SNDL, Inc. Q1 FY2025 earnings call

Growth: Cannabis Retail segment outperformed the market with 8.7% net revenue growth in Q1 2025, including 5.2% same-store sales growth and market share gains. Acquisition of 1CM announced, expected to close by end of Q3. Cannabis Operations had 53% net revenue growth, driven by productivity program and Indiva acquisition synergies. ### Profitability: Free cash flow was marginally negative at -$1.1 million, but improved by $5.3 million year-over-year. Incremental productivity improvements of $3 million in Q1, data licensing revenue of $4.5 million, and $4 million in overhead savings from restructuring program. ### People: Focus on talent development, improved annual performance review cycle, transitioned Indiva employees to consolidated HR platform, and distributed annual total compensation letter to align incentives.

In the first quarter of 2025, SNDL's net revenue reached $205 million, a 3.6% increase compared to Q1 of the previous year. The cannabis business contributed to a 16.8% combined growth, including contributions from the recent Indiva acquisition, offset partially by declines in the liquor Retail segment. Liquor Retail had net revenue of $109.5 million in Q1 2025, a 5.7% decline year-over-year. Cannabis Retail had net revenue of $77.5 million, an 8.7% increase year-over-year. Cannabis Operations had net revenue of $34.3 million, a 53% growth year-over-year, including a $10.2 million contribution from Indiva. Gross profit was $56.6 million, a $6.2 million or 12.4% growth year-over-year, resulting in a 27.6% gross margin. Cannabis Operations had a gross margin of 26.8%, Cannabis Retail had 25.3%, and Liquor Retail had 25.4%.

Strategic Review: Board has initiated a formal strategic review to evaluate SNDL's exposure to US multi-state licensed cannabis enterprises and current exchange listing status. No decisions made yet. ### 1CM Transaction: Anticipate closing the acquisition of 32 cannabis retail doors from 1CM by the end of the third quarter. Post-transaction, focus on internal improvement and efficiency while awaiting next growth leg for strong Q4.

Strategic Uncertainty: Board's strategic review is ongoing with no conclusions reached, so no assurance of transaction or listing change. ### Valuation Adjustments: Adjusted operating income impacted by a loss from the SunStream portfolio due to negative valuation adjustment. ### Trade Impact: Modest exposures from trade disputes, but no material disruption to business observed, with limited impact on margins and operations.

Q: Frederico Gomes asked about the strategy to enter the US market and competitive advantages if entering.

A: Zach George stated the decision is under board review, existing capital exposure through SunStream-related enterprises, and Canadian market experience as a competitive advantage.

Q: Frederico Gomes inquired about M&A outlook for cannabis retail.

A: Zach George said they are active in evaluating organic and inorganic growth in Canadian retail network, with multiple opportunities in progress and focus on internal improvement post-1CM transaction closure.

Q: Frederico Gomes asked about the loyalty program in retail.

A: Alberto Paredero said the loyalty program offers a platform to communicate with consumers, reward loyalty, and expand across banners including liquor network.

Q: Yewon Kang asked about Canadian excise tax reform and trade war impact.

A: Zach George said cautious optimism on excise reform, no immediate material change, and trade disputes have no material disruption to business.