Q1 2025 GrowGeneration Corp Earnings Call
Speaker Change: Okay.
At this time participants are in listen only mode.
Speaker Change: [music].
Following prepared remarks, we will open the call to questions from analysts with instructions will be given at that time.
This conference call is being recorded and a replay of today's call will be available on the Investor Relations section of Glu generations website.
Speaker Change: I will now hand, the call over to Phil Carlson with K C. S. A for introduction.
Speaker Change: Thank you and welcome everyone to grow generations first quarter 2025 earnings results Conference call.
Darrin Lampert: With us today are Darrin Lampert, co founder and Chief Executive Officer, and Greg Sanders, Chief Financial Officer of Cogeneration.
Darrin Lampert: The company's first quarter 2025 earnings press release was issued after the market closed today.
Darrin Lampert: Copy of this press release is available on the Investor Relations section of the grow generation web site at IR deck ROE generation Dot com.
Darrin Lampert: 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.
Darrin Lampert: Private Securities Litigation Reform Act of 995.
Hello, everyone and welcome to grow generation first quarter 'twenty 25 earnings Conference call. My name is Joelle and I will be your conference operator for today's call.
Darrin Lampert: 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.
At this time participants are in a listen only mode.
Following prepared remarks, we will open the call to questions from analysts, but the instructions will be given at that time.
Darrin Lampert: 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.
Speaker Change: This conference call is being recorded and a replay of today's call will be available on the Investor Relations section of gold generations website, I will now hand, the call over to Phil Carlson with K C. S. A for introduction.
Darrin Lampert: During the call, we'll use a non-GAAP financial measures as we describe business performance.
Darrin Lampert: 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.
Speaker Change: Thank you and welcome everyone to grow generation first quarter 2025 earnings results Conference call.
Darrin Leppert: With us today are Darrin Leppert, co founder and Chief Executive Officer, and Greg Sanders, Chief Financial Officer of Cogeneration.
Darrin Lampert: 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.
Darrin Leppert: The company's first quarter 2025 earnings press release was issued after the market closed today.
Darrin Lampert: If you have additional questions. Please reenter the queue and we will take them as time allows.
Darrin Leppert: This press release is available on the Investor Relations section of the grow generation website at IR deck ROE generation Dot com.
Darrin Lampert: Now I will hand, the call over to grow generations co founder and CEO Darren Lampert Darren. Please go ahead.
Darrin Leppert: 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.
Darren Lampert: Thanks, Phil and good afternoon, everyone.
Darren Lampert: And thank you for joining us as we review our first quarter 2025 results.
Darrin Leppert: These forward looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties.
Darren Lampert: Our first quarter results reflect the progress we've been making in transforming <unk> into a leaner more profitable product driven company with a business to business customer focus.
Darrin Leppert: Could cause actual results to differ materially from those described in these forward looking statements.
Darren Lampert: While we had expected to see some top line contraction from our reduced store count.
Darrin Leppert: Please refer to today's press release and other filings with the SEC for a detailed discussion.
Darrin Leppert: The risks that could cause actual results to differ materially from those expressed or implied in any of the forward looking statements made today.
Darren Lampert: Sales in the first quarter tracked lower than our initial expectations, particularly in March.
Darrin Leppert: During the call we use a non-GAAP financial measures as we describe business performance.
Darren Lampert: This was due to softness in durables and consumables demand as a result of regulatory and tariff concerns.
Darrin Leppert: The SEC filings as well as the earnings press release, which provide reconciliations of non-GAAP financial measures.
Darren Lampert: In anticipation of topline contraction from our restructuring efforts, our focus has shifted to improving the quality of our revenue and building a leaner more profitable operation.
Darrin Leppert: The most directly comparable GAAP measures are all available on our website.
Darrin Leppert: Any prepared remarks management will be happy to take your questions. We ask that you. Please limit yourself to one question and one follow up.
Darren Lampert: We are executing a comprehensive plan to rightsize grow Gen four sustainable profitability we.
Darrin Leppert: If you have additional questions. Please reenter the queue and we will take them as time allows.
Darrin Leppert: Now I will hand, the call over to grow generation scope honesty.
Darren Lampert: We are reducing fixed costs.
Darren Lampert: <unk> operations and.
Darren: Darren Please go ahead.
Darren Lampert: And transitioning from a legacy retail footprint to a more agile fulfillment centric model.
Darren: Thanks, Phil.
Darrin Leppert: Good afternoon, everyone.
Darrin Leppert: And thank you for joining us as we review our first quarter 2025 results.
Darren Lampert: Several former stores have now been repurpose into regional just in time fulfillment centers enhancing delivery speed and efficiency for our <unk> customers.
Darrin Leppert: Our first quarter results reflect the progress we've been making in transforming.
Darrin Leppert: Transforming <unk> into a leaner more profitable product driven company with a business to business.
Darren Lampert: One of the key highlights this quarter was the continued momentum of our proprietary brands.
Darren Lampert: Prior Terry product sales accounted for 32% of total revenue up 22, 6% in the prior year.
Darren Lampert: These include our leading brands like drip Hydro <unk> core the harvest company and ion led lighting all designed to serve the needs of professional cultivators.
Darren Lampert: This shifts towards owned brands does not only margin accretive, but also a core pillar of our long term strategy.
Another highlight this quarter was our continued digital transformation of sales in.
Darren Lampert: In Q1, we formally launched the grow Gen probe portal, our digital <unk> platform built for commercial growers greenhouse operators and vertical farms.
Darren Lampert: Following a successful soft launch in customer testing in late 2024.
Darren Lampert: Platform is now fully operational and delivering value to features like real time inventory.
Darren Lampert: Automated quoting and streamline procurement.
Darren Lampert: This quarter represents the future of grow Jen.
Darren Lampert: Digital first product led company focused on serving professional growers at scale.
Darren Lampert: Our goal is to migrate more commercial transactions from brick and mortar onto our <unk> portal, while driving operational efficiencies across our supply chain.
Darren Lampert: Despite the revenue decline in Q1, we grew gross margins to 27, 2% up both year over year and sequentially, reflecting a stronger product mix and disciplined execution on procurement and freight.
Darren Lampert: This is a critical validation of our strategy of increasing proprietary brand adoption and reduce low margin dependency.
Darren Lampert: We ended the quarter was $52 6 million and total liquidity and no debt, providing us with ample flexibility to fund operations.
Darren Lampert: Invest in core initiatives.
Darren Lampert: And pursue tuck in acquisitions aligned with our brand portfolio.
Darren Lampert: Our inventory position of $42 1 million reflect strategic investments in proprietary products ahead of stronger seasonal demand expected in Q2 and Q3.
Darren Lampert: Our <unk> storage solutions segment remained flat year over year.
Darren Lampert: At $4 8 million in revenue, while facing some margin pressure this quarter.
Darren Lampert: While this segment remains an important part of our long term vision, we are actively managing costs and pricing strategies to protect margins and position this segment for future growth.
Darren Lampert: As part of this we've continued to increase our product diversification as we expand into other areas, including the hospitality and Recreation Industries. And example of this is the recent launch of our new mobile golf bags system at Bonita Bay Club.
Darren Lampert: <unk> is the largest member on golf facility.
Darren Lampert: The new system will revolutionize storage operations and drive greater operational efficiency at the clubs existing bag room, which manages over 2800 golf bags daily.
Darren Lampert: Like many in our sector, we experienced volatility in March due to tariff related uncertainty.
Darren Lampert: While the 90 day pause has brought some stability back to purchasing behavior.
Darren Lampert: We remain cautious in our forecasting due to the ongoing macroeconomic climate.
Darren Lampert: We've taken proactive steps to mitigate these impacts, including diversifying sourcing renegotiating vendor contracts.
Darren Lampert: Assessing different supply chain options like using largest stores as fulfillment hubs.
Darren Lampert: In reviewing pricing where necessary.
Darren Lampert: In terms of guidance for the second quarter of 2025.
Darren Lampert: We currently expect revenue in excess of $40 million.
We are actively managing costs and pricing strategies to protect margins and position this segment for future growth.
Darren Lampert: While we are withdrawing full year guidance today because of the current situation with tariffs we remain focused on achieving profitability.
As part of this we've continued to increase our product diversification as we expand into other areas, including the hospitality and Recreation Industries. And example of this is our recent launch of our new mobile golf bags system at Bonita Bay Club Florida's largest member owned golf <unk>.
Darren Lampert: Frozen is evolving from a to just from a traditional retail model to a customer centric <unk> focused business.
Darren Lampert: As part of this shift we're moving away from same store sales as a primary metric and focusing instead on building long term relationships with commercial growers core proprietary brands and digital platform.
<unk>.
The new system will revolutionize storage operations and drive greater operational efficiency at the clubs existing bag room, which manages over 2800 golf bags daily.
Darren Lampert: Our success is now defined by customer engagement product adoption and operational efficiency driven by our streamlined footprint, our regional fulfillment centers and a growing share of digital transactions.
Like many in our sector, we experienced volatility in March due to tariff related uncertainty.
While the 90 day pause has brought some stability back to purchasing behavior.
Darren Lampert: We are also evaluating the closure of an additional 10 stores to further streamline operations and strengthen margin performance.
We remain cautious in our forecasting due to the ongoing macroeconomic climate.
We've taken proactive steps to mitigate these impacts, including diversifying sourcing renegotiating vendor contracts.
Darren Lampert: Our focus is clear.
Darren Lampert: Form grow Gen into a high margin product centric commercial business powered by our digital platform and a simplified physical footprint.
Assessing different supply chain options like using largest stores as fulfillment hubs.
Darren Lampert: With proprietary brands driving value, a leaner store base and a strong liquidity position, we are confident in our ability to return to profitability and create long term shareholder value.
In reviewing pricing where necessary.
In terms of guidance for the second quarter of 2025.
We currently expect revenue in excess of $40 million.
While we are withdrawing full year guidance today because of the current situation with tariffs we remain focused on achieving profitability.
Speaker Change: Thank you and I'll now turn the call over to our CFO, Greg Sanders Greg.
Greg Sanders: Thank you Darren and good afternoon, everyone.
<unk> is evolving from a to just from a traditional retail model to a customer centric <unk> focused business as.
Greg Sanders: Starting with our first quarter results grow generation reported first quarter net revenue of $35 7 million compared to $47 9 million in the year ago period.
As part of this shift we're moving away from same store sales as a primary metric and focusing instead on building long term relationships with commercial growers core proprietary brands and digital platform.
Greg Sanders: Year over year comparison reflects the impact of 19 fewer retail locations.
Greg Sanders: Sector Wise, we continue to see pressure on business to consumer demand, while simultaneously seeing growth in our business to business customer base.
Our success is now defined by customer engagement product adoption and operational efficiency driven by our streamlined footprint, our regional fulfillment centers and a growing share of digital transactions.
Greg Sanders: Net sales in our cultivation and gardening segment were $30 9 million for the first quarter of 2025% compared to $43 1 million for the comparable year ago period.
We are also evaluating the closure of an additional 10 stores to further streamline operations and strengthen margin performance.
Greg Sanders: Proprietary brand sales increased to 32% of cultivation and gardening sales for the first quarter of 2025 compared to 22, 6% for the first quarter of 2024.
Our focus is clear.
Form grow Gen into a high margin product centric commercial business powered by our digital platform and a simplified physical footprint.
Greg Sanders: While first quarter net revenue reported within our previously issued guidance range, our first quarter proprietary brand sales surpassed our internal expectations, giving us further confidence in our long term ability to expand gross margin.
With proprietary brands driving value, a leaner store base and a strong liquidity position, we are confident in our ability to return to profitability and create long term shareholder value.
Greg Sanders: Net sales of commercial fixtures within our storage solutions segment were $4 8 million for the first quarter of 2025, which was flat to the prior year quarter.
Thank you and I'll now turn the call over to our CFO, Greg Sanders Greg.
Greg Sanders: Based on more recent activity, we are anticipating quarter over quarter growth in the second quarter for our storage solutions segment.
Thank you Darren and good afternoon, everyone.
Starting with our first quarter results grow generation reported first quarter net revenue of $35 7 million compared to $47 9 million in the year ago period.
Greg Sanders: Total company gross profit margin was 27, 2% for the first quarter of 2025 compared to 25, 8% for the first quarter of 2020 for a 140 basis point improvement primarily due to an increase in proprietary brand penetration, partially offset by lower installation margin from our store.
Year over year comparison reflects the impact of 19 fewer retail locations.
Sector wide, we continue to see pressure on business to consumer demand, while simultaneously seeing growth in our business to business customer base.
Greg Sanders: <unk> solutions segment.
Greg Sanders: We continued to lower expenses in the first quarter.
Net sales in our cultivation and gardening segment were $30 9 million for the first quarter of 2025% compared to $43 1 million for the comparable year ago period.
Greg Sanders: Sure and other operating expenses declined by approximately 17, 3% to $8 8 million compared to $10 6 million in the first quarter of 2024.
Proprietary brand sales increased to 32% of cultivation and gardening sales for the first quarter of 2025 compared to 22, 6% for the first quarter of 2024.
Greg Sanders: Selling general and administrative expenses for the quarter were $7 1 million compared to $7 9 million in the first quarter of 2024 at 10, 1% improvement.
Greg Sanders: As noted in our non-GAAP footnote, we incurred approximately $1 1 million in restructuring costs in the first quarter, which primarily impacted operating expenses in the period.
First quarter net revenue reported within our previously issued guidance range, our first quarter proprietary brand sales surpassed our internal expectations, giving us further confidence in our long term ability to expand gross margin.
Greg Sanders: We expect to recognize additional cost improvements throughout 2025 and beyond.
Net sales of commercial fixtures within our storage solutions segment were $4 8 million for the first quarter of 2025, which was flat to the prior year quarter.
Greg Sanders: Depreciation and amortization was $3 6 million for the first quarter of 2025 compared to $3 $7 million in the comparable year ago quarter.
Based on more recent activity, we are anticipating quarter over quarter growth in the second quarter for our storage solutions segment.
Greg Sanders: We expect continued expense declines in depreciation and amortization in 2025 compared to 2024.
Total company gross profit margin was 27, 2% for the first quarter of 2025 compared to 25, 8% for the first quarter of 2020 for a 140 basis point improvement primarily due to an increase in proprietary brand penetration, partially offset by lower installation margin from our store.
Greg Sanders: Net loss was $9 4 million in the first quarter of 2025 or a negative <unk> 16 per share compared to a net loss of $8 8 million or negative <unk> 14 per share in the first quarter of 2024 <unk>.
Greg Sanders: Adjusted EBITDA as defined in our press release was negative $4 million compared to a negative $2 9 million in the same period last year.
<unk> solutions segment.
We continued to lower expenses in the first quarter.
Greg Sanders: The decrease in adjusted EBITDA was primarily driven from lower sales volume, partially offset by improvements in gross margin as well as improvements made to our expense structure.
Sure and other operating expenses declined by approximately 17, 3% to $8 8 million compared to $10 6 million in the first quarter of 2024.
Greg Sanders: Now turning to the balance sheet.
As of March 31, 2025, the company had $52 6 million of cash cash equivalents and marketable securities and no debt.
Selling general and administrative expenses for the quarter were $7 1 million compared to $7 9 million in the first quarter of 2024 at 10, 1% improvement as noted in our non-GAAP footnote, we incurred approximately $1 1 million in restructuring costs in the first quarter, which primarily.
Greg Sanders: We continue to maintain a strong cash position and do not foresee any near term financing needs.
Greg Sanders: As Darin mentioned, we're withdrawing full year 2025 guidance due to macroeconomic uncertainty stemming from global trade policy changes along with the potential fluctuations in consumer demand.
Impacted operating expenses in the period.
We expect to recognize additional cost improvements throughout 2025 and beyond.
Greg Sanders: Nevertheless, we are forecasting the second quarter to deliver net revenue greater than $40 million and for both of our reporting segments to generate higher revenue in the second quarter when compared to the first quarter.
Depreciation and amortization was $3 6 million for the first quarter of 2025 compared to $3 $7 million in the comparable year ago quarter.
We expect continued expense declines in depreciation and amortization in 2025 compared to 2024.
Greg Sanders: We plan to revisit our full year guidance once we have greater visibility in the broader economic outlook.
Greg Sanders: Having said that during the first quarter, we continued to make progress in streamlining our operations and restructuring our business for long term profitability just as important we have maintained a strong balance sheet and have the resources and financial flexibility to support our future growth.
Net loss was $9 4 million in the first quarter of 2025 or a negative <unk> 16 per share compared to a net loss of $8 8 million or negative <unk> 14 per share in the first quarter of 2024 adjusted.
Adjusted EBITDA as defined in our press release was negative $4 million compared to a negative $2 9 million in the same period last year.
Darrin Lampert: As we move throughout 2025, we will continue to focus on expanding our margins controlling costs and exploring opportunities to increase our revenue growth and profitability for our shareholders with that I will hand, the call over to Darrin for closing remarks.
The decrease in adjusted EBITDA was primarily driven from lower sales volume, partially offset by improvements in gross margin as well as improvements made to our expense structure.
Now turning to the balance sheet.
As of March 31, 2025, the company had $52 6 million of cash cash equivalents and marketable securities and no debt.
Darrin Lampert: Thanks, Greg and thank you to everyone for joining us today.
Darrin Lampert: Even with the difficult environment, we continued to implement our strategic restructuring plan during the quarter. This.
We continue to maintain a strong cash position and do not foresee any near term financing needs.
Darrin Lampert: This includes the official launch of our online <unk> portal and increasing revenue from our proprietary branded products, which drove further margin improvements in the quarter.
As Darin mentioned, we're withdrawing full year 2025 guidance due to macroeconomic uncertainty stemming from global trade policy changes along with the potential fluctuations in consumer demand.
Darrin Lampert: Simultaneously, we have been improving operating efficiencies and reducing costs throughout our business. We continue to maintain a strong debt free balance sheet and.
Nevertheless, we are forecasting the second quarter to deliver net revenue greater than $40 million and for both of our reporting segments to generate higher revenue in the second quarter when compared to the first quarter.
Darrin Lampert: And given today's environment, we think that's important more now than ever we remain committed.
Darrin Lampert: Committed to executing on our growth plans and look forward to keeping you updated on our progress.
We plan to revisit our full year guidance once we have greater visibility in the broader economic outlook.
Darrin Lampert: That concludes our prepared remarks, operator, please open the line for questions.
Having said that during the first quarter, we continued to make progress in streamlining our operations and restructuring our business for long term profitability just as important we have maintained a strong balance sheet and have the resources and financial flexibility to support our future growth.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone phone you will hear prompt your hand does that range should you wish to decline from the polling process. Please press star followed by the Q.
As we move throughout 2025, we will continue to focus on expanding our margins controlling costs and exploring opportunities to increase our revenue growth and profitability for our shareholders with that I will hand, the call over to Darrin for closing remarks.
If you are using a speaker phone, please with perhaps before pressing any keith.
Speaker Change: One moment. Please for your first question.
Speaker Change: Your first question comes from Mark Smith with Lake Street. Your line is now open.
Thanks, Greg and thank you to everyone for joining us today.
Speaker Change: Hi, guys.
Speaker Change: Wanted to first off.
Even with the difficult environment, we continued to implement our strategic restructuring plan during the quarter. This.
Speaker Change: Just a little bit around around tariffs and proprietary products can you just give any additional insight on how much products, maybe coming out of China versus other <unk>.
This includes the official launch of our online <unk> portal and increasing revenue from our proprietary branded products, which drove further margin improvements in the quarter.
Speaker Change: Entries and then any other steps that you've taken thus far and kind of mitigation process.
Simultaneously, we have been improving operating efficiencies and reducing costs throughout our business. We continue to maintain a strong debt free balance sheet and.
Speaker Change: Yes, I'll take that Mark currently on our proprietary brands less than 10% is coming from China.
Speaker Change: So we're pretty we're in a pretty decent shape right there.
Speaker Change: And our proprietary brand portfolio.
And given today's environment, we think that's important more now than ever we remain committed.
Speaker Change: New products coming in from India chart core brands.
Speaker Change: We're now hopefully switching manufacturing or manufacturing the liquids in the United States and the potash coming out of Mexico. So we're in pretty decent shape. When it comes to our proprietary brands are steps, we continue to negotiate with our vendors.
Committed to executing on our growth plans and look forward to keeping you updated on our progress.
That concludes our prepared remarks, operator, please open the line for questions.
Thank you, ladies and gentlemen will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone phone you will hear prompt your hand does that range should you wish to decline from the polling process. Please press star followed by the Q.
Speaker Change: On pricing we have.
Speaker Change: Starting as we spoke about within our conference call.
Speaker Change: Starting to use more of a hub and spoke model. So products are getting delivered where they do belong and we're using some of our larger stores as storage and <unk>.
If you are using a speaker phone please lift the handset before pressing any keith.
Speaker Change: To fulfill our customers' orders.
One moment. Please for your first question.
Speaker Change: Starting to save some money on shipping and fulfillment.
Your first question comes from Mark Smith with Lake Street. Your line is now open.
Speaker Change: And when necessary. We are encouraged we are increasing pricing.
Hi, guys.
Speaker Change: So it sounds like you have taken some price so far, but theres, maybe and probably more to come on pricing.
Wanted to first off.
Just a little bit around around tariffs and proprietary products can you just give any additional insight on how much products, maybe coming out of China versus other <unk>.
Speaker Change: I would hope so like anything else, it's very new I think there's so much uncertainty right now mark.
Speaker Change: We do have $42 million of inventory sitting sitting on our books right now.
Countries, and then any other steps that you've taken thus far and kind of mitigation process.
Speaker Change: Which do not have tariff issues with that so I think we're waiting we don't want to be the first to raise pricing, but we have raised pricing on certain products.
Yes, I'll take that Mark currently.
On our proprietary brands less than 10% is coming from China.
So we're pretty we're in a pretty decent shape right there within our proprietary brand portfolio.
Speaker Change: But we've kept our most of our products still pretty consistent.
Speaker Change: Okay.
Speaker Change: And then lastly, I just wanted to ask about potential for these 10 closures.
New products coming in from Indeed, our chart core brands drip.
We're now hopefully switching manufacturing or manufacturing the liquids in the United States in the past coming out of Mexico.
Speaker Change: Is this something that you foresee being kind of spread out maybe at the end of lease terms or is this something that maybe you move on more quickly and close these stores sooner.
So we're in pretty decent shape when it comes to our proprietary brands are steps, we continue to negotiate with our vendors.
Speaker Change: We believe more spread out mark.
On pricing.
Speaker Change: I'd say half of them, probably will be with lease terms expiring and just not renewing were.
We are starting as we spoke about in our conference call.
Starting to use more of a hub and spoke model. So products are getting delivered where they do belong and we're using some of our larger stores.
Speaker Change: Starting to see in this industry is the consumers are walking away. Although there is certainly a vibrant commercial.
Speaker Change: Commercial industry right now in the cannabis space and the.
Shortage in.
To fulfill customers orders.
Speaker Change: The harder we look.
Speaker Change: Now is proprietary brand penetration.
Starting to save some money on shipping and fulfillment.
Speaker Change: With vendors on best of breed.
And when necessary. We are encouraged we are increasing pricing.
Speaker Change: Success on getting the best pricing for our customers using the portal as opposed to the stores, we've seen a tremendous drop in.
So it sounds like you have taken some price so far but theres maybe.
Speaker Change: In store traffic, especially in areas that don't have vibrant caregiver laws. So there are certain states that we will always have stores.
And probably more to come on pricing.
I would hope so like anything else, it's very new I think there's so much uncertainty right now more on we do have $42 million of inventory sitting.
Speaker Change: Use stores as distribution centers right now in ups. So you will see growth and continuing to cut stores and getting to a place where where it makes sense for us and then certainly makes sense of the P&L and our shareholders.
On our books right now.
Which do not have tariff issues with that so I think we're waiting we don't want to be the first to raise pricing, but we have raised pricing on certain products.
Speaker Change: But I think the future of grow Jen will be as we said proprietary brand penetration.
But we've kept our most of our products still pretty consistent.
Okay.
Speaker Change: Also just servicing the commercial customers, which just don't come to the stores anymore of those days are over.
And then lastly, I just wanted to ask about potential for these 10 closures.
Speaker Change: Okay. Thank you.
Is this something that you foresee being kind of spread out maybe at the end of lease terms or is this something that maybe you move on more quickly and close these stores sooner.
Speaker Change: Your next question comes from Aaron Grey with Alliance Global Partners. Your line is now open.
Aaron Grey: Good evening. Thank you for the questions first one for me just wanted to keep gone on proprietary brands, but instead think about.
We believe more spread out mark.
I would say half of them, probably will be with lease terms expiring and just not renewing.
<unk> addressable market.
Speaker Change: Are you to outperform.
Starting to see in this industry is the consumers are walking away. Although there is certainly a vibrant commercial.
Speaker Change: Gaining mix so wanted to speak more about the incremental distribution opportunities available in the near term as you look to expand the client base for.
Commercial industry right now in the cannabis space and the.
Speaker Change: For who your products cater to I know, you're talking about putting more in the portal versus the stores, but love to hear more about maybe incremental distribution channels that might be available for your products.
The harder we look.
Right now is proprietary brand penetration.
With vendors on that.
Best of breed products are getting the best pricing for our customers, but using the portal as opposed to the stores, we've seen a tremendous drop in.
Speaker Change: Yes, and I think it's all encompassing one is one is certainly outside of our country. We are working with certain countries right now starting to ship.
In store traffic, especially in areas that don't have vibrant caregiver laws. So there are certain states that we will always have stores, we do use stores as distribution centers right now in ups. So what you will see growth and continuing to cut stores and getting to a place where where it makes sense for us.
Speaker Change: Trip in charcoal outside the country right now it's been a slow process, but certainly starting to gain traction.
Speaker Change: We are working with some of the largest stores around the country and distribution again outside of the <unk> stores we.
Speaker Change: We do have again a growing.
It certainly makes sense of the P&L and our shareholders.
Speaker Change: Growing client tell on that side of it that now distributed around clients. So as you see we're starting to close stores, but.
But I think the future of grow Jen will be as we said proprietary brand penetration.
Speaker Change: Even with our store closure, you suddenly see tremendous penetration.
Also just servicing the commercial customers, which just don't come to the stores anymore of those days are over.
Speaker Change: Right now, yes, terrific. So on a tremendous amount of trials around the country. So as to our core and we have we have new products coming out of <unk> on a monthly basis right. Now. So we do believe that our relationships are strong through distribution other distribution channels and we do believe that there is many countries growers outside.
Okay. Thank you.
Your next question comes from Aaron Grey with Alliance Global Partners. Your line is now open.
Good evening. Thank you for the questions first one for me just wanted to keep gone on proprietary brands, but instead think about.
Speaker Change: Our country that will be using our products in the future.
Total addressable market.
Can you to outperform gain.
Speaker Change: Okay. That's helpful color, there and just in terms of some of the trials that you just alluded to a bigger question given the current challenges in the cannabis environment.
Gaining mix so wanted to speak more about the incremental distribution opportunities that you see available in the near term as you look to expand the client base.
Who your products cater to I know, you're talking about putting more in the portal versus the stores, but love to hear more about maybe incremental distribution channels that might be available for your products. Thanks.
Speaker Change: Because obviously impacted hydroponics can you speak to how you are positioning those proprietary brands in terms of the value proposition that they offer and how you're finding the best success in getting those cultivators and operated to switch over to your products.
Yeah, and I think it is all encompassing one is one is certainly outside of our country. We are working with certain countries right now starting to ship.
Speaker Change: Given there is some stickiness.
Speaker Change: To our brand with Coke batteries won't say final networks. Thanks.
Both trip in charcoal outside the country right now it's been a slow process, but certainly starting to gain traction.
Speaker Change: I think to start with there and we have a tremendously talented commercial team and we.
Speaker Change: We also have facility advisers that growth yet. So we have we have a team that goes into the facilities and works with the facilities on changing changing over our products most of our products go through extensive trials.
We are working with some of the largest stores around the country and distribution.
Outside of the <unk> stores we.
We do have again a growing.
Growing client tell on that side of it that now distributed around clients. So as you see we're starting to close stores, but.
Speaker Change: And some of the biggest facilities around the country right now.
Speaker Change: To the point, where you will see lab results.
Even with our store closure you start we still see tremendous penetration.
Speaker Change: Again, comparing our products to other products, while our products are coming out tremendously favorable and we do have some of the largest msos in singles.
Penetration.
Right now, yes, terrific. So in a tremendous amount of trials around the country so as charcoal.
Speaker Change: Single state operators switching over to <unk> as we speak.
And we have we have new products coming out of growth yet on a monthly basis right. Now. So we do believe that our relationships are strong through distribution other distribution channels and we do believe that there is many countries growers outside our country that will be using our products in the future.
Speaker Change: Both products are.
Speaker Change: Again continuing to.
Speaker Change: Penetrate the markets and gain market share, but I think it's the team at <unk> is very season.
Speaker Change: Again, it's.
Speaker Change: It's into the facilities its trials.
Okay. That's helpful color, there and just in terms of some of the trials that you've just alluded to a bigger question given the current challenges in the candidate environment.
Speaker Change: It takes a long time, there the drip the drip pattern for us over a year ago, and we're starting to see some a lot of trials ending up in purchasing.
Which is obviously impacted hydroponics can you speak to how you are positioning those proprietary brands in terms of the value proposition that they offer and how you're finding the best success in getting those cultivators and operated to switch over to your products.
Speaker Change: Okay. Great. That's helpful color last one for me just touching back on tariffs I know you gave some color on proprietary brands, but just more broadly in terms of the tariff impact can you dig into any potential impacts on the business that youre seeing and how to mitigate those impacts do you feel comfortable with your ability to maybe.
Given there is some stickiness.
To our brand with call it faded and won't say final networks.
I think to start with there and we have a tremendously talented commercial team.
Pass on some pricing to the customer.
No you have removed guidance, but is that going to potentially have more of a margin impact you say, 29% to 31% gross margin in the past. So if you can maybe quantify or maybe speak to how you might be able to absorb a pass on those incremental costs would be helpful.
We also have facility advisers that growth yet. So we have we have a team that goes into the facilities and works with the facilities on changing changing over our products most of our products go through extensive trials.
Speaker Change: Yes, I think in the first quarter and we saw a more margin pressure on the <unk> side of it than we did on the <unk> side of it.
And some of the biggest facilities around the country right now.
To the point, where you will see lab results and again, comparing our products to other products our products are coming out tremendously favorable and we do have some of the largest msos singles'.
Speaker Change: The <unk> margins were consistent with what we've seen in the past, we would've probably no more our margins would have been probably 28 five close to 27%. So we continue to.
Single state operators switching over to Tripp and soccer as we speak.
Speaker Change: <unk> negotiated with vendors or vendors have picked up part of the tariff.
Both products are.
Again continuing to.
Penetrate the markets and gain market share, but I think it's the team at <unk> is very season.
Speaker Change: <unk> hit on us so we are negotiating.
Speaker Change: We are starting to switch around manufacturing.
Again, it's.
It's into the facilities its trials it's Anna.
Speaker Change: In certain areas certain of our products on the distribution side of it we are getting better so cost of distributions starting to come down for growth yet. So I think it is.
It takes a long timer drip drip pattern launched over a year ago, and we're starting to see some a lot of trials ending up in purchasing.
Speaker Change: It's a little piece.
Speaker Change: From each part.
Okay. Great. That's helpful color last one for me just touching back on tariffs I know you give some color on proprietary brands, but just more broadly in terms of the tariff impact can you.
Speaker Change: Okay, great. Thanks, Nicole I'll jump back in the queue.
Ron: Thank you Ron.
Ron: Ladies and gentlemen, as a reminder, should you have a question. Please press star one.
Dig into any potential impacts on the business.
Speaker Change: Your next question comes from Brian Nagel with Oppenheimer. Your line is now open.
Are you seeing and how to mitigate those impacts.
Feel comfortable with your ability to maybe pass on some pricing to the customer or I know you have removed guidance, but is that going to potentially have more of a margin impact you say, 2009% to 31% gross margin in the past. So if you can maybe quantify or maybe speak to how you might be able to absorb a pass on those incremental costs it would be helpful.
Brian Nagel: Hey, guys good afternoon.
Brian Nagel: So what I wanted to ask and I think it's a bit of a follow up the prior two questions, but Darren can you just talk a little bit more about which Steve from a consumer standpoint, we're definitely hearing.
Brian Nagel: Pressures on consumers out there.
Brian Nagel: As particularly as the macro environment weakens to the trade war.
Yes, I think in the first quarter and we saw a more margin pressure on the <unk> side of it and we did on the growth inside of it.
Brian Nagel: It gets going or whatever but is there something.
Brian Nagel: Talk about.
Speaker Change: It sounds like incremental weakness in your consumer you've seen here lately.
The <unk> margins were consistent with what we've seen in the past we would've probably.
Speaker Change: How that's manifesting itself in the drivers behind it.
Our margins would have been probably $28 five close to 27%. So we continue to.
Yes, I think Brian Theres been tremendous weakness within the industry and pricing of candidates over the last few years. So what youre seeing right now I think is a shift towards the whether you want to call. It the illegal growers that have been.
Negotiate with vendors or vendors have picked up part of the tariff.
<unk> hit on us so we are negotiating.
Speaker Change: Around for many years.
We are starting to switch around manufacturing.
Speaker Change: On the outdoor growers, where where the price per pound and down tremendously where just the individual consumer growing are starting to go away.
Certain areas certain of our products on the distribution side of it we are getting better so cost of distributions starting to come down for <unk>. So I think it is.
Speaker Change: I think on the business to business side of it.
Speaker Change: It's still strong, but what youre seeing on the business to business side of it is.
It's a little piece.
From each pad.
Speaker Change: The companies are managing their balance sheets.
Okay, great. Thanks for the color there I'll jump back in the queue.
Speaker Change: As they also are taking a long term outlook in this industry.
Thank you Ron.
Ladies and gentlemen, as a reminder, should you have a question. Please press star one.
Speaker Change: Hoping for $2 80, and certainly some changes in the regulatory side of it. So we're starting to see pushback on capital bills, we arent having issues on that.
Your next question comes from Brian Nagel with Oppenheimer. Your line is now open.
Hey, guys good afternoon.
Speaker Change: The consumable side of it it's more of the durable side of it.
But I wanted to ask and I think it's a bit of a follow up.
Speaker Change: That certainly is dropping but the consumable side is the higher margin side of it is the size that is stickier side of it where our customers are using our products when they come back in on a weekly monthly basis. So that's why we have confidence in what we're doing right. Now is we're starting to cut costs again.
Two questions, but Darren can you just talk a little bit more about which sees from a consumer standpoint, we're definitely hearing.
Broadly pressures on consumers out there.
Particularly as the macro environment weekends of the trade war.
It's going or whatever but is there something.
You just talked about.
Speaker Change: We thought that we got there a year ago, but unfortunately the industry has.
It sounds like incremental weakness in your consumer you've seen here lately.
Speaker Change: Not strengthened as of yet.
How that's manifesting itself in the drivers behind it.
Speaker Change: Starting to see just a lack of consumer.
Yes, I think Brian Theres been tremendous weakness within the industry and pricing of candidates over the last few years. So what you're seeing right now I think is a shift towards the whether you want to call. It the illegal growers that have been around for many years.
Speaker Change: <unk> penetration, they're not shopping anymore. So when we take a hard look at the portfolio prices rent goes up every every year cost of employees go up every year, we're taking a hard look I think every every piece of grow generate now and what we're starting to see is with the portal penetration rate now individuals shopping on the port.
The outdoor growers, where where the price per pound is down tremendously where just the individual consumer growing are starting to go away I think on the business to business side of it.
Speaker Change: We've moved over 500 of our customers over the portal and it's gaining traction on a weekly basis and we can service the same customers without the expense of the stores.
It's still strong, but what youre seeing on the business to business side of it is.
Speaker Change: So there is a there are certain areas that we need are stores, where there is still are 50 50 customers coming in every day, but there are certain stores, where you're seeing a 5% to 10 customers and more drop ships.
<unk> companies are managing their balance sheets.
As they also are taking a long term outlook in this industry.
Hopefully for $2 80, and certainly some changes in regulatory side of it. So we're starting to see pushback on capital bills.
Speaker Change: And you don't need the stores for drops since we did that out of our warehouses.
Speaker Change: That's helpful.
Arent, having issues on the <unk>.
The consumable side of it it's more of the durable side of it.
Speaker Change: I just want to touch on the balance sheet a bit.
Speaker Change: So it seems like your cash position relative to size. Your business is actually quite substantial but are you I guess equivalent asked the question is.
That certainly is dropping but the consumable side is the higher margin side of it is decide that its the stickier side of it where our customers are using our products and they come back in on a weekly monthly basis. So that's why we have confidence in what we're doing right now.
Speaker Change: As youre going through this continued transformation.
Speaker Change: How would you view the cap the capital position of the business I mean is there a baseline amount of capital you want to keep on the balance sheet just to run the business.
Starting to cut costs again.
Speaker Change: And I don't think I don't think we look at it that way right now Brian I think the one way we do look at it that this industry is going to be around for for many years to come.
We thought that we got there a year ago, but unfortunately the industry.
Has not strengthened as of yet we are just starting to see just a lack of consumer.
Speaker Change: Its almost its taken when you look back at coming out of.
<unk> penetration, they're not shopping anymore. So when we take a hard look at the portfolio prices rent goes up every every year cost of employees go up every year, we're taking a hard look I think every every piece of grow generate now and what we're starting to see is with the portal penetration right now individuals' shopping on the pool.
Speaker Change: The one spirits industry.
Speaker Change: And we're only 11 years 11 years in right now 2014 was.
Speaker Change: With Colorado's legalization of cannabis so the one thing for US right now we just don't know what legislation why worldwide, where the industry is going so we believe keeping keeping capital on our balance sheet is important right now but on the other side of that we are actively looking for acquisitions for <unk>.
We've moved over 500 of our customers over the portal and it's gaining traction on a weekly basis that we can service the same customers without the expense of the stores.
So there is there are certain areas that we need are stores, where there is still are 50 50 customers coming in every day, but there are certain stores, where you're seeing a 5% to 10 customers and more drop ships.
Speaker Change: Product acquisitions distribution acquisitions, and also acquisitions in lawn and garden.
Speaker Change: And hopefully we'll have some share with you guys in the next six months or so maybe sooner, but we are looking at companies on a daily basis.
And you don't need the stores for drop ships, we do that out of our warehouses.
Speaker Change: If it's accretive to our shareholders and to our company. We have certainly the back office staff to handle.
That's helpful.
I just want to touch on the balance sheet a bit.
Speaker Change: Probably another $50 million to $100 million worth of business right now so we're in a really great spot when it comes to that so we are looking and hopefully we'll have something to share with you guys.
So it seems like your cash position relative size of your business is actually quite substantial but are you I guess equivalent asked the question is.
As youre going through this continued transformation.
Speaker Change: In the near future.
How would you view the cap the capital position of the business.
Speaker Change: Thanks, I appreciate all the color.
They're a baseline amount of capital you want to keep on the balance sheet just to run the business.
Speaker Change: Thank you Brian there are no further questions at this time I will now turn the call over to Darrin for closing remarks.
I don't think I don't think we look at it that way right now Brian I think the one way we do look at it that this industry is going to be around for for many years to come.
Speaker Change: Thank you for joining us today for our first quarter earnings call. We look forward to updating you on our progress on our second quarter call in August.
Its almost its taken when you look back at coming out of.
Speaker Change: Beautiful day, thank you.
The one spirits industry.
Speaker Change: Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.
Sure.
We're only 11 years, we're 11 years and right now in 2014 was.
With Colorado's legalization of cannabis so the one thing for US right now we just don't know what legislation why lives where the industry is going so we believe keeping keeping capital on our balance sheet is important right now but on the other side of that we are actively looking for acquisitions for <unk>.
<unk> acquisitions distribution acquisitions, and also acquisitions more on guard.
Hopefully, we'll have some some to share with you guys in the next six months or so maybe sooner, but we are looking at companies on a daily basis.
If it's accretive to our shareholders and to our company. We have certainly the back office staff to handle.
Probably another $50 million to $100 million worth of business right now so we're in a really great spot when it comes to that so we are looking and hopefully we'll have something to share with you guys.
In the near future.
Thanks, I appreciate all the color.
Thank you Brian.
There are no further questions at this time I will now turn the call over to Darin for closing remarks.
Thank you for joining us today for our first quarter earnings call. We look forward to updating you on our progress on our second quarter call in August have a beautiful day. Thank you.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.
Oh.
Yes.
Okay.
Okay.
Okay.
Okay.
Sure.
Okay.
Yes.
Okay.
Okay.
Unknown Speaker: Unknown Speaker Your next question comes from Brian Nagel with Oppenheimer. Your line is now open. Thank you guys. Good luck to you. But I want to ask, and I think it's a bit of a follow-up to maybe the prior two questions, but Darren, if you could just talk a little bit more about, you know, what you've seen from a consumer standpoint. I mean, you know, we're definitely hearing broadly, you know, pressures on consumers out there, you know, as particularly as the, you know, the macro environment weakens or the trade war gets going, whatever. But, you know, is there something, just talk about what sounds like incremental weakness in your consumer you've seen here lately, you know, how that's manifesting itself and the drivers behind it?
. . . . . . . . . . . . . . . . . .
Darren Lampert: Yeah, I think, Brian, there's been tremendous weakness, you know, within the industry and pricing of cannabis, you know, over the last few years. So what you're seeing right now, I think, is a shift towards the, whether you want to call it the illegal growers, you know, that have been around for many years, the outdoor growers, where the price per pound is down tremendously, or just the individual consumer growing are starting to go away. You know, I think on the business to business side of it, you know, it's still strong, but what you're seeing on the business to business side of it is.
Unknown Speaker, Unknown Speaker, Unknown Speaker, Unknown Speaker,
Darren Lampert: The companies are managing their balance sheets as they also are, you know, taking a long-term outlook in this industry, you know, hoping for 280E and certainly some changes in the regulatory side of it. So we're starting to see pushbacks on capital bills. We aren't having issues on the consumable side of it. It's more the durable side of it that's, you know, that certainly is dropping. But the consumable side is the higher margin side of it. It's the side that it's the stickier side of it where our customers are using our products and they come back, you know, on a weekly, monthly basis.
Darren Lampert: So, you know, that's where we have confidence. And what we're doing right now is we're starting to cut costs again. You know, we thought that we got there a year ago, but unfortunately the industry, you know, has not strengthened as of yet. And, you know, we're just starting to see just a lack of consumer penetration. They're not shopping.
Darren Lampert: So, when we take a hard look at the portfolio, you know, prices, rent goes up every year, cost of employees go up every year, we're taking a hard look, I think, at every piece of GrowGen right now, and what we're starting to see is, with the portal penetration right now, individuals shopping on the portals, we've moved over 500 of our customers over the portal, and it's gaining traction on a weekly basis, that we can service the same customers without the expense of the stores. So, there is certain areas that we need our stores where there still are, you know, 50 customers coming in every day, but there are certain stores where you're seeing, you know, 5 to 10 customers, and, you know, more dropships, you know, and you don't need the stores for dropships, we do that out of our warehouse.
Brian Nagel: And just want to touch on the balance sheet a bit. I mean, you know, It seems like your cash position relative to the size of your business is actually quite substantial. But I guess the way I want to ask the question is, as you're going through this continued transformation, you know, how do you view the capital position of the business?
Darren Lampert: Is there a baseline amount of capital you want to keep on the balance sheet just to run the I don't I don't think I don't think we look at it that way right now, Brian, I think the one way we do look at it, that this industry is going to be around for, you know, for many years to come. It's almost, you know, it's taken when you look back at coming out of, you know, the one spirit industry. And, you know, we're only 11 years, you know, we're 11 years in right now, 2014 was, you know, was with Colorado's legalization of cannabis.
Darren Lampert: So the one thing for us right now, you know, we just don't know the legislation, why, why is where the industry is going. So we believe, you know, keeping capital on our balance sheet is important right now.
Darren Lampert: But on the other side of that, you know, we are actively looking for acquisitions for product acquisitions, distribution acquisitions, and also acquisitions in Mullen and Garden. And hopefully we'll have some, you know, some to share with you guys in the next six months or so, maybe sooner. But we are looking at, you know, companies on a daily basis. And if it's accretive to our shareholders and to our company, you know, we have certainly the back office staff to handle, you know, probably another 50 to $100 million worth of business right now. So, you know, we're in a really great spot when it comes to that.
Darren Lampert: So we are looking and hopefully we'll have something to share with you guys, you know, in the near future.
Unknown Speaker: Thanks, appreciate all the color. Thank you, Brian.
Unknown Speaker: There are no further questions at this time.
Darren Lampert: I will now turn the call over to Darren for closing remarks. Thank you for joining us today for our first quarter earnings call.
Darren Lampert: We look forward to updating you on our progress on our second quarter call in August. Have a beautiful day. Thank you.
Unknown Speaker: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line.