GrowGeneration Corp.

Thank you. Thank you. Hello, everyone, and welcome to Grow Generation's second quarter 2024 earnings conference call. My name is Nick, and I will be your operator for today's call. At this time, participants are in a listen-only mode. Following prepared remarks, we will open the call to questions from analysts with instructions to be given at that time. This conference call is being recorded and the replay of today's call will be available in the investor relations section of Grow Generation's website. I will now hand it all over to Phil Carlson with KCSA for introductions and the reading of the safe card for today. Please go ahead.

Thank you and welcome everyone to Grow Generation's second quarter 2024 earnings results conference call. With us today are Darren Lampert, co-founder and chief executive officer, and Greg Sanders, chief financial officer of Grow Generation. The company's second quarter earnings press release was issued after the market closed today. A copy of this press release is available on the investor relations section of the Grow Generation website at ir.growgeneration.com. I would like to remind everyone that 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'll use some non-GAAP financial measures as we describe business performance. The SEC filing, as well as the earnings press release, which provide reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures, are all available on our website. Following prepared remarks, management will be happy to take your questions. We ask that you please limit yourself to one question and one follow-up. If you have additional questions, please re-enter the queue, and we will take them if time allows. Now, I will hand the call over to our co-founder and CEO, Darren Lampert. Darren, please go ahead.

Thanks. Bill, and good afternoon, everyone. Thank you for joining us today to discuss our second quarter 2024 financial results. Today, we reported solid second quarter results that were consistent with our expectations as we continue to leverage our strong portfolio of proprietary brands. As always, I want to thank our GrowGen team members. All of our employees have worked tirelessly to help drive our results. And we appreciate all their hard work and commitment to our company's continued growth. Second quarter results included net revenue of $53.5 million, an increase of 11.7% sequentially from $47.9 million in the first quarter. In addition to sequential sales growth, adjusted EBITDA loss was $1.1 million for the quarter, a $1.7 million improvement from Q1. Importantly, proprietary brand sales remain relatively flat as a percentage of cultivation and gardening net sales during the quarter, but increased from 21.5 percent compared to 16.7 percent in the same period last year. It is important to note that proprietary brand sales increased in July with the increase of sales of DRIP Hydro, Charcor, and The Harvest Company as customers migrate from trials to sales. As some of you may know, for quite some time, we've been taking actions to expand sales of these higher margin proprietary products. This percentage increase highlights the growing market adoption of our proprietary brands, including Charcor, Drip Hydro, and The Harvest Company, and the success of these initiatives. In addition to our top line success, gross margins for the second quarter was 27%. a 110 basis point improvement over the last quarter. These results reflect the growing percentage of our proprietary brand sales, as well as ongoing focus on streamlining our business with margin expansion and cost reductions front of mind in all our operations. Before Greg takes you through our second quarter financials in more detail, I'd like to talk about our recent announcement regarding our strategic restructuring plan and expected path to profitability. Last month, we provided details on a comprehensive restructuring plan that is designed to fundamentally reposition our company. Over the past few years, we have already been delivering on our key strategic priorities, which include expanding our proprietary brand portfolio, maximizing operational efficiencies while improving our cost structure and driving increased profitability through margin expansion. This new restructuring plan is the next phase in this process to position GrowGen for sustainable, recurring revenue growth, driven by our commercial and B2B customers, as well as long-term profitability. This plan has three major components. One, a focus on proprietary brands. This is more than just a statement. We have a clear target for our proprietary brands to account for 35% of total sales by the end of 2025. As part of this initiative, we will continue to launch e-commerce-enabled brand-specific websites. An example of this is the Harvest Company e-commerce-enabled website, which went live and has already received positive customer feedback. We invite you to take a look at it yourself by visiting www.theharvestco.com. We also intend to add approximately 50 new products to the proprietary brand lineup over the next 12 months. Two, a digital transformation of sales throughout our entire organization with a B2B customer focus. This will entail the launch of a B2B e-commerce portal, migrating some of our transactional activity from our brick-and-mortar retail stores onto this digital platform. We expect to launch the new platform in the fourth quarter of this year. Complementing this digital transformation, we intend to implement a fulfillment strategy where commercial customers will shop online and have access to products at existing warehouse-style stores or for a convenient pickup. Three, and lastly, continuing streamlining of our operational infrastructure. Most importantly, we will continue to right-size GrowGen's national retail footprint to align with current industry-wide conditions by closing 19 redundant or under-forming stores in 2024. This process is well underway, as seven of these locations were already closed in the first half of the year. The remainder are expected to be substantially completed by early Q4. Following these closures, going forward, the company will have 31 operational stores, As we make this transition, we intend to retain the majority of our commercial customers and direct walk-in customers through adjacent locations, commercial sales force, and our new B2B portal. This streamlining will also include the reorganization of our sales, marketing, and administrative activities to reduce expenses while seeking efficiencies to drive sales and conduct operations more cost effectively. As part of this, We will also look to continue to rationalize our inventory, revisit and enhance our strategic vendor relationships, and improve recovery of freight expense. Although there will be near-term impacts to margins and expenses as we execute on these initiatives, as there are with any restructuring, We expect that in the future they will generate margin gains, improve profitability, and reduce expenses by approximately $12 million on an annualized basis. We are committed to implementing these changes swiftly and effectively to solidify GrowGen's position as a leader in the hydroponics and organic gardening supply industry. As such, our cash position remains strong, reflected by the company's share repurchase program. which was authorized in March by our Board of Directors. Throughout the quarter, we repurchased more than $4 million in shares. Switching to the topic of guidance, as a result of this restructuring plan and the actions we've outlined today, we will now be revisiting our full year 2024 net revenue and adjusted EBITDA guidance. We're analyzing the full effects of these actions, including our digital transformation, door closures, and the related cost savings we expect to achieve. At this time, we're estimating full year 2024 net sales to be in the range of $190 to $195 million. As for our previously stated adjusted EBITDA guidance, we are removing this guidance altogether as the timing of actions taken in accordance with our previously announced restructuring may cause results to differ. As we go through the second half of 2024, we have additional data as well as greater visibility on the specific results and benefits of our restructuring initiatives, and we will make the appropriate revisions to our adjusted EBITDA guidance at a later date. Finally, before I turn it over to Greg to review our second quarter financials, I want to briefly talk about the latest updates on our storage solution segment, as well as cannabis reform and federal rescheduling. As we've mentioned on previous calls, we hired Lake Street Capital to seek strategic opportunities as it relates to the storage solution segment of our business, MMI. As most of you know, MMI is a leader in providing mobile shelving and racking solutions and there is a significant opportunity to further monetize this business. We remain engaged with Lake Street Capital and will share news with our stakeholders and the investment community. We have information to announce. Moving to rescheduling, the public comment period regarding the DEA's proposed rescheduling rule for cannabis, which would reschedule cannabis from a Schedule 1 to a Schedule 3 controlled substance, recently closed on July 22nd. with over 42,000 comments submitted. According to data from Headset, over 92% of those comments were in favor of rescheduling or the complete de-scheduling of cannabis under the Federal Controlled Substance Act. As we said previously, rescheduling would be a major milestone in the regulatory landscape. It would likely be very beneficial to many of our customers and therefore to GrowGen's business. It would ease restrictions on cannabis research and strengthen the cash flow and balance sheets of state legal cannabis operators by allowing them to take federal tax deductions for the business expenses. We would also expect this to expand market opportunities for our products as cultivators would have increased access to capital that they could invest into building out new cultivation facilities and refreshing existing ones. While this is all still subject to a final ruling, by the DEA. We continue to be encouraged by the rescheduling process and will continue to monitor events as they unfold. In summary, our second quarter results were in line with our expectations and reflect the considerable progress we have made in many facets of our business, including expanding sales of our proprietary brands. While we have already made great strides to date, we recognize there is still more work to do and we are confident that the measures we've outlined for you today will put us on solid paths for accelerated and sustainable revenue growth and long-term profitability. In addition to our own actions that we control, we are also encouraged by recent industry developments with federal cannabis reform, which have positive implications for both us and our customers. We're excited about the future of our business and look forward to sharing updates on our progress with you as we execute on our strategic plans. I will now turn the call over to our CFO, Greg Sanders. Greg?