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These include a restructuring program aimed at reducing corporate overheads, enhancing organizational efficiency and realizing annualized savings of more than $20 million. Additionally, we moved to privatize Nova through the acquisition of the remaining outstanding minority equity interest and just yesterday closed the acquisition of Indiva, enabling us to emerge as the leader in the Canadian infused edibles category. Together, these actions are strengthening our foundation and expanding our potential for future growth. Our leadership team is working on a number of additional initiatives and investment opportunities that we are excited to share as they come to fruition in future periods.

Our solid balance sheet serves as a beacon for future opportunities, enabling us to allocate capital thoughtfully across both organic and inorganic investments. In the third quarter, we increased our cash balances from $183 million on June 30 to $263 million on September 30, 2024, and continue to have zero outstanding debt. We have not raised cash through the issuance of shares since 2021, and our share repurchase program became active subsequent to the end of the quarter. I will now turn the call over to Alberto.

Alberto Paradero -- Chief Financial Officer

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 document.

Looking at our Q3 2024 financial highlights, we continue to see significant improvements in gross profit, gross margin and free cash flow. Net revenue in the third quarter of 2024 reached $236.9 million, a marginal decline compared to the prior year. This decline was driven by our liquor retail segment, while our combined cannabis segment posted a healthy 8% growth. Gross profit of $63 million represents a $14.4 million increase or 30% growth year over year with a substantial 610 basis points improvement in gross margin.

This translates into another quarter of record gross margin, reaching 26.6%. Despite the significant improvements in margin and continued optimization of operating expenses, adjusted operating income was negative $16.6 million, a slight decrease compared to the prior year. This was mainly driven by an unfavorable $13.4 million fair value adjustment from our equity accounted investees in the quarter compared to a $6.6 million revaluation in the same quarter of the prior year. It is important to note that we only adjust operating income for restructuring charges and intangible impairments, which in the third quarter were limited to a $1.9 million restructuring charge.

If we were to exclude the volatility created by quarterly fair value adjustment to our equity accounted investees, the improvement in adjusted operating income compared to the same third quarter of the prior year would have been $19 million. Free cash flow was positive in the quarter at $9.2 million, bringing the year-to-date free cash flow to a negative $2.8 million. We're on pace to deliver positive free cash flow for the 2024 calendar year, in line with or ahead of guidance. Free cash flow in the quarter was lower than in the same period of prior year, driven by different management of phasing of retail inventory buildup throughout the year, as we will discuss in a few minutes.

When examining the historical quarterly financial performance evolution, we clearly observe a few patterns. Net revenue in 2024 is relatively flat compared to 2023 as the strong growth in our cannabis segment is being offset by market softness in the larger liquor segment. We also see a clear trend of profitability improvement, both in gross profit and adjusted operating income. The same applies to free cash flow, where there is a noticeable upward trend compared to previous years.

Additionally, we observed a more muted seasonality effect, thanks to our disciplined approach to working capital management. As we look at the contributions from each segment, we can see how the net revenue decline in liquor is impacting the overall consolidated results despite the strong performance from cannabis. When we add the $5.6 million net revenue growth from cannabis retail, the $4.1 million from cannabis operations and the negative $3.1 million in the Corporate segment related to the revenue elimination from cannabis operations sales into our own retail, we arrived at a total of $6.5 million or 8% growth in cannabis. In terms of gross profit, liquor retail shows a small decline of $0.3 million despite the larger revenue shortfall.

Cannabis Retail contributes to an improvement of $0.7 million, while cannabis operations is driving most of the growth with an impressive $14 million improvement. The aggregate of all the segment adds up to $14.4 million or 30% growth in gross profit. When looking at adjusted operating income, we can clearly see the significant step-up in profitability driven by our operating segments, offset by the volatility of the fair value adjustment in our Investment segment. Our Corporate segment shows a small unfavorable variance of $1.4 million, driven by inflation and the different phasing of onetime expenses, partly offset by restructuring productivity savings.

Free cash flow is positive at $9.2 million in the third quarter of 2024, although it is a reduction compared to the same quarter in the previous year, this reduction is driven by a different phasing of inventory buildup between the quarters. We can see this more clearly on the next page. As we examine the drivers of free cash flow in the third quarter of 2024, we first noticed the negative $19.3 million in net income, primarily driven by the fair value adjustment in our Investment segment. Since this is a noncash item in our P&L, it is offset by noncash add-backs, which are higher in the third quarter compared to the previous two quarters for this reason.

A benefit we saw in the third quarter was a collection of $10.7 million of accrued interest related to the repayment of the majority of Ascend and Jushi loans from SunStream. This interest was previously recorded in our P&L as part of the net asset value of the Investment segment. As the interest was collected, we see a positive impact on free cash flow. The repayment of the principal balance was associated with these two loans, while reported as an increase in cash is excluded from free cash flow calculation.

The net change in inventory and other working capital is slightly positive at $0.9 million in the third quarter of 2024, with relatively small fluctuations between quarters. As we can see in the bar chart on the right of Page 7, in 2024, we have significantly less volatility in terms of inventory seasonality buildup. In previous years, we had a large increase in the first quarter, a moderate increase in the second and reductions in the second half of the year. In 2024, the buildup in the first half was much smaller.

And as a result, the reduction in the second half will also be smaller. Let's now look at each of the three operating segments, starting with liquor retail. Net revenue in the third quarter of 2024 for this segment was $144.6 million, a decline of $7.2 million or 4.8% compared to the prior year. While the decline is smaller than what we saw in the second quarter and revenue is growing quarter over quarter by $4 million, what is still impacted by the softness seen across North America.

We continue to believe this is not a concern in terms of long-term growth potential for this segment. Despite these macro headwinds, we continue to expand gross margin, reaching 25.6% in the third quarter, an improvement of 100 basis points compared to last year. As a result of this margin expansion and efficiencies in the management of operating expenses, this segment's operating income delivered significant growth of $3.5 million or 42.5% compared to the same quarter of 2023. Moving into cannabis retail, we saw net revenue in Q3 2024 of $81.1 million, a 7.4% increase compared to Q3 of 2023.

This growth was mainly driven by same-store sales growth of 2.3%, new store openings and incremental revenue from our Dutch Love stores acquired earlier in the year. The gross margin of 25.5% represented a reduction of 100 basis points compared to the same period of last year due to several strategic pricing decisions aimed at increasing the store traffic. Adjusted operating income increased by $1 million or 28.1% compared to the prior year, driven by the gross profit improvement. Finally, our cannabis operations segment is once again showing the largest improvement, both in terms of growth and profitability.

In the third quarter of 2024, this segment delivered net revenue growth of 19% year over year, reaching $25 million. All of this growth is organic and driven by increased provincial board and B2B distribution. By accelerating gross margin improvements through several productivity initiatives, the segment reached a new record of 21.2%, translated to $5.3 million in gross profit. This is a significant step-up compared to last year and previous quarters.

Adjusted operating income was negative $0.6 million, marking an improvement of close to $14 million compared to the same period last year. In summary, our cannabis business is experiencing strong growth, and we're driving significant improvements in profitability and cash flow generation. We're on pace to deliver our guidance of positive free cash flow for the full year, marking an important step in contributing to raise the bar and realize our full potential. I would now like to pass the call back to Zach to share a few more operational highlights for the quarter.

Zach George -- Chief Executive Officer

Thank you, Alberto. Beyond our financial performance, I would also like to highlight our core priorities: growth, profitability and people as each are fundamental to our long-term success. Starting with growth, our cannabis segments have led with a combined net revenue increase of 7.4% year over year in Q3 and an impressive 90 basis point share gain in Canadian retail. Key drivers include quality execution, stabilization from 2023 store openings and the recent expansion into British Columbia.

Our cannabis operations segment showed dynamic growth of 19%, driven by quality and innovation with 71 distribution points added this quarter and 491 year-to-date. Through M&A, we strengthened our portfolio with two very recent acquisitions, Indiva, making us a leader in Canadian edibles and the privatization of Nova, allowing SNDL shareholders to fully benefit from retail segment growth. In liquor retail, despite this year's market contraction, our private label offerings are growing to meet consumer demand for quality and affordability while driving margin accretion. Shifting to profitability.

We are pleased to see continued strong momentum, leading to the record gross margin and $9 million of positive free cash flow in the quarter. Our positive free cash flow was enabled by efficiency improvements and interest income and not impacted by the noncash fair value adjustment of our investment portfolio. Productivity improvements totaled $15 million in Q3, largely from our cannabis operations segment through procurement, manufacturing and cultivation efficiencies. Data licensing in our cannabis and liquor retail segments reached $4 million this quarter, a 6% increase from the second quarter.

We also achieved $5 million in overhead savings, more than offsetting inflation and growth investments driven by efficiency gains across all segments, as well as restructuring actions initiated in July. As you can see on the following page, summarizing the restructuring program progress, this program delivered more than $2 million in savings in the quarter, equivalent to an annualized run rate of $10 million or about 50% of our planned target. Finally, we remain committed to our people as a top strategic priority. In the second quarter, we launched a strategic talent review to identify key roles, as well as development and succession plans.

We continued deploying several community engagement initiatives, offering all of our team members the possibility to participate in sessions around mental and physical well-being and also rolled out an employee recognition program with over 40 awards being presented across our organization, celebrating the amazing contributions from our team members. Last but not least, we continue the development of a total reward structure that aligns our compensation philosophy with both individual and company performance. My conviction and confidence in our team that is setting new records with each quarter are at all-time highs. Our dedicated leaders have the expertise and drive to unlock SNDL's significant potential.

I'd like to thank our entire team for their contributions and our shareholders for their continued trust. I will now pass the call back to the operator for analyst Q&A. Thank you.

Questions & Answers:

Operator

[Operator instructions] The first question comes from the line of Frederico Gomes from ATB Capital Markets.

Frederico Gomes -- ATB Capital Markets -- Analyst

Morning, Zach and Alberto. Thanks for taking my questions. First question on the Nova acquisition. Could you talk about, I mean, why you decided to acquire that remaining stake? And strategically, I guess, just what sort of advantages do you see in owning -- fully owning Nova as opposed to a majority stake?

Zach George -- Chief Executive Officer

Frederico, thank you very much for the question. So as you know, this is a very competitive space with excess taxation and reasonably low margins. So the acquisition of that minority stake in Nova is going to ensure that SNDL shareholders can get the full benefit of the cash flow and earnings potential of that retail business.

Frederico Gomes -- ATB Capital Markets -- Analyst

On your cannabis operations, quite a significant improvement in margins there. Can you talk a little bit about the key drivers behind that margin improvement? And in terms of your expectations going forward, do you expect to continue to see margin expanding? And if so, where is that going to come from?

Alberto Paradero -- Chief Financial Officer

Yes. Fred, this is Alberto. So yes, actually, most of the -- or all of the improvements are driven by an end-to-end holistic productivity program that the management team of the segment has put in place already since the end of last year. As you remember, in the fourth quarter of 2023, we decided to exit or close the Olds facilities that created already a bump in the gross margin and the profitability of the segment in the first couple of quarters.

Since then, we have been driving efficiencies in labor and automation in our manufacturing facilities. We're seeing a ramp-up in our cultivation assets as well. So as we were already anticipating in the previous quarters, we were expecting to be over 20% by the end of this year. So we're happy to see that already happening in the second -- in the third quarter.

And we have a long list of additional initiatives, including the additional capacity utilization from the growth that the business has seen and more automation and efficiency improvements that will continue to push that gross margin further up.

Zach George -- Chief Executive Officer

Yes. Frederico, you've been following our story for quite some time, and you're well aware that in the earlier days several years ago, Olds was sitting with exposure to a power jurisdiction that really challenged its competitiveness. And so, as we've built the business, leaned more into procurement and broadened out our manufacturing capabilities, we have been able to eliminate exposure to high-cost biomass, which would really impair COGS. And so, that was a meaningful first step that's been showing up through the numbers in the last year.

And our president of cannabis, Tyler Robson, has been leading for a number of initiatives that are being very impactful in today's environment, including managing mix, SKU creep, automation. And so, there's a number of efficiencies that are still in play. And we're very confident in the team being in a position where they actually understand the drivers here and can action against the economic outcomes that we're seeking. So when we think about room for expansion, do we think that we can take gross margins to a zone where they have a three handle, the answer is absolutely.

So a lot more to come here.

Frederico Gomes -- ATB Capital Markets -- Analyst

Perfect. And then, just one more for me. In regards to capital allocation, I know that you mentioned a bit of this, but how are you looking at, I guess, different growth options and investments in Canada, the U.S. or other geographies internationally? And the second part of the question also in regards to your buyback, you obviously repurchased some shares recently.

So can you comment on those repurchases? Is it something that you intend to continue to do tap that buyback? And in terms of the valuation here, you bought it at $1.90. So how do you view your valuation right now at over $2.20?

Zach George -- Chief Executive Officer

So there's a few questions in there. Just starting with capital allocation. It's going to be a very similar answer consistent with what we spoke about last quarter, Frederico. So two real key priorities in terms of capital allocation are going to be continued growth in Canadian retail and also investment in -- potential investment in assets in the U.S.

Both of those pillars are part of our core multiyear strategic plan. And when you think about the repurchase of shares, we absolutely want to take advantage of repurchasing shares at levels that we think reflect a discounted valuation. The transactions that you referenced were part of a nondiscretionary trading plan, which we were able to execute through a blackout period. And this is something that will be regularly reviewed by our board in terms of scale and levels at which to purchase.

So we expect to be in a position to acquire shares on an ongoing basis. I think there's a misconception out there that somehow a share repurchase plan is best used to prop up a security. And that's just something we will never do. It's really for the benefit of long-term holders as we're reflecting really strongly into positive free cash flow and ultimately net income.

Frederico Gomes -- ATB Capital Markets -- Analyst

Great. Thank you very much for the color.

Zach George -- Chief Executive Officer

Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Yewon Kang from Canaccord Genuity.

Yewon Kang -- Canaccord Genuity -- Analyst

Hi. Good morning and thank you for the question. So my first question is regarding the recently completed Indiva acquisition. Through that transaction, SNDL obtained a facility in London.

And my understanding is now that the company has two edibles-focused facility, including the LYF facility in Kelowna. Just wanted to ask about if you guys have any plans to consolidate these facilities in the future. And I know it's only been a few weeks since the acquisition closed, but could you guys give us a color on the upside you're seeing from integrating Indiva brands onto your distribution channel?

Zach George -- Chief Executive Officer

It's a great question. And I'll let Alberto talk a little bit about our broader planning. The acquisition actually closed yesterday, so well inside of a few weeks. And we're very excited about the addition of the Indiva team and product mix to our broader business.

You will see an impact in Q4 from almost two months' worth of performance there. And given the margin profile that's available in the edibles category, we see that this acquisition being margin accretive to our upstream manufacturing portfolio. So it's something we're very excited about. I would answer the question on real estate more broadly.

There are a number of opportunities we have for facility consolidation that will result in noncore real estate being available for monetization, which should further bolster cash balances and enable us to recycle capital into accretive opportunities. We're going to be working on a longer-term prudent and thoughtful integration plan with Indiva, and we'll be able to provide more details on that in the coming months.

Alberto Paradero -- Chief Financial Officer

Yes. Just to add the -- both our teams, the existing of SNDL and the team from Indiva now joining our family, they are already collaborating and exploring the different synergy opportunities that we have across revenue, supply chain and operating expenses. We do have a long list of ideas that are being analyzed to make sure we make the right choices and the right decisions. But certainly, we do see a lot of synergies.

We'll be able to share where those opportunities are as we complete the analysis in the next several weeks.

Yewon Kang -- Canaccord Genuity -- Analyst

And just a second question on the retail environment for cannabis dispensaries. So a couple of your peers have called out some of the pressures that they're seeing in Ontario, specifically in relation to the illicit stores popping up all around the province. Just wanted to ask if you have been seeing similar pressures on your retail stores as a result of this illicit market that's popping up again and what your thoughts are going forward in terms of the provincial regulators coming in to regulate these illegal stores?

Zach George -- Chief Executive Officer

It's a great question. It's also a very difficult question. The impact of the illicit market in the Canadian -- within the Canadian landscape has been constant. I wouldn't say that there's some new emergence of headwinds.

They've been there in different forms in most provinces. What we do know is that there is some degree of enforcement happening, and we've seen pockets and incidents that are encouraging in terms of our provincial government's willingness to stamp out the illicit market. We still need broader regulatory change to help support that. And we believe that you're going to see additional rational reform come through in 2025.

Even something as small as changing the limits on edibles from 10 milligrams to 100 would have a material impact on illicit market trade. Again, no one's coming to save us here. So what we do know is that convenience and value are winning with the consumer at the end of the day, and we're able to offer a very competitive selection that is delighting consumers. And so, we're going to continue to focus on being strong competitors in the legal market.

Yewon Kang -- Canaccord Genuity -- Analyst

Thank you. I'll hop back into the queue.

Operator

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

Zach George -- Chief Executive Officer

Thank you, operator, and thank you to everyone for joining us for the call. We look forward to updating you in the coming months. Have a great day.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Zach George -- Chief Executive Officer

Alberto Paradero -- Chief Financial Officer

Frederico Gomes -- ATB Capital Markets -- Analyst

Alberto Paredero -- Chief Financial Officer

Yewon Kang -- Canaccord Genuity -- Analyst

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SNDL (SNDL) Q3 2024 Earnings Call Transcript was originally published by The Motley Fool