Good morning, and welcome to SNDL's Third Quarter 2024 Financial Results Conference Call. This morning, SNDL issued a press release announcing their financial results for the 2024 third quarter ended on September 30, 2024. This press release is available on the company's website at sndl.com and filed on EDGAR and SEDAR 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. Presenting on this morning's call, we have 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 affect results are detailed in the company's financial reports and other public filings that are made available on SEDAR and EDGAR. Additionally, all financial figures mentioned are in Canadian dollars, unless otherwise indicated. We will now make prepared remarks, then we'll move on to analyst questions. I would now like to turn the call over to Zach George. Please go ahead.

Welcome to SNDL's Q3 2024 Financial and Operational Results Conference Call. We are pleased to report robust revenue growth in our Cannabis segments, a record-breaking gross margins and positive free cash flow for the third quarter of 2024. Our Cannabis segments continued to show strong momentum, achieving steady revenue gains for the 11th consecutive quarter. Despite weaker demand in our Liquor segment, we delivered higher year-over-year margins and substantial growth in operating income for the segment. We achieved an all-time high gross margin of 26.6%, propelled by further margin expansion in Liquor retail and significant improvement within our Cannabis operations. Free cash flow was positive this quarter, supported by ongoing operational gains in gross margin and efficient working capital management. We remain on track to deliver positive free cash flow for the 2024 calendar year, meeting or even exceeding our guidance. This quarter and in recent days, we launched several strategic initiatives that we expect to drive SNDL towards long-term sustainable profitability. These include a restructuring program aimed at reducing corporate overheads, enhancing organizational efficiency and realizing annualized savings of more than $20 million. Additionally, we moved to privatize Nova through the acquisition of the remaining outstanding minority equity interest and just yesterday closed the acquisition of Indiva, enabling us to emerge as the leader in the Canadian infused edibles category. Together, these actions are strengthening our foundation and expanding our potential for future growth. Our leadership team is working on a number of additional initiatives and investment opportunities that we are excited to share as they come to fruition in future periods. Our solid balance sheet serves as a beacon for future opportunities, enabling us to allocate capital thoughtfully across both organic and inorganic investments. In the third quarter, we increased our cash balances from $183 million on June 30 to $263 million on September 30, 2024, and continue to have 0 outstanding debt. We have not raised cash through the issuance of shares since 2021, and our share repurchase program became active subsequent to the end of the quarter. I will now turn the call over to Alberto.

Thank you, Zach. 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-IFRS measures. For definitions of these measures, please refer to SNDL's management discussion and analysis document. Looking at our Q3 2024 financial highlights, we continue to see significant improvements in gross profit, gross margin and free cash flow. Net revenue in the third quarter of 2024 reached $236.9 million, a marginal decline compared to the prior year. This decline was driven by our Liquor retail segment, while our combined Cannabis segment posted a healthy 8% growth. Gross profit of $63 million represents a $14.4 million increase or 30% growth year-over-year with a substantial 610 basis points improvement in gross margin. This translates into another quarter of record gross margin, reaching 26.6%. Despite the significant improvements in margin and continued optimization of operating expenses, adjusted operating income was negative $16.6 million, a slight decrease compared to the prior year. This was mainly driven by an unfavorable $13.4 million fair value adjustment from our equity accounted investees in the quarter compared to a $6.6 million revaluation in the same quarter of the prior year. It is important to note that we only adjust operating income for restructuring charges and intangible impairments, which in the third quarter were limited to a $1.9 million restructuring charge. If we were to exclude the volatility created by quarterly fair value adjustment to our equity accounted investees, the improvement in adjusted operating income compared to the same third quarter of the prior year would have been $19 million. Free cash flow was positive in the quarter at $9.2 million, bringing the year-to-date free cash flow to a negative $2.8 million. We're on pace to deliver positive…

Thank you, Alberto. Beyond our financial performance, I would also like to highlight our core priorities: growth, profitability and people as each are fundamental to our long-term success. Starting with growth, our Cannabis segments have led with a combined net revenue increase of 7.4% year-over-year in Q3 and an impressive 90 basis point share gain in Canadian retail. Key drivers include quality execution, stabilization from 2023 store openings and the recent expansion into British Columbia. Our Cannabis Operations segment showed dynamic growth of 19%, driven by quality and innovation with 71 distribution points added this quarter and 491 year-to-date. Through M&A, we strengthened our portfolio with 2 very recent acquisitions, Indiva, making us a leader in Canadian edibles and the privatization of Nova, allowing SNDL shareholders to fully benefit from retail segment growth. In Liquor retail, despite this year’s market contraction, our private label offerings are growing to meet consumer demand for quality and affordability while driving margin accretion. Shifting to profitability. We are pleased to see continued strong momentum, leading to the record gross margin and $9 million of positive free cash flow in the quarter. Our positive free cash flow was enabled by efficiency improvements and interest income and not impacted by the noncash fair value adjustment of our investment portfolio. Productivity improvements totaled $15 million in Q3, largely from our Cannabis Operations segment through procurement, manufacturing and cultivation efficiencies. Data licensing in our Cannabis and Liquor Retail segments reached $4 million this quarter, a 6% increase from the second quarter. We also achieved $5 million in overhead savings, more than offsetting inflation and growth investments driven by efficiency gains across all segments as well as restructuring actions initiated in July. As you can see on the following page, summarizing the restructuring program progress, this program delivered more than $2 million in savings in the quarter, equivalent to an annualized run rate of $10 million or about 50% of our planned target. Finally, we remain committed to our people as a top strategic priority. In the second quarter, we launched a strategic talent review to identify key roles as well as development and succession plans. We continued deploying several community engagement initiatives, offering all of our team members the possibility to participate in sessions around mental and physical well-being and also rolled out an employee recognition program with over 40 awards being presented across our organization, celebrating the amazing contributions from our team members. Last but not least, we continue the development of a total reward structure that aligns our compensation philosophy with both individual and company performance. My conviction and confidence in our team that is setting new records with each quarter are at all-time highs. Our dedicated leaders have the expertise and drive to unlock SNDL’s significant potential. I’d 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. Thank you.

[Operator Instructions] The first question comes from the line of Frederico Gomes from ATB Capital Markets.

First question on the Nova acquisition. Could you talk about, I mean, why you decided to acquire that remaining stake? And strategically, I guess, just what sort of advantages do you see in owning -- fully owning Nova as opposed to a majority stake?

Frederico, thank you very much for the question. So as you know, this is a very competitive space with excess taxation and reasonably low margins. So the acquisition of that minority stake in Nova is going to ensure that SNDL shareholders can get the full benefit of the cash flow and earnings potential of that retail business.

On your Cannabis operations, quite a significant improvement in margins there. Can you talk a little bit about the key drivers behind that margin improvement? And in terms of your expectations going forward, do you expect to continue to see margin expanding? And if so, where is that going to come from?

Yes. Fred, this is Alberto. So yes, actually, most of the -- or all of the improvements are driven by an end-to-end holistic productivity program that the management team of the segment has put in place already since the end of last year. As you remember, in the fourth quarter of 2023, we decided to exit or close the Olds facilities that created already a bump in the gross margin and the profitability of the segment in the first couple of quarters. Since then, we have been driving efficiencies in labor and automation in our manufacturing facilities. We're seeing a ramp-up in our cultivation assets as well. So as we were already anticipating in the previous quarters, we were expecting to be over 20% by the end of this year. So we're happy to see that already happening in the second -- in the third quarter. And we have a long list of additional initiatives, including the additional capacity utilization from the growth that the business has seen and more automation and efficiency improvements that will continue to push that gross margin further up.

Yes. Frederico, you've been following our story for quite some time, and you're well aware that in the earlier days several years ago, Olds was sitting with exposure to a power jurisdiction that really challenged its competitiveness. And so as we've built the business, leaned more into procurement and broadened out our manufacturing capabilities, we have been able to eliminate exposure to high-cost biomass, which would really impair COGS. And so that was a meaningful first step that's been showing up through the numbers in the last year. And our President of Cannabis, Tyler Robson, has been leading for a number of initiatives that are being very impactful in today's environment, including managing mix, SKU creep, automation. And so there's a number of efficiencies that are still in play. And we're very confident in the team being in a position where they actually understand the drivers here and can action against the economic outcomes that we're seeking. So when we think about room for expansion, do we think that we can take gross margins to a zone where they have a 3 handle, the answer is absolutely. So a lot more to come here.

Perfect. And then just one more for me. In regards to capital allocation, I know that you mentioned a bit of this, but how are you looking at, I guess, different growth options and investments in Canada, the U.S. or other geographies internationally? And the second part of the question also in regards to your buyback, you obviously repurchased some shares recently. So can you comment on those repurchases? Is it something that you intend to continue to do tap that buyback? And in terms of the valuation here, you bought it at $1.90. So how do you view your valuation right now at over $2.20?

So there’s a few questions in there. Just starting with capital allocation. It’s going to be a very similar answer consistent with what we spoke about last quarter, Frederico. So two real key priorities in terms of capital allocation are going to be continued growth in Canadian retail and also investment in – potential investment in assets in the U.S. Both of those pillars are part of our core multiyear strategic plan. And when you think about the repurchase of shares, we absolutely want to take advantage of repurchasing shares at levels that we think reflect a discounted valuation. The transactions that you referenced were part of a nondiscretionary trading plan, which we were able to execute through a blackout period. And this is something that will be regularly reviewed by our Board in terms of scale and levels at which to purchase. So we expect to be in a position to acquire shares on an ongoing basis. I think there’s a misconception out there that somehow a share repurchase plan is best used to prop up a security. And that’s just something we will never do. It’s really for the benefit of long-term holders as we’re reflecting really strongly into positive free cash flow and ultimately net income.

Our next question comes from the line of Yewon Kang from Canaccord Genuity.

So my first question is regarding the recently completed Indiva acquisition. Through that transaction, SNDL obtained a facility in London. And my understanding is now that the company has 2 edibles-focused facility, including the LYF facility in Kelowna. Just wanted to ask about if you guys have any plans to consolidate these facilities in the future. And I know it's only been a few weeks since the acquisition closed, but could you guys give us a color on the upside you're seeing from integrating Indiva brands onto your distribution channel?

It's a great question. And I'll let Alberto talk a little bit about our broader planning. The acquisition actually closed yesterday, so well inside of a few weeks. And we're very excited about the addition of the Indiva team and product mix to our broader business. You will see an impact in Q4 from almost 2 months' worth of performance there. And given the margin profile that's available in the edibles category, we see that this acquisition being margin accretive to our upstream manufacturing portfolio. So it's something we're very excited about. I would answer the question on real estate more broadly. There are a number of opportunities we have for facility consolidation that will result in noncore real estate being available for monetization, which should further bolster cash balances and enable us to recycle capital into accretive opportunities. We're going to be working on a longer-term prudent and thoughtful integration plan with Indiva, and we'll be able to provide more details on that in the coming months.

Yes. Just to add the -- both our teams, the existing of SNDL and the team from Indiva now joining our family, they are already collaborating and exploring the different synergy opportunities that we have across revenue, supply chain and operating expenses. We do have a long list of ideas that are being analyzed to make sure we make the right choices and the right decisions. But certainly, we do see a lot of synergies. We'll be able to share where those opportunities are as we complete the analysis in the next several weeks.

And just a second question on the retail environment for Cannabis dispensaries. So a couple of your peers have called out some of the pressures that they're seeing in Ontario, specifically in relation to the illicit stores popping up all around the province. Just wanted to ask if you have been seeing similar pressures on your retail stores as a result of this illicit market that's popping up again and what your thoughts are going forward in terms of the provincial regulators coming in to regulate these illegal stores?

It’s a great question. It’s also a very difficult question. The impact of the illicit market in the Canadian – within the Canadian landscape has been constant. I wouldn’t say that there’s some new emergence of headwinds. They’ve been there in different forms in most provinces. What we do know is that there is some degree of enforcement happening, and we’ve seen pockets and incidents that are encouraging in terms of our provincial government’s willingness to stamp out the illicit market. We still need broader regulatory change to help support that. And we believe that you’re going to see additional rational reform come through in 2025. Even something as small as changing the limits on edibles from 10 milligrams to 100 would have a material impact on illicit market trade. Again, no one’s coming to save us here. So what we do know is that convenience and value are winning with the consumer at the end of the day, and we’re able to offer a very competitive selection that is delighting consumers. And so we’re going to continue to focus on being strong competitors in the legal market.

[Operator Instructions] This concludes the question-and-answer session. I would like to turn the conference back over to Zach George for any closing remarks.

Thank you, operator, and thank you to everyone for joining us for the call. We look forward to updating you in the coming months. Have a great day.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.