Earnings call transcript: Vireo Growth Q4 2024 revenue rises, stock dips

Vireo Growth Inc. (VREO) reported a 15.4% increase in full-year revenue to $99.4 million, with fourth-quarter revenue up 3.5% to $25 million. Despite these gains, the company’s stock fell 8.2% to $0.59 following the announcement of a Q4 net loss of $15.7 million, attributed to one-time transaction expenses. According to InvestingPro data, the stock has experienced high price volatility, with a 30.86% YTD decline and a market capitalization of $141.21 million. The company’s strategic initiatives, including a new cultivation facility and expansion into adult-use sales, signal a transformative year ahead.

Key Takeaways

• Full-year revenue increased by 15.4% to $99.4 million.
• Q4 net loss of $15.7 million due to transaction expenses.
• Stock price fell by 8.2% post-earnings announcement.
• New cultivation facility and adult-use sales in Minnesota are key future strategies.
• Strong cash position of $91.6 million.

Company Performance

Vireo Growth Inc. demonstrated solid revenue growth for the year, with a 15.4% increase compared to the previous year. The fourth quarter saw a more modest 3.5% increase. The company achieved record gross margins of 51.1% and operating income of $13.6 million, indicating strong operational efficiency. However, the net loss of $15.7 million in Q4, impacted by one-time expenses, has raised concerns among investors.

Financial Highlights

• Revenue: $99.4 million for the full year, up 15.4% year-over-year.
• Fourth Quarter Revenue: $25 million, up 3.5% year-over-year.
• Gross Margin: 51.1% for the full year.
• Operating Income: $13.6 million.
• Year-End Cash: $91.6 million.

Outlook & Guidance

Vireo Growth anticipates a transformational year in 2025, with the completion of its new Minnesota cultivation facility and the launch of adult-use sales in the state. The company is also focusing on capital deployment in New York and Minnesota, expecting significant contributions from its New York facility in Q2 2025. Future revenue forecasts indicate continued growth, with projections of $23.9 million in Q1 and Q2 of 2025, rising to $29.3 million by Q4 2025.

Executive Commentary

CEO John Mazerakis emphasized the company’s strategic focus, stating, "We are seeking to build a portfolio of prolific brands in cannabis." He highlighted the potential for growth through planned mergers and capital deployment. CFO Tyson also noted the company’s financial strategy, saying, "We are prioritizing capital deployment to drive high returns for shareholders."

Risks and Challenges

• Transaction (JO:TCPJ) expenses impacting profitability.
• Market competition and regulatory changes in the cannabis industry.
• Execution risks associated with new facility and market expansions.
• Potential delays in merger transactions could affect growth projections.
• Economic conditions influencing consumer spending in the cannabis sector.

Q&A

During the earnings call, analysts inquired about the timeline for the new Minnesota facility, which is expected to be completed in 2025. Questions also focused on the company’s plans to divest a portion of its New York assets and the financial structuring of upcoming mergers, which include earn-out and clawback provisions to ensure EBITDA metrics are met.

Full transcript - Vireo Growth Inc (VREO) Q4 2024:

Conference Moderator: Good morning, and welcome to Virgo Growth Inc. Fourth Quarter and Full Year twenty twenty four 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 or 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 Mazerakis. Please go ahead, sir.

John Mazerakis, Chief Executive Officer, Vireo Growth Inc.: Thank you. Good morning, everyone. I’ll begin with a summary of our performance and recent business highlights and then Tyson will provide some extra details on the financials and our balance sheet. Our fourth quarter results reflected continued strength in fundamental operating performance and we were pleased to deliver record revenue, gross margin and operating income for the full year. Total (EPA:TTEF) revenue for the full year increased 15.4% year over year to a record of approximately $100,000,000 driven by 56% growth in Maryland as well as low single digit growth in Minnesota.

Fourth quarter revenue increased 3.5% year over year to $25,000,000 Q4 sales were sequentially consistent as expected and we ended the year in a very strong financial position with $91,600,000 in cash on our balance sheet following the closing of our previously announced and oversubscribed $81,000,000 private placement in December, which was completed at a substantial premium to market. We believe the strength of our balance sheet combined with our pending merger transactions and the growth investments we’re making in Minnesota and New York position the company for what we believe will be a transformational year in 2025. For those of you who were not able to attend our merger transaction conference call in December, please refer to the merger transaction presentation on our investor website for a more complete picture of these transformative events. We are seeking to build a portfolio of prolific brands in cannabis and we believe the combination of these platforms and leaders with Vireo creates a highly attractive platform for growth that will generate significant value for all of our stakeholders. We anticipate that each of our fully executed merger transactions will close in 2025 pending regulatory and shareholder approvals.

We will provide investors with updates on the closing process as more information becomes available. For now, the next step is to file and distribute an information circular and solicit shareholder approval, which we expect to occur early in the second quarter. Before I hand the call over to Tyson, I’d like to provide more information about some growth investments we’re making to drive success in Vireo’s legacy markets. Our team has been building inventory in Minnesota to prepare for the launch of adult hue sales, and we’re in the process of relocating our Moorhead dispensary to a larger storefront and parking lot. However, a more important aspect of adult use preparedness is the availability of premium flower.

And during the month of December, we made significant progress to ensure that Vireo’s operations will compete effectively in Minnesota’s adult use market. We have since secured two separate financial commitments to fund the build out of a new state of the art indoor cultivation facility in an existing 130,000 square foot industrial building in the town of Elk River, Minnesota. 1 of these commitments is in the form of a commercial loan from Stearns Bank for a principal amount of up to $15,000,000 and a term of twenty four months at a fixed annual rate of 9.25%. The second is an incremental $11,500,000 in debt capacity from our existing lender, which carries an annual fixed rate of 10.5%. Now moving on to New York.

The New York market has recently become one of the higher growth legal U. S. Cannabis markets. S store counts have continued to steadily increase and the state has cracked down on illicit operations, allowing for a more robust regulated market. And we believe the state continues to lack an adequate supply of premium indoor flower.

Vireo’s flagship Bluebird facility in Johnstown is a state of the art cultivation and processing facility that focuses on producing top tier cannabis flower. We anticipate that recent initiatives to increase premium flower production in Johnstown, New York will begin contributing meaningfully to financial performance during the second quarter. I’ll now hand over the call to Tyson.

Tyson, Chief Financial Officer, Vireo Growth Inc.: 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. Total revenue was $99,400,000 for the full year, an increase of 15.4% as compared to 2023, excluding discontinued operations, driven primarily by performance in the Maryland market and single digit sales growth in Minnesota, offset partially by the declines in New York from our medical loan and dispensaries. Fourth quarter revenue of $25,000,000 increased 3.5% year over year and was roughly flat sequentially across all markets. For a complete review of our revenue performance by state and sales channel for both the quarter and full year, please refer to the accompanying market sales tables in today’s earnings release, which will also be filed with our 10 K later today.

We saw continued improvements in margin performance as we delivered record gross margin for the full year of 51.1%, driving margin expansion in both the fourth quarter and full year as compared to the prior year periods. The increase in margin was driven primarily by the disposition of our former operations in New Mexico in June of twenty twenty three, which carried a lower margin profile as well as the commencement of adult use sales in Maryland on 07/01/2023. SG and A expenses as a percent of sales improved by roughly three eighty basis points for the full year and increased 140 basis points in the fourth quarter as a result of some Elk River facility and legal expenses. As John mentioned, operating income of $13,600,000 for the full year was a record for the company. Fourth quarter operating income was impacted by one time transaction expenses of $4,200,000 related to our pending merger transactions, which were announced in mid December.

Excluding these impacts, operating income would have been approximately $3,400,000 during the fourth quarter. Total other expenses for the year was 30,500,000 an increase of $2,100,000 compared to other expenses of $28,400,000 in 2023. The increase in other expenses is primarily attributable to a decrease in other income associated with the ERIC tax credit under the CARES Act and a decrease in other income associated with the Grown Rogue held warrants. Debt loss for the year was $28,000,000 compared to $25,500,000 in 2023, with the variance driven primarily by the increase in income from operations, offset by increased other expenses and taxes. Net loss in the fourth quarter was $15,700,000 compared to $4,600,000 in 2023, but the variance driven by the one time transaction expenses of $4,500,000 increased stock based compensation, other expenses and taxes.

Excluding New York assets held for sale, total current assets at the end of fiscal twenty twenty four were $133,800,000 and we ended the year with cash on hand of $91,600,000 following the closing of our oversubscribed $81,000,000 private placement in December. Excluding New York liabilities held for sale, total current liabilities at the end of the year were $46,100,000 with current debt of $900,000 We had $61,400,000 in long term debt outstanding, which matures in early twenty twenty seven. Following the issuance of subordinate voting shares in relationship to the recently closed $81,000,000 private placement, as of 03/01/2025, the company had a total of 413,859,367 shares outstanding on a treasury method basis using a share price of $0.42 While we’re not providing specific CapEx guidance for 2025 on today’s call, we are prioritizing capital deployment to drive high returns for shareholders with a focus on our highest growth opportunities in New York and Minnesota. We are very pleased to close the year in a strong financial position and remain focused on driving strong returns for shareholders. 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 growth opportunities in our pipeline.

That concludes my prepared remarks. I’ll now hand the call back to John for some closing comments.

John Mazerakis, Chief Executive Officer, Vireo Growth Inc.: Thank you, Tyson. To summarize, we believe our merger transactions combined with growth investments and the launch of adult youth sales in Minnesota position us for a transformational year in 2025. This is an increasingly exciting time for Vireo and all of its stakeholders. By combining our efforts with other leading local operators and a highly differentiated technology platform, we’re creating a premier portfolio of prolific brands and a diversified cannabis company that is poised for growth and industry leadership. Thank you for joining us today.

Now, we will be pleased to take your questions. Operator?

Conference Moderator: Thank you. We will now begin the question and answer session. Your first question comes from the line of Eric De Lauers with Craig Hallum Capital Group. Please go ahead.

Eric De Lauers, Analyst, Craig Hallum Capital Group: Great. Thank you for taking my questions and congrats on the progress thus far.

Tyson, Chief Financial Officer, Vireo Growth Inc.: Thank you, Craig.

Eric De Lauers, Analyst, Craig Hallum Capital Group: Couple clarifying questions from me on Minnesota. So first, could you just expand a bit on what you’ve done in December to improve flower quality there?

John Mazerakis, Chief Executive Officer, Vireo Growth Inc.: We secured the 130,000 square foot facility and we’ve begun building it out.

Eric De Lauers, Analyst, Craig Hallum Capital Group: Gotcha. Okay. And then in terms of the existing facility, you know, when all is said and done with this new facility, should we expect you guys to hold on to both of these maybe for different production uses or will this be sort of a complete switch over to this new indoor facility?

John Mazerakis, Chief Executive Officer, Vireo Growth Inc.: We will make that determination based on demand in the state.

Eric De Lauers, Analyst, Craig Hallum Capital Group: Okay. And then just the timeline for that new facility? When you expect that It

John Mazerakis, Chief Executive Officer, Vireo Growth Inc.: will be done within 2025.

Eric De Lauers, Analyst, Craig Hallum Capital Group: Okay. Great. And then this is a bit of a difficult question to answer, but just wondering if you have any insight on the timing for adult use in Minnesota or any other kind of comments there?

John Mazerakis, Chief Executive Officer, Vireo Growth Inc.: It will definitely happen within 2025.

Eric De Lauers, Analyst, Craig Hallum Capital Group: Ready. Switching to New York, I’m just kind of wondering if you can give us an update on how you’re thinking about your assets in this state. Obviously, they are sort of held for sale. Just wondering how much of a focus selling this asset is given the other transformative acquisitions you have going. I think you mentioned, you know, this is an area where you’re continuing to, put in capital where it makes sense.

So just wondering how you’re thinking about that overall. I mean, is this still for sale? Is this something that you’re maybe reconsidering and not holding on to

Tyson, Chief Financial Officer, Vireo Growth Inc.: this long term? Just any update on your thinking there would be helpful.

John Mazerakis, Chief Executive Officer, Vireo Growth Inc.: We’re still planning on divesting a portion of New York, which is why we’re holding it for sale. At the same time, we think that there’s an opportunity on the high end spectrum of flower and we’re positioning the asset to produce at that level.

Eric De Lauers, Analyst, Craig Hallum Capital Group: Okay. And then just last question for me on the acquisitions. What kind of operational milestones are you monitoring in the target companies? What should investors be aware of, I guess, to know if these operations are sort of on track or up to par while the teams focus on closing these acquisitions here?

John Mazerakis, Chief Executive Officer, Vireo Growth Inc.: Well, the key here is to understand the structure. There is an earn out and a clawback. And the clawback ensures that the metrics of EBITDA are what we announced back in December. At the same time of course we care about maximizing the EBITDA and cash flow of every operation. So we’re working closely with the operators to ensure present and future growth.

Eric De Lauers, Analyst, Craig Hallum Capital Group: All right. That’s helpful. Thanks for taking my questions.

John Mazerakis, Chief Executive Officer, Vireo Growth Inc.: Thank you.

Conference Moderator: As there are no further questions, this concludes today’s Q and A session and today’s conference call. Thank you all for participating. You may now disconnect.

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