first quarter ended on March 31st, 2025. 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 supplemental investor presentation. In addition to the conference call presentation, we will be reviewing today on its SNDL.com website. Presenting on this morning's call, we have Zach George, Chief Executive Officer at and Alberto Peredero, Chief Financial Officer. 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 the analyst questions. I would now like to turn the call over to Zach George. Please go ahead.

Good morning. And welcome to S&DL's Q1 2025 Financial and Operational Results Conference Call. We are pleased to see that during the first quarter of 2025, we continue to break new records, making further progress in operational and efficiency improvements, and achieving success with our cannabis business. Our cannabis segments continue to show strong momentum, achieving steady year-on-year revenue gains for the 13th consecutive quarter. We continue growing well above the market average, not only thanks to our strategic inorganic investments, but also due to a winning formula that drives organic growth ahead of the market. Achieving a new all-time high gross margin record of 27.6% in a quarter affected by lower revenue seasonality leverage was particularly inspiring. We are very pleased with how our teams consistently raised the bar. executing well-planned productivity initiatives and efficiency improvements across all areas of our business. We are particularly encouraged by the progress made integrating the accretive INDIVA business, while identifying additional synergies that exceed our initial estimates, laying the foundation for further improvements in the coming quarters. Free cash flow was marginally negative at minus one million. Despite seasonal pressures from the year's lowest revenue quarter and the need to rebuild inventory levels following the holiday demand peak, these improvements in cash generation are underpinned by ongoing operational enhancements and disciplined working capital management. Delivering quarterly financial performance improvements and reliability is crucial to us. We owe this to our shareholders, our partners, and ourselves. However, our work does not end there. Unlike many other players in the industry, our strong balance sheet enables us to focus on building robust, long-term strategic foundations. In recent months, we announced additional share buybacks, acquired a minority stake in Hightide, and announced the arrangement agreement to acquire 32 cannabis retail doors from 1CM. Today, we're announcing that our board of directors has initiated a formal strategic review to evaluate S&DL's exposure to US multi-state licensed cannabis enterprises and our current exchange listing status. I would like to elaborate further on this last point. We are in a unique position within our industry, which allows us to take the driver's seat when exploring additional strategic corporate transactions. We possess both the capability and expertise to successfully close a variety of opportunities, giving us the flexibility to pursue alternative strategic paths. On an ongoing basis, we diligently review numerous opportunities on both sides of the border with the overarching objective of maximizing shareholder value. For this reason, the board is evaluating whether to maintain our current equity market listings, which restrict us from operating US assets, or transition to an alternative structure that would grant us the regulatory flexibility to actively manage a broader North American cannabis platform. This shift could potentially enable the consolidation of licensed cannabis businesses across multiple US states. I want to make clear that while we have begun exploring various options, no conclusions have been reached and no decisions have been made. There is no assurance that any transaction or listing change will result from the strategic review. The company does not intend to provide further updates unless or until the board approves a specific course of action or determines that additional disclosure is warranted. Moving back to our short-term results, I want to hand the call over to Alberto for more insights on our first quarter financial performance. Thank you, Zach.

Our team is prouder than ever to showcase the operational progress we continue to make. Let's move on to our first quarter financial highlights. I want to remind everyone that the amounts discussed today are denominated in Canadian dollars unless otherwise stated. Certain figures 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. We continue to see improvements year over year in net revenue, gross profit, gross margin, and free cash flow. Net revenue in the first quarter of 2025 reached $205 million, a 3.6% increase compared to Q1 of last year. This was driven by a combined cannabis business growth of 16.8%, which included contributions from our recent Indiva acquisition, partly offset by declines in our liquor retail segment. Gross profit of $56.6 million reflects a $6.2 million increase, or 12.4% growth year-over-year. resulting in 220 basis points improvement in gross margin. This translates to another quarter of record gross margin, reaching 27.6%. Adjusted operating income for the quarter amounted to negative 9 million, partially impacted by a loss of 4.5 million from the downstream portfolio, driven by a negative valuation adjustment as a consequence of the reduction in the bond market price of cannabis. Year-over-year, we see a decline of 4.6 million as the negative adjustment from the Sunstream portfolio in 2025 compares to a positive one of 9.1 million in 2024. This creates a swing of 13.6 million year-over-year from the Sunstream portfolio that was partially offset by ongoing operational improvements. Precast flow was marginally negative for the quarter at minus 1.1 million. despite seasonal impacts on revenue and the associated buildup of working capital, representing an improvement from the same quarter of 2024. Our historical quarterly performance evolution shows a clear upward trend, indicative of our continuous focus on growth and efficiency improvement. The only anomaly is the adjusted operating income, impacted by the downstream portfolio value adjustment as just explained. Looking at the contributions from each segment across our main financial KPIs, we notice how the net revenue decline in liquor is impacting the overall consolidated results, despite the strong growth from both cannabis segments. The revenue elimination from cannabis is related to the sales from the cannabis operations segment into our own retail. This elimination is increasing as a result of our cannabis business growth. In terms of gross profit, liquor retail shows a small decline in the first quarter as a result of the lower revenue. Cannabis retail, and particularly cannabis operations, continue to drive increases in gross profit, with contributions of $1.3 and $6 million, respectively. Adjusted operating income shows the improvement from our operating and corporate segments, being offset by the year-over-year impact of the downstream valuations. which was positive in 2024 and negative in 2025. Pre-CAS flow for the first quarter of 2025 remains marginally negative at minus 1.1 million. However, this represents a 5.3 million improvement compared to the same period in the previous year, primarily driven by enhanced earnings and working capital management. Examining the year-over-year drivers of free cash flow in greater detail, we observed that the change in sanctioned valuation impacts net income, but is reversed through non-cash outbacks. Inventory changes in the first quarter remain consistent with the prior year, while improvements in other working capital are primarily driven by accounts payable. Additionally, capex in the first quarter is slightly lower compared to the previous year. Nearing free cash flow break-even in the first quarter is encouraging, especially considering the seasonality of our business, which consistently drives stronger cash flows in the second half of the year. Focusing on our operating segments, liquor retail recorded net revenue of $109.5 million in the first quarter, reflecting a reduction of $6.6 million or a 5.7% decline. Compared to the prior year, this quarter was impacted by one less day in February and the shift in Easter timing, which contributed an unfavorable impact of approximately four percentage points. As a result, the normalized underlying revenue decline for the quarter is closer to 2%, represented a slight improvement compared to the trends observed last year. Despite the net revenue decline, the gross profit reduction was mitigated by an improved gross margin. which reached 25.4%, a 60 basis point increase compared to Q1 of the previous year. Operating income of $2 million shows a marginal decline compared to the prior year, as the reduction in SD&A expenses were upset by the lower gross profit, as well as a lapping of a $0.9 million in permanent reversal from the prior year. Cannabis retail delivers strong financial performance in both top and bottom lines, despite being impacted by one fewer working day at the shift in Easter timing. Net revenue for Q1 2025 reached 77.5 million, an 8.7% increase compared to the prior year. This growth was primarily driven by a 5.2% increase in same-store sales and contributions from new store openings. The revenue growth supported a 1.3 million increase in gross profit, despite the 40 basis points decline in gross margin compared to the same period last year. However, this represents an improvement in the gross margin trend, as the 25.3% reported for Q1 2025 exceeds both the average margin and the exit margin of 2024. Both adjusted and unadjusted operating income rose by over 6 million year over year, reaching 5.2 million in Q1 2025. This improvement was driven by revenue growth and enhanced SDNA efficiency, while benefiting from lapping a fixed asset impairment reported in Q1 of the previous year. Our cannabis operations segment continued to deliver the largest P&L improvement. Net revenue for the first quarter of 2025 was 34.3 million, reflecting an 11.9 million, or 53% growth, compared to the prior year. This includes a 10.2 million contribution from INDIVA. Gross profits achieved a significant increase compared to the prior year, driven by a 12.4 percentage point expansion in gross margin, which reached 26.8%. These improvements are mainly driven by our productivity program and initial from the INDIVA acquisition. The deficit operating income for the first quarter came in at a positive 2.4 million. marking a 1.3 million improvement year-over-year. This growth was achieved despite lapping a 1.8 million but that reversal reported in the first quarter of 2024. Now, I will hand it over to Zach for additional insights into our strategic priorities.