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GRWG GrowGeneration

Participants
Michael Salaman President and Co-Founder
Darren Lampert CEO and Co-Founder
Monty Lamirato CFO
Call transcript
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Operator

Good afternoon. My name is Leone, and I will be your conference operator today. At this time, I would like to welcome everyone to the GrowGeneration Corp.

Third Quarter 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. [Technical remarks speakers' the Difficulty]. After like Right to the over turn host, now, Mr. I'd your conference to Michael Salaman, President. ahead, go Please Mr. Salaman.

Michael Salaman

this like other Thank you. GrowGeneration After President At our and Michael Corp. Salaman, I Good afternoon. earnings will My of name third quarter remarks, GrowGeneration conference to we welcome everyone been to statements. information I'm is going predictions, our forward-looking XXXX This Co-Founder time, a the would forward-looking call meaning call. email. estimates Corp. answer might within few to of laws. that our or questions be considered applicable submitted via that include earnings have may the read securities

While risks these that results could current judgments, statements materially. our actual and they are uncertainties represent subject cause to differ forward-looking to

place states market is store open acquire stands landscape website legalization United Utah, and legal that we days. our which statements revisions the of undue statements forward-looking ourselves not cannabis. less With states. at new of to these Securities to GrowGen's keep on call. and legalized as only us any are in legal or not reflect results in available forward-looking opinions passing our date mind publicly on statements, any of www.growgeneration.com. the advantage herein this Michigan in obligating the www.sec.gov country's passing medical and by to revise in make these a voting in Please made reliance cautioned XX XX reinforced building, are Factors and legal When recreational we with such States results our XX that for You release medical believe, identify than in now filings can are Exchange forward-looking statements. location used to forward, of cause as could from such look, or are in herein, continue, future events. This recreational and intended new often to we of variations and similar differ words Missouri U.S. of forward-looking words expressions support light discussed actual at materially week's contemplated that Commission or at information the

Our XX opening today place to legal of in is micro-cultivation passed. to well strategy the to Utah changing were year, states issuing cultivation. up same framework Michigan, is license Utah executed dispensaries market is medical for cultivation Michigan's and that means locations be Missouri district, home-growing Both the cultivation both states and licenses dispensing week this who GrowGeneration per to anticipate positioned rules set thousands issuing will plants. legalizing granted and law are can Missouri as be GrowGen three and grow will licensing allowed in this XX Missouri have and the new around as continued in serve up first to licenses. Las active Oklahoma stores and a to legalization begin for in What all home-growing. for congressional growth future cannabis. allow households like XXX is for With as Vegas license. we for where allowed well holders this a

our Lampert our turn the strategies quarter will or as future continue results. in who Darren? Darren set country and over these new open now plan and the acquire our We will our call present to and monitor the and the states CEO legal legalization. and place will in today Co-Founder, a seek location in store of national I to to people third

Darren Lampert

the certainly desire start I'd it Good it's a like have quarter wasn't XXXX to you, afternoon, to Friday earnings call and this call. the our afternoon Friday Thank to our timing of for know apologizing welcome call. by on third afternoon. Michael. We and

We'd X meeting majority their states MJ is with State belief we facilities of employees to in like and X XX the presenting forth achieve our the store and and support out begin State almost ago and stores the be GrowGeneration continued $XX of of mission retail shareholders, State thanking and stores management X XXXX GrowGeneration store for HeavyGardens.com. the staff a in continue chain gardening season. our will Biz; there I store build XXX% XXXX, by of in Oklahoma, and in we call the USA. of our and store of owns Island seven of of week around Michigan, State to customers In goals X stores Michael Rhode Next in State in of revenue X to stores located in the U.S. million online five and in of the chain the years our operates the for XX Colorado, Nevada, operate Today the X California, acquired set of an the Today in with hydroponic largest stores State State hydroponic year-over-year. our X the Washington, growth e-commerce store national store in

continue We project rates in similar XXXX. to growth

sales For begin been we the growth the Washington California, arena that XXXX as in in again firmly to Vegas XXXX, consolidation have show markets and cultivation Las these occurs for believe more Northern this Colorado, hydroponic company, space. both in and soft markets equipment will

brand span space. agronomists us. operations and of warehouse and have employed Our for horticulturists retail today XX that we We and feet growth square today over XXX,XXX

HeavyGardens.com Canada, of were acquire of mirror executing sales in developing that in large month Hemp We recent and have multi-state operations a Canada. was strategies an an divisions Quebec include locations. our of The operating in locations sales omni-channel XXXX. is store purchased Commercial and the at marketing outfit customers Colombia, farms with a by operations operated acquisition all markets. chain Ontario ordering Distribution as hemp of implementing GrowGeneration one in three to facilities operations, In We directly our GrowGeneration active GrowGeneration XX,XXX Hemp, GrowGeneration campaign GrowGeneration HeavyGardens.com. and Commercial, by supplies. standalone also GrowGeneration in addition e-commerce cultivation a having hydroponic operates and supply our the powered Canada today there GrowGeneration online $XX,XXX picking GrowGeneration is sell entity management nation's five approach over [ph] U.S. digital calls unique company is projects operators. presence. brand our further $XXX,XXX to our is of Corp. to around over new acres our commercial divisions. superstore grow to the are with one These in online Canada, company's and is a the multiple superstore, store visitors. equipment newly and one has build-outs, generates to These British capital the hemp into plan to wholly-owned in formed up farming. Today one GrowGeneration to

become farms demand source, increase the isolate As in operational more channel and the for for hemp farming will the of sales biomass growth these CBD high company. be hemp a

innovative and the is developing new and introduce as increase quality products growers private technologies drive the plants. their sourcing Corp commercial exclusive of Distribution well GrowGeneration latest the yields and and developing new to Lastly, and to agricultural label to as margins products and

quarter over with of for GrowGeneration was quarter-over-quarter. growth Third another quarter XXX% revenues growing XXXX great

the on focus quarter. cost operating clearly profitability team's in reduced management our XX% by being Our demonstrated with was

XXXX scale We the into have to scalable strong invested chain in building XXXX. infrastructure and business and supply

company with begin to uplift acquisition to the plan Our million, assets to company execute continue $XX a the and in positions exchange. $XX balance sheet to process the totaling its well million larger cash,

we reported, approximately revenue As million of XXXX of a the $XX are out and quarter of run-rate fourth coming $XX for forecasting million XXXX.

company from a of to highlights. from cost percentage for loss have cash Our the up quarter ended XXXX compared revenue nine $X.X third loss revenue Year-to-date XX, as of compared XXXX compared of a million for of million, XX% third has quarter sorry. operating $XXX,XXX XXX% to $XX,XXX Adjusted quarter have the and of XX.X% for year-to-date of I'm to EBITDA of XXXX, September to declined revenue months ended -- a financial XXXX third revenue equivalents operating in XXXX. XX, of XX.X% XX, nine $X $XX.X cost XXXX. months of an quarter million of percentage cash store for for September XXXX. Revenue XXXX $XX.X XX.X% for XXXX, million, as XXXX. declined revenue of the XXXX up the at million $XX of the third quarter quarter The Store for third to for September XXXX. EBITDA third the XX.X% the XX% Year-to-date

XX, the compared As XXXX. of million of total September million XXXX, XX, at company total $X.X $XX.X had assets of assets December to

company to working stock of July Oklahoma, X. The period company of months capital XX, of Rosa nine GrowGeneration company September XXXX, compared at acquired million million Hemp and HeavyGardens the capital $XX.X convertible $X $XX.X in XXXX. XX. capital million the warrants on of Corp. through The exercise The October December As on company debt the of and financing Canada The equity Santa GrowGeneration Hydro working million opened issuance for formed Corp. September in XXXX. The XX, GrowGeneration company raised ended formed $X.X company approximately acquired XX, common XX. The the company had September

our was it over conference the pretty over our active will third turn financial now you. Lamirato CFO, quarter. see, and active extremely can the an for to to XXXX I a everyone As call like third go would Thank quarter to-date. Monty results who

Monty Lamirato

Darren. Thanks

company below stores XX, market. September to e-commerce $X.X contributed due increase focus a XXXX increased results; ended the and approximately of XXX% three The in in XXXX. and the or mid-September September eight was for million new site in seven the acquired acquired revenue XXXX XX, in The The for XX, new XXXX XX, site and September of that compared new growth quarter to e-commerce financial addition noted for opportunities months markets and the million new to exist three the quarter revenue $X revenues XXXX. the after to the the the ended e-commerce million below the as eight Third discussed further each $X.X net site ended in or approximately and months on by stores $X.X million continues September opened primarily XXXX.

in regulations, four consolidation XXXX Colorado store more products Santa of growth developing more the focus XX, which revenues products stores of in our company's in the quarter of Sales sales, the and current sales growth to comparing environment also by company's X% the XXXX. ended new market and rules the profitable products in The and XXXX seen in of to have We primarily on slightly stores. a the are our as on focusing by stores $X.X due $XXX,XXX. addition declined the new company's Sales million $XX,XXX the market which a -- in the implementation operating issuance quarter Amazon and expect slowed acquisitions, we XX, in contribute in of and company's approximately new through and to the to September sales is result have regulatory quarters larger Rosa store decline fourth California products proprietary now licenses. the online approximately of experienced of of prior the of from the California offset acquisitions, market of slower change September new

to Santa are as is or grow XX% the September new decreased store XXXX company positioned the the ended XX, licenses $XXX,XXX XX, in Rosa Sales September ended However, XXXX. quarter our issued. to quarter comparing

Our gain the County. sales San California the attribute in in XXXX. XX by comparing through September this increased license the store quarter quarter or ended XXX% of the Southern Riverside September to had $XXX,XXX XX, ended the issuances Bernardino We

no company country's the recent Santa Island Michigan Hydro The revenue in largest With Santa $X the believes company Rosa The to acquisitions of of the of quarter comparable of will of be revenue in add in store sales beyond. market. XXXX in projects of in are an new of that results in and markets markets there in these XXXX, will acquisitions the the Rosa and is acquisition XXXX. in grow the XXXX, markets growth and hydroponic both incremental markets recognition Rhode was stores, for new these July million pursuing -- fourth the which one

store and months Nevada ended in grow to in decline million for attributable the XX, the With entire during market X%. Colorado, in to September XX, revenues comparing a XXXX quarter build September XXXX related quarter ended a quarter comparing X California, ended sales three commercial $X.X September million sales September was same September Washington generated locations XX, only the XXXX. consolidated to customers Washington. quarter the declined ended the stores has to X had slight had regards decline due the ended a a customer XX, XX,XXX in in the their quarter same quarter ended or in XXXX December revenue X ended These commercial Although and of ended of loss in Nevada XXXX revenue September XXXX three the sales, in XXXX; $XX,XXX approximately ended to the months XXXX, one-time September we primarily this decrease the market in in September X comparing in months compared customer's XXXX. to company revenues $XX,XXX sales had first September for the Colorado to out where same store The approximately slight of market X% XX, the $X.X sales slight same the XXXX XX, largely The XX, in of three X opened XX, XXXX. the XXXX the Sales our decrease the months to of the by period XX, facility. to three initial

or to mandatory Santa consolidated, loss stores due evacuations. revenue from into of our our the The the impacted has the noted due also revenue and XX X% commercial in of of Nevada Revenue store $XX,XXX again regard costs remnants declined a revenues not pre-October for all have Rosa were to returned X%. revenues their decline of base Santa fires some to to attributable location. sales the as levels. which build-out. were market With operating October the $XX,XXX area from closed was with there days another fires a XXXX, to commercial or that Santa consolidated in one-time XXXX primarily area in customers large the of were California and stores customer decline or to slight closed initial market of $XX,XXX Washington customers in to eliminated The regard where Rosa While was market, revenue in their store previously XX%, the Rosa once the

XXX% to in three is cost discussed ended sold approximately as approximately to increase XX, The ended three three goods acquired the for for about customers. in The XX.X% goods percentage XX, the XX, bit two, lower have inventory September XXXX. the decrease XXXX. to goods three compared increase months was was $X.X September sales months months XXXX for the for million profit $X.X was ended the cost attributable in XXXX XXXX, than to three XX, little months And ended XX, that increased gross in million to due The ended increase million sales XXXX. the number of commercial of is approximately and a to three the retail approximately increase revenue increase a September to higher ended or September $X.X Cost sales ended talk the an Gross September approximately $X.X months sold. cost profit in the cost companies. customers ended of to to primarily XXX% as one, increase XX.X% Gross percentage of comparing compared $X.X September of previously. million the sold $X.X three XXXX sold million months of the XXXX a margins directly XXX%. of in Let's as million of for for September XX, or months months the three for compared stores the due profit the goods XX,

As pre-acquisition market initial we their had than cost inventory values. recorded value cost inventory the has of higher fair acquire at companies,

store inventory as an had increase addition realized of which it three not of of a company XX, September XXXX being a attributable cost higher utilities sold future basis that XXXX opened costs or was XXX% inventories was lower ended margins new inventory to in ended and our rent takes the mid-September store overhead. directly which XX, locations continues in higher months proprietary purchased were higher and in are opportunities and revenue sold $X.X on large primarily for target the items months, eight e-commerce higher the approximately costs in since a us. the Store is customers acquired commercial for $XXX,XXX months ended portion are operating continue XX, $XXX,XXX up replaced basis, provide lower. other any margin approximately Commercial that The were were will the Once at expenses the that to As we of periods months be payroll, and XXXX in the approximately of additives XXXX, Once increase is September again, Operating from three acquired focus customers. consumables three to basis, gross majority the the the increase cost XX%. acquired new and cost through margins. million make September for of sales and margin operations, and comprised our approximately for that site the three operating corporate XXXX.

Our were Denver Operating September sales the for and by the will revenue XX, XXXX opened months out affected to percentage costs costs Colorado ended be for closed store three XX.X% store. are QX was of September as XXXX operating of XX, XX.X% those on commercial September serviced XXXX. as customers percentage in certain a months our of XXXX XX, compared three seasonality. ended markets of Store in

the were XX, above amortization three and The as XXXX. three XX, in operating costs back three ended and for ended of for XX, share-based Store into the was three majority approximately of salaries the seasons functions advertising acquisition XXXX, of purchasing volume. and to the overhead XX, higher and months quarters increase months September positively a ended general the comprised peak $XXX,XXX travel travel, XXXX acquisitions. months XX, $X.X September and a $XXX,XXX the cost quarter three absorbed incurred and generally September higher Corporate impact the compared approximately to XXXX a was of was these XXXX, stores and existing months ended and administrative entertainment, -- September the XXXX. as XX, and months The the compensation, impacted months corporate purchasing Corporate XXXX. third delivering costs ended which of the General and outgrowing, XXXX XX, of functions a corporate to previously acquisition, payroll are approximately months revenue expenses noted three costs, and and of of the for for were and and support for salaries for depreciation XXXX additional new revenues. XX.X% ended department, months with as savings. and September entertainment incurred our that centralized as new accounting three insurance during months revenues expanding office XX.X% store costs approximately fees the XX, to September XXXX. costs sales and to Corporate accounting XX, X.X% stripped $XXX,XXX percentage related three lower In It for operations, were X.X% administrative size fees are finance, percentage including types when These sales advertising, from comprised consummate September September September ended those September we overhead noted be related not XXXX three in noted, primarily net professional ended and are ended costs fees. increase presence. accounting and larger outdoor the revenue salaries finance quarter online new purchased acquisitions mainly were systems, the two purchasing information XX, fees XXXX. operating integrations, the September operating three of by growing the in as due and X.X% costs and of lower audit months to due commercial should ended expense for XXXX from X.X% sales and legal a XXXX and staff related increase second of The staff months. months during for General compared for XXXX revenue promotion, percentage was administrative XX, store we ended were the promotion, million of percentage legal to to have third their thus

of loss months $XXX,XXX was expenses, months September XXXX The XX, compared a the three the non-cash and months in overhead increase in and are XX, corporate primarily ended consisting Adjusted approximately the ended of is noted depreciation, contribution are discount, corporate debt September September for due in overhead compared includes for for XXXX loss $XXX,XXX to compared loss earlier, $XXX,XXX. months three $XXX,XXX, which was offset amortization approximately approximately the margin non-cash XXXX $XXX,XXX EBITDA three store $XXX,XXX compensation $XXX,XXX increase of September XX, of after deducting September the And in to increase operating ended a costs depreciation which from XXXX. primarily share-based the net for of for the $XXX,XXX September ended XXXX quarter-ended of negative XX, $XXX,XXX As expenses. XXXX. increase for These XXXX XXXX. the share-based XX, to XXXX net all adjusted amortization of to net two, XX, the costs. The to in other was net one, quarter the $XX,XXX ended EBITDA of by compensation three

believe the cash cash sufficient we cash equity we as date September of private existing As exercise previously operations assets due increase this $X June $XX,XXX working million the was compared for XXXX million. At equivalents to September and in next compared XX, had $X.X XXXX XXXX. December we total at debt million Working proceeds as $X an to of XX, and that had an of XX, months. of XX, The capital, the proceeds XXXX, XX, to fund of offering existing by XX, offering the primarily and December due September $XX approximately XXXX, warrants are million, $XX as increase cash previously we million. approximately XX to capital had of at receipt million. capital $XX.X XX, by and $XX.X of working of the XXXX options of of convertible The million Darren, from mentioned December placement of filing from of equivalents from $X.X Darren, to million noted

Darren Lampert

model the working. easier part I presentation. GrowGeneration's that is Monty. you, business of conclusion, certainly In got Thank

Just what like is in and space, new in continued consolidation stores consolidating sales cultivation acquisition hypo other is occurs are the CBD perfected This or see margins tipping happening and cannabis industries, XXXX, happens. has exactly through for equipment hydroponic growth the digit industry we and exploding. when is opening where a amount of today the In triple model, it's GrowGen store profitability. sitting place and growth, and of point expanding scale reaching strategies nationalization. closing in

and Our we forward successes to sharing partners. look future and is team our bright with our shareholders, management our

answer Now we will a few questions.

Michael Salaman

couple Thank questions been you, that Darren. submitted A our have via of email.

reformed new infrastructure relevancy were their the year First the created Discuss that the we states Basically sole of that the that take overall and question. business. corporations leveraging year, in have seven the this locations. XX and growth created we divisions this driving the built impact purpose on the and for one. I'll

on to states business. at customers Looking are calling and obtaining tremendous new large each sophisticated legalized, a the a talented the of people terms commercial winning that these division sales have that And commercial outside and that with sees company gain have in very individually, windfall the as is we division build-outs. there

Our so can The to be a store bought happening business, revenue, understand certainly a reason but not create local online to strategic drive omni-channel there. customers incremental our platform was only e-commerce approach what's hemp level site offline. at also and touch an us the to marketing for we

provide believe now that to to consensus activity the the future. terms amount expand of is going that going Act just the I of of the right in and think we farmers everyone, near XX,XXX in they believe pass we It's dramatically is upcoming, cash will the acres, increasing cultivation. active the crop the With Farm

as into impact has lastly, increasing business the agricultural lowering the Canada our set to we GrowGeneration And yields recently will there. operation, and to in formed markets technologies mirror in cultivators the of as recently terms for shortage And the that internally well products news, latest Corp, as approach, is a newest division to the of both GrowGeneration tremendous is make looking formed we the supply wholly-owned exactly which We cost distribution and was for as identify the been in Canada acquisition develop as Our that production. a as nationalized. up a approach there Canadian all which actually see in has reported market. an know growth

position supplying will the be at the growers' as and Canadian market. strategies we very look we our in in in acquisition the equipment certainly that and So, valuable the U.S. perfected opportunities and mirroring operations

Second question. Discuss guidance forward of Darren, XXXX? for rest to your guidance your want the and you into that? XXXX take going

Darren Lampert

growth XXXX. year online acquisitions, business commercial new transformational profitable XXXX with that umbrella a XXXX XXX% The our strategy national the Sure. a we winning, that and GrowGen our for of in have year. made seen as has the And a execute expansion This to the XXXX growth in pipeline tremendous our are revenue I'll we year along from do should and year-over-year it. continue company the have these times XXXX provide acquisitions. acquisitions plans. make we various been will at acquisitions in year benefit with plus GrowGeneration. Combining were these we of coupled full for XXXX, in of will closed under

Michael Salaman

larger and build, company's Perfect. the the investors strategy strategy many want to uplist hearing scaled Last a exchange relative OTCQX. the different certainly and stock this what to its we're question to from its is from current shareholders. business, company company's understand market business the as to They its and

to take want that? You

Darren Lampert

Yes.

GrowGeneration very XX We golden exchange file to national next at on of days. are the to a limitation trading currently board have application of uplist uplift. XXXX. to a financial We an are [ph] intend on the a for made cognizant the within application working priority We and an stock

Michael Salaman

call. very a conference third shareholders management interest and everyone our our We our afternoon. from you concludes support and And much. quarter community. Thank the both investment appreciate That truly the great have

Darren Lampert

Thank you.

Operator

call conference a have weekend. great today. your thank concludes We this And listening. for gentlemen and Ladies you