SNDL, Inc. Q3 FY2024 earnings call

Growth - Cannabis segments had combined net revenue increase of 7.4% Y/Y in Q3 and 90 basis point share gain in Canadian retail; Cannabis Operations grew 19% with 71 distribution points added. - Liquor retail private label offerings growing to meet consumer demand. ### Profitability - Record gross margin of 26.6%, positive free cash flow of $9.2 million in Q3. - Productivity improvements totaled $15 million in Q3, data licensing reached $4 million (6% increase Q/Q), $5 million in overhead savings. - Restructuring program delivered over $2 million in savings in Q3, annualized run rate of $10 million. ### People - Launched strategic talent review, community engagement initiatives, employee recognition program, and developing total reward structure.

In Q3 2024, net revenue was $236.9 million, a marginal decline year-over-year. The Liquor retail segment saw a revenue decline, while the Cannabis segment had an 8% growth. Cannabis Retail had net revenue of $81.1 million, a 7.4% increase year-over-year, with a gross margin of 25.5% (down 100 basis points from prior year). Cannabis Operations had net revenue growth of 19% to $25 million, with a gross margin of 21.2% and a significant improvement in adjusted operating income. Liquor Retail had a small revenue decline but improved gross margin to 25.6% with a 42.5% growth in operating income. The Corporate segment had revenue elimination from Cannabis operations sales into its own retail.

- On track to deliver positive free cash flow for the 2024 calendar year, meeting or even exceeding guidance.

- Illicit market pressures in Cannabis retail affecting retail stores. - Market softness in the Liquor segment impacting overall results.

Q: Could you talk about why you decided to acquire the remaining stake in Nova?

A: The acquisition of the remaining stake in Nova ensures SNDL shareholders can get the full benefit of the cash flow and earnings potential of that retail business.

Q: Can you talk about the key drivers behind the margin improvement in Cannabis Operations?

A: The margin improvement in Cannabis Operations is driven by an end-to-end holistic productivity program, including exiting high-cost facilities, labor and automation efficiencies, and cultivation asset ramp-up.

Q: How are you looking at capital allocation and share buyback?

A: Capital allocation priorities are continued growth in Canadian retail and potential investment in U.S. assets. Share repurchases are part of a nondiscretionary trading plan, regularly reviewed by the Board, and for the benefit of long-term holders.

Q: Plans for consolidating Indiva facilities and upside from integrating Indiva brands?

A: There are opportunities for facility consolidation to monetize noncore real estate. The Indiva acquisition is margin accretive, and teams are exploring synergies across revenue, supply chain, and operating expenses.

Q: Pressures from illicit stores in Cannabis retail?

A: Illicit market has been a constant pressure, but there is enforcement happening, and broader regulatory change is expected in 2025; focus remains on being a strong competitor in the legal market.