GrowGeneration Corp.

Good morning. My name is Pam, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Grow Generation Corp. 3rd Quarter 2020 Earnings 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'd like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. If you'd like to withdraw your question, please press star, followed by 2. Thank you. Mr. Michael Salaman, you may begin your conference.

Thank you. Good morning. My name is Michael Salaman, co-founder and president of Grow Generation. At this time, I would like to welcome everyone to the Grow Generation third quarter 2020 earnings conference call. With me this morning is Darren Lampert, our CEO and co-founder, Monty Lammaretto, our CFO, and Tony Sullivan, our chief operating officer, who will all be participants on our call this morning. After our CEO, CFO, and COOs' remarks, there will be a question and answer session. 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. and also remind everyone that today's call is being recorded and an archived version of our call will be available on our website later today.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's begin the call. In the third quarter, Growth Generation continued to further its leadership position in the hydroponics and garden supply industry. We recorded our 11th consecutive quarter of record revenues and we achieved record adjusted EBITDA and net income for the quarter ended September 30th, 2020. Today, we have 31 locations and recently announced the signing of an asset purchase agreement with the nation's third largest chain of hydroponic garden centers, The Grow Biz. In anticipation of legalization passing, on October 12th, we added our 11th state with our purchase of Hydroponics Depot, located in Phoenix, Arizona. In addition, with New Jersey approving adult use cannabis, ROGEN anticipates opening a location in the Garden State in the spring of 2021. With the four new states that passed adult use legalization, there are now 15 states or approximately one-third of the country where consumers can purchase cannabis for recreational purposes. We continue to build out our supply chain in mature markets and open new GrowGen garden centers in these new emerging states. The third quarter saw all sales channels come together and perform extremely well. Our total sales were up 153% with commercial sales up 188% and e-commerce sales up 112% versus the same quarter last year. We successfully launched our website now located at growgeneration.com. that is the focal point of our omni-channel and multi-sales channel strategy. Our private label products are in full production and we feel very confident that we will achieve our goal of 10% of all sales in 2021 coming from our line of private label products. With approximately $50 million of capital on our balance sheet today, we've expanded our institutional ownership to over 50%. Our company is executing additional acquisitions, securing leases for several new store openings to continue to fuel our growth. ProGen's business model is working well as we continue to scale the business with a relentless focus on execution discipline. I will now turn the call over to Darren Lampert, our CEO and co-founder, who will present and our third quarter 2020 financial results. Darren.

Thank you, Michael. Good morning and welcome to our third quarter 2020 earnings call. Before I begin my prepared remarks, I would like to thank each and every one of our staff and customers for their hard work, dedication and loyalty. As we continue to monitor the COVID-19 outbreak, Progen is considered an essential supplier to the agricultural industry. supplying the nutrients and nourishments required to feed their plants. Accordingly, all our 31 garden centers remain open during this difficult time. We have procedures in place to ensure our customers and employees stay safe. All of us at Grow Generation remain committed to the safety and well-being of our customers and employees. We're excited to report another quarter of record financial results and operating performance by our company. As we continue to outpace our guidance, we are increasing fiscal year 2020 revenue guidance to $185 to $190 million, increasing adjusted EBITDA guidance for 2020 to $19 to $20 million. We have set 2020 full year GAAP pre-tax net income guidance to $9 to $11 million. Revenue guidance for full year 2021 is $280 million to $300 million. and Full Year Adjusted EBITDA 2021 is $34 to $36 million. The company's third quarter 2020 record financial results reflect our continued focus on revenue growth and adjusted EBITDA expansion. The third quarter of 2020 was the company's 11th consecutive quarter of record revenue growth. Our continued ability to attract the best of breed hydroponic garden centers is again evidenced by the recent signing of our asset purchase agreement with the GrowBiz that we plan to close before the end of the year. The GrowBiz adds an additional five garden centers in California and Oregon to the GrowGen portfolio and is the nation's third largest hydroponic chain. The GrowBiz business is operating at an annual revenue run rate in excess of $50 million. Founded in 2010 by Ross and Ryan Haley, the GrowBiz team of 60 Grow professionals brings tremendous experience and commercial relationships to GrowGen. Ross Haley, the former CEO of Hawthorne Gardening Company, a division of Scott's Miracle-Gro, will be joining Bob Nardelli, the former CEO of Home Depot, on GrowGen's advisory board, and will be contributing to the company in his role as senior strategic advisor. And we look forward to working with Ross, not only continuing his legacy at the GrowBiz, but also working with Ross on future acquisitions and other strategic initiatives. Revenue grew 153% quarter over quarter to approximately 55 million for the third quarter versus 21.8 million in the same period last year. The nine months ended September 30th, 2020, revenue was 131 million versus 54 million for the nine months ended September 30th, 2019. an increase of 142%. Adjusted EBITDA was 6.6 million for the third quarter compared to 2 million last year, an increase of 230%. Adjusted EBITDA for third quarter 2020 was 14 cents per share basic. For the nine months 2020, adjusted EBITDA was 32 cents per share basic. Net income from store operations grew 156% to approximately $9.6 million for the third quarter compared to $3.8 million for the same period last year. For the nine months, income from operations grew 161% to $23 million from $8.6 million for the same period last year. Same store sales grew 73% in the third quarter when compared to the same period last year. And for the nine months ending September 30, 2020, SaveStore sales grew 59% compared to the same period last year. GrowGeneration.com, the online business, is now generating $1 million per month, up 112% for the third quarter versus last year, and up 140% for nine months ending September 30, 2019, as compared to the same period last year. Our commercial division is projected to do in excess of $40 million in annual revenue for 2020 and added $13 million in revenue in the quarter. This represents a 188% increase for the third quarter of 2020 versus third quarter 2019 and a 200% increase for the nine months of 2020 versus 2019. To highlight our market-by-market growth, Colorado was up 37% quarter-over-quarter, 27% for the nine months, California plus 58% plus 41% for the nine months, Michigan plus 272% of 288% for the nine months, and Oklahoma plus 288% or 312% for the nine months. Our commercial revenues for the nine months ended September 30th, 2020 with $32.7 million, and our e-commerce revenues finished the first nine months of 2020 at $7.5 million. We continue to focus on margin expansion strategies that include furthering the deployment of more private label products and driving more efficiencies at the purchasing level as we continue to scale and grow top line revenue. Our private label program is in full production and we plan to derive 10% of our revenue from our private label product offerings. We are proud of the reduction in store operating costs that fell to just 9% of revenue, down 28% from 12.6%, compared to the third quarter of 2019. And corporate payroll and G&A, excluding non-cash compensation and depreciation, declined 34% to 5.5% of revenue, compared to 8.4% of revenue for the third quarter of 2019. We expect new acquisitions and new store openings to continue through the remainder of 2020, and in the first quarter of 2021 to continue to drive and help achieve our planned 50-plus locations in 2021 across 15 states. Following the state legalization roadmap, GrowGen acquired Phoenix, Arizona-based Hydroponic Depot and is securing leases for New Jersey for a spring 2021 opening of GrowGen locations in the Garden State. The New Jersey locations will serve not only the emerging New Jersey markets, but also the adjacent states of New York and Pennsylvania, as we believe both states will follow New Jersey's legalization path. Grosjean has a tremendous team of essential employees who have made a commitment to our company and customers, and I could not be any prouder. I am inspired by their efforts and dedication. They have worked tirelessly to service our customers and communities. I will now turn the call over to Tony Sullivan, our Chief Operating Officer. who will brief everyone on our current COVID-19 risk mitigation procedures and key operational initiatives executed in the third quarter. And then to our CFO, Monty Lammaretto, who will provide more details on our third quarter 2020 results. Tony. Thank you, Darren.