GrowGeneration Corp

Previous wording

We make our products available to growers through a variety of channels, including hydroponic retail locations, a commercial sales teams serving commercial cultivators, an online platform for cultivators at growgeneration.com, and a wholesale business, HRG Distribution, that markets to resellers in both the hydroponic and traditional gardening markets. Management believes that the Company has the largest chain of specialty retail hydroponic and organic garden centers in the U.S., with 46 retail locations across 18 states as of March 31, 2024.

Current wording

We make our products available to growers through a variety of channels, including hydroponic retail locations, a commercial sales teams serving commercial cultivators, an online platform for cultivators at growgeneration.com, and a wholesale business, HRG Distribution, that markets to resellers in both the hydroponic and traditional gardening markets. Management believes that the Company has the largest chain of specialty retail hydroponic and organic garden centers in the U.S., with 43 retail locations across 18 states as of June 30, 2024.

Previous wording

GrowGeneration has also acquired several other types of businesses within or complimentary to the hydroponic industry, such as online retailers, proprietary products, our distribution business, HRG, and our benching, racking, and storage solutions business, MMI. The Company regularly seeks and evaluates accretive acquisition opportunities with similar or complimentary businesses to those businesses it already operates.

Current wording

Since its founding in 2014, GrowGeneration has acquired or opened numerous specialty hydroponic and organic gardening center locations. Management believes that the Company has the largest chain of specialty retail hydroponic and organic garden centers in the U.S., with 43 retail locations across 18 states as of June 30, 2024. GrowGeneration has also acquired several other types of businesses within or complimentary to the hydroponic industry, such as online retailers, proprietary products, our distribution business, HRG, and our benching, racking, and storage solutions business, MMI. The Company regularly seeks and evaluates accretive acquisition opportunities with similar or complimentary businesses to those businesses it already operates.

Previous wording

The decrease in net sales was primarily related to our Cultivation and Gardening segment, which had net sales of $43.1 million for the three months ended March 31, 2024 compared to $49.1 million for the three months ended March 31, 2023. This decrease in net sales was primarily due to the fiscal 2023 consolidation of 13 retail locations after March 31, 2023 as well as the four additional retail store consolidations during the three months ended March 31, 2024. Same-store sales decreased approximately $0.4 million, or 1%, primarily due to decreased e-commerce retail sales volume which was partially offset by same-store sales growth in our brick-and-mortar retail locations. Proprietary brand sales as a percentage of Cultivation and Gardening net sales for the three months ended March 31, 2024 was approximately 23% as compared to approximately 18% for the three months ended March 31, 2023, largely driven by our strategic initiatives to increase sales volume with our expanded portfolio of proprietary brands and various proprietary product launches. The percentage of Cultivation and Gardening net sales related to consumable products for the three months ended March 31, 2024 was approximately 70%, which was an increase from approximately 66% for the three months ended March 31, 2023. The increase in consumable sales as a percentage of net sales was driven mainly by increased brand adoption of proprietary growing media and nutrient products.

Current wording

The decrease in net sales was primarily related to our Cultivation and Gardening segment, which had net sales of $46.1 million for the three months ended June 30, 2024 compared to $55.6 million for the three months ended June 30, 2023. This decrease in net sales was primarily due to the fiscal 2023 consolidation of twelve retail locations after June 30, 2023 as well as the seven retail locations closed in the first half of 2024. Same-store sales decreased approximately 6.2%, primarily attributable to decreased e-commerce and brick-and-mortar retail sales volume declines. Proprietary brand sales as a percentage of Cultivation and Gardening net sales for the three months ended June 30, 2024 increased to 21.5% as compared to 16.7% for the three months ended June 30, 2023, largely driven by our strategic initiatives to increase sales volume with our expanded portfolio of proprietary brands and various proprietary product launches. The percentage of Cultivation and Gardening net sales related to consumable products for the three months ended June 30, 2024 was 73.0%, which was an increase from 69.7% for the three months ended June 30, 2023. The increase in consumable sales as a percentage of net sales was driven mainly by increased brand adoption of proprietary growing media and nutrient products.

Previous wording

Additionally, net sales of commercial fixtures within our Storage Solutions segment decreased to $4.8 million for the three months ended March 31, 2024 compared to $7.7 million for the three months ended March 31, 2023.

Current wording

Additionally, net sales of commercial fixtures within our Storage Solutions segment decreased to $7.4 million for the three months ended June 30, 2024 compared to $8.4 million for the three months ended June 30, 2023.

Previous wording

Gross profit was $12.4 million for the three months ended March 31, 2024 compared to $16.3 million for the three months ended March 31, 2023, a decrease of $3.9 million or 24.1%. The decrease in gross profit is primarily related to the Gardening and Cultivation segment, which decreased $2.9 million, or 22.0%, for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, largely as a result of the decrease in sales volume due to store consolidations as previously discussed. Additionally, gross profit from our Storage Solutions segment decreased $1.0 million, or 33.4%, in the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Current wording

Gross profit was $14.4 million for the three months ended June 30, 2024 compared to $17.1 million for the three months ended June 30, 2023, a decrease of $2.7 million or 15.8%. The decrease in gross profit is primarily related to the Gardening and Cultivation segment, which decreased $2.4 million, or 18.0%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, largely as a result of the decrease in sales volume due to store consolidations as previously discussed. Additionally, gross profit from our Storage Solutions segment decreased $0.3 million, or 8.3%, in the three months ended June 30, 2024 compared to the three months ended June 30, 2023.

Previous wording

Operating expenses are comprised of store operations and other operational expenses, selling, general, and administrative, estimated credit losses, and depreciation and amortization. Operating expenses were $21.8 million for the three months ended March 31, 2024 and $23.7 million for the three months ended March 31, 2023, a decrease of $1.9 million or 8.1%.

Current wording

Operating expenses are comprised of store operations and other operational expenses, selling, general, and administrative, estimated credit losses, and depreciation and amortization. Operating expenses were $20.9 million for the three months ended June 30, 2024 and $23.4 million in the three months ended June 30, 2023, a decrease of $2.5 million or 10.7%.

Previous wording

Cost of sales for the three months ended March 31, 2024 was $35.5 million, a decrease of $5.0 million or 12.4% compared to $40.5 million for the three months ended March 31, 2023. The decrease in cost of sales was primarily due to the 15.7% decrease in sales, as previously discussed, partially offset by reduced inventory discounts from vendors and non-recurring costs associated with store consolidations in the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Current wording

Cost of sales for the six months ended June 30, 2024 was $74.6 million, a decrease of $12.7 million or 14.5% compared to $87.3 million for the six months ended June 30, 2023. The decrease in cost of sales was primarily due to the 16.0% decrease in sales, as previously discussed, partially offset by reduced inventory discounts from vendors and non-recurring costs associated with store consolidations in the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Previous wording

Gross profit margin was 25.8% for the three months ended March 31, 2024, a decrease of 290 basis points from a gross profit margin of 28.7% for the three months ended March 31, 2023. The decrease was primarily attributable to an 290 basis point gross profit margin decline for the Cultivation and Gardening segment, which was primarily driven by industry pricing compression on distributed products and non-recurring costs associated with store consolidations discussed previously. The decrease in the total gross profit margin was partially offset by a 300 basis point gross profit margin improvement for the Storage Solutions segment.

Current wording

Gross profit margin was 26.4% for the six months ended June 30, 2024, a decrease of 130 basis points from a gross profit margin of 27.7% for the six months ended June 30, 2023. The decrease was primarily attributable to an 160 basis point gross profit margin decline for the Cultivation and Gardening segment, which was primarily driven by industry pricing compression on distributed products and non-recurring costs associated with store consolidations discussed previously. The decrease in the total gross profit margin was partially offset by a 260 basis point gross profit margin improvement for the Storage Solutions segment.

Previous wording

Store operating costs and other operational expenses, which consisted primarily of payroll, rent and utilities, and allocated corporate overhead costs, were $10.6 million for the three months ended March 31, 2024, compared to $12.6 million for the three months ended March 31, 2023, a decrease of $2.0 million or 15.8%. The decrease in store operating costs was primarily attributable to the fiscal 2023 consolidation of 13 retail locations after March 31, 2023 as well as the four additional retail store consolidations during the three months ended March 31, 2023. Additionally, as part of our 2023 charitable initiatives, we had approximately $0.4 million more charitable donations in the three months ended March 31, 2023 as compared to the three months ended March 31, 2024.

Current wording

Store operating costs and other operational expenses, which consisted primarily of payroll, rent and utilities, and allocated corporate overhead costs, were $20.8 million for the six months ended June 30, 2024, compared to $24.6 million for the six months ended June 30, 2023, a decrease of $3.8 million or 15.4%. The decrease in store operating costs was primarily due to the fiscal 2023 consolidation of twelve retail locations after June 30, 2023 as well as the seven retail locations closed in the first half of 2024. Additionally, as part of our 2023 charitable initiatives, we had approximately $0.4 million more charitable donations in the six months ended June 30, 2023 as compared to the six months ended June 30, 2024.

Previous wording

Total corporate overhead, which is comprised of selling, general, and administrative expense, estimated credit losses, and depreciation and amortization expense, was relatively flat with $11.2 million for the three months ended March 31, 2024 compared to $11.1 million for the three months ended March 31, 2023. Selling, general, and administrative costs increased by $1.1 million or 15.6% for the three months ended March 31, 2024 primarily as a result of one-time severances and related professional fees and increased share-based compensation. This increase was largely offset by the estimated credit recoveries of $0.5 million in the three months ended March 31, 2024, primarily due to a $0.3 million settlement received in bankruptcy proceedings related to a note receivable, as compared to the estimated credit loss of $0.3 million in the three months ended March 31, 2023.

Current wording

Total corporate overhead, which is comprised of selling, general, and administrative expense, estimated credit losses, and depreciation and amortization expense, decreased to $21.9 million for the six months ended June 30, 2024 compared to $22.5 million for the six months ended June 30, 2023, a decrease of $0.6 million or 2.8%. Selling, general, and administrative costs increased by $0.7 million or 4.7% for the six months ended June 30, 2024 primarily as a result of one-time severances and related professional fees and increased marketing expenses related to various proprietary product launches. This increase was offset by the estimated credit recoveries of $0.5 million in the six months ended June 30, 2024, primarily due to a $0.3 million settlement received in bankruptcy proceedings related to a note receivable, as compared to the estimated credit loss of $0.4 million in the six months ended June 30, 2023.

Previous wording

Other income (expense) was $0.6 million for the three months ended March 31, 2024 compared to $1.3 million for the three months ended March 31, 2023. This decrease is primarily attributable to the $0.9 million gain recognized in the three months ended March 31, 2023 related to a prior acquisition indemnity holdback.

Current wording

Other income (expense) was $1.3 million for the six months ended June 30, 2024 compared to $2.0 million for the six months ended June 30, 2023. This decrease is primarily attributable to the $0.9 million gain recognized in the six months ended June 30, 2023 related to a prior acquisition indemnity holdback.

Previous wording

As of March 31, 2024, we had working capital of $112.4 million compared to working capital of $116.5 million as of December 31, 2023, a decrease of $4.1 million. The decrease in working capital from December 31, 2023 to March 31, 2024 was due primarily to a net decrease in cash, cash equivalents, and marketable securities as a result of net cash used in operating activities.

Current wording

As of June 30, 2024, we had working capital of $105.4 million compared to working capital of $116.5 million as of December 31, 2023, a decrease of $11.2 million. The decrease in working capital from December 31, 2023 to June 30, 2024 was due primarily to a net decrease in cash, cash equivalents, and marketable securities as a result of net cash used in operating activities as well as reductions in inventory and common stock repurchases.

Previous wording

As of March 31, 2024, we had cash, cash equivalents, and marketable securities of $61.3 million. Currently, we are not aware of any extraordinary demands, commitments, or uncertainties that would materially reduce our current working capital. Our material future cash requirements from contractual and other obligations relate primarily to our operating leases. Refer to Note 8, Leases, of the Condensed Consolidated Financial Statements for additional information regarding leases.

Current wording

As of June 30, 2024, we had cash, cash equivalents, and marketable securities of $56.0 million. Currently, we are not aware of any extraordinary demands, commitments, or uncertainties that would materially reduce our current working capital. Our material future cash requirements from contractual and other obligations relate primarily to our operating leases. Refer to Note 8, Leases, of the Condensed Consolidated Financial Statements for additional information regarding leases.

Previous wording

The following discussion sets forth the major sources and uses of cash for the three months ended March 31, 2024 and 2023.

Current wording

The following discussion sets forth the major sources and uses of cash for the six months ended June 30, 2024 and 2023.

Previous wording

Net cash and cash equivalents used in operating activities for the three months ended March 31, 2024 was $3.7 million compared to net cash provided by operating activities of $3.5 million for the three months ended March 31, 2023. The changes in operating cash were primarily driven by the decreased in income (loss) from operations as previously discussed.

Current wording

Net cash and cash equivalents used in operating activities for the six months ended June 30, 2024 was $4.0 million compared to net cash provided by operating activities of $7.4 million for the six months ended June 30, 2023. The changes in operating cash were primarily driven by the increased net loss as previously discussed.

Previous wording

Net cash and cash equivalents provided by investing activities was $5.0 million and $19.3 million for the three months ended March 31, 2024 and March 31, 2023, respectively. Investing activities for the three months ended March 31, 2024 were primarily attributable to investment of excess cash into marketable securities of $21.1 million, offset by maturity of marketable securities of $26.5 million. We also had purchases of property and equipment of $0.4 million during the three months ended March 31, 2024. Investing activities for the three months ended March 31, 2023 were primarily attributable to investment of excess cash into marketable securities of $10.7 million, offset by maturity of marketable securities of $33.5 million, and purchases of property and equipment of $3.5 million, which was primarily related to the implementation and design of a new enterprise resource planning software system.

Current wording

Net cash and cash equivalents provided by investing activities for the six months ended June 30, 2024 was $6.2 million compared to net cash used by investing activities of $17.6 million for the six months ended June 30, 2023. Investing activities for the six months ended June 30, 2024 were primarily attributable to investment of excess cash into marketable securities of $28.0 million, offset by maturity of marketable securities of $35.6 million. We also had purchases of property and equipment of $1.4 million during the six months ended June 30, 2024. Investing activities for the six months ended June 30, 2023 were primarily attributable to investment of excess cash into marketable securities of $51.7 million, offset by maturity of marketable securities of $42.6 million, and purchases of property and equipment of $5.5 million, which was primarily related to the implementation and design of a new enterprise resource planning software system.

Previous wording

Net cash and cash equivalents used in financing activities for the three months ended March 31, 2024 and March 31, 2023 was less than $0.1 million and $0.1 million, respectively, and was primarily attributable to common stock withheld for employee payroll taxes.

Current wording

Net cash and cash equivalents used in financing activities for the six months ended June 30, 2024 was $4.3 million and was primarily attributable to common stock repurchased under our share repurchase program. Net cash and cash equivalents used in financing activities for the six months ended June 30, 2023 was $0.2 million and was primarily attributable to common stock withheld for employee payroll taxes.