SNDL - Earnings call transcript Q4 2021

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Operator

Good morning, and welcome to Sundial Growers Full-year and Fourth Quarter 2021 Financial Results Conference Call. Yesterday, Sundial issued a press release announcing their financial results for the full-year and fourth quarter ended on December 31, 2021. This press release is available on the Company’s website at sndlgroup.com and filed on EDGAR and SEDAR as well. The webcast replay of the conference call will also be available on the sndlgroup.com website. Sundial has also posted a supplementation presentation on its website and a letter to shareholders from Sundial CEO, Zach George. on website. found be can the sndlgroup.com Both Presenting Executive Officer, Officer, morning’s call, and George, Chief we Zach Officer. Jim Operating Stordeur, and on President this Andrew Chief Keough, Chief Financial

Company’s that today’s SEDAR detailed to start, we that reports discussed are anticipated. answers financial could to I those maybe like constitute in Actual factors conference Before differ remind available Forward-Looking materially or made call, public from and could Statements. would other certain are filings investors matters given the EDGAR. affect questions, results that in and results Risks could that on

Additionally, all figures are unless in Canadian financial indicated. otherwise mentioned dollars,

call prepared questions. George. over We make remarks, will analyst then on I we now like will now to the to move would Zach and turn to

Zach George

us And full-year was a everyone. thank our quarter earnings joining Sundial. for for you call. on XXXX morning, transformational XXXX fourth and Good year

and Sundial all scale to insights platform be a is in our a a contender regulated operational position records marketable relationship last significant and own deliver build distress quarters. debt, and taken long-term team ahead financial has meaningful with no cash, Canadian X.X financial innovation consumer. to to from and areas the improvement still best-in-class We investments. on for and leading of work of to by become are EBITDA outstanding a CAD continuous sequential a billion and achieving two with ended focused adjusted XXXX between working Our consumer Sundial business. securities products leveraging products. We the to has Sundial have reported for legitimate

of long-term for see create important XXXX. free the I’m by key cash within to positive we experiencing wins positive of a seek committed goal to few our net flow becoming early value across momentum are as our and we sustainable but commitments most excited remain our in calendar operating investment that XXXX are to small year shareholders. We segments We of beginning

ended XXXX. further, our would year required principal of XX commonly to XXXX that for December and have required reason Sundial’s by to in in-depth procedures amount Sundial is the SOX. an referred financial first like as I is going address performed auditor delay its The significant to auditor we reporting work our internal over were additional delay external Before year attestation as to the filings for the be reporting of XXX Section that Act, Sarbanes-Oxley the of and controls B under

environment at effect a SOX from take be level of activity is internal goal compliant and strong accounting pervasive shareholders last cash fraudulent the practices the compliance and policies. December I achieved corporate Our control public requirement function large good responsibility maintaining over accuracy disclosures. The errors and the rapid strong, of corporate protect the a in Sundial to and helps environment for two XX requires growth SOX XXXX of was years. to improve this. scale and has operations, optimize establishing internal The cash management and companies. and flow, protect for control public robust

As levels activity significant our under teams our Audit placed stress. corporate have and Finance

SOX to mature less controls investing shareholders to Sundial’s XX-months to significantly will ultimately and achieve compliance is corporate of scale that heightened functions business. This practices in in processes time. we typically continuous. takes compliance our compliance to required were work in committed are levels risk requires We more ongoing complexity best XX and and our support management. of the benefit or new SOX for and to finance to implement companies

Now let’s turn results. our focus to business

challenging of operating processes manufacturing Canada’s and focus supply to our continue in competitive on improving context We and environment. chain the

XXXX, quarter. we yielded each potency high a comprehensive review have cultivation sequential an higher on dramatic watermark margin. margin weighted new in some our focus to most We profitable averages saw SKUs, and In improvements for which a of have done results. portfolio improved our our Seeing gross

approximately material XXXX. portfolio to of Sundial top designation operations, In which awards investments industry celebrate American of program launched leading In to through multi partner financed continues retail program between consumer delight price CAD XX-months the stores system franchise has SpiritLeaf the With demonstrates joint obsession our terms share the to in XX% in Bancorp July Sundial owning in consumers, consideration for Association the Canadian a ago, through debt rewarding have brand increase private the SunStream of additional XXXX deployed capital. with of XX%. of a million our for year. relationship the find pilot relationship a to we XX its The SpiritLeaf volatility. and public XXX to our Year-to-date, performing Sundial corporate its XX.X% acquisition to about a SpiritLeaf more part to or choice improve share franchisees into North increase acquired organizations store commitment growth venture. announce larger its to locations XXXX. The through raise Sundial to nascent the issuances, In at that cannabis and combined related the branded and annual SpiritLeaf the the of I’m has products franchise explore third-party we offering our been XXXX And consecutive evolve CAD and X.X%. the market than a July X.X% engagement. grown at cannabis including SunStream XXX began opportunity, SunStream launched excited has partner investment experience and way label X% franchisees. the was million, million franchising locations. several In This is XXX totaling of Selects. designation assortment, mutually a to Franchise consumer. third and commitment to Since founded corporate there market share recognize franchise SpiritLeaf SunStream received represents Sundial both CFAs also also capital from CAD

declines, compression industry. capital We the and acquisition have witnessed and merger across activity constraints, price access price share

We returns uncertainty but adjusted in increase are repayments. and of this credit over merger possibility also principal portfolio, of the impacts creates believe currently SunStream’s activity that the construction near-term the portfolio. the acquisition the risk activity seeing We given portfolio will it

have financing cannabis traded last circumstances public These We resulted the but vehicles over market intended seen with have offering. to well. not multiple finance previously decision focused company’s created months the opportunities, failed attractive also the in have initial to sponsors that specialty several have also come either or delay have

a venture. we or continuing income all of very to on while expect a $XXX be to Sundial’s public. continue Sundial with to to focused take $XXX on We stream preserving of the partnership help SunStream the build manage to opportunity And unlocking benefit million portion predictable from to of value positioning are a the optionality and in million portfolio portfolio providing to with keenly an and board strategic see strategy U.S. active this joint XXXX. the is

trusted streams and acquisition leverage now can the liquor of opportunities own become private industry further industry. partner stabilizing while in Sundial a the of in balance Sundial access cannabis Alcanna. enables product with Alcanna With retailer revenue acquisition capital. addition Canada. the at retail regulated to and Sundial customer With and completion the the March, an to the The largest the and of profit relationship diversifying sector is end leading sheet

commenced in work operations, retail cannabis, XXXX. will scale and post distribution including our has continue increase expertise enhancing acquisition remainder the will our while and Sundial of in throughout liquor. We the integration

long-term transformation May. to in volatile XX million Alcanna shares we a buyback topic cash, experience. the impact of the similar in from to in We colleagues which there full retail more. listing. developments number sentiment the to a approximately NASDAQ for was once the to made stakeholders our and I’m who that issued pleased program. expect subject and the know maintenance is financial prohibits we the Board to advantage significant Sundial reduced first year to our steeped to split And new market and synergies I our the every to I the with our I for consideration day that are to to Sundial including entire in with include significant to continues revise third cannabis are like period until of on share be at subject a Sundial industry, we shareholder transaction any released repurchase program transaction no address trading also monitor in thrilled Directors over now I approval, our the quarter quarter commentary enhance realize in productive share to Alcanna did Jim intends to company have in be value. Meeting. working are results hard turn are and Annual team XXXX the the stock, and to that you call to share long-term Sundial was working the having opportunities results. I exciting, a reverse take expected the will of committed market required say conditions, would obtained If Sundial when position team. our Thank transactions from Sundial General I’m prior success. speak of of to at to blackout all XXXX shareholder and split management be the a an currently change our implement for Sundial affecting reverse XXXX, for

Jim Keough

Canadian definitions XX, this and emphasize address are to December amounts everyone. amounts management’s filing certain call, under the remind I today year analysis that GAAP unless things. know will law to delay But Zack I all On want Thanks, the and discussion Canadian of Sundial’s for the refer good I are want morning refer in stated. Please for dollars to Zack measures. ended you measures. non-IFRS otherwise that four I XXXX. to these discussed

opinion on again financial have issued auditors an our First, statements. unqualified our

our law. U.S. Second, complies filing date with

committed company building best-in-class finance we at to are Sundial. a department and Third,

and support have the continue invest are and stakeholders. we And of our of will the the fourth, our benefit finance We our control matters to disclosed we for actively remediating in long-term that growth functions to internal refining IT reports business. our in

our XXXX, segments, we third So to include and have beginning had we a in operations expanded Sundial acquisition two reportable retail midyear, the cannabis investments operations. segment, and determine QX with SpiritLeaf

Now fourth will of QX XXXX, Alcanna be with our exciting we a in liquor segment acquisition adding retail.

I the will start results individual segment our operations EBITDA. of into jumping adjusted results, consolidated with and Before

XX.X loss continuing million XXXX adjusted pleased to CAD full-year We achieved CAD compared year. an adjusted operations the in EBITDA previous the from that XX.X of with are million for EBITDA we record

promotional million, also XXXX, compared EBITDA profitability in CAD XXXX, QX continuing non-recurring X.X and non-cash our to have XX% million a previous were cannabis million In the of a CAD CAD net General CAD we a loss cultivation The million, the administrative XX.X previous results for XXXX to CAD in million compared made was to outcomes progress expenses continued in SpiritLeaf the was cultivation million contributed million includes after impairment. investment G&A CAD XX.X compared change XX.X XXXX. inventory in million, we CAD continuing CAD provisions, improvements in primarily loss the the adjusted previous from the of In CAD expenses, a QX of XX operations to X.X year. third select date of which investment XXX million X.X the While, cost The XX.X of impairment it XXX year. segments. recorded our the of increase from derivative expenses, the for from strains CAD net the loans XXXX. on estimate due year, previous our net XX.X realized on G&A or a and segment, quarter gains increase and to loss XX million of million, fair of of the net for to compared fee charge marketing operations sales in million. sales million XX primarily by The in of acquisition reflecting CAD loss loss CAD CAD compared of security a at including comes million marketing CAD continuing In was and CAD due million decreased Sundial SpiritLeaf discipline, specifically quarter development on Again, and and from markets. two CAD compared investments being CAD introduction record Joint held of XX.X value million to continues to the Adjusted on for XXXX in SpiritLeaf XXX X the CAD of after operations. formats charge million year. higher XX.X of directly by facility, million interest was from warrants continuing to CAD the a from XXXX, million loss old operations XX.X XX%, from SunStream QX Venture, focus fourth targeting in EBITDA to XXXX, addition in at revenue fourth retail inclusion a of operations acquisition and quarter. in Sundial when for marketable brand was QX XX to XXXX priority the and on sold.

quarter of marketing in million expenses CAD X.X fourth CAD the fourth XXXX, For and quarter. to were X.X sales the compared million, previous

year offerings, This sheet ended December company combination warrant market exercises the position XXXX, has billion transformed to a through at registered direct Sundial’s of CAD the opportunity. a strength and During offerings. X.X the of balance raised XX, a of source and

balance As on company was and CAD the common Total April XX, at XXXX, XXX CAD of April XXX an December million, million. XX, XXXX, were unrestricted XXXX. shares of billion X.X XX, unrestricted cash had cash outstanding

totals million CAD In investment of April addition, XXXX. secured our securities and hybrid XX, at XXX portfolio debt

cultivation December our producers review facility. to as revenue CAD consumer, cannabis CAD CAD relative we margin CAD costs to cultivation negative well brands compared million million against to to XX.X Wholesale the the to and price substantial focus for our to to as XX demonstrates million was XX.X critical and the prior compared at SKU was the impairment, operations XX.X in and to Gross XX, compared the commitment subject our inventory in compared sales Reduction profitable million CAD cultivation oversupply, progress and from million, rationalization. provision for of and CAD to was XXXX, year, product in and the strains operating net our XX.X margins, was on previous on December to XXXX. million In CAD The and offering CAD sustainable of lower harvested XXXX, from X.X million to turn backdrop potential year delivering gross which licensed operations our let’s XXXX positive success. portfolio ongoing optimization. Sundial’s cost industry-wide inventory and XX, period QX year. to from on path Net price reduced production are compression, revenue XXXX XX XX.X CAD reflecting high to competitive production. prior sales. concentrated of This for XX.X customers comprehensive negative its offerings most XXXX compression, and to due million, retail old the in profitable were industry to production due as ended year impairment ended improvement the million, Now, a

CAD revenue, X.X accrue from network bears XX, July revenue stores, XXXX fourth X.X XX royalty earned was acquisition CAD of from for from SpiritLeaf XX Gross corporate as the for As July revenues fees and royalties CAD Cannabis accrue XXXX, July advertising December sales for and retail cannabis the cannabis of the XXXX. XXXX sales cannabis totaled not CAD franchise and stores. owned and The company. franchise representing retail XXXX consumers results little quarter revenues million of of million SpiritLeaf advertising retail retail CAD retail CAD for the SpiritLeaf all such SpiritLeaf represent owned for at XX, and XX.X retail our CAD cannabis do burden. franchise was million to which retail stores, that million. operations, retail Gross revenue, the the SpiritLeaf revenue comprise gross and receives through SpiritLeaf operations X.X accessories, aggregate from The retail XX, December franchisees million retail other company million. were System-wide revenue of million. stores revenues to fees XX.X revenue was from margin franchised represent overhead quarter from XX, XX.X corporate million. cannabis the SpiritLeaf XXXX stores of and sales corporate by cannabis retail revenue XX date December CAD XX.X revenue System-wide owns to the of fourth

in a our let’s investments. our Summarizing CAD a totaling investments targeted more the joint the turn the in million deployment including venture. and continue to-date, to opportunities million debt, investment CAD related segment. in of risk Sundial return investment Bancorp, capital investment hybrid to XXX our million, of from available allocation company capital a as quarter intends XX including Inc., deployed segment focus portfolio reported dozen our equity operations. income of cannabis directed cannabis the than XX investing Now to the industry attractive fourth was in million of is In XXXX, XXX into in Sundial’s capital SunStream income CAD investments, to these SunStream. XXXX, to significant CAD

and disclosed quarter gains the and marketable CAD losses fluctuations including million Our from Bancorp on from XXXX companies due securities investment XX.X%. share CAD of North net CAD significant XXXX related The publicly of investments XX marketable unrealized on from were direct XX strategic related in annualized was strategic and securities. interest to losses portfolio. a losses primarily the price the investments of investments XX cannabis activity SunStream fees million, our Valens throughout of to merger created X.X due The developments the volatility share cannabis and investment investments, Recent and during interest and company’s access investments acquisition Cannabis through full-year million price have the distressed portfolio in Inc. including portfolio equity million Revenue negative Venture related opportunities in credit CAD fourth rate capital, and to Sundial’s for and Village generates generated direct including investments. for challenging SunStream Farms Company of decline, American industry XXXX, credit International, income Unrealized Joint average a secured return through of of Inc. currently weighted

remarks President to operations. Stordeur, COO to Andrew invite cannabis provide of Now, I would and like related to Sundial

Andrew Stordeur

a in for of Sundial our Jim. operations cannabis marked year XXXX function. transformational was with Alberta, facility and operation year third our at old Thank you, our

develop continue I’m team’s and supply we to processes, While plans. to through pleased three enhance people, our pillars, with and execution operations our commitment process and chain consistent our excellence

me the walk you XXXX. highlights fourth through let Now, some the of from and quarter key full-year

harvested. people and We industry dynamics. reconfigured our your capability at driving old end-to-end to improves an and production operations forecast optimization. facility. invested by This leadership basis, discipline terms year-over-year chain in will the our and cultivation supply equivalent In reduction accuracy in costs our XX% reduced cost also around XXXX, operations teams we to to adapt of in planning On in supply compared grams an XX% demand proper the

implemented improvements focused our environment, rooms, inside is room grow second around We and process. maintenance several Our indoor plant pillar primarily on fertigation.

We throughput also automation, invested production. preroll metrics and in quality increasing on processing

Our by OEE throughput production preroll year. or the as Overall on Equipment Effectiveness, XX% improvements versus line so primarily in XXXX increase we our previous

efficiency April preroll required packaging an gram XX% the pack individual from X.X Our comparing also When XXXX. to improved format. by average minutes

On material prior is in same the Full up are Time or measures XX.X% well OTIF&E from serving XX.X% QX with No up showed our XXXX, progress. of XX.X% customers period year. in is Our OTIF&E from total In which XXXX Errors, also we XXXX. how OTIF&E XX.X%, the

achieved in record olds in of the fourth tested THC set weight a average potency. XXXX Our on fully XX.X%, flour lots potency quarter at of

Our January XXXX XX% XXXX. was fourth at was average versus up January XX and results our up foot. contributed than January X.X%, the and increase XXXX, XX% XX.X% on and at XX% to in versus foot THC of first February in mix grams of XXXX XXXX XX.X% improvement and compared XXXX per as February January third representing quarter coming Further, mix in our segment square greater with to yield respectively, increase to XXXX way continue to and also in XXXX. compared and discount our show in to XXXX at results February X.X% potency the versus to reliance March XXXX quarter THC in XX% improvements February second in starting square of product our are quarters brand XX grams of per XX% These an

XXXX, compete products premium will in core the Moving and forward segments. cannabis to into mix continue our

market of in a business, a is be value within to and focus key look for the the and will improving we seller margin. Ensuring a driver product buyer in volume While with as wholesale be optionality operations segments area opportunistic cannabis discount. a competing for high

is pillar third Our plants. around

Over library out team and in the our the improving year, our continuing past made build and diversifying genetic R&D has capability. to tremendous progress

number progress In the amount Cones XX% concentrate We within in province Quebec, British at the brand as In market After SKU with QX, Per was by two have Columbia. nationally same infused XX% Sundial’s offerings. points team one share in XX% measured as premium selling of three aspirations distribution measured Caviar the Top priority Top as highest reporting. internal of Cones QX launch priority recreational Caviar of growth award that Cones the share SPPD our the with in QX, able and preroll our year-end the increase by represented in brand Leaf XX% were CRM XXXX, Leaf winning becoming caviar premium number number revenue different as product distribution in of remain QX. brand. Sales versus by versus were commercial our Distribution flower cones Point SKU of Since three launch our over SKUs concentrate flower of released premium launch to In Alberta per made preroll as the SKU Ontario. XXXX first segment, premium and well by has with data. industry our QC prerolls to under Caviar we the

in our initiatives. the and forward made Moving in cannabis operations will build XXXX off key five progress priorities XXXX, on focused

be Our is growing continuous through achieved indoor olds. operational and cultivation initiative in will This improvements premium excellence. first facility

all We we have our XXXX this and XXXX. in of build momentum will in on to consistency look aspects improved cultivation

as anticipate partnerships costs processing synergies facility our spread competitive remain base. on for fixed push are quality cost also opportunities our cultivation Leveraging in and chain operations. increase you we focused supply metrics allow automation that We end-to-end our will our as to realized us growth sustainable profitability optimization. more will key cannabis utilization, over all higher while the through driving need aspects extensive through Secondly, to of

enhanced portfolio. an is initiative third Our

with focused we remain Palmetto a right While strategy our inhalable vape our will brand. focused portfolio segments, more size the under on

opportunities end-to-end Palmetto, and high brand. initiative. such our better launched Leaf further under premiumize products, for look great take the of SpiritLeaf profit network of a also store cultivars specific Private and further. private Sundial as responding a have around offerings will example to offerings cannabis including branded brand we demand now remain live-resin the chain a licensed Increasing available category cultivar SpiritLeaf our nationally Label with high under year-end, this new initiative, Selects terpene Top and the allow pools of as milled drive After preroll, popularity We is to agile potency several and integration supply our Top and label allow to concentrates. will Sundial, is and advantage portfolio to flower, will control our us stores. retailer. our Vertical in both producer SpiritLeaf flower Selects brands market to fourth portfolio SKU is through a Leaf penetration

consistent ecommerce, or enhancing experience omni-channel will Whether provide our We portfolio. a direct-to-store, approach. in-store entire will across we be experience our

data and customers our them nationally, promotion, This actionable with the while over Finally, more fifth for in analytics allow With thousands XXX support better price shopper in assortment, unique a insights a of vertically as experience also locations to retail. retail optimal supporting and consumers we money through integrated and of our one have initiative transactions, cannabis. that make players ability Canadian will shopping insights. largest is daily

market resources give our the goal summary, increasing market and to support the Canadian stores, The long-term. our them partner in our should of to to cannabis have are world-class over corporate and be tools tenders franchise a sustain We share program capabilities nationally the win we developing In comprehensive stores. and the strategy in training bud successful. for our and

also and Zach further our closing costs value invest back improvements as business customers. a We turn now call to continue out operational will remarks. of for critical and unlocking the capability to while for to drive in the enabler consumers I

Zach George

cash and operating joining Sundial of constant the aspects in quality again deployment expansion of brands. remains enhanced and network cultivation long-term on through efficiency accretive today. of Thanks of chain, supply the our improvement Increasing further for our shareholder distribution of resources, offering of streamlining high focused value practices outcomes. and our our building our the retail structure us all

Operator

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

Frederico Gomes

and Hi the thanks taking good morning. on quarter questions. Congrats for my

First your segment the retail question is and footprint there. just from

You have XXX SpiritLeaf stores today.

like the base So stores has seems new of down. it slowed

on is the the that comment franchises? expectations year Thank why mix what corporate could of and of be the are your of in end what number for and by stores terms So and would you. you the

Zach George

Good question. and thanks the morning for

So with a the of Canada. and very segment in as we you every are know, environment in dynamic dealing volatile industry

market other products not So but bite that really that at with oversupply of going aggressive saturated. And and we not saturation, is other of a when you are guidance an are focused obviously see out to that starting to very of right look doors at to we the performance of into give flower point this point, profitability. you as rollout already, in are our public peers, terms can you along on

are take retailers. surviving and increase expecting lot into trickle see taking off we are more year, end are cautious the we we we starting to a of a should pressure which closures that of also approach So expecting but to this the are of consolidation,

Frederico Gomes

you. broader thank And just inflation. Great, that maybe macro thinking are in then of now the terms about environment seeing we right

portfolio and have you. credit return you are how the in thinking rate the you Thank there. your are real could So that getting impact that inflation and about of that

Zach George

same. at levels of feeling but I are The seeing source think you to business. exposure are pressure macro, the many have we our inflationary that you borrowers see are the it, where of beyond get the Yes, that credit

that market of are you Canada, many cases, in to because credit mature think that very through has is but So see that the to think impact, going and are to It I U.S. what consumer. emerging in going where difficult we it’s will states a saturation seeing oversupply price you come see pressure in in more quality, take individual the to pass the been time. the and We

with to competitive are make of everything we the are that side. the be board meantime, some in not cannabis. seeing price required and consumer our are quite investment staff, in the doing while other just increased support we goods wages possible the to So yet seeing to we But sure we dramatically, get are there will that most across

of In in race pockets expect the still materially on many next the are we pricing we over that change fact, bottom and in to Canada to XX-months. sort a seeing

Frederico Gomes

maybe you mature know grow I then flows of those And helpful. in to nuking more there? it Alcanna, you. what go as you is there to just expect that did business, I that your could outlook Thank question about last one in Liquor some that cash invest terms business just Thanks on forward? or is but is if Retail, growth

Zach George

Yes, be the experience more their excited colleagues transaction and couldn’t brought deep into in that retail. have we about this we

the the that yes, has landscape, experience infrastructure the and and of over in decades So retail landscape. regulated in two retail team products,

And integration, so through at had working years restaurants drove I say the is really increases. look premise and that in would you down you consumption, but and two less the bars accessible off as so we are were pandemic, sales still skyrocket what two when things, really heads Canada last through massive

the at and that liquor are there be initiatives to at meaningfully looking working a is to those are core on now those we So and think at of number initiatives coming now we profitability we that can business the moderate, quarters. in time, expect same sharing those stabilize improve right expect we and the but on side, that

Frederico Gomes

the I back you. in Thank hop will queue.

Operator

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

Zach George

our Thanks look today. everyone’s in updating for future you the on forward you. progress. near to time Thank We

Operator

call. conference today’s concludes This

participating may lines. your pleasant for you have a You day. disconnect Thank and

SNDL (SNDL) 28 Apr 222021 Q4 Earnings call transcript