GrowGeneration Corp. 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and related notes that appear elsewhere in this report as well as our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on March 13, 2024. We caution readers that this Quarterly Report of GrowGeneration Corp. on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to risks and uncertainties. Forward-looking statements generally can be identified through the use of words such as “guidance,” “outlook,” “projected,” “may,” “likely,” “anticipates,” “believes,” “expects,” “estimates,” “plans,” “intends,” “objectives,” and similar expressions. These statements reflect management’s best judgment based on factors known at the time of such statements. Actual events or results may differ materially from those discussed herein. The forward-looking statements contained in this report have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements. The assumptions used for purposes of the forward-looking statements contained in this report represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements, except as required by federal securities laws. There may be additional risks, uncertainties, and other factors that we do not currently view as material or that are not necessarily known. OVERVIEW GrowGeneration Corp. (together with all of its direct and indirect wholly owned subsidiaries, collectively "GrowGeneration" or the "Company") was incorporated in Colorado in 2014. Since then, GrowGeneration has grown from a small chain of specialty retail hydroponic and organic garden centers to a multifaceted business with diverse assets. Today, GrowGeneration operates two major lines of business: its Cultivation and Gardening segment, composed of the Company's hydroponic and organic gardening business; and its Storage Solutions segment, composed of the Company's benching, racking, and storage solutions business. MARKETS AND BUSINESS SEGMENTS During the fourth quarter of 2023, we realigned our operating and reportable segments to correspond with changes to our operating model, management structure, and internal reporting and to better align with how the chief operating decision maker makes operating decisions, allocates resources, and assesses performance. Accordingly, we identified two operating segments, each its own reportable segment, based on our major lines of business: the Cultivation and Gardening segment and the Storage Solutions segment. Comparative prior period disclosures have been recast to conform to the current segment presentation. We recognize specifically identifiable operating costs such as cost of sales, distribution expenses, and store operations and other operational expenses within each segment. Selling, 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 specific segments and are reflected in the enterprise results. Cultivation and Gardening Segment We are a leading developer, marketer, retailer, and distributor of products for both indoor and outdoor hydroponic and organic gardening. Our main business strategy within the hydroponic and organic gardening sector has been to consolidate assets within the fragmented hydroponics industry to leverage efficiencies of a centralized organization. We sell a variety of hydroponic and organic gardening related products, including nutrients, additives, growing media, lighting, environmental control systems, and other products for indoor and outdoor cultivation. Our products include proprietary brands such as Charcoir, Drip Hydro, Power Si, Ion lights, The Harvest Company, and more, the development and expansion of which are a key component of the Company's growth strategy. Our target customers include commercial and craft growers, as well as home growers, in the plant-based medicine market, and commercial and home gardeners who grow organic herbs, fruits, and vegetables. Additionally, through our brand HRG Distribution, we distribute many of our products, including our proprietary 17 products, to customers that are wholesalers, resellers, and retailers in the specialty retail hydroponic and organic gardening industry. We make our products available to growers through a variety of channels, including hydroponic retail locations, a commercial sales teams serving commercial cultivators, an online platform for cultivators at growgeneration.com, and a wholesale business, HRG Distribution, that markets to resellers in both the hydroponic and traditional gardening markets. Management believes that the Company has the largest chain of specialty retail hydroponic and organic garden centers in the U.S., with 43 retail locations across 18 states as of June 30, 2024. Storage Solutions Segment Our Storage Solutions business, branded as "Mobile Media" or "MMI," provides customized storage solutions designed to enhance profitability, productivity, and efficiency for our customers by allowing them to save space and increase storage capacity. We cater to diverse markets with our products and services, including agriculture, retail, warehousing, office and administrative, food service, hospitality, golf and country clubs, and more. Our products include high-density mobile storage systems, static shelving, and other accessories such as desks, lockers, safes, and secured storage, offering a solution for every storage need. MMI also offers a wide variety of services, including site surveys, floor plan designs, capacity analysis, seismic calculations, permitting, and installation, in order to provide a comprehensive, turnkey solution for customers. Based in the Hudson Valley, New York, the MMI team has decades of experience successfully completing projects throughout the U.S., Canada, and Mexico. Our target customers generally include small, mid-size, and large businesses seeking vertical space-saving solutions that are custom tailored to their space and brand in an effort to maximize storage capacity or gain space in their real estate footprint. Many of our customers are involved in the construction and design industries and include retailers, general contractors, and architects involved in new constructions and remodels for retail stores and fulfillment centers. Our customer base also includes the golf industry, specifically country clubs needing to store more club bags and optimize their existing space, as well as controlled environment agriculture (CEA) operators that cultivate indoors with vertical or rolling benching and racking. Growth Strategy and Strategic Restructuring Plan GrowGeneration's main growth strategy has been to consolidate assets within the fragmented hydroponics industry to leverage efficiencies of a centralized organization. As a result, we have built a business that is driven by a wide selection of products, a strong portfolio of proprietary brands, a solutions-driven staff located in strategic markets around the country, and pick, pack, ship distribution and fulfillment capabilities. Since its founding in 2014, GrowGeneration has acquired or opened numerous specialty hydroponic and organic gardening center locations. Management believes that the Company has the largest chain of specialty retail hydroponic and organic garden centers in the U.S., with 43 retail locations across 18 states as of June 30, 2024. GrowGeneration has also acquired several other types of businesses within or complimentary to the hydroponic industry, such as online retailers, proprietary products, our distribution business, HRG, and our benching, racking, and storage solutions business, MMI. The Company regularly seeks and evaluates accretive acquisition opportunities with similar or complimentary businesses to those businesses it already operates. In July 2024, we announced a strategic restructuring plan focused on long-term profitability and advancing growth initiatives in key areas of our Gardening and Cultivation segment such as our proprietary brands, commercial sales, and e-commerce business. These restructuring plans primarily include reductions in cost structure by closing and consolidating twelve redundant or underperforming retail locations, in addition to the seven retail locations closed in the first half of 2024, workforce reductions, and other operational improvements in inventory management, sales and marketing, and administrative activities. We expect that these restructuring activities will be substantially completed by the end of fiscal year 2024 and will improve gross profit margin and profitability and generate annualized cost savings of approximately $12.0 million. We are currently unable to make a good faith determination of an estimate or range of estimates of the total expected restructuring and restructuring related costs. The Company's main growth strategies for its Storage Solutions segment include expanding the types of customers and industries to which it sells its products, including greater penetration in agriculture and golf and country clubs. In March 2024, the Company announced it had engaged Lake Street Capital to advise and assist in exploring strategic opportunities for its benching, racking, and storage solutions business. 18 COMPONENTS OF RESULTS OF OPERATIONS Net Sales We primarily generate net sales from the selling and distribution of proprietary and non-proprietary brand hydroponic and organic gardening products. I n addition to our hydroponic and organic gardening product sales, we sell and install commercial fixtures through our benching, racking, and storage solutions business . Net sales reflect the amount of consideration that we expect to receive, which is derived from a list price reduced by variable consideration, including applicable sales discounts and estimated expected sales returns. These sales vary by the type of product: consumables, such as nutrients, additives, growing media, and supplies that are subject to regular replenishment; and durables, such as lighting, environmental control systems, and storage solutions. Generally, in new markets where legalization of plant-based medicines is recent and licensors are starting new grow operations, there is an initial increase of durable product purchases for facility build-outs, which decrease over time as growers establish their operations. Thereafter, we tend to observe cultivators focus their purchasing patterns to consumables as the primary source of product need. In more mature markets, the sales patterns tend to favor higher percentages of consumable purchasing in comparison to emerging markets. We assess the organic growth of our Cultivation and Gardening segment net sales on a same-store basis. We believe that our assessment on a same-store basis represents an important indicator of comparative financial results and provides relevant information to assess our performance. New and acquired stores become eligible for inclusion in the comparable store base if the store has been under our ownership for the entire period in the same-store base periods for which we are including the store. Closed stores become ineligible for inclusion in the comparable store base in the month in which operations cease. Cost of Sales Cost of sales includes cost of goods and shipping costs. Cost of goods consists of cost of merchandise, inbound freight, and other inventory-related costs, such as shrinkage costs and lower of cost or market adjustments. Occupancy expenses of our retail locations and distribution centers, which consist of payroll, rent, and other lease required costs, including common area maintenance and utilities, are included as a component of operating expenses within Store operations and other operational expenses in the Condensed Consolidated Statements of Operations. Gross Profit We calculate gross profit as net sales less cost of sales. Gross profit excludes depreciation and amortization, which are presented separately as a component of operating expenses in the Condensed Consolidated Statements of Operations. Our gross profit as a percentage of net sales, or gross profit margin, varies with our product mix, in particular the percentage of sales of proprietary brand products compared to non-proprietary brand products and of consumable products compared to durable products. Proprietary products typically have higher gross margins compared to non-proprietary products, and consumable products typically have higher gross margins compared to durable products. Operating Expenses Operating expenses are comprised of the following components: store operations and other operational expenses; selling, general, and administrative; estimated credit losses; depreciation and amortization; and impairment losses. Store operations and other operational expenses consist primarily of payroll, rent and utilities, and allocated corporate overhead costs. Selling, general, and administrative expenses consist of corporate salaries, stock-based compensation, advertising and promotions, travel and entertainment, professional fees, insurance, and other corporate administrative costs. Selling, general, and administrative expenses as a percentage of net sales typically does not increase commensurate with an increase in net sales. Our largest expenses are generally related to employee compensation and leases, which are primarily fixed and not variable. Our advertising and marketing expenses are largely controllable and variable depending on the particular market. 19 R ESULTS OF OPERATIONS Comparison of the Unaudited Results for the Three Months Ended June 30, 2024 and 2023 The following table presents, for the periods indicated, selected information from our unaudited Condensed Consolidated financial results, including information presented as a percentage of net sales: Three Months Ended June 30, 2024 2023 Year-to-Year Variance Net sales $ 53,536 100.0 % $ 63,925 100.0 % $ (10,389) (16.3) % Cost of sales 39,115 73.1 % 46,788 73.2 % (7,673) (16.4) % Gross profit 14,421 26.9 % 17,137 26.8 % (2,716) (15.8) % Operating expenses 20,935 39.1 % 23,442 36.7 % (2,507) (10.7) % Loss from operations (6,514) (12.2) % (6,305) (9.9) % (209) (3.3) % Other income 713 1.3 % 699 1.1 % 14 2.0 % Net loss before taxes (5,801) (10.8) % (5,606) (8.8) % (195) (3.5) % Provision for income taxes (95) (0.2) % (93) (0.1) % (2) (2.2) % Net loss $ (5,896) (11.0) % $ (5,699) (8.9) % $ (197) (3.5) % Net Sales Net sales for the three months ended June 30, 2024 were $53.5 million, a decrease of $10.4 million or 16.3% as compared to net sales of $63.9 million for the three months ended June 30, 2023. The decrease in net sales was primarily related to our Cultivation and Gardening segment, which had net sales of $46.1 million for the three months ended June 30, 2024 compared to $55.6 million for the three months ended June 30, 2023. This decrease in net sales was primarily due to the fiscal 2023 consolidation of twelve retail locations after June 30, 2023 as well as the seven retail locations closed in the first half of 2024. Same-store sales decreased approximately 6.2%, primarily attributable to decreased e-commerce and brick-and-mortar retail sales volume declines. Proprietary brand sales as a percentage of Cultivation and Gardening net sales for the three months ended June 30, 2024 increased to 21.5% as compared to 16.7% for the three months ended June 30, 2023, largely driven by our strategic initiatives to increase sales volume with our expanded portfolio of proprietary brands and various proprietary product launches. The percentage of Cultivation and Gardening net sales related to consumable products for the three months ended June 30, 2024 was 73.0%, which was an increase from 69.7% for the three months ended June 30, 2023. The increase in consumable sales as a percentage of net sales was driven mainly by increased brand adoption of proprietary growing media and nutrient products. Additionally, net sales of commercial fixtures within our Storage Solutions segment decreased to $7.4 million for the three months ended June 30, 2024 compared to $8.4 million for the three months ended June 30, 2023. Cost of Sales Cost of sales for the three months ended June 30, 2024 was $39.1 million, a decrease of $7.7 million or 16.4% compared to $46.8 million for the three months ended June 30, 2023. The decrease in cost of sales was primarily due to the 16.3% decrease in sales, as previously discussed, partially offset by reduced inventory discounts from vendors in the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Gross Profit Gross profit was $14.4 million for the three months ended June 30, 2024 compared to $17.1 million for the three months ended June 30, 2023, a decrease of $2.7 million or 15.8%. The decrease in gross profit is primarily related to the Gardening and Cultivation segment, which decreased $2.4 million, or 18.0%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, largely as a result of the decrease in sales volume due to store consolidations as previously discussed. Additionally, gross profit from our Storage Solutions segment decreased $0.3 million, or 8.3%, in the three months ended June 30, 2024 compared to the three months ended June 30, 2023. 20 Gross profit margin increased slightly at 26.9% for the three months ended June 30, 2024 compared to 26.8% for the three months ended June 30, 2023. Gross margin improved for the Storage Solutions segment to 46.9% in the three months ended June 30, 2024 from 45.4% in three months ended June 30, 2023, which was offset by a decrease in Cultivation and Gardening gross profit margin to 23.7% for the three months ended June 30, 2024 from 24.0% for the three months ended June 30, 2023, primarily due to continued industry pricing compression on distributed products. Operating Expenses Operating expenses are comprised of store operations and other operational expenses, selling, general, and administrative, estimated credit losses, and depreciation and amortization. Operating expenses were $20.9 million for the three months ended June 30, 2024 and $23.4 million in the three months ended June 30, 2023, a decrease of $2.5 million or 10.7%. Store operating costs and other operational expenses, which consisted primarily of payroll, rent and utilities, and allocated corporate overhead costs, were $10.2 million for the three months ended June 30, 2024, compared to $12.0 million for the three months ended June 30, 2023, a decrease of $1.8 million or 15.0%. The decrease in store operating costs was primarily due to the fiscal 2023 consolidation of twelve retail locations after June 30, 2023 as well as the seven retail locations closed in the first half of 2024. Total corporate overhead, which is comprised of selling, general, and administrative expense, estimated credit losses, and depreciation and amortization expense, was $10.7 million for three months ended June 30, 2024 compared to $11.4 million for the three months ended June 30, 2023, a decrease of $0.7 million or 6.2%. Selling, general, and administrative costs decreased by $0.4 million or 5.3% for the three months ended June 30, 2024 primarily as a result of decreased professional fees and corporate expenses and decreased share-based compensation. The remaining decrease was primarily driven by a $0.2 million decrease in depreciation and amortization expense in the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Other Income (Expense) Other income (expense) remained flat at approximately $0.7 million for each of the three months ended June 30, 2024 and June 30, 2023. Comparison of the Unaudited Results for the Six Months Ended June 30, 2024 and 2023 Six Months Ended June 30, 2024 2023 Year-to-Year Variance Net sales $ 101,424 100.0 % $ 120,752 100.0 % $ (19,328) (16.0) % Cost of sales 74,639 73.6 % 87,326 72.3 % (12,687) (14.5) % Gross profit 26,785 26.4 % 33,426 27.7 % (6,641) (19.9) % Operating expenses 42,731 42.1 % 47,151 39.0 % (4,420) (9.4) % Loss from operations (15,946) (15.7) % (13,725) (11.4) % (2,221) (16.2) % Other income 1,306 1.3 % 1,985 1.6 % (679) (34.2) % Net loss before taxes (14,640) (14.4) % (11,740) (9.7) % (2,900) (24.7) % Provision for income taxes (93) (0.1) % (93) (0.1) % — — % Net loss $ (14,733) (14.5) % $ (11,833) (9.8) % $ (2,900) (24.5) % Net Sales Net sales for the six months ended June 30, 2024 were $101.4 million, a decrease of $19.3 million or 16.0% as compared to net sales of $120.8 million for the six months ended June 30, 2023. The decrease in net sales was primarily related to our Cultivation and Gardening segment, which had net sales of $89.2 million for the six months ended June 30, 2024 compared to $104.7 million for the six months ended June 30, 2023. This decrease in net sales was primarily due to the fiscal 2023 consolidation of twelve retail locations after June 30, 2023 as well as the seven retail locations closed in the first half of 2024. Same-store sales decreased approximately 3.8%, attributable to decreased e-commerce and brick-and-mortar retail sales volume declines. Proprietary brand sales as a percentage of Cultivation and Gardening net sales for the six months ended June 30, 2024 was 22.0% as compared to 17.5% for the six months ended 21 June 30, 2023, largely driven by our strategic initiatives to increase sales volume with our expanded portfolio of proprietary brands and various proprietary product launches. The percentage of Cultivation and Gardening net sales related to consumable products for the six months ended June 30, 2024 was 71.6%, which was an increase from 67.9% for the six months ended June 30, 2023. The increase in consumable sales as a percentage of net sales was driven mainly by increased brand adoption of proprietary growing media and nutrient products. Additionally, net sales of commercial fixtures within our Storage Solutions segment decreased to $12.2 million for the six months ended June 30, 2024 compared to $16.1 million for the six months ended June 30, 2023. Cost of Sales Cost of sales for the six months ended June 30, 2024 was $74.6 million, a decrease of $12.7 million or 14.5% compared to $87.3 million for the six months ended June 30, 2023. The decrease in cost of sales was primarily due to the 16.0% decrease in sales, as previously discussed, partially offset by reduced inventory discounts from vendors and non-recurring costs associated with store consolidations in the six months ended June 30, 2024 compared to the six months ended June 30, 2023. Gross Profit Gross profit was $26.8 million for the six months ended June 30, 2024 compared to $33.4 million for the six months ended June 30, 2023, a decrease of $6.6 million or 19.9%. The decrease in gross profit is primarily related to the Gardening and Cultivation segment, which decreased $5.3 million, or 20.0%, for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, largely as a result of the decrease in sales volume due to store consolidations as previously discussed. Additionally, gross profit from our Storage Solutions segment decreased $1.3 million, or 19.5%, in the six months ended June 30, 2024 compared to the six months ended June 30, 2023. Gross profit margin was 26.4% for the six months ended June 30, 2024, a decrease of 130 basis points from a gross profit margin of 27.7% for the six months ended June 30, 2023. The decrease was primarily attributable to an 160 basis point gross profit margin decline for the Cultivation and Gardening segment, which was primarily driven by industry pricing compression on distributed products and non-recurring costs associated with store consolidations discussed previously. The decrease in the total gross profit margin was partially offset by a 260 basis point gross profit margin improvement for the Storage Solutions segment. Operating Expenses Operating expenses are comprised of store operations and other operational expenses, selling, general, and administrative, estimated credit losses, and depreciation and amortization. Operating expenses were $42.7 million for the six months ended June 30, 2024 and $47.2 million for the six months ended June 30, 2023, a decrease of $4.4 million or 9.4%. Store operating costs and other operational expenses, which consisted primarily of payroll, rent and utilities, and allocated corporate overhead costs, were $20.8 million for the six months ended June 30, 2024, compared to $24.6 million for the six months ended June 30, 2023, a decrease of $3.8 million or 15.4%. The decrease in store operating costs was primarily due to the fiscal 2023 consolidation of twelve retail locations after June 30, 2023 as well as the seven retail locations closed in the first half of 2024. Additionally, as part of our 2023 charitable initiatives, we had approximately $0.4 million more charitable donations in the six months ended June 30, 2023 as compared to the six months ended June 30, 2024. Total corporate overhead, which is comprised of selling, general, and administrative expense, estimated credit losses, and depreciation and amortization expense, decreased to $21.9 million for the six months ended June 30, 2024 compared to $22.5 million for the six months ended June 30, 2023, a decrease of $0.6 million or 2.8%. Selling, general, and administrative costs increased by $0.7 million or 4.7% for the six months ended June 30, 2024 primarily as a result of one-time severances and related professional fees and increased marketing expenses related to various proprietary product launches. This increase was offset by the estimated credit recoveries of $0.5 million in the six months ended June 30, 2024, primarily due to a $0.3 million settlement received in bankruptcy proceedings related to a note receivable, as compared to the estimated credit loss of $0.4 million in the six months ended June 30, 2023. Other Income (Expense) Other income (expense) was $1.3 million for the six months ended June 30, 2024 compared to $2.0 million for the six months ended June 30, 2023. This decrease is primarily attributable to the $0.9 million gain recognized in the six months ended June 30, 2023 related to a prior acquisition indemnity holdback. 22 Use of Non-GAAP Financial Information EBITDA and Adjusted EBITDA are non-GAAP financial measures commonly used in our industry and should not be construed in isolation as substitutions to net income (loss) as indicators of operating performance or as alternatives to cash flow provided by operating activities as a measure of liquidity (each as determined in accordance with GAAP). GrowGeneration defines EBITDA as net income (loss) before interest income, interest expense, income tax expense, depreciation and amortization, and Adjusted EBITDA as further adjusted to exclude certain items such as stock-based compensation, impairment losses, restructuring and corporate rationalization costs, and other non-core or non-recurring expenses and to include income from our marketable securities as these investments are part of our operational business strategy and increase the cash available to us. We believe these non-GAAP measures, when used in conjunction with net income (loss), provide meaningful supplemental information to both management and investors, facilitating the evaluation of performance across reporting periods. Management 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. We believe that these non-GAAP financial measures may be useful to investors in their assessment of our operating performance and valuation. In addition, these non-GAAP financial measures address questions routinely received from analysts and investors and, in order to ensure that all investors have access to the same data, we have determined that it is appropriate to make this data available to all investors. Set forth below is a reconciliation of EBITDA and Adjusted EBITDA to net income (loss) (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Net loss $ (5,896) $ (5,699) $ (14,733) $ (11,833) Provision for income taxes 95 93 93 93 Interest income (737) (753) (1,339) (1,181) Interest expense 14 3 70 5 Depreciation and amortization 3,615 3,824 7,357 7,756 EBITDA $ (2,909) $ (2,532) $ (8,552) $ (5,160) Share-based compensation 654 947 1,432 1,514 Investment income 718 1,181 1,298 1,181 Restructuring and other charges (1) 394 1,260 1,808 1,519 Adjusted EBITDA $ (1,143) $ 856 $ (4,014) $ (946) (1) Consists primarily of expenditures related to the activity of store and distribution consolidation and one-time severances LIQUIDITY AND CAPITAL RESOURCES Overview As of June 30, 2024, we had working capital of $105.4 million compared to working capital of $116.5 million as of December 31, 2023, a decrease of $11.2 million. The decrease in working capital from December 31, 2023 to June 30, 2024 was due primarily to a net decrease in cash, cash equivalents, and marketable securities as a result of net cash used in operating activities as well as reductions in inventory and common stock repurchases. As of June 30, 2024, we had cash, cash equivalents, and marketable securities of $56.0 million. Currently, we are not aware of any extraordinary demands, commitments, or uncertainties that would materially reduce our current working capital. Our material future cash requirements from contractual and other obligations relate primarily to our operating leases. Refer to Note 8, Leases, of the Condensed Consolidated Financial Statements for additional information regarding leases. We may need additional financing through equity offerings and/or debt financings in the future to continue to expand our business consistent with our growth strategies. However, management believes that the Company is adequately funded to support current and future operations in the next twelve months. To date we have financed our operations through the issuance of common stock, convertible notes, and warrants, as well as cash generated from operations. 23 Share Repurchase Program On March 20, 2024, the Board of Directors of the Company authorized a share repurchase program, whereby the Company could repurchase up to $6.0 million worth of its common stock in open market transactions pursuant to Rule 10b-18 of the Exchange Act and a 10b5-1 trading plan. The program began on April 1, 2024 and continues for up to one year. This share repurchase program is intended to enhance long-term shareholder value. The program does not obligate the Company to acquire any specific number of shares or to acquire any shares over any specific period of time. The timing and amount of any repurchases will depend on factors such as the stock price, trading volumes, market conditions, and regulatory requirements. The stock repurchase program may be amended, suspended, or discontinued at any time by the Company. Except for the Company's generally applicable insider trading policies, the Company does not maintain any policies or procedures relating to purchases and sales of its securities by its officers and directors during a repurchase program. During the three and six months ended June 30, 2024, we repurchased 1.7 million shares of common stock for $4.2 million, an average price of $2.39 per share. As of June 30, 2024, approximately $1.8 million remained available under the stock repurchase program. We retired 0.8 million shares of common stock repurchased under the program in the three and six months ended June 30, 2024. Cash Flows The following discussion sets forth the major sources and uses of cash for the six months ended June 30, 2024 and 2023. Operating Activities Net cash and cash equivalents used in operating activities for the six months ended June 30, 2024 was $4.0 million compared to net cash provided by operating activities of $7.4 million for the six months ended June 30, 2023. The changes in operating cash were primarily driven by the increased net loss as previously discussed. Investing Activities Net cash and cash equivalents provided by investing activities for the six months ended June 30, 2024 was $6.2 million compared to net cash used by investing activities of $17.6 million for the six months ended June 30, 2023. Investing activities for the six months ended June 30, 2024 were primarily attributable to investment of excess cash into marketable securities of $28.0 million, offset by maturity of marketable securities of $35.6 million. We also had purchases of property and equipment of $1.4 million during the six months ended June 30, 2024. Investing activities for the six months ended June 30, 2023 were primarily attributable to investment of excess cash into marketable securities of $51.7 million, offset by maturity of marketable securities of $42.6 million, and purchases of property and equipment of $5.5 million, which was primarily related to the implementation and design of a new enterprise resource planning software system. Financing Activities Net cash and cash equivalents used in financing activities for the six months ended June 30, 2024 was $4.3 million and was primarily attributable to common stock repurchased under our share repurchase program. Net cash and cash equivalents used in financing activities for the six months ended June 30, 2023 was $0.2 million and was primarily attributable to common stock withheld for employee payroll taxes. Critical Accounting Policies, Judgements, and Estimates For a summary of the Company's critical accounting policies, judgements, and estimates, please refer to Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023. Off Balance-Sheet Arrangements We do not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures, or capital resources. 24 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For a summary of the Company's quantitative and qualitative disclosures about market risk, please refer to Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2023.