Q3 2022 GrowGeneration Corp Earnings Call
[music].
Hello, and welcome to the grow generation third quarter 2022 earnings Conference call. My name is Keith I'll be here coordinating your call today.
Following prepared remarks, we will open the call to questions from analysts with instructions to be given at that time.
Now hand, the call over to clay Crum lists with ICR.
Please go ahead.
Thank you and welcome everyone to the Grad generation third quarter 2022 earnings results Conference call today's call is being recorded.
They are Mr. Darin, My co founder and Chief Executive Officer, and Greg Sanders, Chief Financial Officer of Cogeneration Corp.
You should have access to the company's third quarter earnings press release issued after the market close today.
Information is available on the Investor Relations section of cogeneration website at IR deck ROE generation dotcom.
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.
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 provide 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 additional questions. Please reenter the queue and we will take them as time allows.
Now I will turn the call over to our co founder and CEO Darin Leopard Dan.
Thanks, Cliff and good afternoon, everyone.
Thank you for joining us today to discuss our third quarter 2022 financial results and our updated full year guidance.
To start I'd like to thank each one of our employees across our corporate center and 58 retail locations for your continued support of gross yet.
It's been a challenging year, but I along with the rest of the executive team. Appreciate your continued hard work and dedication to our vision.
Strategic clients.
We're pleased to report that our sales in the third quarter came in ahead of our internal plan.
The 1 million Boe.
I'll start primarily by stronger than expected demand within our distribution and private label business unit.
While we expect the broader softness across hydroponics to continue we were encouraged that our efforts to rightsize. The business are starting to show in our financial results.
And we are optimistic that the work we were doing is putting growth yet and a significantly better position going into 2023.
As we detailed last quarter, the broader cannabis and hydroponic industry.
<unk> that a prolonged downturn that is negatively impacting all participants across the candidates value chain from growers and suppliers to retailers.
With the continued oversupply of candidates in the marketplace and not enough demand to absorb it we're not yet seeing growers they had meaningful new capacity and therefore hydroponic demand remained slow across the United States.
While we are seeing some early signs of stabilization.
We're still not prepared to definitely say that the worst of this cycle is behind us.
With that in mind, we remain dedicated to controlling the areas of the business, which we were able to control.
We have made significant progress across many aspects of our company over the past nine months.
We remain highly fiscally prudent with a hyper focus on cost controls improving profitability and preserving and growing our capital base is.
As Greg will detail, excluding Q3 unusual expenses, we believe that the company would have been profitable on an adjusted EBITDA basis.
As a result of these efforts grow Gen remains on solid financial footing.
We have a strong balance sheet and we don't anticipate the need for external debt or equity issuance weaker.
We currently have $71 million of cash and cash equivalents with zero debt.
Representing a sequential increase of $6 million and our net cash position over the second quarter of 2022.
We continue to feel very good or bad or liquidity position well into the foreseeable future.
And I want to reassure you again the company has the ability to meet the ongoing operational needs of the business without additional capital even if the current market conditions persist.
Now I'd like to provide an update on some of our key strategic initiatives this year and where we stand on each.
As you will recall, we recognize the need early this year to shift their focus towards cost control.
Consolidation inventory reduction and cash generation.
I'm proud that we've made excellent progress on those operational initiatives and in addition, I'm excited about some opportunities.
Repositioning our company for the next phase of growth.
And I think it's worth repeating in the third quarter of 2022, we generated $6 billion of cash ending the quarter with more than $71 billion on the balance sheet.
We reduced inventory quarter over quarter by $7 million compared to the end of the second quarter 2022.
It's a mouse to an aggregate reduction in our retail business more than $24 1 million in inventory year to date since December 31st 2021.
Our inventory reduction efforts have generally occurred at discounted prices, which clearly resulted in gross margin pressures in the third quarter. We believe it was the prudent thing to do in order to rightsize, our working capital base and prioritize cash generation.
We believe that the inventory reduction and SKU rationalization plan will.
It will be near completion.
The end of fiscal year 2022.
On the expense side, we reduced payroll by an incremental $1 7 billion in the quarter and 11.7 million year to date.
This equates to a 28% payroll reduction.
And a 41% head count reduction during 2022.
We also closed five stores during the quarter and opened two new stores, bringing our total store count today 58 locations recall that most of these store closures. If it's correct overlaps into retail footprint, where we expect very little loss sales, but to also lean into our new ERP platform.
From a D C supply chain model, which we believe will deliver more efficiencies and lower costs across the enterprise.
As we enter into the 2023 fiscal year cost savings from store consolidations reduced payroll expenses.
Improved shipping costs from declining ocean freight rates reduced headwind from inventory discounting on our margins and a greater percentage of private label sales will have a positive impact on EBITDA and profitability next year.
Looking ahead for a moment with the hydroponic market in consolidation there are growth opportunities for grow Gen. Beginning to emerge a strong balance sheet, along with strong distribution capabilities allows us to selectively take advantage of these opportunities.
We believe there are compelling opportunities to acquire stores and filling white space throughout the country in areas, where <unk> does not have a physical presence.
Regard we're excited about the addition of two new stores in the fourth quarter, and Missouri, and New Jersey, which represents strategic markets for growth yet.
In 2023 grocery and aims to begin worried possibilities Nathan indoor vertical farming market with our own proprietary fertilizers and indoor farming solutions that are natural extensions of our candidates business.
We're especially excited to announce that we recently entered into an agreement with Doctor Jorge device go.
Colorado State University, one of the country's leading horticulturists was focusing on indoor farming, the specialty crops prop genetics and water soluble fertilizers and additives.
In fact, we are positioning our newest store that opened in Richmond, Virginia in September as our Hydroponics and Garden Center.
We think the small shift in branding along with our broader in store product assortment.
Allow us to drive increased store traffic by attracting new customers, who are interested in growing kronos indoors.
Our private label strategy remains one of our top initiatives and we see this.
As a key enabler of growth and margins going into next year, we are driving sales of proprietary brands and private label products.
We're investing in resources to provide customer service product development and distribution excellence.
Private label accounted for $7 1 million of retail and ecommerce sales in the third quarter, which is around 14% of our overall retail and e-commerce sales growing 8% year over year as a percent of sales.
As a reminder, our private label products generally enjoy higher gross margins. So as we increase our private label sales mix relative to our branded sales. We expect the accompanying margin benefit that helped drive our profitability improvements.
On the Legislative front, we continue to monitor and support actions at the national level are moving towards the passage of the Safe Act with the ultimate end goal of federal cannabis legalization.
We were encouraged by President <unk> recent unilateral action pardon those convicted of federal cannabis possession or usage and his urging the states to do the same.
Eight level convictions.
We think it's indicative of the American public's overwhelming support of federal cannabis legalization.
While the outcome of Tomorrow's midterm elections could result in a step back towards federal legalization.
Control of the Senate were to change we could tell you just think it's only a matter of time.
In other words when not if.
And as we've said before our business model does not depend on legalization.
As Greg will detail for you. Shortly we are increasing our full year guidance for both net revenue and adjusted EBITDA on the top line you updated guidance reflects stronger third quarter sales and Embeds, a seasonally slower fourth quarter.
I want to welcome Greg to its first public earnings call as the CFO CFO of grow jet.
Greg has been with the company for over five years is our controller.
Intimately familiar not only with the numbers, but also with our entire organization and our executive team and I am thrilled with how quickly. He has embraced his new role and the positive impact he is contributing to the corporation.
With that I will turn the call over to our CFO Greg Sanders.
Thank you Darin I'm honored to serve the company and its shareholders.
First I will address our third quarter financial results and then I will discuss our updated full year 2022 guidance for the third quarter grow Gen generated revenue of $71 million versus $116 million in the third quarter of 2021, representing a decline of approximately 38, 9%.
Our same store sales for the third quarter 2022 were $39 9 million compared to prior yourselves of $95 4 million, representing a 58% decline against the comparable year ago quarter, our ecommerce revenue declines on a comp basis from $10 5 million.
$3 million, resulting from decreased Capex demands from the commercial markets. This was partially offset by a $15 $1 million increase in our distribution business, including the acquisition and integration of HR, GMI, which positively contributed to the year over year change.
As Darin mentioned, our net revenues in the third quarter exceeded our internal expectations due to stronger than expected sales within the distribution segment as well as modest developments and new state level cultivation markets within the retail segment.
Gross profit margin was 25, 9% for the third quarter 2022 down approximately 250 basis points sequentially from the second quarter gross profit dollar generation in the third quarter decreased three 5% from the prior year, including the impact of additions of acquisitions in the <unk>.
Selling 12 months.
Our retail gross margin in the quarter was down 782 basis points compared to last year, resulting from our inventory reduction plan and clearance events, which we expect to be near completion by the end of the year the offset in margin performance in Q3 was positively driven by the distribution segment.
Which had meaningfully more favorable gross margins.
Store operating costs and other operational expenses declined sequentially from the second quarter overall.
Overall, the store operating expense declined from $14 5 million in Q1 to $13 8 million in Q2 to $13 6 million in Q3, we anticipate further cost decreases in the fourth quarter from our store consolidation efforts.
Selling general and administrative or SG&A costs were $8 8 million in the third quarter of which $1 3 million was derived from stock based compensation.
This compares to $10 6 million in the second quarter with $1 1 million of stock based compensation. This represents a 17% improvement quarter over quarter depreciation and amortization of intangibles was $3 9 million in the third quarter of 2022 compared to $3 five.
In the year ago period.
Total SG&A expenses were impacted by a $321000 of severance related expenses compared to the same period last year SG&A expense decreased $1 7 million in the third quarter of 2022 with overall savings being driven primarily by payroll reductions and increased cost can.
Trolls over a broad range of categories.
As Darren described earlier, we have taken a number of steps to right size operating expenses, including resizing the payroll consolidating E Commerce web stores that had competing operational expenses rationalizing our store count as well as other operational improvements.
Throughout the first nine months of the year, we've reduced our general and administrative expense base by roughly $7 million through management rationalization workforce reduction and tighter day to day expense controls in total we estimate that our annual expense run rate in the third quarter is already decreased.
By over $14 million annually when compared to the Q4 2021 pace on an absolute basis. This is inclusive of the expenses added into the business during 2022 or the acquisitions of HR GMI.
Income tax was a benefit of 718000 in the quarter for 2022, we are forecasting a financial loss for tax purposes, but with a full valuation allowance. We do not expect significant income tax provision benefit or expense for the remainder of the year.
Net loss for the third quarter was $7 2 million.
Or negative <unk> 12 per share compared to net income of $4 million or <unk> <unk> per share for the comparable year ago quarter.
Adjusted EBITDA, which excludes the expenses associated with interest taxes, depreciation amortization and share based compensation was a loss of $2 6 million for the third quarter of 2022 compared to income of $10 8 million in the third quarter of 2021, we estimate this quarters.
Adjusted EBITDA loss includes roughly $4 1 million of one time and controllable items that we expect should either become less impactful or will not repeat going forward. These items include third quarter clearance and sale events that had an estimated $1 5 million dollar negative impact on gross margin.
One time store closure expenses cost the company approximately $800000 in the third quarter.
Which does not include the forward looking expense savings from discontinued store operating costs.
Increases to the company's inventory allowances of $720000 for obsolete and shrink in the quarter.
$400000 in excess supply chain and storage costs with three pls.
The retail segment recognized $373000 in accounts receivable bad debt expense.
Lastly, the company accrued $321000 in one time severance expense.
Excluding these items, we estimate that our adjusted EBITDA would have been profitable in the third quarter.
Related to the balance sheet. The company ended the quarter with $71 million ash within working capital the company reduced inventory by $10 million offset partially by a $1 $8 million increase in high Creditworthy accounts receivable, we also leverage approximately $2 2 million for payments associated.
<unk> with technology and distribution investments.
Cash generated from operations in the quarter was $8 $3 million, primarily attributed to the reduction in inventory and measures taken to strengthen the balance sheet.
I'll now discuss our updated expectations for the remainder of the year in.
In the third quarter, we observed relative flatness and retail same store sales on a percentage basis from the second quarter of 2022, and an actualized sales revenue decline of $8 million.
Further the third quarter included an uplift from our distribution segment and a quarter over quarter sequential increase in sales revenue of $7 $8 million.
The company expects further seasonality and a sequential decline in overall sales into the fourth quarter as well as continued industry and economic related headwinds that will continue to impact the sales performance.
We are now expecting full year 2022 revenue to be between 270 and $280 million.
Full year, adjusted EBITDA to be a $10 million to $13 million loss.
The middle of our guidance range and Thats a continuation of the current trends we are seeing today and the low end contemplates a further deterioration in the operating environment.
We expect gross margins to remain under pressure throughout the remainder of the year due to lower sales volume as well as discounting sales and elevated freight costs.
We expect operating expenses to be controlled and sequentially down in the fourth quarter. As we are now planning for fewer retail store openings than we previously expected to add to the absolute dollar operating expense in Q4.
We are planning for total capital investments outside of acquisitions, primarily for new store build outs and technology investments of $2 million, which is below previous assumptions. Thus far we have spent $11 million in 2022.
We are continuing to take steps in executing our business strategy to focus on generating cash from operations.
As we mentioned earlier, we expect that our head count reductions are largely complete and we see some additional opportunities at least through the end of the year to continue reducing our inventory to clear slower moving and obsolete product.
With that I will turn the call back over to Darrin for closing remarks.
Thank you Greg.
Before we open the line for questions I want to reiterate that while 2022 has been challenging for everyone in the cannabis value chain.
<unk> remains highly focused to ensure that we are in the best place possible to emerge stronger than ever when the industry eventually turns around.
We are actively focused on the areas of the business that we can control and we continue to make strong gains against our priorities to drive cost controls consolidate stores reduced inventories and improved profitability, while preparing to capture the many growth opportunities that lie ahead.
Ed.
We remain committed to the expansion of our proprietary and distributed brands. We are very satisfied with the results of our private label products, including chart core powered Psi and drip hydro.
The addition of M N my strengthens our position to gain indoor vertical cultivation projects with their leading benching and racking systems.
Controlled environment, agriculture, and sustainable AG or only in the.
Mental stage and we believe that many companies who will invest in sustainable indoor vertical farms for local production of leafy Greens Tomatoes routes and other food products. In addition, I do want to mention something that's really important to us.
<unk> remains committed to the community we serve and we work closely with organizations like harvest 360, and accelerator program based in New Jersey that focuses on social equity license holders.
<unk> and harvest 360 technologies launched a new national program to support education and training for social equity applications regulations in both New York, and New Jersey, and other new markets seek to create a framework to regulate cannabis in these states.
Manner that promote social equity and economic development, placing.
Placing an emphasis on promoting inclusion of diverse populations in the medicinal and recreational cannabis industries.
<unk> together with <unk> 360 is committed to delivering solutions to these operators and supporting their communities. This program with harvest 360 gives grow Gen direct method to help new companies to grow their businesses.
These micro grow licenses and then new Jersey adult use cannabis market represents a new generation of growers that grow Gen believes will be the next gen <unk> shift to expand the cannabis industry.
To close Roseanne remains on solid financial footing with a strong balance sheet healthy liquidity and a solid cash position.
We are confident that when the candidates cycle turns and the excess supply in the marketplace eventually normalizes.
Jim will be well positioned to recover quickly with a more attractive expense structure on a lower G&A base from which to build.
Thank you for your time today and thank you for your interest and grow Jay.
We will now take your questions.
Operator.
Thank you, ladies and gentlemen, if you'd like to ask a question. Please signal by pressing star one on your telephone keypad using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Again, Please press star one to ask a question, we'll pause for just a moment everyone an opportunity to signal for questions.
We will take our first question from Brian Nagel with Oppenheimer. Please go ahead.
Hi, good afternoon.
Good afternoon, Brian .
Couple of questions first off on this.
On the sales line.
Darren you talked about.
<unk>.
Pressures within within the within the space, but your sales as you mentioned I forget the top pretty significantly.
Spectation is out there. So the question I have is if you look at that that upside I mean, recognizing that now coming off a lower base in your revised guidance down.
Are there signals there I mean, all the signals that you actually see.
<unk> work clearly some type of stabilization if not improvement.
Components of the business.
Yeah, Brian our same store sales were down 58% in the third quarter. So it's hard to say that we're seeing tremendous stabilization.
We saw a tremendous increase in sales in our distribution and other division, which pretty much fueled the third quarter.
But what we are seeing right now going into the end of the year, we're starting to see more quoting we're starting to see more and more business.
And backlog coming in in the Easter and Easter started side of the country and mid Atlantic. So we are starting to see some capital builds in New Jersey, and New York and on the East Coast and mid Atlantic States, which gives us a certain optimism we haven't seen a further deterioration going into the fourth quarter and in 2020.
So we will be going against very low comp base. So we feel pretty good where we are right now bringing down our cost structure is tremendously in 2022.
And then there was a follow up to that Darrin.
As we've been talking over the last I'll say several months as they go to head winds up and you guys mentioned the oversupply situation seems to persist, but another factor we've talked about is just the I guess.
Lower than anticipated.
Licensing on the heels of legalization state by state are you starting to see some of you.
You mentioned, new York's episodes that I've, just recently legalized, but are you starting to see some.
Pick up so to say that licensing activity.
We definitely are we're seeing a pick up along the eastern states and we're starting to see a pickup in Mississippi, We opened a store in Mississippi is.
Four months ago, the store one profitable last months, we have the lion's share of the business in the Mississippi market right now, albeit smaller than we thought but we're starting to see a tremendous pickup of business in Mississippi also starting to see pick up in business in New Jersey, our Mount Holly store will be opening next month and we are.
Pretty pretty excited about that also our Missouri store will be opening. This month also so we are starting to see a pickup in the new states and we're seeing stabilization and in certain areas in California, where we're starting to win business. So the question. We always have we're starting to see new business, which we certainly.
We believe we are coming from other stores.
Starting to see right now the market is doing the work for us in certain places you're seeing tremendous amount of closings of some of the smaller less capitalized stores around the country.
Okay, well, thank you very much I'll turn our clinics.
Next question for you Brian .
We will take our next question from Conor Jensen with Lake Street Capital markets. Please go ahead.
Hey, guys. This is Conor Janssen for Mark Smith with Lake Street, Thanks for taking my call today.
Thank you.
I was just wondering if there was any specific ballot initiatives tomorrow, you're watching that you think could have a direct impact on your sales.
We're opening a store in Missouri, and as you probably know, Missouri is up for.
Adult use so we're looking we're looking pretty closely at that Youre also seeing Arkansas, South Dakota, North Dakota, where we don't have stores, but we are looking in the Arkansas market right now.
Back East in Maryland, we're opening a store in New Jersey.
We're pretty strong back east so we.
We do believe that Youll, Seattle Houston, Maryland.
And also you'll see on the ballot, Oklahoma, which is not until March.
Okay, Yeah definitely makes sense and then just a follow up.
How are you guys feeling with your inventory levels. I know you said you brought them down in your earlier remarks, but how do you feel about those right now.
We've done a tremendous job, bringing inventory down this year, we saw the industry returning going into 2022.
And one of our initiatives this year was to generate cash and bringing inventory down.
And we've done a wonderful job at it.
Albeit as Greg said earlier within his comments some of it has come in.
Is that your read some of our margins, but we believe we're pretty far along with our inventory reduction and SKU rationalization and we do believe that we entered 2023 with a much cleaner inventory going forward.
Big balance sheet, which gives us the opportunities to buy to buy in bulk and buy cheaper in the markets and our private label products had been performing above expectations.
Great I'll jump back in the queue. Thanks, guys.
We will take our next question from Aaron Grey with Alliance Global Partners. Please go ahead.
Hi, This is rami Smith on for Aaron Grey. Thanks for the questions you mentioned private labels a few times and you know how strong they have been this quarter.
So in terms of the initiative what impact you're seeing kind of at the ground level from the broader environment cultivators more likely to move to private label for the savings or the inventory level inventory levels of some branded products driving promotional activity any color on that dynamic and how you are managing price gaps with the private labels would be great.
Yes, I think youre seeing both I think youre seeing we do have some best of breed products out there.
<unk> on the on our cocoa side.
<unk> product.
We just launched trip hydro.
Which is nutrient line that.
Three months ago growers right now we're looking for the best products at the.
The best price and now we're starting to see some of our private label product is taking off in the marketplace and we're quite excited about some of our new launches and some of our launches coming up in 2023.
We also saw a wonderful quarter from <unk>, which is our vertical racking company that we bought at the beginning of the year.
Great. Thank you.
In the Q.
We will take our next question from Scott Fortune with Roth Capital Partners. Please go ahead.
Good afternoon, and thanks for the questions.
Mentioned, a little bit Darren on the competitive landscape kind of just kind of.
Just step us through what you're seeing on that and I know you're going to store expansion in these new states coming on board in Missouri, New Jersey, and Virginia, but how does the competitive landscape with potential opportunistic M&A shaping up well.
Many of these tours under stress and what percentage of these stores are kind of good stores that you can look at for potential M&A just can't that environment would be helpful for potential growth in 2023, when the market turns here.
Well, Scott I think it's nothing more than we've seen.
Other industries, you saw years ago in the hardware hardware stores and in home depot and laws are you seeing a market and disruption when markets are in distress see consolidation.
In the hydroponics market right now is in consolidation as many small and medium sized stores are closed and they just can't compete in this marketplace. When they don't have the financial wherewithal to do it <unk> has a strong balance sheet $71 million in cash strong distribution capabilities.
Which allows garage when to take advantage of.
No basically filling in gaps around the country and you will see more of that from <unk>. We're seeing we're seeing very cheap prices out there right now certain places are selling through inventory.
And with <unk> private label Division.
And really with our financial Wherewithal, we have the opportunities to take care of.
Certainly add to or add to our base and pick up stores that that are immediately accretive to grow gender base you're.
Are you seeing new ERP system, rolling out or grow Jen <unk>.
January 1st net suite in Manhattan, I believe which will certainly help us in building this business back in 2023.
Got it appreciate the color there and then real quick on the on the E. Commerce side, I know, you're kind of rebuilding or changing the website from that standpoint, but can you provide a little color on the efforts there of that mix and kind of what the e-commerce versus retail mix and kind of the potential focus here is it more do it.
Yourself craft Coors versus commercial just just kind of thoughts on E. Commerce as that has come off a lot on the growth side, but where are you at with that kind of a rebuild of that web focus.
Yeah, it's been a certainly a turbulent time.
<unk> with our ecommerce division this year as we brought agron Io last year, which was a.
Which was a commercial one.
To ring platform on a commercial site and with commercial builds down 80%. This year, we ran into certain issues on the expense side.
What we've done this year as we've.
We have aggregated the two websites, we consolidated agron and grow generation Dot com, we have just rolled out our new web site and we do believe that youll see growth going into 2023 with our websites. We are excited about that as a growth opportunity for grow Gen. In 'twenty three.
And again, we are spending money in but also saving on the other side of it we've won one website.
I'll post it to the same marketing same software same same employees and we do believe as the markets pick up going into 'twenty three with our distribution capabilities that you will see a good year for Greg generation Dot Com and our website is up and starting to perform and we're pretty excited about it.
And there is you do see a mix, we do have commercial customers, but it's more kind of a hobby is do it yourself.
But we do see commercial people will also learn within our web site.
Got it thanks, I'll jump back in the queue.
We will take our next question.
From Eric <unk> with Craig Hallum Capital Group. Please go ahead.
Great. Thanks for taking my question.
I was wondering if you could comment a bit on overall pricing dynamics, just with your ability to sort of.
<unk> be a price leader in your markets I know that previously that was one of your core strategy as sort of being able to.
Sort of match or beat on price and help take share through that strategy I'm wondering if that's still.
One of your core strategies for gaining share, especially in these new markets and just.
Kind of talk about the overall.
Competitive dynamics, along the pricing and discounting side. Thanks.
Well I think Eric when it comes to that we certainly arent the price leader, we won't be beat on price.
So like anything else, we still believe we deserve a fair price for products that we sell.
When an industry is in distress some of the smaller stores.
And there's an overcapacity in hydroponics equipment, which you've seen in 2022, there has been a tremendous amount of discounting in the markets and it has not been led by ground, yet, but with that grant <unk> will not be beat on price and we've done a wonderful job lowering inventory by almost $25 million this year.
Together with discounting where we have to discount to sell through overstock inventory and also we've spent the last 12 months SKU rationalizing products that we've picked up through a lot of acquisitions that grow Jen.
So that part is coming to an end this year, but we will continue to be aggressive on pricing, where we have to deal and our balance sheet and you know and really our distribution capabilities gives us gives it gives us the ability to do that.
Thank you.
We will take our next question from Andrew Carter with Stifel. Please go ahead.
Hey, Thanks, Good evening afternoon wherever you are.
Just wanted to ask about I know the plan in terms of store openings was very different now versus what it was at the beginning of the year you talked a lot about reducing savings reducing footprint was there anything that you didn't spend or delayed it's gonna be a catch up in 'twenty three or I think you said earlier in the call are you thinking about the business repositioning.
And a much.
Much more efficient asset light.
Less stores per new market just why that's my first question.
I think to start with.
You certainly will see from <unk> is smaller than leaning on more distribution.
We are in the midst of opening up a 100000 square feet in the Ohio market. So that together with our Sacramento warehouse will give us tremendous distribution throughout the country and some of our bigger hubs that we also do use for distribution. So we will lean on that more we will be bringing down the size of our stores to really fit what we're starting to see in the.
Two years ago.
Ever product was in your sort of sold and I think.
What most people are starting to realize in the cannabis industry and hydroponics industry is the growth it will be a growth industry for many years to come.
It's not going to be that 20% year over year growth that you're seeing when people thought you were saying so we've come to the realization there.
Our stores don't have to be as big as we once thought they had to be we've consolidated.
Seven stores. This year, we probably have a few stores next year.
Consolidate but you'll see smaller stores can grow Jan and more distribution capabilities from our company.
Second one regarding to the implied fourth quarter guidance does that include any more potential charges I E inventory.
Just want to ex restructuring anything or is that a clean number or is that a pro forma number.
I'm going to send it over to Greg.
Yes.
The Q4 number itself is assuming a revenue range of 57% and 47 million.
With some level of cleanup as we get through our inventory reduction efforts in Q4, we are still continuing to run sale and clearance events to rightsize, our inventory within the business and I expect some margin degradation as a result of those efforts.
So just just to be clear you. All you all have been pretty good about presenting like a real number for EBITDA versus pro forma what you've given us and applied guidance is a real number versus a pro forma number correct.
Yes that is correct.
Thanks, I'll pass it on.
Yeah.
Ladies and gentlemen, as a reminder, star one for questions or comments star one will pause a moment to assemble the queue.
We have no further questions at this time this will conclude today's conference. We appreciate your participation you may now disconnect.
Okay.
Okay.
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Yeah.
Yeah.
Okay.
Uh huh.
Yeah.
Okay.
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