Curaleaf Holdings, Inc.

Good day and welcome to the Cura Leaf Holdings fourth quarter and fiscal year end 2024 earnings conference call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch tone phone. And to withdraw your question, please press star and then two. Please note that this event is being recorded. I would now like to turn the conference over to Camilo Lyon, Chief Investment Officer. Please go ahead.

Good afternoon, everyone, and welcome to Curaleaf Holdings' fourth quarter and year-end 2024 conference call. Today, I'm joined by Chairman and Chief Executive Officer Boris Jordan and Chief Financial Officer Ed Kremer. Before we begin, I'd like to remind everyone that the comments on today's call will include forward-looking statements within the meaning of Canadian and U.S. securities laws, which by their very nature involve estimates, projections, plans, goals, forecasts, and assumptions, including the successful integration of acquisitions and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements on certain material factors or assumptions that were applied in drawing a conclusion or making a forecast in such statements. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law. Additional information about the material factors and assumptions forming the basis of the forward-looking statements and risk factors can be found in the company's filings and press releases on CDAR and EDGAR. During today's conference call, in order to provide greater transparency regarding Curly's operating performance, we will refer to certain non-GAAP financial measures and non-GAAP financial ratios that involve adjustments to GAAP results. Such non-GAAP measures and ratios do not have a standardized meaning under U.S. GAAP. Any non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by U.S. GAAP, should not be considered measures of cure-release liquidity, and are unlikely to be comparable to non-GAAP financial measures provided by other companies. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable U.S. GAAP financial measure under the heading Reconciliation of Non-GAAP Financial Measures in our earnings press release issued today and available on our investor relations website at ir.curaleaf.com. With that, I'll turn the call over to Chairman and CEO Boris Jordan. Boris?

Thank you, Camillo. Good afternoon, everyone, and thank you for joining us to discuss our fourth quarter and full year results. 2024 was a pivotal yield for Cureleaf, marked by decisive actions to reset our business and strengthen our foundation for long-term growth. Despite an industry-wide average price compression of 14%, our diversified geographic footprint helped stabilize revenue versus 2023, demonstrating the resilience of our strategy. In 2024, revenue was $1.34 billion flat to last year. Adjusted gross margin increased by 160 basis points to 48%, driven by successful initiatives to improve the efficiency and productivity in our operations. Adjusted EBITDA for the year was $301 million, also flat to last year. In the fourth quarter, we generated a revenue of $331 million, up slightly sequentially and down 4% over last year. Price compression was most pronounced in our larger markets of Pennsylvania, Illinois, and New Jersey, which had an outsized impact on revenue. That said, we remain focused on enhancing our profitability, as was evident in our fourth quarter adjusted gross margin of 48%, marking a 150 basis point increase over prior year. Fourth quarter adjusted EBITDA was $76 million, resulting in a 23% EBITDA margin. We ended the year with $107 million in cash on the balance sheet and generated operating and free cash flow from continuing operations of 163 million and 70 million, respectively. Cannabis demand remains healthy as seen by the rapid expansion of the hemp market and the persistence of the illicit market. Hemp's legal status has made cannabis more accessible and affordable, operating free from heavy burdens of regulations and taxation experienced in the regulated market. Meanwhile, excessive federal regulations and stalled legislative efforts have stifled the natural growth of the regulated industry. However, with a new administration in place, there is renewed optimism for meaningful reform that could unlock the regulated industry's full potential. In stepping into the CEO role last August, I have taken a deep dive into every facet of the company and see tremendous opportunities ahead. While the road to excellence takes time, I am confident that with the right team in place, Cureleaf is firmly on the path to expanding its leadership position. My first priority was to amplify our strengths diagnose the challenges, and stabilize the business, a goal we have successfully achieved. Now we are focused on executing the core elements of the Return to Our Roots program introduced last quarter, which is already taking shape and will be a key driver of our performance in 2025. The Roots Initiative is designed to reignite organic growth, enhance margin and cash flow generation, and strengthen our balance sheet by reducing leverage. I want to underscore that the foundation of this program is my team's unwavering focus on improving our flower quality. Upgrading our flower offering with new and proprietary strains will spark far-reaching benefits to all aspects of our business, and this is where I see the greatest opportunity to drive profitable growth in the face of pricing headwinds. During the last two years, we effectively strengthened our value flower offerings to meet consumer demand for lower-priced options, as FIND is a top-four brand now. However, this led to an imbalance in our portfolio as we lacked a strong presence in the premium flower category, particularly in two of our largest markets. Beginning in the second quarter, we will reestablish balance by significantly expanding our premium flower offerings. Let's dive into the three pillars of our roots initiative. Organic growth. Our strongest growth engines in 2024, international New York and Ohio, are poised to lead our growth efforts in 2025. The investments we've made over the past three years in our international segment began paying dividends last year as evidenced by impressive 73% growth, surpassing the $100 million revenue milestone. Our dominant position in Germany positioned us to leverage the country's expanded medical program, which launched last April. By optimizing the strong awareness of our high-end brand, 420, we fully capitalized on the accelerating demand for medical cannabis. Last fall, we added to our portfolio with the introduction of our mid-priced and value flower brands, Curaleaf and Huala, which have been met with enthusiastic consumer response. In the UK, we further solidified our number one market share position by expanding our offering of high-quality, safe, and tested brands with the introduction of grassroots and fine flower. Our proprietary technology allowed us to provide unmatched customer service helping to expand our patient base significantly. Our UK clinical research team had an exceptionally impactful year, publishing 15 internationally peer-reviewed studies that harness real-world clinical data and winning three awards. Our lab-based research program aimed at improving the efficacy of the medicines we offer our patients has progressed to an internal clinical study designed to be equivalent to a phase one trial. Our research covering critical topics like neuropathic pain in 80 billion market globally is advancing scientific understanding and increasing awareness of the therapeutic benefits of cannabis on a global scale. The acquisition of NGC, a premier Canadian indoor flower supplier, granted us access to three new markets, Australia, New Zealand, and Canada, furthering our international reach. We have high aspirations for our international business in 2025 and beyond. In New York and Ohio, our teams executed a well-orchestrated plan to capitalize on the adult-use conversion in both markets. The New York team managed the adult-use conversion well through our retail and wholesale channels. We opened two adult-use stores and two medical stores, but maintained our focus on expanding our wholesale penetration, which at year-end stood at 50%. The team's dedication and effort drove an impressive 50% growth in the state for the year, led by strong triple-digit growth in wholesales. We expect the market will continue to develop at a solid pace in 2025, and we will be sure to build on our leadership position in our home state. Ohio's adult use cannabis sales commenced last August, and our team was fully prepared to welcome new customers. As a result, the Ohio team delivered an impressive 96% growth in the second half of 2024 compared to the previous year. This achievement is even more notable given the challenges posed by the overly restrictive and outdated regulations that prohibit marketing. Looking forward, we expect to see continued solid growth this year in the Buckeye State, fueled by the addition of three new stores in the first half of 2025, followed by another three in the second half. I'm excited to share a glimpse into our product and innovation pipeline leading into 420. First is our new cylindrical-style pre-roll brand, Anthem. Anthem is the pre-roll that connects cannabis to the classic American lifestyle. Thus far, we have not played in the pre-roll category to a meaningful degree. However, Anthem will be the vehicle with which we intend to dominate the category. From high-quality curated flower blends to impeccable packaging design, no detail has been overlooked. In fact, we have been sampling the product in New York and New Jersey ahead of our formal launch in April, and the early reception has been superb. To quote a retail partner, Anthem is a game changer. For the last few years, we have been refining our groundbreaking ACE oil processing technology, an advanced aqueous extraction method designed to deliver the cleanest, clearest, and smoothest oil on the market. For the next two weeks, we'll be launching ACE across multiple markets with deployments in New York, New Jersey, Massachusetts, and Florida, and more on the horizon. With ACE's revolutionary technology, we are poised to set a new industry standard in the vape category by redefining quality and purity in oil production. We believe ACE will be a disruptive technology in the distillate market. Last year, we successfully launched our hemp-derived THC line of seltzers and gummies, marking another major milestone for our business. We were the first to partner with DoorDash, and we recently secured placement in over 100 total wine locations across nine states, including Florida, Texas, North Carolina, South Carolina, Arizona, New Jersey, with even more states expected to follow in the coming months. We have also partnered with Austin City Limits as the exclusive provider of THC beverages, serving consumers looking to enjoy live music acts without a hangover. The feedback on our seltzers has been fantastic. While the hemp category is still in its infancy, The momentum is undeniable. The robust demand signals from both customers and distributor partners reinforce our confidence in its long-term potential. We are actively expanding our distribution network with carefully selected partners and will announce new collaborations as they unfold. Beyond expanding our distribution footprint, we are also testing innovative category extensions in our beverage line. To complement our seltzers, we are launching our next line of drinks called Formula X, within the next two weeks. A fast-acting, flavor-filled, 10-milligram THC experience with the added boost of caffeine for the daytime festival goer or extreme sports fan to the nighttime e-gamer. Though the current revenue contribution is modest, we have ambitious expectations for the role our hemp line will play in driving future growth. The hemp market is rapidly evolving, offering significant opportunities without the regulatory constraints of the traditional cannabis industry. Stay tuned. We will have more to share in the coming quarters. Optimizing margins and cash flow generation. At our core, we understand that long-term success requires becoming the lowest cost producer while delivering the highest quality products at scale. Over the past year, we've made significant strides in achieving this balance by honing our operational efficiency. As a result, our average yields per square foot increased by an impressive 19%, all while enhancing potency, budge structure, and density. These gains are driven by a comprehensive overhaul of our SOPs across all cultivation facilities, ensuring that the highest quality standards are consistently maintained. In addition, we implemented packaging automation and upgraded lighting across multiple locations, both of which have contributed to lower COGS. The impacts of these efforts are just starting, and we anticipate greater efficiencies and cost reductions throughout 2025. On the retail front, we commenced a skew rationalization program to streamline our product offering, simplifying the buying process, and driving higher sales velocity while reducing slow moving inventory. Beyond inventory optimization, we see substantial opportunities to refine our merchandising, pricing, and promotional strategies within our dispensaries, further strengthening margins and cash flow generation. While we are still in the early stages of these initiatives, the results so far are encouraging. These strategies are essential levers to counteract ongoing price compression and industry challenge that shows no sign of easing. By staying proactive and data-driven, we are positioning ourselves for sustained profitability and growth. Reducing inventory remains a top priority, not only to enhance margins, but also to accelerate our cash conversion cycle. While our domestic inventory remained flat year over year, We are committed to making significant process and streamlining our stock levels and operating with greater efficiency. This year, our focus is on driving meaningful reductions, ensuring a leaner, more agile inventory approach that supports both profitability and financial flexibility. Delivering the balance sheet. As I stated before, we remain laser focused on driving cash generation and strategically deploying excess cash flow to reduce our balance sheet debt. Last year, we strengthened our balance sheet by reducing outstanding notes and acquisition-related debt by $60 million. Our approach remains disciplined and opportunistic. We will continue to capitalize on favorable opportunities to deliver the balance sheet in advance of our refinancing, which we expect to complete in the second half of the year. Strengthening our financial position remains a top priority as we drive towards long-term stability and growth. Lastly, we took the opportunity to upgrade leadership where needed, ensuring that we have the right team in place to drive the business forward. With every new hire, we are strengthening our organization and enhancing our ability to execute at the highest level. Collectively, these changes have helped rebase the business, positioning us for sustained growth and long-term success. I want to express my deepest gratitude to our exceptional global team for their unwavering dedication in achieving these outstanding results. The complexity of our business demands nothing less than full commitment, and each of you have risen to the challenge. The success is a true testament to our collective effort, and I deeply appreciate your relentless drive, competitive spirit, and hard work. Together, we are not just building a company, we are shaping Curaleaf into the global leader in cannabis. With that, I'll turn it over to our CFO, Ed Kremer. Ed.