Q2 2024 GrowGeneration Corp Earnings Call

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Nick: Hello everyone, and welcome to GrowGeneration'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 listening only. Following prepared remarks, we will open the call to questions from panelists with instructions to be given at that time. This conference call is being recorded, and a replay of today's call will be available in the investor relations section of GrowGeneration's website. I will now hand it over to Phil Carlson with JCSA for introductions and a reading of the SAFE Cardboard System.

Nick: Hello, everyone, and welcome to GrowGeneration'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.

Speaker Change: Following prepared remarks, we will open the call to questions from panelists with instructions to be given at that time. This conference call is being recorded and a replay of today's call will be available in the Investor Relations section of GrowGeneration's website.

Phil Carlson: I will now hand it over to Phil Carlson with KCSA for introductions and the reading of the SAFE Cardboard System. Please go ahead.

Phil Carlson: Thank you and welcome everyone to GrowGeneration'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 GrowGeneration.

Speaker Change: Thanks for watching, and don't forget to like, share, and subscribe to our channel.

Phil Carlson: Thank you and welcome everyone to GrowGeneration'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 GrowGeneration.

Phil Carlson: 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 GrowGeneration website at ir.growgeneration.com. I would like to remind everyone that certain comments made on this call include forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such 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.

Speaker Change: 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 GrowGeneration website at ir.growgeneration.com.

Speaker Change: 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.

Speaker Change: These forward-looking statements are based on management's current expectations and beliefs concerning future events.

Speaker Change: and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements.

Phil Carlson: 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 provides reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures, are all available on our website.

Speaker Change: Please refer to today's press release and other filings with the SEC for a detailed discussion of the risks that could cause after results to differ materially from those expressed or implied in any of the forward-looking statements made today.

Speaker Change: 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.

Phil Carlson: 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.

Speaker Change: 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.

Darren Lampert: Thanks, Phil, 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.

Darren Lampert: Thanks, Phil, and good afternoon, everyone.

Darren Lampert: Thank you for joining us today to discuss our second quarter 2024 financial results.

Speaker Change: Today, we reported solid second quarter results that were consistent with our expectations as we continue to leverage our strong portfolio of proprietary brands.

Speaker Change: 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.

Darren Lampert: GrowGen's 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.

Darren Lampert: GrowGen's second quarter results included net revenue of $53.5 million.

Speaker Change: an increase of 11.7% sequentially from $47.9 million in the first quarter.

Speaker Change: In addition to sequential sales growth, adjusted EBITDA loss was $1.1 million for the quarter, a $1.7 million improvement from Q1.

Darren Lampert: Importantly, proprietary branch 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 in 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.

Speaker Change: Importantly, proprietary branch sales remain relatively flat as a percentage of cultivation and gardening net sales during the quarter, but increased from 21.5% compared to 16.7% the same period last year.

Speaker Change: It is important to note that proprietary brand sales increased in July with the increase of sales of Drift Hydro, Charcor, and The Harvest Company as customers migrate from trials to sales.

Speaker Change: But some of you may know, for quite some time, we've been taking actions to expand sales of these higher margin proprietary products.

Darren Lampert: 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 were 27%, a 110 basis point improvement from the last quarter.

Speaker Change: This percentage increase highlights the growing market adoption of our proprietary brands, including Characore, Triapyzero, and the Harvest Company, and the success of these initiatives.

Speaker Change: In addition to our top-line success, gross margins for the second quarter was 27%.

Darren Lampert: These results reflect the growing percentage of our proprietary brand sales as well as our 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.

Speaker Change: A 110 basis point improvement from the last quarter.

Speaker Change: 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, turn of mind in all our operations.

Speaker Change: 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.

Speaker Change: Last month we provided details on a comprehensive restructuring plan that is designed to fundamentally reposition our company.

Darren Lampert: 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 is a focus on proprietary brands. This is more than just a statement.

Speaker Change: 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.

Speaker Change: This new restructuring plan is the next phase in this process.

Speaker Change: The decision-groge, where sustainable, recurring revenue grows, driven by our commercial and B2B customers, as well as long-term profitability.

Speaker Change: This plan has three major components. One,

Darren Lampert: 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.

Speaker Change: a focus on proprietary brands. This is more than just a statement.

Speaker Change: We have a clear target for our proprietary brands to account for 35% of total sales by the end of 2025.

Speaker Change: As part of this initiative, we will continue to launch e-commerce-enabled brand-specific websites.

Speaker Change: 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.

Speaker Change: We also intend to add approximately 50 new products to the proprietary brand lineup over the next 12 months.

Darren Lampert: 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 inconvenient pickup.

Speaker Change: Two, a digital transformation of sales throughout our entire organization with a B2B customer focus.

Speaker Change: This will entail the launch of a B2B e-commerce portal migrating some of our transactional activity for our brick and mortar retail stores onto this digital platform. We expect to launch the new platform in the fourth quarter of this year.

Speaker Change: 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.

Darren Lampert: 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 underperforming stores in 2024. This process is well underway, as seven of these locations were already closed in the first half of the year, and the remainder is expected to be substantially completed by early Q4. Following these closures, going forward, the company will have 31 operational stores.

Speaker Change: Three, and lastly, continuing streamlining of our operational infrastructure.

Speaker Change: Most importantly, we will continue to write side-of-scroagent national retail footprint to align with current industry-wide conditions by closing 19 redundant or under-forming stores in 2024.

Speaker Change: This process is well underway, as seven of these locations were already closed in the first half of the year.

Speaker Change: The remainder expected to be substantially completed by early Q4.

Speaker Change: 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.

Darren Lampert: As we make this transition, we intend to retain the majority of our commercial customers and direct walk-in customers through adjacent locations, a 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'll also look to continue to rationalize our inventory, revisit and enhance our strategic vendor relationships, and improve recovery of freight expense.

Speaker Change: 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.

Speaker Change: As part of this, we'll also look to continue to rationalize our inventory, revisit and enhance our strategic vendor relationships, and improve recovery of freight expense.

Darren Lampert: 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, as reflected by the company share repurchase program which was authorized in March by our Board of Directors. Throughout the quarter, we purchased more than $4 million in shares.

Speaker Change: All there, there will be near-term impacts to margins and expenses.

Speaker Change: As we execute on these initiatives, as there are with any restructuring, we expect that in the future they'll generate margin gains and prove profitability and reduce expenses by approximately 12 million on an annualized basis.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: Throughout the quarter, we repurchased more than $4 million in shares.

Darren Lampert: 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, store 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.

Speaker Change: 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.

Speaker Change: We're analyzing the full effects of these actions, including our digital transformation, door closures, and the related cost savings we expect to achieve.

Speaker Change: At this time, we're estimating full year 2024 net sales to be in the range of $190 to $195 million.

Darren Lampert: 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.

Speaker Change: 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.

Darren Lampert: 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 in 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.

Speaker Change: As we go through the second half of 2024.

Speaker Change: We have additional data, as well as greater visibility.

Speaker Change: On the specific results and benefits are restructuring initiatives and we will make the appropriate revisions to our ingestity but a guidance at a later date.

Speaker Change: 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.

Speaker Change: As we've mentioned on previous calls, we hired Blakestreet Capital to seek strategic opportunities.

Greg Sanders: 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.

Darren Lampert: We remain engaged with Lake Street Capital and will share news with our stakeholders and the investment community. We have some information to announce. Moving on to rescheduling. The public comment period regarding the DEA's proposed rescheduling rule for cannabis, which would reschedule cannabis from a Schedule I to a Schedule III 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 descheduling of cannabis under the Federal Controlled Substance Act.

Speaker Change: We remain engaged with Lake Street Capital and will share news with our stakeholders and the investment community. We have information to announce.

Speaker Change: 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.

Speaker Change: According to data from headset, over 92% of those comments were in favor of rescheduling or the complete descheduling of cannabis under the Federal Control Substance Act.

Darren Lampert: As we said previously, rescheduling would be a major milestone in the regulatory landscape and 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 business expenses.

Speaker Change: As we said previously, rescheduling would be a major milestone in the regulatory landscape and would likely be very beneficial to many of our customers and therefore to GrowGen's business.

Speaker Change: It would ease restrictions on cannabis research and strengthen the cash flow and balance sheets the state legal cannabis operators by allowing them to take federal tax deductions for the business expenses.

Darren Lampert: We would also expect this to expand market opportunities for our products as cultivators would have increased access to capital that they could invest in 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. We'll 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.

Speaker Change: We would also expect this to expand market opportunities for our products.

Speaker Change: as cultivators would have increased access to capital that they could invest into building out new cultivation facilities.

Speaker Change: and refreshing existing ones. Well, this is all still subject to a final ruling by the DEA. We continue to be encouraged by the rescheduling process, or we'll continue to monitor events as they unfold.

Speaker Change: 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.

Darren Lampert: 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 has positive implications for both us and our customers.

Speaker Change: 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.

Speaker Change: in addition to our own actions that we control.

Speaker Change: We are also encouraged by recent industry developments with federal cannabis reform, which have positive implications for both us and our customers.

Darren Lampert: 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.

Speaker Change: 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?

Greg Sanders: Thank you, Darren, and good afternoon everyone. As Darren mentioned, we are pleased to report that our second quarter results were generally in line with expectations, and we made solid progress in several key areas. Starting with second quarter sales, GrowGeneration reported net revenue of $53.5 million compared to $63.9 million in the year-ago period, representing a 16.3% decline. On an absolute basis, this includes 19 fewer retail locations to close the second quarter. On a sequential basis, revenue increased from $47.9 million to $63.5 million, representing an 11.8% improvement.

Greg Sanders: Thank you, Darren, and good afternoon, everyone. As Darren mentioned, we are pleased to report that our second quarter results were generally in line with expectations, and we made solid progress in several key areas.

Greg Sanders: This improvement was achieved despite closing seven stores between the first and second quarters of 2024, illustrating the strength of the existing stores in our portfolio. Same-store sales for the second quarter were $41.1 million compared to $43.9 million in the prior year, a decrease of 6.2%. Excluding e-commerce sales from the same-store sales comparison, the retail business declined by 3.4% compared to the year-over-year period. While we saw signs of strength in the California and Michigan markets, we felt continued pressure in Oklahoma as well as headwinds in the Northeast markets that had an impact on the overall same-store sales metric.

Greg Sanders: Starting with second quarter sales, GrowGeneration reported net revenue of $53.5 million compared to $63.9 million in the a year ago period, representing a 16.3% decline.

Speaker Change: On an absolute basis, this includes 19 fewer retail locations to close the second quarter. On a sequential basis, revenue increased from $47.9 million to $63.5 million, representing an 11.8% improvement.

Greg Sanders: This improvement was achieved despite closing seven stores between the first and second quarters of 2024, illustrating the strength of the existing stores in our portfolio.

Greg Sanders: Same store sales for the second quarter were $41.1 million compared to $43.9 million in the prior year, a decrease of 6.2%.

Greg Sanders: Excluding e-commerce sales, from the same sort of sales comparison, the retail business declined by 3.4% compared to the year-over-year period. Well, we saw signs of strength in the California and Michigan markets.

Greg Sanders: We felt continued pressure in Oklahoma, as well as headwinds in the Northeast markets that had an impact on the overall same-store sales metric.

Greg Sanders: As we have highlighted, we will continue to right-size our retail footprint in the back half of 2024 to prioritize our strongest performing store locations that service higher volumes of commercial growers. Storage solutions revenue for the second quarter was $7.4 million compared to $8.4 million in the prior year, a decrease of 11.3 percent, which was largely due to various projects being pushed into the third quarter from a timing perspective. On an absolute basis, private label or proprietary brand sales were $9.9 million in the second quarter, compared to $9.3 million in the second quarter of 2023. Proprietary brands accounted for 21.5% of gardening and cultivation sales in the second quarter of 2024, compared to 16.7% in the comparable year-ago period.

Greg Sanders: As we have highlighted, we will continue to right-size our retail footprint in the back half of 2024 to prioritize our strongest-performing store locations that service higher volumes of commercial growers.

Greg Sanders: Store solutions revenue for the second quarter was 7.4 million compared to 8.4 million in the prior year, a decrease of 11.3% which was largely due to various projects being pushed into the third quarter from a timing perspective.

Greg Sanders: On an absolute basis, private label or proprietary brand sales were $9.9 million for the second quarter, compared to $9.3 million in the second quarter of 2023.

Greg Sanders: Proprietary brands accounted for 21.5% of gardening and cultivation sales in the second quarter of 2024, compared to 16.7% in the comparable year-ago period.

Greg Sanders: The 4.7% year-over-year improvement is due to stronger penetration of our drip nutrient line, charcoal soil product, and Ion Lights, which have become the company's best-selling lighting. The development of our proprietary brands has become one of our core competencies, and we are now targeting proprietary brands to account for 35% of total sales in fiscal year 2025. Gross profit margin was 26.9% in the second quarter of 2024, representing a sequential improvement of 110 basis points from the first quarter of 2024 and a 10 basis point improvement year over year.

Greg Sanders: The 4.7% year-over-year improvement is due to stronger penetration of our drip nutrient lines, charcoal, soil products, and ion lights, which has become the company's best-selling lighting brand.

Greg Sanders: The development of our proprietary brands has become one of our core competencies, and we are now targeting proprietary brands to account for 35% of social sales in fiscal year 2025.

Speaker Change: gross profit margin was 26.9% in the second quarter of 2024, representing the sequential improvement of 110 basis points from the first quarter of 2024, and a 10 basis point improvement year over year.

Greg Sanders: The improvements in gross margin on a year-over-year and quarter-over-quarter basis were achieved despite continued challenging macroeconomic and industry conditions. We continue to see positive impacts from expansion of proprietary brand sales, which have been partially offset from pricing pressure on distributed products and higher freight costs. Looking into the back half of 2024.

Speaker Change: The Improvement and Gross Margin, on a year or a year, and quarter of a quarter basis, where she despite continued challenging macroeconomic and industry conditions.

Greg Sanders: We continue to see positive impacts from expansion of proprietary brand sales, which have been partially offset from pricing pressure on distributed products and higher freight costs.

Greg Sanders: We are planning to reduce our distributed inventory position, and we expect that this activity will have a negative impact on gross margin as we position the business for our 2025 proprietary brand goal of 35% of sales. However, we remain confident that a long-term focus on margin expansion through proprietary brand development and a more nimble footprint will lead to long-term gross margin growth. Store operating expenses decreased to $10.2 million in the second quarter, compared to $12 million in the year-ago period, representing a $1.8 million improvement.

Greg Sanders: Looking into the back half of 2024.

Greg Sanders: We are planning to reduce our distributed inventory position, and we expect that this activity will have a negative impact on gross margin.

Greg Sanders: as we position the business for our 2025 proprietary brand goal of 35% of sales.

Speaker Change: However, we remain confident that our long term focus on margin expansion through proprietary brand development and a more nimble footprint will lead to our long term gross margin growth.

Greg Sanders: Store operating expenses decreased to $10.2 million in the second quarter compared to $12 million in the year-ago period, representing a $1.8 million improvement.

Greg Sanders: sequentially to the first quarter, store operating expenses decreased $400,000 as we continue to see cost savings flow through our results from our strategic rationalization effort. Meanwhile, selling general and administrative (SG&A) costs were $7.1 million in the second quarter compared to $7.5 million in the comparable year-ago period, representing a $400,000 improvement.

Greg Sanders: Sequentially to the first quarter, store operating expenses decreased $400,000 as we continue to see cost savings flow through our results from our strategic rationalization efforts.

Greg Sanders: Meanwhile, Selling General and Administrative, or SG&A, costs were $7.1 million in the second quarter, compared to $7.5 million in the comparable year-ago period, representing a $400,000 improvement.

Greg Sanders: The progress that we have communicated regarding our cost base was in line with our expectations, and we see continued opportunity to further reduce costs through the remainder of the year and into 2025. As we outlined in our restructuring plans, we expect to generate approximately $12 million in annualized cost savings over the next 12 months to help achieve long-term sustainable profitability. NetLogged for the second quarter of 2024 was $5.9 million, or negative $0.10 per share, compared to a net loss of $5.7 million, or negative $0.09 per share for the comparable year-ago period.

Greg Sanders: The progress that we have communicated regarding our cost base was in line with our expectations, and we see continued opportunity to further reduce costs through the remainder of the year and into 2025.

Greg Sanders: As we outlined in our restructuring plans, we've expected been right approximately $12 million in annualized cost savings over the next 12 months to help achieve long-term sustainable profitability.

Greg Sanders: Net loss for the second quarter of 2024 was $5.9 million, or negative $0.10 per share, compared to a net loss of $5.7 million, or negative $0.09 per share for the comparable year-ago period.

Greg Sanders: Compared to the first quarter of 2024, net loss improved by 2.9 million sequentially compared to a net loss of 8.8 million last quarter. Adjusted EBITDA, as defined in our press release, was negative $1.1 million, compared to a $0.9 million profit in the second quarter of 2023. On a quarter-over-quarter basis, adjusted even the loss improved from $2.9 million to $1.1 million, a $1.7 million improvement Turning to the balance sheet, as of June 30, 2024, the company had total cash, cash equivalents, and marketable securities of $56 million, which was a decrease of $5.3 million from the prior quarter. The decrease in cash was primarily due to $4.2 million of capital deployed to repurpose the company's shares.

Greg Sanders: Compared to the first quarter of 2024, net loss improved by $2.9 million sequentially, compared to a net loss of $8.8 million last quarter.

Greg Sanders: Adjusted EBITDA, as defined in our press release, was negative $1.1 million, compared to a $0.9 million profit in the second quarter of 2023.

Greg Sanders: on a quarter-over-quarter basis, adjusted even the loss improved from $2.9 million loss to a $1.1 million loss, a $1.7 million improvement to the sequential period.

Greg Sanders: i

Greg Sanders: Turning to the balance sheet.

Greg Sanders: As of June 30, 2024, the company had total cash, cash equivalents and marketable security of 56 million.

Greg Sanders: which was a decrease of 5.3 million to the prior quarter. The decrease in cash was primarily due to $4.2 million, the capital deployed to repair companies' shares.

Greg Sanders: The company's cash prediction remains a core strength of the business, and we do not foresee any near-term financing needs. As Darren mentioned, we are reducing our full year 2024 guidance for revenue to be in the range of $190 million to $195 million, and we are eliminating our full year 2024 adjusted EBITDA guidance. These updates regarding full-year guidance are a result of the restructuring announcement that was published in July. In closing, GrowGeneration remains in a strong financial position as we enter the second half of 2024.

Greg Sanders: The company's cash prediction remains a core strength of the business, and we do not foresee any near-term financing needs.

Greg Sanders: As Darren mentioned, we are reducing our full year 2024 guidance for revenue to be in the range of $190 million to $195 million, and we are eliminating our full year 2024 adjusted EBITDA guidance.

Speaker Change: These updates regarding full-year guidance are a result of the restructuring announcement that was published in July .

Speaker Change: In closing, GrowGeneration remains in a strong financial position as we enter the second half of 2024.

Greg Sanders: Our second quarter results demonstrate continued discipline with reducing expenses alongside our margin growth initiatives as the bigger picture remains focused on profitability. During the back half of 2024, the execution of the strategic restructuring plan will be the center of our attention. We believe that the business is poised to emerge in 2025 with a more robust operating model to deliver our shareholders a more profitable and sustainable long-term investment. With that, I will hand the call back over to Darren for closing remarks. Thank you, Greg.

Speaker Change: Our second quarter results demonstrate continued discipline with reducing expenses alongside our margin growth initiatives as the bigger picture remains focused on profitability.

Speaker Change: During the back half of 2024, the execution of the Strategic Restructuring Plan will be the center of our attention.

Speaker Change: We believe that the business is poised to emerge in 2025 with a more robust operating model to deliver our shareholders a more profitable and sustainable long-term investment.

Speaker Change: with that. I will hand the call back over to Darren for closing remarks.

Darren Lampert: We are very proud of the results we delivered for the second quarter, including sequential revenue growth and increased sales from our proprietary branded products. This, in turn, drove margin and adjusted EBITDA improvement during the quarter.

Darren Lampert: Thank you, Greg.

Darren Lampert: We are very proud of the results we delivered for the second quarter, including sequential revenue growth and increased sales from our proprietary branded products. This, in turn, drove margin and adjusted EBITDA improvement during the quarter.

Darren Lampert: At the same time, even with the progress we have already made, we recognize there is more work to be done. We're looking ahead to the remainder of 2024 and into 2025, as we implement our strategic restructuring plan to expand our brand portfolio, accelerate revenue growth, reduce costs, drive higher margins, and position GrowGen for long-term profitability as the market landscape continues to evolve and improve. Again, I'd like to thank our investors for their continued support, as well as all our team members for their hard work, which makes our success possible. That concludes our prepared remarks. I'll now ask the operator to open the line for questions. Operator?

Darren Lampert: At the same time, even with the progress we have already made, we recognize there is more work to be done.

Darren Lampert: We are looking ahead to the remainder of 2024 and into 2025 as we implement our strategic restructuring plan to expand our brand portfolio.

Darren Lampert: accelerate revenue growth, reduce costs, drive higher margins, and position GrowGen to long-term profitability as market landscape continues to evolve and improve.

Darren Lampert: Again, I'd like to thank our investors for their continued support, as well as all our team members for their hard work, which makes our success possible.

Speaker Change: That concludes our prepared remarks. I will now ask the operator to open the line for questions.

Darren Lampert: Operator.

Operator: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touchtone phone. You will then hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number. If you are using a speakerphone, please lift the handset before pressing any key. One moment, please, for your first question. Our first question is from Mark Smith from Lake Street Capital Markets.

Speaker Change: Thank you.

Speaker Change: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star, follow the number one on your Dutch phone. You will then hear a prompt that your hand has been raised.

Darren Lampert: Should you wish to decline from the polling process, please press the star, followed by the number 2.

Darren Lampert: If you are using a speakerphone, please lift the handset before pressing any key.

Operator: Hello, everyone, and welcome to GrowGeneration's second quarter, anytime for earnings, conference calls. My name is Nick, and I will be your operator for the day's call. At this time, participants are in a listed-owned email.

Speaker Change: One moment these for your first question.

Darren Lampert: Our first question is from Mark Smith from Lake Street Capital Markets.

Mark Smith: Hi, guys. Greg, I wanted to just circle back first off on something that you had said, just, is there any additional kind of guidance or insights you can give us on gross profit margin, both kind of near term, and I know it's going to be choppy as you guys close some stores and maybe, you know, liquidate some inventory in those stores, but also kind of long term, if you guys have kind of set kind of goals or an idea of where you would like to be longer term on gross profit

Speaker Change: i

Operator: Following prepared remarks, we will open the call's questions from analysts with instructions to be given at the time. This conference call is being reported, and the replay of today's call will be available in the investor-relations section of GrowGeneration's website.

Mark Smith: Hi guys, Greg, I want to just circle back first off on something that you had said, just, is there any additional kind of guidance or insights you can give us on gross profit margin?

Speaker Change: Both kind of near term, and I know it's going to be choppy as you guys close some stores and maybe, you know, liquidate some inventory in those stores, but also kind of long term, if you guys have set kind of goals or an idea of where you would like to be longer term on gross profit margin.

Greg Sanders: Yeah, Mark, as we work through the restructuring announcement that was published in July, we anticipate moving out of position of certain inventory products that will have an impact in the third and fourth quarters of this year. We believe, at this point, the second quarter was our strongest gross margin period relative to the work that we have to do on that end to prepare the business for 2025. You know, we expect it's probably in that, you know, low to mid 20s range as we work through a lot of the inventory reductions that we'll experience in the back half of the year.

Operator: I will now have all over the failed call's been with ACSC for introductions and the reading of the safe cardboard. Please go ahead. Thank you and welcome everyone to GrowGeneration's second quarter, 2024, earnings results, conference calls. With us today, our Darren Lampert, co-founder and chief executive officer, Greg Sanders, chief financial officer of GrowGeneration. 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 GrowGeneration website at ir.grogeneration.com.

Speaker Change: Mark, as we work through the restructuring announcement, that was published in July.

Speaker Change: We anticipate moving out of position of certain inventory products that will have an impact in the third and fourth quarter of this year. We believe at this point the second quarter was our strongest gross margin period relative to the work that we have to do on that end to prepare the business for 2025.

Operator: 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 Security's litigation reform act of 1995. These forward-looking statements are based on measurements 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 ACSC for a detailed discussion of the risks that could cause after results to differ materially from those expressed or implied in any of the forward-looking statements made today.

Speaker Change: You know, we expect it's probably in that, you know, low to mid 20s ranges, we work through a lot of the, you know, inventory reductions that will experience in the back half of the year.

Greg Sanders: We believe what that will ultimately lead to for the business in 25 is a margin point in the high 20s or low 30s as we look forward to the business, particularly with our strategic goal in mind of increasing proprietary brand sales next year.

Speaker Change: We believe what that will ultimately lead to for the business in 25 is a margin point in the high 20s, low 30s as we look forward at the business, particularly with our strategic goal in mind of increasing proprietary brand sales next year.

Darren Lampert: Perfect. And then the only other question I have about the restructuring here, just any update on the timing of these closures. I think, Darren, you said you expected to be done by early Q1. Should we expect this to be kind of fluid month to month, or will we see any lumpiness in the closures here over the next couple of months?

Speaker Change: Perfect, and then the only question I had to get a restructuring here, just any update on timing of these closures, I think Darren said to expect to be done by Bernie Q1.

Operator: During the call, we'll use some non-gap financial measures as we describe business performance. The ACSC filing, as well as the earnings press release, which provide recommendations of non-gap financial measures to the most directly comparable gap 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 as time allows.

Speaker Change: Should we expect this to be kind of fluid month-to-month, or will we see any lumpiness in the closures here over the next couple months?

Darren Lampert: Right now, we're scheduling three for the next three months. So we believe that all nine stores will be closed, probably in that November time frame. So we believe everything will be closed before year end. However, there may be some legacy leases that go over to 2025. We certainly hope not. We're working hard on transferring leases and working out payment plans and getting rid of leases as we speak. We have some favorable leases within our portfolio that we'll have no issues getting rid of. But like anything else, during restructuring and closing 19 stores, there are always some problem leases. But none of them are material, and we will work through them. Sounds great.

Speaker Change: We're scheduling three for the next three months, so we believe that all nine stores will be closed, you know, probably in that November timeframe, so we believe everything will be closed before you're in. There may be some legacy releases that, um...

Darren Lampert: Now, I will hand the call over to our co-founder and CEO, Darren Lapper. Darren, please go ahead. Thanks, Phil, and good afternoon, everyone.

Speaker Change: That that go over to 2025. We certainly hope not when we're working hard on the transferring leases and working out payment plans and getting rid of leases as we fake we have some favorable leases.

Darren Lampert: 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 a strong portfolio of proprietary brands. As always, I want to thank our GROGEN 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. GROGEN's second quarter results included net revenue of 53.5 million and increased of 11.7% sequentially from 47.9 million in the first quarter.

Speaker Change: within our portfolio that we'll have no issues getting rid of. But like anything else, during restructuring and COVID-19 stores, there are some problem leases always. But none of them are material, and we will work through them.

Mark Smith: Sounds great. Thank you.

Speaker Change: Sounds great. Thank you.

Operator: The next question will be coming from Brian Nagel from OpenHB.

Speaker Change: Thanks for watching!

Speaker Change: Next question will be coming from Brian Nagel from Oppenheimer.

Brian Nagel: So my question, just with the restructuring, the repositioning of the business. What should we think about the investment needed to execute this? I mean, both not maybe from a money standpoint month, but then also just kind of even a process standpoint. I mean, how cumbersome or expensive?

Brian Nagel: So my question, just with the restructuring, the repositioning of the business.

Darren Lampert: In addition to sequential sales growth, adjusted EBITDA loss was 1.1 million for the quarter, a 1.7 million dollar improvement from Q1. Importantly, proprietary brand sales remained relatively flat as a percentage of cultivation and gardening net sales during the quarter. But increased from 21.5% compared to 16.7% in the same period last year, is important to note that proprietary brand sales increased in July with the increase of sales of Joe Pydra, Charcourt, and the Harvest Company as customers migrate from trials to sales.

Brian Nagel: How should we think about the investment needed to execute this? I mean, both from a money standpoint, but then also just kind of even a process standpoint. I mean, how cumbersome or expensive could this be?

Darren Lampert: We believe not in much, Brian. In prior closings, we were up to 65 stores, so we've closed over 20 stores in the last couple years. They've been running anywhere from 150 to 250 a store. Right now, we have nine stores left. So you're talking somewhere in that $3 million to $5 million range, and some of it is inventory, some of it is working out leases, and some of it is severance for our employees. But we believe that 80% of that will be done before year-end, and we will be going into 2025 as a pretty clean company.

Speaker Change: You know, we believe not much, Brian . In prior closings, we were up to 65 stores, so we've closed...

Brian Nagel: over 20 stores in the last couple years. They've been running anywhere from 150 to 250 a store. Right now we have nine stores left.

Speaker Change: So you're talking somewhere in that $3 million to $5 million range, and some of it's inventory, some of it's working out leases, and some of it's severance to our employees, but we believe that

Darren Lampert: 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 Charcourt, Trea Pydra, 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 for 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 in front of mine and all our operations.

Darren Lampert: And there was a question asked earlier by Mark Smith with regard to inventory and margins. And the one thing when closing stores, there are two things we do with existing inventory and stores. One, as we rationalize it, we put all of it on sale as opposed to moving it. It keeps goodwill with customers. It keeps customers with GrowGen to shop at adjacent stores or online or through our commercial team. So we do a tremendous amount of discounting right now when closing stores, and that's why you will see degradation in margins over the next two quarters.

Speaker Change: 80% of that will be done before year-end, and we will be going into 2025 as a pretty clean company. And there was a question asked earlier by Mark Smith with regards to inventory and margins.

Speaker Change: And the one thing, when closing stores, there's two things we do with existing inventory in stores. One is we rationalize it.

Speaker Change: We put all of it on sale opposed to moving it.

Speaker Change: It keeps goodwill with customers, it keeps customers with GrowGen to shop at adjacent stores or online or through our commercial team.

Speaker Change: So we do a tremendous amount of discounting right now when closing stores, and that's why you will see degradation in margins over the next two quarters.

Brian Nagel: Got it. I guess beyond closing stores and repositioning the real estate fleet, I would think there's also some other repositioning of the business, right Darren?

Speaker Change: I guess beyond closing stores, the repositioning of the real estate fleet, I would think there's also some other repositioning of the business, right Darren?

Darren Lampert: 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, the decision-grow gen for sustainable, recurring revenue growth, driven by our commercial and B2B customers, as well as long-term profit ability.

Darren Lampert: 100%. With 31 stores, we will be much more nimble. We will be focusing on private label brands and really business to business. The industry has changed, in our opinion. We've seen it over the last couple of years.

Darren Lampert: One hundred percent. You know with 31 stores we would be much more nimble. We will be focusing on private label brands and really business to business. The industry has changed in our mind. We've seen it over the last couple years. We've been closing stores and we haven't really been in the market buying.

Darren Lampert: We've been closing stores, and we haven't really been in the market. And, you know, really what we're positioning GrowGen for is, you know, new product launches. We're getting our private label division up to 35 percent of sales, which is our highest-margin business. And really, you know, basically taking care of our commercial customers, which amount probably right now to 60 to 70 percent of our business. Twenty-five percent of that goes to our commercial team right now, and the remainder goes within our stores.

Darren Lampert: and, you know, really what we're positioning grow Jenin for is, you know, new product launches, beginning our private label division up to 35% of sales, which is our highest margin business, and really, you know, basically taking care of our commercial customers.

Darren Lampert: which have now probably right now to 60 to 70% of our business.

Darren Lampert: 25% of that goes through our commercial team right now to remain their shops within our stores.

Darren Lampert: But the industry has changed over time, and we're changing with it. You know, we believe coming out of this restructuring, you will have a leaner company with a tremendously different cost structure. We've cut over $40 million of expenses to date, and there's another $12 million of expenses coming. You'll see a higher-margin business, and you'll see a company that's starting to make money and grow. And we couldn't be any more excited about it.

Darren Lampert: But the industry has changed over time, and we're changing with it, you know, we believe coming out of this restructuring.

Darren Lampert: 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 percent and total sales by the end of 2025. As part of this initiative, we will continue to launch Ecommerce Enabled Brand Specific Websites. An example of this is the Harvest Company Ecommerce 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.theharvestcode.com. We also intend to add approximately 50 new products to the proprietary brand lineup over the next 12 months.

Speaker Change: You will have a leaner company with a tremendously different cost structure. We've cut over $40 million of expenses to date. There's another $12 million of expenses coming.

Darren Lampert: You know, we've done it slowly. We've closed one store a quarter, two stores a quarter. And, you know, with that, it hasn't gotten us to where we want to get. It hasn't gotten us to be able to cut enough from the back end of it, from the corporate side of it.

Darren Lampert: You'll see a higher margin of business.

Darren Lampert: and you'll see a company that's starting to make money and grow.

Speaker Change: and we couldn't be any more excited about it, you know, we've done it slowly, we've closed one store a quarter, two stores a quarter.

Speaker Change: And, you know, with that, it hasn't gotten us to where we want to get.

Darren Lampert: So, you know, we're doing what we have to do, and we're really going back to our core, which is servicing business-to-business, commercial, and product launches. And our product launches are going well. We had our highest percentage of private label sales in the month of July. We had sort of a big bump up in July over the second quarter. So, you know, it's another two quarters of hard work, but we believe that our shareholders in the company will bear the benefits of it going into 2025. Jarret, I appreciate the collaboration.

Darren Lampert: hasn't gotten us to be able to cut enough from the back end of it, from the corporate side of it.

Speaker Change: So, you know, we're doing what we have to do and we're doing, really going back to our core.

Darren Lampert: which is servicing business-to-business, commercial.

Darren Lampert: and product launches. And our product launches are going well.

Darren Lampert: We had our highest percentage of private label sales in the month of July .

Darren Lampert: Two, a digital transformation of sales throughout our entire organization with a B2B customer focus. This will entail the launch of a B2B Ecommerce portal migrating some of our transactional activity for a brick and mortar retail stores onto this digital platform. We expect to launch a new platform in the fourth quarter of this year. Completing 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 for free convenient pick-up.

Darren Lampert: We had sort of a big bump up in July over...

Darren Lampert: over the second quarter. So, you know, it's another two quarters of hard work, Brian , but we believe that our shareholders and the company will bear the benefits of it going into 25.

Brian Nagel: I appreciate the call, Darren. Thank you.

Darren Lampert: Jack, I appreciate all the color, Darren. Thank you.

Operator: Next in line will be coming from Aaron Grey from Alliance Global Ports.

Speaker Change: Next in line will be coming from Aaron Grey from Alliance Global Partners.

Aaron Grey: Hi, good evening, and thank you very much for the question. So, first one for me, just in terms of the digital initiative, while part of the decision appears to be cost-based, I'm just curious. Could that also open up the ability to service some new customers that might not have been in the vicinity of your prior brick-and-mortar stores? And then, just if you could help in terms of how it will be structured now? I've already kind of piloted how the program will work in terms of the ease of transitioning customers to the model, including the potential to pick them up from the warehouse or potentially have them delivered.

Speaker Change: Hi, good evening and thank you very much for the questions.

Aaron Grey: So first one for me, just in terms of the digital initiative, you know, while part of the decision, you know, appears to be, you know, cost-based, I'm just curious.

Darren Lampert: 3. And lastly, continuing streamlining of our operational infrastructure. Most importantly, we will continue to write out its GrowGen's National Retail footprint to align with current industry-wide conditions by closing 19 redundant or underforming 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 expected to be substantially completed by early Q4. Following these closures, going forward, the company will have 31 operational stores.

Aaron Grey: Could that also open up the ability to service some new customers that might not have been in the vicinity of your prior brick-and-mortar stores?

Speaker Change: And then, just if you could help in terms of how it will be structured now. I've already kind of piloted how the program will work in terms of the ease of transitioning the customers to the model, including the potential to pick up from warehouse or potentially have it delivered.

Darren Lampert: Yes, we have. I mean, just to start with, Aaron, you know, the majority of the stores we're closing are within proximity to stores of ours. As this industry transforms into business to business, which it is going, commercial customers, you know, want a portal. Rather than calling and sending in orders, they much rather go on the portal, know that the product is there, and order it. You know, we opened a 100,000 square foot distribution facility in Ohio. This year, we have one out in Sacramento.

Darren Lampert: Yes, we have. I mean, just to start with Alan, you know, majority of the stores we're closing are within proximity to stores of ours.

Speaker Change: As this industry transforms into business-to-business, which it is going, commercial customers, you know, want a portal. They want, opposed to calling and sending in, you know, orders, they much rather go on the portal, know that the product is there, and order it.

Darren Lampert: 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 V2B 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-effective. As part of this, we will also look to continue to rationalize our inventory, revisit and enhance our strategic vendor relationships, and improve recovery and frame expense.

Speaker Change: You know, we opened a 100,000-square-foot...

Darren Lampert: distribution facility in Ohio this year. We have one out in Sacramento.

Darren Lampert: We also have some mini-hubs around the country where the growers are, so we are 100% capable of fulfilling orders, especially for private label and distributed products. So I think we're there right now. What we're also doing on the B2B side and the product side of it is opening up individual portals for products that individuals can now go to, go to our websites, and buy the products that will be shipped through our warehouses.

Aaron Grey: And we also have some mini hubs around the country where the growers are.

Darren Lampert: So we are 100% capable of fulfilling orders.

Darren Lampert: especially private label and distributed products.

Darren Lampert: I think we're there right now, but we're also doing on the B2B side and the product side if it is reopening up individual portal products that individuals can now go on, go on our websites and buy the products that will be shipped through our warehouses.

Darren Lampert: 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.

Darren Lampert: So, just again, cutting costs and just getting back to, you know, the industry was a lot about learning and teaching and individuals coming into the stores every day, but over the last couple of years, you know, we've seen, you know, definitely the flow within our stores has gone down, and we think that we can service our customers better in a much cheaper way and keep pricing down by doing what we're doing right now by cutting our store counts down, increasing our warehouse capabilities, and also our B2B online capabilities.

Speaker Change: So, just again, cutting costs and just getting back to, you know, the industry was a lot about learning and teaching and individuals coming into the stores every day. But over the last couple years, you know, we've seen, you know, definitely the flow within our stores has gone down.

Darren Lampert: We are committed to implementing these changes swiftly and effectively to solidify GrowGen's position as a greater 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 Mars Fire Board of Directors. Throughout the quarter, we were purchased more than $4 million in shares, switching to the top of the guidance.

Speaker Change: And we think that we can service our customers better in a much cheaper way and keep pricing down by doing what we're doing right now, by cutting our store accounts down, increasing our warehouse capabilities, and also our B2B online capabilities.

Aaron Grey: Appreciate that color there. Second one for me, Darren, just in terms of the proprietary brands, so you're now at about, you know, $50 million run rate based on the quarter. I know you have aspirations, you know, to increase that to 35% from 21%. But, you know, just want to hear your take on terms of the brand equity that's been built within the proprietary brands and how that might offer opportunities for you to increasingly build the brands into third-party stores and distributors outside of just your own. Thank you. Hmm.

Speaker Change: Thanks for watching, and don't forget to like, share, and subscribe to our channel.

Speaker Change: Appreciate that color there. Second one for me, Darren, just in terms of the proprietary brands.

Darren Lampert: As a result of this restructuring plan and the actions we have outlined today, we will now be revisiting our full year of 2020 for net revenue and adjusted EBITDA guidance. We are analyzing the full effects of these actions, including our digital transformation, store closures, and the related cost savings we expect to achieve. At this time, we are estimating full year of 2020 for net sales to be in the range of 190 to 195 million.

Darren Lampert: So you're now at about, you know, $50 million run rate based on the quarter. I know you have aspirations, you know, to increase that to 35% from 21%, but...

Speaker Change: I just want to get your take in terms of the brand equity that's been built within the proprietary brands and how that might offer opportunities for you to increasingly build the brands into third-party stores and distributors outside of just your own. Thank you.

Darren Lampert: I think right now about 50% of our brands are going into other stores and going to additional distribution channels outside of GrowGen. So we have built that to date on, we are building brand equity by the day, and DripHydro is off to a wonderful start. We launched the powders back in January. We had almost 500 active trials going around the country, and they're starting to convert. And we saw that in July as we saw a really nice increase in our private label brand sales. It was the highest month we've seen. And it was, again, a tremendous bump from what you saw in the second quarter from us.

Speaker Change: and I think right now about 50% of our brands are going into other stores.

Darren Lampert: As for our previously stated adjusted EBITDA guidance, we are removing this guidance altogether as the timing of actions taken into the 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.

Speaker Change: and going to the distribution channels outside of GrowGen. So we have built that.

Speaker Change: Good day!

Speaker Change: and we are building brand equity by the day and their drip hydro is off to a wonderful start. We launched the powders back in January.

Speaker Change: We had almost 500 active trials going around the country, and they're starting to convert. And we saw that in July , as we saw a really nice increase in our private label brand sales in July . It was the highest month we've seen, and it was...

Darren Lampert: 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 have mentioned on previous calls, we hired Blake 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, and Justice. We remain engaged with Lake Street Capital and will share news with our stakeholders and the investment community we have information to announce.

Speaker Change: You know, again, it was a tremendous bump from what you saw in the second quarter from us. We're also starting to launch a lot of new products under the Charcoal brand. There's new soils coming out. There's cocoa coins and propagation coming out of that company that we believe will land in the IGC world.

Darren Lampert: We're also starting to launch a lot of new products under the Charcor brands. There are new soils coming out. There are cocoa coins and propagation coming out of that company that we believe will land in the IGC world. But the feedback that we're getting from customers, from other stores, and distributors has been nothing short of amazing. And as we said earlier, we will have another 50 products being launched over the next 12 months to get us to where we wanna go.

Speaker Change: But the feedback that we're getting from customers, from other stores and distributors has been nothing short of amazing. And as we said earlier, that we will have another 50 products being launched over the next 12 months to get us to where we want to go.

Darren Lampert: And with that, again, when we talk about margins again, during the next two quarters, we are rationalizing certain distributed products, companies that haven't been good partners to GrowGen. And we're again, we're shrinking the amount of products that we are carrying in our stores and our warehouses. But we have a lot of great partners out there that we continue to support, that continue to support GrowGen. Thank you.

Speaker Change: And with that, you know, again, when we talk about margins, again, you know, during the next two quarters, we are rationalizing certain distributed products.

Speaker Change: companies that haven't been good partners to GrowGen. And we're, again, we're shrinking the amount of products that we are carrying in our stores and our warehouses. But, you know, we have a lot of great partners out there that we continue to support, that continue to support GrowGen.

Darren Lampert: Moving to rescheduling, the public common period regarding the DEA's proposed rescheduling rule for cannabis, which would reschedule cannabis from our schedule one to a schedule three control substance recently closed on July 22, with over 42,000 comments submitted. According to data from headset, over 92% of those comments were in favor of rescheduling, were the complete de-scheduling of cannabis under the Federal Control Substance Act. As we said previously, rescheduling would be a major milestone in the regulatory landscape would likely be very beneficial to many of our customers and therefore to grow Gen's business.

Aaron Grey: Okay, great. I appreciate that, Darren. I'll go ahead and jump back into the queue.

Speaker Change: Thank you, Craig. Appreciate that, Darren. I'll go and jump back in the queue.

Aaron Grey: Thank you, Aaron.

Operator: Should you have any questions, please press the star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. The next question will be coming from Andrew Carter from SIPHL.

Speaker Change: Should you have any questions, please press the star, follow within number one on your Dutch Don't Phone. You will hear a prompt that your hand has been raised.

Speaker Change: Next question will be coming from Andrew Carter from Stifle.

Andrew Carter: Hey, thank you very much. Kind of a question I wanted to ask here about you giving the gross margin, high 20s, low 30s. Could you kind of speak to what, at this revenue base of 195, your kind of EBITDA margin kind of prospects are, and do you need to meaningfully grow to get to mid single digits? Do you think you can grow next year? Anything that could kind of help on that side? Thanks.

Andrew Carter: Hey, thank you very much. Kind of a question I wanted to ask here about, you kind of gave the gross margin, high 20s, low 30s. Could you kind of speak to what, at this revenue base of $195, what your kind of EBITDA margin kind of prospects are, and do you need to meaningfully grow to get to mid-single digit? Do you think you can grow next year? Anything that could kind of help on that side. Thanks.

Darren Lampert: 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 culture invaders 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.

Greg Sanders: Greg, do you want to try to unpack that, and then I'll finish it up?

Greg Sanders: Yeah, absolutely. As we look at next year, it's a little bit early for us to meaningfully say what our EBITDA is going to look like. We do anticipate for the remainder of the year that revenue is going to be in that $190,000 to $195,000 mix, which we feel comfortable with. Bringing down revenue for the back half of the year is really just a symptom of the amount of stores we've decided to close in the third quarter, being 12 more than anything else.

Aaron Grey: Greg, do you want to try to unpack that and then I'll finish it up?

Greg Sanders: Yeah, absolutely. As we look at next year, it's a little bit early for us to meaningfully say what our EBITDA is going to look like.

Speaker Change: We do anticipate for the remainder of the year that, you know, revenue is going to be in that $190 to $195 mix, which we feel comfortable with. Bringing down revenue for the back half of the year is really just a symptom of the amount of stores we've decided to close in the third quarter being 12.

Darren Lampert: In summary, our second quarter results were in line with our expectations and reflect the considerable progress we've 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. 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.

Greg Sanders: But we do expect margins to return in 2025, and we do believe that that positions the business back for profitability in 2025. But I couldn't give an exact figure out yet just because it's too early for us.

Aaron Grey: more than anything else. But we do expect margins to return in 2025, and we do believe that that positions the business back for profitability in 25. But I couldn't give an exact figure out yet just because it's too early for us.

Andrew Carter: I guess the second question is, with the focus on proprietary brands, remind us, you don't own a lot of manufacturing. I mean, to hit your goals, do you think that you might need to invest in that, or do you have enough kind of a co-packed or co-manufacturing network to kind of support your needs and your penetration goals? Thanks. You know, I think right now, Andrew, our co-packers, you know,

Speaker Change: I guess the second question is, with the focus on proprietary brands, remind us, you don't own a lot of manufacturing, I mean, to hit your goals, do you think that you might need to invest in that, or do you have enough kind of in a co-packed or co-manufacturing network to kind of support your needs and your penetration goals? Thanks.

Darren Lampert: 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.

Darren Lampert: You know, I think right now, Andrew, our co-packers around the country and around the world that we use have wonderful relationships with. So, you know, we're usually ahead of the game with bringing products in. You know, our drip liquids are being manufactured in California, really, our hub right now. But a lot of our products are still being manufactured overseas, but we have a pretty decent handle on that.

Greg Sanders: I will now turn the call over to our CFO Greg Sanders. Greg? Thank you, Darren, and good afternoon everyone. As Darren mentioned, we are pleased to report that our second quarter results were generally in line with expectations and we made solid progress in several key areas. Starting with second quarter sales, Greg Generation reported net revenue of 53.5 million compared to 63.9 million in a year ago period, representing a 16.3 percent decline.

Speaker Change: Yeah, I think right now, Andrew, you know, our co-packers...

Aaron Grey: You know, around the country and around the world that we use, we have wonderful relationships with.

Aaron Grey: So, you know, we're usually ahead of the game.

Aaron Grey: with bringing products in.

Aaron Grey: No, no, sorry, you know, our drift liquids are being manufactured in California.

Aaron Grey: I'm really, you know, our hub right now.

Aaron Grey: But a lot of our products are still being manufactured overseas, but we have a pretty decent handle on it. We know our co-packers well. We visit with them. I was with our Charcor owners the other day out in Seattle. They flew in from India. So I think at this time, we're not a manufacturer, so I think we're going to stick to what we're doing on the co-packing side of it.

Darren Lampert: We know our co-packers well. We visit with them. I was with our Charcore owners the other day out in Seattle. They flew in from India. So I think it's, you know, at this time, we're not a manufacturer. So I think we're going to stick to what we're doing on the co-packing side.

Greg Sanders: On an absolute basis, this includes 19 fewer retail locations to close the second quarter. On a sequential basis, revenue increased from 47.9 million to 53.5 million, representing an 11.8 percent improvement. This improvement was achieved despite closing seven stores between the first and second quarters of 2020. 44, illustrating the strengths of the existing stores in our portfolio. Same-store sales for the second quarter were 41.1 million compared to 43.9 million in the prior year, a decrease of 6.2 percent, excluding e-commerce sales from the same-store sales comparison, the retail business declined by 3.4 percent compared to the year-over-year period. While we saw signs of strength in the California and Michigan markets, we felt continued pressure in Oklahoma as well as headwinds in the Northeast markets that had an impact on the overall same-store sales metric.

Operator: There are no further questions at this time. I'd now like to turn the call back over to Mr. Darren Lampert for final closing comments. I'd like to thank our...

Aaron Grey: Thank you very much for watching this video.

Aaron Grey: There are no further questions at this time. I'd now like to turn the call back over to Mr. Darren Lampert for final closing comments.

Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line. Thanks for watching, and don't forget to like, share, and subscribe!

Darren Lampert: I'd like to thank our shareholders and our employees for their hard work, for their dedication, and for their support of GrowGen. We look forward to keeping you apprised of our progress on our restructuring, and we look forward to talking to everyone in September. Thank you.

Darren Lampert: I'd like to thank our shareholders and our employees for their hard work, for their dedication, and for their support of Georgia. We look forward to keeping you a prize of our progress on our restructuring. We look forward to talking to everyone in September. Thank you.

Speaker Change: Ladies and gentlemen, these concludes your conference call for today. We thank you for participating and ask that you please disconnect your line.

Greg Sanders: As we have highlighted, we will continue to right-size our retail footprint in the back half of the 2024 to prioritize our strongest performing store locations that serve as higher volumes of commercial growers. Store solutions revenue for the second quarter was 7.4 million compared to 8.4 million in the prior year, a decrease of 11.3 percent, which was largely due to various projects being pushed into the third quarter from a timing perspective. On an absolute basis, private label or proprietary brand sales were 9.9 million for the second quarter, compared to 9.3 million in the second quarter of 2023.

Greg Sanders: Proprietary brand accounted for 21.5 percent of gardening and cultivation sales in the second quarter of 2024, compared to 16.7 percent in the comparable year-over-year period. The 4.7 percent year-over-year improvement is due to stronger penetration of our nutrient line, charcoal, soil products, and ion lights, which has become the company's best-selling lighting brand. The development of our proprietary brands has become one of our core competencies and we are now targeting proprietary brands to account for 35 percent of total sales in fiscal year 2025.

Greg Sanders: Gross profit margin was 26.9 percent in the second quarter of 2024, representing a sequential improvement of 110 basis points from the first quarter of 2024 and a 10 basis point in improvement year-over-year. The improvements in gross margin on a year-over-year and quarter-over-quarter basis were achieved despite continued challenging macroeconomic and industry conditions. We continue to see positive impacts from expansion of proprietary brand sales, which have been partially offset from pricing pressure on distributed products and higher freight costs.

Greg Sanders: Looking into the back half of 2024, we are planning to reduce our distributed inventory position and we expect that this activity will have a negative impact on gross margin. As we position the business for our 2025 proprietary brand goal of 35 percent of sales, however, we remain confident that our long-term focus on margin expansion through proprietary brand development and a more nimble footprint will lead towards long-term gross margin growth. Store operating expenses decreased to 10.2 million in the second quarter compared to 12 million in the year ago period, representing a $1.8 million improvement, to the first quarter store operating expenses decreased $400,000 as we continue to see cost savings flow through our results from our strategic rationalization efforts.

Greg Sanders: Meanwhile, some in general an administrative or S.G.N.A, costs were $7.1 million in the second quarter compared to $7.5 million in the comparable year ago period, representing a $400,000 improvement. The progress that we have communicated regarding our cost base was in line with our expectations, and we see continued opportunity to further reduce costs through the remainder of the year and into 2025. As we outlined in our restructuring plans, we have expected to generate approximately $12 million in annualized cost savings over the next 12 months to help achieve long-term sustainable profitability.

Greg Sanders: Net loss for the second quarter 2024 was $5.9 million or negative 10 cents per share compared to a net loss of $5.7 million or negative 9 cents per share for the comparable year ago period. Compared to the first quarter of 2024, net loss improved by $2.9 million sequentially compared to a net loss of $8.8 million last quarter. Adjusted EBITDA, as defined in our press release, was negative 1.1 million compared to a $0.9 million profit in the second quarter of 2023.

Greg Sanders: On a quarter of a quarter basis, adjusted EBITDA loss improved from $2.9 million to a $1.1 million loss, a $1.7 million improvement to the sequential period. Turning to the balance sheet, as of June 30th, 2024, the company had total cash, cash equivalence, and marketable securities of $56 million, which was a decrease of $5.3 million to the prior quarter. The decreasing cash was primarily due to $4.2 million if capital deployed to repair companies shares. The company's cash prediction remains a core strength of the business, and we do not foresee any near-term financing needs.

Greg Sanders: As Darren mentioned, we are reducing our full-year 2024 guidance for revenue to be in the range of $190 million to $195 million, and we are eliminating our full-year 2024 adjusted EBITDA guidance. These updates regarding full-year guidance are a result of the restructuring announcement that was published in July. In closing, grow generation remains in a strong financial position as we enter the second half of 2024. Our second quarter results demonstrate continued discipline with reducing expenses alongside our large and growth initiatives as the bigger picture remains focused on profitability.

Greg Sanders: During the back half of 2024, the execution of the strategic restructuring plan will be the center of our attention. We believe that the business's boys do emerge in 2025 with a more robust operating model to deliver our shareholders a more profitable and sustainable long-term investment.

Darren Lampert: With that, I will hand the call back over to Darren for closing remarks. Thank you, Greg. We are very proud of the results we delivered from the second quarter, including sequential revenue growth and increased sales from our proprietary branded products. This in turn drove margin and adjusted EBITDA improvement during the quarter.

Darren Lampert: At the same time, even with the progress we have already made, we recognize there is more work to be done. We are looking ahead to the remainder of 2024 and it's 2025 as we implement our strategic restructuring plan to expand our brand portfolio, accelerate revenue growth, reduce costs, drive higher margins, and position grow gen for long-term profitability as market landscape continues to evolve and improve.

Darren Lampert: Again, I'd like to thank our investors for their continued support as well as all our team members for their hard work, which makes our success possible, that concludes your prepared remarks. I'll now ask the operator to open the line for questions.

Operator: Operator? Thank you.

Operator: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question please press the star or follow the number one on your tax tone phone, you will then hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number two. If you are using a speaker phone, please lift the hand set before pressing any key. One moment please for your first question.

Mark Smith: Our first question is from Mark Smith from Lake Street Capital Market. Hi, guys. Greg, I want to just circle back for stuff on something that you had said.

Greg Sanders: These are any additional guidance or insights you can give us on gross profit margin. Both kind of near term and I know it's going to be choppy as you guys close some stores and maybe liquidate some inventory in those stores. But also kind of long term if you guys have kind of kind of goals or an idea of where you would like to be longer term on gross profit margin. Yeah, Mark, as we work through the restructuring announcement that was published in July, we anticipate moving out of position of certain inventory products that will have an impact in the third and fourth quarter of this year.

Greg Sanders: We believe at this point the second quarter was our strongest gross margin period relative to the work that we have to do on that end to prepare the business for 2025. You know, we expect it's probably in that, you know, low to mid 20s ranges, we work through a lot of the inventory reductions that will experience in the back half of the year. We believe what that will ultimately lead to for the business in 25 is is a margin point in the high 20s low 30s as we look forward at the business, particularly with our strategic goal in mind of increasing proprietary brand sales next year.

Darren Lampert: Perfect. And then the only question I have kind of restructuring here, just any update on timing of these closures. I think Darren you'd said you expect to be done by early Q1 should we expect this to be kind of fluid month to month or where we see any lumpiness in the closures here of the next couple months. Right right now we we're scheduling three for the next three months. So you know, we believe that you know all nine stores will be closed, you know, probably in that November timeframe.

Darren Lampert: So we believe everything will be closed before your end. There may be some legacy releases that go over to 2025. We certainly hope not we're working hard on the transferring leases and working out payment plans and getting rid of leases as we speak. We have some favorable leases within our portfolio that will have no issues getting rid of, but like anything else during restructuring and closing 19 stories. There are some problem leases always, but not in material and we will work through them.

Mark Smith: Sounds great. Thank you.

Brian Nagel: Next question will be coming from Brian Nagel from Open Hammer. My question, just with the restructuring, reposition of the business, how can we think about the investment needed to execute this? I mean, it both not made with money standpoint, but then also just kind of even a process standpoint. How cumbersome or extensive could this be? We believe not much, Brian. In prior closings, we were up to 65 stores, so we've closed over 20 stores in the last couple of years.

Brian Nagel: They've been running anywhere from 150 to 250 in store. Right now we have nine stores left. So you're talking somewhere in that $3 to $5 million range, and some of it's inventory, some of it's working out leases, and some of it's severance to our employees. But we believe that 80% of that will be done before year end, and we will be going into 2025 as a pretty clean company.

Darren Lampert: And there was a question asked earlier by Mark Smith with regards to inventory margins. And the one thing when closing stores, there's two things we do with existing inventory and stores. One, as we rationalize it, we put all of it on sale opposed to moving it. It keeps goodwill with customers, it keeps customers with GrowGen to shop at, you know, adjacent stores or online or through our commercial team. So we do a tremendous amount of discounting right now when closing stores. And that's why you will see degradation in margins over the next two quarters.

Darren Lampert: Got it. I guess beyond closing stores, the reposition of the real safely. I would think there's also some other reposition of the business, right, John? 100%. You know, with 31 stores, we will be much more nimble. We will be focusing on private label brands and really business to business. The industry has changed in our mind. We've seen it over the last couple of years. We've been closing stores and we haven't really been in the market by.

Darren Lampert: And, you know, really what we're positioning GrowGen for is, you know, new product launches, beginning our private label division up to 35, 35% of sales, which is our highest margin business. And really, you know, basically taking care of our commercial customers, which amount probably right now to 60 to 70% of our business. 25% of that goes through our commercial team right now, the remainder shops within our stores. But the industry has changed over time and we're changing with it.

Darren Lampert: You know, we believe coming out of this restructuring, you will have a leaner company with a tremendously different cost structure. We've cut over $40 million of expenses to date. There's another 12 million of expenses coming. You'll see a higher margin business and you'll see a company that's starting to make money and grow. And we couldn't be any more excited about it. You know, we've done it slowly. We've closed one store, a quarter, two stores, a quarter.

Darren Lampert: And, you know, with that, it hasn't gotten us to where we want to get. It hasn't gotten us to be able to cut enough from the back end of it from the corporate side of it. So, you know, we're doing what we have to do when we're doing really going back to our core, which is servicing business to business commercial and product launches. And our product launches are going well. We had our highest percentage of private label sales in the month of July.

Darren Lampert: We have sort of big bump up in July over over the second quarter. So, you know, it's another two quarters of hard work rise. But we believe that our shareholders and the company will bear the benefits of it going into 25.

Brian Nagel: I appreciate all the color, Darren. Thank you. Thank you, man.

Aaron Grey: Next in line, we'll be coming from Aaron Grey from Alliance Global Partners. Hi, good evening, and thank you very much for the questions. So, first one for me, just in terms of the digital initiative, you know, while part of the decision appears to be, you know, cost-based, I'm just curious, could that also open up the ability to service some new customers that might not have been in the vicinity of your private or brick and mortar stores.

Aaron Grey: And then just if you could help in terms of how it'll be structured. Now, I've already kind of piloted how the program will work in terms of the ease of transitioning the customers to the model, including the potential to pick up from warehouse or potentially have it delivered. Yes, we have. I mean, just to start with Aaron, you know, majority of the stores we're closing are within proximity to stores of ours.

Aaron Grey: As this industry transforms into business to business, which it is going commercial customers, you know, want a portal they want opposed to calling and sending in, you know, orders they much rather go on the portal, know that the product is there in order. You know, we opened a hundred thousand square foot distribution facility in Ohio this year, we have one out in Sacramento. And we also have some mini hubs around the country where the growers are.

Aaron Grey: So, we are 100% capable of fulfilling orders, especially private label and distributed products. So, I think we're there right now. What we're also doing on the B2B side and the product side of it is, we're opening up individual portal products that individuals can now go on, go on our websites and buy the products that will be shipped through our warehouses. So, just again, cutting costs and just getting back to, you know, the industry was a lot about learning and teaching and individuals coming into the stores every day.

Aaron Grey: But over the last couple of years, you know, we've seen, you know, definitely the flow within our stores has gone down. And we think that we can serve as our customers better in a much cheaper way and keep pricing down by doing what we're doing right now, by cutting our store counts down, increasing our warehouse capabilities and also our B2B bill online capabilities.

Darren Lampert: I appreciate that color there. Second one for me Darren, just in terms of the proprietary brands, so you're now at about, you know, $50 million run rate based on the quarter. I know you have aspirations, you know, to increase that at 35% from 21%. But, you know, just want to get your take in terms of the brand equity that's been built within the proprietary brands. And how that might offer opportunities for you to increasingly build the brands into third party stores and distributor and distributors outside of just your own.

Darren Lampert: Thank you. I think right now about 50% of our brands are going into other stores and going to ditch the distribution channels outside of the road. So we have built that to date on we are building brand equity, you know, by the day and their drip hydros off to a wonderful start. We launched the powders back in January. We had almost 500 trial active trials going around the country and they're starting to convert and we saw that in July as we saw a really nice increase in our private label brand sales in July.

Darren Lampert: It was the highest month we've seen and it was, you know, again, it was a tremendous bump from what the store in the second quarter from us. We're also starting to launch a lot of new products under the charcoal brands. There's new soils coming out. There's cocoa coins and propagation coming out of that company that we believe will land in the IGC world. But the feedback that we're getting from customers, from other stores and distributors has been nothing short of amazing.

Darren Lampert: And as we said earlier that we will have another 50 products being launched over the next 12 months. I forget us to where we want to go. And with that, you know, again, we talk about margins again during the next two quarters. We are rationalizing certain distributed products, companies that haven't been good partners to grow gents. And we're again, we're shrinking the amount of products that we are carrying in our stores and our warehouses. But, you know, we have a lot of great partners out there that we continue to support, that continue to support our gents.

Operator: Okay, great. Appreciate that, Darren. I'll go and jump back in with you. Thank you, Aaron. Should you have any questions? Please press the star, follow up with the number one on your touch-tone phone. You will hear a prompt that your hand has been raised.

Andrew Carter: Next question will be coming from Andrew Carter from Cyphal. Okay, thank you very much. Kind of a question I wanted to ask here about you kind of gave the gross margin. High 20s, low 30s. Could you kind of speak to what at this this revenue base of 195, what you're kind of even a margin, kind of prospects are and do you need to meaningfully grow to get the mid single digit. Do you think you can grow next year anything that could kind of help on on that side.

Andrew Carter: Thanks. Greg, do you want to try to unpack that and I'll finish it up? Yeah, absolutely. You know, as we look at next year, it's a little bit early for us to to meaningfully say what are what are even is going to look like. We do anticipate for the remainder of the year that, you know, revenue is going to be in that 190 to 195 mix, which we feel comfortable with bringing down revenue for the back half of the year is really just a symptom of the amount of stores we've decided to close in.

Greg Sanders: That's the third quarter being 12 more than anything else, but we do expect margins to return, you know, in 2025 and we do believe that that position of the business back for profitability and in 25, but I couldn't I couldn't give an exact figure out yet just because it's too early for us.

Darren Lampert: I guess the second question is with the focus on proprietary, proprietary brands, remind us, you don't own a lot of manufacturing. I mean, to hit your goals, do you think that you might need to invest in that or do you have enough kind of in a co-pactor co-manufacturing network to kind of support your needs and your penetration goals? Thanks. I think right now, Andrew, you know, our co-packers, you know, around the country and around the world that we use, we have wonderful relationships with.

Darren Lampert: So, you know, we're usually ahead of the game with bringing products in. No, sorry, you know, our driftwoods are being manufactured in California, really, you know, our hub right now. And put a lot of our products are still being manufactured overseas, but we have a pretty decent handle on it. We know our co-packers well, we visit with them. I was with our charcoal owners the other day out in Seattle, they fluent from India. So, I think it's, you know, at this time, we're not a manufacturer, so I think we're going to stick to what we're doing on the co-packing side of it. Thanks. I'll pass it on.

Operator: There are no further questions at this time.

Darren Lampert: I'd now like to turn the call back over to Mr. Starrin, not for final closing comment. I'd like to thank our shareholders and our employees for their hard work, for their dedication, and for their support of Grogent. We look forward to keeping you apprised of our progress on our restructuring, and we look forward to talking to everyone in September.

Operator: Thank you.

Operator: Ladies and gentlemen of these concludes your conference call for today. We thank you for participating and ask if you please disconnect your line.

Thank you.