Q4 2024 SNDL Inc Earnings Call
Zachary George, Unknown Executive, Frederico Gomes
Hello everyone and welcome to SNDL 4th quarter 2024 Results Conference call.
At this time, all participants are in a listen only mode. After this speaker's presentation, there will be a question and answer session. To participate, you will need to press the star 11 on your telephone. You will gain here a message advising your hand is raised.
Speaker Change: Do we draw your question? Simply press star one one again. Please be advised that today's conference is being recorded. Now it's my pleasure to turn the call over to Zach George, the floor is yours.
Zach George: Good morning and welcome to SNDL's Q4 and full year 2024 Financial and Operational Results conference call.
Zach George: 2024 has been a year of records for us in the L. And we are pleased to report record full-year net revenue, gross profit, gross margin, as well as positive cash flow and free cash flow.
Zach George: Our cannabis segments continue to show strong momentum, achieving steady revenue gains for the 12th consecutive quarter, and we continue to grow well ahead of market averages.
Zach George: Our liquor segment revenue was impacted by a market slowdown, although we are proud of how our team managed to improve margins and cost efficiencies to deliver record profitability and cash flow growth.
Zach George: In fact, despite volume headwinds, our liquor segment has never performed better than under our stewardship
Zachary George, Unknown Executive, Frederico
Zach George: We achieved all-time high gross profit and gross margin for both the full year and the fourth quarter driven by multiple productivity and cost optimization initiatives across all areas of the organization.
Zach George: It is worth mentioning the significant step up in margins and profitability from our cannabis operations segment that delivered four consecutive quarters of positive growth profit ending the year delivering a fourth quarter gross margin of 27.2 percent.
Zach George: Free cash flow was positive this quarter driving the company's first year of achieving positive free cash flow. We are pleased to have met our stated goal for the year, achieving a positive $9 million.
Zach George: This is the ultimate proof that our growth trajectory, coupled with operational and financial discipline, is a winning formula capable of delivering sustainable and improved value to our shareholders.
Zach George: During the last few months, we continue to announce additional strategic initiatives that we expect to drive at Sundial towards long-term growth and incremental profitability.
Zach George: These include the privatization of NOVA through the acquisition of the remaining minority equity interest and the acquisition of Indiva, which positions that's in DL as the largest manufacturer of infused edibles in Canada.
Zach George: Additionally, we were happy to see the approval from the Florida Department of Health for the transfer of the parallel license, a key milestone to complete the restructuring process.
We also acquired a 5.4% participation in high tides equity.
Zach George: and Reactivated Our Share Repurchase Program, retiring 10.8 million Sundial shares. And last but not least, we are announcing today our application for listing on the Canadian Stock Exchange.
Zach George: which will provide our shareholders additional flexibility and optionality as we continue to grow and evolve.
Zach George: Our balance sheet continues to be a key competitive advantage, enabling us to allocate capital thoughtfully across both organic and inorganic investments.
Zach George: We ended the year with 218 million in unrestricted cash and zero outstanding debt.
Zach George: Over to you, Alberto, to share more insights about our financial performance.
Alberto: Thank you, Zach. I want to remind everyone that the amounts discussed today are denominated in Canadian dollars unless all the wife is stated. Certain amounts referred to during this call are non-gab and non-IFRS measures.
Zach George: For definitions of these measures, please refer to us on the else management discussion and analysis document.
Zach George: Revenue in our Q4 2024 financial highlights, we continue to see improvements in net revenue, growth profit, growth margin, and free gas flow.
Zach George: Networking in the fourth quarter of 2024 reached a record $257.7 million dollars, a 3.7% increase compared to Q4 of last year.
Zach George: This was driven by a combined cannabis business growth of 16.5%, which included contributions from our recent Indivacicision, partly upset by declines in our legal retal segment.
Zach George: George's profit of $68.8 million reflects an $11.5 million increase, or 20% growth year-over-year, resulting in 360 basis-point improvement in growth margin.
Zach George: Distance leads to another quarter of record-girls margin, reaching 26.7%.
Zach George: Adjusted operating income for the quarter was impacted by a $65.7 million non-cast, negative third-party federal body adjustment to our sunscreen investment.
Zach George: Driven by increased market risk following the unfavorable flow of the boat and lower operational performance from the invested company.
Zach George: Excluding this impact, we would have delivered positive adjusted operating income for the first time in a quarter highlighting our undeniable operational improvements.
Zach George: Free Castro was positive for the quarter, reaching 11.6 million. This contributed to positive free Castro for the fourth year, exceeding our guidance as mentioned by Zach.
Our full-year financial results show progress across all metrics year-over-year.
Zach George: Net revenue reached a record $920 million, representing 1.3% girls compared to the prior year.
Zach George: This was driven by our combined cannabis business growing a healthy 10.6% partly upset by the clients in our legal segment.
Zach George: Growth profit reached 240 million, also a new record with a significant 26% growth compared to the prior year. Resultant and a 4-year growth margin record of 26.1% or 520 basis points improvement compared to 2023.
Zach George: A gestural brain income, while positive when compared to 2023, shows the impact of the previous dimension, fourth quarter, and negative third-body adjustment.
Zach George: The biggest highlight is the positive 8.9 million free cash flow in 2024, exceeding our break-even guidance and representing a $70 million improvement compared to 2023.
Zach George: Our historical quarterly performance evolution shows a clear award trend, indicative of our continuous focus on growth and efficiency improvements.
Zach George: The only anomaly is the Q4 2020 Ford Adjusted Operating System. However, it is important to note that excluding the sunscreen, fair-value adjustment, the varable has turned positive for the quarter.
Zach George: Looking at the contributions from its segment to both Q4 and full-year across our main financial KPIs, we can see how in both the fourth quarter and the full-year, the net revenue declining leaker is impacting the overall consolidated results, despite the strong performance
Zach George: The corporate segment is related to the Revenue Elimination for Cannabis Operation themselves into our own retail.
Zach George: This revenue elimination increased as a result of our cannabis business growth.
Zach George: cannabis retail contributes with improvements in both the quarter and the year. Finally, cannabis operations drives most of the growth with an impressive 11 million improvement in Q4 and 42 million in the four-year.
Zach George: All of these elements add in up to a significant 20% and 26% growth in growth profit in Q4 and 4-year respectively.
Zach George: When looking at a digital brain income, we can see how liquor retail, Canada's retail and particularly Canada's operations contribute to important improvements, while the investment segment is impacted by the Q4 fair-body adjustment to our sensory method.
Zach George: FreeCapsule is positive at $11.6 million in the fourth quarter of 2024 and $8.9 million for the fourth year, both significant step-ups compared to 2023. Driven primarily by improvements in the quality of earnings while working capital creates a year-a-year drag as we reported greater working capital reductions in 2023 than in 2024.
Speaker Change: and many more. Thank you for watching. I hope you enjoyed this video. If you did, please give it a thumbs up and subscribe to the channel. I'll see you next time.
Speaker Change: As we examine the drivers of three-castle in the fourth quarter of 2024 and the full year, we first notice the negative Q4 net income of 67.2 million, primarily driven by the sunscreen fair value adjustment. Since this is a non-cast item in our P&L, it is offset by non-cast at-back.
Speaker Change: Our Inventory Optimization Initiative enabled us to reduce inventory balances in the fourth quarter by 4.7 million, and we are total of 6 million for the fourth year.
Speaker Change: Contributing to the positive free cashflow generation in both periods
Speaker Change: The four-year increase in other working capital is driven by reductions in accounts payable as we have resolved some legacy liabilities is strengthening our balance in position.
Speaker Change: The liquor retail net revenue in the fourth quarter was rich in the highest point in the year during basis onality, is still impacted by continuous market headwinds, resulting in a decline of 3.4% compared to the fourth quarter of 2023.
Speaker Change: Despite this revenue softness, Grossmargin Expansion coupled with the store efficiency optimization initiatives contributed to a significant improvement in the bottom line, rich in nearly 22% in Q4 and 41% in the full year.
Speaker Change: In the case of the leaker segment, adjusted operating income and operating income are the same, as we did not have any tangible impairments or restructuring costs in the segment.
Speaker Change: Cannabis Retail reported record financial performance in both top and bottom lines for the fourth quarter and the four year.
Speaker Change: Net revenue in Q4 2024 reached 83.2 million, representing a 10.7% increase compared to the prior year.
Speaker Change: This crop was mainly driven by cent source sales growth of 6.3% new store openings and incremental revenue from our Dutch love stores acquired earlier in the year.
Speaker Change: For the 4th year, net revenue reached 311.7 million, representing a 7.5% growth year over year and the same-store sales growth of 3.5%.
Speaker Change: In this segment, we're making strategic investments in promontivity. While impacting gross managing, particularly in the fourth quarter, these investments are enabling us to strengthen our market position and capture incremental market share.
Speaker Change: A diapter operating income increased significantly in both the quarter and the four-year, through and by growth profit growth and our focus on driving cost-efficiency.
Additionally, we're lapping an unfavorable Q4 2020-23 successive impairment.
Speaker Change: Our Cannabis Operations Segment has seen a massive transformation during 2024, resulting in significant improvements on new records and financial performance across all lines.
Speaker Change: With net revenue reaching 37.1 million in the fourth quarter and 109.5 million for the full year, where constant growth rates of 42% and 26% compared to the prior year respectively.
Speaker Change: This includes a 7.5 million contribution from in liver in the last two months of the year.
Speaker Change: Gloss Profit has been transformed by the incremental revenue and in particularly by our
Speaker Change: This is allowing us to report positive growth margin for four consecutive quarters, exiting the year with 27.2% in the fourth quarter and achieving a 19.9% fall of four year.
Speaker Change: Both operating income and adjusted operating income posted positive results in the fourth quarter and the fourth year, marking a significant milestone for the segment.
Speaker Change: In summary, we have achieved record numbers across multiple categories, showcasing dynamic growth in our cannabis business and significant improvements in profitability.
Speaker Change: We exceeded our guidance by delivering positive free cash flow for the year, while continuing to work on initiatives to further elevate our performance in 2025s and beyond.
Zach George: Now, over to Zach for additional highlights from the quarter, within our strategic framework billers.
Zach George: We think it is important to highlight several strategic priorities during the fourth quarter as we continue to build the foundation to enable long-term success.
Zach George: Starting with growth, our cannabis retail segment is winning in the market with another 40 basis points of share games.
Zach George: Key drivers include quality execution, new store openings and conversions to value buds and the expansion into British Columbia earlier in the year.
Zach George: We completed the acquisition of INDIVA, positioning SNDL as the largest manufacturer of infused Edibles in Canada.
Zach George: We are also very well advanced in the integration of INDIVA into the rest of the SNDL infrastructure which will enable us to deliver incremental synergies during 2025.
Zach George: In liquor retail, despite the market contraction in 2024, our private label offerings are growing to meet consumer demand for quality and affordability while driving margin accretion.
Zach George: Our exposure to U.S. product is minimal and we do not expect material supply disruptions from dueling tariff actions between the U.S. and Canada.
Zach George: And our kind of operation segment added 78 new distribution points in the fourth quarter, achieving 11% growth and distribution points for the full year.
Zach George: Shifting to profitability, we are pleased to see continued strong momentum leading to the $12 million positive free cash flow in the quarter.
Zach George: That contributed to positive free cash flow for the full year.
Zach George: Partitivity improvements totaled 8 million in Q4 largely from our cannabis operations segment through procurement, manufacturing, and cultivation efficiencies.
Zach George: Data licensing and our cannabis and liquor retail segments reach 4.5 million in Q4, contributing materially to gross profit accretion.
Zach George: We also achieved 5 million in overhead savings in Q4 driven by efficiency gains across all segments, as well as restructuring actions that were initiated in July .
Transcript by Rev.com Page of
Zach George: We are once more highlighting the contributions from the restructuring program announced last July that delivered 5 million of savings during 2024, equivalent to an annualized run rate of about 15 million or 75% of our planned target.
Zach George: Finally, we know that our people are and will be our biggest competitive advantage and a key pillar to our long-term success.
Zach George: In this regard, the strategic talent development process kicked off in 2024 is helping us to drive a performance-based culture across the organization as well as identifying opportunities to invest in personal development to improve capabilities or succession plans.
Zach George: During the fourth quarter, we completed our inaugural employee engagement survey, which provided valuable feedback from our team, establishing a baseline to continue to improve our employee value proposition.
Zach George: Our Employee Recognition Program continues to gain traction with over 600 nominations and 160 awards being presented across our organization to date, celebrating amazing contributions from our team members.
Zach George: Last but not least, we continued the development of a total reward structure that aligns our compensation philosophy with both individual and company performance.
Zach George: I cannot be more proud of what my colleagues have achieved in 2024. This team continues to find ways to deal with the different challenges from our external environment and loves to smash records only to quickly move towards higher goals.
Zach George: I am convinced more than ever of our potential, and we are determined to unlock value for our shareholders.
Zach George: Records are meant to be broken, and we know we will continue to do so in the future. We are convinced of our ability to unlock SNDL's significant potential, and this is why we are committed to continue growing and deliver $100 million in annualized free cash flow within the next three years.
Zach George: Once more, I would like to thank our entire team for their contributions and our shareholders for their continued trust. I will now pass the call back to the operator for Analyst Q&A.
Speaker Change: Thank you so much. And we will begin our analyst questions and answer session and to join the queue as a reminder, press star 11 on your telephone keypad. You will hear a message acknowledging your request.
Speaker Change: If you are using a speaker phone, please pick up the handset before pressing any keys. To withdraw your question, please press star 11 again. We will pause for a moment as colors join the queue.
Speaker Change: In our first question comes from Frederico Gomes, with ATB Capital Markets. Please proceed.
Federico Gomez: Hi, good morning. I'm grads on the, the grade quarter, the quickest little there. Thank for dating my questions up. First question.
Speaker Change: On a liquor retail, you've been reporting, you know, improved the margin of the segment, but things for still have been fairly weak.
Speaker Change: I know that you talked a little bit about the headwinds there, but could you talk about your outlook for the segment, what exactly is in fact that things are sales performance and whether we could see that reverting back to things are sales growth anytime soon?
Speaker Change: Good morning, Fred. I'm thinking for your question, this Alberto. So, yeah, obviously what we're seeing across North America and actually on a global basis throughout 2024 was a slowdown in liquor sales. So it's impacting pretty much the entire market.
for 2025, what I'm anticipating revenue to be about flat.
Speaker Change: that are obviously different views from different manufacturers, different players in the industry, some of them thinking that it could be a couple of points positive, some others a couple of points negative, we're taking the middle of the road estimate.
Speaker Change: An anticipated data would be close to 0% growth. On the longer term basis, all our analysis are pointing to an underlying growth rate in the industry of about 1 to 1.5%.
Speaker Change: We may be having one or two years where there is some favorability to that average, some others that is
Speaker Change: So that's a little bit how we're seeing the overall outlook for the industry in the future.
Great. Thanks for that, Alberto.
Speaker Change: The question on your U.S. investments in your release, in regard to March, you mentioned the worsening performance of those investments operationally, given the challenging, co-fetitive, environmentally wet, the cannabis market, so...
Speaker Change: Can you talk a bit more about that, I mean, the operating environment that these companies are facing, and specifically whether, you know, the investments might need additional capital to continue operating? Thanks.
Speaker Change: Sure. Fred, thanks for the question and good morning to you.
Speaker Change: A few things are going on here, but I would say the most important thing to keep in mind is that given our structure today we are not able to engage in plant touching activities. So we actually, from a far-seed, quite a bit of low-hanging fruit, an opportunity to dramatically improve performance.
Speaker Change: This package has a large exposure to the Florida market where parallel and ulcer terror are cop players. Obviously the...
Speaker Change: The failure of the A3 vote sort of pushes out some expectations on growth to the right.
Speaker Change: but we otherwise believe in these positions and a long-term potential. To your question on whether investments will be made in the future, I would say that are two top priorities which we've discussed.
Speaker Change: at some length in terms of capital deployment will be continued build out of our infrastructure in Canada and a close second behind that would be opportunities in core markets in the U.S.
Speaker Change: So we are just getting close to the finalization of these restructuring processes and once complete I think you'll see running room for some some real change and improvement of performance and we're looking forward to that [inaudible]
Zachary George, Unknown Executive,
Perfect. Thanks for that. I guess less, less question for me.
Just on your PSC listing application.
Speaker Change: Could you maybe talk a little bit more about the rationale behind that?
Speaker Change: And specifically, could that have anything to do with plants to potentially engage directly in plant-stouching activities in the U.S. in the future, even that all the MS solar pretty much listed on the CFT. Thanks.
Speaker Change: Yeah, thanks so much for the question. I'm going to disappoint on this without giving too much color. Again, our compliance culture is really critical to us and our current.
Structure and Capital Deployment
Speaker Change: means that we're not able to engage in plant-touching activities [inaudible]
Speaker Change: We are looking at means of growing not only in the US and internationally.
Speaker Change: and so having this second listing does create a lot of optionality. There are potential scenarios that would go down the path that you're describing, but we're not in a position today to discuss that and no corporate decision has been made.
Perfect, thanks for that. I'll back it to you. Thanks
Thank you.
Yong Kang: Our next question comes from Yewon Kang with Can't Accord Genuity. Please proceed.
Speaker Change: Good morning. Thank you for the question. Just my first question is on the cannabis operations revenues. It seems without, you know, the 7.5 million of Indiva contributions is quarter.
Speaker Change: and also netting of the intercompany sales. It seems like you guys have seen a pretty healthy growth there in terms of sequentially, and so just wanted to ask if there's any kind of product that really stands out in, you know, fulfilling the B2B orders or any of the provincial boards that you're seeing if it's, you know, a base or any kind of special products that you guys have rolled out in the past. Thank you.
Speaker Change: Yes, hello, Yewon. Thank you for the question, good morning. So, after we were seeing good growth across the board, even if we were to take that contribution from Indriva, I will see a strong double digit growth in the segment. It's mainly driven by increased distribution across pretty much all of our product categories.
Speaker Change: So we particularly have a strong performance with our pre-rolls, our babes, our edibles.
Speaker Change: which are the portions of the market that first are growing the biggest, but as well we benefit from the pull-through that we have through our own retail and third-party retail.
Speaker Change: So, as we're improving quality in our products, that is allowed when us to increase the regional points as well. So overall, I wouldn't highlight one specific brand or one specific product I think we're having good performance across.
Speaker Change: As well, we are seeing some good momentum. It's obviously early days and the numbers are relatively small, but they are starting to adapt to a few million on a quarterly basis. We're seeing good momentum with our international sales and our B2B business. So it's the momentum is across the entire segment.
Speaker Change: Great. Thank you. And just on my second question years regarding cannabis retail, and obviously, I think over time, we've seen a lot of the other banners, such as, you know, and spirit-leaf kind of turned into more value buds.
Speaker Change: focused, and so I just wanted to ask, you know, given the continued, you know, focus on discount retail across the Canadian cannabis retail landscape.
Speaker Change: Are you guys still seeing the importance of employing several different banners under your cannabis retail umbrella or do you foresee that, you know, you guys are going to have to convert more of those doors into value but to fit with the consumer preference towards just so discount retail banners.
Unknown Speaker
Speaker Change: Thank you. That's a great question, Zach here. You know, both things can be true. I think it's the right way to look at that where we see great opportunities to improve returns.
Speaker Change: with minimal investment. We have been converting banners. Some of that work will continue.
Speaker Change: But we also have a flexible model where our back-of-house management enables us to acquire additional banners if the opportunity were to arise.
Speaker Change: So we do believe in consolidation. We will be looking at opportunities. We do have a pipeline when it comes to retail development, both organic and inorganic.
So you could see us, you know, potentially both ad.
Speaker Change: New banners in the future and continue to consolidate and confer our existing portfolio as the value buds banner increases in present market.
Speaker Change: Thank you for the color. I'll hop back into the queue.
Speaker Change: Thank you, Anna Sarri-Minder. If you have a question, please press star 11.
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Speaker Change: Alright, this concludes the Q&A session. I would like to turn the conference back to Zach George for any closing remarks.
Zach George: Thank you, Carmen. And thanks everyone for joining our call today. We look forward to updating you in the near future. Thank you.
Speaker Change: And this concludes today's conference call. You may now disconnect your lines. Thank you for participating and have a pleasant day.
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