GrowGeneration Corp Stock

Hello everyone, and welcome to Grow Generation's second quarter 2026 earnings conference call. My name is Melissa and I will be your operator for today's call. At this time, participants are in a listen-only mode. Following prepared remarks, we will open the call to questions. from analysts with instructions to be given at that time. This conference call is being recorded, and a replay of today's call will be available on the investor relations section of Grow Generation's website. We will now hand the call over to Phil Carlson with KCSA Strategic Communications for Introduction and the Reading of the Safe Harbor Statement. Please go ahead, Phil.

Thank you, Operator, and welcome everyone to GrowGeneration's second quarter 2026 earnings results conference call. With us today from Grow Generation are Darren Lampert, co-founder and chief executive officer, and Greg Sanders, chief financial officer. Company's second quarter 2026 earnings press release was issued after close of market today. Copy of this press release is available on the investor relations section of the Grow Generation website at ir.growgeneration.com. I would like to remind everyone that certain comments made on this call include forward-looking statements which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and other filings with the FCC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any of the forward-looking statements made today.

During the call, we'll use some non-GAAP financial measures as we describe business performance. SEC filing as well as the earnings press release, which provide recommendations of non-GAAP financial measures to the most directly comparable GAAP measures, are all available on our website. Following the prepared remarks, management will be happy to take your questions. We ask that you please limit yourself to one question and one follow-up. If you have additional questions, please re-enter the queue, and we will take them as time allows. Now I will hand the call over to Grow Generation's co-founder and CEO, Darren Lampert. Darren, please go ahead.

Thanks, Phil, and good afternoon, everyone. Thank you for joining us to review Grow Generation's second quarter 2026 financial results and to discuss our outlook for the rest of 2026. I'm pleased to report that our sales momentum in early 2026 continued into the second quarter. This marks our third consecutive quarter of year-over-year revenue growth. Following the actions we have taken over the past few years as part of our larger strategy to transform ProGeneration into a commercial proprietary brand-driven business. This growth strategy is centered around three key priorities. expanding our commercial platform, growing our proprietary brands, and maintaining a disciplined cost structure. Our expanded commercial B2B business is a core growth driver of our strategy.

Through our digital B2B platform, GrowGenPro, we have strengthened our relationships with both single and multi-state operators, greenhouse growers, and many other commercial cultivation customers throughout North America. These customers recognize the value we provide, with many of them adopting our products and growing protocols into their operations. Another key component of our strategy is growing our proprietary brands across additional channels. Aside from building stronger brand loyalty, proprietary brand sales also represent higher margins, recurring consumable purchases, and create greater competitive differentiation for GroGen in the marketplace. Our efforts have been very successful as we continue to see increased adoption, proprietary brands such as Char-Cour, Drift Hydro, The Harvest Company,.

in and power SI. With this strategy, we set certain goals for ourselves in 2026, including proprietary brand penetration, reaching 40% of cultivation and gardening revenue by year-end. Based on our performance to date, we have updated our full-year adjusted EBITDA goal and now expect to generate adjusted EBITDA in the range of $2 million to $3 million. This is significant for growth generation, as it shows the progress we have already made, as well as the ongoing evolution of our business, as we set the bar higher in order to keep driving revenue growth, reduce costs, and improve margins. Now let's look at our second quarter results. We generated total revenue of 43.2 million, which was in line with our expectations. It represents both sequential and year-over-year growth, even as we operated with a smaller retail store footprint. We reported proprietary brand sales representing approximately 40% of cultivation and gardening revenue, compared to 32% in the same period last year.

So we are already at our year-end target mix just halfway through the year. In addition to reaching this target, these results represent our progress in building a more focused, commercially driven, and profitable business. We've continued to transition our sales towards higher value, recovery consumable, proprietary branded products. Expanding proprietary brands is central to our margin expansion and long-term value creation strategy, and we are very pleased with our progress. Our MMI storage solution segment also delivered solid results this quarter with $8.3 million in revenue. MMI continues to benefit from higher capital investment activity and its diversification into industrial, agricultural, and specialty end markets. We expect this segment will continue to generate steady growth throughout the remainder of 2026.

All this has contributed to expanded margins. For the second quarter, we achieved gross profit margins of 28.5%, a sequential improvement of 310 basis points from 25.4% last quarter and compared to 28.3% last year. Turning to expenses for the quarter, we reduced store and other operating expenses by approximately 22% year over year and total expenses by 13%. These results display the considerable benefits we have achieved from the increased efficiency and cost reduction initiatives that we have been implementing over the past several years. All of this contributed to GroGen achieving positive adjusted EBITDA for the second quarter. As I mentioned earlier, this is an important milestone for us. Aside from increased profitability, it demonstrates the value we have created through our strategic initiatives as we continue to transform ourselves into a stronger business with increased growth prospects.

I'm not just talking about the operational improvements we've made. I'm also talking about our emphasis on revenue quality. We're growing higher margin sales as part of our revenue mix, particularly through our proprietary brands. Also, attaining positive adjusted EBITDA this quarter has now led us to reach even higher, as we have raised our full year, 2026, adjusted EBITDA goal to the range of $2 million to $3 million. As part of this strategy, we have also continued to maintain a strong balance sheet. Today, we possess one of the strongest balance sheets within our industry. This financial flexibility gives us a considerable competitive advantage as we seek further infrastructure projects and take steps to increase our proprietary brand expansion.

At quarter end, we have $41 million of cash while having no debt. have the resources to keep investing in our growth initiatives, also maintaining disciplined capital allocation. His financial strength also supports our stock repurchase activity. During the second quarter, we repurchased 700,000 shares of common stock at an average price of $1.38 per share. Regarding our forward outlook for the third quarter of 2026, we anticipate revenue of between $44 million to $46 million. At the same time, we expect to generate positive adjusted EBITDA for the quarter. This gives us the confidence to upgrade our full year 2026 guidance, which includes net revenue in the range of $162 million to $168 million and adjusted EBITDA in the range of $2 million to $3 million for the full year. Before I turn the call over to Greg, I want to give some perspective on the latest developments around Schedule 3 rescheduling for adult-use cannabis.

Since our last earnings call, the ALJ concluded its formal hearings. While our ruling is still pending, we are confident that regardless of policy, timing, Rogen is well positioned to support increased investment activity from our customers. We believe there is no other organization better suited for this. With our growing portfolio of proprietary brands and infrastructure builds, and system integrations, longstanding customer partnerships, and our talented and seasoned management team. All of this is supported by our industry-leading balance sheet and proven track record of execution. That concludes my remarks. Now I'll turn the call over to our CFO, Greg Sanders. Thank you, Darren, and good afternoon, everyone.

I'll begin with a review of our second quarter 2026 results, and then I'll provide additional context on our outlook for the year. Our second quarter results represent another step forward in the transformation of growth generation. We delivered our third consecutive quarter of year-over-year growth, continued expansion of proprietary brand penetration, delivered positive adjusted EBITDA, and maintained the disciplined cost structure that we've built over the past several years. These results reflect continued execution against the strategic priorities that we've outlined to investors. For the second quarter of 2026, Grow Generation reported net sales of 43.2 million, an improvement of 12.6% sequentially, and an increase of 5.5% compared to 41 million during the same period last year. Revenue growth continues to be driven primarily by our commercial B2B business and increasing adoption of our proprietary brands, both of which remain strategic priorities for the company. Net sales in our cultivation and gardening segment were $34.9 million for the quarter, compared to $32.9 million in the same period last year.

Proprietary brand sales represented 39.7% of cultivation and gardening revenue, up from 32% in the prior year. This was mainly driven by our strategic initiative to increase our sales mix of higher margin proprietary products, proprietary brand penetration continues to improve the quality of our revenue by increasing gross profit dollars and reinforcing our long-term margin expansion strategy In our storage solution segment, net sales were $8.3 million for the quarter, up from $8.1 million in the second quarter of 2025. Storage Solutions continues to provide an increasingly diversified revenue stream outside of traditional cultivation markets. We continue to see healthy customer demand across retail, industrial, and commercial infrastructure projects, reflecting ongoing investment in warehouse modernization and automation. This diversification helps reduce earnings volatility while providing additional opportunities for profitable growth. Gross profit was 12.3 million for the second quarter of 2026, compared to 11.6 million during the same period last year. In cultivation and gardening, gross profit increased year-over-year, primarily due to increased sales volume and a higher mix of proprietary brand products.

Storage solutions gross profit dollars declined modestly due to project mix and rising transportation costs during the quarter, despite higher sales volume. Total company gross margin was 28.5% compared to 28.3% last year. The improvement reflects the continued expansion of proprietary brand sales within our cultivation and gardening segment, partially offset by higher transportation costs. Now turning to expenses, in the second quarter of 2026, store and other operating expenses declined by approximately 21.9% to $6.1 million, compared to $7.9 million in the second quarter of 2025, reflecting the benefits of our cost reduction initiatives. Selling, general, and administrative expenses were $6.5 million, or a 5% increase compared to $6.2 million last year, primarily due to increases in our commercial sales structure that support our growth initiatives. total operating expenses decreased by $2.2 million, or 13.1%, to $14.7 million, compared to $16.9 million in the comparable 2025 period. Depreciation and amortization totaled 1.5 million, down 1.2 million, or 44%, compared to 2.7 million in the same period last year. The decrease primarily reflects asset retirements related to cost reduction initiatives and certain intangible assets reaching the end of their useful lives.

Gap net loss decreased to $2 million, or negative $0.03 per share, a $2.8 million improvement compared to a net loss of $4.8 million, or negative $0.08 per share in the prior year period. The improvement was primarily driven by reduced operating expenses, revenue growth, and lower depreciation and amortization. In the second quarter, as expected, we returned to positive adjusted EBITDA. Non-GAAP adjusted EBITDA, as defined in our press release, was a positive $0.3 million, a $1.6 million year-over-year improvement compared to a loss of $1.3 million in the prior year. Returning to positive adjusted EBITDA marks an important milestone in the transformation of growth generation. The past several years, we have sustainably reduced our cost structure. improved operating leverage, and position the business to return to sustainable profitability as revenue continues to recover. Now turning to the balance sheet, we ended the quarter with $41 million of cash, cash equivalents, and marketable securities and no debt.

Our debt-free balance sheet continues to differentiate growth generation within the industry and provides us with significant flexibility to invest in organic growth, evaluate strategic opportunities, and opportunity for growth. return capital to shareholders. Earlier this year, our board of directors authorized a share repurchase program of up to $10 million of the company's outstanding common stock, reflecting the board's confidence in the long-term intrinsic value of the business and our commitment to discipline's capital allocation. During the second quarter, the company repurchased 700,000 shares of common stock at an average price of $1.38 per share, exclusive of incremental direct costs. As of June 30, 2026, approximately $9 million remained available under the the stock for purchase program. We intend to execute the program opportunistically during the remainder of 2026, subject to market conditions, capital allocation priorities, and applicable securities law. Now turning to our outlook. We are raising our full year 2026 adjusted EBITDA guidance while reaffirming our revenue outlook. We We continue to expect net revenue in the range of $162 million to $168 million and now expect adjusted EBITDA in the range of $2 million to $3 million for the full year, compared to our previous expectation of approximately break EBIT.

The increase reflects our strong execution year to date, continued focus on revenue quality, proprietary brand penetration, disciplined cost management, and the expected recognition of previously incurred IEPA tariff refunds during the third quarter. For the third quarter, we expect net revenue in the range of $44 million to $46 million while continuing to generate positive adjusted EBITDA. As we look ahead, we believe Grow Generation is operating from a position of strength. We have returned the business to revenue growth, materially improved profitability, maintained a strong debt-free balance sheet, and continue to execute a disciplined long-term strategy. While there is still work ahead, we believe the progress we've made over the past several years has established a much stronger foundation for long-term shareholder value creation. With that, I'll turn the call back to Darren for closing remarks.

Thanks, Greg, and thank you again to everyone for joining us today. Overall, we delivered a strong second quarter, generating revenue growth across most areas of our business, expanding proprietary brand penetration, reducing costs, and improving profitability while reaching a positive adjusted EBITDA for the quarter. performance continues to reflect the benefits of our expanding commercial platform and our improved operations and reduced cost structure. This also enables us to once again end the quarter with a strong balance sheet and no debt. Moving forward, we will remain focused on executing our strategy and continuing our transformation into a commercial proprietary brand driven business. stay focused on driving continued revenue growth while refining our revenue mix, improving margins, and expanding our profitability as we continue to advance towards our year-end goal of proprietary brands representing 40 percent of cultivation and gardening sales, and our updated goal of generating full-year adjusted EBITDA in the range of $2 million to $3 million. As you can see from this quarter's performance, our strategy is continuing to drive improved financial and operating results. And we look forward to keeping you updated as we make further progress during the balance the year. That concludes our prepared remarks. Operator, please open the line for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press Press the star followed by the Q. If you are using a speakerphone, please lift the handset before pressing any keys. We ask that you limit yourselves to one question and one follow-up question. The first question comes from Aaron with Alliance Global Partners.

Please go ahead.

Hi, good evening and thank you very much for the questions. First question for me, just regarding the updated guide, particularly on EBITDA, you guys held sales and gross margin guide increased EBITDA. It implies 3.3 to about 4.3 million in the back half. So just, you know, given the seasonal softness we usually see in 4Q, you know, how much of it is attributable to just a really strong core 3Q, maybe less seasonality, versus that tariff benefit that you mentioned as well? Thank you.

Hi, Aaron. Thank you for the question. I think first things first, the first two quarters gave us a higher level of confidence in the underlying performance of the business. returning the company to positive adjusted EBITDA in the second quarter, along with returning gross margin to 28.5%, and the cost reduction initiatives that we've executed gives us more confidence in the operating model as we move forward. In addition to our comfort around the business and our execution so far year to date, we WE ARE EXPECTING AN AIPA TARIFF AMOUNT TO BE RECOGNIZED IN THE THIRD QUARTER THAT exceeds $2 million. So that is a primary driver as well for us as we look at the third quarter. And we expect generally for the fourth quarter to return to normal levels of performance relative to seasonality and commentary that we've made historically.

Okay, great. Appreciate that, Kyler. I think a question for me, just regarding proprietary brands, you guys already hit your mark for the full year, within the quarter, essentially being at 40%. So just given growth accelerated in the quarter, maybe talk about some of the dynamics that drove that growth, maybe deeper penetration. penetration within your commercial business and with some of the MS roles that I know you've been targeting. Thank you.

I think we've been pretty transparent, Aaron, that our commercial business, our MSO business, is certainly expanding. We still do believe that we're in the early stages of growth in a bunch of our proprietary brands that are out on the market right now. And we still believe that there's tremendous opportunities on the distribution side of it. I would say right now about 90% of the sales going through our proprietary brands right now are GroGen-centric through our commercial division. We have high hopes that, as the years go on, that many other groups adopt our brands within the industry. So we believe that is just starting and we're getting way more involved in the distribution of our brands on a go-forward basis. And our brands are working. We have hired a bunch of technical advisors that are in the facilities on a daily basis.

And the brands are really turning out some of the best cannabis in the country right now, both on the cost side and the quality side. So we couldn't be any prouder of the team that we have out in the markets right now. And really the work that we're doing to transform the industry, really to growing better cannabis at just better levels and better price points.

Great, too. Thanks for the color. I'll go and jump back in the queue.

Thank you. Your next question comes from Brian with Oppenheimer. Please go ahead.

It's Brian Nagel. Nice quarter. Congratulations. Thank you, Brian. So it's going to be a follow-up to the prior question, but you know, here you've had, I guess now three consecutive quarters of pause of year-on-year revenue growth. If you look at the guidance for Q3, again, if I got the numbers right, you're guiding revenue growth year-on-year to be down. So are you... Is there a breaking trend? Is there a reason for that, conservatism? Hey, Brian. Thanks for the question.

When you look at Q3 of 2025, What we executed was a significant volume of durable sales in that period that created some level of lumpiness in the period last year. In fact, Q3 was a fairly significant outlier for us on a quarterly basis when you look at 2025 in its entirety. I think what you're seeing now in 2026 maybe less lumpiness where our durables business has generated more consistent results from quarter to quarter and i think when you look at the guidance that we have in totality for 2026 compared to 2025 we are generally guiding for an up year in contrast to last year i think you're just seeing the revenue more even across the periods and less of that one time exposure that you saw in Q3 of last year. So generally, we're content with our expectations for Q3 in 2026. In fact, we still expect Q3 to be our strongest performing quarter from a revenue perspective. So although it's down year over year,.

feel very good about where we're at in the year and our forward-looking outlook. Yes, Brian, in addition to that, I think on the margin side of it, you will see higher margins in the third quarter this year than you certainly saw last year with higher consumable products than durable products. But like anything else, things can change. We may close some additional sales within the third quarter. quarter that may bring guidance higher. But right now it's really just too early to tell. And we still do believe that you'll see a much stronger fourth quarter this year than you saw last year.

That's very helpful context. I appreciate all that. Then the second question I have, and I guess this is bigger picture, but as we're watching the proprietary brands grow, As you said, from a penetration standpoint, hits your annual target here halfway through the year, so you're well ahead. I guess the first thing I want to ask is, we think that as this business is starting to really take hold, channel, are you seeing particular growth in one channel? I think in the prior question, you mentioned the MSOs, but again, as the business is growing, are you seeing outside strength in one channel? And how should we think about the, from a channel perspective, where you're selling these proprietary brands over time?.

I think the channels are pretty broad right now. And again, mostly on the consumable side of it. And we do believe that with a bunch of our consumable products right now, both under the Charcor and Drip brand names and also ARCO, that there's considerable growth ahead, that we believe that we're just at the start of the of private label penetration in the hydroponic cannabis space. But we do believe that the growth from this industry is just starting in lawn and garden and in the ag space, and we think you'll see many years of growth to come. You know, one of the hardest issues is you're starting from such a small base. So when you're seeing double-digit growth, you know, off a couple million dollars. It's just not making, it's not making, you know, a big enough impact in our numbers.

But as time goes on, we certainly believe that. One of the other sides of it, Brian, when we take a look at, you know, GrowGen today and the big picture of GrowGen, when you go back to 2024, we lost almost, we lost over $16 million adjusted basis. We lost over $6 million last year, and this year we're looking positive $2 to $3 million on an adjusted basis. So we've picked up almost $18 million in about over 25 less locations. So, you know, at this rate, if we continue this rate for a couple more years, you're going to see quite an impact on the growth side of it and also on the EBITDA side of it, which really excites us. We've done an incredible job, I believe, you know, again, reformulating GrowGen and reorganizing it to really to a business-to-business company that's driven by product and technical support. And it's what the industry needs right now.

And we still believe that, you know, again, better years are.

to come. That's very helpful. I appreciate the call, Darren.

Thank you, Brian. Your next call comes from Mark with Lake Street. Please go ahead.

Hi guys, I wanted to ask first about SG&A. It was more flattish year over year, kind of curious. If you got SG&A down where you want it, is this a good run rate or is there more cuts that you think you can make there?.

Hey, Mark, thanks for the question. In terms of SG&A in the third quarter, I think what you've seen from our business is, you is we closed four stores in the first quarter, and we've rebalanced some of our costs into more growth initiatives. So we've expanded our sales force on the commercial side. We've put more dollars into marketing. added more dollars into trialing our private label products across the cannabis space and getting our products into more hands of our core customer. So really more than anything else, it's a rebalancing when we look at 3Q, or excuse me, second quarter in comparison to prior quarters. Now, in terms of the go-forward, again, You know, we are continuing to look at cost reduction opportunities primarily on the store side. And we see SG&A as kind of the core driver of a lot of our growth initiatives. both the commercial side as well as with our proprietary brands.

So we generally expect SG&A to remain in the low sixes in the back half of the year. So, you know, relatively consistent, maybe incrementally down compared to what you saw in the second quarter. but it is generally a stable area for us at this point as we continue to focus on returning to growth in the business.

Perfect. And then I wanted to ask about capital allocation. Balance sheet continues to be in a really good spot here. You started buying back some stock. Here's kind of as we think about M&A, reinvestment in the business, return of cash to shareholders, kind of how you look at allocating some of this cash.

You know, Mark, I think we've been pretty transparent. If the right transaction came, we were certainly buyers within the industry, even outside the industry when it goes into the ag and lawn and garden space. We just haven't found the right transaction for GrowGen right now. And as I've also said in the past, we've spent the last three years restructuring GroGen and spending an enormous amount of time getting our ducks in order. So we are out looking right now, but without the right transaction, we're not looking to buy revenue that we can't integrate into this company and earnings coming with it. So right now we're quite comfortable with the cash in the bank. We are getting a little more aggressive on the loaning side of it on some of the deals that we're working on, CapEx.

That's a wonderful part of our business right now and we believe a growing part of our business. We've been quite conservative with lending money on the back side of it. But again, we certainly are out there looking for the right transactions on that side of it. And we will continue to buy back stock. We have a $10 million stock buyback at the end of the second quarter. We've used a million dollars of that so far.

Perfect. Thank you. Ladies and gentlemen, that is all the time we have for questions. I will turn the call back over to Darren Lampert. Please go ahead.

As you can see from this quarter's performance, our strategy is to continue to drive improved financial and operating results. We look forward to keeping you updated as we make further progress during the balance of the year. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Good day, and welcome to the iAccess Alpha Virtual Best Ideas Summer Investment Conference 2026. Our next presenting company is GrowGeneration Corp. [Operator Instructions] I'd now like to turn the floor over to today's host, Darren Lampert, Chairman, Co-Founder and CEO of GrowGeneration Corp. Please go ahead.

Thank you so much, and good morning, everybody. It's a jury day outside, a jury day on Wall Street. And certainly, I hope I can bring some light to your morning. I look forward to the presentation. And hopefully, I bring you guys another stock that you can invest in because I certainly believe the story is just resonating right now, and I think it's just a perfect time within the cannabis industry. So I'm going to get going and certainly, we would love to take some questions at the end of the presentation.

Our next slide, what you're going to see is our forward-looking statement, take 10 seconds and look through it. It's customary and just read through it quickly, and we're going to move on to the next slide.

Guys, the GrowGen story. What is it? Where are we right now? I think in order to really understand the story, we need to go back to 2014, where our mission statement back in 2014 was to become the largest retailer of hydroponic equipment in the world to service the cannabis industry that was pretty much just getting started in 2014.

You saw adult-use legalization in Colorado on 420 and that was kind of the mantra for us. What we saw was an industry that was pretty much professionalizing that money was coming in. And what you saw on the other side of it was the pits and shovel side of it. It was the side of it that didn't touch the plant but helped the plant grow.

And we figured that this was the side of it that there was less regulation, it was easier to understand, and there was a path to NASDAQ listing. So it was something that really excited us, and we got going in 2014 with a really small acquisition in Pueblo, Colorado.

And the thought pattern was that as cannabis grew, and we certainly believe that it would mimic the wine and spirit industry, and it would really grow from a small industry up to $1 trillion industry. And people are really looking at compounded annual growth rates through for many years to come in that double-digit 20% range.

And we believe that as the underlying business grew, people would need equipment and people would certainly need everything to grow a plant. So what we really were, we were nothing more than the pits and shovels for a growing industry. And you can see what we did in 2014, when we started, we did $1.5 million in business.

We bought a few stores out in Pueblo, Colorado. And the thought was to consolidate the hydroponic retail industry, plus build our own stores along the way. Between 2014 and 2016, we brought the company public. It was a self-underwriting an S-1 to 15c2-11 and we got the company public.

From '14 to '16, we saw tremendous growth in the industry. We kind of built out the plan for the future. We grew the business from $1.5 million, almost to $8 million in those couple of years. And in 2017 and 2018, we began this aggressive acquisition strategy. We were buying stores, and we looked at -- it was time we wanted to get to that 100-store mark.

And in 2018, we hit $30 million of sales and we started making money. But the explosive growth of this company really started in 2019. We did $80 million in business. We uplisted to NASDAQ. We were the first ancillary company at the time that got uplisted to NASDAQ, and it was really quite a feat. And we saw this company that was growing 50% same-store sales year-over-year.

The company was growing like no one could really imagine. In 2020, we grew this business from $80 million to $190 million. But the interesting part about 2020 is we went out and we raised money. We were NASDAQ listed at the time. We went over to Oppenheimer, we raised $50 million in an equity financing. And we followed that up at the end of the year with another $170 million from Oppenheimer and Stifel at $30 a share.

By 2021, this company grew from $180 million in revenue up to $422 million in revenue. Adjusted EBITDA numbers were about $35 million that year. The stock exceeded $60 a share. This company was trading from a start of $1 a share, almost up to about a $3 billion market cap. And I think most people that understand the cannabis industry really saw the top of the industry at the end of 2021.

There are many reasons for it. There was an oversupply of cannabis around the country. Legalization kind of hit this pivot point that it didn't seem like it was ever happening. There was something that was called 280 taxes on cannabis growers that the cannabis growers really couldn't earn any money. They weren't able to deduct expenses off their income statement. And the one thing we always knew that we were only as strong as our customers.

Our customers weren't making money, our customers weren't growing, our customers weren't building, we were going to have some issues, too. So in 2021, we started taking a really hard look at the industry. And we saw issues. We saw cracks in the industry. We saw the illegal markets were still prevalent, but our customers were running into tremendous issues.

They couldn't raise any more capital. They couldn't build. Pricing went -- pricing was down about 80%. Cannabis went from $4,000 or $5,000 a pound to under $1,000 a pound. And Wall Street stepped away from the industry. And I think that's something that's really, really important is what do we do in 2022 through 2024 really to kind of get us to where we are today.

We reset the company. And this company was growing so quickly that we put so much money into infrastructure of this company into building stores. We went from 3 stores in 2014 up to 65 stores by the end of 2022, I think. And the question is what do we do? And what we really started seeing was that the business-to-consumer side of the industry stopped. And we decided at that time was time to kind of put the brakes on, start taking a hard look at the portfolio and taking a hard look at everything that we've done to that date.

We still believe in the industry, but we then -- we came to this conclusion with where the cannabis was growing, speaking to people and just doing a lot of diligence and a lot of individuals on the street. We had almost 800 employees at the time. We're down about 200 employees right now.

We had $130 million of inventory. We're down to $40 million of inventory right now. We put the brakes on. We started closing stores and really transformed the business. And what you're really seeing right now is when you start looking at 2024 to 2026, the business just changed. And what you saw really on the sales side of it in '21, we were $422 million of sales.

We dropped to $278 million in '22, down to $225 million in '23, down $188 million in '24 and $161 million in '25. So you saw this tremendous, tremendous degradation in sales. This year, we're forecasting $162 million to $168 million. So this will be our first year of upward momentum. We just saw 2 positive quarters of year-over-year growth.

But what you see right now, when you look at this company, that was fully transformed and you'll see it throughout my presentation. We're now down to 19 locations from 65 locations. I mean as I said, inventory is down from about $130 million to about $40 million of inventory. We still have $41 million cash on our balance sheet with no debt.

And we have told Wall Street that we will be EBITDA positive this year, coming off a $6 million loss last year and a $16 million loss in 2024. And this is with -- again, with 20 store closures over the last couple of years. So business is going in the right direction. And what we've really done in the last couple of years is we started bringing products to market.

We turned GrowGen almost into a CPG company. And you're going to see products that we've brought to market and the products are selling, and they're growing quickly, high-margin products that also have tremendous verticals to them, we believe, lawn and garden, ag and distribution overseas.

So it's something right now when you look at GrowGen, it's not -- we're not a retail company anymore. We're a B2B company, business-to-business with a tremendous fast-growing CPG component of it, which is the stickiness of it. And throughout the presentation, again, you guys will see that from me.

Next page, please, Phil. Why GrowGen? Why invest in GrowGen right now? First, it's trading basically at cash and inventory that I can tell you. And we have some tremendous assets, again, within this company. We have a company called MMI that we'll discuss a little later, which is something that we bought in 2021.

It's a vertical benching and racking company for agriculture. But more importantly, most of its business right now is in mobile benching that moves. And it's something it's a $27 million business, earning about $7 million. And it's a tremendously valuable asset that's sitting on our balance sheet right now, what you have is high-margin proprietary brands driving sustainable growth at GrowGen.

We've built a private label division from next to 0 to 37% of sales as of last quarter. Last year it was 32%, 26% the year before. We're forecasting right now about 40% by the end of the year. And it's really helping our revenue mix, as you saw in the first quarter. It's helping margins. Margins in the first quarter were 25.5%, something that certainly didn't make me happy. We closed 4 stores in the first quarter, took some write-downs on inventory.

But we are expecting, as we told Wall Street, 28% to 29% margins this year. We believe that goes into the 30s next year. So you will see increased margins, increased profitability throughout the year this year. We've diversified our markets across controlled environmental ag.

And for people who don't know what controlled CEA is controlled environmental ag, it's growing indoors. It's controlling environments to get best yields, best quality and the same plants every time. One of the things with growing outside, you're dependent on weather. Growing inside, you're not.

So everything is -- again, everything is built these days indoors control systems, people aren't feeding plants anymore and working around facilities. Everything is done and everything is automated. And that's what we do. That's what we sell. That's our specialty. And we believe right now that 90% of fruit vegetables are coming in from overseas, that's going to change.

Our main business still is cannabis. It's 85%, 90% of our business. But we believe as the years go on, as you'll see later in the presentation, that we are diversifying into lawn and garden into ag and into overseas, but we believe that's going to certainly drive growth into the future. Right now, we have a debt-free balance sheet over $41 million in cash, over $40 million of inventory paid for a CPG component of GrowGen our private label brands that we own. That's a $45 million to $50 million business right now and growing, and we also own MMI.

And our progress to profitability is pretty clear, lost $16 million on an EBITDA basis in '24, lost $6 million last year. This year, we're again told Wall Street will be EBITDA positive. And we believe that we keep growing into the future on those numbers. And right now, as I said earlier, you're buying GrowGen for cash and inventory. And that's still -- the strategic evolution of GrowGen.

It's gone from typical retail, boring typical retail, expensive stores, shrinkage, inventory loss, that whole 9 yard of running a retail platform. We've turned it into a B2B platform, commercial focused, 2 large warehouses, 100,000 square feet in Ohio, 60,000 square feet in Sacramento. And a lot of the stores that we do own, we don't call them stores anymore. They're more hubs for us. We use those as mini hubs for shipping, for marketing.

And again, most of these places are right by where our commercial customers are. So easy shipping and just easier for our customers. Right now, we have platforms that you can go online and purchase websites. We have portals for our commercial customers. So we've totally evolved stocking at GrowGen from going into the stores from nothing more than direct to pharma shipments, commercial salesmen at GrowGen.

We have facility advisers when people have issues. We send people to the facilities to help them fix their issues. And that's really where GrowGen has gone. It's much more efficient than the stores that we used to own. And we've cut millions and millions of dollars from our expense lines, basically closing stores and just turning it into a B2B, more online business, commercial salespeople, affiliates and different ways to sell.

Controlled environmental labs, we are the leader right now within the industry we're in. As we grow up, we want to be a leader also in the ag side of it. But like anything else, it's going to take time, but we are moving and moving in the right direction. Proprietary brands has been growing double digits every year. This year is no different. We believe we'll hit that 40% mark this year, up from 32% last year and 24%, I think, the year before. And from there, we do believe we go into the 50s by '27/'28.

Diversified distribution strategic reach, again, we reach everywhere. So through our warehouses and through our shipping and transport and our supply chain, we reach every customer in the country right now. And we are starting to expand into the international markets through distribution channels and distribution agreements that we signed with some nice sized companies overseas.

Next. Guys, the growth flywheel. It's an interesting slide. It's the commercial cultivation side of it, controlled environmental, ag side of it. And what it's really doing, it's lumping what we're doing with our proprietary brands, the market expansion, the B2B and digital infrastructure scaling that we're doing and the consolidation of our stores. And that's what's gotten us here today.

Every time we do close a store, we lose some business. There are people that still enjoy walking into stores and shopping in stores. So we've basically -- we've gotten rid of -- not gotten rid of, but we've lost a tremendous amount of our small consumer customers, and they do add up. But we're starting to make it back both on our private label division sales, our portal sales and overseas sales.

And also into lawn and garden. So what we're doing is working. Next. Expanded market opportunity. What this slide I will show you guys is just the total addressable market of where we are right now and what we're moving into. The CEA infrastructure market, that's controlled environmental and ag, that number includes a lot of different areas right now.

We're looking at cannabis cultivation at a couple of billion, greenhouse produce at $6 billion, specialty crops at another $4 billion, international garden markets and CapEx infrastructure. So what we're doing is we're widening our TAM. When we looked where we were on the cannabis side of it, the TAM wasn't big enough. And we believe that we needed to grow the TAM. And what do we do to grow the TAM? We started taking products that we brought to market through basically from start to finish, we have our own marketing division at GrowGen, our own packaging division at GrowGen.

We have our own, again, registration division at GrowGen. But more importantly, we have the staff that understands what growers need from cannabis to specialty crop. We use a lot of farms out in California to trial these products through testing, through labs.

So really from start -- from inception to launch. And we've done a tremendous job at it. And when I show the products that the next slide is the products that we brought to market, we get a better understanding of really what we're doing on the consumable side of it and really the legs that it has into the future.

Next. Okay. These are our brands. Drip Hydro was launched about 3 years ago. The powders were about a year ago. It's the most cost-efficient soluble nutrients on the market today, healthier plants, richer terpenes, tighter controls on each feed. This is about $1 million a month product for GrowGen right now, but growing double digits. It only entered the market, as I told you a couple of years ago. It's something that really excites GrowGen right now.

It's in hundreds of trials across the country right now. Every time you switch a feeding schedule for a grower out there, you go through trials. It's trials. It's sending our technical advisers out to the larger farms in the country, and it's changing fertigation systems and everything else. There's only one way to get it done.

One is price, two is quality and three is yield. If you hit all 3, people are willing to switch. If you don't, they're not. And Drip is hitting those marks and metrics. So we're starting to sell Drip overseas right now. And we believe that this is going to be a double-digit grower for many years to come.

Char Coir right now is the cream of our private label division. It's a $25 million product and growing. There's a lot of different segments of Char Coir right now. But Char Coir comes in from India single-source operator, RFP certified. We are one of the #1 cocoa sellers in the country right now. It's replacing pet. It's a growing media. We sell in a lot of different ways.

It comes in cocoa pots. So opposed to growing in plastic pots, people are now growing in cocoa pots. It's a much easier way to grow, much healthier way to grow. We believe much quicker uptake in roofs. And this is a product that we have launched a lot of different products under that same name. It's going into lawn and garden.

We just launched cocoa coins for propagation which starts a plant's life. And we believe that this product will be in every lawn and garden store in the country in years to come, and we couldn't be any more excited about it. Ion Lighting is our lighting division. It's a $5 million-plus division for GrowGen right now. And our lights, we believe, are best of breed.

And it's been a decent division for GrowGen. Power Si is a silica product that we've owned for about 6 years right now. It's a pretty steady product for GrowGen. We do also believe it's going to be in lawn and garden. So those are kind of our bigger products.

MMI Storage Solutions is almost a $30 million business. We bought it at a $10 million run rate. It's a company that we believe is worth in excess of $50 million by itself right now. which we get no value for. We put it up for sale a couple of years ago.

We had offers up in the high 30s to $40 million mark, and we didn't take it because the amount of money it was making. And it is growing. It's back to growing this year, something that we're pretty excited about. Harvest Company is something we launched a couple of years ago. It's growing probably 100% year-over-year right now, sells into Home Depot, into Lowe's online and getting into some more of the big box stores online, we believe they'll be in the stores within the next couple of years.

The Harvest Company is the knickknack to grow. It's scissors, it's pots, it's trellising, it's gloves. It's all everything you need to grow a plant, whether it's cannabis or whether it's typical lawn and garden, something that if you went on to its website, each one of these products have separate Instagram pages, separate websites.

You can go online and buy them at growgeneration.com. Something that's really exciting. We'd love you to go take a look at these products, the packaging, the quality of these products, we believe, best of breed in lawn and garden. Next page, Paul. Guys, expanding into mainstream lawn and garden. We spoke about it. Some interesting things. Viagrow, we acquired about a year ago, had agreements with Home Depot and Lowe's and some of the other big box stores. They were pretty far in small online retailer into lawn and garden.

We've done a lot with it. We've changed packaging, certainly have helped with supply chain, purchasing and everything else. And again, it's a growing business for us. We've basically -- everything from Viagrow now sells under the Harvest Company name. We signed an agreement with [ Arot ] Sales a little over a year ago to distribute these products into thousands of IGC stores.

It's been slow, but we do believe that you will see pickup there. And we couldn't be any more excited. Like anything else, first year getting into lawn and garden takes time. It's usually a couple of year uptick and then you should see steady sales growth thereafter. But we will keep everyone posted again on [indiscernible] and our size as we move into lawn and garden.

Next. Supply chain advantages. As I said, we have 2 large distribution centers right now and 4 hubs. We can ship anywhere in the world with anywhere within our country within a day or 2, just in time, mixed pallets. So we make the lives of all our customers much easier. And again, it's something that we are getting better at every year, like anything else.

Price of gas certainly hasn't helped, and I don't think it's helped anyone on the supply chain side of it, but we are getting more efficient. We are starting to charge a slight charge because of transportation costs right now. But it's something that has helped us close stores and really cut expenses over 50% out of this company.

Next. Why GrowGen? Why now? The Catalyst converging in 2026. The cannabis rescheduling. They just rescheduled medical cannabis from 1 to 3. Really, what that does brings money back into the industry, 280E taxes, Cannabis companies right now were unable to deduct expenses off of income. So what you will do is -- what you will see is more money coming back into the industry, more research coming into the industry.

This week, hearings are starting to hopefully reclassify recreational cannabis. And I think the hearings will be a couple of weeks, and we should have some news in July on that. The CEA market secular tailwinds guys, it's happening. I mean growing is happening. People are starting to grow indoors.

And again, it's a specialty. It's working with, again, control systems and irrigation systems, DUs. It's basically replacing the outdoors to make more consistency out of your crops. So again, it's something that's here and it's only getting bigger.

Cost structures, you can read through it, 23.5% OpEx reduction, first quarter of '26. We've taken out $27 million into '25. So 19 stores profitable footprint, no more restructuring charges. $41 million cash, no debt, 3 years of operating runway. So again, guys, now is the time. We spent the last 3 years rightsizing this business, to set up cost structure, brand platform market catalysts. Everything is aligned right now.

We have a $10 million buyback that we instituted about 6 months ago. We did a $6 million buyback a couple of years earlier. You've seen insider buys over the last 3 years. So the insiders believe in it, the company believes in it.

And it's just the market is starting to believe in it, and we think it's -- we think as this company turns profitable, you'll see the market come back to it.

Next Leadership team. I'm our CEO, Co-Founder and Chairman of our Board. I've been an attorney -- securities attorney sin 1985, traded on Wall Street and have been running GrowGen since 2014. Michael Salaman is our Co-Founder and President. He's been, again, founded this business for me in 2014, an incredibly gifted marketing and sales on sales and marketing side of it and also the public market side of it. Greg Sander is our CFO. He was our Controller for 4 years before coming the CFO. So Greg has been with us for some time, comes with a wonderful background, and it does a tremendous job.

We had no material weaknesses within our financials this year. I haven't missed one since we started back in 2016 on the public markets. Next, Financial highlights, the first quarter, $38.5 million sales, 37% private label, 25.5% gross margins. We believe that you'll see that much higher this quarter and going into the future.

OpEx down. Everything is going in the right direction, guys, and you can certainly see from taking a look at it. Next, adjusted EBITDA page, you can look through this. I certainly don't need to explain to you. Next, Why GrowGen. I think guys, we've gone through this. And again, I think we got a minute for questions. So I'm going to take a question or 2, and then we're going to end it.

I think we have no questions, so I'm going to wrap it up. It was an absolute pleasure. And again, if anyone has any questions, please give me a call or give Bill Carson a call, we certainly will get back to you on it. But again, I think the time is now a company is buying back stock.

And again, you're buying the company really for inventory and cash right now, a company that is going profitable, and we believe we will be profitable for many years to come. Thank you. Have a beautiful day and look forward to sharing our second quarter numbers with you guys in August. Thank you.

That concludes GrowGeneration Corp.'s presentation. You may now disconnect. Please consult the conference agenda for the next presenting company.

Hello, everyone, and welcome to GrowGeneration's First Quarter 2026 Earnings Conference Call. My name is Matthew, and I will be your operator for today's call. [Operator Instructions] This conference call is being recorded, and a replay of today's call will be available on the Investor Relations section of GrowGeneration's website.

I will now hand the call over to Phil Carlson with KCSA Strategic Communications for introductions and the reading of the safe harbor statement. Please go ahead, Phil.

Thank you, operator, and welcome, everyone, to GrowGeneration's First Quarter 2026 Earnings Results Conference Call. With us today from GrowGeneration are Darren Lampert, Co-Founder and Chief Executive Officer; and Greg Sanders, Chief Financial Officer. The company's first quarter 2026 earnings press release was issued after close of market today. A copy of this press release is available on the Investor Relations section of the GrowGeneration website at ir.growgeneration.com.

I would like to remind everyone that certain comments made on this call include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any of the forward-looking statements made today.

During the call, we'll use some non-GAAP financial measures as we describe business performance. The SEC filing as well as the earnings press release, which provide reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are all available on our website.

Following prepared remarks, management will be happy to take your questions. [Operator Instructions]

Now I will hand the call over to GrowGeneration's Co-Founder and CEO, Darren Lampert. Darren, please go ahead.

Thanks, Phil, and good afternoon, everyone. Thank you for joining us to review GrowGeneration's first quarter 2026 financial results and to discuss our outlook for the rest of 2026.

Over the past several years, we have transformed GrowGeneration into a more focused and efficient business. Our first quarter results reflect our continued progress highlighted by our second consecutive quarter of year-over-year growth, improving profitability and continued expansion of our proprietary brand mix. While the first quarter is typically our seasonally slowest period, revenue exceeded our expectations, driven by momentum in our commercial business and meaningful contribution from our Storage Solutions segment.

As we move through 2026, we remain focused on 3 priorities: expanding our commercial B2B platform, growing our proprietary brands across additional channels and continuing to improve operating efficiency through the cost reduction initiatives we have implemented over the past several years. Together, these initiatives are helping improve revenue quality, support margin expansion over time and position the business for more sustainable profitability.

As I mentioned, our commercial B2B business remains the core driver of our growth strategy. Through GrowGen.Pro, we continue to expand relationships with multistate operators, greenhouse growers and other commercial cultivation customers across North America.

Within our commercial business, we continue to see increased adoption of proprietary brands such as Char Coir and Drip Hydro as customers standardize around reoccurring consumable programs. At the same time, we continue to reposition our legacy retail footprint into commercial sales and service centers, allowing our technical sales team to deepen customer relationships and support larger commercial accounts more efficiently.

Beyond our core commercial business, we are also expanding our proprietary brands into adjacent channels and new customer categories. Because these brands were developed for professional cultivators, we believe they are well positioned to expand into broader horticulture and consumer markets. Early adoption has been very positive.

During the quarter, we continue expanding distribution into lawn and garden channels through online big box retail and our direct-to-consumer platform, The Harvest Company. We also continue expanding our commercial presence in Canada and advancing additional international distribution relationships. Importantly, these initiatives leverage the same proprietary brand portfolio and supply chain infrastructure already supporting our commercial business, allowing us to pursue growth opportunities without materially increasing complexity across the organization.

We also continue to benefit from the structural cost reduction initiatives implemented over the past several years. Much of this work is now reflected in our operating structure, positioning the business to generate improving profitability as revenue scales.

We also continue to maintain a strong balance sheet, ending the quarter with $41.1 million in cash, cash equivalents and marketable securities and no debt. This financial flexibility supports continued investment in our strategic priorities while maintaining a disciplined approach to capital allocation, including our share repurchase.

Turning to the quarter itself. First quarter revenue exceeded our expectations and marked our second consecutive quarter of year-over-year revenue growth despite operating with a smaller and more efficient footprint. This performance was driven primarily by continued momentum in our commercial business, expanding proprietary brand penetration and strong growth in our Storage Solutions segment.

Proprietary brand sales represented 37% of Cultivation and Gardening revenue during the quarter, reflecting continued progress in shifting our sales mix towards higher-value recurring consumable proprietary branded products.

We also saw strong performance from our Storage Solutions segment, where revenue increased 35.5% year-over-year. This segment continues to benefit from increasing capital investment activity across a broader range of end markets and contributed meaningfully to both revenue growth and profitability during the quarter.

Overall, we believe the quarter reflects continued progress against our strategy to build a more focused, commercially driven and profitable business.

From a profitability standpoint, our first quarter results highlight our continued progress in improving the quality and efficiency of our business. While gross margins were impacted by factors related to store consolidation activity and product mix during the quarter, we believe these pressures are largely short term in nature.

At the same time, we continue to see meaningful benefits from the cost reduction initiatives implemented over the past several years, which contributed to improved profitability during the quarter. As we move through 2026, we expect improving gross margins, continued operating discipline and increasing operating leverage.

Looking to the second quarter, we expect revenue in the range of $42 million to $44 million, along with a return to positive adjusted EBITDA. For the full year, we remain focused on expanding proprietary brand penetration towards our approximately 40% target and achieving approximately breakeven adjusted EBITDA for 2026.

Before I hand the call to Greg, I'd like to briefly comment on the regulatory environment. On April 22, the Acting Attorney General signed an order moving state licensed medical cannabis to Schedule III of the Controlled Substances Act, providing immediate 280E tax relief to qualifying operators. This is a meaningful tailwind for our customers. And as their financial position strengthens, their capacity to invest in the cultivation infrastructure we provide grows with it. While the process remains ongoing, we believe GrowGeneration is well positioned to support our customers as the industry continues to mature and evolve. That concludes my remarks.

Now I'll turn the call over to our CFO, Greg Sanders.

Thank you, Darren, and good afternoon, everyone. I'll begin with a review of our first quarter 2026 results, and then I'll provide additional context on our outlook for the year. Overall, our first quarter performance was consistent with our expectations and reflected continued progress on our key operating priorities, including proprietary brand mix expansion, cost discipline and improving adjusted EBITDA.

For the first quarter of 2026, GrowGeneration reported net sales of $38.4 million, up 7.5% compared to $35.7 million during the same period last year. This year-over-year revenue growth was led by our commercial B2B business.

Net sales in our Cultivation and Gardening segment were $31.9 million for the quarter compared to $30.9 million in the same period last year.

Proprietary brand sales represented 37% of Cultivation and Gardening revenue, up from 32% in the prior year. This was largely driven by our strategic initiatives to increase our sales mix of higher-margin proprietary products, which remains one of the primary drivers of our margin expansion and long-term profitability strategy.

In our Storage Solutions segment, net sales were $6.5 million for the quarter, up from $4.8 million in the first quarter of 2025. Growth in the segment is being driven by increasing capital investment across a broader set of end markets as customers continue to invest in infrastructure, automation and facility expansion. This trend is supporting both volume growth and a more diversified demand profile.

Gross profit was $9.7 million for the first quarter of 2026, consistent with the same period last year. In Cultivation and Gardening, gross profit declined year-over-year, primarily due to inventory-related charges from 4 store closures and a higher mix of lower-margin durable products. Excluding these items, margins would have been generally in line with the prior year. This was partially offset by strength in Storage Solutions, where higher volume and a 200 basis point improvement in gross margin to 39.6% drove a 42.7% increase in gross profit dollars. Total company gross margin was 25.4% for the quarter compared to 27.2% in the prior year period.

Now turning to expenses. In the first quarter of 2026, store and other operating expenses declined by approximately 27.2% to $6.4 million compared to $8.8 million in the first quarter of 2025, reflecting the benefits of our cost reduction initiatives.

Selling, general and administrative expenses were $6.9 million, a 2.6% improvement compared to $7.1 million last year.

Total operating expenses decreased by $4.6 million or 23.4% to $15 million compared to $19.6 million in the comparable 2025 period.

Depreciation and amortization totaled $1.6 million, down $2 million or 55.1% compared to $3.6 million in the same period last year. The decrease primarily reflects asset retirements related to cost reduction initiatives and certain intangible assets reaching the end of their useful lives.

GAAP net loss decreased to $4.9 million or negative $0.08 per share, a $4.5 million improvement compared to a net loss of $9.4 million or negative $0.16 per share in the prior year period. The improvement was primarily driven by higher revenues, reduced operating expenses, lower depreciation and amortization, partially offset by lower gross margin percent.

Non-GAAP adjusted EBITDA, as defined in our press release, was a loss of $1.6 million, a $2.4 million year-over-year improvement compared to a loss of $4 million in the prior year, primarily reflecting the impact of our cost reduction initiatives and improved operating leverage.

Now turning to the balance sheet. We ended the quarter with $41.1 million of cash, cash equivalents and marketable securities and no debt. This reflects our continued focus on liquidity, working capital discipline and inventory quality. Our balance sheet strength provides us with the financial flexibility to execute our strategic priorities while maintaining a disciplined approach to capital allocation.

During the first quarter, our Board of Directors authorized a share repurchase program of up to $10 million of the company's outstanding common stock, reflecting our view that the current share price does not reflect the long-term value of the business. We intend to execute the program opportunistically, subject to market conditions, capital allocation priorities and the applicable securities laws.

Now turning to our outlook. We are reaffirming our full year 2026 guidance. We continue to expect net revenue in the range of $162 million to $168 million and approximately breakeven adjusted EBITDA for the full year. Our outlook reflects a continued focus on revenue quality, proprietary brand mix and disciplined cost management. For the second quarter, we expect net revenue in the range of $42 million to $44 million with a return to positive adjusted EBITDA.

To summarize, our year-over-year revenue growth in the first quarter was driven by continued strength in our commercial business and a meaningful contribution from our Storage Solutions segment. We also delivered improved profitability, reflecting the impact of our cost reduction initiatives and a more efficient operating structure. We ended the quarter with a strong liquidity position and no debt, providing flexibility as we continue to execute our strategy.

Looking ahead, we remain focused on driving revenue quality, expanding proprietary brand penetration toward our approximately 40% year-end target and delivering breakeven adjusted EBITDA for the full year.

With that, I'll turn the call back to Darren for closing remarks.

Thanks, Greg, and thank you again to everyone for joining us today. In closing, we believe the first quarter reflected continued progress against the strategic and operational priorities we have been focused on over the past several years. We delivered another quarter of year-over-year revenue growth, continued expanding proprietary brand penetration, improved profitability and maintained a strong balance sheet.

As we move through 2026, we remain focused on growing our commercial platform, expanding higher-margin proprietary brand sales, driving operating leverage and executing with discipline across the organization. We believe these initiatives position the company well to continue improving profitability and creating long-term shareholder value.

We appreciate your continued support and look forward to updating you on our progress throughout the year. That concludes our prepared remarks. Operator, please open the line for questions.

[Operator Instructions] And your first question comes from Aaron Grey of Alliance Global Partners.

First question for me. Just on the rescheduling news, I want to talk about maybe some of the more near-term impacts and through the mindset of maybe durables and some of the delays in refresh, just given some of the tough cash flow issues and balance sheet issues some operators have had. It might be a bit too early, but could you talk about some potential impacts of now getting clarity on the 280E on the go-forward and potentially getting some forgiveness on the legacy taxes owed and what impact that could have to open up to refreshes and your durables business?

Yes. We've been talking about this for a while. We certainly think it's a meaningful tailwind for our customers. As their financial position strengthens, their capacity to reinvest money in the infrastructure, we believe will provide GrowGen with probably a long-term durable mix going forward into the future. We're starting to see it now. We have never been -- we have been this active since 2021, bidding out lighting, dehumidification and infrastructure for facilities. So we're pretty excited about it.

And as we focus on the B2B side of our business, we're in a beautiful spot right now, and we are able to finance. So we think you will see continued movement in the durable side of the business throughout the year. There's some important -- certainly important conversations coming up in June on the recreational side of it. But the money that's coming back to these balance sheets will be spent a lot of facilities right now need refurbishing. So we're pretty excited, and we saw the mix starting even in the first quarter. But right now, our pipeline hasn't been this strong since '21. And we certainly are looking for a long-term boom on the durable side of it, which also comes into play on the consumables side of it also.

Okay. Great. That's helpful color, Darren. Second question for me, just as we look at 2Q and for the remainder of the year, is as we think about some sequencing of the gross margin, you talked about 2Q being positive EBITDA. How should we think about the role of gross margin and potential step change there? And then how we think sequencing through the year to get to the full year guide?

Yes, Aaron, thanks for the question. So we were happy with the first quarter results coming in at $38 million against our full year goal of $162 million to $168 million in sales. As we look at Q2, Q3, we see the business ramping Q2 $42 million to $44 million in sales and margin profile back into that 27% to 29% range.

I think what you saw in the first quarter was we closed 4 stores, and it had a 1.5 points impact on margin, so slightly lower than expectation. But I think the good news is, as we look at the remainder of the year, we have less store closures scheduled as of this point in time. So we expect less impact in future reporting periods from the closure activity. And we think with $125 million to $130 million in revenue remaining in our full year guidance that we'll be able to position the business back into that 27% to 29% range for the full year.

Yes. And the other side of that also in the first quarter, as we transition this company into a business-to-business as opposed to business-to-consumer, and our private label brands are growing certainly quicker than we have expected, and we believe you'll see those in the 40s before the fourth quarter of this year. We have had some inventory issues with some products that have been sitting around that have become obsolete and slow moving, not our brands, but other brands. So we have gotten a little more aggressive in the first quarter, marking some products and selling some products at discounts. And you'll see that moving positively through the end of the -- through the rest of this year. So you will see margins start ticking back up.

And your next question comes from Brian Nagel of Oppenheimer.

So there are a few questions there. I guess I want to go back to the question was just asked. And look, I -- recognizing there's a lot of moving parts happening both at GrowGen and in the sector. But as you think about -- you mentioned in response to the prior question that you've seen this most build-out activity, I'm probably not using the right words, most build-out activity since '21. Do you think is that a function of, I guess, the rescheduling? Or is there another factor at play or some combination of factors?

I think there's a couple of different functions, Brian. To start with a lot of the facilities do need to be refurbished. Like GrowGen, a lot of our customers have been extremely concerned about their balance sheets as we have. And they have pushed refurbishment and building out another year or a year longer than they could have. So I think everyone has been managing balance sheets.

But on the other side of it, we do believe that with rescheduling, the amount of money coming back into this industry, anywhere between $1 billion and $2 billion back on to balance sheets. I mean, people are looking for more efficient ways to grow, and there are more efficient products out there today. Most of our customers are growing much more efficiently than they used to, getting many more -- getting more pounds per light than they used to, more ounces per light. So it's this trade-off that you're starting to see.

But on the other side of it also, GrowGen is well positioned from a balance sheet side to lend money to our customers and to help them refurbish facilities. So I think it's coming from everywhere. What you're also starting to see, as you probably heard from the MSOs that supply/demand is starting to come into balance. With rescheduling on the medical side, there is talk about some certain of our companies, the MSOs exporting cannabis over into the European markets, which will bring, again, less supply offline here. So hopefully, prices stabilize and start going back up.

So we haven't seen the industry in this shape since 2021. And I'm a firm believer right now. Most of the companies that are in business that are doing well that have retained balance sheets, they're going to be around for a long time to come. And you're going to see a tremendous sea change in this industry. And I do believe from our side of it, from the equipment side of it, GrowGen is going to lead it.

We have changed this business tremendously. We have hired facility advisers, technical advisers. We have groups of GrowGen employees going to facilities on a daily basis, helping with grows, recommending different products to our customers. So the business is just tremendously different.

We're down to 19 facilities right now from 65. And what you saw in the first quarter was year-over-year growth with 12 less facilities. And I think we've been pretty transparent that usually, when we close facilities, we've been losing up to 50% of walk-in business. So you're still seeing revenue growth on that side with many less stores. So the revenue growth that you're seeing in the first quarter, albeit small, was really greater than it looks. And we believe you'll see this growth throughout the year.

One of the exciting parts even you're seeing on the expense side, the expenses coming down, but you're seeing revenue starting to go up. And we think we're just -- we think this is a reset like anything else, Brian. We spent from 2021 to 2026 resetting GrowGen. And we believe right now, we're in that position right now where you'll see quarters over growth, and you'll see GrowGen returning to where it was back in the early 2020s.

That's very helpful, Darren. And so my second question, and you just touched on there, again, if I make sure I'm looking at the numbers correctly, but the revenue -- this is your second consecutive quarter of revenue, total company year-on-year revenue growth. And it looks -- I mean, if I'm reading the numbers right, the revenue growth accelerated rather significantly -- the rate of growth accelerated rather significantly in Q4 and Q1, that's correct? So what's that? I mean how should we think about what happened basically between those 2 quarters?

I think it's twofold. One is year-over-year revenue growth that you saw 2 quarters in a row, Brian. We usually see revenue growth from first -- fourth quarter to first quarter, and then you'll see tremendous revenue growth in the second and third quarters, which are usually our strongest quarters. But we're looking at year-over-year growth. And when you look at last year first quarter, we had 31 stores, and we're down to 19 stores, 19 locations right now. And you're still seeing revenue growth with 12 less locations.

And your next question comes from Mark Smith of Lake Street.

I wanted to dig in just a little bit more on some of the inventory in the closed locations and sales. I realize this puts some pressure on gross profit margin as you're clearing some of this out. But I'm curious if you can quantify at all maybe how much of the sales kind of came from these closed locations inventory and if there's still some inventory out there to work through in Q2?

Yes, Mark. So in the first quarter, we closed 4 locations. And with that, we include some level of detail on the adjusted EBITDA add-back schedule. We estimate that the actual impact on gross margin was about 1.5 points to kind of push us back in the guidance range if we hadn't closed those locations from activity that's really twofold. One is what ends up getting discarded and two is what's liquidated throughout the course of the pre-closing activity. And then there's incremental freight and certain things potentially as well in terms of moving the inventory from those activities.

And I think when you look at the business and maybe the outlook for the rest of 2026, I don't think you'll see as many closures as we had in the first quarter in the next 3 quarters combined. So we expect lesser activity on that end from a closure perspective. And outside of that, we expect business as usual. We have sufficient reserves in place on our inventory right now. So we don't expect quite the impact that we had in Q1 throughout the duration of 2026.

Mark, also on the other side of it, there were certain margin pressures from tariffs in the first quarter. One of our largest product, our largest internal product is Char Coir, and we were dealing with 50% tariffs in the first quarter. So again, products that came in usually third, fourth quarter had a very large tariff on it. So those will start dissipating also going into the second quarter as new product comes into GrowGen. So besides what you saw margin degradation with closed stores and some inventory, you also saw some tariff impact in the first quarter.

Perfect. And tariffs was actually my next question. Just kind of curious, impact on tariffs, what you're looking at today and if you can quantify at all, Greg, maybe any potential refund that you can get on IEEPA tariffs?

Yes. We're -- I mean, like all companies right now that had tariff impact over the last year or so, we're actively pursuing claims that could be refundable to the business. It's too early to comment on what the impact might be. I think all companies are wrestling with kind of the forward-looking expectations for the federal government. But we are pursuing our IEEPA refunds and are hopeful that things will progress in a way that will help the business throughout the back half of the year or into 2027, depending on timing and how things continue to progress.

Thank you, and there are no further questions at this time. I'd now like to turn the call back over to Darren Lampert, Chairman, Co-Founder and CEO, for closing comments.

Thank you. I'd like to thank our shareholders for their continued support, and we look forward to updating you on our second quarter results in August. Thank you very much and have a beautiful night.

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

Hello, everyone, and welcome to GrowGeneration's Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Alan, and I will be your operator for today's call. [Operator Instructions] This conference call is being recorded, and a replay of today's call will be available on the Investor Relations section of GrowGeneration's website. I will now hand over the call to Phil Carlson, with KCSA Strategic Communications for introductions and the reading of the state harbor statement. Please go ahead, Phil.

Thank you, operator, and welcome, everyone, to GrowGeneration's Fourth Quarter and Full Year 2025 Earnings Results Conference Call. With us today from grow generation are Darren Lampert, Co-Founder and Chief Executive Officer; and Greg Sanders, Chief Financial Officer. The company's fourth quarter and full year 2025 earnings press release was issued after the close of market today. A copy of this press release is available on the Investor Relations section of the GrowGeneration website at ir.growgeneration.com. I would like to remind everyone that certain comments made on this call include forward-looking statements which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements.

Please refer to today's press release and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any of the forward-looking statements made today. During the call, we'll use some non-GAAP financial measures as we describe business performance. The SEC filings as well as the earnings press release, which provide reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are all available on our website. Following prepared remarks, management will be happy to take your questions. [Operator Instructions] Now I will hand the call over to GrowGeneration's Co-Founder and CEO, Darren Lampert. Darren, please go ahead.

Thanks, Phil, and good afternoon, everyone. Thank you for joining us to review GrowGeneration's Fourth quarter and full year 2025 financial results and to discuss our outlook for 2026. The 2025 was a defining year for GrowGen. We transformed the business, rightsizing our retail footprint, dramatically expanding proprietary brand penetration to 32.8% for the full year and delivering a 370 basis point improvement in gross margin to 26.8%. These structural improvements drove 58.9% and year-over-year improvement in adjusted EBITDA and GAAP net loss by more than half. The cost structure and brand platform we built in 2025 are the foundation for profitability in 2026. With the permanent structural improvements we've implemented, we believe the company is well positioned to reach approximately breakeven adjusted EBITDA and for the full year 2026.

First, I'd like to talk about some of the financial highlights of last year. During 2025, net sales came in at about $162 million. The year-over-year decline was expected and driven by store closures. During 2025, we consolidated 8 retail stores, bringing our current retail footprint to 23 locations as of December 31. On a same-store basis, our core locations remain relatively stable, which tells us the business is stabilizing as anticipated. Importantly, looking specifically at the fourth quarter of 2025, net sales were up year-over-year. So during what's typically our seasonably lowest revenue quarter, we had slightly higher sales compared to last year with fewer retail locations. I think that says a lot about our core business and the revenue we were able to generate with a smaller, more focused retail footprint.

For the full year 2025, gross margin expanded 370 basis points to 26.8%. As such, we were able to grow gross margin substantially even as total revenue declined as the market came under considerable pressure. This highlights that our proprietary brands are working exactly as they were designed to. For the full year, our private label sales penetration represented 32.8% of cultivation and gardening revenue, up from 24.2% last year. Looking at the fourth quarter of 20 our private label sales penetration was 35.8%. We're very happy about this because every percentage point of private label mix adds margin and pricing control for GrowGen. Moving down our P&L. In 2025, we took nearly $27 million out of operating expenses compared to last year. That's a 28% reduction. Again, just looking at the fourth quarter of 2025, we saw a 44.4% year-over-year improvement in operating expenses.

To be clear, these aren't temporary cuts, the permanent structural changes we've implemented throughout the company that will drive improved costs and savings going forward. All of this led to an $8.5 million or 58.9% year-over-year adjusted EBITDA improvement for 2025, going from negative $14.5 million to negative $6 million. That's a sizable increase and puts us well within striking distance of reaching breakeven. To sum everything up, in 2025, we improved our adjusted EBITDA profitability by $8.5 million despite lower revenue volume. We think this shows the tremendous operating leverage that we've been able to achieve at GrowGen and the expanded margins we've generated from our growing segment, our proprietary brand sales. Private label brands remain a primary growth driver as we move forward.

Our leading brands CharCoir, Drip Hydro, The Harvest Company, dialed in and Power Si continues to see strong adoption in the market. These brands are still in the early stages of introduction and we're expanding into new revenue channels and product extensions, mainly B2B as well as via multistate operators. We expect proprietary brands to reach 40% of cultivation and gardening revenue in 2026. On a broader basis, we continue to shift beyond our legacy retail base. to a national controlled environment agriculture supplier, focused on the larger specialty agricultural and controlled environment markets. In the second half of 2025 we started selling our proprietary brands into the independent garden center channel and relaunched to harvestco.com to serve greenhouse and specialty crop growers.

We also established a distribution partnership with Art sales, expanding our wholesale and B2B reach into thousands of new retail stores across 32 states. Additionally, the company entered the home gardening market through our 2025 acquisition of Viagra, a domestic brand with distribution across retailers, such as Amazon, the Home Depot, Walmart, Lowe's and Tractor Supply. The addition of Viagra further provides us with a scalable platform to serve home gardeners and hobbies cultivators across multiple retail channels nationwide. Last year, we also began to see cultivation infrastructure projects become a larger portion of our business. In 2025, this offering that we branded as GrowGen build, contributed considerable revenue to GrowGen. These are projects where we help commercial and craft operators to either monetize existing facilities or build new ones, including areas such as lighting, benching, HVAC, irrigation and automation systems.

Demand for this offering remains strong, and we expect this business will be a meaningful contributor to revenue in the coming years. In 2025, we also continued our digital transformation of sales as more customers adopt did our customized B2B Pro portal. Our commercial and wholesale customers are continuing to move their purchasing online, utilizing automated ordering and custom catalogs while being able to view inventory in a real time. And currently, this is reducing transaction costs and driving greater reoccurring revenue for GrowGen. Last year, we also commenced our international expansion to improve our growth trajectory. Specifically, we look for opportunities to enter new high-growth cultivation markets with growing numbers of hemp and cannabis licenses. As part of this, we formed a distribution partnership with V1 Solutions to support commercial sales throughout the European Union.

We also began distributing our proprietary products in Costa Rica, which opens up the Central American markets for us. We are thrilled to bring our proprietary products to professional growers across Europe and Central America and believe these distribution partnerships will allow us to quickly scale our brand presence in these markets with minimal capital investment. Complementing this, our MMI Storage Solutions segment also grew in 2025, reaching $27.5 million in revenue. MMI continues to diversify into industrial, agricultural and specialty end markets, and we expect this segment will continue to grow steadily in 2026 given our progress this past year, we believe repurchasing shares at current levels represents a compelling and responsible allocation of capital.

Today, in tandem with our financial results, we announced that our Board of Directors has authorized a share repurchase program for up to $10 million of the company's outstanding common stock. This authorization reports our confidence in GrowGen's long-term strategy. and our commitment to driving sustainable shareholder value. Turning to our outlook for 2026. We expect modest revenue growth for the full year. as we're focused on revenue quality, not volume. As I mentioned previously, we expect proprietary brand sales as a percentage of cultivation and gardening revenue to reach 40% by year-end. We also expect to see further steady improvement in margins and operating expenses during 2026. Through all of this, we anticipate reaching approximately breakeven adjusted EBITDA for the full year. Greg will give more color on this shortly.

With over $46 million in cash and no debt, our improved cost structure and growing multichannel brand strategy, we believe GrowGen is well positioned to capitalize on the anticipated growth of the controlled environment agricultural industry as well as positive developments within the cannabis industry. We expect to generate sustainable and profitable long-term growth from our growing proprietary brand sales, further revenue expansion across independent garden centers, freeing house agriculture specialty crops and cannabis and through cultivation infrastructure projects. We believe we are still in the early stages of the growth cycle and at the best is yet to come. With that, I'll turn the call over to our CFO, Greg Sanders.

Thank you, Darren, and good afternoon, everyone. I'll briefly review our fourth quarter and full year 2025 results and then I'll provide additional context on our outlook for 2026. Starting with our fourth quarter 2025 results. GrowGeneration reported net sales of $37.8 million, up compared to $37.4 million during the same period last year. Encouragingly, the fourth quarter returned to year-over-year revenue growth despite operating with 8 fewer retail locations. Net sales in our cultivation and gardening segment were $32.1 million for the quarter compared to $32.9 million in the same period last year. Proprietary brand sales represented 35.8% of cultivation and gardening revenue, up from 30.4% in the prior year. This continued shift towards higher-margin proprietary products remains 1 of the primary drivers of our margin expansion and long-term profitability strategy.

In our Storage Solutions segment, net sales were $5.7 million for the quarter up from $4.5 million in the fourth quarter of 2024, reflecting stable demand across product lines and diversification into new end markets. Gross profit increased to $9.1 million an increase of $3 million compared to gross profit of $6.1 million for the fourth quarter of 2024. Gross margin increased to 24.1% for the fourth quarter of 2025 compared to 16.4% and for the prior year period, primarily due to higher proprietary brand penetration and the absence of restructuring-related costs incurred in the prior year. Now turning to expenses. In the fourth quarter of 2025 and store and other operating expenses declined by approximately 26.6% to $6.8 million compared to $9.3 million in the fourth quarter of 2024, reflecting the benefits of our cost reduction initiatives Selling, general and administrative expenses were $7.3 million compared to $6.8 million last year.

This increase was mainly due to onetime severance and legal costs of approximately $1.5 million Total operating expenses decreased by $13.3 million or 45.3% to $16.7 million compared to $30.1 million in the comparable 2024 period. Depreciation and amortization totaled $2.4 million compared to $7.1 million in the same period last year. The decrease primarily reflects the absence of prior year asset impairment and restructuring related depreciation associated with store closures. GAAP net loss decreased to $7.4 million or negative $0.12 per share, a $15.9 million improvement compared to a net loss of $23.3 million or negative $0.39 per share in the prior year period. The improvement was primarily driven by higher gross margins and lower operating expenses.

Non-GAAP adjusted EBITDA, as defined in our press release, was a loss of $2 million, a $6.1 million year-over-year improvement compared to a loss of $8.1 million in the prior year reflecting improved sales mix from proprietary brands, gross margin expansion and the continued benefits of our cost reduction initiatives. Now I'll provide a quick overview of our full year 2025 results. Net sales were $161.7 million compared to $188.9 million for 2024 primarily due to declining retail volume from store consolidations. In 2025, proprietary brands accounted for 32.8% of cultivation and gardening sales, up from 24.2% in 2024 and Additionally, proprietary brand sales increased on an absolute basis, growing from $39.5 million in 2024 to $44 million in 2025 and representing an 11.3% year-over-year growth.

Gross profit was $43.3 million for the full year 2025 and a slight decrease compared to gross profit of $43.7 million for the full year 2024. Gross profit margin increased to 26.8% for the full year 2025 compared to 23.1% and for 2024, an improvement of 370 basis points. Net loss was $24 million for the full year 2025 or negative $0.40 per share, a $25.5 million improvement compared to a net loss of $49.5 million for the full year 2024 or negative $0.82 per share. Adjusted EBITDA, as defined in our press release, was negative $6 million for the full year 2025 and an $8.5 million improvement compared to negative $14.5 million for the full year 2024, the improvement in adjusted EBITDA was primarily driven by gross margin expansion from higher proprietary brand penetration and the continued realization of operational cost reduction initiatives.

Now turning to the balance sheet. We ended the year with $46.1 million of cash, cash equivalents and marketable securities and no debt. We have maintained 1 of the strongest balance sheets in our sector which provides significant financial flexibility to support our strategic initiatives. As Darren mentioned today, we announced a share repurchase program authorized by our Board of Directors for up to $10 million of the company's outstanding common stock. Our Board evaluated the program in the context of our financial position, capital needs, and our view that the current share price does not reflect the long-term value of the business, with $46 million in cash and no debt, we have the financial strength to execute this program while preserving flexibility to pursue organic and strategic growth opportunities. We expect to be in the market in the near term.

Now I'll discuss our guidance for 2026, for the full year 2026, we expect modest revenue growth as our focus remains on revenue quality and margin improvement more so than volume. We are guiding net revenue in the range of $162 million to $168 million. We expect proprietary brand sales as a percentage of cultivation and gardening revenue to reach approximately 40% by year-end. We also anticipate further improvement in margins and operating expenses during 2026. Although the majority of the savings we had expected to realize are already reflected in our current run rate. With this and the improvements we've made in our inventory base, we anticipate gross margins for the full year 2026 to be in the range of 27% to 29% based on these factors, we expect to achieve approximately breakeven adjusted EBITDA for the full year 2026.

Our updated guidance assumes a softer first quarter as is typical for our seasonally lightest period. We expect profitability to build progressively throughout the year, with Q2 and Q3 benefiting from outdoor cultivation season, continued gross margin expansion and lower operating cost base relative to 2025. Taken together, this expected cadence supports our goal of approximately breakeven adjusted EBITDA for the full year. To summarize, in the fourth quarter, we generated net sales that were slightly higher than the same period last year despite having fewer retail locations. At the same time, we improved profitability dramatically reflecting margin expansion and structural cost reductions. We have maintained a strong balance sheet while remaining debt free. Looking ahead, we entered 2026 with a significantly improved cost structure meaningful financial flexibility and clear operating targets, including 40% proprietary brand penetration by year's end, a return to sustainable top line growth and breakeven adjusted EBITDA for the full year we believe the structural work we completed in 2025 positions us to execute on future growth and profitability targets. With that, I'll turn the call back to Darren for closing remarks.

Thanks, Greg, and thank you again to everyone for joining us today. In closing, 2025 was a year of significant change for GrowGen. We exited underperforming stores reduced head count and implemented cost reduction initiatives across our entire organization. These actions were difficult, but necessary for our future. Today's results clearly show that our restructuring plan is working. We have stabilized revenue, successfully executed our private label strategy, improved margins and fundamentally reset our cost structure, demonstrating the tremendous operating leverage within our business model while improving profitability dramatically year-over-year.

Looking forward in 2026, GrowGen is well positioned to scale as a lean, brand-led company, supported by a strong balance sheet and ample liquidity. In 2026, we will continue the expansion of our private label brands. At the same time, we will work to increase our presence in the larger specialty agricultural and controlled environment markets. We will also continue our digital sales transformation as more and more customers migrate to our B2B e-commerce portal. Importantly, we also continue to prioritize margin expansion and disciplined cost control. We are proud of what we've accomplished in 2025, but now 2026 is all about executing with our new business model. Our target is clear: breakeven adjusted EBITDA for the full year, driven by 40% proprietary brand penetration and continued cost discipline. We appreciate your continued support and look forward to keep you updated on our progress. That concludes our prepared remarks. Operator, please open the lines for questions.

[Operator Instructions] Your first question comes from Aaron Grey of Alliance Global Partners.

So first for me, I just want to talk about the share repurchase that you announced mostly just in terms of what went into the contemplation, obviously, we can appreciate how you might feel the stock is undervalued, but we know there's a lot of struggles in the hydroponics market right now. That could present potential M&A opportunity that we spoke to in the past. So just want to get some incremental color in terms of how you thought about the use -- potential use of $10 million, assuming all used for this repurchase to be used for that versus potentially buying an asset to drive greater sales growth or potential profitability?

Yes, I can start. I can answer that for Aaron. To start with anything else, it's never an easy choice. When you take a look at GrowGen stock right now, I mean, we're trading had about a $60 million market cap with about $85 million of cash and inventory and some tremendous assets within our company. We have been looking for the past year for acquisitions and really haven't found anything that really fits our profile. On the private label brand side of it, we continue to roll out new products. We have a tremendous R&D team at GrowGen. So the products that we're rolling out are best-of-breed as you can see from the increase of private label penetration into the markets. On the store side of it, we're shedding stores, not buying stores, but we've pretty much shifted our operations around tremendously.

So on the brand side of it, we just haven't found something that for the right price that fits our operations. With that, we believe come 2027 this company will be throwing off cash and still have $46 million of cash on our balance sheet and almost $40 million of inventory. So we still have plenty of flexibility if we found that right acquisition so we believe right now, it's in our shareholders' best interest and certainly our company's best interest to start buying back stock and see where it goes. But we still are in the market, still looking to find the right fit for GrowGen. But unfortunately, we just haven't found it as of yet.

Yes, I appreciate the color. That's helpful there. And all proprietary brands, I want to talk a bit there. I know you've increasingly selling your protector brands outside your own stores. Can you maybe give some color in terms of how much sales now are within your own channels versus third-party channel brands? And then secondly, how much of proprietary brand sales you expect to be driven by sales to third party and whether or not those third parties now start to increasingly go towards more traditional ad controlled environment market.

I think the majority right now, Aaron, you're seeing going through, I'd probably say about 80% still we certainly would love that number to go out 50-50 A majority of our private label brands are being sold through portals or into the commercial markets to our commercial team. So as we continue to shed stores, we're seeing an increase in private label penetration opposed to the other way, way back when it was pretty much the stores that we're selling our own brands. But now I think with the continued success of these brands with the continued success of our of our commercial team, our facility advisers that are going to the largest facilities around the country and certainly helping sell and introduce the value proposition of our brands.

It's working. When you take a private label division when you go back a couple of years ago, that was in the teens expecting over 40% this year and growing. It's been a quite successful endeavor for GrowGen. And I do believe it's changed the company. the outlook of the company and where the company is going. You are starting to see products of ours going into the agricultural side in the industry. You're also seeing products being sold through the Home Depot and certain other stores right now. Our products are starting to sell within some of the big box stores. But we're starting off a base of 0 in the gardening centers so you'll see 20% plus growth in these in the side of our business, but it's going to take time to ramp up to become a meaningful part of our of the.

Okay. I appreciate that, Darren. Last one for me, if I could. Just on Storage Solutions, nice rebound holistically for 2025 after some softness in 2 some accelerated growth in 4Q. So maybe just talk about some of the dynamics that you're seeing there and outlook for 2026 maybe if there's been some effort put back into the business after you no longer have it for potential sales. So any color in terms of that business would be helpful.

We put -- we have put effort into it. we'll be consolidating different locations for MMI this year into 1 location in Middletown. So it's starting to hit on all cylinders. The product that it sells it's space saving, and it's something that's needed in retail right now on an agriculture and anything you do as buy online, pick up in store, whether it's grocery, whether it's off, whether it's agricultural, they have a tremendous niche of tremendous clientele. And we see growth in that company for years to come. We are consolidating it into 1 location, which we believe will help over some legacy locations, buying new equipment for this company, putting some money into it, and we believe it will pay off and continue to grow.

Okay. Appreciate the color. I'll jump back in the queue.

Your next question comes from Brian Nagel of Openhimer.

I think I want to follow up maybe on the prior question, but I guess it's bigger picture there, but as you look at the business now, and you've had a lot of success expanding these the proprietary brands and really diversifying away from as I understand, diversified away from the core cannabis market. So for as long as we watch it, you've been dealing with these sort of say, cannabis headwinds, which have persisted a lot longer, I think most people expect it. But what -- I guess the question I want to ask is given the change in mix here and given the change in complexion of the business, at what point do you see as a company, really being driven by a different set of sector or macro factors?

As of now, Brian, our cool competency still is -- it's in growing, whether it's cannabis, whether it's fruits, specialty crop. Again, we were brought up into the industry and the cannabis industry and when you look at the mix of our customers right now, it's commercial, it's B2B. So we've gone away from the business-to-consumer model so when you take a look at, again, big ag, it's no different than big cannabis MSOs, large single-site operators with very complex growing techniques facilities. And that's what we do. It's something that we've gotten much more involved in recently is, again, starting to build facilities. We brought in facility facility advisers brought in some tremendous talent on the build side of it that we're project managing bringing in groups to build facilities for some of the larger groups out there in the cannabis space is no different in the ad space.

We just haven't gotten there yet but we believe we have the products to do it. We have the best products on the market coming out of GrowGen right now, and they're extremely price competitive if again, and the quality that we're seeing out there in the markets right now are exceptional. So we believe right now, you still the restructuring has taken way longer than we would have liked it. we've gone from 65 stores. We're down to 20 stores right now. We've closed another 3 stores in the first quarter when we will be closing an additional store in the first quarter. So you see the store count down to 19% at the end of the first quarter. and you're not seeing it affect sales. You're not seeing it affect private label brands. So I think the restructuring, I mean, what you've seen over the last 3 years is coming to an end on our cost structures that are placed right now, and we believe we can start making money.

We were dealing with some tariff issues in the first -- last year. We've worked ourselves through we saw almost a $3 million -- $3.5 million tariff over the last couple of quarters that has flown through our P&L. So even with that, we do believe that you'll see a profitable year out of GrowGen from losing $14 million on an adjusted basis in 2024. So you're seeing us picking up about $6 million, $7 million a year on the EBITDA side of it. And we don't see that stopping. We think these brands are just getting stronger. We think their reach is getting further. We just signed a deal 6 months ago with, but that takes time. And same thing getting into the agricultural industry, but we are hiring people and sales people on that side of it. we've been to some of the trade shows on the ag side of it. And if we could start diversifying product mix from 90% of cannabis to 50% in cannabis, we're not losing cannabis business.

We're picking up cannabis business. so we can start on the other side of it, you can see an extremely explosive sales side of our business at high margins. So that's what we're looking forward to. And that's one of the reasons why we feel comfortable right now with our share buyback of $10 million to start bringing the float down, especially at these levels.

That's helpful,. That's us good segue to my second question. So you announced the buyback today. Is it I mean, how -- I guess how should we be thinking about the timing of that? Is it something you -- you could do relatively quickly? Or is it more of a kind of ease into it?

I think we'll be moving into it, Brian, dependent upon again, where the stock trades. I think it's more of an ease like anything else. It's not a quick fix, certainly not in going to move our stock. So I think it will be a controlled buyback, but I think it will be effective. And like anything else, is happy to buy back stock at these levels.

Your next question comes from Mark Smith of Lake Street.

Darren, you just hit a little bit of this, but I wanted to dig deeper into kind of the store base ended at 23%. It sounds like you're at 20 today and likely go to '19 at the end of the quarter. You called earlier in your commentary, the store base kind of stable. I'm curious if we does this kind of end some of these closures? Or are there still some maybe that come up at the end of lease periods that we see closed as we work through 2026.

Yes, I think we've been pretty clear that the future of certainly isn't in the retail stores. I mean we're a B2B business. And some of our locations aren't stores that they're more B2B distribution centers. So the name store is probably going to come out, and we're probably going to rename so there is no misunderstanding is no longer a business-to-consumer operation. Our stores are closed on weekends. Hours are different right now. There are warehouse people working in our stores as opposed to salespeople there's a salesperson in each store, but even the mix of employees have changed within our stores. So I think when you look at GrowGen in '26 and beyond, it's really a business-to-business brand-driven company opposed to a retail location.

Any of our retail sales will be going through portals out of the warehouses and also through distribution channels that we secure in the future. One is arid. And hopefully, there are others in other countries. We do believe probably this year, we'll probably finish somewhere in that 15 location. So there's probably another 4 locations that we'll shed by the end of the year as long as we can do some work with the leases. But most of them are the smaller locations that are in areas that cannabis isn't as abundantly sold as it used to be as abundantly grown as it used to be? The future is small hubs, as we always said, and that's small, but 20,000 to 30,000 square foot hubs around the country and a few large warehouses to supply for marketing in some areas that are just at the growing is so intense that we believe that product within those areas makes sense.

Okay. The next question for me is just kind of similar as we look at the operating expenses that you guys cut in 2025, as we look at 2026, it certainly looks like built into your guidance is continued cuts. Is a lot of that just having a full year of some of the cuts that have already been made? Or are there other places where you feel like you could still cut operating expenses?

Yes. Thanks for the question, Mark. In terms of operating expenses for 2025, we brought down our operating expense base, $27 million in comparison to the prior year we do see incremental improvements in 2026. Some of it is due to the closures that we had in 2025 where you had partial impact throughout the course of the year from those stores, potentially even closure costs that got embedded into the results. as we're working through consolidation and moving inventory and shutting down the locations. And so some of the fallout in 2026 from an expense improvement perspective is just due to those changes operationally in the business. And there are other areas of the business just in the same sense that, look, we think there's incremental opportunity to continue to improve upon expense base. So we expect expenses to continue to come down generally for both reasons in 2026.

There are no further questions at this time. I would hand over the call to Darren Lampert for closing comments. Please go ahead.

Thank you. I'd like to thank our shareholders and employees for their continued support. I look forward to sharing our progress on our first quarter call in early May. Thank you, everyone, and have a beautiful day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.

Hello, everyone, and welcome to GrowGeneration's Third Quarter 2025 Earnings Conference Call. My name is Joanna, and I will be your operator for today's call. [Operator Instructions] This conference call is being recorded, and a replay of today's call will be available on the Investor Relations section of GrowGeneration's website.

I will now hand the call over to Phil Carlson with KCSA for introductions and the reading of the safe harbor statement. Please go ahead.

Thank you, and welcome, everyone, to GrowGeneration's Thrid Quarter 2025 Earnings Results Conference Call. With us today are Darren Lampert, Co-Founder and Chief Executive Officer; and Greg Sanders, Chief Financial Officer of GrowGeneration. The company's third quarter 2025 earnings press release was issued after the market close today. A copy of this press release is available on the Investor Relations section of the GrowGeneration website at ir.growgeneration.com.

I would like to remind everyone that certain comments made on this call include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any of the forward-looking statements made today.

During the call, we'll use some non-GAAP financial measures as we describe business performance. The SEC filings as well as the earnings press release, which provide reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are all available on our website. Following prepared remarks, management will be happy to take your questions. [Operator Instructions] Now I will hand the call over to GrowGeneration's Co-Founder and CEO, Darren Lampert. Darren, please go ahead.

Thanks, Phil, and good afternoon, everyone. Thank you for joining us to review our third quarter 2025 results. Our third quarter marked an inflection point for GrowGeneration. We delivered net sales of $47.3 million, up 15.4% sequentially, expanded gross margins to 27.2% and returned to positive adjusted EBITDA of $1.3 million, a $3.7 million improvement from the same quarter last year. This performance reflects the successful execution of our restructuring plan, lowering operating expenses, improving gross margins and shifting our revenue mix towards higher-margin proprietary brands.

What's even more encouraging is that this momentum is being driven by the quality of our revenue, not just volume. Proprietary brands grew to 31.6% of cultivation and gardening revenue compared to 23.8% a year ago. Our leading brands, Char Coir, Drip Hydro, The Harvest Company, Dialed In and Power Si, all demonstrated strong performance. Char Coir grew more than 30% year-over-year, while Drip Hydro increased over 20%.

These brands remain in the early stages of adoption, and we're expanding into new revenue channels and product extensions to position proprietary brands to achieve approximately 40% of cultivation and gardening revenue in 2026. On the cost side, we reduced store operating expenses by 27.8% and total operating expenses by 31.5% year-over-year. This operating discipline, combined with a stronger revenue mix resulted in our first positive adjusted EBITDA quarter in several years.

We also continue to optimize our retail footprint. During the quarter, we closed 5 stores, bringing our total to 24 locations. We expect to complete a small number of additional closures in the fourth quarter to focus on higher volume, higher-margin markets, consistent with our goal of becoming a leaner, more efficient, brand-led organization positioned for profitable growth.

At the same time, we completed over $7 million in cultivation infrastructure projects. These projects include lighting, benching, fertigation, HVAC, irrigation and automation systems, helping commercial and craft operators modernize existing facilities or build new ones. Demand will remain strong across both multistate operators and craft cultivators, and we expect this business to remain a meaningful contributor to revenue going forward.

Our MMI Storage Solutions segment also delivered a second consecutive quarter of sequential growth with $8.9 million in revenue. MMI continues to benefit from diversification into industrial, agriculture and specialty end markets, and we expect steady growth from this segment in 2026. Strategically, we are broadening our reach beyond cannabis into larger specialty agriculture and controlled environmental markets.

During the quarter, we began selling our brand into the independent garden center channel and relaunched theharvestco.com to serve greenhouse and specialty crop growers. In addition, we announced a distribution partnership with Arett Sales, expanding our wholesale and B2B reach into thousands of new retail stores across 32 states.

This is a major step in our transition from a cannabis-focused retailer to a national controlled environment agricultural supplier. Furthermore, we're taking additional steps to increase our growth trajectory, including our recent entry into the home gardening market through our second quarter acquisition of Viagrow, a domestic brand with distribution across retailers such as Amazon, The Home Depot, Walmart, Lowe's and Tractor Supply. More importantly, it supplies us with a scalable platform to serve home gardeners and hobbyists cultivators across multiple retail channels nationwide. We're also seeing strong adoption of our B2B Pro portal by commercial and wholesale customers. Increasingly, these customers are moving their purchasing online where they have access to automated ordering, customer catalogs and real-time inventory visibility. This improves order accuracy, reduces transaction costs and drives recurring revenue.

Another growth area for GrowGen involves further international expansion by entering new high-growth cultivation markets with growing numbers of hemp and cannabis licenses. We are working to accomplish this through the distribution partnerships, such as our distribution agreement with V1 Solutions to support commercial sales across the European Union.

We also recently launched our proprietary products in Costa Rica, one of Central America's most promising cultivation markets. By leveraging these strategic distribution partnerships, we can quickly scale with minimal capital investments to grow our brand presence in these new markets. With $48.3 million in cash and no debt, we have a strong balance sheet to support our inventory needs, infrastructure projects and proprietary brand expansion. This financial strength positions us for sustainable and profitable growth.

Looking ahead, we expect fourth quarter revenue of approximately $40 million. And as we move into 2026, we anticipate positive revenue growth as well as positive adjusted EBITDA. Our focus will be on driving proprietary brand mix towards 40% of cultivation and gardening sales, scaling B2B portal automation and reoccurring commercial orders, expanding revenue across independent garden centers, greenhouse agriculture, specialty crops and cannabis and continuing cultivation infrastructure projects, an offering we are now branding as GrowGeneration Build.

The controlled environmental agriculture industry remains in the early stages of its growth cycle. We believe GrowGeneration has substantial runway ahead and is well positioned to lead this evolution with proprietary brands, infrastructure builds and system integration, long-standing customer partnerships, a proven management team, supported by a strong balance sheet and track record of execution.

With that, I'll turn the call over to our CFO, Greg Sanders.

Thank you, Darren, and good afternoon, everyone. Starting with our third quarter 2025 results, GrowGeneration reported net sales of $47.3 million, exceeding our guidance of $41 million and representing 15.4% sequential growth from our second quarter of 2025. As expected, net sales were lower versus $50 million in the third quarter of 2024, primarily reflecting 19 fewer retail locations since July of 2024 as part of our ongoing footprint optimization strategy. This was partially offset by continued growth in our business-to-business and commercial channels.

Net sales in our Cultivation and Gardening segment were $38.4 million for the quarter compared to $41.4 million in the same period last year. Proprietary brand sales represented 31.6% of cultivation and gardening revenue, up from 23.8% in the prior year, driven by strong demand for Drip Hydro and Char Coir. This mix shift continues to expand gross margins and enhance profitability.

In our Storage Solutions segment, net sales were $8.9 million, up from $8.6 million in the third quarter of 2024, reflecting steady demand across product lines and the success of our diversification efforts into new end markets. Gross profit increased to $12.9 million, up approximately $2 million from $10.8 million in the prior year period. Gross margin expanded to 27.2% compared to 21.6% in the third quarter of 2024, primarily due to higher proprietary brand penetration and the absence of restructuring-related costs that impacted the prior year. On the expense side, store and other operating expenses declined 27.8% year-over-year to $7.2 million compared to $10 million in 2024.

Total operating expenses decreased 31.5% to $15.7 million, reflecting the continued benefit of our cost reduction initiatives. Selling, general and administrative expenses were $5.7 million compared to $7.4 million last year, a 22.9% improvement. Depreciation and amortization totaled $2.6 million, down from $5 million in the same period last year, and we expect this level to remain stable throughout year-end.

GAAP net loss narrowed to $2.4 million or negative $0.04 per share compared to a net loss of $11.4 million or negative $0.19 per share in the prior year period. The improvement was primarily driven by higher gross margins, lower operating expenses and the absence of restructuring-related charges incurred in 2024. Non-GAAP adjusted EBITDA turned positive to $1.3 million compared to a loss of $2.4 million in the prior year, reflecting improved sales mix from our proprietary brands and the continued realization of cost reduction initiatives. This represents a $3.7 million year-over-year improvement and a clear indicator that our operating leverage has strengthened.

Turning to the balance sheet. We ended the quarter with $48.3 million of cash, cash equivalents and marketable securities and no debt. Our balance sheet remains one of the strongest in our industry, and we do not anticipate any near-term financing needs. In summary, the third quarter demonstrated that our transformation strategy is delivering tangible results. We achieved our strongest adjusted EBITDA performance in 4 years, delivered double-digit sequential sales growth, expanded gross margins and significantly reduced operating expenses, all while maintaining a debt-free balance sheet and ample liquidity to support continued investment in initiatives that drive sustained profitability.

With that, I will turn the call back over to Darren for closing remarks.

Thanks, Greg, and thank you, everyone, for joining us today. In closing, restructuring actions we've executed over the past few years are clearly working. In the third quarter, we delivered $47.3 million in revenue, 15.4% sequential revenue growth, exceeded our own forecast and returned to profitability with $1.3 million in adjusted EBITDA. Proprietary brands grew to 32% of cultivation and gardening sales, a meaningful year-over-year increase. And this continues to be a key driver of our margin expansion and long-term growth strategy.

At the same time, we are becoming a more efficient company. We're reducing operating expenses, closing underperforming stores, exiting leases and shifting more transactions to our B2B e-commerce portal, where adoption continues to exceed expectations. These efforts are helping us build a leaner, more scalable platform. With no debt, $48.3 million in cash and growing demand across commercial, specialty agriculture and retail channels, we are well positioned to continue investing in our proprietary brands. While we're proud of what we've accomplished this quarter, we know we're still early in this transformation, and there's more progress ahead. We appreciate your continued support and look forward to updating you on our execution and growth in the quarters to come.

That concludes our prepared remarks. Operator, please open the line for questions.

[Operator Instructions] First question comes from Aaron Grey at Alliance Global Partners.

Nice job on the inflection back to profitability there.

Quick question for me. Just as we think about the mix of sales going forward, I appreciate the color, expecting proprietary brands 40% for next year. Just wanted to take a step back and think -- as we think about the channels you're going to, obviously, you've done a good job of diversifying. How do you think about the mix of sales for cannabis today versus where it might be 12 to 18 months from now? And how much of that is the driver in terms of the increased overall proprietary brand mix?

I think what you're seeing right now, Aaron, is our forecasted 40% still take a large percentage of that into cannabis. So anything else as we transition into lawn and garden specialty ads, we certainly believe that proprietary brands will drive 50% to 60%. So right now, the 40% that you're seeing from us next year, I'd say probably around that 35% minimum will be into the cannabis space.

Okay. Great. That's helpful color. Second question for me, just how best to think about the puts and takes specifically for the gross margin? I know you guys had some expectations earlier this year, some changes that occurred when you took away the guidance. But any color specifically on the gross margin, how we should think about that over the next upcoming quarters? I imagine some lift from the higher proprietary brand mix, but also some offsets given continued pricing pressure and discounting?

Aaron, thank you for the question. I think when you look at our third quarter results, we're still seeing some impact from tariffs, maybe in the range of 1% of sales. We're working through expanding those costs throughout the supply chain, renegotiating with vendors where applicable, passing on costs to our end customers where appropriate as well, while still maintaining competitiveness in the market.

When you look at the concentration of revenue in the third quarter, we had about $8.9 million coming from MMI at that low to mid-40s range. But what drove down margins slightly was the amount of durable sales that we had in the period. We ran from $7 million durable sales in the second quarter up to $13 million in the third quarter. We are seeing our pipeline of CapEx or durable sales continue to expand into the fourth and first quarter of next year. So we're excited about that. We think that's going to help our revenue growth quite a bit, but we are tempering some expectations around gross margin in the fourth quarter just relative to the amount of durable activity that we're seeing.

With a margin ratio of 27.2% in the third quarter, we felt pretty good about just the blend of different activities that fell into the period. We're expecting some compression in the fourth quarter. We also execute all of our full end of year inventory accounts in December. So there's some risk associated with that, although we have sufficient reserves in our minds for that activity. So I would expect probably slightly down in the fourth quarter just relative to CapEx and a lower total sales volume. I think MMI, you'll see go from a number close to $9 million down to $6 million. So less contribution on the margin side from them as well. But we're still excited about the business in the quarter we just had.

Aaron, on the fourth quarter, we are looking for our first sequential year-over-year revenue growth since 2021. As you may recall, again, last year, fourth quarter, we were in that $37 million range. So this will be -- so we do believe that this fourth quarter will be our first sequential revenue growth year-over-year since 2021.

This concludes the Q&A session. I will turn the call back over to Darren Lampert for closing comments.

I'd like to thank our shareholders and all our supporters. We look forward to updating you in March for the year-end and look forward to a strong 2026. Thank you.