Q4 2022 SNDL Inc Earnings Call
[music].
Good morning, and walk out full year and fourth quarter 2022 financial results Conference call.
F N T L issued a press release yesterday morning announcing their financial results for the full year and fourth quarter ended on December 31 2022.
This press release is available on the company's website at F. N B L Dot com and filed on Edgar and SEDAR as well.
Cast replay of the conference call will also be available later today on the F. N D L Dot com website.
<unk> also posted a supplemental investor presentation and shareholder letter on the F N B all dotcom website.
Presenting on this morning's call we have Dr. George Chief Executive Officer, Jim Keough, Chief Financial Officer Tank Avenger, President of liquor retail and Tyler Robson presidential candidates.
While we start I would like to remind investors that certain matters discussed in today's conference call or answers that can 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 SEDAR 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'd now like to turn the call over to Zach George.
Good morning, and thank you for joining us on our full year and fourth quarter of 2022 earnings call.
We achieved significant financial and operational milestones last year, driven by our strategic initiatives and the hard work of our dedicated teams, including record net revenue and net cash provided by operating activities in the fourth quarter of 2022.
It is worth contextualize into growth that the <unk> team has achieved this past year.
We started 2022 with first quarter net revenue of $17 million negative cash flow from operations of $26 million and exited the year, achieving net revenue of $240 million with net cash from operations of $29 million in the fourth quarter.
Our store footprint has grown to more than 365 liquor and cannabis retail locations, making us the largest private liquor and cannabis distributor in Canada.
Through the acquisition of islands, we significantly enhanced our cannabis operations value proposition to now include premium cultivation low cost biomass sourcing processing and manufacturing.
Our candidates retail cannabis operations segments are key enablers in SMB else vertical integration strategy.
With the scale of data and insights generated through our retail network, we are able to continuously tailor our innovation strategy to strategically play in high velocity products segments as well as white spaces in the industry to delight consumers.
It was a combination of a diverse portfolio of brands a coast to coast multi banner cannabis retail store network and indoor cultivation and manufacturing facilities <unk> has become one of the largest adult use cannabis as manufacturers and retailers in Canada.
Although it is not something that would typically address.
I do discuss the undervaluation of our equity in my shareholder letter, which can be found on our website at <unk> Dot com.
I also want to take this opportunity to address it here.
Despite the positive milestones and the growth that we've achieved F&B L shares are trading well below our book value, which is backstopped by cash and credit investments and trading materially less than one times our annual revenue.
We believe the market is not yet recognized the intrinsic value that we have built we would expect that it should be appreciated in due time.
We must continue to find ways to unlock value and be open to all options regarding the future of our business and operating segments, our balance sheet liquidity and access to capital easily position us in the top decile of credit profiles and unregulated products industry, where.
We are currently implementing cost reduction initiatives and sustainability is a key priority that means sustainably profitable operations sustainable product quality and sustainable environmental practices.
I would now like to turn to some key highlights of our different business segments.
Our liquor retail segment brought material change an opportunity to ask in the <unk> in 2022.
Our liquor segment strengthens SMB <unk> broader technology infrastructure, the ability to own the customer relationship and shape the retail experience.
I believe that we have a significant opportunity to generate material revenue for our segments through key initiatives, specifically monetizing data as a service.
We have access to vast amounts of valuable data, which we're using to inform our own decision, making processes and we believe there is untapped potential in monetizing this data as a service to other businesses.
As more consumers shift their shopping habits online there is a growing demand for convenient and efficient e-commerce solutions as well.
By leveraging our existing infrastructure and expertise. We're also looking at creating platforms that meet the needs of modern consumers, while generating revenue and cash flow for both liquor and cannabis segments.
SDL, which stands as Canada's largest private sector cannabis retailer currently operates 197 locations under five retail banners value buds spirit leaf to Pratt and our latest additions Dutch love and Firestone cannabis.
The foundations of <unk> cannabis retail strategy revolves around several factors such as prime store locations extensive product range and exclusive customer experiences.
In the fourth quarter of 2022 value buds spirit leaf and <unk> combined market share represents approximately nine 9% of provincial markets solidifying our position as a leading national multi banner cannabis retail operator in an increasingly competitive market.
In December of 2022, <unk> announced a proposed strategic partnership with Nova cannabis, creating a well capitalized cannabis retail platform to a vertical integration model, leveraging <unk> upstream and midstream capabilities. The restructuring of Nova if approved by Nov has minority shareholders will enable us in the <unk>.
To continue to evolve in a very immature sector by becoming a trusted partner and an essential part of the Canadian cannabis ecosystem.
This strategic partnership will transition F&B al to the role of sponsor franchise or an advisor in the cannabis retail market.
Through a dividend of shares to F&D, all shareholders, we will reduce our ownership stake in Nova to less than 20% and managed brand standards via strategic agreements and contracts in exchange for receiving a licensing fee in return for the provision of services, including financial reporting business technology and regulatory support our focus will be on driving category.
Management menu optimization and brand building, while Nova cannabis will manage operations across what we believe will become a dominant pure play multi banner cannabis retail platform that standalone as a sustainable public company.
This retail platform provides access to incredibly valuable point of sale data in real time, giving us an dl and other licensed producers insights into innovation and successes throughout the industry.
Our cannabis operations also grew with the closing of our acquisitions of the balanced company in January of 2023.
The combined entities create a low cost vertically integrated Canadian company with the potential to generate over $1 billion in annualized pro forma revenue.
Our cultivation expansion not only boost innovation and cost savings for our candidates operations segment, but also solidifies our position as a trusted b to b industry partner and manufacturer.
Our unique advantage lies in our ability to not only manufacture high quality products, but also to distribute solutions to ensure that these products reach consumers effectively.
In terms of our investment segment.
<unk> deployed capital to several candidates related investments with an eye for us fair value of $638 million, including $519 million to the sunscreen Bancorp joint venture in 2022.
This joint venture is credit exposure to a handful of operators, including Juicy Sky meant ascend parallel Columbia care and FC Gamma and as publicly disclosed we are in active negotiation of restructuring with both skyman unparallel.
While our goal is to generate attractive returns as a strategic capital partner for these borrowers in certain cases, we may see defaults or other restructurings create an opportunity for <unk> to gain a meaningful operating footprint and a single or multi state format. We do expect in 2023 and on a structured basis SMB Y'all may become a majority owner.
One or more vertical operations in the U S. While we anticipate achieving strong revenue results for our business segments. We must also acknowledge that our first quarter of 2023 will be impacted by certain onetime costs as well as seasonality in the retail segments. These costs will include severance expenses for departing employees and other onetime charges.
Resulting from the valence integration.
The integration of the <unk> imbalance is anticipated to deliver substantial benefits in the form of cost rationalization operational efficiencies and expanded opportunities.
Detailed bottom up analysis of available synergies is currently in progress and the company is uncovering further cost savings.
<unk> expects to realize more than $20 million in annual cost synergies as a result of this process exceeding the $10 million that was announced in January of 2023. Additionally, enhanced distribution of balanced products through the SMB retail network is expected to generate incremental revenue, which is also being evaluated in realized.
The company looks forward to providing updates on the progress of these synergies with reporting on the first quarter of 2023 and believes that this transaction will enhance <unk> competitive position.
In conclusion, we are humbled to be approaching the ranks of approximately 150 publicly listed Canadian companies that generate over $1 billion in annual revenue as a result of our strategic growth through 2022.
We're just getting started and continue to be laser focused on owning the consumer relationship generating free cash flow and creating value for our shareholders. Despite the present headwinds and negative sentiment in the cannabis sector.
Our vertically integrated model product portfolio dedicated team best in class balance sheet and scale, our competitive advantages. We have built with the expressed purpose of giving ourselves the flexibility to succeed under multiple economic and regulatory scenarios.
And these are the advantages that will lead us in our next leg of growth.
Thank you all I'll now turn the call over to Jim for commentary on our financial results.
Thank you Zac and thank you all for joining today.
Like to remind you that all amounts discussed today are denominated in Canadian dollars, unless otherwise stated liquor.
Liquor retail includes operations for the period from March 31, 2022 to December 31, 2022, and cannabis retail includes the operations of Nova cannabis retail stores for the same period.
Certain amounts that I will refer to on this call are non-GAAP measures. Please refer to <unk> management discussion and analysis for the definition of these measures.
Before I go into greater detail about Essent deals financial results under each of our four operating segments I'd like to confirm that all of our year end filings have been completed in time to comply with U S reporting requirements.
Canadian Securities regulations, do not require compliance with Sox 404, B the shorter Canadian reporting deadline was unfortunately not met this year.
Principal reasons for this were the significant amount of additional work and in depth procedures that were required to be performed by us NGL and it's the first time external auditor under section 404, B of the Sarbanes Oxley Act, commonly referred to as socks.
The requirement to be Sox 404 compliant at December 31, 2022, and the expansion of those requirements to a much larger scope was a function of the rapid growth in scale and level of corporate activity Sn deal has achieved over the last three years.
<unk> management team takes full responsibility for this outcome as our corporate activity levels have placed our finance and audit teams under significant stress. We are committed to the continued development of our finance and other functions to support the increasing scale and complexity of our business.
Sox compliance requires heightened levels of corporate controls and processes that are benefiting F&D, all shareholders through best practices and internal control and risk management.
Okay.
Now, let's turn our focus to business results.
Zach mentioned <unk> reported record net revenue for 2022 of $712 2 million, an increase of almost 200% over the previous year.
This increase includes nine months of results from the <unk> acquisition.
Net revenue for the fourth quarter of 2022 was $240 4 million an increase of 4% over the third quarter of 2022 with sequential growth in the liquor retail cannabis retail and cannabis operations segments.
Net cash used in operating activities for 2022 was $6 7 million compared to $155 8 million in 2021.
<unk> decreased cash deployed to our investment operations segment in 2022.
Net cash provided by operating activities for the fourth quarter of 2022 was a record $28 6 million, an increase of 233% when compared to $8 6 million in the third quarter of 2022.
Gross margin grew to a record $140 4 million for 2022 compared to negative $9 million in the previous year, an increase of over 600%.
Our gross margin was $43 6 million for the fourth quarter of 2022 compared to $50 3 million in the third quarter of 2022 as.
As a result of fourth quarter monetization of low value inventory and inventory impairments.
<unk> reported a net loss of $372 million for 2022 compared to $227 million in the previous year.
Noncash inventory and asset impairments were $203 million in 2022 compared to $77 million in 2021.
The company's net loss for the fourth quarter of 2022 was $161 6 million compared to $98 8 million in the third quarter of 2022.
The net loss for 2022 was largely driven by fourth quarter noncash charges, including the impairment of goodwill related primarily to the <unk>, Inc transaction, including Nova <unk>.
Despite improving fundamentals for Nova the share price decline of 53% since the acquisition date led to an 88 million noncash impairment charge.
Our adjusted EBITDA loss was $15 $8 million in 2022 compared to adjusted EBITDA of $30 4 million in the previous year.
For the fourth quarter of 2022, <unk> adjusted EBITDA loss was $7 5 million compared to adjusted EBITDA of $16 7 million in the third quarter of 2022.
Excluding San deals equity pick up loss of $18 3 million driven by noncash fair value adjustments from its investment in sunscreen Bancorp adjusted EBITDA would have been $10 8 million in the fourth quarter of 2022.
S. N deal has $918 million of unrestricted cash marketable securities and long term investments and no outstanding debt at December 31, 2022, resulting in a net book value per share of $5 <unk> and has $207 million of unrestricted cash on hand at April 19 2000.
'twenty three as.
Cindy has not raised cash through debt or share offerings since June 2021.
I will now review the results for our liquor segment.
<unk> currently operates 169 locations predominantly in Alberta under its three retail banners, one and beyond liquor depot and Ace liquor.
As of March 28, 2023, the Ace liquor store count is 137, the liquor depot store count is 20.
And one and beyond is 12.
Gross revenue for liquor retail sales for the three banners combined was $462 million in 2022 and $160 million in the fourth quarter of 2022.
An increase of four 8% compared to the third quarter of 2022.
Gross margin for the liquor retail segment in 2022 was $106 3 million or 23% of sales for the period from March 31 to December 31 2022.
Gross margin for the liquor retail segment was $36 9 million or 23% of sales in the fourth quarter of 2022 compared to $35 6 million in the third quarter of 2022.
The liquor retail business maintained its margin throughout the year through effective pricing and product mix strategy.
Let's take a closer look at our cannabis retail results next we currently own <unk> operate 197 locations under four retail banners spirit leaf value buds super at and fire sale cannabis.
Gross revenue from the cannabis retail segment was $206 million in 2022 compared to $16 million in 2021.
And $68 4 million in the fourth quarter of 'twenty to.
Compared to $10 million in the fourth quarter of 'twenty one.
<unk> acquisition in 2022 and increased value buds banner sales, where the material drivers of the increase was $61 4 million of revenue during the fourth quarter of 2022.
Gross margin from the cannabis retail segment was $47 3 million in 2022 or 23% of sales compared to $6 5 million in 2021.
Gross margin for the cannabis retail segment was $15 7 million or 23% of sales in the fourth quarter of 2022 compared to $2 8 million in the fourth quarter of 2021.
The increase is primarily due to value, but new locations and discount pricing strategy.
As of April 19, 2023, the valuable store count is 91 corporate stores.
<unk> is 99 comprised of 22 corporate stores and 77 franchise stores.
The Super App store count is five corporate stores and fire sale is to corporate stores.
I will now turn to <unk> cannabis operations results.
<unk> revenue from the cannabis operations segment in 2022 was $61 9 million compared to $51 2 million in 2021 or 21% increase year over year.
Gross revenue for the fourth quarter of 2022 was $18 7 million compared to $15 7 million for the fourth quarter in 2021, representing a 19% increase.
Provincial board revenue increased by $6 8 million in the fourth quarter of 2022 compared to the fourth quarter of 2021. This increase can be attributed to the successful implementation of a streamlined and targeted product mix strategy and notable improvements in product quality, along with S. Ngls owned retail strategy.
Gross margin for cannabis operations was negative $13 3 million in 2022 compared to negative $15 5 million in 2021.
Gross margin for the fourth quarter of 2022 was negative $9 million compared to negative $7 4 million in the fourth quarter of 2021.
Moving to our investment segment.
As of the end of the fourth quarter of 2022, the company had deployed capital through a portfolio of cannabis related investments with a carrying value of $638 million, including $519 million to Sun stream.
For the fourth quarter of 2022, the investment portfolio generated interest and fee revenue of $6 million.
Compared to $3 6 million in the fourth quarter of 2021 share of loss of equity accounted investees generated from investments by Sun stream of $18 3 million compared to a profit of $19 3 million in the fourth quarter of 2021 and.
And a loss on portfolio investments of $6 9 million compared to a loss of $41 8 million in the fourth quarter of 2021 on marketable securities, which includes unrealized losses on publicly disclosed strategic investments in village farms International Inc, and valence.
So on streams credit portfolio. Currently consists of six investments Douchy holdings Skyman brands.
Wellness Holdings parallel, Inc, Columbia Care, Inc, and AFC Gamma Inc.
Finally, let's discuss our liquidity position for the 12 months ended December 31, 2022, the company purchased and canceled $4 3 million common shares at a weighted average price of U S. $2 33 per common share for a total cost of $13 3 million under its share repurchase program.
In the three months ended December 31, 2022, the company purchased and canceled $2 6 million common shares at a weighted average price of U S 2.06 per common share for a total cost of $7 2 million under the share repurchase program.
As Cindy has $8 9 million shares remaining under its currently approved share repurchase program, allowing the company to repurchase common shares from time to time at prevailing market prices.
Willing send out to return value to shareholders as warranted by market conditions.
The share repurchase program will expire on November 19th 2023, if it is not extended.
As Ed mentioned in his shareholder letter, we see Noncompliant license holders continue to have unfettered access to excise stamps, while refusing to pay tax obligations.
This means that more than 60% of companies are now at least 90 days delinquent on excise tax payments.
We estimate that industry wide unpaid exercised balances have reached north of $170 million.
That said, our San deal has and continues to be compliant and pay all of its tax obligations on a timely basis.
Thank you for joining us today.
Now I would like to introduce tank vendor president of liquor retail who will provide further details on our liquid retail segment.
Thank you Jim.
Thank you all for joining today.
We have made noteworthy progress in our liquor operations. Thanks to the successful integration with the SMB team and the further expansion of our local retail footprint.
We are pleased with the positive outcomes of this past year and are eager to continue building on this momentum in 2023.
As Zach mentioned.
Our flickr details to S&P else operating segments bolsters, our technology infrastructure and presents valuable growth prospects by utilizing analytics to better understand the complete retail experience.
The liquor retail segment generates stable cash flow and enhances category management basket mix analysis and preferred stable strategy through shared insight across the SMB all the retail network.
The Alcan a transaction completed in March of 2022 aided in the total revenue growth.
The SMB all network.
And provides a meaningful opportunity for further revenue stabilization include 2023.
This past year.
We actively drove financial growth by expanding our destination shopping Brad widened beyond from nine to 12 stores.
This expansion effectively introduced.
On differentiated shopping experience to a broader range of customers and generated positive revenue growth.
Subsequent to year end, we announced that <unk> has obtained to liquor retail licenses.
China, and Saskatoon through the Saskatchewan liquor and gaming authority auction.
The company will leverage these licenses to further expand its premium liquor banner one beyond into the final stage of the liquid detailed calculation to the private sector in Saskatchewan.
We expect the banners growing popularity and strong store performance will carry over into the Saskatchewan market.
This expansion provides a significant opportunity for revenue growth.
The province transitions to a private sector liquid retail model.
Wind balance initial launch.
The two largest Saskatchewan cities.
Awesome.
You had further expansion opportunities and the problems.
As of March 28, 2023.
The H nickel store count sits at 137 liquor depot store count is 21 and beyond store count as well.
Through 2021 and 2022.
New store openings for the wine and beyond banner significantly contributed to our annualized revenue despite sales flowing through the return to on premise liquid consumption in the post pandemic era.
We have maintained steady margins customer count and total revenues in 2022.
Despite unprecedented sales high through 2020 and 2021.
Our new store openings are.
Outperforming as expected and in many cases exceeding our expectations.
Wine and beyond expanded into BC in 2021.
Bill what Cologne allocation continues to be one of our top performing stores.
Clothing, showcasing proof of concept of the wine and beyond retail experience.
Gross revenue for liquor retail sales for the three banners combined was $575 6 million in 2022.
And $159 7 million in the fourth quarter of 2022, an increase of four 8% compared to the third quarter of 2022.
Gross margin in the liquor retail segment in 2022 was $133 1 million or 23, 1% of sales.
Gross margin for the Mexican retail segment was $36 9 million.
In the fourth quarter of 2022, or 23, 1% of sales compared to $35 6 million or 23, 3% of sales in the third quarter of 2022.
We saw meaningful basket size growth in the fourth quarter with a nine 6% increase compared to third quarter of 2022.
Preferred enabled sales increased by approximately eight 6% to $44 3 million compared to the previous year.
Leading to increased revenue and a more effective margin strategy.
Gross margin on perfect enabled in 2022 was 33%.
This is a substantial increase from our baseline margin.
Preferred enabled sales currently make up almost seven 9% of sales across all banners.
Okay.
As we return to normal customer shopping experiences in the post pandemic era.
We are excited to bring back in store events.
This year's highlights include the coveted annual expense release, and several celebrate events, including gene Simmons Moneybag Wabco launch.
The annual spiritually received and Max positive customer response backed by a sales increase of 256000.
<unk> 87.
Incremental margin growth and single day sales.
We see significant opportunity through these popular events, which not only delight consumers, but to have a significant impact on revenue generation.
These larger events.
Listen to our curated holiday events.
Wine and spirits events and tastings throughout the year, which continued to enhance the customer experience, while providing opportunities to increase basket mix and total revenue.
And clothes and to further Sachs initial point.
Looking to 2023.
See a significant opportunity to generate material revenue <unk> segment through key initiatives.
Specifically monetizing data as a service.
We have access to vast amounts of valuable data.
We are using to inform our own decision making processes.
And we believe there is untapped potential monetizing this data as a service to other businesses.
I'm encouraged by our continued stable and positive results and look forward to exploring further expansion opportunities in 2023.
We have solidified proof of concept and im excited to unlock additional revenue streams through the upcoming year.
I will now pass the call to Tyler Robson for details on our cannabis operations segment. Thank you.
Good morning, everyone and thank you for joining us I'm thrilled to join the leadership team at <unk> as president in cannabis and contribute to the continued growth of the business. While I was not formally a part of the company during the full year fourth quarter of 2022 I'm excited to join US on deal for those who don't know me I was one of the founders of balance in 2012.
We built the company with a mission to drive positive societal change and revolutionize the way people view, Canada.
I looked at the industry different we managed to differentiate ourselves by building one of the most versatile to point out cannabis platforms and created a distribution network with key players in the Canadian cannabis space.
This solidified our position not only as one of the top license producers and many factors, but a trusted partner in the Canadian cannabis space I am excited to contribute my extensive experience in cannabis industry <unk> spanning over 15 years in both the U S and Canada.
Balanced found the ideal partner at SMB out, enabling us as a combined company to augment our platform and increase our capital resources and capabilities.
We are building a leading vertically integrated player with expertise in cultivation procurement manufacturing retail and liquor distribution. Our objective is to deliver on our purpose of bringing people together through exceptional products and experiences for generations to come.
As we move forward, we have ambitious goals for our cannabis business segment in February we announced changes to our operations through a right sizing of our cannabis cultivation and all Gilberto and half of all New Brunswick, and an effort to focus on the facility on premium products and brands.
Our balanced transaction accelerated the need to optimize and rationalize SMB <unk> manufacturing and operational footprint to better address market saturation oversupply inefficiency.
We believe that our ongoing focus on high quality.
Cannabis cultivation operations combined with solid low cost biomass procurement capabilities will enhance <unk> ability to offer a wide range of customized innovative products to meet the consumer demand and current market conditions.
Our strategy is centered around reducing our reliance on high cost indoor cannabis growing and increasing our optionality on environment.
Do not underestimate the strategic implications of our combined ability to procure or grow the best quality product or different price points.
As Zach mentioned, we are currently undergoing a comprehensive integration process and one of the most significant integration efforts and our portfolio rationalization.
We are currently analyzing everything operations brands partners in markets.
Exercises a critical step towards streamlining our operations.
Enhancing our profitability and ensuring that we continue to offer high quality innovation that meet the ever evolving needs of the consumers. We are committed to ensuring that our portfolio is optimized for long term success and we have already made great progress.
At <unk>, we recognize the importance of the <unk> segment and remain committed to developing and enhancing the critical area of our business leveraging our extraction and innovation capabilities and manufacturing expertise. We are proud to currently serve four of the top five Canadian licensed producers with our products.
Our goal is to remain the industry's preferred partner operating exceptional quality consistent service to our <unk> partners.
In Q3, 2022 U S. NGL made its first international shipment to Israel.
Marking a significant milestone for the company. We are eager to continue expanding our international presence with Israel, and Australia, thereby unlocking new revenue streams for the company.
We believe the international market presents an attractive opportunity for <unk> and we are committed to building a strong foothold there.
Our team is actively exploring additional international opportunities and partnerships to further bolster our business and drive sustainable growth for the company.
My primary objective is to make our cannabis operations profitable on a sustainable basis by the end of 2023, we have the right strategic assets could be one of the most profitable cannabis companies in Canada and with the initiatives that have already been executed on and one is planned to come we expect to reap the reward in the back half of the year.
Keeping this goal is critical to our long term success and will require a concerted effort across the organization.
We are committed to streamlining our operations optimizing our portfolio and driving revenue growth through strategic partnerships expansion into new markets and continued investment in our core capabilities I look forward to showing the market. What we have in store in the quarters to come I will pass it back to Zach for closing remarks.
I am proud of our team's performance and progress in 2022.
I am encouraged by the way our team is executing with purpose confidence and resilience. Our work is far from complete but <unk> has a tremendous opportunity to continue to challenge the expected and the regulated products industry.
The team is committed to building a world class business and we are excited about the possibilities ahead.
I would like to thank our <unk> colleagues for their tremendous efforts our customers for their trust and you our shareholders for your continued support we look forward to another exceptional year.
We will now begin the analyst question and answer session.
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You'll hear a tone acknowledging your request.
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We will pause for a moment as callers join the queue.
The first question comes from Andrew <unk> with Stifel GMP.
Please go ahead.
Hi, good morning, Thanks for taking my questions.
I wanted to maybe take a step back first and.
Think about things from a high level on the cannabis operations, you've made a lot of movements here you acquired Valens.
And scientists, which come with several production and manufacturing assets you have an equity position in village farms.
At the same time you announced.
The right sizing of your operations and Dublin cost synergy goals to over $20 million.
So.
Is it possible to talk about.
What an optimized footprint looks like physically and strategically which assets will be used for what purpose. I believe you already mentioned you wanted to sell the synovus facility in Nova Scotia.
Could we see any other asset sales repurposing.
But theres a number of.
Data points and decisions that have yet to be made.
When you look at the rapid growth by acquisition that SMB <unk> experienced over the last 24 months.
Certainly there is room for rationalization and we are focused internally today.
Optimizing our footprint and driving efficiencies through every segment of the business.
So when you look at our our office footprint for personnel and our facilities footprint.
There is no question that we're going to reduce that exposure over time.
I'd say that which I think was what youre getting at cultivation is probably the last big strategic question that the company is endeavoring to answer.
And are the path that we're on.
Some of the vagaries in different markets in Canada, whether that be the <unk>.
Cost of labor.
Volatility in terms of power prices.
The rapid adjustment and improvement in Sop.
The impact of genetics and hybrid glasshouse Theres a lot to consider so we are we're doing some very careful analysis right now and preparing to make those bigger decisions in the quarters to come.
Different assets will have.
Some some good fortune in the in the sense that a number of our facilities.
Actually do have alternative use in fact, some are actually highly desired industrial facilities in industrial as you are probably aware, it's still a very strong market. Despite the rate environment. We're in.
No.
That's really the high level answer and we are going to be excited to.
Report.
Some of the results of our decisions and actions to be taken this year and beyond.
In the coming quarters.
Okay I appreciate that.
My second question maybe.
Thinking about some stream bancorp.
You talked about potentially becoming a.
Majority owner and at least one MSL this year.
And assumption could be made that these assets are likely burning cash.
And it seems like there is not.
A ton of cash in the JV right now.
Could you talk a little bit about the regulatory compliant the options you have to finance these businesses, assuming you do take control.
Should we expect <unk> to inject another cash infusion here and what are you thinking in terms of order of magnitude if so.
Could a cash infusion also look to increase the number of.
Borrowers given the challenging capital raising environment currently thanks.
Yeah.
Okay.
Thanks for the question so the way I would come at this.
We're not going to talk about specific numbers or contributions I would not make any assumptions around.
<unk>.
Cash burn rates for these vehicles.
I would not start with.
Flatly negative assumption on performance, we've seen a number of opportunities across the U S landscape, where operating discipline has been lacking.
Cost discipline capital discipline has been lacking so theres a lot of low hanging fruit across a number of these companies that we think can really move the needle.
Terms of near term performance.
When you think about liquidity if youre asking the question of would we.
Allocate more capital to existing.
Portfolio companies to shore up resources and.
Make sure that they can survive the answer is yes, but on the flip side. We also have a number of credits that are.
Of.
Whether it's strong third party interest in either acquiring the businesses or the paper itself the credit investment.
Is it strategic to other parties as well. So we are looking at unlocking value and freeing up capital through the monetization of a number of assets we have.
Both fixed assets and financial instruments that do hold value.
Where there is interest from third parties.
So there is a sources and uses equation there that should put us in a position where we have no issues when it comes to liquidity and between our debt free balance sheet.
And our trading liquidity, we have access to both credit and equity capital.
Which we are.
We have no near term plans to access.
But puts us in a good position, where we can focus on improving the business and generating free cash flow today.
The next question comes from Matt Bottomley with Canaccord Genuity.
Please go good morning appreciate it appreciate all the color in the prepared remarks, so far just wanted to flip back to the Canadian.
Wholesale BTB cultivation operations in.
A lot of good comments in the prepared remarks, but just given if you kind of look at the adjusted EBITDA rack over the last four five quarters. It certainly is something that has been on the decline.
That reconciliation given it's sort of 5% of your business today, but a good chunk I think $4 million to $5 million.
Adjusted EBITDA loss every quarter I am just curious how valens sort of fits into that on the closing in January and how much of this is actually in your control, whether it's through streamlining and right sizing versus just overall for lack of a better term mess that the Canadian.
Pricing model seems to be in right now.
Yes, I would say that we're extremely excited.
Tyler and the balanced team joining us.
Let him speak to.
The current state of play on <unk>, and the broader pricing environment in wholesale in Canada, but I would say that.
This merger ends up solving problems for both legacy businesses in a way that we think is going to be very very powerful and we're heads down right in the middle of our integration work that work began prior to close.
And we're making a lot of very tough.
Tough decisions right now.
And we're very excited about reporting no more detail on this in the near future, but let me just open the floor to Tyler to comment on.
The current state of the market in Canada.
Yes, Thanks Ed.
I don't think its a surprise to anybody that the Canadian market is in that.
And with this integration slash acquisition, a balanced I think we can slowly move away from high end indoor and be opportunistic on what the <unk> market hold so Matt going back to your question is you didn't pull control I'd say the majority of it is in our control.
Will this be I would say strategically aggressive as we can see.
You didn't move through the ecosystem, what we call Canadian cannabis, but I am extremely excited obviously I can't comment on what happened in last 12 months at SPL.
But on the go forward I am definitely optimistic on what we could do collectively.
Got it appreciate that and then just my second question is just where you guys view the company from a sustainability perspective as it is I know, there's other growth initiatives and strategic stuff that was with <unk>.
On the call, but cash flow from operations of $29 million in Q4 can you just breakdown what might've been a big swing, maybe it's working capital or something else over the last period.
Maybe in relation to I think you said youre adjusted EBITDA, if you got rid of those non cash.
Investment reductions would have been close to 10 million. So just bridge that gap and sort of where you think you are from a sustainability standpoint from your cash flow from ops. Thanks.
Jim do you want to take that.
That's fine I can take it so Matt.
It's important to remember that with.
The largest contributor on the liability side of the balance sheet is really our lease exposure.
<unk>.
It's really important that investors and analysts look at pre and post <unk> 16 analysis for this that's a big driver.
For the Delta and Youll note that cash flow from operations does not include <unk>.
Lease expenses that are that are found in cash.
Cash flow from financing in this.
Against this regime.
So we can we can work through the reconciliation, which is all publicly available through the filings, but happy to walk through with you offline.
Yes, no problem just I guess just the one question on that is do you think sort of a overall number above zero is sustainable from where youre at today or do you expect there'll be volatility just given how many moving pieces theres been as of late in terms of the overall growth of the company.
S. Sundial was started with leverage to the largest pure indoor modular cultivation and processing facility in the country.
It also happened to be built in was inherited by this current team in Alberta, Alberta has seen wild fluctuations in power prices that have trailing 12 months hit levels that are as much as three ex what you would see in markets that are levered to available hydropower markets like Quebec, and British Columbia.
Yes.
And one of the things that the balanced transaction other opportunities the balanced transaction affords us.
Is to move.
Move away from high cost production, which is really only suitable and can only generate economic margin in premium markets in the premium market in Canada is a is a very narrow fairway to hit.
Less than 10% of the market as Youre aware and so we have we have the opportunity today to.
To take better advantage of the headwinds in the space the oversupply in the market.
And to be a strong partner too.
Cultivators and other parties of all sizes that are in desperate need of working capital.
That we can strike commercial deals with so there's going to be a lot of noise. In Q1 potentially Q2 is as we worked through this integration that were going to do.
Our best to tease apart the various impacts and show the clear path to operational improvements.
And the first step will come in a matter of weeks with this delay we have Q1 coming up I'm very very quickly here. So we'll do our best to.
To show those results on a clean basis, but I would expect some degree of noise as we're continuing this integration work in the first half of the year.
Got it okay. Thanks for everything.
The next question comes from Federico Gomez with <unk> capital markets.
Go ahead.
Yes.
Hi, good morning, Thanks for taking my questions.
First question is on your liquid retail segment so.
You've managed to keep your margins at about 23% flat in this environment.
Also mentioned some opportunities for margin expansion in this coming year and one off.
Those opportunities refers to.
Maybe monetizing data as a service so how soon do you think that could have an impact on your margins in that segment.
How far along are you in implementing that strategy. Thank you.
Thank you want to talk about the current operating environment and liquor.
Yes for sure.
Provide some context on the operating environment. So.
Fred we have definitely managed to hold our.
Margins steady even with some decline from.
The.
Pandemic years.
We are definitely looking at some margin improvements from various different things data monetization is one of them.
We are working actively to have that.
Done.
And the next.
Quarter, but.
And Stephanie Dave on that at this point cant really put any numbers in front of you that at this point.
There will be margin improvements with the data monetization and also some more focus on more.
Value based private label products in the market.
Okay. Thanks for that color and then just looking at your candidates and inventory when you acquired <unk> you had approximately.
22 grams of inventory there that you mentioned how much of that have you been able to monetize so far and what sort of impact.
Has that had on your margins.
And again, if it's operational segment. Thank you.
Okay.
That's a great question, we're not going to talk about specific numbers, but.
We can we can have certainly Tyler talk about the aggressive approach, we're taking on inventory.
Some of this as we move forward you will see some noise.
On a margin basis.
But as we reported.
We effectively acquired the equivalent of over 20 million grams.
And the successful credit bid.
Four presented us and we're working at.
Working really diligently on monetizing inventory across the entire business not just.
<unk> so to speak but.
I'll turn it over to Tyler to talk a little bit about some of the team's efforts.
Yeah. Thanks, Doug.
I would say just knowing the platform that <unk> in balance now offer together, obviously balance are the largest purchaser of biomass.
We have the ability to move through inventory like no one else in.
And in space, so not worried about moving through the inventory and like I said I don't think were going to give specifics at this time, but the one thing that this platform gives us the optionality. So we can maximize.
Overall revenue out of that inventory, so whether it's going into hydrocarbon and pre rolls.
We will monetize it effectively to put our best for sure.
Okay. Thanks, Thanks for that I will pass it along.
Once again, if you have a <unk>.
Please go ahead.
And wine.
Question comes from Andrew Mccarthy with Stifel GMP.
Please go ahead.
Yeah.
Hi, Thanks for taking my follow up question.
I apologize.
I didn't hear the answers to the last question is I got.
Disconnected on my side.
I believe you.
You had a pretty nice decrease on your on your inventory position.
You did acquire 22 million grams from those entered this transaction could you provide a little bit more detail on on the inventory item line item on your balance sheet now what's the ideal level for you.
And.
Could you talk a little bit about.
How much left of that.
This inventory.
This left to monetize.
What kind of demand are you looking are you looking at in this current environment for that.
Thanks, Andrew and we're thrilled that you're back online.
Thrilled to have you on the call that was actually the last question that was asked so.
Great minds I guess.
And so we're not going to talk about specific numbers, but we do have a very aggressive plan youre likely to see.
Most of the cash flow attributed with the monetization of that inventory.
Hit our P&L in Q2 and Q3 predominantly.
But we're not going to talk about rate of change or pricing at this point.
Happy to get into it.
After the fact.
And Tyler.
Tyler had explained as well that we have.
We have a tremendous amount of optionality with the combined platform and with balanced position.
As effectively the largest purchaser of biomass in Canada.
They have demonstrated the ability to move through inventory.
At a very rapid clip and whether that's for.
For different product and pricing segments or.
Our feedstock for extraction, there's a ton of optionality. There so no concerns on that and Tyler and his team have been very very aggressive in moving through inventory across all.
Pockets in the company not just.
Not just that a as in Apple, though so we will provide updates on that later and getting more efficient with our use of capital and inventory levels is a key part of the efficiency.
<unk> that we're working on right now.
I appreciate that thanks.
Uh-huh conclude the question answer session.
I would now like to turn the conference back over to Zach George for any closing remark.
Thank you and thank you all for joining us this morning.
We look forward to updating you on our progress and results in just a few short weeks.
And.
We wish you all great day. Thank you.
Can you call today's conference call you may disconnect your lines.
Thank you for participating and have a plan.
Thanks, Paul.
Okay.