Vireo Growth Inc

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 Mazarrakis. Please go ahead.

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 three 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 six 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 secure 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.

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. Second quarter gap revenue of $48.1 million increased 91.4% year-over-year, driven by the partial quarters of contributions from the three 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 10Q 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. S&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. Including 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 52 cents. That concludes my prepared remarks. I'll now hand the call back to John for some closing comments.

Thank you, Tyson. To summarize, various 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 Canada 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?

If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. We will pause for just a moment to compile the Q&A roster. And your first question comes from Michael Kim with Zach's Research. Your line is open.

Hey, everyone. Good morning, and thanks for taking my questions. 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?

Hi. Good morning. We don't think that this partnership affects the diversitude 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.

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 three 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?

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 continuing to make a small investment in Minnesota, finishing our second growth. And our goal is to grow our cash from operations on a monthly, weekly, quarterly basis, and focus on cutting back on the CapEx. Got it. Positive pre-cash flow at the unit level is our main focus.

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?

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 working process. We strongly believe in delivery and we'll continue to invest in that form of service.

Got it. Okay. Thanks for taking my questions. Thank you. Thank you.

Your next question comes from the line of Pablo Zwanek with Zwanek and Associates. Please go ahead.

Thank you. Good morning, everyone. Look, just starting with Minnesota, a two-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 refurbishing 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 the news flow in terms of when REC sales, it's not 100% clear. when the incumbents, like yourselves and Greensum, can start supplying the REG market, and whether you can start supplying from the wholesale side or the retail side. If you can comment on that first, please. Thank you.

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, you know, 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, you know, 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, you know, is limited to eight locations. and it will remain limited in this way. We did expand our grow with Elk River, as some of you may know, but we typically don't discuss, you know, size of canopy and canopy strategy.

All right, and just to follow up on the same point, so one thing is that you can start supplying wholesale to the third-party stores. Do you believe that at the same time you will be able to start selling from your own stores to retail customers? Or the two things don't go together necessarily?

No, no. The two will go together, I believe. Okay. I just don't want to come into 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.

Right, thank you. Look, and then if you can just maybe give me more clarity in terms of New York, right? Like, yes, you 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 at a larger scale. If you can give more color on that, please.

Thank you. 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 role. Right. 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.

Right. And the divesting part of the assets, it's pending because of the regulatory side or because you're still looking for a buyer for those assets?

No, no, no. We're not looking for a buyer. We've been committed to the same buyer for months now. It's just that we're waiting for regulatory approval.

Okay. Thank you. And then you can just comment more in general about the comments about the macro side of things in Nevada and Missouri. Some of 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 two states.

Yeah, 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, you know, a top five operator with a great product selection, strong partnerships, and we will continue to capture market share.

Thank you, John. If I may, a last one, very last one. I know you touched on M&A already, Regarding Florida, are the conversations with the flowery still going on, or that's totally off? And if you're going to look at Florida, it would have to be someone else. If you can just comment on that, and that's it. Thank you.

Yeah, 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 a 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.

Got it. Thank you very much.

Thank you.

There are no further questions at this time. I'll now turn the call back over to the VarioGrowth team for closing remarks.

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.

Ladies and gentlemen that concludes today's call. Thank you all for joining. You may now disconnect.