Good morning. My name is Ennis and I will be your conference operator today. At this time, I’d like to welcome everyone to the GrowGeneration Corp. first quarter 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you’d like to ask a question during this time, simply press star then the number one on your telephone keypad. If you’d like to withdraw your question, please press star then the number two. Thank you. Mr. Michael Salaman, you may begin your conference.

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 2021 earnings conference call. With me this morning is Darren Lampert, our CEO and co-founder; Jeff Lasher, our Chief Financial Officer; and Tony Sullivan, our Chief Operating Officer, who will all be participants on our call this morning. After our management remarks, there will be an analyst Q&A 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. Such statements can be identified by terms such as believe, expect, intend and may. You should not place undue reliance on forward-looking statements. Actual results may differ materially from these forward-looking statements, and we do not undertake any obligation to update any forward-looking statements we make today. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued yesterday as well as risks and uncertainties included in the section under the caption, Risk Factors and Management’s Discussion and Analysis of Financial Condition and Results of Operations in our annual report on Form 10-K filed with the SEC and any subsequent Form 10-Q and Form 8-K filed with the SEC. Legislation is opening more states to grow more plants, and at the national level, all eyes are focused on Congress and the new administration that seems to be making it easier for people to cultivate plants legally and obtain the ability to [indiscernible]. In the first quarter of 2021, three new states, New York, Virginia and New Mexico legalized cannabis for adult use, bringing the total to 18 states. What sets GrowGen apart is our focus on selection, service and solutions for our customers. Our leadership in the industry comes from our relentless focus on customer service for all of our customers, from craft growers to delivering end-to-end solutions for large commercial operators. Controlled environment agriculture is emerging as the most efficient, sustainable and scalable method to grow all types of plants. Controlling your environment is critical to the indoor grower’s success. GrowGen continues to lead by having fully stocked hydroponic garden centers, investing in technology, supply chain, omnichannel solutions, and the employment of the largest contingent of grow pro professionals in the U.S. Our first quarter record results were achieved only through the relentless efforts of the best team of professionals in our industry, the strength of our supply chain we have built and are building, and our commitment to provide the best of breed and latest innovative products to our customers so they can grow and sell the highest quality plants in the market. I will now turn the call over to Darren, who will present our first quarter 2021 results. Darren?

Thank you Michael. Good morning and welcome to our first quarter 2021 earnings call. Before I begin with my prepared remarks about the quarter, I’d like to thank each and every one of our staff and customers for their hard work, dedication and loyalty. The company generated revenue of $90 million in the quarter, a 173% increase year-over-year with a 51% increase in same store sales. The company earned $0.10 per share on a record GAAP net income of $6.1 million. Record adjusted EBITDA was over $11 million for first quarter 2021 versus $2.4 million for first quarter 2020, an increase of 364% over the same quarter last year. As we continue to expand our operations and serve more customers, we are increasing fiscal year 2021 revenue guidance to $450 million to $470 million and increasing adjusted EBITDA guidance for 2021 for $54 million to $58 million. The first quarter was very busy for us, and that pace has not abated. We added 14 new locations year to date and plan to acquire at least six additional stores that represent the best in market operations. Additionally, we plan to greenfield six new locations this year in markets such as California, Mississippi, Oklahoma, New York and New Jersey. That would bring our total location count to at least 65 at the end of 2021, and we remain on target to achieve over 100 locations by 2023. In the first quarter, we had over 100,000 walk-in customers per month to our hydroponic garden centers. Our ecommerce channel grew 126% to $4.4 million in the quarter versus $1.9 million for the same period last year. Ecommerce transactions were up almost three times to over 17,000 transactions in 2020 compared to 6,300 in 2019, and attracted over 1.2 million unique visitors to growgeneration.com. We…

Thank you Darren. We had another successful quarter with record financial results. We are very proud of our team’s continued growth, execution and performance in Q1 of 2021. As Darren stated, we currently operate 53 locations across 12 states. Our team is now over 600 across our multiple divisions, including retail, commercial and ecommerce. Key operating initiatives and accomplishments in our first quarter, acquisitions and integrations - Darren spoke about our completed acquisitions and our ongoing acquisition pipeline. We have developed a documented and consistent team approach to acquisitions and the integration of these companies we are purchasing. Our approach includes inventory valuation and analysis, on-boarding, training and transitioning our new team members, and all system, service and SOP training. Our proven process allows us to close multiple transactions in any given month and book revenue on the day of closing, at the time we help our newest customers leverage our scale to improve customer service and efficiencies as they adopt the GrowGen model. We have developed a real estate and two-year growth strategy that is targeting the best-of-breed acquisitions and greenfield opportunities throughout the U.S. We are building a hub multi-channel fulfillment and spoke model to better serve the rapid growth we are experiencing in our industry. At the same time, we are building a multi-channel supply chain for direct fulfillment, product transfer to any GrowGen location, and support for our growing private label business. Our supply chain currently expands 900,000 square feet of retail and warehouse space across 53 locations and 12 states. Today, we operate distribution and fulfillment out of our 60,000 square foot location in Sacramento, California and 40,000 square foot location in Tulsa, Oklahoma. On March 9 of 2021, we announced an additional 52,000 square feet in downtown L.A. and 70,000 square feet in Long…

Thank you Tony. As Darren previously discussed, revenue for the quarter was $90 million compared to $33 million last year, an increase of $57 million or 173%. The increase in revenues is primarily attributable to a $41.4 million increase in revenue related to stores acquired during 2020 and since the beginning of this year, and an increase of $14.5 million from same store sales as we grew from $28.5 million to $43 million in 22 locations open for the same period in 2020 and in 2021. Gross profit margin was 28.2% for the quarter, up 110 basis points from prior year. Driving this margin expansion was an increase in revenues from both private label products and distributed products, which were 6.2% of revenues for the quarter compared to less than 1% of revenues for the same period last year. Gross profit dollar generation was up 184% from prior year from increased revenue and margin expansion. Store operating costs totaled $8.2 million for the quarter compared to $3.6 million for last year, an increase of $4.5 million or 125%. That was driven by the 173% increase in revenues and the addition of 25 locations. We did increase selling, general and administrative costs by about $3.1 million to support the enterprise growth, but share-based compensation partially offset that increase. Expense associated with share-based comp decreased $2.8 million due to timing of awards in 2020. Net income for the quarter was $6.1 million compared to a net loss of approximately $2.1 million for the same period in 2020. Net income was $0.10 per share. Cash used in acquisitions totaled $39.3 million and capital investments in operational needs totaled $2.7 million. Adjusted EBITDA was $11.1 million for the quarter compared to $2.4 million in 2020, an increase of 4.6 times the quarter last year. Share count at present is 58.83 million shares, and we estimate that weighted average shares on a fully diluted basis at the end of Q2 will be 61 million shares. In Q1, shares issued in connection with business combinations was 548,000. [Indiscernible] shares in the acquisition activity to incentivize management and targets to become long-term partners of the company. As Darren discussed, we estimate that revenue for the year will be between $450 million and $470 million based on 53 retail operations, our planned openings, and two proprietary brands that we own. We estimate that EBITDA adjusted for share-based compensation with those operations will be between $54 million and $58 million. Along with our new stores that we are in the process of constructing, we have multiple garden centers that we may acquire in 2021 which, upon closing, would impact revenue guidance and increase our store count from 53 to 65 by year end. Now I’d like to turn the call back to Darren for concluding remarks before Q&A.

Thank you Jeff. GrowGeneration has now built the foundation for tremendous growth for the next several decades to come. Our store acquisitions and new store openings continue to drive growth as same store sales results were 51% for Q1 2021 versus same period last year. Today, we own and operate 53 locations. With our growth initiatives, we will increase our store count to over 65 locations by year end. GrowGeneration has built a national supply chain for the agricultural and cannabis industry. Our leadership position is driven through our corporate mission statement to be the largest chain of hydroponic garden centers in North America. We continue to invest in our supply chain and technology, creating more efficiencies across all departments, providing our customers with the product they want, where they want and when they need them. As we look into the future, we think there are tremendous opportunities to add to our network through the acquisition of independent retailers and open greenfield locations in new markets to meet expanding customer demand. 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’d like to turn the call over to the Operator to answer a few questions.

[Operator instructions] Your first question comes from Mark Smith with Lake Street Capital. Mark, please go ahead.

Thanks for the update on guidance. Just wondering if you can give us a little more insight there on what’s built into it, Jeff, if you can just reiterate a little bit of your commentary and the end, and then maybe Darren, philosophically how you’re looking at your guidance, if you feel like this is a little more aggressive guidance, or any insights that you have into the guidance would be great.

Sure Mark, this is Darren. I’ll take this question. Our guidance for the year of $450 million to $470 million includes our 53 current locations and additional new store openings in L.A., Long Beach, Mississippi, and Ardmore, Oklahoma, which would bring it up to 57 stores, though currently we’re guiding to 65 stores. All additional store openings and potential acquisitions will be updated [indiscernible]. We have a very healthy pipeline going forward. We believe we can close up to another $100 million of acquisitions in the remainder of 2021, so as we close these acquisitions, you’ll see us updating guidance on a quarterly basis.

Excellent, and then just looking at the greenfield stores, talk a little bit about the opportunity there, the outlook, and maybe the cadence and timing a little bit of when you expect to get these open.

Yes, so Mark, this is Tony, I’ll take that question. We have a documented two-year real estate strategy and a five-year targeted outlook. We will be greenfielding stores in emerging markets and states that legalize. We will be backfilling in targeted existing markets, and in the near term we’ll be opening, as Darren has shared with you, in L.A., New York, New Jersey, Illinois, Oklahoma and Mississippi this year, and as stated we’re planning to end the year around 65 stores and by the end of 2023 100-plus stores.

Okay, and if we look at just the opportunity within these, how do you feel about returns on greenfield versus acquisition? I guess maybe looking at Oklahoma is a good example of returns on greenfield. Do you think these new stores can do similar numbers to what we’ve seen out of Oklahoma?

You know, Mark, right now we do. We’re looking right now in the Mississippi markets. It’s a little early right now. You’re going to see one more vote in front of the Supreme Court in the next month or two, but you’re looking right now at Mississippi with very open licensing rules, at least that’s what’s being proposed right now, so pretty similar to Oklahoma - no residency requirements, very inexpensive licensing, so you’re seeing pretty open licensing, so we believe the Mississippi market will be very much like the Oklahoma market. You’re seeing some of the early talks coming out [indiscernible] with craft licensing, 50% of the licensing going to the underrepresented, very favorable home grow rules, and we do believe certainly with New York opening up licensing, we believe you may see a sea change on the [indiscernible] may start looking like the West Coast, so we couldn’t be any more excited. You’ll see us in the New York markets in the next six weeks. I do believe you’ll see us in the Illinois market in the next six weeks also, so you’re going to start seeing GrowGen expanding into new states and, again, continuing to build in the more mature states that we’re in. We still see tremendous opportunity in states that we’re transacting business in - California, we see tremendous opportunity left in Michigan right now, we’re in the midst of greenfielding another store in Oklahoma as we speak. So again, we see the industry expanding at such a tremendous rate through this decade and it kind of equates right now, when you’re looking at the compounded annual growth rates that you’re hearing in this industry - you know, 20% through this decade, going from $20 billion up to $100 billion. We’re going to be the leader in it. Right now, GrowGen is certainly growing quicker than the industry. There’s less restrictions for us to open stores on a state-by-state basis, there’s less competition for GrowGeneration, and we also represent the home growers, the craft growers, the caregivers, the single state operators and the multi-state operators, so you’re seeing a tremendous, tremendous group of individuals that GrowGen is representing, and that’s why you’re seeing over 100,000 individuals walking through [indiscernible] is adding quickly right now.

Great, thank you guys.

Thank you Mark.

Thank you. Your next question comes from Andrew Carter with Stifel. Andrew, please go ahead.

Hey, thanks. Good morning. Wanted to ask, thinking about the EBITDA margin guidance for the year, [indiscernible] range is 12.3%. You achieved 12.3% in 1Q21, which has typically been your weakest margin quarter for the year, so I wanted to ask about the phasing of margin throughout the remainder of the year in terms of any headwinds we should consider or potential constraints around inflation, balanced against some growing margin tailwinds you have. Thanks.

Yes Andrew, right now we’re being very, very conservative with margin guidance and also EBITDA guidance. First quarter has been normally our weakest EBITDA and margin quarter. We are seeing tremendous headwinds with port congestion, certainly shipping inflation, commodity inflation, so we’re taking a very conservative approach. We do believe our margins will be going higher this year and our EBITDA margins, but with all the headwinds going on right now, we’re taking a conservative approach, leaving it at 12.3%. We do--again, we’re confident that hopefully we eclipse those numbers.

Great, and then a second question, I wanted to ask about one of the more prominent headwinds that’s out there, the issue of labor shortages and labor inflation, the concern for especially retail and hospitality. Can you comment how you see that as a headwind or, conversely, if you’re largely insulated from these pressures?

Yes Andrew, I’ll take that question. When you look at it, we put it into two buckets. One is from a labor standpoint, we have two-pronged approach. One is our grow pros and our support, and we have a strong bench strength program developing from within and targeting and hiring and bring on board to have additional talent for growth. But most importantly, because of the talent that we bring on board and because of the industry, we offer benefits, we offer bonus, we offer centralized support, so our wages have been very competitive and our benefits have above and beyond as we operate better in these marketplaces.

Thanks. I’ll pass it on.

Thank you. Your next question comes from Brian Nagel with Oppenheimer. Brian, please go ahead.

Hey everyone, good morning. Congratulations on another really nice quarter.

Thank you Brian.

A couple questions I’ll run through here. First off, we saw the results in Q1 and the updates to guidance, but any comments you want to make on this business so far here in the second quarter, particularly given that you and the economy broadly are starting to begin to lap past some of this initial disruption with the COVID crisis?

Yes Brian, in simple terms, the industry remains strong and GrowGen’s business remains strong.

Okay, cool. I’ll leave it at that. Then maybe a longer term question, but you’ve done a great job of really quickly building out this company through organic means and acquisitions. As we look at the prospects for continued strong sales growth, both through ’21 and beyond, what are the key infrastructure-type investments or moves you have to make to support that type of growth?

I’m going to turn that over to Tony, Brian.

Yes, so Brian, we have been making significant investments in the technology, infrastructure and foundation, and more importantly we’re now bringing in the talent, proven talent both internally and externally to build this business out and create the scalable strategy that we’re going to need to go to $1 billion and beyond.

Got it. On that front, Jeff, welcome to the company. Look forward to working with you. Congrats everyone.

Thank you.

Thank you. Your next question comes from Eric Des Lauriers with Craig Hallum. Eric, please go ahead.

Great, thanks for taking my questions, guys, and congrats on yet another impressive quarter here. I wanted to drill into the store pipeline here - you mentioned $100 million in potential acquisitions later this year, and of course numerous greenfield opportunities. Could you give us a sense of the size of the stores on a square footage basis that are within that acquisition pipeline and how that varies to the size of the stores that you plan on opening from a greenfield perspective, and then just as a follow-up to that, as you look towards that 100 store guide by the end of 2023, do you have a blended average from a square footage basis of how large you’d like your stores to be? Thanks.

Hey Eric, this is Michael. I’ll take the first part of that question. When we acquire stores, we’re looking at it from not just square footage, we’re looking at it from the best-of-breed, the existing stores that we’re buying. We look at it from the market presence that they have, the personnel, the talent, the relationships that they have with their customers, so it’s a much more analytical approach to the acquisition strategy. Square footage from an average perspective, I mean, we’re looking at stores between 10,000 to 20,000, and I think more importantly we’re looking at stores now that are doing at least $5 million in revenue or more.

Eric, I’ll take the second half of that. Our average square footage is around 15,000 as we speak today, but we’re really looking--when we look at acquisitions, we’re looking at them from best-of-breed operators, best-of-breed talent that own their market, and then we look at the holistic approach of do we need to expand, relocate, or keep them in position. We’re looking at all of those things when we make that acquisition, and you’ll see as we go through the years, we will be expanding in place, we’ll be relocating right down the street as needed to really double that size of the business in 12 to 18 months.

Okay, great. That’s very helpful. Appreciate that color. Then I guess just last one for me here, as you guys look at the private label opportunity, obviously some impressive acquisitions to date and we’re seeing that start to hit the gross margin numbers, which is really great to see here. Could you just give us a sense of how you view your private label portfolio now? Any additional holes in that portfolio? Should we expect you guys to continue to be aggressive on the private label side of things, or should we think of your M&A pipeline as sort of strictly additional stores at this point? Thanks.

Yes, I’ll take that - this is Tony again. We’re in the early stages of our private label, everybody. Right now, we’ve built up our private label strategy in the back half of Q4. We’re really developing it right now in Q1. You can see as we’ve reported, 6.2% of our total revenue was in private label, but again, early stages. We’re looking at this from a strategy standpoint of complete replacement to side-by-side to line extensions. We have opportunity in lighting, nutrients, additives. We are looking across the entire department portfolio for opportunities that are not brand-agnostic, and we want it to be complementary to our brands. We want to carry the best selection, best solutions, and have the best service in the industry, and that’s complemented by our private label strategy.

Great, appreciate the color. Thanks guys.

Thank you. We have the following question from Mike Grondahl with Northland Securities. Mike, please go ahead.

Hey, thanks guys, and congratulations. As you look at your base of commercial customers, the same store sales were really strong. Any sense of just new commercial customers that you brought on in the quarter, kind of how is that going, expanding that commercial base?

I think, Mike, it’s twofold. One, you’re seeing a tremendous increase of foot traffic in our stores. You’re also seeing a tremendous increase in commercial customers around the country, both in new states and existing states. Our commercial team continues to grow out its business - it was a $19 million business back in 2019, that’s going to close in on $100 million this year, so we’re picking up new customers on a regular basis and, again, both on the commercial side, on the craft side, on the home grow side. We’re picking up customers everywhere.

Got it. Then kind of a follow-up on the private label, it sounds like you’re in the early innings there. Is that portfolio of products going to expand meaningfully or would you say there’s just a few spots to add products to it? I just want to make sure I understand that.

Yes Mike, I’ll answer that. Again, when we state we’re in the early stages, we’ve rolled out some early franchises, like our ion lights and some nutrients and additives, but yes, we’re in the early stages of our peg wall and several other departments that we’re looking at to complement the brand. We have upside in 2021 [indiscernible] build out our private label brand to complement our other brands.

Got it. It sounds like a lot of margin benefit there too. Thanks guys.

Yes.

Thank you. Your next question comes from Aaron Grey with Alliance Global. Aaron, please go ahead.

Hi, good morning, and congrats on the quarter, guys. First question for me is just on potential new markets, specifically New Mexico, which recently legalized adult use cannabis. Just looking at the license structure, it looks like it’s something that could be a nice fit for GrowGeneration, so would just love to get your thoughts on New Mexico and that new adult use market for you guys. Thanks.

You know, right now we certainly are looking at the New Mexico market. We have stores in Colorado and Oklahoma that sell into New Mexico, but you probably will see us in New Mexico in the next 12 months. The market is just unfolding right now. It’s a smaller market than most markets that we are currently in, but as we build out the country, and Aaron, right now we’re in 12 states and Mississippi will be our 13th, that we’re currently building right now, we have 37 states to go in the country, so New Mexico will certainly be on the list. You’re seeing some tremendous movement right now in Virginia, Alabama, so states are coming on, on a regular basis. You’re starting to see that sea change right now. What’s really--the voting in individual states are going up into the 70% mark, and we do believe that as these states come onboard, it’s certainly going to start pushing the federal government to make some changes in their rules and regulations.

Okay, great. Thanks, that’s helpful. A second question I had is just as GrowGen continues to build and scale and we’re taking more efficiencies, I’m wondering as you grow and enter into new markets, just the impact that you guys might be having in terms of nearby hydroponic stores. Are you guys seeing some sort of a Wal-Mart effect because of your scale, you’re able to compete much better than neighboring stores, and is that where you’re seeing some of the increase in the average stores as you’re gaining share from the other competitors nearby? Would just love to get more commentary on the competitive dynamics within some of those new markets you enter into [indiscernible] competition. Thanks.

One of the things that we’re seeing as we enter new markets, Aaron, there really is very little competition. When you go look in the New York market right now, Mississippi, even when we entered Oklahoma, there was very little competition. What you’re seeing is competition in mature markets like California, Michigan, Colorado, Maine - states that we are in right now and we’re winning in. One of the things when GrowGen really looks at its portfolio, we’re winning in the most mature states in the country right now. When we start walking into new states coming onboard - take Mississippi right now, we’re on two different panels in Mississippi right now, we’re a first mover in Mississippi as we were in Oklahoma. We do believe that our Oklahoma business, which is approaching $100 million this year, we’re building out our sixth store right now in Oklahoma, we see the same kind of cadence in Mississippi. You’ll see it in New York, you may see it in New Jersey, so we do believe that we’re winning in the competitive states right now and we’ll be owning the new states coming onboard.

Also Aaron, just to add to that, our channel power gives [indiscernible] advantage. When we enter into states, both size, channel power, and grow pro professionals definitely set us apart as we enter into states.

Thanks for that, that’s really helpful color. I’ll jump back in the queue.

Thank you. Your next question comes from Gerald Pascarelli with Cowen. Gerald, please go ahead.

Hey guys, good morning. Thanks very much for the questions. Hope everyone’s well. Darren, I’d like to get your thoughts or an update, I know you mentioned it in one of the previous answers, but the situation at the ports, and now you have gas shortages. Have you seen any improvement, really, over the past couple of months relative to where we were at the end of the year, and if not, when are you expecting to maybe see some improvements on that front? Thanks.

We haven’t’ seen improvements. What you’re seeing is that so many of our larger orders started back in January and last year, that products are starting to come in. Like anything else, we’re ordering in much bigger size, but the containers are certainly sitting at ports. We also are seeing tremendous problems coming out of India right now with coco and certain other products coming out of India. We don’t see it abating for some time. The only positive is GrowGen has never been better inventoried right now. We have almost $80 million of inventory spread around the country, and we’ve done a tremendous job getting ahead of certainly spring and summer planting seasons. GrowGen is forecasting usually anywhere from four to six months in advance of different seasons in the market, and we certainly understand our bigger SKUs, our better selling SKUs, so we’re very heavy in our higher selling SKUs. There’s still a lot of our products that are not coming in from overseas. A lot of our nutrient brands are still United States manufactured, so we’re well stocked. One of the other things, we’re certainly better stocked than every one of our competitors in the country right now, so we still are the go-to place and we will continue to keep GrowGen stocked. On a third note with that, we have relationships with every manufacturer and vendor in the country, and we have the capital to buy size in any product that we think it will be hard to get in the future, so we are certainly stocking inventory in our warehouses as we speak.

Got it, thanks very much for the color. Just last one from me, just on the pricing environment. Given what have been broad increases in import costs and inflation, do you expect to see price increases from your third party suppliers, and if so, do you think you’ll be able to pass some of that along to your customers? Thanks.

We have seen increases from our suppliers and manufacturers, and we have been able to pass those price increases on.

Perfect. Thanks very much for the color, guys. I’ll hop back in the queue.

Thank you.

Thank you. Your next question comes from Scott Fortune with Roth Capital. Scott, please go ahead.

Hey, good morning. This is Nick on for Scott. Just building off a previous question, with the scale and pricing power you’re seeing across your portfolio, I was just wondering what you’re seeing on the transaction side in terms of multiples and whether or not you’re targeting a certain multiple range for your future acquisitions.

The multiples that we’ve seen, three to five times EBITDA, half times sales, have been pretty consistent in what we’re out purchasing right now. We haven’t seen inflation on that side. One of the things from GrowGen, we can open a store within three to six months anywhere in the country, and it will be successful first month open. Like anything else, we’re buying best of breed. We still have a very full pipeline of acquisitions throughout this year, and we also have a pretty full pipeline of greenfielding stores around the country.

Okay, great. That’s helpful. Then switching over to your footprint side, you’ve built out a robust distribution fulfillment network here. As your business matures and your footprint kind of grows deeper instead of wider, how are you evaluating this footprint you’ve built? Would consolidation in some areas bringing potential cost savings, or how are you kind of looking at that?

I’ll take this one, Nick. As Darren shared with you earlier, we’ve got 37 states of growth ahead of us, so as we look forward, we have a regional supply chain hub strategy that’s in front of us. We’re building out what’s called a hub fulfillment center and spoke model, and with the growth ahead of us, we’re nowhere close. We’re in the early innings of this entire build-out, so consolidation is not even on our minds right now. It’s about how do we build out the U.S. footprint, and we have a very significant strategy in front of us that we are targeting and working on every day to get built out.

Great. Thanks for the color.

Thank you. Your next question comes from Glenn Mattson from Ladenburg. Glenn, please go ahead.

Hi, thanks for taking the question. Nice results, as usual. Curious about gross margin - was better than I had anticipated, and I’m just wondering, I know private label plays a role obviously, but in the not-too-distant past when you were a much smaller company, whether or not you got big orders or not that quarter, enterprise type orders could move the gross margin needle. Is that still the case, or are you so big now that that doesn’t affect it? How should we think about gross margin over the rest of the year?

We feel that gross margins will stay pretty constant as you saw in the first quarter, and because of our size, you won’t see one individual sale move margins in this day and age.

Yes, if you bridge the gross margin for the quarter, Glenn, like you said, private label is a very big component of that 100 basis point movement in our gross margin from first quarter of 2020 to the first quarter of 2021, so we continue to push on that. The proprietary brand addition in Q1 also helped. Overall, we ended up with 6.2% of private label sales versus less than 1% last year, so that’s the primary engine of our gross margin expansion, as well as efficiencies that we’re seeing in our supply chain because of our scale.

Are you willing to give any long term updates in terms of either gross margin or just overall margin? I know you kind of gave some long term updates about 100 locations in 2023 and setting the groundwork for a billion dollar revenue company in the not-too-distant future. Can you just--you know, maybe you’re not ready to do this today, but is there any possibility you could give us some thoughts on what the margin profile of the business would be when you get to that kind of scale, whenever that may be?

Yes, I think that we’ll have some more to talk about later in the year as we develop our long range plans. We’re executing 2021 right now and growing this business 173% this calendar year. We’ll be coming out with longer range plans later in this year, and as Darren mentioned, growing the store count to 100 by 2023 is our target that we’ve put out there right now.

Jeff, I missed the cash flow from operations, cash used in operations. Can you repeat that number?

Yes, hold on one second. On a net cash from operations, we were positive $1 million. We had some investments in inventory, like Darren talked about - that was the biggest movement that we saw this quarter as we invested in inventory to prepare for the season. We feel really good about the ending balance in inventory, and that was a usage of cash from the organization. But if you look at the EBITDA for the quarter of $11 million on an adjusted basis, that operating cash allows us to continue to invest in the business going forward, and we’re looking at that as an opportunity for us to continue to grow the business and scale.

Right. I guess the last thing would just be the change in cash sequentially, it was mostly capex and acquisitions, or was there something else?

Yes, it’s primarily our $39.3 million investment in acquisitions. We did have a marketable security at the end of the quarter, so if you add the marketable security with the cash, we’re still sitting at $130 million-plus on the balance sheet, so we really have that dry powder to do the acquisitions that we have planned for 2021.

Okay, great. That’s it for me. Thanks.

Thank you. There are no further questions at this time. Mr. Lampert, you may proceed.

I’d just like to sum up, and first start by thanking our 600 employees for the tremendous job that they’ve done in the first quarter of this year during very difficult times in our country. With COVID and everything that you’re seeing out there, our employees have worked tirelessly to service our customers and certainly our communities that we’re in. I want to thank each and every one of our shareholders for having faith in this company, and I just want to once again tell everyone that this is the early innings of a century-wide boom. The cannabis industry isn’t a short term phenomenon, and watching and trading stocks every day certainly can get tiring; but we certainly believe that we have a first mover advantage in this industry, we have many decades of growth in front of us, we have scaled this business from a $30 million business in 2018 to guidance this year of over $450 million, so we couldn’t be any more confident in what we’re doing at GrowGen, the staff that we’re building, the executive team, our grow pros, and I couldn’t be prouder to be the CEO and the Chairman of this company, and also the co-founder with Michael Salaman. With that, everyone stay safe and we certainly look forward to updating everyone in August for our second quarter numbers. Thank you.

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