GrowGeneration Corp.

Hello, and welcome to Grow Generation's first quarter 2024 earnings conference call. My name is Joanna. I will be coordinating your call today. Following prepared remarks, we will open the call to questions from analysts with instructions to be given at that time. I'll now hand the call over to John Mills with ICR. Please go ahead.

Thank you, and welcome everyone to the Grow Generation's first quarter 2024 earnings results conference call. Today's call is being recorded. With us today are Darren Lampert, co-founder, chief executive officer, and Greg Sanders, chief financial officer of GrowGen Corporation. You should have access to the company's first quarter earnings press release issued after the market closed today. This information is available in the investor relations section of GrowGeneration's website at ir.growgeneration.com. Certain comments made on this call include forward-looking statements which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any of the forward-looking statements made today. During the call, we will use some non-GAAP financial measures as we describe business performance. The SEC filing, as well as the earnings press release, which provides reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are all available on our website. Following our prepared remarks, we will take questions from research analysts. We ask that you please limit yourself to one question and one follow-up. If you have any additional questions, please re-enter the queue, and we'll take them as time allows. Now, I will turn the call over to our founder and CEO, Darren Lampert.

Darren? Thanks, John, and good afternoon, everyone. Thank you for joining us today to discuss our first quarter 2024 financial results. As always, I want to extend my gratitude to each one of our employees across Grow Generation for their dedication and hard work. Your commitment is fundamental and the backbone to our success. I am pleased to announce that our first quarter results were in line with our expectations, with revenue of $47.9 million and adjusted EBITDA of a $2.9 million loss. Encouragingly, our retail stores in isolation were positive on a same-store sales comp basis in the first quarter, which represents the first time we've seen a positive same-store sales comp for retail stores in nine quarters. This indicates the stabilization of sales, affirming the effectiveness of our strategic adjustments over the past two years. Our proprietary brand sales also continue to grow, supporting sequential gross margin improvement from fourth quarter 2023. Lastly, through our continued focus on cost controls, we have achieved the lowest total expense base that the company has reported in three years. Based on this quarter's results, we continue to believe that our business is strong and poised for growth. And you have seen that confidence reflected in our stock repurchase program, which we announced last quarter to help support long-term shareholder value creation. Looking ahead, our strategic focus for 2024 remains on expanding our brand portfolio, growing and broadening our customer base, and prioritizing profitability through rigorous cost control and margin expansion. I'm excited to discuss several key points today that underline our strategic direction and future growth. We continue to see accelerating adoption of our proprietary brands, including Charcor, Drip Hydro, and The Harvest Company. In the quarter, 22.6% of our total gardening and cultivation sales were generated from our proprietary brand portfolio, the highest mix in our company's history. and above the 18.8% we reported for full year 2023. We are especially excited about the early signs of momentum within our drip hydropowder nutrients, which are now in over 300 active trials with licensed cultivators around the country. We expect these trials to begin transitioning to sales and benefiting our P&L beginning late in Q2. Our margin expansion strategy continues to focus on increasing sales of higher margin proprietary products and forging close strategic relationships with key best-of-breed manufacturing partners. We are also working to develop new vertical markets with our existing offerings, including the marketing and sales of the Harvest Company line of proprietary products, which is targeting the home and edible gardening markets. Within the Harvest Company, Branded products include raised garden beds, organic seeds, and various gardening tools and accessories that are now available for sale online and in our stores. We are also actively seeking opportunities to enter the high-value greenhouse, nursery, and floriculture verticals with our proprietary products later this year. Lastly, our commitment to investing in our customer success remains unwavering. We continue to offer a complete suite of industry-leading products, competitive prices, and opportunities for financing and comprehensive inventory management and logistics solutions. Additionally, our soon-to-be-launched digital platform will enhance connectivity to our B2B portal, further empowering our customers' ability and convenience to do business with us. Now, before turning to guidance, I want to briefly mention two additional points. First, I'd like to address the significant news last week that the DEA agreed with the Health and Human Services and FDA recommendation to reschedule cannabis from a Schedule I to a Schedule III controlled substance. This critical shift in the regulatory landscape is expected to ease restrictions on cannabis research and to strengthen the cash flow and balance sheets of state legal cannabis operators by allowing them to take federal tax deductions for the business expenses. While additional steps remain and additional challenges such as litigation may arise, we ultimately expect these developments to strengthen investor sentiment and broaden market opportunities for our products as cultivators will have more capital available to invest back into their businesses, including in building new facilities and refreshing existing ones. Regarding next steps, we expect a formal announcement by the DEA soon, following which the proposal will go to the Office of Management and Budget for review and then to public comment, period, before being finalized. We are actively assessing how this regulatory change will impact our operations and strategic opportunities, and we will keep our stakeholders informed and future earnings calls as things progress. Second, continuing from our year-end discussions, we are continuing to seek opportunities to monetize our storage solution segment, MMI, which remains a leader in providing mobile shelving and racking solutions. While we do not have any news to report this quarter, should a material update become available as it relates to the MMI business, we will issue an announcement accordingly. Moving on to our guidance, we are reiterating our previously communicated guidance for full year 2024. We anticipate net revenue to be in the range of $205 million to $215 million. Adjusted EBITDA is expected to range from a $2 million loss to a $3 million profit. This guidance underscores our confidence in our strategic direction and the underlying strength of our business model. I'm proud of the work and effort our team has put into getting us where we are today. As we look through the balance of the year, we are optimistic that GrowGen is on a solid platform for growth in 2024 and beyond. With that, I'll turn the call over to our CFO, Greg Sanders. Greg?