管理層發言
Hello, everyone, and welcome to GrowGeneration. Second Quarter 26 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; instructions will 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 GrowGeneration's website. I 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, sir.
Thank you, operator, and welcome, everyone, to GrowGeneration's Second Quarter 26 Earnings Results Conference Call. With us today from GrowGeneration are Darren Lampert, Co-Founder and Chief Executive Officer, and Gregory Sanders, Chief Financial Officer. The company's second quarter 26 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 2000. 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 will 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 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 reenter the queue, and we will take them as time allows. 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 second quarter 26 financial results and to discuss our outlook for the rest of 2026. I am pleased to report that our sales momentum in early 26 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 GrowGeneration 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, GrowGen Pro, 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 GrowGen in the marketplace. Our efforts have been very successful, as we continue to see increased adoption of proprietary brands such as CharCoir, Drip Hydro, The Harvest Company, Dialed In, and Power SI. With this strategy, we set certain goals for ourselves in 26, 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 GrowGeneration as it shows the progress we have already made as well as the ongoing evolution of our business as we set the bar higher 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 and 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 have continued to transition our sales towards higher-value, recurring 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 Solutions 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 GrowGen 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 am not just talking about the operational improvements we have made; I am also talking about our emphasis on revenue quality. We are 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 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 had $41 million of cash while having no debt. We have the resources to keep investing in our growth initiatives while still maintaining disciplined capital allocation. This financial strength also supports our stock repurchase activity. During the second quarter, we repurchased 700 thousand shares of common stock at an average price of $1.38 per share. Regarding our forward outlook for the third quarter of 26, 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 Gregory, 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 a ruling is still pending, we are confident that regardless of timing, GrowGen 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, infrastructure builds, 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 will turn the call over to our CFO, Gregory Sanders.
Thank you, Darren, and good afternoon, everyone. I will begin with a review of our second quarter 26 results and then provide additional context on our outlook for the year. Our second quarter results represent another forward step in the transformation of GrowGeneration. 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 have built over the past several years. These results reflect continued execution against the strategic priorities that we have outlined to investors. For the second quarter of 26, GrowGeneration 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. Higher 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 Solutions 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 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 26, 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 26, store and other operating expenses declined by approximately 21.9% to $6.1 million compared to $7.9 million in the second quarter of 25, reflecting the benefits of our cost reduction initiatives.
Selling, general and administrative expenses were $6.5 million, 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. GAAP 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 GrowGeneration. Over the past several years, we have sustainably reduced our cost structure, improved operating leverage, and positioned 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 GrowGeneration within the industry and provides us with significant flexibility to invest in organic growth, evaluate strategic opportunities, and opportunistically 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 disciplined capital allocation. During the second quarter, the company repurchased 700 thousand shares of common stock at an average price of $1.38 per share, exclusive of incremental direct costs. As of 6/30/2026, approximately $9 million remained available under the stock repurchase 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 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 breakeven.
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 GrowGeneration 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 continued to execute a disciplined long-term strategy. While there is still work ahead, we believe the progress we have made over the past several years has established a much stronger foundation for long-term shareholder value creation. With that, I will turn the call back to Darren for closing remarks.
Thanks, Gregory. 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 positive adjusted EBITDA for the quarter. Our 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. We will 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 our proprietary brands representing 40% 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. We look forward to keeping you updated as we make further progress during the balance of the year. That concludes our prepared remarks. Operator, please open the line for questions.
分析師問答
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 1 on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the 2. If you are using a speaker phone, please lift the handset before pressing any key. We ask that you limit yourself to one question and one follow-up question. Your first question comes from Aaron Grey with Alliance Global Partners. Please go ahead.
Hi. Good evening, and thank you very much. First question for me, just regarding the updated guide, particularly on EBITDA. You held sales and gross margin guide but increased EBITDA. It implies $3.3 to about $4.3 million in the back half. Given the seasonal softness we usually see in Q4, how much of it is attributable to a really strong core market, maybe less seasonality, versus that tariff benefit that you mentioned as well? Thank you. Second question: regarding proprietary brands, you guys already hit your mark for the full year within the quarter, essentially being at 40%. Given growth accelerated this quarter, can you talk about some of the dynamics that drove that growth — maybe deeper penetration within your commercial business and with some of the MSOs that I know you have been targeting?
Hi, Aaron Grey. 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 have 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 are expecting an IEPA 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. We expect generally for the fourth quarter to return to normal levels of performance relative to seasonality and commentary that we have made historically.
I think we have been pretty transparent that our commercial business and our MSO business is certainly expanding. We still do believe that we are in the early stages of growth in many of our proprietary brands that are out on the market right now, and we believe there are tremendous opportunities on the distribution side of it. Right now, about 90% of the sales are GrowGen-centric and flow through our commercial division. So we have high hopes that as the years go on, many other groups will adopt our brands within the industry. We are getting more involved in distribution of our brands on a go-forward basis, and the brands are working. We have hired a number of technical advisers that are in the facilities on a daily basis, and the brands are producing some of the best cannabis in the country right now on both the cost side and the quality side. We could not be prouder of the team that we have out in the markets and the work that we are doing to transform the industry by growing better cannabis at better levels and better price points. Great to hear. Thanks for the color. I will go ahead and jump back in the queue.
Your next question comes from Brian Nagel with Oppenheimer. Please go ahead.
Nice quarter. Congratulations. I have a follow-up to a prior question. You have had three consecutive quarters of year-on-year revenue growth. If you look at the guidance for Q3, you are guiding revenue year over year to be down. Is there a breaking trend? Is there a reason for that conservatism? Also, as we watch the proprietary brands grow and you already hit the penetration target midway through the year, by channel are you seeing particular growth in one channel? You mentioned MSOs earlier. Is the business growing faster in certain channels, and how should we think about channel mix over time?
Hey, Brian. Thanks for the question. When you look at Q3 of 25, we executed a significant volume of durable sales in that period. That created some level of lumpiness in the period last year — Q3 was a fairly significant outlier for us on a quarterly basis when you look at 2025 in its entirety. I think what you are seeing now in 2026 is maybe less lumpiness where our durables business has generated more consistent results from quarter to quarter. When you look at the guidance we have in totality for 2026 compared to 2025, we are generally guiding for an up year in contrast to last year. You are 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 are 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 is down year over year, we still feel very good about where we are at in the year and our forward-looking outlook.
In addition to that, on the margin side, you will see higher margins in the third quarter of this year than you saw last year, with higher consumable product mix versus durable products. But like anything else, things can change. We may close some additional sales within the third quarter that may bring guidance higher, but right now it is too early to tell. We still believe that you will see a much stronger fourth quarter this year than you saw last year. Regarding channel mix, the channels are pretty broad right now, mostly on the consumable side. We believe that with many of our consumable products under the CharCoir and Drip brand names and also Arvco, there is considerable growth ahead. We are just at the start of private-label penetration in the hydroponic cannabis space. We also see growth potential in lawn and garden and the ag space for many years to come. One of the hardest issues is starting from a small base; double-digit growth off a couple million dollars does not yet make a large impact on our numbers.
As time goes on, we believe the impact will be significant. Looking back to 2024, we lost over $16 million on an adjusted basis, we lost over $6 million last year, and this year we are looking at positive $2 million to $3 million on an adjusted basis. We have improved by almost $18 million with about 25 fewer locations. If we continue at this rate for a couple more years, you will see a substantial impact on growth and EBITDA. We have reorganized GrowGen into a business-to-business company driven by product and technical support, which is what the industry needs right now. We believe better years are ahead.
That is very helpful. I appreciate all that. Thank you.
Your next caller comes from Mark Smith with Lake Street. Please go ahead.
Hi, guys. Wanted to ask first about SG&A. It was more flattish year over year. I'm curious if you got SG&A down to kind of where you want it and this is a good run rate, or if there are more cuts that you think you can make there? Also, I wanted to ask about capital allocation. Your balance sheet continues to be in a really good spot here. You started buying back some stock. How are you thinking about M&A, reinvestment in the business, and returning cash to shareholders?
Hey, Mark. Thanks for the question. In terms of SG&A, we closed four stores in the first quarter and have rebalanced some of our costs into more growth initiatives. We have expanded our sales force on the commercial side, increased marketing, and added dollars into trialing our private-label products across the cannabis space to get our products into more hands of our core customers. So it is more of a rebalancing. Going forward, we are continuing to look at cost reduction opportunities, primarily on the store side. We see SG&A as a core driver of many of our growth initiatives on both the commercial side and with our proprietary brands. We generally expect SG&A to remain in the low six millions in the back half of the year — relatively consistent, maybe incrementally down compared to what you saw in the second quarter. It is generally a stable area for us as we continue to focus on returning to growth in the business.
Mark, we have been transparent that if the right transaction came along, we would be buyers within the industry and in adjacent ag and lawn-and-garden spaces. We just have not found the right transaction for GrowGen right now. Over the last three years, we've restructured GrowGen and spent a lot of time getting our operations in order, so we are being disciplined. We are not looking to buy revenue that we cannot integrate and that does not come with earnings. We are comfortable with the cash in the bank and are becoming a bit more active on the lending side for CapEx deals we are working on. CapEx is a growing part of our business, and we have been conservative with lending money on that side, but we are exploring the right opportunities. We will continue to buy back stock; there is a $10 million buyback authorization, and at the end of the second quarter we had used about $1 million of that so far.
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 continuing 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.