GrowGeneration Corp. (NASDAQ: GRWG) (“GrowGen” or the “Company”), the largest chain of specialty hydroponic and organic garden centers with 62 locations across 14 states, today reported financial results for the second quarter ended June 30, 2022.

Second Quarter 2022 Highlights Compared to Prior-Year Period

  • Net sales declined 44% to $71.1 million driven by softer industry demand
  • Comparable store sales for the quarter decreased 56.9%
  • Net loss of $136.4 million inclusive of $127.8 million impairment expense for goodwill and other intangibles compared to net income of $6.7 million last year
  • Loss per share of $2.24 in the quarter
  • Adjusted EBITDA loss of $2.9 million
  • Revenue guidance for 2022 updated to be between $250 to $275 million, down from a range of $340 million to $400 million previously
  • Adjusted EBITDA guidance expected to be a loss of $12 to $15 million, down from previous expectations of $0 million to $10 million profit

Darren Lampert, GrowGeneration’s Co-Founder and Chief Executive Officer stated, “The GrowGen team faced significant industry headwinds in the second quarter resulting in disappointing results for the quarter. The first half of last year was exceptionally strong with second quarter same-store sales up approximately 60% compared to the same period in 2020. In the second quarter of 2022 sales declined 43.5% and we had a $127.8 million impairment of goodwill and intangibles. However, we generated $3.8 million of positive cash flow from operations as we managed inventory levels during the quarter ended June 30, 2022. In addition, we are on track to reduce our annualized cost base by $13 million compared to year-end 2021 levels.”

Lampert continued, “We expect the revenue and gross profit headwinds in the first half will continue in the second half, with the remainder of 2022 revenue declining compared to the first half as we are facing more pressure than we initially planned. While the industry is experiencing a prolonged period of softer demand, we remain confident in the longer-term opportunity that exists within hydroponics and indoor controlled environment agriculture. GrowGen remains on solid financial footing with a strong balance sheet and operational capabilities. We firmly believe we are well positioned to emerge stronger when the market eventually turns. In the meantime, we are taking an active approach to managing the business in a way that preserves cash through working capital optimization and we are more aggressively right-sizing our cost structure.”

Second Quarter 2022 Consolidated Results

Revenues declined $54.8 million, or 43.5%, to $71.1 million, for the quarter ended June 30, 2022, compared to $125.9 million for the quarter ended June 30, 2021. The decrease in net revenue was attributed to a decline in same-store sales of 56.9% at 58 retail locations and the Company’s e-commerce operations open in the first quarter of 2022 compared to the same period last year, offset partially by the addition of 5 new stores and the contribution from acquisitions. Overall retail sales was $55.4 million in the second quarter, compared to $108.9 million for the same period last year.

E-commerce revenue was $3.7 million in the second quarter, compared to $12.0 million for the same period last year. The decline stems from closure of the company’s commercial focused Agron.io platform.

Revenue from non-retail operations, including distributed brands and MMI, was $12.0 million in the second quarter of 2022, compared to $5.0 million in the same quarter last year.

Gross profit was $20.2 million for the second quarter of 2022, compared to $35.7 million for the second quarter of 2021. Gross profit margin was 28.5%, flat to the same quarter last year.

Store and other operating expenses in the second quarter of 2022 were $13.8 million, compared to $12.6 million in the prior year. The increase was primarily associated with the increase in store locations over the same period in the prior year offset partially by cost reductions.

Selling, general, and administrative expenses in the second quarter of 2022 were $10.6 million, flat to prior year. The increase was primarily attributable to the addition of non-retail operations through acquisition partially offset by cost reductions.

GAAP pre-tax net loss was $136.7 million for the second quarter of 2022, or a loss of $2.24 per diluted share, compared to pre-tax net income of $9.6 million in the second quarter of 2021, or earnings of $0.11 per diluted share. The decrease in net income was primarily due to a $127.8 million non-cash impairment expense for goodwill and intangible assets acquired in historical business combinations. Impairment and income tax expense represents a preliminary amount and remain subject to change following the completion of normal quarter-end accounting procedures.

Non-GAAP earnings before interest, taxes, depreciation, amortization, and share-based compensation (Adjusted EBITDA) was a loss of $2.9 million in the second quarter of 2022, compared to a profit of $14.5 million in the same period last year.

Cash and short-term marketable securities as of June 30, 2022, were $65.6 million. Inventory as of June 30, 2022, was $99.1 million and prepaid inventory and other current assets were $9.2 million.

Total current liabilities, including accounts payable and accrued payroll and other liabilities, decreased from $47.1 million at December 31, 2021 to $39.5 million at June 30, 2022.

Expansion Efforts

The Company’s supply chain spans approximately 958,000 square feet of retail and warehouse space, across existing locations and signed leases in new locations, spanning 14 states. In July 2022, the Company opened its first location in Mississippi. The Company has closed two under-performing locations in July and expects to close 3 to 5 additional locations before year-end 2022. The company expects to add 3 to 4 additional new stores before the end of 2022, primarily in states where the company does not currently operate.

Fiscal Year 2022 Financial Outlook

  • Revenue guidance for 2022 updated to be between $250 to $275 million, down from a range of $340 million to $400 million previously
  • Adjusted EBITDA loss guidance expected to be $12 million to $15 million, down from previous expectations of $0 million to $10 million profit

Conference Call

The Company will host a conference call today, August 4, 2022, at 5:00PM Eastern Time. To participate in the call, please dial (888) 882-4478 (domestic) or (647) 484-0475 (international). The conference code is 8913925. This call is being webcast and can be accessed on the Investor Relations section of GrowGen's website at: https://ir.growgeneration.com/news-events/ir-calendar.

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:

GrowGen owns and operates specialty retail hydroponic and organic gardening centers. Currently, GrowGen has 62 stores, which include 23 locations in California, 7 locations in Colorado, 7 locations in Michigan, 5 locations in Maine, 6 locations in Oklahoma, 3 locations in Washington, 4 locations in Oregon, 1 location in Arizona, 1 location in Rhode Island, 1 location in Florida, 1 location in Nevada, 1 location in Mississippi, 1 location in New Mexico, and 1 location in Massachusetts. GrowGen also operates an online superstore for cultivators at growgeneration.com. GrowGen carries and sells thousands of products, including organic nutrients and soils, advanced lighting technology and state of the art hydroponic equipment to be used indoors and outdoors by commercial and home growers.

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)

 

 

June 30, 2022

 

December 31, 2021

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

55,594

 

 

$

41,372

Marketable securities

 

10,000

 

 

 

39,793

Accounts receivable, net of allowance for doubtful accounts of $0.9 million and $0.6 million at June 30, 2022 and December 31, 2021

 

8,313

 

 

 

5,741

Notes receivable, current, net of allowance for doubtful accounts of $1.3 million and $0.5 million at June 30, 2022 and December 31, 2021

 

1,372

 

 

 

2,440

Inventory

 

99,086

 

 

 

105,571

Prepaid income taxes

 

5,872

 

 

 

5,856

Prepaids and other current assets

 

9,209

 

 

 

16,116

Total current assets

 

189,446

 

 

 

216,889

 

 

 

 

Property and equipment, net

 

29,338

 

 

 

24,116

Operating leases right-of-use assets

 

47,367

 

 

 

43,730

Intangible assets, net

 

34,798

 

 

 

48,402

Goodwill

 

15,843

 

 

 

125,401

Other assets

 

875

 

 

 

800

TOTAL ASSETS

$

317,667

 

 

$

459,338

 

 

 

 

LIABILITIES & STOCKHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

17,373

 

 

$

17,033

Accrued liabilities

 

1,268

 

 

 

2,044

Payroll and payroll tax liabilities

 

4,374

 

 

 

7,440

Customer deposits

 

6,294

 

 

 

11,686

Sales tax payable

 

1,739

 

 

 

1,923

Current maturities of lease liability

 

8,312

 

 

 

6,858

Current portion of long-term debt

 

96

 

 

 

92

Total current liabilities

 

39,456

 

 

 

47,076

Commitments and contingencies

 

 

 

Deferred tax liability

 

440

 

 

 

2,359

Operating lease liability, net of current maturities

 

41,028

 

 

 

38,546

Long-term debt, net of current portion

 

17

 

 

 

66

Total liabilities

 

80,941

 

 

 

88,047

 

 

 

 

Stockholders’ equity:

 

 

 

Common stock; $0.001 par value; 100,000,000 shares authorized, 60,782,525 and 59,928,564 shares issued and outstanding as of June 30, 2022 and December 31, 2021

 

61

 

 

 

60

Additional paid-in capital

 

368,077

 

 

 

361,087

Retained earnings

 

(131,412

)

 

 

10,144

Total stockholders’ equity

 

236,726

 

 

 

371,291

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

317,667

 

 

$

459,338

GROWGENERATION CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)

 

 

Three Months Ended June 30,

For the Six Months Ended June 30,

 

 

2022

 

 

 

2021

 

 

2022

 

 

 

2021

 

 

 

 

 

 

 

 

Net sales

$

71,093

 

 

$

125,885

 

$

152,860

 

 

$

215,907

 

Cost of sales

$

50,866

 

 

$

90,172

 

 

110,493

 

 

 

154,817

 

Gross profit

 

20,227

 

 

 

35,713

 

 

42,367

 

 

 

61,090

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

Store operations and other operational expenses

 

13,767

 

 

 

12,624

 

 

28,299

 

 

 

20,806

 

Selling, general, and administrative

 

10,647

 

 

 

10,563

 

 

20,970

 

 

 

17,968

 

Depreciation and amortization

 

4,783

 

 

 

2,917

 

 

9,289

 

 

 

4,971

 

Impairment loss

 

127,831

 

 

 

 

 

127,831

 

 

 

 

Total operating expenses

 

157,028

 

 

 

26,104

 

 

186,389

 

 

 

43,745

 

 

 

 

 

 

 

 

Income from operations

 

(136,801

)

 

 

9,609

 

 

(144,022

)

 

 

17,345

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

Other expense

 

104

 

 

 

(8

)

 

513

 

 

 

(46

)

Interest income

 

45

 

 

 

36

 

 

47

 

 

 

40

 

Interest expense

 

(10

)

 

 

(4

)

 

(13

)

 

 

(6

)

Total non-operating income (expense), net

 

139

 

 

 

24

 

 

547

 

 

 

(12

)

 

 

 

 

 

 

 

Net income (loss) before taxes

 

(136,662

)

 

 

9,633

 

 

(143,475

)

 

 

17,333

 

 

 

 

 

 

 

 

Provision (loss) for income taxes

 

283

 

 

 

(2,920

)

 

1,919

 

 

 

(4,473

)

 

 

 

 

 

 

 

Net income (loss)

$

(136,379

)

 

$

6,713

 

$

(141,556

)

 

$

12,860

 

 

 

 

 

 

 

 

Net income (loss) per share, basic

$

(2.24

)

 

$

0.11

 

$

(2.33

)

 

$

0.22

 

Net income (loss) per share, diluted

$

(2.24

)

 

$

0.11

 

$

(2.33

)

 

$

0.22

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic

 

60,756

 

 

 

59,061

 

 

60,742

 

 

 

58,588

 

Weighted average shares outstanding, diluted

 

60,756

 

 

 

60,223

 

 

60,742

 

 

 

59,794

 

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):

 

Three Months Ended June 30,

 

 

2022

 

 

 

2021

 

 

 

(000)

 

 

(000)

Net income

$

(136,379

)

 

$

6,713

 

Income taxes

 

(283

)

 

 

2,920

 

Interest

 

10

 

 

 

4

 

Depreciation and amortization

 

4,783

 

 

 

2,917

 

EBITDA

$

(131,869

)

 

 

12,554

 

Impairment loss

 

127,831

 

 

 

 

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

 

1,106

 

 

 

1,914

 

Adjusted EBITDA

$

(2,932

)

 

$

14,468

 

 

 

 

 

Adjusted EBITDA per share, basic

$

(0.05

)

 

$

0.24

 

Adjusted EBITDA per share, diluted

$

(0.05

)

 

$

0.24

 

 

For the Six Months Ended June 30,

 

 

2022

 

 

 

2021

 

 

 

(000)

 

 

(000)

Net income

$

(141,556

)

 

$

12,860

 

Income taxes

 

(1,919

)

 

 

4,473

 

Interest expense

 

13

 

 

 

6

 

Depreciation and amortization

 

9,289

 

 

 

4,971

 

EBITDA

 

(134,173

)

 

 

22,310

 

Impairment loss

 

127,831

 

 

 

 

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

 

2,689

 

 

 

3,241

 

Adjusted EBITDA

$

(3,653

)

 

$

25,551

 

 

 

 

 

Adjusted EBITDA per share, basic

$

(0.06

)

 

$

0.44

 

Adjusted EBITDA per share, diluted

$

(0.06

)

 

$

0.43

 

 

Clay Crumbliss, CFA Managing Director ICR, Inc. GrowGenIR@icrinc.com

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