GrowGeneration Corp. (GRWG) Earnings Call Transcript & Summary

Good afternoon. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to the GrowGeneration Annual Shareholders Meeting. It is now my pleasure to turn the conference over to Mr. Lampert. Please go ahead, sir.

Thank you. Call to order, and welcome. I called this 2020 annual meeting of the shareholders of GrowGeneration Corp. to order. In light of the novel coronavirus-19 pandemic, our annual meeting this year is being held in teleconference format only. Welcome to all our shareholders, our directors and staff, who are able to join us today. After introducing our executive team and Board members, I will turn the meeting over to our President, Michael Salaman. Let me begin by introducing our executive team who are on the call with us now: Michael Salaman, our President and my Co-Founder; our Chief Financial Officer; Monty Lamirato, who leads our accounting department and has been instrumental in driving the company to profitability; our Chief Operating Officer, Tony Sullivan, who keeps us on point during our weekly meetings and has built an organizational chart, over 200 employees, and is leading the implementation of our corporate ERP system. Our legal counsels, Mr. Lampert and Anna Wang from the law firm Robinson+Cole, are also on the call. Anna will act as inspector for today's meeting. Our auditors, John Browne from Plante & Moran are also with us today. Now I'll introduce our Board of Directors. GrowGeneration is fortunate to have a distinguished group of directors whose biographies are in our proxy statement. Many of the directors have been involved since the original formation of GrowGeneration, and all our directors contribute significantly and generously to the development of the company's policies and the oversight of operations. All director nominees are here with us today. They are Stephen Aiello, Sean Stiefel, Paul Ciasullo, Darren Lampert and Michael Salaman. At this time, Michael will proceed with the business called for at this meeting.

Thank you, Darren. At this time, I'll ask our Corporate Secretary, Monty Lamirato, to present the call of the meeting. Mr. Lamirato?

I represent that I have the following: one, a copy of the formal notice of meeting dated March 27, 2020, stating the meeting's date, time, place and purpose. I also have, two, an affidavit that the notice of meeting was mailed to each shareholder of record on or about March 30, 2020. And three, a list of the shareholders as of March 12, 2020, the record date, which has been available for inspection at the company's headquarters during the 10-day period prior to this meeting.

Thank you, Mr. Lamirato. The Board of Directors has appointed following individuals to act as inspector of election: Anna Wang from Robinson+Cole. Ms. Wang has submitted her signed oath as inspector, which will be included in the minutes of the meeting. I call upon the inspector to report whether at least 1/3 of the company's outstanding shares are present at the meeting in person or by proxy. Ms. Wang?

Yes. I'm pleased to report that holders of record of at least 1/3 or exactly 73.16% of the issued outstanding shares of the company are present in person or by proxy.

Thank you, Ms. Wang. I declare that the meeting is lawfully and properly convened and that a quorum is present for all purposes of the meeting. As you're aware from the notice of the meeting and the proxy statement, the following matters are to be voted on at today's meeting. One, to elect 5 directors of the company to serve until 2021's annual meeting of shareholders or until their successors are elected; and two, to approve and ratify the appointment of Plante & Moran as the company's independent registered public accountants for the fiscal year ending 2020, December 31; and three, to approve and ratify the amendment and restatement of the company's 2018 equity incentive plan to increase the number of shares issuable thereunder from 2.5 million to 5 million. As to voting, if anyone needs a ballot, if so, please send an e-mail now to [email protected] and only "need ballot" at the subject line -- or add "need ballot" at the subject line. A ballot will be e-mailed to you promptly. Please use the ballot to mark your vote if you have not already voted to proxy or you wish to change your proxy vote. We'll review the ballots after the proposals have been discussed. The inspectors of election will then tally the official votes during our general question-and-answer period. Proposal #1, election of directors. May I have a motion on the election of the 5 directors?

Mr. Salaman, I move to approve the election of 5 directors as presented in the proxy statement.

I second that motion.

I third...

Any questions or comments? Now we move on to the proposal #2, to ratify the appointment of Plante & Moran as the company's independent registered public accountants for the fiscal year ending December 31, 2020. May I have a motion on the approval and ratification of the appointment of Plante & Moran as the company's independent registered public accountants for the fiscal year ending December 31, 2020?

Mr. Salaman, I move to approve and ratify the appointment of Plante & Moran as the company's independent registered public accountants for the fiscal year ending December 31, 2020.

Mr. Salaman, I second the motion.

Any question?

Mr. Salaman, I third the motion.

Thank you. Proposal #3, approve and ratify the amendment and restatement of the company's 2018 equity incentive plan to increase the number of shares issuable thereunder. May I have a motion on the approval and ratification of the increase of the number of shares issuable under the 2018 equity incentive plan from 2.5 million to 5 million?

Mr. Salaman, I move to approve and ratify the increase of shares issuable under the 2018 stock incentive plan by 2.5 million shares.

Mr. Salaman, I second the motion.

Mr. Salaman, I third the motion.

Thank you. I hereby declare the polls closed. The inspectors of election shall now tally the votes. Ms. Wang, are you ready with those results?

Yes. The results are ready.

I call upon the inspector of election to report the results of the official voting.

Mr. Salaman, I'm pleased to report the following: number one, each of the director nominees received a plurality of the vote; number two, the majority of shares present at the meeting voted for the approval and ratification of the firm Plante & Moran as the company's independent registered public accountants for the fiscal year ending December 31, 2020; and number three, the majority of shares present at the meeting voted for the approval and ratification of the increase of the number of shares issuable under the 2018 equity incentive plan from 2.5 million to 5 million.

On the basis of the inspector's report, I declare that the election of the 5 directors is hereby approved. On the basis of the inspector's report, I also declare that the appointment of Plante & Moran as the company's independent registered public accountants for the fiscal year ending December 31, 2020, has been approved and ratified. On the basis of the inspector's report, I also declare that the increase of shares issuable under the 2018 equity incentive plan to 5 million has been approved and ratified. Is there any further business? If not, may I have a motion to adjourn the meeting to review the state of the business?

Mr. Salaman, I'd like to make a motion to adjourn the meeting.

Mr. Salaman, I'd like to second the motion.

Mr. Salaman, I'd like to third the motion.

All in favor, please say "aye."

Aye.

Aye.

This concludes the business portion of our meeting today, and we stand adjourned. Thank you again for joining us today and your support over the last year. We will now make a presentation on the state of business. Darren? I will turn the meeting over to Darren. Before we start the presentation, as a matter of an announcement, just some bookkeeping here. The company will be hosting its Q1 2020 earnings call on May 14 at 9:00 a.m. As always, we expect to make forward-looking statements this afternoon, but I want to caution you that our actual results could differ materially from what we say here. Investors should familiarize themselves with the full range of risk factors that could impact our results, and those are filed in our Form 10-K, which we filed with the Securities and Exchange Commission. I will turn the call now over to Darren Lampert, our CEO, who will present our state of business. Mr. Lampert?

Thank you, Mike. Thank you, Michael. Good afternoon, and welcome to our state of business. Before we begin our state of the business presentation, I'd like to begin by thanking our staff and customers during this time of uncertainty. We at GrowGeneration are mindful of the COVID-19 plight which is the besieging society, leaving no one unaffected. We are thankful for the dedication of health care workers and first responders as well as the essential workers who are keeping our communities running. As a result of the first rate preparedness, all our personnel have been working since mid-March with complete effectiveness. I have been inspired by the efforts and dedication of GrowGen's team as they have worked tirelessly to service our customers and communities. The economic road ahead will challenge all businesses, but GrowGen's strong executive team and amazing employees put us on excellent footing to overcome adversity. As we continue to monitor the COVID-19 outbreak, GrowGen is considered an essential supplier to the agricultural industry, supplying the nutrients and nourishments required to feed their plants. Accordingly, all our 27 stores are open during this difficult time and will remain open for the foreseeable future. We have plans and procedures in place to ensure our customers and employees stay safe during this time of uncertainty. All of us at GrowGeneration remain committed to the safety and well-being of our customers and employees and send our prayers and thoughts to all in the growing community and beyond. To do our part, GrowGeneration has committed to donate up to $500,000 of free product to our loyal customers and the local communities that have been severely affected. The company's 2019 fiscal year results reflect our continued focus on revenue growth and adjusted EBITDA expansion. Revenue was up 175% year-over-year to approximately $80 million. Adjusted EBITDA was $6.6 million for 2019 compared to a loss of $823,000 for 2018. Adjusted EBITDA for 2019 was $0.20 per share basic, $0.02 above our high-end guidance compared to a negative $0.04 per share basic in 2018. Our same-store sales were up 62% in Q4 2019 versus Q4 2018. For the full year, same-store sales were up 36% versus full year 2018. Our online business, GrowGen.Pro, is projected to exceed $10 million in revenue in 2020. Our omnichannel strategy will connect all of our store inventory to our e-commerce site, allowing for buy online and pickup-in-store functionality. GrowGen's just-in-time supply chain delivers our products safely and timely to our customers. Today, we offer will-call, curbside and direct-to-farm shipments from all our store locations and through our online e-commerce platform. We can ship to all 50 states. Recently, we have seen a surge in online sales, and we are well prepared to fulfill these orders. Our commercial division is projected to do $30 million in annual sales for 2020. The company completed the rollout of its new ERP platform in 2019. And it is now fully deployed, providing business intelligence to lower costs, improve departmental productivity, integrate our online and store sales and supply channels, providing real-time forecasting and reporting tools. The 10 newly acquired stores and new store openings are all performing better than expected and have been successfully integrated into the operations of the overall company. The company successfully integrated both GrowGen Portland, a December 2019 acquisition; and GrowGen Miami, a February 2020 acquisition, into its portfolio with both operations now contributing revenue and positive EBITDA. On March 7, 2020, we opened the largest hydroponic garden center in the U.S., a 40,000 square foot commercial and online fulfillment center located in Tulsa, Oklahoma. To highlight our market-by-market growth: Colorado was up 132% year-over-year at $15.4 million; California, plus 161% at $15.6 million; Michigan, plus 200% at $9.3 million; Oklahoma, plus 2,400% at $11.8 million. Our commercial sales finished its first full year at $17 million, and our e-commerce sales finished the year at $4.8 million. We continue to focus on margin expansion strategies that include furthering the deployment of more private-label products executing and growing our buy online, pickup-in-store plan and improving our customer service from both a customer acquisition and retention perspective. With Portland, Miami and Tulsa 2 now contributing revenue and EBITDA, we continue to drive growth during these difficult times. The company ran the NASDAQ bell on December 30, 2019, capping off a great year and is now listed and trading on the NASDAQ Exchange. We added 5 analysts, who are now covering the company from investment banks that include ROTH Capital, Ladenburg Thalmann, Lake Street Capital Markets, Alliance Global Partners and Craig-Hallum. This concludes the 2020 shareholder meeting. Thank you to all of our shareholders, employees and partners for their support, and we look forward to sharing our results and successes with everyone throughout the year. Please stay healthy and remember to smile a little, laugh a little and have a little bit of fun every day during these difficult times. Thank you.

Thank you, Mr. Lampert. Ladies and gentlemen, this does indeed conclude your meeting for today. Once again, I'd like to thank you for attending. And at this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.

Thank you.

Thank you, sir.