VREOFVREOFOTC
Loading
Operator: Good morning, and welcome to the Vireo Growth Inc.'s Second Quarter 2025 Results Call. The company would like to remind everyone that today's conference call may contain forward-looking statements within the meaning of U.S. and Canadian securities laws. These statements are based on management's current expectations and involve risks and uncertainties that could differ materially from actual events and those described in such forward-looking statements. For more information on forward-looking statements, please refer to Cautionary Notes Regarding Forward-Looking Statements in the company's earnings release. I'll now turn the call over to Chief Executive Officer, John Mazarakis. Please go ahead.
John Michael Mazarakis: Thank you. Good morning, everyone. Vireo's legacy markets are performing in line with our expectations and reflected a continuation of the trends that we discussed during the first quarter. On a pro forma basis, revenue and adjusted EBITDA were in line with our previously communicated ranges and were $90.7 million and $23.2 million, respectively, reflecting an adjusted EBITDA margin of approximately 25%. The closing of all 3 of our merger transactions during the quarter was a transformative event for the company, which significantly improved the profitability and cash generation profile of the business and expanded our portfolio of operations to 6 states. We remain pleased with our post-closing integration processes and are continuing to drive operational efficiencies and cost reductions. Subsequent to quarter-end, we completed a $153 million refinancing event, which refinanced all of our existing senior secured debt through a $120 million syndicated term loan with leading banks at an interest rate of 8.3% and a $33 million second-lien term loan with a $50 million accordion feature. In combination, these events lowered annual interest expenses by approximately $10 million and positioned us with over $100 million in cash on our balance sheet. That concludes my prepared remarks. I'll now hand over the call to Tyson.
J. Tyson Macdonald: Thank you, John, and thanks to everyone for joining us. I'll run through a quick summary of key income statement line items and review our balance sheet in more detail. Second quarter GAAP revenue of $48.1 million increased 91.4% year-over-year, driven by the partial quarters of contributions from the 3 merger transactions that we closed during the second quarter. For a complete review of our revenue performance by state and sales channel for the second quarter, please refer to the accompanying market sales tables in today's earnings release which will also be filed with our 10-Q later today. GAAP gross margin was impacted by termination fees related to our prior agreement with Grown Rogue. Excluding this impact and fair value accounting adjustments related to our closed transactions, gross margin was 51.6% and reflected a reduction of 260 basis points compared to the prior year quarter, primarily driven by softer performance in Minnesota. SG&A expenses excluding severance were $12.2 million or 25.4% of sales, an improvement of 480 basis points compared to Q2 of last year. GAAP operating income was impacted by transaction expenses, but excluding these impacts as well as fair value accounting adjustments, the Grown Rogue termination fee and share-based compensation, adjusted operating income was $11.3 million or 23.5% of sales, compared to 22.7% of sales in Q2 of last year. Excluding New York assets held for sale and income taxes receivable, total current assets at the end of Q2 were $186.2 million. And we ended the quarter with cash on hand of $106.2 million. Excluding New York liabilities held for sale, current long-term debt that was refinanced and the impact of uncertain tax positions, total current liabilities at the end of the quarter were $51.8 million. Corporate, selling, general and administration costs, excluding transaction costs, were approximately $1.8 million, compared to $2.9 million in the prior year quarter, representing a reduction of approximately 40%. As of June 30, 2025, the company had a total of 1,058,617,377 shares outstanding on the treasury method basis using a share price of $0.52. That concludes my prepared remarks. I'll now hand the call back to John for some closing comments.
John Michael Mazarakis: Thank you, Tyson. To summarize, Vireo's established markets continue to perform in line with our expectations and now we are a much larger and stronger organization with an attractive platform for growth. We're building a portfolio of prolific brands in cannabis and believe the combination of these platforms and leaders with Vireo has the potential to create significant value for all of our stakeholders. Thank you for joining us today. Now we would be pleased to take your questions. Operator?
Operator: [Operator Instructions] And your first question comes from Michael Kim with Zacks Research.
Sung-Chul Kim: First, just as it relates to the recently announced licensing agreement with Curio, just wondering if you could potentially frame sort of the opportunity as it relates to distributing their products through your network. And then, does the partnership impact your thinking as it relates to potentially selling assets in New York?
John Michael Mazarakis: We don't think that this partnership affects the divestiture of the New York assets. We do think that Curio is a leading brand in the nutraceutical space. We don't see any cannibalization with respect to our current SKUs, and we're very bullish on this relationship.
Sung-Chul Kim: Got it. That's helpful. And then maybe just in light of the recent refinancings and sort of the subsequent step-up in flexibility, just curious to get your perspective on capital management priorities. And then just related to that, I know you just closed the 3 transactions, but any thoughts on incremental M&A opportunities, what you might be seeing as it relates to the competitive landscape and valuations more broadly?
John Michael Mazarakis: We're trying to be part of every conversation with respect to M&A. We're looking at both the distressed space as well as the mature space. We're hopeful that M&A will come into fruition in the next 12 to 24 months. We're not banking on M&A; we believe in organic growth. We're making -- we're continuing to make a small investment in Minnesota, finishing our second grow. And our goal is to grow our cash from operations on a monthly, weekly, quarterly basis and focus on cutting back on the CapEx. Positive free cash flow at the unit level is our main focus.
Sung-Chul Kim: Understood. And then maybe just lastly, just curious if you could speak to the Arches platform just in terms of where things stand and how it could potentially enhance growth across some of the operators that aren't maybe currently leveraging the technology.
John Michael Mazarakis: We're still working on deploying the Arches delivery platform. Currently, we have delivery in all the states that we can have delivery. And this will be a work in process. We strongly believe in delivery and we'll continue to invest in that form of service.
Operator: Your next question comes from the line of Pablo Zuanic with Zuanic & Associates.
Pablo Ernesto Zuanic: Look, just starting with Minnesota, a 2-part question. First, maybe if you can just remind us what you have been doing to prepare for rec in terms of how much are you expanding capacity for in terms of stores. Have you been able to relocate any stores, any refurbishings of the stores? Anything else you can share in terms of how you're preparing for rec? And then the second question, the way I understand it in news flow in terms of when rec sales, it's not 100% clear when the incumbents, like yourselves and Green Thumb, can start supplying the rec market, and whether you're going to start supplying from the wholesale side or the retail side. If you can comment on that first, please.
John Michael Mazarakis: Thank you, Pablo. So I'm going to start with the second question first like you recommended. We think that there will be no product, both us, I think, and I don't want to speak for GTI, but as everyone knows, there's going to be a shortage of supply in Minnesota. And all of the supply initially will come from either us or GTI. So I foresee -- I cannot imagine, and I think the state concurs, that in the absence of Vireo and GTI being adult-use approved, there can't really be a rollout of the adult-use program. So having said that, I don't want to predict any date. We're ready. We're working with the state every day to deliver on what the requests are. And I think I'm hopeful that within the second half of this year, we will be selling adult-use in Minnesota. In terms of our footprint in Minnesota, our footprint remains the same. Our retail is limited to 8 locations, and it will remain limited it in this way. We did expand our growth with Elk River, as some of you may know. But we typically don't discuss size of Canopy and Canopy strategy.
Pablo Ernesto Zuanic: Right. Just to follow up on the same point. So once things that you can supplying on wholesale to the third-party stores, do you believe that at the same time you would be able to start selling from your own stores to retail customers? Or the 2 things don't go together necessarily?
John Michael Mazarakis: No, no. The 2 will go together, I believe. I just don't want to commit to a timing, because we're dealing with the government and we want to be respectful to their processes. But I strongly feel we'll get there within the second half of this year.
Pablo Ernesto Zuanic: Right. Look, and then if you can just maybe give a bit more clarity in terms of New York, right? Like, yes, you'll have these assets up for sale, but the way I understand it, and please correct me if I'm wrong, is that you also have an opportunity to partner with someone there to supply the state in a larger scale. So I'm just trying to understand, it's a bit odd to me this situation that we have that, on the one hand, you are selling the assets based on the accounting side, right, assets held for sale, but at the same time there's this, apparently, this opportunity to partner with someone in a larger scale. If you can then give more color on that, please.
John Michael Mazarakis: Well, our partners in New York have a pretty wide network. And we will leverage this network while we're getting this approved and after we get it approved, meaning after we divest the assets, to become the largest supplier of indoor flower in the state of New York. That's our goal. So I think the benefit of the partnership outweighs maybe the drawback of divesting part of the asset or the controlling part of the asset.
Pablo Ernesto Zuanic: Right. And the divesting parts of the assets, it's pending because of the regulatory side or because you're still looking for a buyer for those assets?
John Michael Mazarakis: No, no. We're not looking for a buyer. We've been committed to the same buyer for months now. It's just we're waiting for regulatory approval.
Pablo Ernesto Zuanic: Okay. And then, can you just comment more in general about the comments about the macro side of things in Nevada and Missouri? Your peers have made comments that they are quite concerned about price deflation in those markets, the competition from hemp. If you can just give more color the way you see the lay of the land from a macro standpoint in those 2 states.
John Michael Mazarakis: Yes. Our focus is to be the largest operator within the state. And I think we're well on our way in Nevada to being that. And our focus is market share. So we've been executing on that strategy, and I think everyone will be pleased with the outcome. The same thing goes for Missouri. We're a little smaller in Missouri in relative terms to maybe some of the top operators there. But we're still, I would say, a top 5 operator with a great product selection, strong partnerships. And we will continue to capture market share.
Pablo Ernesto Zuanic: John, if I may ask a last one, very last one. I know you touched on M&A already. But regarding Florida, are there conversations with The Flowery still going on? Or that's totally off, and if I want to look at Florida, it would have to be someone else? If you can just comment on that, and that's it.
John Michael Mazarakis: Yes. No. I mean the conversations are on ice. We don't plan on excluding The Flowery from any further consideration of Florida, but we're not limited to only doing a deal with The Flowery. I think Florida right now is going through a phase of price adjustment, and that type of compression is a little bit scary with respect to future EBITDA. So we want to be very prudent and not overpay for any assets. So we're going to stay disciplined, that the market can count on.
Operator: There are no further questions at this time. I will now turn the call back over to the Vireo Growth team for closing remarks.
John Michael Mazarakis: I just wanted to thank everyone for joining this call. We hope to see you again or hear from you again at the end of the third quarter. Thank you very much.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.