• Revenue: $131.7 million, up 6% sequentially and year-over-year.

• Free Cash Flow: $2.1 million in Q3; $21.8 million over the trailing four quarters.

• Store Count: 183 stores, with 11 new stores opened during the quarter.

• Market Share: 12% market share, up from 10% a year ago.

• Net Income: $800,000 in Q3, up from $200,000 in Q2.

• Cash Balance: $35.3 million, the highest ever.

• Same-Store Sales Growth: 5% sequentially in July; cumulative 118% since October 2021.

• Annualized Sales per Square Foot: $1,658, up from $1,637 in Q2.

• G&A Expenses: 3.7% of revenue, down from 5.2% a year ago.

• Adjusted EBITDA: $9.6 million, up 24% year-over-year.

• Gross Margins: 27%, down from 28% in Q2 and Q3 last year.

• Cabana Club Membership: 1.55 million members, up 8% sequentially and 41% year-over-year.

• ELITE Membership: 57,000 members, up 30% sequentially and 203% year-over-year.

• Warning! GuruFocus has detected 4 Warning Signs with HITI.

Release Date: September 17, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• High Tide Inc (NASDAQ:HITI) reported a record-breaking quarter with revenue up 6% sequentially to $131.7 million.

• The company has been free cash flow positive for five consecutive quarters, generating $2.1 million in Q3 and $21.8 million over the trailing four quarters.

• High Tide Inc (NASDAQ:HITI) achieved a 12% market share, up from 10% a year ago, and is on track to reach its goal of 15% market share in the provinces where it operates.

• The Cabana Club membership grew to 1.55 million members, up 8% sequentially and 41% year-over-year, with the ELITE paid membership tier growing 30% sequentially and 203% year-over-year.

• The company reported a net income of $800,000 in Q3, continuing its upward momentum from previous quarters.

Negative Points

• Consolidated gross margins decreased to 27% in Q3 2024 from 28% in the previous quarter and the same quarter last year.

• Salaries and wages increased in Q3 due to the pace of store growth, impacting overall expenses.

• Adjusted EBITDA was down 4% sequentially, attributed to the heightened pace of store growth and the ramp-up period required for new stores.

• The e-commerce segment experienced a revenue decline, impacted by inflationary pressures and a tough market environment.

• The resurgence of the illicit market has led to increased competition, particularly in regions like Regina, Ottawa, and Toronto, affecting legal sales and necessitating margin adjustments.

Q & A Highlights

Q: Congrats as there are only a handful of cannabis companies reporting positive EBITDA and net income. Congrats on that. Just wanted to follow up on stores, providing you're tracking to hit the top end of your '24 store guidance here of 20 to 30. Do you see any changes or strategy regarding opening stores in '25? Or still driven primarily organically versus more M&A opportunities out there? And then can you touch base on the new store economics as they become fully optimal, as you mentioned, after two, three quarters, regarding kind of average sales and margins compared to your existing profitable stores, kind of obviously, you're still seeing strong economics in the Ontario store ramps? Just a little bit of color on your store kind of outlook as we move into '25 here? A: Scott, thank you much for your question. So on the topic of 20 to 30, I think you asked me how is organic store growing for the year. It has been going very, very well. Already, we're up 21 stores at the end of Q3. And since then, we continue to do our -- we are in construction mode. So we're very confident that we will reach the upper end of our guidance that we have provided between 20 and 30 will be close to like 27, 28 stores, I think, and nothing will change going into next year, Scott, we found our secret mantra of growing organically. When we're building stores organically, I'd like to remind investors that we're spending just $260,000 to build out these locations and then loading them up with $100,000 or so in inventory and working capital. And then we just go back to ramping up these stores. And you can get better, higher quality growth in amazing locations that you can cherry pick than what we are doing currently. So we're going to kind of keep this approach exactly the same going into 2025, especially given we have five consecutive quarters. Our positive free cash flow, we've always said the quantum can significantly vary. But our intention is to remain free cash flow positive. Going into 2025, you talked about store economics a little bit. I had provided in my previous calls, I had noted that we may be able to raise margins towards the back half of this year. I don't see that happening. We're holding the line on margin. We may even go slight reduction in margin, given the illicit market resurgence that we are seeing a little bit. And you're clearly seeing a lot of competitors go out of business. Tokyo Smoke just went bankrupt. I believe that over 100 locations or they filed for CCAA proceedings. And we don't want to help the larger chains, the smaller chains and the independents that are just hanging by the thread. So we're going to hold the line of gross margins because we already have amazing economics as you pointed out. One quarter up or down on adjusted EBITDA is not going to change anything. When we're growing at the pace that we're growing, and generating 12% market share, this clearly exceeded our expectations. We thought it would be around that 11%, 11.2%, and that is a victory. But getting to 12% is an absolute win. So everything that we've been doing is working out for us, and we're going to stick to our plan going into 2025, Scott.