GrowGeneration(US:GRWG)2024-05-08 21:12PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited financial statements show decreased assets and equity, a widened $8.8 million net loss in Q1 2024, and negative operating cash flow Condensed Consolidated Balance Sheets Total assets decreased to $230.4 million by March 31, 2024, from $239.1 million at year-end 2023, primarily due to reduced marketable securities and prepaid assets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $141,720 | $147,451 | | Cash and cash equivalents | $31,050 | $29,757 | | Marketable securities | $30,280 | $35,212 | | Inventory | $66,028 | $64,905 | | Total Assets | $230,393 | $239,090 | | Total Current Liabilities | $29,337 | $30,930 | | Total Liabilities | $65,085 | $65,695 | | Total Stockholders' Equity | $165,308 | $173,395 | Condensed Consolidated Statements of Operations Q1 2024 net sales decreased by 15.7% to $47.9 million, resulting in a widened net loss of $8.8 million compared to $6.1 million in Q1 2023 Q1 2024 vs. Q1 2023 Statement of Operations (in thousands, except per share data) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net sales | $47,888 | $56,827 | | Gross profit | $12,364 | $16,289 | | Income (loss) from operations | $(9,432) | $(7,420) | | Net income (loss) | $(8,837) | $(6,134) | | Net income (loss) per share, basic & diluted | $(0.14) | $(0.10) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $3.7 million for Q1 2024, a reversal from the prior year, with cash and equivalents increasing by $1.3 million to $31.1 million Q1 2024 vs. Q1 2023 Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash from operating activities | $(3,676) | $3,457 | | Net cash from investing activities | $4,997 | $19,313 | | Net cash from financing activities | $(28) | $(86) | | Net increase (decrease) in cash | $1,293 | $22,684 | | Cash at end of period | $31,050 | $62,738 | Notes to Condensed Consolidated Financial Statements Notes detail business structure, accounting policies, segment realignment, a $6.0 million share repurchase program, and a $0.3 million legal settlement recovery - The company operates through two main business segments: Cultivation and Gardening and Storage Solutions, with 46 retail locations in 18 states as of March 31, 20242223 - In March 2024, the Board authorized a share repurchase program for up to $6.0 million of its common stock, commencing April 1, 202460 - A legal dispute with Total Grow was resolved, resulting in a $0.3 million settlement recovery in February 202464 Disaggregated Revenue by Segment (in thousands) | Segment | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Cultivation and Gardening | $43,108 | $49,127 | | Proprietary brand sales | $9,726 | $9,027 | | Non-proprietary brand sales | $33,382 | $40,100 | | Storage Solutions | $4,780 | $7,700 | | Total Net Sales | $47,888 | $56,827 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 15.7% Q1 2024 net sales decline to store consolidations and lower Storage Solutions sales, resulting in a $8.8 million net loss and $2.9 million Adjusted EBITDA loss, while maintaining adequate liquidity Overview and Growth Strategy The company operates two segments, focusing on consolidating the fragmented hydroponics industry, while reducing costs through store consolidations and expanding commercial sales and proprietary brands - The company's main growth strategy is to consolidate assets in the fragmented hydroponics industry85 - In response to market conditions, the company is reducing costs by closing and consolidating retail locations, with four stores consolidated in early 202487 - Key growth strategies for the Cultivation and Gardening segment include expanding commercial sales, distribution, and promoting proprietary brands89 Results of Operations Q1 2024 net sales decreased by 15.7% to $47.9 million, driven by declines in both segments, while gross profit margin fell to 25.8% due to pricing pressure and consolidation costs, leading to a $9.4 million operating loss - Net sales decreased by $8.9 million (15.7%) year-over-year, primarily due to the consolidation of 17 retail locations and lower sales in the Storage Solutions segment99100101 - Gross profit margin decreased by 290 basis points to 25.8%, driven by industry pricing compression and non-recurring store consolidation costs104 - Proprietary brand sales increased to 23% of Cultivation and Gardening net sales, up from 18% in the prior year100 Liquidity and Capital Resources As of March 31, 2024, the company had $112.4 million in working capital and $61.3 million in cash and marketable securities, deemed adequate for the next twelve months, with a $6.0 million share repurchase program authorized - The company had $61.3 million in cash, cash equivalents, and marketable securities as of March 31, 2024113 - Management believes the company is adequately funded to support operations for the next twelve months114 - A share repurchase program for up to $6.0 million was authorized, commencing April 1, 2024115 Non-GAAP Financial Information The company reported an EBITDA loss of $5.6 million and an Adjusted EBITDA loss of $2.9 million for Q1 2024, compared to smaller losses in Q1 2023, with adjustments primarily for share-based compensation and restructuring Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net income (loss) | $(8,837) | $(6,134) | | EBITDA | $(5,643) | $(2,628) | | Adjusted EBITDA | $(2,871) | $(1,802) | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company refers to its 2023 Form 10-K for quantitative and qualitative disclosures about market risk - For information on market risk, the company directs investors to Item 7A of its 2023 Form 10-K122 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of March 31, 2024, due to identified material weaknesses, with an ongoing remediation plan in place - Management concluded that disclosure controls and procedures were not effective as of March 31, 2024, due to previously identified material weaknesses125127 - Identified material weaknesses exist across the Control Environment, Risk Assessment, Information and Communication, Monitoring Activities, and Control Activities components of the COSO framework132133 - A remediation plan is underway, including engaging third-party specialists, hiring a dedicated controls manager, implementing new systems, and adding personnel with technical accounting experience136137 PART II OTHER INFORMATION Item 1. Legal Proceedings The company reported no material legal proceedings during the quarter - There were no legal proceedings to report for the period143 Item 1A. Risk Factors The company refers to its 2023 Form 10-K for a summary of its risk factors - For information on risk factors, the company directs investors to Item 9A of its 2023 Form 10-K144 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Board authorized a $6.0 million share repurchase program commencing April 1, 2024, with no repurchases made in Q1 2024 - A share repurchase program for up to $6.0 million was authorized on March 20, 2024, to begin on April 1, 2024145 - No common stock was repurchased under the program during the first quarter of 2024145 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL data files - The report includes required exhibits such as CEO/CFO certifications under Sarbanes-Oxley Sections 302 and 906, and XBRL data files151