Good morning, and welcome to the SNDL's Second Quarter 2024 Financial Results Conference Call. This morning, SNDL issued a press release announcing their financial results for the 2024 second quarter ended on June 30th, 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 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 will move on analyst questions. I would now like to turn the call over to Zach George. Please go ahead.

Welcome to SNDL's Q2 2024 financial and operational results conference call. We are pleased to see that the second quarter confirms the increased profitability we reported in the first quarter and material progress on our path of continuous improvement. We maintain strong momentum in our Cannabis segments, reporting consistent revenue improvement in cannabis over the last 10 quarters. While we noticed a slowdown in revenue from our Liquor segment, we still posted greater margins and greater gross profit dollars on a year-over-year basis and we have additional tools at our disposal to battle through this volatility. We are pleased to report an all-time record gross margin of 25.5% with all segments contributing to gross profit and gross margin growth compared to the same quarter of 2023. Our Cannabis operation segment achieved positive gross profit for the second quarter in a row. Operating income also showcased a significant improvement not only on a consolidated basis but also supported by growth in all segments driven by gross margin improvements and strong cost discipline in SG&A management. Importantly, none of these results include the benefit of the recently announced plan to reduce corporate overhead by more than $20 million, which we expect to begin to impact results in Q3. SNDL remains steadfast in its commitment to driving long-term profitable growth. We continue to grow our substantial retail platform, are making significant strides towards manufacturing excellence, and are involved in four different restructuring processes, two on each side of the border, that may result in accretive M&A or some other type of liquidity event. Our unique approach to deployment of credit capital is also likely to result in the significant repatriation of cash. We currently expect approximately $130 million in principal repayments to occur in the second half of this year, with about $90…

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 documents. Looking at our Q2 2024 financial highlights, we continue to see significant improvements in operating income and free cash flow, as in the first quarter, despite the revenue headwinds impacting our Liquor segments. Net revenue in the second quarter of 2024 reached $228.1 million, a $3.8 million or 1.6% decline year-on-year. This decline was driven by our Liquor Retail segments, as our combined cannabis business posted a healthy 9.2% growth. Gross profits of $58.2 million represent a $6.2 million increase or 12% growth year-on-year, and a material of 310 basis points of gross margin improvement, with positive contributions from all segments. This translates into another quarter of record gross margin reaching 25.5%. As in the first quarter, the second quarter gross margin increase, income contributions from our investment segment and discipline management of corporate overhead led to significant year-on-year improvements in adjusted operating income and free cash flow of 82% and 70% respectively. These two metrics were yet again close to breakeven in the quarter. As mentioned last quarter, we only adjust operating income for restructuring, restructuring-related write-offs, and intangible asset improvements. Specifically, in the second quarter of 2024, we adjusted operating income by removing $0.2 million expenses related to restructuring charges. While in the same quarter of 2023, there was an adjustment to remove a $4 million restructuring expense. When looking at the quarterly historical traction of main financial KPIs, we noticed a quarter-on-quarter improvement in net revenue, a 15% growth between the second and the first quarters of 2024 to be…

Thanks, Alberto. Beyond our financial performance, I would also like to share a few highlights of our progress towards our strategic priorities, growth, profitability, and people, as each of these pillars is fundamental to our long-term success. Starting with growth, it is great to see our cannabis segment not only continue to deliver net revenue growth that's highlighted in the financials, but also gain market share. In fact, our latest reading shows an impressive 0.5 a percentage point gain in retail share through quality execution, the ramp of 2023 store openings, and the recent expansion into British Columbia. This last point is actually another highlight, as during the second quarter, we launched the Value Buds banner into British Columbia with the rebranding of three stores acquired in the Dutch Love transaction. Not only is our cannabis retail segment making strong progress, but our cannabis operations segment is rapidly gaining strength, confirming our focus on manufacturing excellence and the elimination of exposure to non-competitive cultivation. Our continuous focus on quality and innovation enabled the expansion of approximately 40 new SKUs available for provincial boards, enabling 19% organic revenue growth from this segment in the second quarter. I have never been as excited as I am today about our branded product line, much of which will hit the market this fall. Anecdotally, in June, SNDL became the first LP to exceed $1 million in one month through the OCS flow-through program. Additionally in Ontario, SNDL is the only top 20 LP to have reduced the number of SKUs in Q2 on a year-over-year basis and still outpaced OCS category dollar growth in the same period. The team also recently launched a 3-in-1 disposable vape that quickly became a top seller for us. Finally, despite the market contraction that impacted our liquor segment…

[Operator Instructions] Our first question comes from Yewon Kang, Canaccord Genuity.

Hi. Thank you for the question. So my first one here is regarding the cannabis operation segment. Just notice that the adjusted operating income dipped back into the negative territory for the quarter after generating a positive income last quarter. So could you just provide some color on any of the puts and takes that happened throughout the quarter that led to this?

Two factors, one of them impacting Q1 that was a one-time benefit of some bad debt collections, north of $3 million. And in the second quarter specifically, we have about a $1.1 million impairment charge related to a fixed asset that came with the cannabis acquisition a couple of years ago. That has been held for sale, but we didn't find a good placement for the asset. Therefore, we decided to take an impairment in the second quarter to $1.3 million specifically.

Got it. Thank you. And just on the second question here, it's regarding the liquor retail segment. Obviously, so there's some softness in the revenues on a year-over-year basis. Can you comment on any trends that you're seeing from the consumer spending environment that's leading to softer revenues recorded in this segment and any of the initiatives that you guys have in place within the retail segment to kind of address the softening of the consumer environment here. Thanks.

Yes, absolutely. So, starting the answer with this is a global phenomenon. It's not something that is happening specifically in Canada or in our businesses. As you read, probably input from different manufacturers or different data sources. Everything is pointing that across North America specifically, there are single-digit declines in most markets. Obviously, there are certain segments like beers that are declining even more. And some others like wine that may be a little bit more resilient. But overall, we're seeing the market in the first few months of this year really having this slow down. It's important to highlight that despite the revenue softness that we see in the market that obviously is impacting ourselves as well as retailers, we are managing to expand gross profit by 1% absolute dollars. So, we believe that the strategy that we have deployed to deal with this type of macroeconomic context is working for us as the absolute bottom line is still growing. And we still believe that there is long-term growth potential in these segments and in the categories. Immediately, what we're seeing is the short-term impact is driven by the consumer sentiment and the impact of inflation over the last few years post-COVID has starting to have that bigger impact and disposable income with our consumers. There is as well a certain dynamic that if you analyze the information over the last three, four years, obviously, there was a significant market expansion in 2020 when in home consumption driven by COVID pandemic increase significantly. Actually, the stores that were operating today, we were seeing that at that point in time, they had an 11% growth in revenue in 2020. In 2021, they were virtually flat, or just growing about 1%, so maintaining that trend. And in 2022, we saw already…

Our next question comes from Frederico Gomes from ATB Capital Markets.

Hi, good morning. Thanks for taking my questions. First question is on cap allocation. Just curious to talk about your cap allocation plans, just given the principal repayments that you're expecting the second half of this year, as you mentioned, $130 million quite substantial so any plans in terms of investing that money, either in the US with additional credit investments or growth investments in Canada, maybe just any color there. Thanks.

Good morning, Frederico. And thank you for the question. We are working on those priorities. And as discussed, we're still looking at meaningfully growing our cannabis retail network in Canada and are also eyeing a number of accretive investments in the US as well, while also acknowledging that our valuation is undemanding right now. And so there are other opportunities to return capital to shareholders as well. So really trying to balance our growth objectives with maximizing the accretive use of capital.

Thank you. And then on the cannabis operations, just a couple of questions here. First, in terms of the EU-GMP certification that you are pursuing, I'm just curious if there's any timeline there for that. And second, with the Indiva process ongoing, I noticed that you have five facilities in Canada right now. Do you anticipate with that closing, is there any additional consolidation in terms of your footprint of facilities that you expect to pursue?

Yes, I'll take the second question first, Frederico, and maybe pass the mic to Alberto, but you're absolutely right. We don't have a certain outcome with Indiva at this point, so we're not going to speculate. But even with our existing footprint, we do have some excess real estate, and we'll be looking to monetize that and make use of that capital with much better returns than we would have in their current form. And so whether we plan to drop additional liabilities through excess office leases into 2025 or monetize some of the excess non-core real estate we have, that'll be another story for us in terms of our path on capital efficiencies.

Yes, we're seeing inside multiple synergies that would come as a result of that potential transaction. So yes, we would anticipate some rationalization. It's a little bit too early to say, still a few more months to go through this process. And as soon as we, if the transaction gets completed, obviously, we will then come with some additional updates of where we were seeing those opportunities.

Yes, thank you.

Yes, and in terms of certification, to answer your question, we are working actively through it and respecting it in the next few months before the end of this year.

Thank you. This concludes the question and answer session. I would now like to turn the conference back over to Zach George for any closing remarks.

Thank you, operator. Thanks to all for joining our call today. We look forward to updating you on our progress in the near future. Thank you.

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