High Tide (HITI) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue for Q2 2023 was $118.1 million, up 46% year-over-year and consistent sequentially despite three fewer days in the quarter [5][52] - Adjusted EBITDA reached a record$ 6.6 million, representing a 174% increase year-over-year and a 20% sequential increase, marking the 13th consecutive quarter of positive adjusted EBITDA [6][29] - Fully diluted earnings per share showed a loss of $0.02, significantly improved from a loss of$ 0.14 in Q2 2022 and a loss of $0.05 in Q1 2023 [6][52] - Cash flows from operations before changes in non-cash working capital were$ 5.5 million, marking a 241% increase year-over-year [45][54] Business Line Data and Key Metrics Changes - General and Administrative (G&A) expenses decreased to $6.2 million, down$ 1.3 million sequentially, and represented 5% of revenue in Q2 2023 compared to 6% in Q1 2023 [8][19] - Same-store sales increased by 30% year-over-year and 1% sequentially, with average daily same-store sales up 5% sequentially for the quarter [35][101] - Consolidated gross margin remained consistent at 27%, with gross profit of $31.6 million, up 39% year-over-year [16][62] Market Data and Key Metrics Changes - Canadian revenue represented 88% of total revenue, continuing to be the main focus and driver of growth [16] - The company's market share outside Quebec rose to 9.5% in Q2 from 9% in Q1, marking the seventh consecutive quarter of gains [40] - The average store in Ontario generates more than 3.5 times the revenue of provincial peers, while Alberta stores generate more than twice as much [10] Company Strategy and Development Direction - The company aims to become free cash flow positive by the end of the calendar year, focusing on operational efficiency and cost control [37][50] - Plans to expand retail presence include adding six to eight new locations in the second half of the year, with a long-term goal of achieving 15% market share [31][80] - The company is exploring M&A opportunities, particularly in light of recent market consolidations, while remaining disciplined in its approach [66][80] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about continued same-store sales growth despite a challenging market environment, anticipating that the number of stores will decline while total industry sales expand [48][101] - The company highlighted the importance of navigating the current macroeconomic challenges and maintaining a strong balance sheet [11][36] - Management noted that the illicit market still represents a significant portion of retail sales, indicating potential for growth if this share can be reclaimed [111] Other Important Information - The company ended the quarter with$ 22.5 million in cash and is in discussions to increase its credit line with ConnectFirst [20][36] - The company has seen a significant increase in its Cabana Club membership, reaching over 1 million members, which is the largest loyalty program in Canadian cannabis retail [47] - The company is focused on enhancing its ELITE offerings, aiming for 25% to 30% of product selection to be ELITE only [53] Q&A Session Summary Question: Comments on competitive landscape and consolidation opportunities - Management acknowledged the recent challenges faced by competitors and indicated that this could present opportunities for High Tide to acquire quality assets [22][56] Question: Plans for new store growth and cash flow generation - Management confirmed plans to open more stores in the second half of the year while maintaining a focus on free cash flow generation [32][59] Question: E-commerce performance and adjusted EBITDA - Management stated that e-commerce sales have slowed but are still generating adjusted EBITDA, with a focus on maintaining operational efficiency [75][76] Question: Free cash flow guidance and capital allocation plans - Management emphasized the goal of achieving free cash flow positivity and indicated plans to accelerate growth through organic expansion and potential M&A opportunities once this is achieved [78][80] Question: G&A cost savings and advertising spend - Management reported significant reductions in G&A expenses and noted a strategic decrease in advertising spend in response to market conditions [82][95]