GrowGeneration Corp.

Good morning, my name is Joanna and I will be your conference operator today. At this time, I would like to welcome everyone to the Growth Generation Corp. Third Quarter 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. Thank you, Mr. Salaman, president and co-founder. You may begin your conference.

Thank you. Good morning. My name is Michael Salaman, co-founder and president of Grow Generation Corp. At this time, I would like to welcome everyone to the Grow Generation's third quarter 2019 earnings conference call. With me this morning is Darren Lampert, our CEO and co-founder, and Monty Lammaretto, our CFO, who will both be participants on our call this morning. After our CEO and CFO's remarks, there will be a question and answer session. Let's move on to today's call. As always, we expect to make forward-looking statements this morning, but I want to caution you that our actual results could differ materially from what we say here. Investors should familiarize themselves with a full range of risk factors that could impact our results, and those are filed in our Form 10-K, which we filed with the Securities and Exchange Commission. I also remind everyone that today's call is being recorded and an archived version of our call will be available on our website later today. Let me begin. GrowGeneration is the largest and fastest growing chain of hydroponic garden centers in North America. Today GrowGen is a service provider of a wide selection of supplies and equipment for commercial and home growers. Today, GrowGen has 25 locations in eight states, over 300,000 square feet of retail and warehouse space that is today generating over 7,000 weekly transactions. Our online store now receives over 50,000 unique visitors per month, and our commercial division is now servicing thousands of commercial customers and some of the largest multi-state operators in the U.S., Our third quarter numbers reflect our team's execution and focus on revenue and EBITDA growth. Quarter three is our third consecutive profitable quarter. You will hear today from Darren and Monty that all of our financial metrics continue to be positive, all the while investing in technology and infrastructure. This week, Tony Sullivan was appointed Executive Vice President and Chief Operating Officer of GrowGeneration. Tony is a seasoned and private equity-backed executive with years of proven experience in operating large multi-store chains. Tony's appointment follows our third quarter announcement of the appointment of Bob Nardelli, the former CEO of Home Depot, who was appointed Senior Strategic Advisor. In the third quarter, we added four analysts. who all initiated buy recommendations from investment banks that include Roth Capital, Lattenberg Thalmitt, Lake Street Capital Markets, and Alliance Global Partners. Our balance sheet is strong, allowing us to continue to execute our plan, purchasing the best of breed hydroponic operators and aggressively opening new grow gen locations. I will now turn the call over to Darren Lampert who will present our third quarter 2019 results. Darren.

Thank you, Michael. Good morning and welcome to our third quarter 2019 earnings call. I'd like to begin our call by thanking our troops who protect our country every day and our veterans who served our country on Veterans Day. I would also like to thank the veterans who work for GroGen for their service, as well as our shareholders 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 garden centers in the United States. With 25 locations in eight states today, ProGeneration is a leading marketer and distributor of nutrients, growing media, advanced indoor and greenhouse lighting, ventilation systems, and Accessories for Hydroponic Gardening. GrowGeneration is executing on all fronts, increasing revenues, gross profit margins and adjusted EBITDA for the third consecutive quarter. We've accomplished these financial goals while aggressively investing in technology, infrastructure and human resources. This past week, we hired Tony Sullivan as our Chief Operating Officer, one of our country's most experienced and proven multi-store operators. His initiatives will include, but not be limited to, providing unwavering support to the 25-row generation stores, adding new locations, integrating our e-commerce and store supply channels, and leveraging synergies amongst interconnected departments, working to drive more cost efficiencies across all areas of our company. Joe Princivelli will be stepping away from his role as the Chief Operating Officer and moving into a new role as Chief Technology Officer. Under Joe's leadership, our company has grown into the premier hydroponic chain in the country and has successfully rolled out a robust ERP system. We saw triple-digit growth in Colorado, Michigan, and Nevada, and double-digit growth in all other markets, including heavy gardens, our online business. Pro Generation Management Corp., our commercial division, is now approaching 5 million in sales per quarter and we added over 60 new commercial accounts in the third quarter of 2019. The newly acquired stores and new store openings are all performing better than expected and have been successfully integrated into the operations of the overall company. With our success in Oklahoma, which is now at 10 million annual sales and growing. The company has signed two new leases and is opening its 24th location in Oklahoma City on November 15th and 25th location in Tulsa in December of 2019. Our private label program under the Sun Leaves brand will hit our shelves online in Q4. Our initial private label lineup includes a one-part micro and macronutrient plus CalMag powder line for both the cannabis and hemp farmers, a silica plus micronutrient booster, and a root stimulant. All additives can be used with any nutrient regimen. Additional private label products that will be on our shelves in Q4 include rope ratchets for hoisting lights, breathable fabric pots, and T5 fluorescent lights for indoor gardening. The company has $16 million in cash and is now generating over $2 million a quarter of free net cash, allowing us to close new acquisitions and open new store locations in emerging markets. We improved the financial performance of the company in all areas. Revenue was up 159% year-over-year at $21.8 million. For the nine-month period ending September 30, 2019, revenue was $54.3 million versus $19.9 million for the nine-month period ended September 30, 2018, an increase of 173% year-over-year. Adjusted EBITDA for Q3 2019 was slightly over $2 million, a positive $0.06 per share. adjusted EBITDA for the nine month ended September 30th, 2019 is approximately 4.5 million, a positive 14 cents per share. Our same source sales for Q3 2019 were up approximately 48% year over year. Gross margin profits increased to 29.9%, an increase of 420 basis points year over year. Gross profit dollars was 6.5 million, an increase of 4.3 million, or 215% versus the same period year over year. Our strategies to increase margins are working by purchasing in larger volumes and buying more efficiently. We saw significant revenue increases in all key markets. Colorado was up 157%, California 67%, Nevada 136%, Michigan 105% and Rhode Island up 95%. Our new stores in Oklahoma contributed $3.4 million in revenue in the third quarter, and our stores in Maine added $2.5 million. Our e-commerce store, Heavy Gardens, added over $1.4 million, a 40% increase over its second quarter sales. Our commercial division added over $4.5 million in revenue, up from $3.8 million in the previous quarter. With our significant top and bottom line growth, we reduced our store operating expenses by 25% and our corporate overhead by over 25% as a percentage of our revenue. To highlight our four-wall economics as a percentage of revenue, gross profit was 29.9%, store operating expenses was 12.6%, G&A, not including non-cash expenditures, was 8.3%, adjusted EBITDA was 9.4% of revenue, up from a negative 0.8% year-over-year. The company has successfully completed the implementation of its ERP system company-wide, with only our Seattle store left to onboard. The GrowGen ERP platform is designed to lower costs, integrate our online and store sales and supply channels, improve departmental productivity, and provides forecasting and reporting tools. As our revenue continues to increase and corporate overhead declines as a percentage of revenue, we will continue to increase net income quarter over quarter. To date, we have acquired six locations and opened two, with two more set to open in the fourth quarter of 2019. We have a strong pipeline of new acquisition targets set to close in Q4 2019 and 2020. We are also investing in an aggressive new store opening program. The company continues the process of uplisting the company to a larger exchange and will provide guidance shortly. We are increasing our guidance for 2019 revenues to 74 to 76 million and adjusted EBITDA to 14 to 18 cents per share for 2019 based on 36 million shares outstanding. I'd like to spend a few minutes going over Q3 2019 financial highlights. Net income of $1,049,000 for Q3 2019 compared to a net loss of $784,000 for Q3 2018, an increase of $1.8 million. Adjusted EBITDA of $2,046,000 for Q3 2019 compared to adjusted EBITDA loss of $71,584 for Q3 2018, an increase of $2.1 million. GAAP earnings of $0.03 per share for Q3 2019 and $0.07 per share year-to-date basic. Non-GAAP adjusted earnings per share of $0.06 per share for Q3 2019 and $0.14 per share year-to-date basic. Revenue of $21.8 million of $13.4 million or 159% over Q3 2018 revenues of $8.4 million. For the nine-month period ended September 30, 2019, revenue was $54.3 million versus $19.9 million for the same period 2018, an increase of 173%. Save store sales were up 48% for Q3 2019 versus Q3 2018. Gross profit margin percentage was 29.9% for Q3 2019 compared to 25.7% for Q3 2018. Store operating costs as a percentage of revenue have declined to 12.6% for Q3 2019 compared to 16.8% for Q3 2018. Corporate overhead as a percentage of revenue declined to 12%, 8.3% excluding non-cash for Q3 2019 compared to 16% of revenue for Q3 2018. The company had $16 million in cash and cash equivalents at September 30, 2019. As of September 30, 2019, the company had working capital of $30.4 million compared to working capital of $21.6 million at December 31, 2018. For the nine-month period ended September 30, 2019, the company acquired and opened eight stores, one in Denver, Colorado, Palm Springs, California, Reno, Nevada, Grand Rapids, Michigan, and two in Maine, and opened new stores, locations in Tulsa, Oklahoma, and Brewer, Maine. In the fourth quarter, the company plans to open its 24th and 25th locations in Oklahoma. Tony Sullivan appointed Executive Vice President and Chief Operating Officer of GrowGeneration. Tony's most recently served as Executive Vice President and Chief Operating Officer of Foreman Mills, a $300 million business, Dollar Express, a $500 million carve-out out of 330 family dollar stores in 36 states, and 20-plus years at Foot Locker, leading 2,100-plus stores, over $2.5 billion in sales, as VP of store operations. All convertible debt has been converted to equity as of September 30th, 2019. It's with great pleasure I now turn the call over to our CFO, Monty Lammaretto, who will provide more details to our third quarter results.