Good morning, and welcome to SNDL's Year-End and Fourth Quarter 2023 Financial Results Conference Call. This morning, SNDL issued a press release announcing their financial results for the year-end and fourth quarter ended on December 31, 2023. 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 supplementary investor presentation along with the shareholder letter from Chief Executive Officer, Zach George on its sndl.com website. Presenting on this morning's call, we have Zach George, Chief Executive Officer; Alberto Paredero, Chief Financial Officer; Tank Vander, President, Liquor Retail; and Tyler Robson, President Cannabis. 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, and then we'll move on to analyst questions. I would now like to turn the call over to Zach George. Please go ahead.

Good morning, everyone, and thank you for joining us on our full-year and fourth quarter 2023 earnings call. 2023 was a transformational year for SNDL marked by several financial milestones, including record revenue and gross profit. The year began with remarkable year-over-year revenue growth of almost 1,000% in Q1 of 2023, which was then followed by positive free cash flow generation of $18 million in the second half of the year. 2023 net revenue reached a record $909 million, a 28% increase from the previous year, while gross profit surged to a record $190 million, up 36% from the prior year. SNDL's team has worked to build a scaled and diversified platform that we believe will be the basis for the creation of sustainable shareholder value. Our operations include award-winning liquor and cannabis retail banners, broad manufacturing capabilities and a uniquely positioned non-consolidated exposure to U.S. cannabis operators with a fair value of more than $0.5 billion. We are also in the process of monetizing a number of real estate and credit assets that will continue to feed and strengthen our industry-leading balance sheet. The acquisition of Valens in January of 2023 was a key tactical move for SNDL enhancing our upstream capabilities in Canadian cannabis. We now have manufacturing capabilities across all major product categories and continue to drive automation and labor efficiencies. We have exited exposure to high-cost owned cultivation and leaned into procurement opportunities. Integrating Valen's operations into our infrastructure has led to significant synergies, resulting in approximately $22 million in annualized cost savings. These savings stem from better capacity utilization and various cost reduction initiatives, including the optimization of our cultivation footprint. Our progress is reflected in the steady sequential improvement of our gross profit over the year. We expect our cannabis operations segment to deliver…

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. Since joining SNDL team in July, I have some significant progress, not just in terms of our financials, but for our organization as a whole. We have navigated the challenges of the regulated products industry and made a strong improvement in how we operate and how we manage our finances. Our focus has been on strengthening the balance sheet, enhancing cash flow generation and driving profitable growth. Through several strategic initiatives on disciplined financial and operational management, while improving our cost structure and sharpening our capital allocation. Not only have we redesigned our operating governance and financial planning processes. We have also realigned the finance structures and attracted key talent to drive value creation while increasing the efficiency of our back office. It is exciting to see how these changes are already having positive impact in 2024. Now let's dive into our consolidated financial performance for Q4 2023. Our net revenue reached $249 million or 3% growth from $240 million in the same quarter last year. This includes a revenue elimination entry of $12 million that we introduced as of the third quarter of 2023. Without this adjustment, our net revenue growth in the fourth quarter would have been 8%. I am particularly proud to highlight our gross profit for the quarter, which sets a new record of $57 million or 23% of sales. This compares to $44 million in Q4 2022. This significant improvement is a testament to our supply chain optimization efforts, including the strategic decision to close our Olds, Alberta…

Thank you, Alberto, and thank you all for joining today. Our liquor retail segment remains a steady revenue driver, providing opportunities for increased margins in SNDL's regulated products business. Margin expansion remains a crucial focus as consumer patterns shift in liquor retail. This ensures ongoing growth for our liquor banners while consistently delivering exceptional customer experiences. Looking at full-year revenue for 2023, liquor retail contributed $579 million to our cumulative revenue. This represents a growth of 25% year-over-year from $462 million. Revenue comparisons for liquor retail in 2022 include operations from March 31 to December 31, 2022, following the acquisition of Alcanna. In Q4 2023, revenue remained steady at $159 million, stable from Q4 2022 and increasing 5% from $152 million in the preceding quarter. As of December 31, 2023, our store count remained stable with 170 total stores comprised of 12 Wine and Beyond, 20 Liquor Depot and 138 Ace Liquor discounter locations. The impact of Wine and Beyond banner and new market is highlighted by the success of our Kelowna, Dilworth location, which has seen a 20% increase in revenue year-over-year. Additionally, the Dilworth location has seen its margin increase 17% from the year prior. We look forward to opening a new Wine and Beyond location in Airdrie, Alberta, in early Q2 2024, building on the success of this banner. Gross profit for 2023 amounted to $137 million, representing approximately 24% of sales, up 29% from year prior. For the fourth quarter, gross profit increased to $38 million or 24% of sales from $37 million in Q4 2022 and up 3% from Q3 2023. These increases are driven by seasonality, procurement productivity and a continued focus on expanding and enhancing our private label offerings, which is a key driver in total margin expansion. Private label sales increased by…

Thank you, Tank. Reflecting on my first full calendar year with SNDL, I'm incredibly proud of the team's achievement and confident in our strategic direction moving forward. 2023 was a building year. We had to dismantle the house and fortify our foundation to support the future of SNDL. We reorganized our facility footprint, streamline our product portfolio, optimize our processes with a sharp focus on quality [indiscernible]. We changed the fundamentals of our business, aiming for near-term profitability for our cannabis operations segment. This set the stage for a strong 2024, and we have already seen preliminary indicators of our future success. Net revenue for 2023 was $87 million. The growth represents a 96% increase from the year prior, supported by provincial board revenue increasing by 102% and wholesale revenue by 391%. Net revenue for the fourth quarter of 2023 was $26 million, up 112% from $12 million in Q4 2022 and 24% sequentially. This revenue increase highlights the impact of our strategic initiatives, including the acquisitions of Valens and Zenabis and improving the sales performance across our portfolio. In Q4 2023, we saw an improvement in gross profit to negative $1 million from negative $9 million in the same quarter of the previous year, marking an 88% improvement. This significant enhancement in gross profit primarily resulted in the decision to close Olds, Alberta facility and move away from high-cost cultivation. We still have room for improvement, but we have established substantial competitive advantages over the past year. We have better aligned our operations to manage the fluctuating market, addressing inventory and cost challenges that have stalled our gross margin growth in previous years. We have rationalized our portfolio and shifted over our cultivation efforts to better meet consumer demand, emphasizing the quality, potency and consistency. SNDL has adopted a fewer, bigger, better approach resulting in the reduction of our total SKU count from 327 to 125, sharpening our focus on key consumer categories. Our improvements in innovation are apparent in record depletion rates and increased acceptance of new SKUs by the provincial board. We have cleared a path to win in the key categories of vape, flower, pre-rolls through improved hardware, increased potency and to ensure consistent and exacting quality standards. After the quarter end, we revoked our cultivation license from the old facility. Following the transition of all cultivation activities to Atholville, New Brunswick in October 2022. The significantly reduced overhead costs, coupled with the improvements in cultivation and yield position us to further capitalize on revenue and margin growth in the coming quarters. After a tactical and transformative year, we are seeing our expected results and a strength in path forward for our cannabis operations segment. We remain diligent on quality, financial prudence, and process innovation to continue to deliver long-term value for both our shareholders and our consumers. Thank you. And I will now pass the call back to Zach for closing remarks.

We are proud of our milestones this year and remain focused on sustained profitability. We are determined to continue this upward trajectory and the team is committed to driving shareholder value and excellent all aspects of our operations. Thank you for your attention this morning. We look forward to providing additional material updates on our initiatives and presenting our Q1 2024 results in the next 45 days. I will now pass the call back for analyst questions. Thank you.

Thank you. We will now begin the analyst question-and-answer session. [Operator Instructions] The first question comes from Frederico Gomes with ATB Capital Markets. Please go ahead.

Hi. Good morning. Thank you for taking my questions. Zach, in your shareholder letter, you mentioned how tracking your valuation is, and you said that either the management team is going to close the valuation gap or market forces will – so could you just expand a little bit on that in terms of the alternatives you have or are evaluating to try to close that gap? And also why you'd be more aggressive with buybacks this quarter? Thank you.

Good morning, Fred. Thanks for the question. So just taking that in reverse order, due to earnings cadence and strategic activity, we've actually been in a blackout for quite a while. That blackout gets lifted into the end of March here. So we do have the option to repurchase shares at these levels. In terms of the reference to closing the valuation gap, we're focused on fundamentals, first and foremost. And as we've been speaking for the last two years about our journey to sustainable free cash flow, we do believe that, that's the key to bringing in incremental investors getting institutions to take a look at our business model and ultimately result in much higher implied values than what we're seeing today. In terms of other alternatives, I think that, that's somewhat self-explanatory. There are a whole host of options. You've got a multi-segment business model. You have a debt-free entity that is cash rich. And so there are a number of opportunities for a variety of different transactions that could be looked at in order to unlock value.

Thank you. I guess my second question is on the competitive environment in Canada, specifically on your cannabis operations. There obviously have been reports about the CRA cracking down on delayed excise taxes. I'm just curious, are you seeing any meaningful improvement in competition here this year? And I guess from a supply and demand standpoint, do you think that the Canadian market is looking better at this point or still oversupplied? Thank you.

It's a great question. I would say that we can safely say that Canada remains very well supplied. Certainly, recent actions and the garnishment effects that we're seeing in just at their early stages are going to have an impact on product availability and the number of licenses ultimately that are out there in Canada. But it's still early days. You've seen a few companies disclose events or move into restructurings as a result of excess liabilities. But we believe there's quite a large iceberg underneath the water. And so the concentration of these excise arrears are unclear at this time. So we expect a greater impact – but this is an important part of sort of balance being brought back to the Canadian industry, and it's certainly going to take some time, but that process is absolutely underway.

Thank you very much. I'll hop back into queue. Thanks.

The next question comes from [Johan Kang] with Canaccord Genuity. Please go ahead.

This is Johan Kang on behalf of [indiscernible]. Thank you for the question. Just wanted to ask about the adjusted EBITDA margin this quarter came in about 1.4%. There was a sequential decline about 5.5%. Could you comment on the drivers behind this EBITDA slide quarter-over-quarter? Thank you.

Yes. Thank you Johan. Thank you for the question. Yes, the main driver was actually a change in valuation in our SunStream investment related to an increased contribution from our company. We have to remember we're valuing this SunStream investment particularly right now for [indiscernible] came in on the basis of the future cash flow generation. So any short-term changes to investments or collections have short-term impact in those valuations. But the underlying cash flow expectations that we have from these businesses in the future remain steady. So I would say it's purely the way our accounting works but that's the main driver. It's actually an $8 million loss that we recorded in the fourth quarter according to that.

I see. Thank you so much. And if I could just ask a follow-up on I think you, you guys already touched upon this during Federico's question, but have you guys taken the recent regulatory changes that have been proposed in the Canadian cannabis environment – whether it's the recommendation coming out of the committee in terms of adjusting the excess tax structure. Sorry, and the elimination of provincial stamps, along with we're hearing some news about potential retailer and license reduced partnerships being used or being recommended. So I guess my question is how have you guys been taking this news, has this kind of impacted any of your future expectations going forward? Thanks.

Thank you. It's a great question. There were a number of questions in there. Look, in terms of excise reform, I would – we would reiterate the view that this is going to take quite a bit of time. No one is coming to save us as participants in this industry. And so we don't actually expect excise reform to impact the fundamentals of Canadian operators in the near term. That's probably a multiyear path. There are – there is room for optimism. We are seeing common sense reform, move across a number of provinces and the Federal government. So whether that's some loosening of rules around marketing, a clearer path and understanding of the allowable relationships between retail license holders and LPs increase in license caps, changes to allowable product formats. There are a number of initiatives that are going to drive efficiencies and improvement and ultimately improve the consumer experience that are undeniable positives – but we expect a pretty slow pace of change on some of the larger items such as excise reform.

Got it. Thanks so much. I'll jump back into the queue.

The next question comes from Pablo Zuanic with Zuanic & Associates. Please go ahead.

Good morning everyone. Zach, regarding SunStream portfolio, maybe I lost – I missed it in the presentation, but I think the fair value, it is $551 million. I don't if you can comment about the outstanding principle – and it's five credits, how much of that is parallel and mint. And if you can remind us what is the rest. I think in the past, you've given some color on that. But it'd be nice to know of the principle, how much is being equitized and how much is still outstanding, if you can give some color there? Thank you.

Yes. Thank you, Pablo, and good morning. Good to hear from you. So we haven't given delineation on individual credits. You're correct that of the five, we have three performing credits in the portfolio, two are in the process of being equitized because those capital structures need to be solidified in the restructuring itself and the fact that we are right in the midst of a review with NASDAQ. We're going to hold off on commenting on the scale and individual valuation of those equitized credits that we expect to occur in the near-term. And when we do move forward and the NASDAQ review is completed, we expect to give significantly more transparency on the state of play with those entities, the structure and the initial valuation.

Thank you. And then in terms of SunStream USA, the new company you're setting up, is the only thing pending the NASDAQ issue? Or is there any type of litigation still going on? I mean the trade press has had comments on the matter, especially around Skymint and I think in parallel, but just some color would be helpful there. Is it all done and completed and is now a matter of the NASDAQ issue? Or is there still anything outstanding? Thank you.

Yes. In terms of outstanding matters, the key issue for us to close is this final hurdle with the NASDAQ. There are, as you point to, there are lingering litigation issues involved in these restructurings, frustrated stakeholders pursuing different outcomes and taking action against various stakeholders, sometimes legacy stakeholders and sometimes existing creditors, which would include our SunStream group. So those are ongoing, and we're not going to get into too much detail about current litigation, but we don't believe that this is going to hold up our time line, any further.

Understood. And then if I can just add one more. I mean, obviously, Florida, we are all waiting for April 1, right? [Indiscernible] to Supreme Court there. There could be a scramble for expansion capital investments, is Surterra to some extent or Parallel how strong for the time being until this whole deal closes? Or can you help them in any way to expand if they were to make sense.

I would not describe either Skymint or Parallel as being hamstrung. The existing management teams are aggressively working to rightsize their business. There's been significant improvement in their cost structures over the last two years. They have – they're very much living in reality and the improvement in the performance of those businesses has been material. Again, we don't have those positions consolidated. And so we're excited about being able to provide detailed supplemental information as we complete these restructurings.

Okay. Thank you. If you mind I mean, I don't know if there's more people in the queue, but I'll have a couple of more. So regarding the other three credits on SunStream – and I know you can't say much there. But on the JV SunStream Bancorp. Once you set up SunStream USA and you have all these very attractive assets in Florida, Michigan and other places, you become an attractive partner to a number of people, right? So I know it's a bit hypothetical, but the three other credits even though they maybe performing, they could still become part of the ecosystem, right? I'm saying you go even equitize it means that were to make sense that you can negotiate that. Can you make any general comments on that? Or that's just out of a question.

No, it's an astute observation. There are a number of opportunities for further consolidation in the U.S. We have been approached by a handful of parties that are very interested in gaining greater efficiencies and scale and consolidating the U.S. landscape. Those parties maybe part of the existing credit book, but there's also a number that are outside of that group as well. So there are a number of broader discussions that get had from time to time. If something material were to arise, it would certainly be disclosed. And until then, we're really focused internally on improving performance within our platform, but do expect at the margin that consolidation and M&A opportunities will arise over the next 12 to 24 months.

And very last one, I mean, obviously, there's a lot of focus on the U.S., but this Friday, we may have some good positive news out of Germany with the [indiscernible] decision. When people are asking about Canadian companies and exposure they had to go till we talk about Aurora and others, of course, and [indiscernible] continues to make inroads there. What can we say about SNDL in terms of their current position in front of European opportunities or the plans that you may have? Thank you. That's all.

I'm going to have Tyler just comment on the current state of play in international and related opportunities.

Yes, happy to. Look, we've been spending a lot of time evaluating international markets. Obviously, Germany is one of the biggest populist countries over there. There's a ton of opportunity. So we're anxiously awaiting the final news for [medical version] and what that landscape looks like. We will be headed to ICBC to not only meet a few individuals, but get a better lay of land. But you'll kind of see us focus on a few ones over there like Germany. So we'll fit at that for now, but you'll definitely see some opportunities or some foresight into that market once legislation fully rolled out.

Understood. Thank you. Very helpful.

This concludes the question-and-answer session. I would like to turn the conference back over to Zach George for any closing remarks. Please go ahead.

Thank you to everyone for joining us this morning. We look forward on updating you on our progress in the near future. Have a great day.

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