GrowGeneration Corp.

Hello, everyone, and welcome to the Grow Generation's fourth quarter and full year 2024 earnings conference call. My name is John, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Following the prepared remarks, we will open the call to questions from analysts with instructions to be given at that time. This conference call has been recorded, and a replay of today's call will be available on the Investor Relations section of Grow Generation's website. I will now hand a call over to Phil Carlson with KCSA for introductions and the reading of the Safe Harbor Statement. Please go ahead.

Thank you and welcome, everyone, to Grow Generation's fourth quarter and full year 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 fourth quarter and full year 2024 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'd 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 provides reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures, are 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'll take them as time allows. Now I will hand the call over to Grow Generation's co-founder and CEO, Darren Lampert. Darren, please go ahead.

Thanks, Bill. And good afternoon, everyone. We appreciate you joining us today as we discussed our fourth quarter and full year 2024 results and talk about our outlook for 2025. Today, we reported full year 2024 results that were consistent with our expectations. This included full year 2024 net revenue of $188.9 billion, which was in line with the preliminary results we reported in early February. Total 2024 proprietary brand sales were 39.5 million, representing 24.2 percent of total net sales compared to 18.8 percent in the prior year. 2024 marked a pivotal year for Grow Generation as we successfully executed a strategic transformation to position the company for sustainable, profitable growth. With this extensive strategic restructuring plan, we have moved away from a focus on stores in order to transform Growjet into a product-driven company with a business-to-business customer focus in order to drive revenue growth, improve margins, and to build a more efficient, profitable company. For proprietary brands, I'm happy to report that 30.4 percent of our fourth quarter 2024 cultivation, and gardening revenue was derived from sales of our proprietary products, compared to 21.2% for the fourth quarter of 2023. This is very important because proprietary product sales not only drive higher margins, but also create a stable and reoccurring revenue stream for GrowGen. Our goal remains clear for proprietary brands to reach 35% of cultivation and gardening net sales by the end of 2025. Our portfolio of leading brands, such as Charcoal Cocoa, Drip Hydro Nutrients, The Harvest Company, and our Ion Lighting Solutions, continue to drive growth in proprietary brand sales. By integrating these proprietary brands into our commercial and e-commerce platforms, we're providing growers premium products that reduce input costs while maximizing yields. Regarding the digital transformation of sales, our new B2B e-commerce platform was launched as planned in the fourth quarter of 2024. Since its launch, we've received extremely positive customer feedback. We will continue migrating transaction activity for our brick-and-mortar stores to our new digital platform, enhancing the customer purchasing experience while driving operational efficiencies across our supply chain. And lastly, in 2024, we made substantial progress in streamlining operations and reducing expenses throughout our entire organization. We proactively optimized our retail footprint, completing strategic store consolidations ahead of schedule, which significantly reduced operating expenses while preserving sales in key markets. Following these actions, we now have 31 operational stores and two regional distribution centers. Looking forward, we expect to reduce annual expenses by approximately $12 million. We've already made considerable progress. Gross profit margin was 16.4% for the fourth quarter of 2024, compared to 23.5% for the fourth quarter of 2023, primarily due to one-time inventory disposal costs and strategic discounting as part of restructuring efforts. With the increasing revenue contribution we are realizing from proprietary brands, we anticipate sequential margin improvement throughout 2025 with a margin target of 30 percent, which will drive overall profitability. Complementing all of this, we finished 2024 with no debt on our balance sheet and a strong cash equivalent and marketable securities position of $56.5 million. Additionally, in 2024, we completed a $6 million share repurchase program, demonstrating our commitment to returning value to our shareholders. This strong financial footing provides a significant financial flexibility for future growth investments and initiatives, as well as potential acquisitions. With our strong cash position, we can opportunistically acquire businesses that complement our proprietary brand portfolio, expand our market share, and increase our profitability. Lastly, before I discuss guidance, I want to talk about our storage solutions business, MMI. During 2024, MMI continued to exceed our expectations, with full-year 2024 revenue of $25.4 million and $6.3 million in operating profits. As previously communicated, In 2024, we engaged Lake Street Capital to explore strategic opportunities for this business. After a thorough evaluation process, the board determined current market conditions do not support an optimal value creation scenario for a divestiture at this time. Instead, we will continue to focus on executing our long-term expansion plans for MMI, leveraging its strong profitability to drive additional value within the GrowGen portfolio. Turning to guidance for the full year 2025, we expect net revenues to be in the range of $170 million to $180 million and adjusted EBITDA in the range of a $2 million loss to a positive $2 million profit. Before we take your questions, I want to briefly talk about invested concerns related to the impact of proposed global tariffs. We have already implemented measures to mitigate these effects. These include diversifying our material sourcing strategy, including optimizing costs, renegotiating with vendors, and exploring manufacturing options, and improving supply chain efficiencies to optimize logistics and fulfillment, reduce unnecessary costs, and improve margins, including utilizing our larger stores as regional fulfillment hubs to improve inventory flow and lower shipping costs. And in cases where tariffs may impact our businesses, surcharges will be put in place to reflect additional costs. In summary, 2024 was a transformational year for Growjet, and we entered 2025 with a leaner, more efficient, and more product-driven business model. With our proprietary brand, digital transformation, and cost optimization strategies in place, We are confident that 2025 will be a year of revenue growth and innovation for GrowGen as we aim to reach profitability in the second quarter of 2025. I will now hand the call over to our CFO, Greg Sanders. Greg?