Good morning, ladies and gentleman. And welcome to the GrowGeneration Corp First Quarter 2020 Earnings Conference Call. At this time, all lines are in listen only mode [Operator Instructions] This call is being recorded Thursday, May 14, 2020. I would now like to turn the conference over to Michael Salaman. Please go ahead.

Thank you. Good morning. My name is Michael Salaman, Co-Founder and President of GrowGeneration. At this time, I would like to welcome everyone to the GrowGeneration first quarter 2020 earnings conference call. With me this morning is Darren Lampert, our CEO and Co-Founder; Monty Lamirato, our Chief Financial Officer; and Tony Sullivan our Chief Operating Officer, who will all be participants on our call this morning. After our remarks, there will be a question-and-answer session. As always, we expect to make forward-looking statements this morning. But I want to caution you that our actual results could differ materially from what we say here. Investors should familiarize themselves of 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 I’d also remind everyone that today's call is being recorded, and an archived version of our call will be available on our Web site later today. We have a lot to go over, let's get started. GrowGeneration recorded it’s tenth consecutive record quarter of increased revenues, and we achieved record adjusted EBITDA for the quarter ended March 31st, 2020. Despite the challenging times due to COVID-19, abbreviated hours and a six day workweek, GrowGen recorded sales milestones that included a single day sales record of $1,043,000. Our commercial team grow to over $1 million for a week. And for the month of April, our e-commerce division fell just shy of $1 million. All record sales. Our company has tremendous growth and momentum built into the next quarters and the balance of this year. Our store acquisitions and new store openings continue to drive growth, while we deliver double digit same store sales results quarter over quarter. All stores will be connected to our e-commerce platform in Q2, providing our customers the buy online and pick up in store option. During the COVID outbreak, we successfully implemented a will call and curbside same day pickup from our Web site, highlighting the demand we believe will be created once our buy online pick up in store option is available. We are very proud to announce the opening of our store support center located in the Art District right outside of Denver, Colorado, an 8,000 square foot complex that will serve as our support center for all of our stores, our commercial customers and our e-commerce channel. How you respond during a crisis says a lot about people in a company. GrowGeneration’s preparedness delivered record results, and this execution discipline continues to deliver positive results quarter over quarter. I will now turn the call over to Darren who will present our Q1 2020 results. Darren?

Thank you, Michael. Good morning, and welcome to our Q1 2020 earnings call. I'd like to begin by thanking our staff and customers for their hard work, dedication and loyalty during this time of uncertainty. 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 remain open. 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 wellbeing of our customers and employees. To do our part, GrowGeneration has committed to donate up to $500,000 of free product to our loyal customers and local communities that have been severely affected. The company's Q1 2020 record financial results reflect our continued focus on revenue growth and adjusted EBITDA expansion. Q1 2020 was the company's 10th consecutive record quarter of revenue. As we continue to outpace our guidance, we’re increasing fiscal year 2020 revenue guidance to $135 million to $140 million, and increasing adjusted EBITDA guidance for 2020 to $12 million to $14 million. We have set 2020 full year GAAP pretax net income guidance to $5.5 million to $7.5 million, revenue guidance for Q2 2020 is $36 million to $37 million, adjusted EBITDA Q2 2020 is $3.6 million and GAAP pretax net income is $2.1 million. Revenue was up 152% quarter over quarter to approximately $33 million versus $13.1 million for Q1 2019. Adjusted EBITDA was $2.7 million for Q1 2020 compared to $615,000 for Q1 2019. Adjusted EBITDA for Q1 2020 was $0.07 per share basic. Net income from store operations was approximately $5.3 million compared to $1.7 million…

Thank you, Darren. And as Darren and Michael have stated, our top priority is the safety of our team, their families and our customers. Currently, all 27 of our locations are open and operating efficiently. We have been relentless and one step ahead with all our safety protocols throughout this pandemic. We are classified as an central business, supply chain for agricultural and medical. And COVID-19 city, county, state and federal mandates update and changes are monitored multiple times a day and communicated daily. We have deployed remote working environments for all non-essential store personnel and our store support center, e-com, commercial, IT, purchasing and accounting department. We currently have two out of the 10 states we operate in who have lifted the stay at home mandate. And even though the stay at home mandate was lifted in these two states only, all protocols remain in place. We must wear masks to continue our six foot distancing role and also not allowing more than 10 gathering in a location at any given time. Based on this being a fluid and ever changing situation, we continue to manage, monitor and communicate to everyone daily. We have built a new level one protocol that prepares us for opening back up in each store and state. We will maintain all communication, safety and cleaning protocols as we work towards our new normal business practices. We are monitoring and having and have significant cleaning and safety supplies in all locations to handle the pandemic as we move forward. We will continue staying one step ahead, operating with stricter protocols, keeping our team and our customer safe. We have developed a customer reach program that ensures we communicate to our customers daily, finding the best way to provide service, consumables and solutions. Keeping each customer updated on all of our new ways that we can serve them safely and ensuring that they have the latest update on vendor shipping and delays. We are currently posting on all channels that GrowGeneration is your one stop solution provider and that we have multiple options available to serve you. Couple of key takeaways for everybody on the call. Our relentless proactive safety communication and approach paid off. We have had no reported COVID-19 positive tests. Considering the COVID-19 impact, we have produced a record quarter result. As stated earlier, we were able to deploy and test critical omni-channel functionality, buy online, pickup in store, curbside pickup, will call and pick, pack and ship. This early knowledge as we get ready to roll out our omni-channel is invaluable. We have our new level one plan ready to go for all areas that begin to lift their stay at home mandate. And most importantly, we are prepared to maintain our safety levels, protecting our team and our customers. And at this time, I'm going to turn it over to Monty for the financial updates.

Thanks Tony. Let's go over the Q1 financial highlights. Revenues were up 152% to $33 million for Q1 2020 versus $13.1 million for Q1 2019. The increase in revenues is due to the addition of 10 new retail stores opened or acquired during 2019, an increase in commercial business and an increase in our online sales and the e-commerce site opened or acquired at various times during 2018 that were open for all of Q1 2020. Sales in the 14 stores opened to acquired for more than 12 months in Q1 2020 were $15 million. Same store sales were $15.2 million for Q1 2020 versus $9.6 million for Q1 2019, a 58% increase. Adjusted EBITDA was $2.7 million for Q1 2020 compared to $615,000 for Q1 2019, which translated to adjusted EBITDA of $0.07 per share basic for Q1 2020. On a GAAP basis, the company showed a net loss of $2.1 million for Q1 2020 compared to net income of $229,000 for Q1 2019, which is attributable to $4.1 million in non-cash share-based compensation, both stock and options for the first quarter ended March 31, 2020. The increase in non-cash share-based compensation was primarily the result of several new executive employment agreements, which became effective January 1, 2020 that had some accelerated vesting provisions. The non-cash share-based compensation for the remainder of 2020 is substantially less than the amount recorded in the first quarter of 2020, and based on current awards outstanding is estimated to be approximately $2.3 million for the remainder of 2020. Had the new share-based awards been level vested and not front end vested, the company would have had Q1 net income of approximately $332,000 on a GAAP basis. Net income from store operations, which was approximately $5.3 million for the quarter ended March 31, 2020…

Thank you, Monty. In conclusion, GrowGeneration recorded its 10th consecutive record quarter of increased revenue and we achieved record adjusted earnings. Our company has tremendous growth and momentum built into the next quarters and balance of the year. Our store acquisitions and new store openings continued to drive growth, while we delivered double digit same store sales results quarter over quarter. All stores will be connected to our e-commerce platform in Q2, providing our customers the buy online and pick up in store option. During the COVID outbreak, we successfully implemented a will call and curbside same day pickup from our Web site, highlighting the demand we believe will be created once our buy online pickup in store option is available. We're proud to announce the opening of our store support center located in the Art District outside of Denver, an 8,000 square foot complex that will serve as a support center for all stores, commercial customers and our e-commerce channel. The preparedness during the crisis says a lot about people and a company. GrowGen’s preparedness delivered record results, and this execution discipline will continue to deliver positive results quarter over quarter. GrowGeneration has built an essential supply chain for the agricultural industry. Our leadership position is different to our corporate mission statement, to be the largest hydroponic service provider in the world. We continue to cultivate the best and most knowledgeable staff in the country. We're focused on world class customer service, commitment to our customers. We continue to invest in our supply chain and technology, creating more efficiencies across all departments. Execution of our financial goals and guidance is evident with the Q1 2020 numbers we reported with revenue up 152% quarter over quarter and adjusted EBITDA earnings $2.7 million or $0.07 a share. Our first quarter of 2020 was strong as we successfully added Miami, Portland and Tulsa 2 to the portfolio. Our balance sheet is strong with $13 million in cash, which allows us to continue to execute our internal growth initiatives, while we continue to purchase the best of breed hydroponic operations and open new GrowGen locations. We’ve increased fiscal year 2020 revenue guidance to $135 million to $140 million. Adjusted EBITDA guidance for 2020 is $12 million to $14 million. And full year GAAP pretax net income guidance to $5.5 million to $7.5 million. Revenue guidance for Q2 2020 is $36 million to $37 million. Adjusted EBITDA Q2 2020 guidance is $3.6 million. And GAAP pretax net income is $2.1 million. We look forward to continuing to provide as need be guidance, and we are excited to share our successes with our shareholders, our management team and partners. Now we will answer a few questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session [Operator Instructions]. So your first question comes from Aaron Grey from Alliance. Please go ahead.

So first question from me, so I see you guys raise guidance and also have strong 2Q guidance, which it seems like continued into April. But just when I look at the guidance that it would imply for the back half of the year, it looks like it'd be roughly flat or even potential decline in the back half. Is that more just given the uncertainty of COVID, is there anything that would be an indicator of anything kind of slowing down for you guys? Or can you kind of just speak to kind of what the guidance would imply for the back half of the year as we reconcile 2Q and the full year updated guidance? Thank you.

Once again, as you know from GrowGen, we are conservative with guidance, especially in light of COVID-19. So we only can guide with what we're seeing right now. We're a month and half into the second quarter, which remains extremely strong. So we felt quite comfortable giving second quarter guidance out to Wall Street today, just to let Wall Street know how strong our business is proceeding. As we've said in the past, the numbers today and also the numbers in the first quarter are based on no new acquisitions for the remainder of the year, and no more store openings. And our portfolio remains very strong, both from the new store opening side and the purchase side. So once this COVID certainly reside a notch, we're going to get back on the road and start back with acquisitions and new store openings. So we're quite confident right now that the remainder of the year is going to be strong. And again, we will update guidance as need be as we continue to purchase and if we see COVID residing in the future.

Your next question comes from Eric Des Lauriers from Craig-Hallum Capital Group. Please go ahead.

Well thanks for taking my questions guys. And congrats on the strong quarter, especially in the reduced hours with COVID. So I just want to offer my congrats before we get into the question. First one from me just kind of a piggyback on that previous question. So I appreciate that guidance does not include any M&A, but still down potentially in the back half. Can you talk to any kind of seasonality you guys are seeing as it relates to outdoor growing and some of those markets? And then if we should still sort of expect any Q4 seasonality, or if it's potential that you guys could continue to realize your record growth quarter over quarter?

As we continue to grow and spread out through the country, seasonality is becoming much less relevant to the company. So we're really not seeing tremendous seasonality. We do have a pretty large outdoor growth community that we do service, but it's a very small part of our portfolio right now. So right as of now, again we're not really seeing seasonality and we look forward to revenue increasing throughout the year.

And then maybe one for Michael but really whoever, but I was just looking for a bit of an update on the private label initiative, and any timing on the impact to gross margins. Just overall how we should think about margins given sort of tailwinds from a private label initiative, sort of offset by headwinds with the growing mix of commercial and e-commerce? And that’s it from me. Thanks.

The private label business is certainly a very focused initiative for the company. As we reported earlier that we've already put into our stores, our first private label product line under the brand Sunleaves. And actually that brand is now contributing in this quarter about 1% of revenue, and we say going forward an increase in that number. We're getting some real momentum and some real interest in the products that we're bringing out. So as you see quarter over quarter, you're going to see new products being introduced under our own brands, under the private label, and each one of those brands are going to have an accretive and positive impact on gross profit margins. So as you look to Q2, Q3 and Q4, you will start to see additional private label products hit our shelves and you're going to see some positive impacts coming from the sales of those products in terms of gross profit margin.

Your next question comes from Scott Fortune of Roth Capital Partners. Please go ahead.

Real quick just to kind of follow up on the M&A strategy. Are you guys looking at it more opportunistic now? It seems like legislatively wise with the tax revenues hit because of COVID, we're going to see a lot of legalization probably down the second half here. And then calling out the states that you're looking to move into next, previously kind of how you’re looking at the opportunity now and the competitive environment, are they struggling in COVID environment currently?

We continue to hold a strong pipeline of store acquisitions and new locations in all the adult use legal markets, Missouri, California, Illinois, Arizona, New York, Pennsylvania and New Jersey. And we're ultimately tracking all the states and we are targeting either a new store or an acquisition in states just mentioned. We certainly, again, our pipeline has remained strong over the last couple of years. We certainly are seeing more stores pop up on the market of recent. And again, I think a lot has to do with COVID. And again, we only buy best of breed right now. So we are looking -- we have some LOIs that are assigned and hopefully the second half of the year will be quite exciting on the acquisition front and the new store openings front.

Your next question comes from Glenn Mattson of Ladenburg Thalmann. Please go ahead.

So curious the margins picked up sequentially, you mentioned down year over year due to a combination of large commercial business and e-commerce. You also had a number of large commercial orders in Q4. So maybe you could just kind of quantify if you can the rate of change in the large course of business sequentially and how to think about that over the rest of the year, and how that plays into margins overall?

Darren, I'll throw it back to you on the margin. But on the commercial side guys, we're seeing tremendous growth in our commercial business. We did $8.4 million, which was certainly above our internal projection and we continue to acquire and service commercial business. For the full year, we put out projections of $30 million, which is off of $17 million last year. So, the company's commercial division continues to perform and execute at a very high level, and we see that trending in this quarter as well in Q2. So even though there is some margin pressure there, but we're certainly increasing revenue and gaining additional commercial business quarter-over-quarter. So that's one of the impacts that you see this quarter on gross profit margin. In addition to that, our e-commerce business is expanding. We did around $2 million this year. So between commercial and our e-commerce business in combination that represented almost a third of our overall sales. But offset of that will be the things that we're doing relative to private label, the efficiencies that we're building into the business through our scale and our purchasing power. We're getting much better pricing in the market. So we see in a blended quarter-over-quarter margins maintaining themselves and actually, increasing quarter-over -quarter. But this particular quarter, we did have a higher percentage of commercial business than we originally projected.

And I guess just one more for me, you mentioned the various markets you’re looking to get into, and maybe mix of acquisition and new stores. Did you give a guidance on CapEx for the year and if not, can you just give us an update on that?

Glenn, that's really hard right now for us to comment on in light of this -- until the acquisitions are completed, so depending upon how many acquisitions we do have and how many new store openings. So, right now it's a little early to tell you that. So, again, I will keep you posted as transactions do close.

Your next question comes from Mark Smith of Lake Street Capital. Please go ahead.

First one from me, online sales sounds like it was like $2 million during the quarter. Can you talk about sequential changes, maybe what you signed in March versus January? And it sounds like April's continued to ramp, is that coming from just customers naturally moving over to e-com or did you see a big bump as we saw more stay home orders?

I think it was a combination our increase in digital marketing, we're able to acquire a customer online at a very attractive acquisition cost and we are -- continuing to increase that spend because of that, that's driving more traffic, more unique visitors, more transactions. We had some impact on some products related to COVID that we think will continue over the next several quarters in terms of some hand sanitizers and isopropyl alcohol and those kinds of products. But our e-commerce business is being integrated with all of our locations. And we're very, very excited about the impact that our online business, which is now able to offer tens of thousands of different items in an online environment and have the customer through our omni channel functionality either order online or go to one of our stores and pick it up or have it drop ship right to their farm. So that optionality we’ve taken and our will call and curbside experience certainly has proven to us that our customer has a propensity to order to that type of process. So, I think it's really just a combination of we're spending more money online, we're getting more activity, we're closing more business and we see that continuing. And that integrated omni channel approach, we think is going to have multiple effect of more online business, more traffic to the stores, will pick up we believe more commercial business as we centralize our online and offline strategy.

And then as we look at kind of inventory and supply chain, looks like you guys have been pretty smart about buying inventory at the right times and having the right levels. As you look at the supply chain, are there any issues or risks out there that you see right now?

So certainly as we look at the supply chain moving forward, we're very excited about the opportunities that present themselves right now. We know that with, as Michael stated, the omnichannel approach with the ability to serve our customers in multiple ways, with our new fulfillment center in Tulsa, our confidence level in serving our customers in multiple ways just get stronger. And we believe as we move forward with this fulfillment approach, we're going to have the ability to serve in multiple ways and put us ahead of the competition.

Glenn on a side note, we bulk up on inventory into the COVID pandemic. We brought inventory of about $3 million and it's well-served our customers. And I think that's what differentiates GrowGen from a lot of other smaller stores we have. Our stores have never been so well-stocked and we stayed ahead of any supply chain disruptions. We've seen very little supply chain disruptions, but the ones that have been out there we've been way ahead of.

Your next question comes from Peter Wright of Intro-acts. Please go ahead.

My first question is on your business pipeline, you gave some great qualitative color. My first question is quantitatively, can you comment as the acquirer kind of in the hydroponic space. Can you discuss kind of your expectations on any magnitude at this point of kind of the better deal you're getting today? I'm kind of acquiring these names as you had been having in the past. And my second question I'll just storm back out there is really on the white label strategy, and so it's 1% right now. What I'd love to better understand is where can this go? What is maturity there? And in the hydroponics market, one way I'm trying to think of it is the concept of brand loyalty, how brand loyal are these costumers and how easy is it going to be for you to switch customers in the segments that you're targeting to a white label solutions.

Hey Darren, I'll take the first part I'll give you the second part. As a matter of what we're seeing out in the markets, again our pipeline is strong. Pricing? We've been paying such unbelievable prices for stores out there. Can pricing get better? I don't think so. We're seeing more out there than we've ever seen before. But again, pricing remains the same for us. Again, we're looking at larger transactions than smaller transactions. Back a few years ago, we were looking for smaller transactions. Now it's best of breed in the states. In the mature states we're looking to get into, if not GrowGen opens. We'll open a store in that state. So again, on a pricing side of it, I don't think you're seeing that much variation and you were paying anywhere from 1.5 to 2.5 times EBITDA plus inventory. So those prices we see still remain the same. You may see a little down tick. But I don't think anything substantial or material.

Regarding private label one of the things that we're very proud of is our staff. With over 200 employees now, most of them are professional growers or agronomists, they understand cultivation, they understand gardening. And that experience is what we deliver day in day out at any part of the business. So our capability of introducing new products, new technology, is very unique in the hydroponic space. I don't believe anyone has a capability that we have in terms of delivering new product and new technology, our ability to source product on a global basis. We acquired 14 trademarks last year, Sunleaves being the first one. We put an internal goal of this year of 10% of our of our sales to be one of the private label products that we're bringing to the market, which includes a lot of commodity products scissors, trellis, pots those are things that are very commodity driven that we can deliver high quality at a great price. Overtime, we think it could be 20% to maybe 30% of the overall business, and margins that will exceed 50%. And that's what we're seeing in the sourcing and the savings that we're getting by going direct to manufacturers. So, it's a tremendous long term initiative. And I think you're going to see the rewards quarter-over-quarter in terms of increased profit and also loyalty to products that GrowGeneration is backing and putting its name on. And we're just really getting started with the Sunleaves brand and you're going to see many, many more new products come to the stores and be sold through all the various channels that GrowGen can offer.

If you listen to 10 year initiative, so this will be going on from -- this will a decade long initiative for GrowGen. So, it's not going to take effect in one day. It's going to be, you will see a gradual increase quarter over quarter, you'll see a beautiful chart upswinging throughout. But once again it's going to take some time for it to take hold and start to affect margins for GrowGen.

If I could add one little question there. What is your data strategy in light of kind of your white label strategy? And part of my question is really you guys are the largest kind of in a highly fragmented market. You have a loyalty program plan. How is it that you're kind of treating data to advocate kind of how aggressive you could go with this and in certain skews and where you got the most room for pricing and potential…

Yes, I mean you look at it, we have 10 departments, 10 product departments. We actually just added an 11th department called the clean room, which is going to be everything related to you know sanitizing your cultivation facility. We recently did a deal with 3M on a adhesive material that basically sanitizes your cultivation facilities. So we can develop product and we can deliver solutions for our customers based on the market need, and we're very nimble. We have the ability to really react with our ERP system. We have tremendous knowledge now of what's selling. And we're certainly looking at that data on a regular basis and making business decisions based on the business intelligence that we're gathering. And everything that we do has a financial analysis attached to it. And we look at and we're not going to go into a private label product unless we can see some real margin expansion, and it makes sense from a marketing and sales perspective. So, we take that all into account. But as we said, there's tremendous upside, there's tremendous opportunity to continue to build that side of the business, which will drive as Darren said, this is a long term strategy. This is a strategy that we will constantly be developing new product and bringing product to the stores. And again, we see a very successful start to the private label to Sunleaves brand.

We have just deployed our business intelligence dashboard system that gives us clear visibility down to the skew, turn GMROI. So for the first time, we really have the dashboard system and the clear visibility on all of our items and it's going to help us in the future.

Your next question comes from Brian Nagel from Oppenheimer. Please go ahead.

So Michael, I wanted to -- you had mentioned in your prepared comments and I missed maybe a bit of a follow up to some of the other questions, but you talked about the buy online pick up in store. And so the question I have is maybe just elaborate a little bit further on that. I just wonder to what extent has this been rolled out so far? Clearly, other retailers there’s somewhat similar to GrowGen used this successfully. But how do you think about either what you're seeing already or your thoughts about how this could really enhance that relationship with the customer? We'll bring a new customer, we'll it help to just improve frequency of the stores and such?

I think what we've proven out during the COVID situation is that our customer will absolutely go to the Internet, fill out a form, or go to a shopping cart and have a order pick, packed and ready for pickup. And we've demonstrated that, I think we've done over 500 transactions over the last six weeks in that type of format. So it showed us and again, we've been working on the buy online pickup integration for about 12 months now. We partnered with Adobe Magento. We've been developing the Web site and integrating our inventory across all 27 locations. So we think it's going to have a tremendous impact. I mean, the ability of our customer to search through inventory to really drill down into inventory complementary products and have that service where the product will be delivered, will be available and/or delivered same day or next day, we think it's going to have a tremendous impact on repeat buys. We think our average transaction, which we're seeing online is significantly higher than our walk in traffic, which we get over a thousand individuals a day right now and that number is increasing. So I think it's going to have really a dynamic impact on our business more online sales, more in store activity in terms of transaction. We think the average basket will be higher. So we also think we'll pick up more commercial business as everything centralizes. And we continue to increase our digital marketing spend, which has been relatively modest. In terms of our spend and seeing our acquisition costs, either with the gradual increase of online spending that we started to do this quarter, we still been able to maintain a very attractive cost of acquisition. And we're going to start to ramp that up as we move the omni-channel functionality into a live position, which is scheduled for the month of June. So right now we've only done some soft testing through our own, where the customer comes in. But the full blown integrated omnichannel solution will be available to all of our customers in the month of June.

[Operator Instructions] So there are no further questions at this time. Please proceed.

Thank you for your time, and thank you for your support and interest in GrowGeneration. We’re very thankful to our employees, shareholders, and investors for all their support. And with this time of COVID, we certainly send our best wishes to everyone to be safe and healthy. And we look forward to sharing our Q2 2020 results with everyone. Thank you very much.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and ask that you please disconnect your lines.