What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-08 compared with 2023-05-09 · 96 added, 44 removed, 78 unchanged (64% of the section changed)

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Forward looking statements, particularly those identified with the words, “anticipates,” “believes,” “expects,” “plans,” “intends,” “objectives,” and similar expressions, are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change.

These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on our behalf.

These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf.

We disclaim any obligation to update forward looking statements, except as required by law.

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GrowGeneration also provides facility design services to commercial growers.

As of March 31, 2023, we employed approximately 445 employees, a majority of them have been branded by us as “Grow Pros”, and our operations span over 952,000 square feet of retail and warehouse space.

As of June 30, 2023, we employed approximately 481 employees, a majority of whom have been branded by us as “Grow Pros”, and our operations span over 953,000 square feet of retail and warehouse space.

Markets and Business Segments

GrowGeneration sells thousands of products, including nutrients, growing media, advanced indoor and greenhouse lighting, environmental control systems, vertical benching and accessories for hydroponic gardening, as well as other indoor and outdoor growing products, that are designed and intended for growing a wide range of plants.

Our target customer segments include the commercial growers in the plant-based medicine market, the craft grower, and vertical and urban farmers who grow organic herbs, fruits, and vegetables.

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The structure reflects the manner in which the chief operating decision maker regularly assesses information for decision-making purposes, including the allocation of resources.

We recognize specifically identifiable operating costs such as cost of sales, distribution expenses, selling and general administrative expenses within each segment.

We recognize specifically identifiable operating costs such as cost of sales, distribution expenses, and selling and general administrative expenses within each segment.

Certain general and administrative expenses, such as administrative and management expenses, salaries and benefits, share based compensation, director fees, legal expenses, accounting and consulting expenses, and technology costs, are not allocated to the specific segments and are reflected in the enterprise results.

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by management's estimates, and our pricing, inventory and product availability, and overall customer service provide us the ability to compete in our industry.

In addition, as we continue to increase the scope of our operations, including both retail and distribution, we expect to continue to purchase inventory at lower volume prices, which we expect will enable us to price competitively and deliver the products that our customers are seeking.

In addition, as we continue to increase the scope of our operations, including both retail and distribution, we expect to be able to continue to purchase inventory at lower volume prices, which we expect will enable us to price competitively and deliver the products that our customers are seeking.

The Company competes by delivering a one-stop shopping experience that includes the widest selection of hydroponics products, end-to-end solutions for all types of cultivation environments, in-store sales and product support, direct manufacturer pricing, and industry-leading expertise and customer service.

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Core to our growth strategy is to expand the number of our retail garden centers in the U.S., especially in markets where we do not already have a physical presence or where our existing physical presence is limited.

During the first quarter of 2023, the Company acquired 1 new location in Michigan.

During the first six months of 2023, the Company acquired 5 new locations and expanded into two new states.

Our plan is to continue to acquire, open, and operate garden centers.

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R ESULTS OF OPERATIONS

Comparison of the three months ended March 31, 2023 and 2022

Net sales for the three months ended March 31, 2023 was approximately $56.8 million, compared to $81.8 million for the three months ended March 31, 2022, a decrease of approximately $24.9 million or 31%.

Comparison of the three months ended June 30, 2023 and 2022

Net sales for the three months ended June 30, 2023 was approximately $63.9 million, compared to $71.1 million for the three months ended June 30, 2022, a decrease of approximately $7.2 million or 10.1%.

The decrease was primarily attributed to a decrease of approximately $7.9 million related to same store sales, which represented an approximate 15.1% decrease year over year.

Overall sales in our retail segment declined from $64.3 million for the three months ended March 31, 2022, to $39.4 million for the same period in 2023.

Distributed sales increased to $14.2 million for the three months ended March 31, 2023 compared to $12.2 million for the three months ended March 31, 2022.

E-commerce sales decreased from $5.3 million for the three months ended March 31, 2022, to $3.3 million for the same period in 2023.

Overall sales in our retail segment declined from $55.4 million for the three months ended June 30, 2022 to $46.9 million for the same period in 2023.

Distributed sales increased to $13.3 million for the three months ended June 30, 2023, compared to $12.0 million for the three months ended June 30, 2022.

E-commerce sales were relatively flat from $3.7 million for the three months ended June 30, 2022, to $3.7 million for the same period in 2023.

Cost of Sales

Cost of sales for the three months ended March 31, 2023 was approximately $40.5 million, compared to approximately $59.6 million for the three months ended March 31, 2022, a decrease of approximately $19.1 million or 32%.

The decrease in cost of sales was primarily due to the 31% decrease in sales comparing the three months ended March 31, 2023 to the three months ended March 31, 2022.

Gross profit was approximately $16.3 million for the three months ended March 31, 2023, compared to approximately $22.1 million for the three months ended March 31, 2022, a decrease of approximately $5.9 million or 26%.

The decrease in gross profit is primarily related to the 31% decrease in net sales comparing the three months ended March 31, 2023 to the three months ended March 31, 2022.

Gross profit as a percentage of net sales was 28.7% for the three months ended March 31, 2023, compared to 27.1% for the three months ended March 31, 2022.

Gross profit in our retail segment declined from $15.5 million for the three months ended March 31, 2022, to $10.7 million for the same period in 2023.

Gross profit from distributed sales decreased to $4.7 million for the three months ended March 31, 2023 compared to $4.9 million for the three months ended March 31, 2022.

Gross profit from our e-commerce segment was $0.9 million for the three months ended March 31, 2023 compared to $1.7 million for the three months ended March 31, 2022.

Cost of sales for the three months ended June 30, 2023 was approximately $46.8 million, compared to approximately $50.9 million for the three months ended June 30, 2022, a decrease of approximately $4.1 million or 8.0%.

The decrease in cost of sales was primarily due to the 10.1% decrease in sales comparing the three months ended June 30, 2023 to the three months ended June 30, 2022.

Gross profit was approximately $17.1 million for the three months ended June 30, 2023, compared to approximately $20.2 million for the three months ended June 30, 2022, a decrease of approximately $3.1 million or 15.3%.

The decrease in gross profit is primarily related to the 10.1% decrease in net sales comparing the three months ended June 30, 2023 to the three months ended June 30, 2022.

Gross profit as a percentage of net sales was 26.8% for the three months ended June 30, 2023, compared to 28.5% for the three months ended June 30, 2022.

Gross profit in our retail segment declined from $15.6 million for the three months ended June 30, 2022, to $11.5 million for the same period in 2023.

Gross profit from distributed sales increased to $4.8 million for the three months ended June 30, 2023, compared to $3.9 million for the three months ended June 30, 2022.

Gross profit from our e-commerce segment was $0.8 million for the three months ended June 30, 2023, compared to $0.7 million for the three months ended June 30, 2022.

Operating Expenses

Operating expenses are comprised of store operations, selling, general, and administrative, and depreciation and amortization.

Operating costs were approximately $24.1 million for the three months ended March 31, 2023 and approximately $29.4 million for the three months ended March 31, 2022, an decrease of approximately $5.3 million or 18%.

The decrease in operating expenses is primarily attributable to payroll reductions and cost controls over a broad range of categories.

Store operating costs were approximately $13.0 million for the three months ended March 31, 2023, compared to $14.5 million for the three months ended March 31, 2022, an decrease of $1.6 million or 11%.

Operating costs were approximately $23.7 million for the three months ended June 30, 2023 and approximately $157.0 million for the three months ended June 30, 2022, a decrease of approximately $133.3 million or 85%.

The decrease in operating expenses is primarily attributable the impairment loss of $127.8 million recorded during the three months ended June 30, 2022.

Store operating costs were approximately $12.3 million for the three months ended June 30, 2023, compared to $13.8 million for the three months ended June 30, 2022, a decrease of $1.5 million or 11%.

The decrease in store operating costs was directly attributable to payroll reductions and expense savings recognized from store consolidations.

Total corporate overhead, which is comprised of Selling, general, and administrative expense and Depreciation and amortization expense, was approximately $11.1 million for the three months ended March 31, 2023, compared to $14.8 million for the three months ended March 31, 2022, an decrease of $3.7 million or 25%.

Selling, general, and administrative costs were approximately $6.8 million for the three months ended March 31, 2023, compared to approximately $9.6 million for the three months ended March 31, 2022.

Salaries expense decreased to $3.5 million for the three months ended March 31, 2023, from $5.2 million for the same period in 2022.

General administrative expenses decreased to $3.2 million for the three months ended March 31, 2023, from $3.6 million for the same period in 2022.

Total corporate overhead, which is comprised of selling, general, and administrative expense and depreciation and amortization expense, was approximately $11.4 million for the three months ended June 30, 2023, compared to $15.4 million for the three months ended June 30, 2022, a decrease of $4.0 million or 26%.

Selling, general, and administrative costs were approximately $7.5 million for the three months ended June 30, 2023, compared to approximately $9.8 million for the three months ended June 30, 2022.

Salaries expense decreased to $3.4 million for the three months ended June 30, 2023, from $5.4 million for the same period in 2022.

General and administrative expenses decreased to $3.2 million for the three months ended June 30, 2023, from $4.1 million for the same period in 2022.

Other Income/Expense

Total other income was approximately $1.6 million for the three months ended March 31, 2023, compared to expense of $0.4 million for the three months ended March 31, 2022.

Total other income was approximately $1.0 million for the three months ended June 30, 2023, compared to expense of $0.1 million for the three months ended June 30, 2022.

This increase is primarily attributable to interest income driven from capital investments.

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Operating loss in our retail segment dropped from $107.1 million to an operating loss of $6.5 million.

The operating loss for our e-commerce segment declined from $0.4 million for the three months ended March 31, 2022 to a loss of $0.5 million for the same period in 2023.

Operating income in the distribution and other segment other decreased to a loss of $0.2 million in the three months ended March 31, 2023 compared to income of $0.4 million in the three months ended March 31, 2022.

Income tax benefit was $0.0 million for the three months ended March 31, 2023, compared to income tax expense of $1.6 million for the three months ended March 31, 2022.

Effective tax rate is impacted by differences in timing of expenses for share-based compensation, depreciation, amortization and the impact of 162(m) on deductible wages.

As such, the Company’s taxable income varies from reported income in a material way.

The operating loss for our e-commerce segment decreased from $8.6 million for the three months ended June 30, 2022 to a loss of $0.4 million for the same period in 2023.

Operating income in the distribution and other segment other increases to a loss of $0.4 million in the three months ended June 30, 2023, compared to a loss of of $21.1 million in the three months ended June 30, 2022.

Income tax benefit was $0.1 million for the three months ended June 30, 2023, compared to income tax expense of $0.3 million for the three months ended June 30, 2022.

The effective tax rate for the six months ended June 30, 2023 is lower than the U.S.

federal statutory rate of 21.0%, which is also primarily due to the Company recording a valuation allowance against deferred tax assets.

The Company has evaluated positive and negative evidence and has concluded that its deferred tax assets are not expected to be realizable and has recorded a valuation allowance in the current period.

Net loss for the three months ended March 31, 2023 was approximately $6.1 million, compared to net income of approximately $5.2 million for the three months ended March 31, 2022, a decrease of approximately $1.0 million.

Net loss for the three months ended June 30, 2023 was approximately $5.7 million, compared to net loss of approximately $136.4 million for the three months ended June 30, 2022, an increase of approximately $130.7 million.

Comparison of the six months ended June 30, 2023 and 2022

Net sales for the six months ended June 30, 2023 was approximately $120.8 million, compared to $152.9 million for the six months ended June 30, 2022, a decrease of approximately $32.1 million or 21%.

The decrease was primarily attributed to a decrease of approximately $29.7 million related to same store sales, which represented an approximate 26.5% decrease year over year.

Overall sales in our retail segment declined from $119.7 million for the six months ended June 30, 2022, to $86.3 million for the same period in 2023.

Distributed sales increased to $27.4 million for the six months ended June 30, 2023 compared to $24.2 million for the six months ended June 30, 2022.

E-commerce sales decreased from $9.0 million for the six months ended June 30, 2022, to $7.0 million for the same period in 2023.

Cost of Sales

Cost of sales for the six months ended June 30, 2023 was approximately $87.3 million, compared to approximately $110.5 million for the six months ended June 30, 2022, a decrease of approximately $23.2 million or 21%.

The decrease in cost of sales was primarily due to the 21% decrease in sales comparing the six months ended June 30, 2023 to the six months ended June 30, 2022.

Gross profit was approximately $33.4 million for the six months ended June 30, 2023, compared to approximately $42.4 million for the six months ended June 30, 2022, a decrease of approximately $8.9 million or 21%.

The decrease in gross profit is primarily related to the 21% decrease in net sales comparing the six months ended June 30, 2023 to the six months ended June 30, 2022.

Gross profit as a percentage of net sales was 27.7% for the six months ended June 30, 2023, compared to 27.7% for the six months ended June 30, 2022.

Gross profit in our retail segment declined from $31.1 million for the six months ended June 30, 2022, to $22.3 million for the same period in 2023.

Gross profit from distributed sales increased to $9.5 million for the six months ended June 30, 2023, compared to $8.8 million for the six months ended June 30, 2022.

Gross profit from our e-commerce segment was $1.7 million for the six months ended June 30, 2023, compared to $2.5 million for the six months ended June 30, 2022.

Operating Expenses

Operating expenses are comprised of store operations, selling, general, and administrative, and depreciation and amortization.

Operating costs were approximately $47.8 million for the six months ended June 30, 2023 and approximately $186.4 million for the six months ended June 30, 2022, a decrease of approximately $138.6 million or 74%.

The decrease in operating expenses is primarily attributable to a $127.8 million impairment loss recognized in the prior year.

Store operating costs were approximately $25.2 million for the six months ended June 30, 2023, compared to $28.3 million for the six months ended June 30, 2022, a decrease of $3.1 million or 11%.

The decrease in store operating costs was directly attributable to payroll reductions and expense savings recognized from store consolidations.

Total corporate overhead, which is comprised of selling, general, and administrative expense and depreciation and amortization expense, was approximately $22.5 million for the six months ended June 30, 2023, compared to $30.3 million for the six months ended June 30, 2022, a decrease of $7.7 million or 26%.

Selling, general, and administrative costs were approximately $14.3 million for the six months ended June 30, 2023, compared to approximately $19.4 million for the six months ended June 30, 2022.

Salaries expense decreased to $6.9 million for the six months ended June 30, 2023, from $10.6 million for the same period in 2022.

General and administrative expenses decreased to $6.4 million for the six months ended June 30, 2023, from $7.7 million for the same period in 2022.

Other Income/Expense

Total other income was approximately $2.6 million for the six months ended June 30, 2023, compared to expense of $0.5 million for the six months ended June 30, 2022.

This increase is primarily attributable to income generated from capital investments.

Segment Operating Income

Operating loss in our retail segment decreased from $114.3 million to an operating loss of $13.6 million.

The operating loss for our e-commerce segment decreased from $9.0 million for the six months ended June 30, 2022 to a loss of $0.9 million for the same period in 2023.

Operating income in the distribution and other segment decreased to income of $0.2 million in the six months ended June 30, 2023, compared to income of $20.7 million in the six months ended June 30, 2022.

Income tax expense was $0.1 million for the six months ended June 30, 2023, compared to income tax benefit of $1.9 million for the six months ended June 30, 2022.

The effective tax rate for the six months ended June 30, 2023 is lower than the U.S.

federal statutory rate of 21.0%, which is also primarily due to the Company recording a valuation allowance against deferred tax assets.

The Company has evaluated positive and negative evidence and has concluded that its deferred tax assets are not expected to be realizable and has recorded a valuation allowance in the current period.

Net loss for the six months ended June 30, 2023 was approximately $11.8 million, compared to net loss of approximately $141.6 million for the six months ended June 30, 2022, an increase of approximately $129.7 million.

Operating Activities

Net cash provided by operating activities for three months ended March 31, 2023 was approximately $3.5 million compared to $2.2 million used for the three months ended March 31, 2022.

Net cash provided by operating activities for the six months ended June 30, 2023 was approximately $7.4 million, compared to $1.6 million used for the six months ended June 30, 2022.

The Company continued to decrease inventory and improve on receivable collection, partially offset by reductions to customer deposits and payroll and payroll tax liabilities.

Net cash provided by investing activities was approximately $19.3 million for the three months ended March 31, 2023, compared to cash used of approximately $9.5 million for the three months ended March 31, 2022.

Investing activities in 2023 were primarily attributable to the maturity of marketable securities of $33.5 million partially offset by vehicle and store equipment purchases of $3.5 million.

Investing activities for the three months ended March 31, 2022 were primarily related to maturities of marketable securities of $20.8 million, partially offset by store acquisitions of $6.8 million and the purchase of vehicles and store equipment to support new store operations of $4.5 million.

Net cash used in financing activities for the three months ended March 31, 2023 was approximately $0.1 million and was primarily attributable to common stock withheld for employee payroll taxes.

Net cash used by financing activities for three months ended March 31, 2022 was $1.4 million and was primarily attributable to stock withheld to cover payroll taxes.

Net cash used by investing activities was approximately $17.6 million for the six months ended June 30, 2023, compared to cash provided by investing activities of approximately $14.2 million for the six months ended June 30, 2022.

Investing activities in 2023 were primarily attributable to investment of excess cash into marketable securities of $51.7 million, partially offset by maturity of marketable securities of $42.6 million.

The Company also had vehicle and store equipment purchases of $5.5 million and business acquisitions of $3.2 million.

Investing activities for the six months ended June 30, 2022 were primarily related to maturities of marketable securities of $29.8 million, partially offset by store acquisitions of $6.8 million and the purchase of vehicles and store equipment to support new store operations of $8.8 million.

Net cash used in financing activities for the six months ended June 30, 2023 was approximately $0.2 million and was primarily attributable to common stock withheld for employee payroll taxes.

Net cash used by financing activities for the six months ended June 30, 2022 was $1.5 million and was primarily attributable to stock withheld to cover payroll taxes.

Use of Non-GAAP Financial Information

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The Company uses these non-GAAP measures for internal planning and reporting purposes.

These non-GAAP measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP measures used by other companies.

These non-GAAP measures are not in accordance with, or an alternative for, U.S.

GAAP and may be different from non-GAAP measures used by other companies.

The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income or net income per share prepared in accordance with generally accepted accounting principles.

Set forth below is a reconciliation of Adjusted EBITDA to net income (loss):

Three Months Ended

Three Months Ended June 30,

Net income (loss) $ (5,699) $ (136,379)

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Adjusted EBITDA per share, diluted $ 0.01 $ (0.05)

Six Months Ended

Net income (loss) $ (11,833) $ (141,556)

Income taxes 93 (1,919)

Interest income — (47)

Interest expense 5 13

Depreciation, and amortization 7,756 9,289

EBITDA $ (3,979) $ (134,220)

Impairment loss — 127,831

Share based compensation (option compensation, warrant compensation, stock issued for services) 1,514 2,689

Restructuring charges 1,498 —

Fixed asset disposal 21 (84)

Adjusted EBITDA $ (946) $ (3,784)

Adjusted EBITDA per share, basic $ (0.02) $ (0.06)

Adjusted EBITDA per share, diluted $ (0.02) $ (0.06)

Liquidity and Capital Resources

As of March 31, 2023, we had working capital of approximately $130.7 million, compared to working capital of approximately $134.9 million as of December 31, 2022, a decrease of approximately $4.2 million.

The decrease in working capital from December 31, 2022 to March 31, 2023 was due primarily to a decrease in Accounts Receivable, net, Inventory, and Income taxes receivable partially offset by an increase in current liabilities.

At March 31, 2023, we had cash and cash equivalents of approximately $62.7 million.

As of June 30, 2023, we had working capital of approximately $126.2 million, compared to working capital of approximately $134.9 million as of December 31, 2022, a decrease of approximately $8.7 million.

The decrease in working capital from December 31, 2022 to June 30, 2023 was due primarily to a decrease in accounts receivable and income taxes receivable, partially offset by an increase in current liabilities.

At June 30, 2023, we had cash and cash equivalents of approximately $29.6 million.

Currently, we have no extraordinary demands, commitments or uncertainties that would reduce our current working capital.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis