Q2 2025 GrowGeneration Corp Earnings Call
Speaker #3: Hello, Yone. And welcome to the GrowGeneration Second Quarter 2025 Earnings Conference Call. My name is John, and I will be your operator for today's call.
Speaker #3: At this time, participants are in a listen-only mode. Following prepared remarks, we will open the call to questions from analysts, with instructions to be given at that time.
Speaker #3: This conference call is being recorded and a replay of today's call will be available on the Investor Relations section of GrowGeneration's website. I will now hand the call over to Phil Carlson, with KCSA, for introductions and reading of the Safe Harbor Statement.
Speaker #3: Please go ahead.
Speaker #4: Thank you and welcome, everyone, to GrowGeneration Second Quarter 2025 Earnings Results Conference call. With us today are Darren Lampert, co-founder and chief executive officer, and Gregory Sanders, chief financial officer of GrowGeneration.
Speaker #4: The company's second quarter 2025 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 #4: I 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 #4: These 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 different materially from those described in these forward-looking statements.
Speaker #4: 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 #4: 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 site.
Speaker #4: Following prepared marks, management will be happy to take our 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 #4: Now, I will hand the call over to GrowGeneration's co-founder and CEO, Darren Lampert. Darren, please go head.
Speaker #5: Thanks, Phil. And good afternoon, everyone. And thank you for joining us as we review our second quarter 2025 results. In the second quarter, we continued executing on our strategic plan, to transform GrowGeneration into a leaner, more profitable, product-driven business with a strong focus on business-to-business customers.
Speaker #5: The results are beginning to show. With sequential improvements for revenue, gross margin, and operating expenses, we've also continued investing in high-growth initiatives such as building our B2B e-commerce platform and expanding our proprietary brand portfolio.
Speaker #5: These efforts are essential to our long-term vision of sustainable, profitable growth. We are fortunate because we have a solid foundation to build on. As GrowGeneration remains one of the largest hydroponic suppliers in the States, our mission is clear: to deliver the best selection, service, and solutions to cultivators, retailers, and garden centers.
Speaker #5: First, let's look at the second quarter. Our Q2 net revenue came in at approximately $41 million, which was an improvement of $1 million to our second quarter guidance.
Speaker #5: This performance underscores the resiliency of our commercial and B2B-focused business. However, our focus is not only on growing revenue, but also improving the quality of it.
Speaker #5: That includes increasing our proportion of higher-margin proprietary brand sales. In the second quarter, proprietary product sales accounted for nearly 32% of total revenue, up from 21.5% in the same period last year.
Speaker #5: This increase shows the growing strength of our proprietary brands including Charcot, Drip Hydro, The Harvest Company, Ion LED Lighting, and most recently, Viagra. This improved product mix combined with enhanced procurement discipline contributed to gross margins expanding to $28.3% in the second quarter, compared to $26.9%.
Speaker #5: For the same period in 2024, complementing this, we've continued our shift to a more flexible, fulfillment-centric model. During the quarter, store and other operating expenses decreased 23%, and SG&A was reduced by 13.4%.
Speaker #5: Reflecting our disciplined cost execution and progress toward our sustainable profitability, we continued executing our infrastructure right-sizing plan during the second quarter. In subsequent weeks, we closed two stores in the second quarter and two additional stores so far in the third quarter.
Speaker #5: This brings our current total retail locations to 27. In addition, we are in process of closing another two stores which will bring our store count to 25 by the end of the third quarter.
Speaker #5: In line with our broader strategy, to consolidate and streamline operations. Another key initiative is our ongoing digital transformation of sales. In April, we formally launched our digital B2B platform, the GrowGen Pro Portal.
Speaker #5: This e-commerce portal continues to gain traction with commercial customers and has already shown tremendous adoption by our wholesale customers well beyond our original expectations.
Speaker #5: Our goal remains to migrate more commercial transactions from brick-and-mortar onto our B2B portal as we continue to improve operational efficiencies across our supply chains.
Speaker #5: As I mentioned earlier, we've taken other steps to increase our growth prospects. One of these is our recent expansion into the home gardening market.
Speaker #5: Through our acquisition of Viagra, a domestic brand with distribution across retailers such as Amazon, The Home Depot, Walmart, Lowe's, and Tractor Supply, this transaction strengthens our proprietary portfolio and provides a scalable platform to serve home gardeners and hobbyists.
Speaker #5: Cultivators across national retail channels. We continue to expand internationally in the second quarter, in June, we signed a distribution agreement with V1 Solutions, to support commercial sales across the European Union.
Speaker #5: We also launched our proprietary product line in Costa Rica, where the government has issued more than 50 hemp and cannabis licenses over the past year.
Speaker #5: Positioning us in one of Central America's most promising cultivation markets. These new markets allow us to scale with minimal capital investments, by leveraging strategic distribution partnerships to grow our brand presence.
Speaker #5: In our MMI store solution segment, we posted $8.1 million in revenue for the quarter, up over $69% sequentially. This growth was fueled by increasing product diversification including our mobile luggage solution, that we debuted in partnership with the Waldorf Astoria.
Speaker #5: We are pleased with MMI's performance and expect it to remain a strong revenue contributor through the remainder of the year. Beyond our operating results and other achievements, we've continued to maintain a strong balance sheet.
Speaker #5: We ended the second quarter with $48.7 million in cash, cash equivalents and marketable securities, and no debt. This gives us the flexibility to support working capital inventory investments, and opportunistic growth initiatives.
Speaker #5: In terms of guidance for the third quarter of 2025, we currently expect revenue in excess of $41 million. While we are not providing full year 2025 guidance at this time due to the ongoing tariff uncertainty, we remain focused on gross margin expansion, EBITDA profitability, and execution of our transformational plan.
Speaker #5: Before I turn the call over to Greg to review our financial results, I want to briefly talk about our recent development related to cannabis reform that we've been watching closely.
Speaker #5: This is a confirmation of Terrence's call as administrator of the DEA, Cole was appointed by President Trump. Could play a pivotal role in the potential rescheduling of cannabis from Schedule 1 to Schedule 3.
Speaker #5: While this does not directly affect GrowGen today, we believe any regulatory shift would be a net positive to the entire cultivation ecosystem. Thank you, and I will return the call over to our CFO, Greg Sanders, Greg?
Speaker #6: Thank you, Darren. And good afternoon, everyone. Starting with our second quarter 2025 results, GrowGeneration reported net revenue of $41 million, exceeding our guidance of $40 million, and compared to $53.5 million in the same period last year.
Speaker #6: The year-over-year comparison reflects our smaller retail footprint, consistent with our restructuring plan, alongside ongoing softness in business-to-consumer demand, which was partially offset by growth in our business-to-business customer base.
Speaker #6: Net sales in ur cultivation and gardening segment were $32.9 million for the second quarter of 2025, compared to $46.1 million for the comparable year-ago period.
Speaker #6: Proprietary brand sales increased to 32% of cultivation and gardening revenue for the second quarter of 2025, up from 21.5% in the second quarter of 2024. This increase exceeded our expectations and reinforces our ability to drive long-term gross margin expansion through higher private label penetration.
Speaker #6: In our store solution segment, net sales of commercial fixtures reached $8.1 million, compared to $4.8 million in Q1 of 2025 and $7.4 million in Q2 of 2024.
Speaker #6: Both sequential and year-over-year growth reflect strong demand across product lines. While our core focus remains on the retail and agricultural markets, we're encouraged by the momentum in this segment.
Speaker #6: In the second quarter, we showcased our diversification strategy through new partnerships in hospitality and country club development, as highlighted in our recent press release.
Speaker #6: Total company gross profit margin was 28.3% for the second quarter of 2025, compared to 26.9% for the second quarter of 2024. The improvement was primarily due to higher private label penetration, partially offset by pricing compression on third-party vendor products.
Speaker #6: On the expense side, store and other operating expenses declined approximately 23% year-over-year to $7.9 million, compared to $10.2 million in the second quarter of 2024.
Speaker #6: Selling general and administrative expenses for the quarter were $6.2 million, compared to $7.1 million in the second quarter of 2024, a 13.4% improvement. As noted in our non-GAAP footnote, we also incurred approximately half a million dollars in corporate reorganization and consolidation costs in the quarter, we expect additional cost savings to be realized in the second half of 2025.
Speaker #6: Depreciation and amortization was $2.7 million, down from $3.6 million in Q2 of 2024, and is expected to remain stable for the remainder of the year.
Speaker #6: Net loss was $4.8 million in the second quarter of 2025, or negative $0.08 per share, an improvement compared to a net loss of $5.9 million, or negative $0.10 per share in the second quarter of 2024.
Speaker #6: Adjusted EBITDA, as defined in our press release, was negative 1.3 million, compared to negative 1.1 million in the same period last year. The decrease in adjusted EBITDA was primarily driven by lower sales volume, partially offset by gross margin percentage improvements, as well as reductions in our operating costs.
Speaker #6: Encouragingly, adjusted EBITDA improved by 2.7 million on a quarter-over-quarter basis, primarily due to progress made in our expense structure. Now, turning to the balance sheet, we ended the quarter with $48.7 million, of cash, cash equivalents, and marketable securities, and no debt.
Speaker #6: We purchased $1 million in cash during the quarter for the purchase of Viagra and an undercapitalized lawn and garden business that has the potential for an attractive return on invested capital period.
Speaker #6: We continue to maintain a strong cash position and do not anticipate any near-term financing needs. As Darren mentioned, we are expecting sequential top-line growth in the third quarter, but are not issuing full year 2025 guidance, given uncertainties in both global trade policy and cannabis reform, and the downstream potential variability in consumer demand.
Speaker #6: In summary, during the second quarter, we continue to rationalize our operations and execute our strategy to drive increased profitability, as reflected in both our sequential and year-over-year improvements in gross profit margin and operating expenses.
Speaker #6: With a strong balance sheet and no debt, we remain focused on disciplined execution, margin expansion, and identifying revenue opportunities to drive long-term shareholder value.
Speaker #6: With that, I will hand the call over to Darren for closing remarks.
Speaker #7: Thanks, Greg. And thank you, everyone, for joining us today. In the second quarter, we continued to execute our business plan to position GrowGen for increased profitability and long-term revenue growth.
Speaker #7: We've increased our proprietary brand sales, launched our online B2B portal, streamlined our operations, and reduced costs across our entire enterprise. Combined with the recent growth in our MMI store solution segment, the acquisition of Viagra, and our expansion abroad, we have multiple growth levers across our business.
Speaker #7: To support our future growth, we continue to preserve cash and remain debt-free, which we think is extremely important in today's environment. We will keep implementing our growth plans and look forward to providing you with more updates as we continue to execute.
Speaker #7: That concludes our prepared remarks. Operator, please open the line for questions.
Speaker #3: Thank you. Ladies and gentlemen, we now begin the question and answer session. Should you a question, please press star followed by the one on your touchstone phone.
Speaker #3: You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two.
Speaker #3: If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from the line of Aaron Gray from Alliance Global Partners.
Speaker #3: Your line is now open.
Speaker #8: Hi, good evening, and thank you for the questions. First one for me, I just wanted to talk a little bit about the Viagra acquisition and the broader opportunity there.
Speaker #8: and the gardening space. So, are you seeing that acquisition, you know, more so of dipping your toe into the category and kind of feeling how things go?
Speaker #8: Do you feel like there's more robust near-term opportunity for you ys to, you ow, dig your, you know, dig your et deeper into that type of category?
Speaker #8: I know you guys have been talking about it for some time. You know, I saw the acquisition in June, so I just wanted to get some more color in terms of why you felt like this was the right acquisition and what you feel like the opportunities are more broadly for that category over the near to medium term.
Speaker #8: Thank you.
Speaker #7: Yeah, and I ink that there's tremendous opportunity within the lawn and garden space, and we have been speaking about it for few years. You know, Viagra brings some incredible relationships to GrowGen.
Speaker #7: on the big box side of it. and also brings some tremendous products that we believe have crossover into the cannabis space. And we certainly believe that a bunch of our products have crossover into lawn and garden.
Speaker #7: So I think it was a really, you know, again, it was an effective acquisition in a lot of ways. It was an undercapitalized company that was built over the last 10 years, that came with very little inventory and very little operational expenses.
Speaker #7: We've ready shut down their warehouses and, and molded them into our warehouses. And, we're in the midst of building up, building up inventory and, you know, relabeling certain of their products and, bringing their, bringing our marketing in.
Speaker #7: But we do believe that you'll see tremendous growth out of the Viagra acquisition next year. You know, right now, it's certainly moving slowly as we build, we build our relationships, and we also, build up inventory to go into the lawn and garden markets.
Speaker #8: I appreciate that color. Second question for me: on the gross margin, I saw some nice improvement, you know, sequentially there and year-over-year. Last quarter, we did talk about some of the tariff risk.
Speaker #8: You guys mentioned more exposure to Mexico and India versus China. So if you could just walk through maybe how we should think about the gross margin.
Speaker #8: I know you're not giving guidance now, but as we think about the different dynamics of tariffs and also the sales mix that you have, how best to think about the gross margin going forward?
Speaker #8: Thank you.
Speaker #7: Yeah, Aaron. Thanks for the question. We are still aiming as a company to get into the 30% range, as a total reportable company. In the second quarter, we saw some amount of impact, probably in the tune of half a percent in terms of import surcharge tariffs that came into play after that April 2nd announcement.
Speaker #7: but I can tell you we are continuously monitoring and adapting to changes right now in the global trade environment, particularly in India, as, you know, news was, was updated last week.
Speaker #7: And we'll, ou know, tariffs introduced additional cost pressures into the business. We've implemented a handful of strategic measures to mitigate their impact. And to maintain competitive pricing, where the industry still needs it.
Speaker #7: you know, first, we diversified our sourcing strategy across the board and are continuing to through that. we're working closely with our suppliers to optimize costs and explore alternative manufacturing options where feasible.
Speaker #7: additionally, we're leveraging our scale and purchasing power to egotiate better terms and, and minimize cost increases across the board. nextly, we've enhanced our supply chain efficiency by optimizing logistics and fulfillment strategies.
Speaker #7: Ensuring we reduce unnecessary costs and roving operational margins, where possible. Part of, part of the benefit of the closure of stores that we've been engaged in over the past, you know, couple of years, we did two in the second quarter.
Speaker #7: We announced two more in third already. As it helps lower our costs that perspective as well. And then lastly, while tariffs present challenges, you know, we remain well-positioned due to our strong supplier relationships.
Speaker #7: Our, our vertically integrated approach and our ability to adapt are continuing to evaluate all opportunities to offset costs where possible, particularly in India right now.
Speaker #7: and ensuring that we remain a leader in providing high-quality products at competitive prices for the long term.
Speaker #8: Okay, great. Really appreciate that color. I'll go ahead and jump to the queue.
Speaker #3: Your next question comes from the line of Mark Smith from Lake Street. Your line is now open.
Speaker #9: Hi, uys. I wanted to just hit on some of the expense, reductions. Really solid, you ow, improvements. Quarter to quarter here, but curious kind of, you know, where you are in the plan today.
Speaker #9: You know, are you mostly done? Is there still some more cuts that you think can be made, would love kind any insights that you can give .
Speaker #7: Hey, Mark. thanks for the question. We are continuing to cut costs, and we will on back half of the year. we brought our store and other operating expense down below $8 million, which was in line with the goals that we've ussed historically.
Speaker #7: SG&A was down closer to $6 million. As of the second quarter, you know, quite frankly, we were down year-over-year in terms of total expense, in the neighborhood of, of $4 million plus.
Speaker #7: We think there are additional improvements that you'll see in the third and fourth quarters of this year, both on the SG&A side of our business, as well as store operating expenses, as we continue to rationalize our footprint.
Speaker #7: so hopefully that helps.
Speaker #8: Yeah, absolutely. Next question for me is really just on industry outlook. Darren, you called out some of the recent reporting around kind of reclassification and rescheduling.
Speaker #8: You're, are you seeing any signs out there of kind capital investments in the industry, or is it still kind of, wait-and-see approach, do you think, for most in the industry?
Speaker #7: Yeah, I think right now you saw guidance even for the third quarter, you know, $41 million plus. And that's with Six Flags stores ending the third quarter.
Speaker #7: And, you know, if we feel pretty confident with that number, pretty confident we will beat that number. We are, we have probably seen right now the largest backlog that we've seen in three years on the durable side of it.
Speaker #7: That's lighting the humidification, benching, and related products. So we, we do, we are seeing, you know, certain of our clients jumping back in, starting to refurbish their portfolio.
Speaker #7: You know, looking at some older equipment and bringing in new equipment, we are also seeing a bunch of new builds around the country right now.
Speaker #7: In fact, on the East Coast, in Minnesota, something the new state's coming on. But we're pretty excited that, you know, that we're ing to see that durable side of our business, starting to pick up a notch.
Speaker #7: And again, as I said, our backlog is as big as it has been in a long time. We are seeing tremendous adoption of our private label brands.
Speaker #7: On the consumable side of it, both on the Charcot, and Drip Hydro side of it. and we do believe that, you ow, Viagra will start contributing, I would imagine, fourth quarter, first quarter next year.
Speaker #7: but we are, you know, we are seeing sales, you know, coming Viagra. But we are, you know, refurbishing, you know, some of their portfolio also, rebranding certain of the products.
Speaker #7: So, you know, it's a wait-and-see on that. But we do see money coming back into the industry.
Speaker #8: Excellent. Thank you.
Speaker #3: Your next question comes from the line of Brian Eagle from Oppenheimer. Your line is now open.
Speaker #10: Hey, guys. Good afternoon.
Speaker #7: Good afternoon, Brian.
Speaker #10: So, the question— I guess a bigger picture question, Darren. So, you know, we know we've been talking, you know, for, I guess, several quarters, or at least a few quarters about, you know, the real significant repositioning of the business.
Speaker #10: You know, away from retail, more to commercial. How, the question I want to ask is, you know, how long will this take? You know, how, the repositioning?
Speaker #10: I mean, recognizing it's, you know, it's obviously an ongoing process. But, you know, as you're looking at it with your now, are there, is there a bit more of a clearer timetable so that from the perspective, and then what type of investments?
Speaker #10: I mean, you know, we talked about an acquisition today, but what other types of investments will need to be undertaken in order to, so to say, reposition the company fully?
Speaker #7: You know, believe it or , I think we have most of what we need internally right now. You know, we continue to bring new products to market on a, on a, on a, on a weekly, monthly basis.
Speaker #7: and we do believe that you'll see our private label portfolio into the 40% range next year. and with, with the acquisition of Viagra, you're going to see a whole new opportunity opening for GrowGen.
Speaker #7: And as I spoke about a little earlier, you know, we are, we are entering the European market right now, and also Latin America. So there's a lot of leverage right that, you ow, that, that, that certainly have tremendous upside to it right now.
Speaker #7: And as Greg discussed a little earlier, we're bringing down expenses, and we're bringing them down pretty quickly. I think you'll e, you know, probably, you know, by, by the end of the fourth quarter, you know, a tremendous amount of savings that we're going to realize over the next, you know, four months of the year.
Speaker #7: So there's a lot going on right . We are always oking at tucking acquisitions on the product side of it. But we do believe, you know, GrowGen right now, you know, has the ability to start growing again.
Speaker #7: That we, you know, certainly have the portfolio of products, you know, within GrowGen that are high-margin products. And with the durable business coming back, and, you know, even with MMI, that, you know, we believe this company will be profitable with what we have in-house right now.
Speaker #7: And we'll start growing and growing nicely.
Speaker #10: And it's helpful. And then, h, second question, and I think it's a follow-up to just the prior question, but, ou know, is it, are you, are you saying that you are starting to see some solidification in demand, particularly in the durable side?
Speaker #7: We definitely are. Our backlog has not been as large since 2021, so we are starting to sign up deals. We have deposits in-house.
Speaker #7: And, you know, we have lights coming in from China. So we have a new product coming out under canopy lighting right now, under the Dialed In brand, that we believe is going to be a tremendous, tremendous winner on Wall Street.
Speaker #7: We believe that it's going to yield to our customers. You know, we test products for months before they come out. And again, we have some new products coming out under the Drip name.
Speaker #7: You know, this month, that have gone through registration. We're registration process is quite timely. so, you know, it's, but the products are coming out.
Speaker #7: And I do believe, as I said a little earlier, that you'll see our private label division, you know, end this year somewhere in that 35% mark. But I do believe you'll see it in the 40s next year, which will start increasing margins and getting this company profitable.
Speaker #7: Profitable and sustainable, itability on a go-forward basis.
Speaker #10: And just, so in the, the, the, this improved demand or solidification of demand, do you think that's more, is it more internal to what GrowGen is doing, or is it, is there more of a, more a kind of an industry dynamic out there?
Speaker #7: It's an industry that there's an industry dynamic. But, you know, the cut, the customer is certainly have their choice where they shop, and a lot of them are our ustomers.
Speaker #7: We represent the largest customers in the industry right . And as the industry goes, you know, from whether, whether you want to call it the illegal market to the legal market, you know, and there is, there will be certainly consolidation within the industry.
Speaker #7: You know, our, our ustomers will be the ones consolidating the industry. So we believe our business will grow with that.
Speaker #10: Very helpful. I appreciate it. Thanks.
Speaker #7: Thank you, Brian.
Speaker #3: There are no further questions at this time. I will now turn the call over to Darren. Please go head.
Speaker #4: I want to thank our shareholders for their continued support. And I look forward to providing you with more updates. As we continue to execute.
Speaker #4: Thank you, and have a beautiful day.