Good afternoon. My name is Selvi and I'll be your conference operator today. At this time, I would like to welcome everyone to GrowGeneration Corp Second Quarter 2019 Earnings Conference Call. Note that all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. At this time, I would like to turn the call over to your host Mr. Michael Salaman, President. Please go ahead, sir.

Good afternoon. My name is Michael Salaman, Co-Founder and President of GrowGeneration Corp. At this time, I would like to welcome everyone to the GrowGeneration second quarter 2019 earnings conference call. With me today is Darren Lampert, our CEO; and Monty Lamirato, our CFO, who will both be participants on our call this afternoon. After our CEO and CFO's remarks, there will be a question-and-answer session. 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 that are filed in our Form 10-K, which we filed with the Securities and Exchange Commission. I'd also remind everyone that today's call is being recorded, and an archived version of our call will be available on our website later today. Let's get started. GrowGeneration is now the largest and fastest growing chain of hydroponic garden centers in North America. Today, our supply chain reaches coast to coast, generating over 6,000 weekly transactions. Our second quarter numbers reflect our team's execution and focus on revenue and EBITDA growth. You will hear today from Darren and Monty that all of our financial metrics have improved significantly. Although we've had a successful quarter, our management team is not going to rest on one quarter results, but continue to perform and execute quarter-over-quarter. In addition to our strong financial performance, in the second quarter, we are proud to announce Bob Nardelli, the former CEO of Home Depot who was appointed as Senior Strategic Advisor. Mr. Nardelli helped Grow Home Depot into a $90 billion business and will be providing advice to the company on matters relating to supply chain, merchandise, branding, distribution, new product introductions, pricing and channel selection. Our balance sheet is strong, which allows us to continue purchasing the best-of-breed hydroponic operators, and aggressively open new GrowGeneration locations in every major city in the United States and Canada. I will now turn the call over to Darren who will present our second quarter 2019 results.

Thank you, Michael. Good afternoon, and welcome to our second quarter 2019 conference call. We'd like to begin our call by thanking our shareholders, management and employees for their continued support and belief in the mission Michael and I set forth five years ago to build the largest national chain of hydroponic garden centers in the U.S. With 23 locations in nine states today, GrowGeneration is a leading marketer and distributor of nutrients, growing media, advanced indoor and greenhouse lighting, ventilation systems and accessories for hydroponic gardening. The company's second quarter financial results reflect our company's continued focus on revenue growth and EBITDA expansion. We improved the financial performance of the company in all areas. Revenue was up 172% year-over-year at $19.5 million. For the six-month period ending June 30, 2019, revenue was $32.6 million versus $11.5 million for the six month period ended June 30, 2018, an increase of 182% year-over-year. Adjusted EBITDA for Q2 2019 was $1.8 million, a positive $0.06 per share. Adjusted EBITDA for the six months ended June 30, 2019, is now at $0.08 per share. Our same-store sales were up 23% year-over-year, gross profit margins increased to 29.9%, an increase of 5.7 basis points year-over-year. Gross profit dollars were $5.8 million, an increase of $4.1 million or 237% versus the same period year-over-year. Our strategies to increase margins are working by purchasing in larger volumes and buying more efficiently. We saw significant revenue increases in all key markets. Colorado was up 106%, California 346%, Nevada 143%, Michigan 95%, and Rhode Island up 50%. Our new stores in Oklahoma contributed $2.5 million in revenue in the second quarter, and our stores in Maine added $1.6 million, driven by three newly acquired stores that closed on May 15. Our e-commerce store HeavyGardens added over $1 million,…

Thanks, Sharon. Some of these figures will be a repeat a little bit, but a little bit more detail. So net revenue for the three months ended June 30, 2019, increased approximately $12.3 million or 172% to approximately $19.5 million, comparing -- compared to approximately $7.2 million for the three months ended June 30, 2018. The increase in revenue in 2019 was primarily due to the addition of 14 new stores opened or acquired after April 1, 2018 and the new e-commerce site acquired in mid-September 2018. The 14 new stores and the new e-commerce website contributed $12.7 million in revenue for the quarter ended June 30, 2019. Cost of goods sold for the three months ended June 30, 2019, increased approximately $8.2 million or 152% to approximately $13.7 million as compared to approximately $5.4 million for the three months ended June 30, 2018. The increase in cost of goods sold is primarily due to the 172% increase in sales, comparing the three months ended June 30, 2019, to the three months ended June 30, 2018. The increase in cost of goods sold is directly attributable to the increase in the number of operating stores. Gross profit was approximately $5.8 million for the three months ended June 30, 2019, compared to approximately $1.7 million for the three months into June 30, 2018, an increase of approximately 4.1 per -- what -- excuse me, $4.1 million or 237%. Gross Profit as a percentage of sales was 29.9% for the three months ended June 30, 2019, compared to 24.2% for the three months ended June 30, 2018. The increase in the gross profit margin percentage is due to reduced pricing from vendors as a result of increased purchasing from those vendors, the sale of product acquired in a large bulk purchase in…

Thank you, Monty. In conclusion, GrowGeneration has built national footprint with 23 locations in 9 states. GrowGeneration is now the largest and fastest growing chain of hydroponic garden centers in North America, selling nutrients, growing media, advanced indoor and greenhouse lighting, and ventilation systems and accessories for hydroponic gardening. Our leadership position is driven through a corporate mission statement, selection, service, and solutions. Our company improved its financial performance significantly in the second quarter of 2019 versus the second quarter of 2018. Revenues were up 172%, margins up 5.7 basis points to 29.9%, adjusted EBITDA was a positive $0.06 cents per share, with store operating expenses down 13%, and corporate overhead down 42%, as a percentage of revenues. Q3 has started out strong. We service thousands of growers and generate over 6,000 weekly store transactions. Our balance sheet is strong, which allows us to continue purchasing the best of breed hydroponic operators and aggressively open new GrowGen locations in every major city in the United States. The company continues the process of uplifting to a larger exchange. We were adjusting our guidance up for 2019 to $65 million to $70 million in revenue, and to $0.14 to $0.18 cents in adjusted EBITDA based on 34.8 million shares outstanding. We look forward to continuing to provide guidance as need be, and we're excited to share our successes with our shareholders, our management team and partners. Now we will answer a few questions.

Thank you. [Operator Instructions] And your first question will be for Scott Fortune at Roth Capital. Please go ahead, Scott.

Congratulations, strong quarter for you guys.

Thank you, Scott.

Thank you.

Just want to dig in deeper. You mentioned new store openings, potentially on your own purchase acquisitions. How are you looking at the states where you're located? And which states are favorable for continuing to grow the GrowGen store? Do you get deeper in those states or expanding to new states, if you can provide a little color on that?

We're doing an analysis right now, Scott, and we're looking at the entire country and applying a model based on licensing, certainly new markets, looking at the regulatory environment and also our criteria related to the type of facilities that we've proven to be successful. For example, in Oklahoma, we opened up two locations. Both of those locations today are doing almost a $1 million a month in business. So we have a model that we're following. And as we mentioned in the call, we actually just recently engaged with a national real estate company that is putting together and analysis for us and shouldn't we will be able to announce what the potential number of new store openings will be and we're very aggressive in how we're going to be executing that plan. But we have a very specific model that we're going to follow and that model will be such that, we're going to be following that as we get aggressive and starting to open up, new stores.

Great. And just to follow up on that, you're still seeing good acquisition potentials within this space, the consulting space, kind of what are the deal opportunities you are seeing out there, just a little color on that?

100% Scott. We have a very full pipeline right now going into third and fourth quarters and we will continue picking up best-to-breed around the country in mature markets and continue what we've been doing, opening stores in new markets coming online and purchasing EBITDA and best-of-breed hydroponic stores throughout the country in more mature markets.

Okay, great. And then last question from me. Your ERP systems rolling out seems to be very favorable on your margin structure. When that fully rolls out, I know you're just (inaudible) but it's up to 9%, you have a longer-term target on kind of the EBITDA side and its gross margin is at 30% or what's your sense of both levels going forward here?

I think they'll keep improving year-over-year, Scott. Right now, we're aggressively spending on growth and new store openings and certainly technology. As you saw the bump, certainly this year in the last few quarters, we continue to think that costs a percentage of revenue will continue going in the right direction. And we're pretty comfortable right now where our margins are, certainly would like a little more bump, but we'll see. And if we can keep them around 30% for the next year or two, we certainly will be comfortable with that.

Great. Thanks, guys. And I'll jump back in.

Thank you, Scott.

Next question will be from Aaron Grey of Alliance Global. Please go ahead, Aaron.

Thanks for the questions and congrats on the quarter guys.

Thank you, Aaron.

Just on the same store sales, it's nice to see that up over 20% during the quarter. Can you just kind of break that down, which states in terms of sensor sales kind of sell the best improvement during the quarter? So any color there would be great. Thank you.

Right now, Scott, we're seeing increases in all our states. But out of the numbers you saw Colorado was extremely strong. We had a wonderful same-store sales bump in Rhode Island, which was the first quarter that our purchase in Rhode Island was part of our same-store sales. What you'll see this quarter? You'll see coming onboard for us is our Michigan operations, which we're seeing tremendous growth in also. So we saw pretty much strength around the country, but we've also seen tremendous growth in our new markets that we're moving into right now into Oklahoma. And certainly we're looking at new markets right now. So, the quarter basically was strength everywhere.

Okay, great. It's great to hear. And then with the market like Oklahoma, there's been a lot of saturation just given the licensing structure. It's up nicely again during the quarter sequentially. Are you seeing any kind of like peak there? What are you kind of seeing in terms of like the licensing? And where they're going to be in terms of like cultivation, in terms of continued customers for you going forward?

Again, I think, if you look -- look back at the growth of the industry, we're usually seeing a five-year run rate into these new states that are coming onboard. Oklahoma happens to be, there's over 3,000 licenses in Oklahoma. So certainly, we see a few more years of tremendous growth, and then we seem to be capturing a lot of that. So we're certainly pleased with our -- with the way our stores are performing in Oklahoma right now.

And Aaron, one of the interesting metrics of Oklahoma, it's emerged as one of the top medical patient states behind California, Florida and Michigan, I believe. So you're getting demand from the fact that, that market is now able to support the number of licenses that have been granted. And because of that, we're actually expanding our footprint in the state. We will be opening up an additional second location in Tulsa and a second location in Oklahoma City.

Okay great. And then just one last one, just, any update on your progress with MSOs. It seems like you guys were picking up steam there. So just how much time ambition you might be getting in terms of sales from MSOs and how those partnerships have been evolving.

Yeah, it's been a great additive to the company. As we've mentioned, on some of the previous calls, we have a dedicated commercial division that we set up as a standalone entity, that operates outside of our store business and we have right now about 10 individuals that are sales, commercial managers, that all they do is call on the big MSOs and the big commercial accounts. And, because of our purchasing power, our ability to deliver just in time, and do it on a national level, we're attracting the large MSOs. And we see that growth continuing quarter-over-quarter. As we mentioned in the call, we were up pretty significantly quarter-over-quarter. We were up over a $1 million in terms of our commercial business, which we are looking at separately from the store business.

Okay. Thank you very much, and best of luck.

Thank you, Aaron.

Thank you, Aaron.

Thank you. [Operator Instructions] And your next question will be from Ken Hamilton, a private investor. Please go ahead, Ken.

Yes. Congratulations on a great quarter. I've been learning a lot about this SAFE Banking Bill lately? Could you speak a little bit to that? How it's impacting you now and how you feel is going to help you once our knuckleheaded politicians get to that together and pass that thing?

Hey, Monty, would you like to take that?

Yeah, I mean, it's hard to predict exactly in the in the political environment when something like that is going to come to fruition? There's a lot of discussion, but action is needed. Certainly, if some -- if a bill like that was -- were to pass, it would greatly enhance our ability to attract larger, much larger financial institutions, and really consolidates a lot of our banking, which would really be very beneficial and efficient in terms of use of our time. So we hope that things will happen early. But in this political environment, it's very hard to predict whether or not something like that will in fact occur. And that will help our clients as well. So it's not only going to assist us, but it's going to help our clients as well.

Okay, thank you very much.

Sure.

Thank you. Next question will be from at Elise Stone [ph] of Benchmark. Please go ahead, Elise.

Hi, gentlemen. Congratulations. Great quarter.

Thank you, Elise

Thank you, Elise.

You’re welcome. Also, congratulations on the addition of Mr. Nardelli. I mean, I think that's really a tremendous addition. And I was sort of wondering specifically what types of collaborations and strategic opportunities you might be going after with his assistance?

Well, basically, what we're doing with Mr. Nardelli is having regular meetings that we're scheduling with our executive team and our Board, and really what the focus is, with Mr. Nardelli and with his background of really taking Home Depot into what we think the next generation, which is where Home Depot is today, he was there, from 2000 to 2007, and grew the business $60 billion to $90 billion when he left. And lot of things that we're doing today, certainly implemented inside the Home Depot environment, everything from supply chain, merchandising, branding, distribution, new product introductions, pricing. These are all the strategic conversations that we're having with him. And having him at the table has been just a wonderful opportunity and he's just a wonderful addition to our executive team. And certainly, it's not a regular basis, but on a monthly, quarterly basis, we're sitting down with him, and leveraging his experience, and certainly his access into the markets and his strategic relationships are tremendous. And his background is certainly so overlays where GrowGeneration is going. So, those are the initiatives that we have and it's an ongoing relationship. And certainly, we think it's going to be an extremely accretive one to the company.

It certainly helps on the acquisition side I'm sure as well too?

Absolutely.

Well, congratulations again and good luck.

Thank you, Elise.

Thank you. Next question will be from Alan Brochstein at New Canada Centers. Please go ahead, Alan.

Hey, guys, congrats on the continued success.

Thank you, Alan.

Thank you, Alan.

Just a quick one. I didn't hear much about Hemp and last quarter you said you were starting to get going. Can you just give us a little update, maybe I missed it on how your Hemp operations unrolling?

Yeah, I mean, it's very interesting, because as the as the licenses are being issued, and we're in the process right now of -- we've secured right now about 2,000 acres of hemp that we're actively working to supply their nutrients and additives and those kind of things. And it's certainly a great overlay and a great vertical market for the company. So, we're constantly soliciting the hemp farmers for products that they're seeking, and working aggressively to create a supply chain that will be one in which they will come to GrowGeneration first and foremost. So, it's certainly a focus, Alan, for the company and we're starting to get some headway in forming a supply chain. The products are a little bit different, we've developed some products and we've sourced some products specifically for the hemp farmers. As you know, the harvest rates are one to two turns a year. So, most of the hemp farmers planted seeds in the spring and they're going into harvest and we're working with a lot of these farmers on their harvest season, which is coming up in September. But it's certainly a focus and we're developing, as I said, new products and innovation, and aggressively going after the customer.

And when you and I spoke in January at the Benzinga Conference, you mentioned that you thought a lot of this or a substantial amount would be actually indoor. Are you seeing that so far? Because I hear you talking about mainly outdoor?

It's interesting because we have service. Some of the hemp farm is in green houses. We've seen green house facilities cultivate hemp. But right now we're seeing most of it is in the outdoor market, Kentucky, Indiana, Colorado, Oregon are the big states, North Carolina. But it seems to be more of an outdoor crop right now, creating the volume, the demand for CBD, seems to be requiring in terms of the cultivation side of it. But more outdoor than indoor right now, Alan.

And is indoor a greater opportunity given all the lights and additional things or are they – you view those equally?

I mean, the money certainly is indoor in green house. And what you'll see going down the pike, Alan, is dependent upon the quality that's coming out of outdoors. It's much cheaper to grow outdoors than indoors. So, they're dependent upon pricing and quality, and again, demand in the future. You'll -- you may see a change from outdoor to indoor. But again, I think, it's too early to tell. This is one of the first crops coming out again. So you haven't seen that many harvests yet. So it's really again, at this point, hard to tell where it's going to gravitate too.

Okay. On a different subject. Scotts has been seeing a pretty nice pickup in their cannabis-related business as well. And I'm just wondering, I never heard you guys address this publicly. But do you view them as competitors mainly or how did you view your relationship with Scotts or how should investors maybe compare you guys to them, much larger Scotts Mircale-Gro?

We view them as partners right now of ours. We are their largest customer and again we view them as partners, we collaborate, we certainly get customers from them. So for us, it's been a way, we have a wonderful relationship with Scotts right now.

Great, thank you for clarifying that, and congratulations again.

Thank you, Alan.

Thank you. Next question will be from Mitch Baruchowitz at Merida. Please go ahead, Mitch.

Gentlemen, it feels like it's…

Hey, Mitch. How are you?

It feels like it's a long way from the first time we did this in 2015, right? So…

Thanks, Mitch.

Yeah. So two quick questions. First, given that you guys are much more prominent, have a much bigger footprint, how much of the impact to your -- the efficiency with margin improvement comes from companies reaching directly out to you to carry their supplies rather than going through a distributor which used to impact margins? That’s the first question. And second, how many of those companies are willing to at least entertain potentially becoming house brands? That's really what at least at Merida what we've seen. We know you guys pretty well. What we see is the sort of next leg is the acquisition of brands similar to how a dispensary carries a lot of stuff on their shelves. For you guys, you guys are a big impact. And if a company that's growing can become your house brand, that's probably a pretty accretive acquisition for you guys. So what are you seeing on that side and how much of -- how much is your prominence now helping drive margins and how much you expected to improve over time?

I think what has occurred, one of the inflection points in the company, and I think what you've seen in margin -- margins going up is the fact that we've scaled the business. The company is now a national chain with the 23 locations coast-to-coast in most of the major markets now, we are able to command better pricing, and it's volume driven with the run rate approaching 80 $million. We have the ability to really leverage that now with our vendors. So I think first and foremost, we've been negotiating better deals, we're getting smarter, too. So, with our purchasing team, we're getting the ability to leverage that purchasing power, which you're now seeing the accretiveness of that with our margin. And then second to your point about, private label is certainly an area that we are developing, and we're developing a lot of different products. We've already actually brought some private label products to the market, and we're going to continue to develop, specific, additives and different products that we think are certainly margin accretive to the company that we can bring across all locations and continue to drive the margin expansion and that's certainly a big part of the margin expansion strategy.

Guys, well, thanks a lot. Great quarter, and we'll see you soon.

Thank you, Mitch.

Thank you. [Operator Instructions] And at this time, we have no other questions for registered. So I would like to turn the call back over to our presenters for any additional comments.

Just want to thank everyone for attending our second quarter earnings. And we really appreciate all of the support of our management team, our employees, our shareholders, investors and partners and we look forward to reporting even better results in our third quarter. Thank you again and have a great afternoon.

Thank you, ladies and gentlemen, this does indeed concludes your conference call for today. Once again, thank you for attending. And at this time, we do ask to please disconnect your lines. Enjoy the rest of your day.

Thank you.