Le Lézard
Classified in: Business
Subjects: ERN, MAT

SNDL Reports Third Quarter 2023 Financial and Operational Results and Achieves Positive Net Cash from Operating Activities and Free Cash Flow


CALGARY, AB, Nov. 13, 2023 /PRNewswire/ - SNDL Inc. (Nasdaq: SNDL) ("SNDL" or the "Company") reported its financial and operational results for the third quarter ended September 30, 2023. Unless otherwise indicated, all financial information in this press release is reported in millions of Canadian dollars.

SNDL has also posted a supplemental investor presentation on its website, at https://sndl.com.

THIRD QUARTER 2023 FINANCIAL AND OPERATIONAL HIGHLIGHTS

_____________________________

1 See Specified Financial Measures ? Free Cash Flow

"SNDL's positive net cash from operating activities and first quarter of free cash flow generation marks a pivotal milestone, reflecting our team's commitment to operational and financial excellence," said Zach George, Chief Executive Officer of SNDL. "We are intent on realizing SNDL's potential for improved profitability, material growth and greater efficiencies across all of our segments. We recently commenced our Liquor Retail data program and continue to see margin improvements in our Cannabis Retail network. In addition, we have rationalized our facility footprint and are moving aggressively into procurement to drive improved results in our Cannabis Operations segment. As previously disclosed, we are in the advanced stages of restructuring key U.S. credit exposures in a manner compliant with U.S. laws. Our commitment to delight consumers remains steadfast as we work to deliver cost-effective, high-quality products and exceptional retail experiences. While we have made significant progress and recognize our achievements, our goals are a far climb from where we stand today. Our industry-leading balance sheet and improved operations enable us to avoid short-term thinking in order to build the foundations of a business that we believe will create sustainable shareholder value through strong free cash flow generation." 

THIRD QUARTER 2023 KEY FINANCIAL METRICS

OPERATING SEGMENTS



















($000s)

Liquor

Retail


Cannabis

Retail


Cannabis

Operations


Investments


Corporate


Total


Three months ended September 30, 2023     



















Net revenue


151,801



75,539



20,954



?



(10,699)



237,595


Gross margin


37,263



20,046



(8,704)



?



?



48,605


Income (loss) from operations


8,257



3,481



(13,971)



9,886



(24,023)



(16,370)





















Three months ended September 30, 2022



















Net revenue


152,488



66,202



11,810



?



?



230,500


Gross margin


35,568



14,494



247



?



?



50,309


Income (loss) from operations


13,302



(83,708)



(5,673)



7,936



(20,399)



(88,542)


THIRD QUARTER 2023 RESULTS

SNDL's business is operated and reported in four segments: Liquor Retail, Cannabis Retail, Cannabis Operations and Investments. 

Liquor Retail

SNDL is Canada's largest private sector liquor retailer, operating 170 locations, predominantly in Alberta, under its three retail banners: "Wine and Beyond", "Liquor Depot" and "Ace Liquor".

Cannabis Retail

With its ownership interest in Nova Cannabis Inc. ("Nova"), SNDL is Canada's largest private-sector cannabis retailer, operating 186 locations under its four retail banners: "Value Buds", "Spiritleaf", "Superette", and "Firesale Cannabis". SNDL's Cannabis Retail strategy is based on several pillars, including the quality of its store locations, its range of products, and the unique experiences it provides customers. Using data and insights from a large volume of monthly transactions enables SNDL to leverage technology and analytics to inform and improve its retail strategy.

Cannabis Operations

SNDL has a diverse brand portfolio from value to premium, emphasizing premium inhalable formats and a full suite of 2.0 products. With enhanced procurement capabilities and plans to continue evolving toward a cost-effective cultivation and manufacturing operation, the Cannabis Operations segment is a key enabler of SNDL's vertical integration strategy.

Investments


Three months ended

September 30


Nine months ended

September 30


($000s)

2023


2022


2023


2022


Interest and fee revenue













Interest revenue from investments at amortized cost


891



924



2,819



2,737


Interest and fee revenue from investments at Fair Value
Through Profit or Loss


250



1,095



1,124



3,754


Interest revenue from cash


2,185



2,293



6,780



4,259




3,326



4,312



10,723



10,750


Investment revenue (loss)













Realized (losses) gains


(46,082)



?



(138,874)



389


Unrealized gains (losses)


46,167



(5,513)



130,267



(58,685)




85



(5,513)



(8,607)



(58,296)


Revenue from direct investments


3,411



(1,201)



2,116



(47,546)


Share of profit (loss) of equity-accounted investees                                                 


6,581



9,176



15,161



(24,711)


Total investment activities


9,992



7,975



17,277



(72,257)


Equity Position

STRATEGIC AND ORGANIZATIONAL UPDATE

SNDL remains focused on building long-term shareholder value through vertical integration, the accretive deployment of cash resources, expansion of its retail distribution network, the further streamlining of the Company's operating structure, and enhanced offerings of high-quality brands within the Liquor Retail, Cannabis Retail and Cannabis Operations segments.

Integration Initiatives

Since the acquisition of The Valens Company Inc. in January 2023 (the "Valens Acquisition"), the Company has realized $21.9 million in annualized cost savings, substantially exceeding its total initial target of $10 million. In 2023 alone, SNDL achieved cost savings of $17.8 million at an expenditure of $3.6 million. Most cost savings have been realized through SG&A, supply chain consolidation and operational efficiency. By 2024, run-rate synergies are expected to exceed $40 million annually, and proceeds from asset sales are expected to total $9 million.

SNDL made significant?optimizations to its facility footprint to enhance the competitiveness and profitability of its Cannabis Operations segment. As a result of this key integration initiative, SNDL expects optimizing its facility footprint to result in an additional $10 million in annual savings from its Cannabis Operations segment through reduced fixed overhead, power costs, and increased labour efficiencies.? 

As part of SNDL's commitment to effectively address market demand, the Company is in the process of rationalizing its SKU portfolio. By focusing on high-margin products and continuing to drive innovation, the Company expects to see better margins for the Cannabis Operations segment and through owned retail in the upcoming quarters. This approach is designed to allow the Company to optimize its resources and achieve its long-term goals while maintaining a competitive edge in the market.

The Company's integration initiatives are critical to SNDL's vision of establishing Canada's largest regulated products platform and generating sustainable free cash flow.

This press release is intended to be read in conjunction with the Company's condensed consolidated interim Financial Statements and Notes for the three and nine month ended September 30, 2023, and the accompanying Management's Discussion and Analysis ("MD&A"). These reports are available under the Company's profile on SEDAR at www.sedarplus.ca and EDGAR at www.sec.gov/edgar.shtml.

CONFERENCE CALL  

The Company will hold a conference call and webcast at 10:30 a.m. EST (8:30 a.m. MST) on Monday, November 13, 2023.

WEBCAST ACCESS
To access the live webcast of the call, please visit the following link:
https://services.choruscall.ca/links/sndl2023q3.html

REPLAY

A telephone replay will be available for one month. To access the replay, dial:
Canada/USA Toll Free: 1-800-319-6413 or International Toll: +1-604-638-9010
When prompted, enter Replay Access Code: 0541#
The webcast archive will be available for three months via the link provided above.

ABOUT SNDL INC. 

SNDL is a public company whose shares are traded on the Nasdaq under the symbol "SNDL."
SNDL is the largest private-sector liquor and cannabis retailer in Canada with retail banners that include Ace Liquor, Wine and Beyond, Liquor Depot, Value Buds, Spiritleaf, and Firesale Cannabis. SNDL is a licensed cannabis producer and one of the largest vertically integrated cannabis companies in Canada specializing in low-cost biomass sourcing, premium indoor cultivation, product innovation, low-cost manufacturing facilities, and a cannabis brand portfolio that includes Top Leaf, Contraband, Citizen Stash, Sundial Cannabis, Palmetto, Bon Jak, Spiritleaf Selects, Versus Cannabis, Value Buds, Vacay, Grasslands and Superette. SNDL's investment portfolio seeks to deploy strategic capital through direct and indirect investments and partnerships throughout the North American cannabis industry.?For more information on SNDL, please go to?https://sndl.com/

Forward-Looking Information Cautionary Statement ? 

This news release includes statements containing certain "forward-looking information" within the meaning of applicable securities law ("forward-looking statements"), including, but not limited to, statements regarding the Company's operational goals, the Company's ability to achieve improved profitability, growth and efficiencies across all segments, or its goal of sustainable, positive gross margin and positive free cash flow, revenue generation from the Liquor Retail proprietary data licensing program, expansion of product offerings (including the expected launch of the Company's wine private label), the impact of rationalization initiatives on revenue and margins within the Cannabis Operations segment and owned retail locations, the expansion and additional cost savings at the Atholville facility, performance of the Company's investments, including through the SunStream joint venture and SunStream USA, the receipt of regulatory and listing authority approvals necessary to implement the proposed SunStream USA investment structure, the ability to realize expected cost savings in relation to the Valens Acquisition, expected run-rate synergies and expected proceeds from future asset sales, and any other potential forms of shareholder value creation.. Forward-looking statements are frequently characterized by words such as "plan", "continue", "expect", "project", "intend", "believe", "anticipate", "estimate",?"likely", "outlook", "forecast",?"may", "will", "potential", "proposed" and other similar words, or statements that certain events or conditions "may" or "will" occur. These statements are only predictions. Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking statements throughout this news release. Forward-looking statements are based on the opinions and estimates of management at the date the statements are?made and?are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. Please see "Item 3.D.?Risk Factors" in the?Company's annual report on Form 20-F, filed with the Securities and Exchange Commission ("SEC") on April 24, 2023, and the risk factors included in our other SEC filings for?a discussion of the material risk factors that could cause actual results to differ materially from the forward-looking information. The Company is under no obligation, and expressly disclaims any intention or obligation, to update or revise any forward-looking statements, whether?as a result of?new information, future events or otherwise, except as expressly required by applicable law.?? 

Condensed Consolidated Interim Statement of Loss and Comprehensive Loss
(Unaudited - expressed in thousands of Canadian dollars, except per share amounts)



Three months ended

September 30



Nine months ended

September 30




2023



2022



2023



2022


Gross revenue



249,796




235,144




696,118




482,828


Excise taxes



12,201




4,644




35,562




11,036


Net revenue



237,595




230,500




660,556




471,792


Cost of sales



180,375




179,093




503,444




367,710


Inventory impairment and obsolescence



9,126




(2,307)




22,594




3,545


Gross margin before fair value adjustments



48,094




53,714




134,518




100,537


Change in fair value of biological assets



(1,819)




(1,899)




(6,767)




1,403


Change in fair value realized through inventory



2,330




(1,506)




5,328




(5,133)


Gross margin



48,605




50,309




133,079




96,807



















Interest and fee revenue



3,445




4,312




11,077




10,750


Investment loss



(29)




(5,513)




(9,218)




(58,296)


Share of profit (loss) of equity-accounted investees



6,581




9,176




15,161




(24,711)



















General and administrative



48,235




45,014




149,535




95,989


Sales and marketing



3,271




1,935




10,761




6,178


Research and development



57




1,503




217




1,988


Depreciation and amortization



15,545




9,783




45,456




19,322


Share-based compensation



5,373




2,069




11,475




6,711


Restructuring costs



708




?




6,286




(882)


Asset impairment



1,783




86,522




4,248




88,372


Loss from operations



(16,370)




(88,542)




(77,879)




(193,128)



















Transaction costs



(226)




(417)




(2,439)




1,040


Finance costs, net



(2,142)




(8,409)




(9,773)




(34,853)


Change in estimate of fair value of derivative warrants                         



(2,840)




(8,500)




4,202




6,856


Foreign exchange gain (loss)



(235)




91




(429)




102


Gain (loss) on disposition of assets



(14)




6




(275)




408


Loss before income tax



(21,827)




(105,771)




(86,593)




(219,575)


Income tax recovery



?




6,927




?




8,718


Net loss from continuing operations



(21,827)




(98,844)




(86,593)




(210,857)


Net loss from discontinued operations



?




?




(4,535)




?


Net loss



(21,827)




(98,844)




(91,128)




(210,857)



















Equity-accounted investees - share of other comprehensive 
income (loss)



11,124




23,194




(882)




29,188


Comprehensive loss



(10,703)




(75,650)




(92,010)




(181,669)



















Net loss from continuing operations attributable to:               

















Owners of the Company



(21,784)




(98,108)




(85,337)




(209,313)


Non-controlling interest



(43)




(736)




(1,256)




(1,544)





(21,827)




(98,844)




(86,593)




(210,857)


Net loss attributable to:

















Owners of the Company



(21,784)




(98,108)




(89,872)




(209,313)


Non-controlling interest



(43)




(736)




(1,256)




(1,544)





(21,827)




(98,844)




(91,128)




(210,857)


Comprehensive loss attributable to:

















Owners of the Company



(10,660)




(74,914)




(90,754)




(180,125)


Non-controlling interest



(43)




(736)




(1,256)




(1,544)


Condensed Consolidated Interim Statement of Financial Position
(Unaudited - expressed in thousands of Canadian dollars)

As at

September 30, 2023


December 31, 2022









Assets







Current assets







Cash and cash equivalents


201,983



279,586


Restricted cash


19,661



19,338


Marketable securities


265



21,926


Accounts receivable


25,505



22,636


Biological assets


562



3,477


Inventory


142,550



127,782


Prepaid expenses and deposits


17,814



10,110


Investments


3,400



6,552


Assets held for sale


8,391



6,375


Net investment in subleases


3,603



3,701




423,734



501,483


Non-current assets







Long-term deposits


9,720



8,584


Right of use assets


133,792



134,154


Property, plant and equipment


176,144



143,409


Net investment in subleases


18,262



19,618


Intangible assets


73,776



74,885


Investments


29,058



90,702


Equity-accounted investees


550,523



519,255


Goodwill


148,282



67,260


Total assets


1,563,291



1,559,350









Liabilities







Current liabilities







Accounts payable and accrued liabilities


57,230



48,153


Lease liabilities


33,809



30,206


Derivative warrants


6,800



11,002




97,839



89,361


Non-current liabilities







Lease liabilities


137,201



139,625


Other liabilities


6,860



2,709


Total liabilities


241,900



231,695









Shareholders' equity







Share capital


2,366,775



2,292,810


Warrants


2,260



2,260


Contributed surplus


76,912



68,961


Contingent consideration


2,279



2,279


Accumulated deficit


(1,178,063)



(1,091,999)


Accumulated other comprehensive income


31,306



32,188


Total shareholders' equity


1,301,469



1,306,499


Non-controlling interest


19,922



21,156


Total liabilities and shareholders' equity


1,563,291



1,559,350


Condensed Consolidated Interim Statement of Cash Flows
(Unaudited - expressed in thousands of Canadian dollars)



Three months ended

September 30



Nine months ended

September 30




2023



2022



2023



2022


Cash provided by (used in):

















Operating activities

















Net loss for the period



(21,827)




(98,844)




(91,128)




(210,857)


Adjustments for:

















Income tax recovery



?




(6,927)




?




(8,718)


Interest and fee revenue



(3,445)




(4,312)




(11,077)




(10,750)


Change in fair value of biological assets



1,819




1,899




6,767




(1,403)


Share-based compensation



5,373




2,069




11,475




6,711


Depreciation and amortization



16,602




11,294




49,535




24,271


Loss (gain) on disposition of assets



14




(6)




275




(408)


Inventory obsolescence



9,126




(2,307)




22,594




3,545


Finance costs



2,142




8,409




9,773




34,853


Change in estimate of fair value of derivative warrants   



2,840




8,500




(4,202)




(6,856)


Unrealized foreign exchange loss (gain)



68




(75)




44




(40)


Asset impairment



1,783




86,522




4,248




88,372


Share of (profit) loss of equity-accounted investees



(6,581)




(9,176)




(15,161)




24,711


Realized loss on settlement of marketable securities



46,082




?




138,874




?


Unrealized loss on marketable securities



(46,053)




5,513




(129,656)




58,685


Additions to marketable securities



?




?




?




(3,500)


Proceeds from settlement of marketable securities



3,241




?




6,704




?


Income distributions from equity-accounted investees



?




976




?




1,661


Interest received



3,325




3,874




10,245




9,673


Change in non-cash working capital



13,033




1,163




(43,722)




(45,271)


Net cash provided by (used in) operating activities from continuing
operations



27,542




8,572




(34,412)




(35,321)


Net cash provided by operating activities from discontinued
operations



?




?




4,314




?


Net cash provided by (used in) operating activities



27,542




8,572




(30,098)




(35,321)


Investing activities

















Additions to property, plant and equipment



(3,042)




(2,119)




(5,683)




(6,654)


Additions to intangible assets



(32)




?




(88)




(55)


Additions to investments



195




(60,676)




(507)




(74,770)


Additions to equity-accounted investees



?




(8,072)




(16,989)




(102,272)


Proceeds from disposal of property, plant and equipment



1,150




3




1,287




4,003


Acquisitions, net of cash acquired



?




?




3,695




(31,149)


Change in non-cash working capital



730




(754)




1,857




(495)


Net cash used in investing activities from continuing operations



(999)




(71,618)




(16,428)




(211,392)


Net cash used in investing activities from discontinued operations



?




?




?




?


Net cash used in investing activities



(999)




(71,618)




(16,428)




(211,392)


Financing activities

















Change in restricted cash



(205)




70




(323)




7,677


Payments on lease liabilities, net



(9,793)




(9,127)




(29,400)




(18,751)


Repurchase of common shares, net of costs



?




(4,096)




(1,536)




(6,149)


Repayment of long-term debt



?




?




?




(10,000)


Change in non-cash working capital



(17)




4,996




182




7,112


Net cash used in financing activities from continuing operations



(10,015)




(8,157)




(31,077)




(20,111)


Net cash used in financing activities from discontinued operations       



?




?




?




?


Net cash used in financing activities



(10,015)




(8,157)




(31,077)




(20,111)


Change in cash and cash equivalents



16,528




(71,203)




(77,603)




(266,824)


Cash and cash equivalents, beginning of period



185,455




362,630




279,586




558,251


Cash and cash equivalents, end of period



201,983




291,427




201,983




291,427


SPECIFIED FINANCIAL MEASURES? 

Certain specified financial measures in this news release are non-IFRS measures. These terms are not defined by IFRS and, therefore, may not be comparable to similar measures provided by other companies. These non-IFRS financial measures should not be considered in isolation or as an alternative for or superior to measures of performance prepared in accordance with IFRS.?These measures are presented and described in order to provide shareholders and potential investors with additional measures in understanding the Company's operating results in the same manner as the management team. 

ADJUSTED EBITDA
Adjusted EBITDA is a non-IFRS measure which the Company uses to evaluate its operating performance. Adjusted EBITDA provides information to investors,?analysts,?and others?to aid?in understanding and evaluating the Company's operating results in?a manner similar to its management team. Adjusted EBITDA is defined as net income (loss) from continuing operations before finance costs, change in estimate of fair value of derivative warrants, depreciation and amortization, income tax recovery and excluding change in fair value of biological assets, change in fair value realized through inventory, unrealized foreign exchange gains or losses, unrealized gains or losses on marketable securities, realized gains or losses on marketable securities, share-based compensation expense, asset impairment, gain or loss on disposal of property, plant and equipment, cost of sales non-cash component, inventory impairment (recovery) and obsolescence, restructuring costs and transaction costs.. The Company presents both consolidated or total Adjusted EBITDA and Adjusted EBITDA by operating segment.

OPERATING SEGMENTS















($000s)

Liquor

Retail


Cannabis

Retail


Cannabis

Operations


Investments


Corporate


Total


Three months ended September 30, 2023



















Net earnings (loss)


6,449



2,753



(13,774)



9,834



(27,089)



(21,827)


Adjustments



















Finance costs


1,652



679



(241)



52



?



2,142


Change in estimate of fair value of derivative
warrants


?



?



?



?



2,840



2,840


Depreciation and amortization


9,436



4,340



954



?



815



15,545


Change in fair value of biological assets


?



?



1,819



?



?



1,819


Change in fair value realized through inventory


?



?



(2,330)



?



?



(2,330)


Unrealized foreign exchange (gain) loss


?



?



68



?



?



68


Unrealized (gain) loss on marketable securities     


?



?



114



(46,167)



?



(46,053)


Realized loss on marketable securities


?



?



?



46,082



?



46,082


Share-based compensation


?



2



?



?



5,371



5,373


Asset impairment


1,640



108



35



?



?



1,783


Loss (gain) on disposition of PP&E


(21)



49



(14)



?



?



14


Cost of sales non-cash component (1)


?



?



601



?



?



601


Inventory impairment (recovery) and
obsolescence


?



?



9,126



?



?



9,126


Restructuring costs


?



?



(323)



?



1,031



708


Transaction costs


?



?



?



?



226



226


Adjusted EBITDA


19,156



7,931



(3,965)



9,801



(16,806)



16,117


(1) Cost of sales non-cash component is comprised of depreciation expense




OPERATING SEGMENTS















($000s)

Liquor

Retail


Cannabis

Retail


Cannabis

Operations


Investments


Corporate


Total


Three months ended September 30, 2022



















Net earnings (loss)


10,736



(84,848)



(5,686)



10,179



(29,225)



(98,844)


Adjustments



















Finance costs


2,570



1,142



13



4,684



?



8,409


Change in estimate of fair value of derivative
warrants


?



?



?



?



8,500



8,500


Depreciation and amortization


407



2,076



?



?



7,300



9,783


Income tax recovery


?



?



?



(6,927)



?



(6,927)


Change in fair value of biological assets


?



?



1,899



?



?



1,899


Change in fair value realized through inventory


?



?



1,506



?



?



1,506


Unrealized foreign exchange (gain) loss


(2)



?



(73)



?



?



(75)


Unrealized (gain) loss on marketable securities     


?



?



?



5,513



?



5,513


Share-based compensation


?



105



?



?



1,964



2,069


Asset impairment


?



84,366



2,156



?



?



86,522


Loss (gain) on disposition of PP&E


(4)



(2)



?



?



?



(6)


Cost of sales non-cash component (1)


?



?



1,861



?



?



1,861


Inventory impairment (recovery) and
obsolescence


?



?



(2,307)



?



?



(2,307)


Restructuring costs


?



?



?



?



?



?


Transaction costs


?



?



?



?



417



417


Adjusted EBITDA


13,707



2,839



(631)



13,449



(11,044)



18,320


(1) Cost of sales non-cash component is comprised of depreciation expense


FREE CASH FLOW
Free cash flow is a non-IFRS financial measure which the Company uses to evaluate its financial performance. Free cash flow provides information which management believes to be useful to investors, analysts and others in understanding and evaluating the Company's ability to generate positive cash flows as it removes cash used for non-operational items. Free cash flow is defined as the total change in cash and cash equivalents less cash used for common share repurchases, dividends (if any), net cash used for acquisitions plus cash provided by dispositions (if any).



Three months ended

September 30


($000s)



2023


2022


Change in cash and cash equivalents                                                                                                             




16,528



(71,203)


Adjustments









Repurchase of common shares




?



4,096


Free cash flow




16,528



(67,107)


SOURCE SNDL Inc.


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