Vireo Growth Inc. (VREO) Earnings Call Transcript & Summary

Good morning, and welcome to Vireo Growth Inc.'s First 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 note regarding forward-looking statements in the company's earnings release. I will now hand the call over to Chief Executive Officer, John Mazarakis. Please go ahead, sir.

Thank you. Good morning, everyone. I'll begin with a brief summary of our Q1 performance as we're marching towards closing our pending merger transactions, and then Tyson will provide some extra detail on the financials. Our first quarter results were in line with our expectations for Vireo's core markets. First quarter revenue increased 1.9% year-over-year to $24.5 million and was down slightly sequentially compared to the fourth quarter. . We experienced continued growth in Maryland's stable performance in Minnesota and expected declines in New York Medical sales. Sales of wholesale products from our indoor facility in New York commenced in Q1 and have continued to ramp meaningfully in Q2. We are progressing towards closing our merger transactions in Q2. The closing of these transactions will meaningfully enhance our profitability profile with positive net income, strengthen the capabilities of our leadership team and provide a unique opportunity to build competitive advantages in our other markets with a proprietary technology and analytics platform. We expect to provide investors with additional updates on our combined platform and outlook later this year once all over the transactions have closed. We're very happy with the progress made so far, and we don't anticipate any issues with integration. That concludes my prepared remarks. I'll now hand the call over to Tyson.

Thank you, John, and thanks to everyone for joining us. I'll run through a quick summary of key income statement line items and then review our balance sheet in more detail. First quarter revenue of $24.5 million increased 1.9% year-over-year and was down slightly on a sequential basis compared to the fourth quarter. For a complete review of our revenue performance by state and sales channel for the first 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 performance was roughly flat compared to the first quarter of last year. It was impacted by approximately $300,000 in onetime fees related to the mutual termination of our agreement with Grown Rogue. Excluding this impact, gross margin would have improved 120 basis points compared to the first quarter of last year to 51.8%. SG&A expenses were $7.5 million or 30.5% of sales. Excluding severance expenses of approximately $400,000, SG&A expenses were flat compared to the first quarter of last year or 29% of sales. Operating income was $1.9 million compared to $4.7 million in Q1 of last year. First quarter operating income was impacted by onetime transaction expenses of $1.2 million related to our pending merger transactions. Excluding the impact of onetime transaction expenses, severance and Grown Rogue termination fees, operating income would have been approximately $3.9 million during the first quarter. The remaining variance to Q1 2024 operating income is due to an increase in stock-based compensation. Excluding New York assets held for sale, total current assets at the end of Q1 were $128.5 million, and we ended the quarter with cash on hand of $86.3 million. Excluding New York liabilities held for sale, and the impact of uncertain tax positions, total current liabilities at the end of the quarter were $13.3 million with 0 current debt. We had $62.6 million of long-term debt outstanding, which matures in early 2027. As of March 31, 2025, the company had a total of 472,078,412 shares outstanding on a treasury method basis using a share price of USD 0.45. We remain in a healthy financial position and are focused on driving returns for shareholders through prudent capital deployment against our highest growth opportunities. We believe our liquidity position will help support improved access to capital in the future and we expect to remain both patient and opportunistic as we look to continue innovating and investing in growth opportunities in our pipeline. That concludes my prepared remarks. I'll now hand the call back to John for some closing comments.

Thank you, Tyson. To summarize, Vireo's established markets are performing in line with our expectations, and our merger transactions are on track to close during the second quarter. We are seeking to build a portfolio of prolific brands and cannabis and believe the combination of these platforms and leaders with Vireo will create a highly attractive platform for growth that will generate significant value for all of our stakeholders. . Thank you for joining us today. Now, we will be pleased to take your questions. Operator?

[Operator Instructions] Your first question comes from the line of Pablo Zuanic with Zuanic & Associates.

I know you filed pro forma status for '23, '24 for the assets you're acquiring. Can you make any general comments about 1Q '25 on a pro forma basis?

Unfortunately, we will be including those financials as we're closing those targets.

Okay.

We won't be able to make any comments. But we don't anticipate any line site.

No, that's good. Look, obviously, I'm aware of what you file in terms of dependent transactions. But regarding The Flowery, should we assume that, that's off or are negotiations still going on? What public comments can you make on that?

We're still negotiating with The Flowery.

All right. And in terms of -- obviously, you will have to integrate all these assets, and that comes with -- carries some complexity, will you look at other states or even going deeper in the current states in 2025? Or that's not in the cards in the medium term?

Our M&A pipeline is pretty robust and we're very bullish with respect to integration, but nothing has materialized in a meaningful way yet.

Okay. And if I...

We have very strict metrics. Just one more thing, Pablo, we have very strict metrics with respect to balance sheet health and EBITDA generation for acquisitions, and those have to be met.

Understood. And then just an update on Minnesota in terms -- I know it's a moving target, but based on what you are hearing, when do you think recreational sales would actually begin?

All I can say is that we're working on Minnesota every day, but it will be in '25.

Okay. All right. And one last question. For those that are not so familiar with the company, we keep hearing from different MSOs. They all have top management. Everyone talks about great culture. But here and there, we hear our companies that have problems with growth, cultivation, processing or flows in terms of execution route to market. Can you just maybe you have a lot to integrate, and I know you said you don't expect any integration issues, but maybe just remind us of the skill set at Vireo growth, right, of the people. Why should we assume that this will be an above-average MSO in terms of overall execution? And that I mean from growth all the way to route to market and retail.

I'm not sure what you mean by above average, but we acquired market leaders in each of the markets that we executed those definitive documents in December. Those market leaders have been capturing market share for the last 5 years. It has been an all-stocks transaction, everyone is incented to build each state independently of others. And in some ways, we're following a very boutique model where, obviously, the subsidiaries are more important than the parent. And we will continue to support the local markets and we hope to continue to capture market share. That's the model.

Your next question comes from the line of Russell Stanley with Beacon Securities.

Just 1 for me, and I apologize if I missed it, but on New York, can you elaborate, I guess, on the progress you made on the wholesale front, given the indoor production? And share any numbers around penetration to date and where do you think penetration might be expected at the end of the year.

So in New York, we put a wholesale team together. We turned on our indoor growth in Q1 and we expect a steady state to occur around July. We have a 3-pronged approach. We are working with some of the top brands to bring them on. We're hoping to sell at capacity, and we have a pretty large growth. So we're bringing in the best brands that we can think of servicing the customers in New York. We're partnering with our social equity partners, which has been an ongoing project for the last year, which will also enhance the demand side of the equation. And I think we're going to have the best indoor flower. We were just there last week, the flower looks better than ever. And I think if we combine those 3 elements, we are selling out right now, but we only have like a couple of rooms that are coming online. Our 17 rooms will be online by July 2, and that's -- we expect late Q2 and Q3 to see a meaningful bump on the wholesale side. But we have no reasons to expect not to sell everything.

[Operator Instructions] It seems that we have no further questions for you today. That concludes the question-and-answer session in today's conference call. I would like to thank you for your participation. You may disconnect your lines.