GrowGeneration Corp.

Good afternoon, ladies and gentlemen, and welcome to Growth Generation Corp. 2018 Fiscal Year and Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Monday, April 1st. I would now like to turn the conference over to Michael Salaman. Please go ahead.

Good afternoon and welcome. My name is Michael Salaman, co-founder and president of Grow Generation Corp. At this time, I'd like to welcome everyone to the Grow Generation Corp 2018 year-end earnings conference call. After our CEO and CFO's remarks, there will be a question and answer session. Now I will do the forward-looking statements. This earnings call 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 our current judgments, they are subject to risk and uncertainties that could cause actual results to differ materially. Your caution not to place undue reliance on these forward-looking statements would reflect our opinions only as of the date of this earnings call. Please keep in mind that we are not obligating ourselves to revise or publicly release the results of any of the revisions to these forward-looking statements in light of the new information or future events. When used herein, words such as look forward, 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 our filings we make with the United States Securities and Exchange Commission available at sec.gov and our website growgeneration.com. The U.S. cannabis legal landscape now stands at 10 recreational legal states and 33 medical states. GrowGeneration is an agricultural-driven company. that is leading the convergence of big ag and cannabis and hemp cultivation. Our continued market advantage and growth is fueled by our ability to open or acquire a new store location in less than 90 days. With our national supply chain now in place, we can serve and service any multi-state operator or local grower with a one-stop shopping solution for all their cultivation products. What this all means for growth generation is continued and future growth. We continue to monitor and set in place a plan and strategies to open or acquire new locations, develop new emerging vertical markets like hemp farming, and invest in new products. I will now turn the call over to our CEO and co-founder, Darren Lampert, who will present our 2018 fiscal year-end results. Darren.

Good afternoon and welcome to our 2018 earnings call. We'd like to begin our call by thanking our shareholders, management, and employees for their continued support and belief in the mission Michael and I set forth five years ago to build the largest national chain of hydroponic stores in the US. 2018 was a transformational year for the company. We've built out our just-in-time supply chain, completing the outfitting of our management team, inclusive of purchasing, accounting, technology, and commercial sales. Today, GrowGeneration is a leading marketer and distributor of nutrients, growing media, advanced indoor and greenhouse lighting and ventilation systems, and accessories for hydroponic gardening. Our guidance for 2019 is 52 to 58 million in revenue and 12 to 16 cents in adjusted EBITDA. Today, GrowGeneration owns and operates a chain of 21 hydroponic gardening stores with six in California, five in Colorado, three in Michigan, two in Oklahoma, one in Nevada, Rhode Island, Washington, and Maine. and our online e-commerce store, heavygardens.com. In 2018, we acquired eight new locations and opened one new store in Oklahoma City, adding $25 million in revenue, and we continue to achieve our growth goals of 100% year over year. It should be noted that we currently expect are 2018 transactions to add over $30 million in revenue for 2019. We had six locations that qualify for same-store sales, which were down 5% for the year, but up 12% for the fourth quarter. The same-store sales for the first quarter of 2019 are trending up between 30% and 40%. Our operations today span over 200,000 square feet of retail showroom and warehouse space. We employ today 140 employees, of which 100 are agronomists and horticulturists. In addition to our store operations, Grow Generation also operates five divisions. These wholly owned divisions are Grow Generation Canada, Grow Generation Commercial Management, Grow Generation Hemp Corp., Grow Generation Distribution, and our newly purchased e-commerce superstore, heavygardens.com. GrowGen Commercial is operated as a standalone entity to sell directly into the commercial markets. These sales calls include new build-outs, large capital projects and the supply side management of the large multi-state operators. Our commercial management team closed over $2 million in commercial capital projects in the first quarter and we are projecting over $10 million in new capital projects for the year. HeavyGardens.com powered by GrowGeneration is a company's online superstore that today generates around $300,000 a month in sales and has over 60,000 unique visitors. GrowGeneration Canada was formed to mirror our U.S. operation with strategies to acquire hydroponic operations in Canada. We plan to have an operation in Canada in 2019. Grow Generation Hemp Corp. is developing a supply chain to outfit all the nation's hemp farms with equipment and supplies. Today there is over 75,000 acres, up from 25,000 in 2018, of active hemp farming. As more of these hemp farms become operational and the demand for CBD isolate biomass soars, The increase in hemp farming will be a high growth sales channel for the company. Lastly, Row Generation Distribution Corp. is sourcing and developing new and innovative agricultural products, as well as developing private label and exclusive products to drive margins and introduce the commercial growers to the latest in new technologies to increase yields and the quality of their plants. With our purchase of product trademarks from a large hydroponic distributor, We have a portfolio of house brands that are now selling through all of our store locations that will have a positive impact on our margins and profitability. I'd like to go over a few of our 2018 and year-to-date 2019 financial highlights. Revenue of $29 million of $14.6 million or 102% over 2017 revenues of $14.4 million. acquired eight stores, HeavyGardens.com, and opened our Oklahoma City location. Store operating costs as a percentage of revenue have declined 13% from 20.6% for 2017 to 18% for 2018. Gross margin percentage exclusive of inventory valuation adjustments was 25.2% for 2018 compared to 24.2% for 2017. We see this trend continuing into 2019. Corporate overhead, salaries, and general administrative declined from 13.4% of revenue for 2017 to 11.2% of revenue for 2018. The company had 14.6 million in cash and cash equivalents at December 31st, 2018. As of December 31st, 2018, the company had working capital of $21.6 million compared to working capital of $5.6 million at December 31st, 2017. The company raised approximately $12.9 million in equity capital through the issuance of common stock and the exercise of warrants and $9 million in convertible debt financing for the year ended December 31st, 2018. As of today, we have $3 million in convertible debt on our balance sheet. We implemented an ERP system with successful deployment in Colorado, Oklahoma, and Maine. To date, the build out of a national management team to secure large capital commercial projects. Some of our 2019 highlights to date. We acquired certain assets and IP from the third largest hydroponic distributor. We acquired three stores located in Denver, Palm Springs and Reno. We opened two new stores in Brewer, Maine and Tulsa. Same store sales and margins remain strong and are increasing. Our CFO, Monty Lammaretto, will now go over our financial results for 2018 in a little more detail.