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

Good morning, and welcome to the Vireo Growth Inc. Third 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 closing statements in the company's earnings release. I'll now hand the call over to Chief Executive Officer, John Mazarakis. Please go ahead.

Thank you. Good morning, everyone. I'll begin with a brief summary of Q3 and recent business highlights, then Tyson will provide some extra detail on the financials before we open the call to questions. Our third quarter results reflect our first full quarter of contributions from our recently closed M&A transaction in Missouri, Nevada and Utah. Performance remains in line with our expectations and reflected organic growth throughout the portfolio in addition to the growth realized from the acquisitions. Subsequent to quarter end, we announced the acquisition of 86% of the outstanding senior secured convertible notes of U.S. multistate cannabis operator Schwazze. We've entered into a restructuring support agreement with Schwazze, which once completed, will result in Vireo owning the majority of Schwazze's total assets. Today, the Schwazze portfolio includes 46 dispensaries and 2 manufacturing facilities spread across Colorado and New Mexico, which would expand Vireo's portfolio to 8 states with more than 80 operating dispensaries. As is the case with our portfolio acquisitions, the Colorado and New Mexico assets represent leading businesses within their respective markets. As we have stated in the past, we are seeking to build a portfolio of prolific brands and cannabis through organic growth and accretive M&A, and we look forward to welcoming the Schwazze team to Vireo. As we look at our existing portfolio, we have largely completed our various post-merger closing integration work streams. These initiatives include the integration of our various HR and ERP platforms, rationalization of insurance providers and policies and the centralization of our procurement processes across the entire enterprise. We have already achieved corporate overhead synergies and expect full integration before the end of the year. We closed the third quarter with over $117 million in cash, which we expect will enable us to continue executing our growth strategies. That concludes my prepared remarks. I'll now hand over the call 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. Third quarter GAAP revenue of $91.7 million, increased 264% year-over-year on a reported basis, driven by the first full quarter of contributions from the 3 merger transactions that we closed during the second quarter. As John mentioned earlier, the prior year comparative period does not include the results of our 3 merger transactions. However, even with the prior year contributions reflected, we still realized double-digit organic growth. For a complete review of our revenue performance by state and sales channel for the third quarter, please refer to the company 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 the noncash inventory valuation adjustments, primarily related to the required GAAP fair value step-up associated with our closed transactions. Excluding this impact, gross margin was 55.4% and reflected an improvement of 500 basis points compared to the prior year quarter. GAAP operating income was also impacted by noncash inventory valuation adjustments as well as transaction severance expenses. But excluding these impacts share-based compensation, adjusted operating income was $21 million or 22.9% of sales. Adjusted EBITDA was approximately $25 million or 27.3% of sales, reflecting an improvement of approximately 200 basis points on a GAAP basis as compared to the third quarter of last year. Excluding New York assets held for sale and income taxes receivable, total current assets at the end of Q3 were $191.1 million, and we ended the quarter with cash on hand of $117 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 $60.8 million. As of September 30, 2025, the company had a total of 1,062,254,684 shares outstanding on the treasury method basis using a share price of $0.64. We remain in a very healthy financial position and are focused on driving returns for shareholders through prudent capital deployment against our highest growth opportunities. That concludes my prepared remarks. I'll now hand the call back to John for some closing comments.

Thank you, Tyson. In summary, our financial performance continues to track in line with our expectations, and we're executing well against our stated objectives. We believe the current momentum across the portfolio combined with accretive M&A will enable us to create significant long-term value for all of our shareholders. Thank you for joining us today. Now we will be pleased to take your questions. Operator?

[Operator Instructions] And our first question comes from the line of Michael Kim with Zacks Small-Cap Research.

I guess, first, in terms of the Schwazze transactions, could you maybe discuss the broader strategic rationale as it relates to opportunities to expand into New Mexico and Colorado. And then just from an economic perspective, any color on how we should be thinking about potential accretion just after taking into consideration, I guess, incremental interest expense and the minority ownership stakes.

Yes. Thank you, Michael. So in general -- unfortunately, I'm going to have to be somewhat vague because the transaction is still developing. We have bought the debt. We will foreclose on all the assets. There are some minority stakes, like you mentioned. There are ongoing legal expenses that will slightly alter the final EBITDA number that we're purchasing. But for me, I always say this, I never buy a business for its trailing EBITDA, or why it existed up to this point. There's always like some vision of accretive operational enhancements. And I think in this case, we're buying the largest company in Colorado. I also happen to feel that it is the best. If I want to be conservative, I want to say one of the best. Colorado is primed for consolidation. And I think our focus will be on what I broadly describe as states that have over $100 million of revenue and really solid gross margins. Colorado checks that box, and together with New Mexico make up a solid market.

Got it. That's helpful. And then as it relates to the integration of the prior acquisitions. Just curious if you could maybe give a bit of color in terms of the level of synergies that you expect to realize and how that might potentially impact overall margins.

I think the next -- this quarter, fourth quarter of 2025 will shed plenty of light in this question. So I think -- I prefer to let numbers speak for themselves instead of me sort of projecting a number. I think Q4 will answer your question. And our goal is to continue to realize synergies and to improve both the gross margin and the EBITDA margin of each of the businesses that we're consolidating.

Fair enough. Okay. And then just finally, maybe coming back to the Schwazze transaction. Any insights into the financing and then stepping back, any near-term implications for capital allocation priorities going forward?

I mean the Schwazze will fall in line with our debt-to-EBITDA metrics that we've been very laser-focused on. We will never opt to be overlevered. That holds true for any state and for the mothership. And we plan on running Schwazze without adding any layers at the corporate level. So I expect corporate expenses to stay pretty much fixed as we're expanding our top line and growing our EBITDA.

Our next question comes from the line of Pablo Zuanic with Zuanic & Associates.