GRWG Growgeneration Corporation

Net Revenue of $55.7 million, Consistent with Expectations

Gross Profit Margin of 29.1% Represents 230 Basis Points Sequential Improvement Over Second Quarter 2023

Net Loss of $7.3 million and Non-GAAP Adjusted EBITDA(1) Loss of $0.9 million

GrowGeneration Corp. (NASDAQ: GRWG) (“GrowGen” or the “Company”), the largest chain of specialty hydroponic and organic garden centers in the United States with 50 stores across 18 states, today reported financial results for the third quarter ended September 30, 2023.

Third Quarter 2023 Highlights

• Net sales decreased 13% quarter-over-quarter to $55.7 million
• Comparable store sales decreased 14.4% to the prior year
• Gross profit margin of 29.1%, increase of 320 basis points to the prior year
• Net loss of $7.3 million, compared to a net loss of $7.2 million in the prior year
• Adjusted EBITDA(1) loss of $0.9 million, an improvement of $1.8 million to 2022
• Year-to-date cash flow provided by operations of $2.8 million
• Cash, cash equivalents, and marketable securities of $66.6 million
• Maintains full-year 2023 guidance for revenue to be $220 million to $225 million and Adjusted EBITDA(1) to be a loss of $4 million to $6 million

Darren Lampert, GrowGeneration’s Co-Founder and Chief Executive Officer, stated, “I am pleased with our third quarter results, which are broadly consistent with the expectations we communicated last quarter. Our continued focus on proprietary brands and distribution helped drive gross profit margin of 29.1%, representing a 230 basis point improvement over the second quarter. We have also reduced store operating expenses by over 12% and SG&A by nearly 14% year-over-year. As I have said before, we are constantly evaluating our network to enhance profitability and, as such, we consolidated 6 retail locations during the third quarter. Further in the fourth quarter, we expect to consolidate 6 additional locations where we identified cost rationalization opportunities through our ability to serve a similar customer base from a smaller footprint. GrowGen ended the quarter with $66.6 million of cash and cash equivalents and generated nearly $3 million of operating cash flow year-to-date. We continue to make progress on our digital transformation efforts and we are excited about the potential of our new ERP system to enable further efficiencies in our supply chain and ultimately improve our end-to-end customer experience.”

Lampert continued, “We are bringing innovative new products to market and have seen success in growing our proprietary brand portfolio. We believe that our third quarter results represent progress towards the initiatives that we have been striving to achieve. Despite challenges within the industry, we remain focused on what we can control to position GrowGen to be more nimble, efficient, and better-positioned for profitable growth in 2024 and beyond.”

Third Quarter 2023 Consolidated Results

Revenues declined $15.2 million, or 21.4%, to $55.7 million for the quarter ended September 30, 2023, compared to $70.9 million for the quarter ended September 30, 2022. The decrease in net revenue was partially attributed to a decline in same-store sales of 14.4% at 55 retail locations. Overall retail sales were $41.4 million in the third quarter, compared to $47.9 million for the same period last year.

E-commerce revenue was $2.8 million in the third quarter, compared to $3.1 million for the same period last year.

Revenue from non-retail operations, including distributed brands and MMI, was $11.5 million in the third quarter of 2023, compared to $19.8 million in the same quarter last year. The year ago period in 2022 included a few large one-time transactions to account for the decrease.

Gross profit was $16.2 million for the third quarter of 2023, compared to $18.3 million for the third quarter of 2022. Gross profit margin was 29.1%, compared to 25.9% in the same quarter last year. The increase in gross margin in the third quarter of 2023 was due to increased private label sales growth, pricing expansion, and margin accretion from development of our distribution network and corresponding bulk-buy negotiations.

Store and other operating expenses in the third quarter of 2023 were $11.9 million, compared to $13.6 million in the prior year, a decrease of 12%.

Selling, general, and administrative expenses in the third quarter of 2023 were $7.6 million, compared to $8.8 million in the prior year, a decrease of 13.8%.

GAAP pre-tax net loss was $7.3 million for the third quarter of 2023, or a loss of $0.12 per diluted share, compared to $7.9 million in the third quarter of 2022, or a loss of $0.12 per diluted share.

Non-GAAP loss before interest, taxes, depreciation, amortization, share-based compensation, and other non-recurring charges (Adjusted EBITDA)(1) was $0.9 million in the third quarter of 2023, compared to a loss of $2.7 million in the same period last year.

Cash and short-term marketable securities as of September 30, 2023 were $66.6 million. Inventory as of September 30, 2023 was $76.0 million, and prepaid inventory and other current assets were $12.4 million.

Total current liabilities, including accounts payable, accrued payroll, and other liabilities, increased from $35.8 million at December 31, 2022 to $40.5 million at September 30, 2023.

Geographical Footprint

The Company’s operations span approximately 826,000 square feet of retail and warehouse space at 50 existing locations across 18 states.

Fiscal Year 2023 Financial Outlook(2)

Revenue guidance for full-year 2023 is unchanged to be between $220 million to $225 million.

Adjusted EBITDA(1) guidance for full-year 2023 is unchanged to be between a loss of $4 million to a loss of $6 million.

Footnotes

(1) Adjusted EBITDA represents earnings before interest, taxes, depreciation, and amortization as adjusted for certain items as set forth in the reconciliation table of U.S. GAAP to non-GAAP information and is a measure calculated and presented on the basis of methodologies other than in accordance with GAAP. Please refer to the Use of Non-GAAP Financial Information herein for further discussion and reconciliation of this measure to GAAP measures.

(2) Sales and Adjusted EBITDA guidance metrics are inclusive of acquisitions and store openings completed in 2023 and 2022, but do not include any unannounced acquisitions.

Conference Call

The Company will host a conference call today, November 8, 2023, at 4:30PM Eastern Time. To participate in the call, please dial (888) 664-6392 (domestic) or (416) 764-8659 (international). The conference code is 71685189. This call is being webcast and can be accessed on the Investor Relations section of GrowGen's website at: https://ir.growgeneration.com.

A replay of the webcast will be available approximately two hours after the conclusion of the call and remain available for approximately 90 calendar days.

About GrowGeneration Corp:

GrowGeneration is a leading marketer and distributor of nutrients, growing media, lighting, benching and racking, environmental control systems, and other products for both indoor and outdoor hydroponic and organic gardening, including proprietary brands such as Charcoir, Drip Hydro, Power Si, MMI benching and racking, Ion lights, Durabreeze fans, and more. Incorporated in Colorado in 2014, GrowGeneration is the largest chain of specialty retail hydroponic and organic garden centers in the United States. The Company also operates an online superstore for cultivators at growgeneration.com, as well as a wholesale business for resellers, HRG Distribution, and a benching, racking, and storage solutions business, Mobile Media.

Forward Looking Statements:

This press release may include predictions, estimates or other information that might be considered forward-looking within the meaning of applicable securities laws. While these forward-looking statements represent current judgments, they are subject to risks and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward-looking statements, which reflect opinions only as of the date of this release. Please keep in mind that the company does not have an obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. When used herein, words such as “look forward,” “expect,” “believe,” “continue,” “building,” or variations of such words and similar expressions are intended to identify forward-looking statements. Factors that could cause actual results to differ materially from those contemplated in any forward-looking statements made by us herein are often discussed in filings made with the United States Securities and Exchange Commission, available at: www.sec.gov, and on the company’s website, at: www.growgeneration.com.

 

GROWGENERATION CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except shares and per share amounts)

   

 

September 30, 2023

 

December 31, 2022

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

31,414

 

 

$

40,054

 

Marketable securities

 

35,203

 

 

 

31,852

 

Accounts receivable, net of allowance for doubtful accounts of $1.1 million and $0.7 million at September 30, 2023 and December 31, 2022

 

8,351

 

 

 

8,336

 

Notes receivable, current, net of allowance for doubtful accounts of $1.7 million and $1.3 million at September 30, 2023 and December 31, 2022

 

—

 

 

 

1,214

 

Inventory

 

75,987

 

 

 

77,091

 

Prepaid income taxes

 

477

 

 

 

5,679

 

Prepaids and other current assets

 

12,383

 

 

 

6,455

 

Total current assets

 

163,815

 

 

 

170,681

 

 

 

 

 

Property and equipment, net

 

28,946

 

 

 

28,669

 

Operating leases right-of-use assets

 

42,316

 

 

 

46,433

 

Intangible assets, net

 

24,466

 

 

 

30,878

 

Goodwill

 

16,808

 

 

 

15,978

 

Other assets

 

880

 

 

 

803

 

TOTAL ASSETS

$

277,231

 

 

$

293,442

 

 

 

 

 

LIABILITIES & STOCKHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

20,219

 

 

$

15,728

 

Accrued liabilities

 

3,413

 

 

 

1,535

 

Payroll and payroll tax liabilities

 

2,027

 

 

 

4,671

 

Customer deposits

 

4,926

 

 

 

4,338

 

Sales tax payable

 

1,503

 

 

 

1,341

 

Current maturities of lease liability

 

8,374

 

 

 

8,131

 

Current portion of long-term debt

 

—

 

 

 

50

 

Total current liabilities

 

40,462

 

 

 

35,794

 

Commitments and contingencies

 

 

 

Operating lease liability, net of current maturities

 

36,387

 

 

 

40,659

 

Other long-term liabilities

 

317

 

 

 

593

 

Total liabilities

 

77,166

 

 

 

77,046

 

 

 

 

 

Stockholders’ equity:

 

 

 

Common stock; $0.001 par value; 100,000,000 shares authorized, 61,309,456 and 61,010,155 shares issued and outstanding as of September 30, 2023 and December 31, 2022

 

61

 

 

 

61

 

Additional paid-in capital

 

372,789

 

 

 

369,938

 

Retained earnings

 

(172,785

)

 

 

(153,603

)

Total stockholders’ equity

 

200,065

 

 

 

216,396

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

277,231

 

 

$

293,442

 

 

GROWGENERATION CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per share amounts)

   

 

For the Three Months Ended September 30,

 

For the Nine Months Ended September 30,

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

 

 

 

 

 

 

 

Net sales

$

55,678

 

 

$

70,850

 

 

$

176,430

 

 

$

223,710

 

Cost of sales (exclusive of depreciation and amortization shown below)

 

39,490

 

 

 

52,516

 

 

 

126,816

 

 

 

163,009

 

Gross profit

 

16,188

 

 

 

18,334

 

 

 

49,614

 

 

 

60,701

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Store operations and other operational expenses

 

11,930

 

 

 

13,585

 

 

 

37,165

 

 

 

41,884

 

Selling, general, and administrative

 

7,582

 

 

 

8,796

 

 

 

21,923

 

 

 

28,164

 

Bad debt expense

 

257

 

 

 

172

 

 

 

681

 

 

 

1,774

 

Depreciation and amortization

 

4,721

 

 

 

3,875

 

 

 

12,477

 

 

 

13,164

 

Impairment loss

 

—

 

 

 

—

 

 

 

—

 

 

 

127,831

 

Total operating expenses

 

24,490

 

 

 

26,428

 

 

 

72,246

 

 

 

212,817

 

 

 

 

 

 

 

 

 

Income from operations

 

(8,302

)

 

 

(8,094

)

 

 

(22,632

)

 

 

(152,116

)

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

Other expense

 

954

 

 

 

34

 

 

 

3,549

 

 

 

547

 

Interest income

 

—

 

 

 

143

 

 

 

—

 

 

 

190

 

Interest expense

 

(1

)

 

 

(3

)

 

 

(6

)

 

 

(16

)

Total non-operating income (expense), net

 

953

 

 

 

174

 

 

 

3,543

 

 

 

721

 

 

 

 

 

 

 

 

 

Net income (loss) before taxes

 

(7,349

)

 

 

(7,920

)

 

 

(19,089

)

 

 

(151,395

)

 

 

 

 

 

 

 

 

Provision (loss) for income taxes

 

—

 

 

 

718

 

 

 

(93

)

 

 

2,637

 

 

 

 

 

 

 

 

 

Net income (loss)

$

(7,349

)

 

$

(7,202

)

 

$

(19,182

)

 

$

(148,758

)

 

 

 

 

 

 

 

 

Net income (loss) per share, basic

$

(0.12

)

 

$

(0.12

)

 

$

(0.31

)

 

$

(2.45

)

Net income (loss) per share, diluted

$

(0.12

)

 

$

(0.12

)

 

$

(0.31

)

 

$

(2.45

)

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic

 

61,272

 

 

 

60,855

 

 

 

61,127

 

 

 

60,771

 

Weighted average shares outstanding, diluted

 

61,272

 

 

 

60,855

 

 

 

61,127

 

 

 

60,771

 

 

Use of Non-GAAP Financial Information

The Company believes that the presentation of results excluding certain items in “Adjusted EBITDA,” such as non-cash equity compensation charges, provides meaningful supplemental information to both management and investors, facilitating the evaluation of performance across reporting periods. The Company uses these non-GAAP measures for internal planning and reporting purposes. These non-GAAP measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income or net income per share prepared in accordance with generally accepted accounting principles.

Set forth below is a reconciliation of Adjusted EBITDA to net income (loss):

 

For the Three Months Ended September 30,

 

 

2023

 

 

 

2022

 

 

 

(000

)

 

 

(000

)

Net income

$

(7,349

)

 

$

(7,202

)

Income taxes

 

—

 

 

 

(718

)

Interest income

 

—

 

 

 

(143

)

Interest expense

 

1

 

 

 

3

 

Depreciation and amortization

 

4,721

 

 

 

3,875

 

EBITDA

$

(2,627

)

 

$

(4,185

)

Share based compensation (option compensation, warrant compensation, stock issued for services)

 

938

 

 

 

1,291

 

Impairment, restructuring, and other charges

 

717

 

 

 

—

 

Fixed asset disposal

 

64

 

 

 

165

 

Adjusted EBITDA

$

(908

)

 

$

(2,729

)

 

 

 

 

Adjusted EBITDA per share, basic

$

(0.01

)

 

$

(0.04

)

Adjusted EBITDA per share, diluted

$

(0.01

)

 

$

(0.04

)

   

 

For the Nine Months Ended September 30,

 

 

2023

 

 

 

2022

 

 

 

(000

)

 

 

(000

)

Net income

$

(19,182

)

 

$

(148,758

)

Income taxes

 

93

 

 

 

(2,637

)

Interest income

 

—

 

 

 

(190

)

Interest expense

 

6

 

 

 

16

 

Depreciation and amortization

 

12,477

 

 

 

13,164

 

EBITDA

$

(6,606

)

 

$

(138,405

)

Impairment, restructuring, and other charges

 

2,215

 

 

 

127,831

 

Share based compensation (option compensation, warrant compensation, stock issued for services)

 

2,452

 

 

 

3,980

 

Restructuring charges

 

2,215

 

 

 

—

 

Fixed asset disposal

 

85

 

 

 

81

 

Adjusted EBITDA

$

(1,854

)

 

$

(6,513

)

 

 

 

 

Adjusted EBITDA per share, basic

$

(0.03

)

 

$

(0.11

)

Adjusted EBITDA per share, diluted

$

(0.03

)

 

$

(0.11

)

 

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