Q2 2024 SNDL Inc Earnings Call

August 2, 2024

Operator: Good morning, and welcome to SNDL's second quarter 2024 financial results conference call. This morning, SNDL issued a press release announcing their financial results for the 2024 second quarter, which ended on June 30, 2024. This press release is available on the company's website at sndl.com and filed on Edgar and Cedar as well. This webcast The webcast replay of the conference call will also be available on the sndl.com website. SNDL has also posted a supplemental investor presentation.

Good morning, and welcome to <unk> second quarter 2024 financial results Conference call. This morning S. N D. L issued a press release announcing the financial results for the 2024 second quarter ended on June 32024, This press releases avail.

Well on the company's website at <unk> Dot com and filed on Edgar and SEDAR as well this webcast the.

The webcast replay of the conference call will also be available on the S. N D L Dot com website.

Speaker Change: San Diego has also posted a supplemental investor presentation. In addition to the conference call presentation, we will be reviewing today on its S. N Dl dotcom website presenting on this morning's call we have Zach George Chief Executive Officer, and Alberto pair of Darrow Chief Financial Officer before we start.

Operator: In addition to the conference call presentation, we will be reviewing today on its sndl.com website. Presenting on this morning's call are Zach George, Chief Executive Officer, and Alberto Paredero, 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, and actual results could differ materially from those anticipated. Risk factors that could cause, or that could affect results are detailed in the company's financial reports and other public filings that are made available on CDER and EDGAR.

Speaker Change: I would like to remind investors that certain matters discussed in today's conference call or answers that maybe given to questions could constitute forward looking statements actual results could differ materially from those anticipated risk factors that could cause that could affect results are detailed in the company's financial reports and other public <unk>.

Billings that are made available on SEDAR and Edgar <unk>.

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.

Operator: 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.

Zach George: Welcome to SNDL's Q2 2024 Financial and Operational Results conference call. We are pleased to see that the second quarter confirms the increased profitability we reported in the first quarter and material progress on our path of continuous improvement. We maintain strong momentum in our cannabis segments, reporting consistent revenue improvement in cannabis over the last 10 quarters. While we noticed a slowdown in revenue from our liquor segment, we still posted greater margins and greater gross profit dollars on a year-over-year basis, and we have additional tools at our disposal to battle through this volatility.

Zach George: Welcome to <unk>, Q2, 2024 financial and operational results conference call.

Speaker Change: We are pleased to see that the second quarter confirms the increased profitability, we reported in the first quarter and material progress on our path of continuous improvement.

We maintained strong momentum in our cannabis segments reporting consistent.

Revenue improvement in candidates over the last 10 quarters.

While we noticed a slowdown in revenue from our liquor segment, we still posted greater margins and greater gross profit dollars on a year over year basis, and we have additional tools at our disposal to battle through this volatility.

Zach George: We are pleased to report an all-time record gross margin of 25.5%, with all segments contributing to gross profit and gross margin growth compared to the same quarter of 2023. Our cannabis operations segment achieved positive gross profit for the second quarter in a row. Operating income also showed a significant improvement, not only on a consolidated basis but also supported by growth in all segments, driven by gross margin improvements and strong cost discipline in SG&A management. Importantly, none of these results include the benefit of the recently announced plan to reduce corporate overhead by more than $20 million, which we expect to begin to impact results in Q2.

We are pleased to report an all time record gross margin of 25, 5% with all segments contributing to gross profit and gross margin growth compared to the same quarter of 2023.

Speaker Change: Our cannabis operations segment achieved positive gross profit for the second quarter in a row.

Speaker Change: Operating income also showcased a significant improvement not only on a consolidated basis, but also supported by growth in all segments, driven by gross margin improvements and strong cost discipline in SG&A management.

Speaker Change: Importantly, none of these results include the benefit of the recently announced plan to reduce corporate overhead by more than $20 million, which we expect to begin to impact results in Q3.

Zach George: SNDL remains steadfast in its commitment to driving long-term profitable growth. We continue to grow our substantial retail platform, are making significant strides towards manufacturing excellence, and are involved in four different restructuring processes, two on each side of the border, that may result in accretive M&A or some other type of liquidity event. Our unique approach to the deployment of credit capital is also likely to result in the significant repatriation of cash. We currently expect approximately $130 million in principal repayments to occur in the second half of this year, with about 90 million of that having been received in the last two weeks from both Ascend and Jushu.

Speaker Change: <unk> remains steadfast in its commitment to driving long term profitable growth.

Speaker Change: We continue to grow our substantial retail platform are making significant strides towards manufacturing excellence and are involved in four different restructuring processes to on each side of the border that may result in accretive M&A or some other type of liquidity event.

Speaker Change: Our unique approach to deployment of credit capital is also likely to result in a significant repatriation of cash.

Speaker Change: Currently expect approximately $130 million in principal repayments to occur in the second half of this year with about $90 million of that having been received in the last two weeks from both ascend and juicy.

Zach George: It is also worth noting that this quarter we have provided transparency and an update on our material credit exposures in Canada and the US. This information can be found in the investor presentation available on our website. I also want to provide some context for the delay in closing our U.S. restructuring efforts under Sunstream. It is clear from our dealings with local regulators across Canada and the US that the industry continues to face many regulatory obstacles, bureaucracy and inefficient, From the selective and inconsistent enforcement of excise taxes in Canada, which effectively penalizes participants who pay all of their excise obligations, to provincial regulatory officials leaking confidential information to competitors, or Florida state regulators recently delaying the parallel reorganization, being, quote, unable to locate parts of our documentation that were submitted months ago.

Speaker Change: It is also worth noting that this quarter, we have provided transparency and an update on our material credit exposures in Canada and the U S. This information can be found in the investor presentation available on our website.

Speaker Change: I also want to provide some context for the delay in closing our U S restructuring efforts under Sun stream.

Speaker Change: It is clear from our dealings with local regulators across Canada, and the U S that the industry continues to face many regulatory obstacles bureaucracy and inefficiency.

Speaker Change: From the selective and inconsistent enforcement of excise taxes in Canada, which effectively penalizes participants who pay all of their exercise obligations to.

Speaker Change: To provincial regulatory officials leaking confidential information to competitors.

Speaker Change: Or Florida state regulators recently delaying the parallel reorganization being quote unable to locate parts of our documentation that were submitted months ago. There are multiple examples of the need for more efficient professional regulatory bodies.

Zach George: There are multiple examples of the need for more efficient, professional regulatory bodies. At SNDL, we have the skill, resources, and determination to overcome all of these challenges. We will persevere in our efforts partnering with regulatory authorities to continue advancing this agenda and improving the regulatory framework. We expect to provide further updates on our U.S. restructuring in the next 90 days or sooner, if and when we have clarity. I will now pass the call to Alberto for a deeper dive into our Q2 financial results.

Speaker Change: <unk>, we have the scale resources and determination to overcome all of these challenges, we will persevere and our efforts partnering with regulatory authorities to continue advancing this agenda and improving the regulatory framework. We expect to provide further updates on our U S restructuring in the next 90 days or sooner if and when we have clarity.

Speaker Change: I will now pass the call to Alberto for a deeper dive into our Q2 financial results.

Alberto Paredero: Thank you, Zach. I want to remind you all that the items we must discuss today are denominated in Canadian dollars, unless otherwise stated. Certain amounts referred to on this call are non-GAP and non-IFRS measures. For definitions of these measures, please refer to Sundial's Management Discussion and Analysis documents.

Alberto: Thank you Scott I.

Alberto: 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 <unk> measures definitions of these measures. Please refer to us in <unk> management discussion and analysis.

Speaker Change: Welcome.

Alberto Paredero: Looking at our Q2 2024 financial highlights, we continue to see significant improvements in operating income and free cash flow, as in the first quarter, despite the revenue headwinds impacting our liquor sector. Net revenue in the second quarter of 2024 reached $228.1 million, a $3.8 million or 1.6% decline year-on-year. This decline was driven by our liquor retail segment.

Speaker Change: Looking at our Q2 2024 financial highlights we continue to see significant improvements in operating income and free cash flow.

Speaker Change: As in the first quarter.

Speaker Change: By the revenue headwinds impacting our lead our sector.

Speaker Change: Net revenue in the second quarter of 2024 to $128 1 million, a $3 8 million or one 6% decline year on year.

Speaker Change: This decline was driven by our LIFO refill segment.

Alberto Paredero: Our combined cannabis business posted a healthy 9.2% growth. Gross profit of 58.2 million represents a 6.2 million increase or 12% growth year-on-year and a material 310 basis points of gross market improvement with positive contributions from all sectors. This translates into another quarter of record gross margin reaching 25.5%. As in the first quarter, the second quarter growth margin increased. Income contributions from our investment segment and disciplined management of corporate overhead led to significant year-on-year improvements in adjusted operating income and free cash flow of 82 and 70 percent, respectively. These two metrics were dedicated close to breakeven in the quarter. As mentioned last quarter, we only have gas-operated income for restructuring, restructuring-related write-offs, and intangible asset deferment.

Speaker Change: Our combined kind of in this business posted a health and nine 2% growth.

Speaker Change: Gross profit of $58 2 million represents a $6 2 million increase or 12% growth year on year.

Speaker Change: In our materials 310 basis points of gross margin improvement with positive contributions from all segments.

Speaker Change: One place into another quarter of record gross margin, reaching 25, 5%.

Speaker Change: As in the first quarter, the second quarter gross margin increased income contribution from our investment segment and disciplined management of corporate overhead led to significant year on year improvements in adjusted operating income a free customer of 82, 7% respectively.

Speaker Change: These two metrics what dedicated close to breakeven in the quarter.

Speaker Change: As mentioned last quarter, we only up just operating income for restructuring restructuring related write offs and intangible asset impairments.

Alberto Paredero: Specifically, in the second quarter of 2024, we adjusted operating income by removing 0.2 million expenses related to restructuring and charging. In the same quarter of 2023, there was an adjustment to remove four million restructuring costs. We're looking at the quarterly historical traction of the main financial KPIs. We noticed a quarter on quarter improvement in net revenue, a 15% growth between the second and the first quarters of 2024, to be precise, although still declining compared to the same quarter of 2023.

Speaker Change: Specifically in the second quarter of 2020 before we adjusted operating income by removing <unk> 4 million expenses related to restructuring charges.

Speaker Change: What are the same quarter of 2023, there was an adjustment to remove a $4 million restructuring expense.

Speaker Change: We're looking at the quarterly historical practice of main financial Kpis will noticed quarter on quarter improvement in net revenue.

Speaker Change: 10% growth between the second and the first quarters of 2024 to be precise.

Speaker Change: Although still declining compared to the same quarter of 2023.

Alberto Paredero: What we're seeing significant improvements both quarter on quarter and compared to the previous years is in gross profit, where the second quarter represents a 15% quarterly increase and a 12% growth compared to the same quarter of 2020. Both adjusted operating income and free cash flow are very close to breakeven, at very similar levels when compared to the first quarter of 2024. Clearly, the first half of 2024 represents a significant improvement compared to the same period in previous years.

Speaker Change: Where we're seeing significant improvement both quarter on quarter and compared to the previous years is in gross profit.

Speaker Change: For the second quarter represents a 15% quarter over quarter increase on the 12% growth compared to the same quarter of political this year.

Speaker Change: Both adjusted operating income and free cash flow are very close to breakeven at very similar levels when compared to the first quarter of 2024.

Speaker Change: Clearly the first half of 2024 represents a significant improvement compared to the same how from previous year.

Alberto Paredero: And the second quarter is confirmation of the profitability improvement we posted in the previous quarter. As we look at the contributions from each segment, we can see how the net revenue decline in liquor is impacting the overall consolidated results, despite the good performance from Canada. When we add the $4.2 million net revenue growth from cannabis retail, the $4 million from cannabis operations, and the small negative of $0.9 million in the corporate segment related to the revenue elimination for the cannabis operations sales into our own retail, we come to a total of 7.3 million, or 9.2% growth.

Speaker Change: And the second quarter, the confirmation of the profitability improvement we posted in the previous quarter.

Speaker Change: We'll look at the contributions from each segment, we can see how the net revenue decline in liquor, it's impacting the overall consolidated results. Despite the good performance from Canada.

Speaker Change: When we have the $4 2 million net revenue growth from kind of as retail.

Speaker Change: $4 million from cannabis operations on this small negative <unk> 9 million in the corporate segment related to the revenue elimination for the cannabis operators themselves through our own retail we come to a total of $7 3 million or nine 2% growth in Canada.

Alberto Paredero: In terms of gross profit, all segments are contributing to growth. Even Liquor Retail shows positive gross profit in the quarter, despite the softness in revenue, and the cannabis operation segment is showing a strong 4.4 million improvement as a result of our productivity initiatives. All together, adding up to 6.3 million, or 12% growth in gross profit. On the next page, we're seeing a material improvement in adjusted operating income driven by cannabis operations, as well as our investment sector.

Speaker Change: In terms of gross profit all segments are contributing to grow evenly.

Speaker Change: Evenly retail shows positive gross profit in the quarter. Despite the softness in revenue under kind of incorporate some segments is showing a strong $4 4 million improvement as a result of our productivity initiatives.

Speaker Change: Altogether, adding up to $6 3 million or 12% growth in gross profit.

Speaker Change: On the next space, we're seeing a material improvement in adjusted operating income driven by kind of its operations as well as our investments segment.

Alberto Paredero: The 10 million contribution from our investment segment is a combination of 3.2 million in investment income and 5.2 million improvement in asset valuation from our Sunstream portfolio in the second quarter of 2024, compared to 1.5 million losses in the same period of 2024. Precast flow also shows a significant improvement in Q2 2024 versus the same period of 2023.

Speaker Change: The 10 million contribution from our investments segment, it's a combination of $3 2 million in investment income of $5 2 million improvement in asset valuation from our <unk> portfolio in the second quarter of 2024 compared to $1 5 million losses in the same period of 2023.

Speaker Change: Free cash flow also shows the significant improvement in Q2 2024 versus the same period of 2023.

Alberto Paredero: As a result of our improvement in profitability, but also a more disciplined approach to working capital management, partly offset by lapping one-time cash proceeds in the second quarter of 2023 related to asset divestment. As we did last quarter, we would like to share some insights into the drivers of free cash flow in the second quarter. Both quarters were similar in terms of actual reported free cash flow, with a small improvement from negative $6.4 million in Q1 to negative $5.6 million in Q2. There are, however, some differences in the composition of this number.

Speaker Change: As a result of our improvement in profitability, but also a more disciplined approach to working capital management, partly offset by lapping onetime cash proceeds in the second quarter of 2023 related to asset divestments.

Speaker Change: As we did last quarter, we would like to share some insights into the drivers of free cash flow in the second quarter.

Speaker Change: Both quarters were similar in terms of actual reported free cash flow with a small improvement from negative $6 4 million in Q1 to negative $5 6 million in Q2.

Speaker Change: There are however, some differences in the composition of these numbers.

Alberto Paredero: Net income, non-cash outbacks, and capex, and unlisted payments are very similar in both quarters. The differences are in the working capital component. In the first quarter of 2024, we reported an inventory increase of $5.8 million, while in the second quarter, we reported a reduction of $2.3 million. This is in contrast with the material historical increases in inventory during the first semester of the previous year, as illustrated in the right-hand side graph

Speaker Change: Net income noncash add backs on Capex and lease payments are very similar in both quarters.

Speaker Change: The differences are in the working capital components.

Speaker Change: In the first quarter of 2024 would have reported a inventory increase of $5 8 million one in the second quarter, we're reporting a reduction of $2 3 million.

Speaker Change: This is in contrast, with the material historical increases in inventory during the first semester of previous years.

Speaker Change: As illustrated on the right hand side graph of 87.

Alberto Paredero: Clear evidence of the progress made by our operational teams in optimizing inventory levels. At the same time, we're seeing the opposite dynamic in the other working capital chains, which were impacted in the second quarter of 2024 by the annual payments of our management incentive and insurance premium. These two annual elements account for cash outflows of $10 million in the second quarter. We're encouraged by this result in the second quarter, as it keeps us on track to demonstrate our ability to deliver positive free cash flow for the full year 2020. So we need to eat one of the three operating segments. Let's start with liquor rhythm.

Speaker Change: Clear evidence of the progress made by our operational teams and optimizing inventory levels.

Speaker Change: At the same time, we're seeing the opposite dynamic can be other working capital changes.

Speaker Change: Our impact in the second quarter of 2024 by the annual payments of our management incentive and insurance premiums.

Speaker Change: Annual element that comp forecast output of $10 million in the second quarter.

Speaker Change: We're encouraged by these results in the second quarter keeps us on track to demonstrate our ability to deliver positive free cash flow for the full year 2024.

Speaker Change: So we need to it's one of the three operating segments lets start with Mako breakdown.

Alberto Paredero: Net revenue in the second quarter of 2024 for this segment was $104.6 million, a decline of $11 million or 7% compared to the prior year. This decline was driven by a 15-inch eastern timing difference between March and April when compared to 2033. But mostly due to a market slowdown, as you're probably seeing being reported by most liquor manufacturers in North America. We believe this is not indicative of structural challenges in the industry but due to short-term consumption dynamics.

Speaker Change: Net revenue in the second quarter of 2024 for this segment was $140 6 million, a decline of $11 million or 7% compared to the prior year.

Speaker Change: This decline was driven by a 15 eastern time in between March and April when compared to 2033.

Speaker Change: But mostly due to market the slowdown <unk> seen being reported by most link our manufacturers in North America.

Speaker Change: We believe this is not indicative of a structural challenges in the industry, but due to short term consumption dynamics.

Alberto Paredero: Despite these macro headwinds, we continue to expand gross margin, reaching 25.4% in the second quarter, an improvement of 210 basis points compared to last year. This was achieved through multiple initiatives, including a 10% growth in our margin-accretive private label, procurement productivity, and data sales monetization. As a result of this margin expansion, this segment's gross profits and operating income delivered low single-digit growth versus the same quarter of 2020. Moving to Cannabis Retail, we saw net revenue in Q2 2024 of $76.1 million, which is a 6% increase versus Q2 2023, mainly driven by same-store sales growth of 2.4%, supported by double-digit growth in Ontario, as well as the expansion of our data sales program and new store openings.

Speaker Change: Despite these macro headwinds will continue to expand gross margin, reaching 25, 4% in the second quarter, an improvement of 210 basis points compared to last year.

Speaker Change: This was achieved through multiple initiatives, including a 10% growth of our margin accretive private label procurement productivity and data sales monetization.

Speaker Change: As a result of this margin expansion the segment's gross profit and operating income delivered low single digit growth versus the same quarter of 2023.

Speaker Change: More than two candidates Rico, we saw net revenue in Q2 of 2024 of $76 1 million, which is a 6% increase versus Q2 'twenty mainly.

Speaker Change: Mainly driven by same store sales growth of two 4% supported by double digit broken the title as well as the expansion of our data service program and new store openings.

Speaker Change: Data sell for the main factor contributing to the 60 basis points of gross margin improvement for this segment, enabling an eight 5% gross profit growth compared to Q2 of 2023.

Alberto Paredero: Data cells are the main factor contributing to the 60 basis points of cross-margin improvement for this sector, enabling an 8.5% gross profit growth compared to Q2 2027. Adjusted operating income increased by 1.6 million, or 67% growth compared to the prior year, driven by the gross profit improvement. Finally, looking at our cannabis operations segment, this is where we see once more the largest improvement, both in terms of growth and profitability. In the second quarter of 2024, the segment delivered net revenue of $25 million, a 19% increase year-over-year. All of this growth is organic and driven by the prohibition board and business-to-business distribution.

Speaker Change: Adjusted operating income increased by $1 6 million or 6% to 7% growth compared to the prior year driven by the gross profit improvement.

Speaker Change: Finally, looking at our Canada Operation segment. This is where we'll see once more the largest improvement.

Speaker Change: Both in terms of growth and profitability.

Speaker Change: In the second quarter for the segment delivered net revenue of 25, million% to 19% increase year over year.

Speaker Change: All of this growth is organic and.

Speaker Change: Driven by provision board and business to business distribution increases.

Alberto Paredero: As already reported in the first quarter, the biggest improvement from this segment is in profitability, driven by a holistic productivity program. In the second quarter of 2024, the segment posted a positive gross profit of $3.2 million, an improvement of $4.4 million compared to Q2 2023. As a result, the growth margin of the sector improved from a negative 5.8 in Q2 2023 to a positive 12.7% in Q2 2024. However, adjusted operating income was negative by $1.9 million, compared to a loss of $11 million in the prior year.

Speaker Change: As already reported in the first quarter. The biggest improvement from this segment is in profitability driven by our holistic productivity program.

Speaker Change: In the second quarter of 2024, the segment posted positive gross profit of $3 2 million, an improvement of $4 4 million compared to Q2 towards the clinic.

Speaker Change: As a result, the gross margin of the segment pro forma negative $5 eight in Q2 towards deposit rates to a positive $12 7%.

Speaker Change: Q2 2024.

Speaker Change: Adjusted operating income was negative by $1 9 million compared to a loss of $11 million in the prior year.

Alberto Paredero: The slightly negative number is mainly driven by a 1.3 million fixed asset impairment related to Senape's legacy facilities. In summary, a solid quarter with record gross margin and a significant improvement in profitability and free cash flow compared to the previous year, and Broccoli and Lime with improvements reported in the first quarter. Let's also keep in mind that on June 30, 2024, the company had 183 million of unrestricted cash, an additional $601 million in marketable securities and investments, and no outstanding debt. Thanking all our team members at SNDL for their passion and contributions to these results, I would like to pass the call back to Zach to share a few more operational highlights for the quarter.

Speaker Change: The slightly negative numbers, mainly driven by a $1 3 million fixed asset impairment related to certain of its legacy facility.

Speaker Change: In summary, a solid quarter with record gross margin and a significant improvement in profitability and free cash flow compared to the previous year.

Speaker Change: And broadly in line with improvements reported in the first quarter.

Speaker Change: Let's also keep in mind that at June 32024, the company had $183 million of unrestricted cash.

Speaker Change: An additional $601 million in marketable securities and investments and notwithstanding that.

Stack: By thanking all our team members at SMB al for their passion and contributions to these results I would like to pass the call back to stack to share a few more operational highlights for the quarter.

Stack: Thanks Alberto <unk>.

Zach George: Beyond our financial performance, I would also like to share a few highlights of our progress towards our strategic priorities, growth, profitability, and people, as each of these pillars is fundamental to our long-term success. Starting with growth, it is great to see our cannabis segment not only continue to deliver net revenue growth that's highlighted in the financials but also gain market share. In fact, our latest reading shows an impressive half-percentage point gain in retail share through quality execution, the ramp-up of 2023 store openings, and the recent expansion into British Columbia.

Stack: Beyond our financial performance I would also like to share a few highlights of our progress towards our strategic priorities growth profitability and people as each of these pillars is fundamental to our long term success.

stack: Starting with growth it is great to see our cannabis segment not only continued to deliver net revenue growth as highlighted in the financials, but also gained market share.

Speaker Change: In fact, our latest reading shows an impressive half a percentage point gain in retail share through quality execution. The ramp up of 2023 store openings and the recent expansion into British Columbia.

Zach George: This last point is actually another highlight, as during the second quarter, we launched the Value Buds banner in British Columbia with the rebranding of three stores acquired in the Dutch love transaction. Not only is our cannabis retail segment making strong progress, but our cannabis operations segment is rapidly gaining strength, confirming our focus on manufacturing excellence and the elimination of exposure to non-competitive cultivation. Our continuous focus on quality and innovation enabled the expansion of approximately 40 new SKUs available for provincial boards, enabling 19% organic revenue growth from this segment in the second quarter.

Speaker Change: This last point is actually another highlight is during the second quarter, we launched the value by banner into British Columbia with the rebranding of three stores acquired in the Dutch loved transaction.

Speaker Change: Not only is our cannabis retail segment, making strong progress, but our cannabis operations segment is rapidly gaining strength.

Speaker Change: Firming, our focus on manufacturing excellence and the elimination of exposure to noncompetitive cultivation.

Speaker Change: Our continuous focus on quality and innovation enabled the expansion of approximately 40, new skus available for provincial boards, enabling 19% organic revenue growth from this segment in the second quarter.

Zach George: I have never been as excited as I am today about our branded product line, much of which will hit the market this fall. Anecdotally, in June, SNDL became the first LP to exceed 1 million barrels in one month through the OCS flow-through program. Additionally, in Ontario, SNDL is the only top 20 LP to have reduced the number of SKUs in Q2 on a year over year basis and still outpaced OCS category dollar growth in the same period. The team also recently launched a 3-in-1 disposable vape that quickly became a top seller.

Speaker Change: I have never been as excited as I am today about our branded product line.

Speaker Change: Much of which will hit the market this fall.

Speaker Change: Anecdotally in June F&B, all became the first LP to exceed $1 million in one month to the ocs flow through program.

Speaker Change: Additionally, in Ontario, F&D al the only top 20 LP to have reduced the number of Skus in Q2 on a year over year basis, and still outpaced Ocs category dollar growth in the same period.

Speaker Change: The team also recently launched a three in one disposable vape that quickly became a top seller for us.

Zach George: Finally, despite the market contraction that impacted our liquor segment during the second quarter, our focus on offering quality products at affordable prices to our customers enabled us to increase liquor private label sales by 10% at a creative margin. Moving on to profitability, we continue exploring options to improve margin, Operating Income, and ultimately free cash flow. To this point, during the second quarter, we delivered productivity improvements of $7 million in our cannabis operations segment through procurement and cultivation efficiency.

Speaker Change: Finally, despite the market contraction that impacted our liquor segment during the second quarter, our focus on offering quality products at affordable prices to our customers enabled us to increase liquor private label sales by 10% at accretive margins.

Speaker Change: Moving onto profitability, we continue exploring options to improve margin.

Speaker Change: Operating income and ultimately free cash flow.

Speaker Change: To this point during the second quarter, we delivered productivity improvements of $7 million in our cannabis operations segment through procurement and cultivation efficiencies.

Zach George: In the second quarter, we achieved over $4 million in data licensing revenue from our cannabis and liquor retail businesses. Compared to the second quarter of 2023, our SG&A expenses were reduced by $4 million. As stated, we recently announced a restructuring program that will allow us to deliver over $20 million in annualized savings going forward, some of which will start being realized immediately in the third quarter of 2020.

Speaker Change: In the second quarter, we achieved over $4 million in data licensing revenue from our candidates and liquor retail segments.

Speaker Change: Compared to the second quarter of 2023, our SG&A expenses were reduced by $4 million.

Speaker Change: As stated, we recently announced a restructuring program that will allow us to deliver over $20 million in annualized savings going forward.

Speaker Change: Some of which will start being realized immediately in the third quarter of 2024.

Speaker Change: Zooming in on the restructuring announcement. This project focuses on corporate overhead spending as we look for ways to materially improve efficiency and reduce costs.

Zach George: Zooming in on the restructuring announcement, this project focuses on corporate overhead spending as we look for ways to materially improve efficiency and reduce costs. In this regard, several opportunities were identified impacting both people and non-people costs. Starting with people, we identified opportunities to improve organizational alignment by combining the cannabis retail and cannabis operation segments under Tyler's leadership. Through the strategic plan review we initiated a few months ago, we also identified the opportunity to increase focus on our must-win initiatives and market, better leverage technology and process automation, as well as streamline the D layer of the organization.

Zach George: While approximately 60% of the over $20 million in savings will be delivered through people-related cost reductions, 40% will be achieved by optimizing non-people expenses, such as rationalizing our office footprint, adjusting insurance coverage and rates, or implementing efficient zero-based budgeting policies to reduce discretionary spending.

Speaker Change: In this regard several opportunities were identified impacting both people and non people costs.

Speaker Change: Darling with people, we identified opportunities to improve organizational alignment by combining the cannabis retail and cannabis operation segments under Tyler's leadership.

Speaker Change: Through the strategic plan review, we initiated a few months ago. We also identified the opportunity to increase focus on our must win initiatives in markets better leverage technology and process automation as well as streamline and de layer the organization.

Speaker Change: While approximately 60% of the over $20 million in savings will be delivered through people related cost reductions, 40% will be achieved by optimizing non people expenses, such as rationalizing our office footprint adjusting insurance coverage in rates or.

Speaker Change: We're implementing efficient zero based budgeting policies to reduce discretionary spending.

Zach George: We have started immediately with the implementation of several of these initiatives, which will allow us to deliver $5 million in absolute savings in 2024 between July and December, ramping up to $18 million in the 12 months of 2025, and achieving ongoing annualized savings of over $20 million by the second half of next year. Last but not least, our people priority. We are convinced that to be the best company in our industry, we need to attract and retain the best talent, creating engagement and alignment through a performance culture and developing each team member to their full potential.

Speaker Change: We have started immediately with the implementation of several of these initiatives, which will allow us to deliver $5 million in absolute savings in 2024 between July and December ramping up to $18 million in the 12 months of 2025, and achieving ongoing annualized savings of over $20 million by the second half of next year.

Speaker Change: Last but not least is our people priority. We are convinced that to be the best company in our industry, we need to attract and retain the best talent, creating engagement and alignment through a performance culture and developing each team member to their full potential.

Zach George: To this point, during the second quarter, we kicked off what we call the strategic talent review process. This is not a one-off exercise but a structured way to focus on talent development, capability building, and succession planning. We've also launched several community engagement initiatives, offering all of our team members the possibility to participate in sessions around mental and physical well-being or psychological safety, to name a few. We have also started the development of a recognition framework that will allow us to recognize and display a lot of the great work done by our teams across the entire organization.

Speaker Change: To this point during the second quarter, we kicked off what we call the strategic talent review process. This.

Speaker Change: This is not a one off exercise, but a structured way to focus on talent development capability building and succession planning.

Speaker Change: We have also launched several community engagement initiatives offering all of our team members the possibility to participate in sessions around mental and physical well being or psychological safety to name a few.

Speaker Change: We also started the development of a recognition framework that will allow us to recognize and display a lot of great work done by our teams across the entire organization.

Zach George: Finally, we've also approved a review of our compensation philosophy, focusing on ensuring competitive, fair, equitable, aligned, and transparent compensation strategies and policies. I would like to take this opportunity to thank our entire organization for their hard work and the passion they demonstrate every day, and our shareholders for their trust. I will now pass the call back to the operator for Q&A. Thank you.

Speaker Change: Finally, we've also approved a review of our compensation philosophy, focusing on ensuring competitive fair equitable aligned and transparent compensation strategies and policies.

Speaker Change: I would like to take this opportunity to thank our entire organization for their hard work and the passion, they demonstrate everyday and our shareholders for their trust.

Speaker Change: I will now pass the call back to the operator for Q&A.

Operator: Thank you. We will now begin the analyst question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys.

Speaker Change: Thank you we will now begin the analyst question and answer session to join the question queue. You May Press Star then one on your telephone keypad.

Speaker Change: We will hear a tone acknowledging your request if you are using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press star one again.

Operator: To withdraw your question, please press star 1 1 again. One moment for questions. Our first question comes from Yehwan Kang on the Kent Accord Genuity. He may proceed. Hi, thank you.

Speaker Change: One moment for questions.

Speaker Change: Our first question comes from gigawatt Kingwood Canaccord Genuity you May proceed.

Yehwan Kang: Hi, thank you for the question. So my first one here is regarding the cannabis operation segment. I just noticed that the adjusted operating income dipped back into the negative territory for the quarter after generating a positive income last quarter. So could you just provide some color on any of the puts and takes that happened throughout the quarter that led to this?

Speaker Change: Hi, Thank you for the question.

gigawatt Kingwood: So my first one here is regarding the candidates operations segment.

Speaker Change: This is not the adjusted operating.

Speaker Change: Income dip back into the negative territory for the quarter after generating a positive income last quarter. So could you just provide some color on any of the puts and takes that happened throughout the quarter that led to that.

Alberto Paredero: factors, one of them impacting Q1 that was a one-time benefit of some bad debt collections north of three million dollars, and in the second quarter specifically, we have about a 1.1 million dollar impairment charge related to a fixed asset that came with the center this acquisition a couple of years ago that has been held for sale, but we didn't find yet a good placement for the asset, therefore, we decided to take an impairment in the second quarter.

Speaker Change: Two factors one of them impacting Q1 that was a one time benefit.

Speaker Change: Some bad debt collections north of $30 million.

Speaker Change: And in the second quarter, specifically, we have about a $1 1 million.

Speaker Change: Impairment charge related to fixed assets.

Speaker Change: That came with the <unk> acquisition, a couple of years ago.

Speaker Change: That has been held for sale, but we didn't find that good placement for the asset therefore, we decided to take an impairment in.

Speaker Change: In the second quarter of $1 3 million specifically.

Speaker Change: Yeah.

Speaker Change: Got it thank you.

Speaker Change: On the second question regarding the retail segment.

Alberto Paredero: Obviously, so there's some softness in the revenues on a year over year basis. Can you comment on any trends that you're seeing from the consumer spending environment that's leading to softer revenues recorded in this segment and any of the initiatives that you guys have in place within the retail segment to kind of address the softening of the consumer environment here? Yeah, absolutely. So, starting the answer with...

Speaker Change: So there is some softness in the revenues on the year over year basis can you comment on any trends that youre seeing from the consumer spending environment Thats, leading to softer revenues recorded in this segment and any of the initiatives that you guys have in place.

Speaker Change: Within the retail segment to kind of address destocking of that.

Jim: Jim environment here. Thanks.

Alberto Paredero: Yeah, absolutely. So starting the answer with this is a global phenomenon. It's not something that is happening specifically in Canada or in our businesses. As you read, probably input from different manufacturers or different data sources. Everything is pointing that across North America specifically, there are single-digit declines in most markets. Obviously, there are certain segments like beers that are declining even more, and some others like wine that may be a little bit more resilient. But overall, we're seeing the market in the first few months of this year really experiencing this slowdown.

Jim: Absolutely.

Speaker Change: So starting the uncertain with this is a global phenomenon is not something that has happened in the specifically in Canada or in our businesses as you read probably input from different manufacturers or different data sources.

Jim: Everything is pointing to that.

Jim: Across North America specific case that are single digit declines in most market. Obviously there are certain segments like BR are declining even more on some of those like one that may be a little bit more resilient.

Speaker Change: But overall, we're seeing the market in the first few months of this year.

Speaker Change: We really haven't this is a slowdown.

Alberto Paredero: It's important to highlight that despite the revenue softness that we see in the market, which obviously is impacting ourselves as well as retailers, we are managing to expand gross profit by 1% in absolute dollars. So we believe that the strategy that we have deployed to deal with this type of macroeconomic conflict is working for us, as the absolute bottom line is still growing, and we still believe that there is long-term growth potential in segments and in the category. Immediately, what we're seeing is the short-term impact driven by consumer sentiment and the impact of inflation over the last few years post-COVID, starting to have that bigger impact on disposable income with our consumers.

Speaker Change: It's important to highlight that despite.

Speaker Change: The revenue softness that we see.

Speaker Change: In the market that obviously is impacting our sales as well as retailers.

Speaker Change: We are managing to expand gross profit by 1% absolute dollars.

Speaker Change: So we believe that the strategy.

Speaker Change: But we have deployed to deal with this type of macroeconomic context is working for us the absolute bottom line, it's still growing.

Speaker Change: And we still believe that.

Speaker Change: As long term growth potential in this segment that into the category.

Speaker Change: In immediately what we're seeing is this short term impact is driven by.

Speaker Change: The consumer sentiment and the impact of inflation over the last few years post COVID-19.

Speaker Change: It's starting to have that the bigger impact of disposable income with our consumers.

Alberto Paredero: There is also a certain dynamic that if you analyze the information over the last three, four years, obviously, there was a significant market expansion in 2020 when in-home consumption, driven by the COVID pandemic, increased significantly. Actually, the stores that were operating today, we were seeing that at that point in time, they had an 11% growth in revenue in 2020. In 2021, they were virtually flat or just growing above 1%, so maintaining that trend. And in 2022, we saw already the first correction with a decline of 6%. 2023 was flat,

Speaker Change: There is as well I'll start from dynamic that if you analyze the information over the last three or four years.

Speaker Change: Obviously, there was a significant market expansion in 2020.

Speaker Change: When in home consumption.

Speaker Change: By call it.

Speaker Change: Pandemic.

Speaker Change: Increased significantly actually the stores that we're operating today, where we're seeing that at that point in time, they had an 11% growth.

Speaker Change: In revenue.

Speaker Change: In 2020.

Speaker Change: In 2021, they were virtually flat or growing about 1%, so maintaining that trend and in 2022 with already the first correction with a decline of 6% 23 was flat and lending just wondering if before we're seeing this additional 45% correction.

Alberto Paredero: And then in 2024, we're seeing this additional 4%, 5% correction. That is still taking the market to similar levels, slightly higher still than the pre-COVID consumption level. So that's what we're saying, that there is an element of correction based on the COVID dynamics, but we're not concerned about the long-term performance of the categories. We believe that the long-term outlook still remains around 1% to 2% underlying growth. Obviously, we continue exploring all options to increase traffic, which is the main driver of the slowdown.

Speaker Change: That is a still taken the market tools similar levels or slightly higher skilled on the pre COVID-19.

Speaker Change: Consumption levels. So that's what I was saying that there is an element as well of correction.

Speaker Change: Based on the Covid dynamics, but we're not concerned about the long term performance of the category. We believe that the long term outlook is still remains.

Speaker Change: Around 1% to 2% underlying growth obviously, we continue exploring all options to increase traffic, which is the main driver.

Speaker Change: Go down.

Speaker Change: We are uniquely positioned in our opinion to compete in this type of environment.

Alberto Paredero: We are uniquely positioned, in our opinion, to compete in this type of environment. We do have a very attractive private label with a very broad offering across multiple categories. And our private label, it's an offering of quality products at affordable prices that really resonates with consumers at this point in time. That's why, as you heard Zac saying before, we're seeing double-digit growth of our private label revenue in the period, despite market softness.

Speaker Change: We do have a very attractive private label with a very broad offering across multiple categories.

Speaker Change: And our private label, it's an offering quality products at affordable prices.

Speaker Change: Really resonates with consumers at this point in time Thats why as you heard such thing before.

Speaker Change: We're seeing double digit growth of our private label revenue in the period, despite the market softness.

Speaker Change: Obviously, we are adapting as wild promotional activity is tactics and leveraging our attractive real estate.

Alberto Paredero: Obviously, we're adjusting as well promotional activities, tactics, and leveraging our attractive real estate and breadth of portfolio to continue driving that traffic. More to come on that basis, but as I said, we're not concerned for the long run.

Speaker Change: Our breadth of portfolio to continue driving that traffic more to come on that basis, but I said, we're not concern for the long run.

Speaker Change: Okay.

Speaker Change: Thank you ill hop back into queue.

Speaker Change: Thank you.

Operator: Our next question comes from Frederico Gomes with ATB Capital Markets. He may proceed.

Frederico guns: Our next question comes from Frederico guns with ATB capital markets. You May proceed.

Frederico Gomes: Hi, good morning. Thanks for taking my question. First, capital allocation. I'm just curious to talk about your capital allocation plans, given the principal repayment that you're expecting in the second half of this year, as you mentioned, $130 million. It's quite substantial. So any plans in terms of investing that money, either in the US with additional credit investments or, you know, growth investments in Canada, maybe just any call it there.

Frederico guns: Hi, good morning, Thanks for taking my questions.

Frederico guns: First question is on capital location.

Frederico guns: Just curious.

Speaker Change: About your capital allocation plans just given the.

Speaker Change: The principal repayments that you're expecting the second half of this year as you mentioned $130 million.

Speaker Change: Abstentions so.

Speaker Change: Any any plans in terms of investing that money either in <unk> with additional credit investments or.

Speaker Change: Gross investment in Canada, maybe just any color there. Thanks.

Zach George: Good morning, Frederico. And thank you for the question. We are working on those priorities. And as

Speaker Change: Good morning, Frederico and thank you for the question.

Speaker Change: Working on those priorities and as discussed.

Zach George: We're still looking to meaningfully grow our Canvas Retail Network in Canada and are also eyeing a number of accretive investments in the U.S. as well, while also acknowledging that our valuation is undemanding right now, and so there are other opportunities to return capital to shareholders as well. So really trying to balance our growth objectives with maximizing the accretive use of capital.

Speaker Change: We're still looking at meaningfully growing our cannabis retail network in Canada.

Speaker Change: And are also a number of accretive investments in the U S as well.

Speaker Change: Ill also acknowledging that our valuation is.

Speaker Change: As a.

Speaker Change: And demanding right now and so there are other opportunities to return capital to shareholders as well, so really trying to balance our growth objectives with.

Speaker Change: Maximizing the accretive use of capital.

Frederico Gomes: Thank you. And then on the cannabis operations, I have just a couple of questions here. First, in terms of the EU GMP certification that you are pursuing, I'm just curious if there's any timeline for that. And second, with the INDIVA process ongoing, I noticed that you have five facilities in Canada right now. Do you anticipate that, with that closing, is there any additional consolidation in terms of your footprint of facilities that you expect to pursue?

Speaker Change: Thank you.

Speaker Change: And then on the kind of an operation.

Speaker Change: Just a couple of questions here first in terms of the EU GMP certification that you are pursuing I'm just curious if there's any timeline there for that.

Speaker Change: And second.

Speaker Change: With the NDA process ongoing.

Speaker Change: I noticed that you have five facilities in Canada right now.

Speaker Change: Do you anticipate with that closing is there any additional consolidation in terms of your footprint of facilities that you expect to pursue.

Speaker Change: Yes, I'll take the second question first Frederico and maybe pass.

Zach George: Yeah, I'll take the second question first, Frederico, and maybe pass the mic to Alberto, but you're absolutely right.

Zach George: and Mike Talberto. But you're absolutely right. Regardless, we don't have a certain outcome within DIVA at this point, so we're not going to speculate. But even with our existing footprint, we do have some excess real estate, and we'll be looking to monetize that and make use of that capital with much better returns than we would have in their current form. And so whether we plan to drop additional liabilities through excess office leases into 2025 or monetize some of the excess non-core real estate we have, that'll be another story for us in terms of our path to capital efficiency.

Speaker Change: Alberto but youre absolutely right.

Speaker Change: Regardless, we don't have a certain outcome with endeavor at this point, so we're not going to speculate but even with our existing footprint. We do have some excess real estate and we'll be looking to monetize that.

Speaker Change: And make use of that capital, which with much better returns than we would have in their current form and so whether we whether we plan to drop additional liabilities through excess office leases into 2025 or monetize some of these excess noncore real estate, we have that'll be another <unk>.

Speaker Change: Story for us in terms of our path on capital efficiencies.

Alberto Paredero: Yeah, we're seeing multiple synergies that could come as a result of that potential transaction. So yes, we would anticipate some rationalization. It's a little bit too early to say, still a few more months to go through this process. And as soon as we, if the transaction gets completed, obviously, we will then come with some additional updates of where we're seeing those opportunities.

Speaker Change: Yes.

Speaker Change: Multiple synergies.

Speaker Change: As a result of that potential transaction.

Speaker Change: So, yes, we would anticipate some recommendation.

Speaker Change: It's a little bit too early to say its still a few more months to go through this process.

Speaker Change: And as soon as we if the transaction gets completed obviously, we will does it come with.

Speaker Change: Some of these new updates of where were seeing those opportunities.

Zach George: Yeah, thanks for your over visit. Yeah.

Robert: Yes, Thank you Robert.

Alberto Paredero: Yeah, and in terms of certification, to answer your question, we are working actively on it, and we're expecting it in the next few months before the announcement.

Speaker Change: And in terms of certification.

Speaker Change: To answer your question, we are working actively threatened we're expecting it in the next few months before the end of this year.

Frederico Gomes: Okay, perfect. I appreciate that. I'll head back to you. Thanks.

Robert: Okay perfect appreciate that I'll hop back in the queue. Thanks.

Operator: Thank you. This concludes the question and answer session. I would now like to turn the conference back over to Zach George for any closing remarks.

Speaker Change: Thank you this.

Speaker Change: This concludes the question and answer session I would now like to turn the conference back to over to Zach George for any closing remarks.

Zach George: Thank you, operator. Thanks to all for joining our call today. We look forward to updating you on our progress in the near future. Thank you. Thank you. This concludes today's conference call. You may disconnect your lines.

Zach George: Thank you operator, and thanks to all for joining our call today, we look forward to updating you on our progress in the near future. Thank you.

Speaker Change: Thank you. This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

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Operator: This morning SNDL issued a press release announcing their financial results for the 2024 second quarter ended on June 30, 2024. This press release is available on the company's website at sndl.com and filed on Edgar and Cedar 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.

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Operator: Presenting on this morning's call are Zach George, Chief Executive Officer, and Alberto Paredero, 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 cause, or affect results are detailed in the company's financial reports and other public filings that are made available on CDER and EDGAR.

Speaker Change: Good morning, and welcome to <unk> second quarter 2024 financial results Conference call. This morning, <unk> issued a press release announcing the financial results for the 2024 second quarter ended on June 32024. This press release is available on the company's website at <unk>.

Speaker Change: <unk> dot com and filed on Edgar and SEDAR as well this webcast.

Robert: The webcast replay of the conference call will also be available on the <unk> Dot com website.

Speaker Change: San Diego has also posted a supplemental investor presentation. In addition to the conference call presentation, we will be reviewing today on its Sn Dl dotcom website presenting on this morning's call. We have Zach George Chief Executive Officer, and Alberto <unk>, Chief Financial Officer before we start.

Speaker Change: Risk factors that could cause that could affect results are detailed in the company's financial reports and other public filings that are made available on SEDAR and Edgar <unk>.

Robert: Additionally, all financial figures mentioned are in Canadian dollars, unless otherwise indicated we will now make prepared remarks, and then we will move on to analyst questions. I would now like to turn the call over to Zach George. Please go ahead.

Zach George: Welcome to <unk>, Q2, 2024 financial and operational results conference call.

Speaker Change: We are pleased to see that the second quarter confirms the increased profitability, we reported in the first quarter and material progress on our path of continuous improvement.

Speaker Change: We maintained strong momentum in our cannabis segments reporting consistent.

Speaker Change: Revenue improvement in candidates over the last 10 quarters.

Speaker Change: While we noticed a slowdown in revenue from our liquor segment, we still posted greater margins and greater gross profit dollars on a year over year basis, and we have additional tools at our disposal to battle through this volatility.

Speaker Change: We are pleased to report an all time record gross margin of 25, 5% with all segments contributing to gross profit and gross margin growth compared to the same quarter of 2023.

Speaker Change: Our cannabis operations segment achieved positive gross profit for the second quarter in a row.

Zach George: SNDL remains steadfast in its commitment to driving long-term profitable growth. We continue to grow our substantial retail platform, are making significant strides towards manufacturing excellence, and are involved in four different restructuring processes, two on each side of the border, that may result in accretive M&A or some other type of liquidity event. Our unique approach to the deployment of credit capital is also likely to result in the significant repatriation of cash. We currently expect approximately $130 million in principal repayments to occur in the second half of this year, with about $90 million of that having been received in the last two weeks from both Ascend and Jushu.

Speaker Change: <unk> remains steadfast in its commitment to driving long term profitable growth, we continue to grow our substantial retail platform.

Speaker Change: Making significant strides towards manufacturing excellence and are involved in four different restructuring processes to on each side of the border that may result in accretive M&A or some other type of liquidity event.

Speaker Change: Our unique approach to deployment of credit capital is also likely to result in a significant repatriation of cash.

Speaker Change: We currently expect approximately $130 million in principal repayments to occur in the second half of this year with about $90 million of that having been received in the last two weeks from both ascend and juicy.

Zach George: It is also worth noting that this quarter we have provided transparency and an update on our material credit exposures in Canada and the US. This information can be found in the investor presentation available on our website. I also want to provide some context for the delay in closing our U.S. restructuring efforts under Sunstream. It is clear from our dealings with local regulators across Canada and the US that the industry continues to face many regulatory obstacles, bureaucracy and inefficient, From the selective and inconsistent enforcement of excise taxes in Canada, which effectively penalizes participants who pay all of their excise obligations, to provincial regulatory officials leaking confidential information to competitors, or Florida state regulators recently delaying the parallel reorganization, being quote, unable to locate parts of our documentation that were submitted months ago.

Speaker Change: I also want to provide some context for the delay in closing our U S restructuring efforts under Sun stream.

Speaker Change: It is clear from our dealings with local regulators across Canada, and the U S that the industry continues to face many regulatory obstacles.

Speaker Change: Occupancy and inefficiency.

Speaker Change: From the selective and inconsistent enforcement of excise taxes in Canada, which effectively penalizes participants to pay all of their exercise obligations.

Speaker Change: To provincial regulatory officials leaking confidential information to competitors.

Speaker Change: I will now pass the call to Alberto for a deeper dive into our Q2 financial results.

Alberto Paredero: Thank you, Zach. I want to remind you all that the items I must discuss 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 Sundial's Management Discussion and Analysis documents.

Alberto: Thank you Scott I.

Alberto: I want to remind you all that amongst this test today are denominated in Canadian dollars, unless otherwise stated certain amounts referred to on this call are non-GAAP and non <unk> measures.

Alberto: Definitions of these measures please refer to us as the management discussion and analysis.

Speaker Change: Welcome.

Speaker Change: Looking at our Q2 2024 financial highlights we continue to see significant improvements in operating income and free cash flow.

Speaker Change: As in the first quarter, despite the revenue headwinds impacting our lead our sector.

Speaker Change: Net revenue in the second quarter of 2020 for rates to $128 1 million, a $3 8 million or one 6% decline year on year.

Speaker Change: This decline was driven by our liquor retail segment.

Alberto Paredero: So our combined cannabis business posted a healthy 9.2% growth. Growth profits of 58.2 million represent a 6.2 million increase or 12% growth year-on-year and a material 310 basis points of gross margin improvement with positive contributions from all sectors. This translates into another quarter of record growth margin reaching 25.5%.

Speaker Change: Our combined kind of in this business posted a healthy nine 2% growth.

Speaker Change: Gross profit of $58 2 million represents a $6 2 million increase or 12% growth year on year.

Speaker Change: In our materials 310 basis points of gross margin improvement with positive contributions from all segments.

Speaker Change: Translates into another quarter of record gross margin, reaching 25, 5%.

Alberto Paredero: As in the first quarter, the second quarter growth margin increased, income contributions from our investment segment, and disciplined management of corporate overhead led to significant year-on-year improvements in adjusted operating income and free cash flow of 82% and 70%, respectively. These two metrics were dedicated close to breakeven in the quarter. As mentioned last quarter, we only have just operating income for restructuring, restructuring-related write-offs, and intangible asset deferment.

Speaker Change: These two metrics what dedicated close to breakeven in the quarter.

Speaker Change: As mentioned last quarter, we only up desktop operating income for restructuring restructuring related bright of an intangible asset impairment.

Alberto Paredero: Specifically, in the second quarter of 2024, we adjusted operating income by removing 0.2 million expenses related to restructuring charges. Whereas in the same quarter of 2023, there was an adjustment to remove a $4 million restructuring charge. We're looking at the quarterly historical traction of the main financial KPIs. We noticed a quarter on quarter improvement in net revenue, a 15% growth between the second and the first quarters of 2024, to be precise, although still declining compared to the same quarter of 2023.

Speaker Change: Specifically in the second quarter of 2024, we have depth at operating income by removing sunoco and $2 million expenses related to restructuring charges.

Speaker Change: What is the same quarter of 2033, there wasn't a detriment to remove a $4 million restructuring expense.

Speaker Change: We're looking at the quarterly historical practice of main financial Kpis were noticed quarter on quarter improvement in net revenue.

Speaker Change: 18% growth between the second and the first quarters of 2024 to be precise.

Speaker Change: Although still declining compared to the same quarter of 2023.

Alberto Paredero: What we're seeing significant improvements both quarter on quarter and compared to the previous years is in gross profit, where the second quarter represents a 15% quarterly increase and a 12% growth compared to the same quarter of 2020. Both adjusted operating income and free cash flow are very close to breakeven at very similar levels when compared to the first quarter of 2024. Clearly, the first half of 2024 represents a significant improvement compared to the same period in previous years.

Speaker Change: More we're seeing significant improvement both quarter on quarter and compared to the previous years is in gross profit.

Speaker Change: For the second quarter represents a 15% quarter on quarter increase on a 12% growth compared to the same quarter a point to point this year.

Speaker Change: Both adjusted operating income and free cash flow are very close to breakeven at very similar levels when compared to the first quarter of 2024.

Speaker Change: Clearly the first half of 2024 represents a significant improvement compared to the same how from previous year.

Speaker Change: And the second quarter, the confirmation of the profitability improvement we posted in the previous quarter.

Speaker Change: When we have the $4 2 million net revenue growth from Canada retail.

Speaker Change: $4 million from cannabis operations on this small negative <unk> 9 million in the corporate segment related to the revenue elimination for the economy operates in sell through our own retail we come to a total of $7 3 million or nine 2% growth in Canada.

Alberto Paredero: In terms of gross profit, all segments are contributing to growth. Even Liquor Retail shows positive gross profit in the quarter, despite the softness in revenue, and the cannabis operation segment is showing a strong 4.4 million improvement as a result of our productivity initiatives, altogether adding up to 6.3 million or 12% growth in gross profit. On the next page, we're seeing a material improvement in adjusted operating income driven by cannabis operations, as well as our investment sector.

Speaker Change: In terms of gross profit all segments are contributing to grow evenly cherico shows positive gross profit in this in the quarter. Despite the softness in revenue under kind of incorporate some segments is showing a strong $4 4 million improvement.

Speaker Change: Bulk of our productivity initiatives.

Speaker Change: Altogether, adding up to $6 3 million or 12% growth in gross profit.

Speaker Change: On the next space, we're seeing a material improvement in adjusted operating income driven by kind of this operation as well as our investments segment.

Alberto Paredero: The 10 million contribution from our investment segment is a combination of 3.2 million in investment income and a 5.2 million improvement in asset valuation from our sunscreen portfolio in the second quarter of 2024, compared to 1.5 million losses in the same period of 2020. Precast flow also shows a significant improvement in Q2 2024 versus the same period of 2023. As a result of our improvement in profitability, but also a more disciplined approach to working capital management, partly offset by lacking one-time cash proceeds in the second quarter of 2023 related to asset divestment.

Speaker Change: The $10 million contribution from our investments segment, it's a combination of $3 2 million in investment income of $5 2 million improvement in asset valuation from our <unk> portfolio in the second quarter of 2024 compared to $1 5 million losses in the same period of 2023.

Speaker Change: Free cash flow also shows the significant improvement in Q2 2024 versus the same period of 2023.

Alberto Paredero: As we did last quarter, we would like to share some insights into the drivers of precast flow in the second quarter. Both quarters were similar in terms of actual reported free gas flow, with a small improvement from negative 6.4 million in Q1 to negative 5.6 million in Q2. There are, however, some differences in the composition of this number.

Speaker Change: As we did last quarter, we would like to share some insights into the drivers of free cash flow in the second quarter.

Speaker Change: Both quarters were similar in terms of actual reported that freight gaslog with a small improvement from negative $6 4 million in Q1 to negative $5 6 million in Q2.

Speaker Change: There are however, some differences in the composition of these numbers.

Alberto Paredero: Net income, non-cash outbacks, and capex, and unlisted payments are very similar in both quarters. The differences are in the working capital component. In the first quarter of 2024, we reported an inventory increase of $5.8 million, while in the second quarter, we reported a reduction of $2.3 million. This is in contrast with material historical increases in inventory during the first semester of previous years, as illustrated in the right-hand side graph of B7. Clear evidence of the progress made by our operational teams in optimizing inventory levels.

Speaker Change: Net income noncash add backs on Capex and lease payments are very similar in both quarters.

Speaker Change: The differences are in the working capital components.

Speaker Change: In the first quarter of 2024 would have reported a inventory increase of $5 8 million one in the second quarter were reported in a reduction of $2 3 million.

Speaker Change: This is in contrast, with the material historical increases in inventory during the first semester of previous year.

Speaker Change: As illustrated on the right hand side graph of page seven.

Speaker Change: Clear evidence of the progress made by our operational teams and optimizing inventory levels.

Alberto Paredero: At the same time, we're seeing the opposite dynamic in the other working capital chains that were impacted in the second quarter of 2024 by the annual payments of our management incentive and insurance premium. These two annual elements account for cash outflows of $10 million in the second quarter. We're encouraged by these results in the second quarter, as it keeps us on track to demonstrate our ability to deliver positive free cash flow for the full year 2021. Let's start with the liquor rhythm.

Speaker Change: At the same time, we're seeing the opposite dynamic can be other working capital changes.

Speaker Change: Our impact in the second quarter of 2024 by the annual payments of our management incentive funding sort of experience.

Speaker Change: These two annual element that comp forecast outflows of $10 million in the second quarter.

Speaker Change: We're encouraged by these results in the second quarter other keeps us on track to demonstrate our ability to deliver positive free cash flow for the full year 2024.

Speaker Change: So we need to it's one of the three operating segments lets start with Mako breakdown.

Alberto Paredero: Net revenue in the second quarter of 2024 for this segment was $104.6 million, a decline of $11 million or 7% compared to the prior year. This decline was driven by a 15-inch eastern timing difference between March and April when compared to 2033. But mostly due to a market slowdown, as you've probably seen being reported by most liquor manufacturers in North America. We believe this is not indicative of the structural challenges in the industry but due to short-term consumption dynamics.

Speaker Change: Net revenue in the second quarter of 2024 for this segment was $140 6 million, a decline of $11 million or 7% compared to the prior year.

Speaker Change: This decline was driven by a 15 eastern time in between March and April when compared to 2033.

Speaker Change: But mostly due to market the slowdown start produce team being reported by most link our manufacturers in North America.

Speaker Change: We believe this is not indicative of a structural challenges in the industry, but due to short term consumption dynamics.

Alberto Paredero: Despite these macro headwinds, we continue to expand gross margin, reaching 25.4% in the second quarter, an improvement of 210 basis points compared to last year. This was achieved through multiple initiatives, including a 10% growth of our margin-accreted private label, procurement productivity, and data sales monetization. As a result of this margin expansion, this segment's gross profit and operating income delivered low single-digit growth versus the same quarter of 2020. Moving into cannabis retail, we saw net revenue in Q2 2024 of $76.1 million, which is a 6% increase versus Q2 2023, mainly driven by same-store sales growth of 2.4%, supported by double-digit growth in Ontario, as well as the expansion of our data sales program and new store

Speaker Change: Despite these macro headwinds will continue to expand gross margin, reaching 25, 4% in the second quarter, an improvement of 210 basis points compared to last year.

Speaker Change: This was achieved through multiple initiatives, including a 10% growth of our margin accretive private label procurement productivity and data sales monetization.

Speaker Change: As a result of this margin expansion the segment's gross profit and operating income delivered low single digit growth versus the same quarter of 2023.

Speaker Change: More than two candidates right, though we saw net revenue in Q2 of 2024 of $76 1 million, which is a 6% increase versus Q2 of 'twenty mainly.

Speaker Change: Mainly driven by same store sales growth of two 4% supported by double digit broken the title as well as the expansion of our data service program and new store openings.

Alberto Paredero: Data cells are the main factor contributing to the safety basis points of cross-margin improvement for this segment, enabling an 8.5% gross profit growth compared to Q2 2026. Adjusted operating income increased by 1.6 million or 67% compared to the prior year, driven by the gross profit improvement. Finally, looking at our cannabis operations segment, this is where we see once more the largest improvement, both in terms of growth and profitability. In the second quarter of 2024, the segment delivered net revenue of $25 million, a 19% increase year-over-year. All of this growth is organic and driven by the Prohibition Board and business-to-business distribution.

Speaker Change: Dana South of the main factor contributed to the 60 basis points of gross margin improvement for this segment, enabling an eight 5% gross profit growth compared to Q2 of 2023.

Speaker Change: Yes.

Speaker Change: Adjusted operating income increased by $1 6 million or 6% to 7% growth compared to the prior year driven by the gross profit improvement.

Speaker Change: Finally, looking at our Canada Operation segment. This is where we see once more the largest improvement.

Speaker Change: Both in terms of growth and profitability.

Speaker Change: In the second quarter Accordingly for this segment delivered net revenue of 25, million% to 19% increase year over year.

Speaker Change: All of this growth is organic.

Speaker Change: By provincial board and business to business distribution increases.

Alberto Paredero: As already reported in the first quarter, the biggest improvement from this segment is in profitability, driven by a holistic productivity program. In the second quarter of 2024, the segment posted a positive cross profit of $3.2 million, an improvement of $4.4 million compared to Q2 2023. As a result, the growth margin of the segment improved from a negative 5.8 in Q2 2023 to a positive 12.7% in Q2 2024. However, adjusted operating income was negative by $1.9 million, compared to a loss of $11 million in the prior year.

Speaker Change: As already reported in the first quarter. The biggest improvement from this segment is in profitability driven by our holistic productivity program.

Speaker Change: In the second quarter of 2024, the segment posted positive gross profit of $3 2 million, an improvement of $4 4 million compared to Q2 towards it.

Speaker Change: As a result, the gross margin of the segment and pro forma negative $5 eight in Q2 towards deposit rates to a positive $12 7%.

Speaker Change: In Q2 2024.

Speaker Change: Adjusted operating income was negative by $1 9 million compared to a loss of $11 million in the prior year.

Alberto Paredero: The slightly negative number is mainly driven by a 1.3 million fixed asset impairment related to Seneb's legacy facility. In summary, a solid quarter with record gross margin and a significant improvement in profitability and free cash flow compared to the previous year, and Broccoli and Lime with improvements reported in the first quarter. Let's also keep in mind that on June 30, 2024, the company had 183 million of unrestricted cash, an additional $601 million in marketable securities and investments, and no outstanding debt. Thanking all our team members at SNDL for their passion and contributions to these results, I would like to pass the call back to Zach to share a few more operational highlights for the quarter.

Speaker Change: The slightly negative numbers, mainly driven by a $1 3 million fixed asset impairment related to certain of its legacy facility.

Speaker Change: In summary, a solid quarter with record gross margin and a significant improvement in profitability and free cash flow compared to the previous year.

Speaker Change: And broadly in line with improvements reported in the first quarter.

Speaker Change: Let's also keep in mind that at June 32024, the company had $183 million of unrestricted cash.

Speaker Change: An additional $601 million in marketable securities and investments and notwithstanding that.

stack: By thanking all our team members at the SMB al for their passion and contributions to these results I would like to pass the call back to stack to share a few more operational highlights for the quarter.

stack: Thanks Alberto <unk>.

Zach George: Beyond our financial performance, I would also like to share a few highlights of our progress towards our strategic priorities, growth, profitability, and people, as each of these pillars is fundamental to our long-term success. Starting with growth, it is great to see our cannabis segment not only continue to deliver net revenue growth, as highlighted in the financials, but also gain market share. In fact, our latest reading shows an impressive half-percentage point gain in retail share through quality execution, the ramp-up of 2023 store openings, and the recent expansion into British Columbia.

stack: Beyond our financial performance I would also like to share a few highlights of our progress towards our strategic priorities growth profitability and people as each of these pillars is fundamental to our long term success.

stack: Starting with growth it is great to see our cannabis segment not only continued to deliver net revenue growth as highlighted in the financials, but also gained market share in fact, our latest reading shows an impressive half a percentage point gain in retail share through quality execution, the ramp up of 2023 store openings and.

stack: The recent expansion into British Columbia.

Zach George: This last point is actually another highlight, as during the second quarter, we launched the Value Buds banner in British Columbia with the rebranding of three stores acquired in the Dutch love transaction. Not only is our cannabis retail segment making strong progress, but our cannabis operations segment is rapidly gaining strength. Confirming our focus on manufacturing excellence and the elimination of exposure to non-competitive cultivation. Our continuous focus on quality and innovation enabled the expansion of approximately 40 new SKUs available for provincial boards, enabling 19% organic revenue growth from this segment in the second quarter.

Speaker Change: Not only is our cannabis retail segment, making strong progress, but our cannabis operations segment is rapidly gaining strength.

Speaker Change: Firming, our focus on manufacturing excellence and the elimination of exposure to noncompetitive cultivation.

Zach George: I have never been as excited as I am today about our branded product line, much of which will hit the market this fall. Anecdotally, in June, SNDL became the first LP to exceed 1 million barrels in one month through the OCS flow-through program. Additionally, in Ontario, SNDL is the only top 20 LP to have reduced the number of SKUs in Q2 on a year over year basis and still outpaced OCS category dollar growth in the same period. The team also recently launched a three-in-one disposable vape that quickly became a top seller.

Speaker Change: I have never been as excited as I am today about our branded product line.

Speaker Change: Each of which will hit the market this fall.

Speaker Change: Anecdotally in June <unk> became the first LP to exceed $1 million in one month to the ocs flow through program.

Speaker Change: Additionally, in Ontario, F&D Al is the only top 20 LP to have reduced the number of Skus in Q2 on a year over year basis, and still outpaced Ocs category dollar growth in the same period.

Speaker Change: The team also recently launched a three in one disposable vape that quickly became a top seller for us.

Zach George: Finally, despite the market contraction that impacted our liquor segment during the second quarter, our focus on offering quality products at affordable prices to our customers enabled us to increase liquor private label sales by 10% at a creative margin. Moving on to profitability, we continue exploring options to improve margin, Operating Income, and ultimately, free cash flow. To this point, during the second quarter, we delivered productivity improvements of $7 million in our cannabis operations segment through procurement and cultivation efficiency.