GrowGeneration Reports Record 3rd Quarter Revenue
Q3 2018 Revenue up 109% to $8.4
million
Revenue up 86% to $20.0
million for 9 Months
DENVER, Nov. 9, 2018 /PRNewswire/ - GrowGeneration Corp. (OTCQX: GRWG), ("GrowGen" or the "Company") one of the largest specialty retail hydroponic and organic gardening stores, selling to both the commercial and home cannabis markets, with currently 18 locations, today reported financial results for its 3rd quarter ended September 30, 2018.
3rd Quarter 2018 Financial Highlights:
- Revenue of $8.4 million, up 109%, compared to revenue of $4.0 million for the 3rd quarter of 2017
- Store operating costs, as a percentage of revenue, have declined 16% from 19.9% for the 3rd quarter 2017 to 16.8% for the 3rd quarter of 2018
- YTD revenue of $20 million, up 86% compare to YTD revenue of $10.7 million for 2017
- YTD store operating costs, as a percentage of revenue, have declined from 19.6% for the nine months ended September 30, 2017 to 17.3% for the nine months ended September 30, 2018
- Adjusted EBITDA ($71,000) for the 3rd quarter 2018 compared to ($191,000) for the 3rd quarter 2017
- The Company had $14.3 million in cash and cash equivalents at September 30, 2018
- As of September 30, 2018, the Company had total assets of $36.2 million compared to total assets of $9.2 million at December 31, 2017
- As of September 30, 2018, the Company had working capital of $23.1 million compared to working capital of $5.6 million at December 31, 2017
- The Company raised approximately $12.5 million in equity capital through the issuance of common stock and the exercise of warrants and $9.0 million in convertible debt financing for the nine-month period ended September 30, 2018
- Three new stores acquired in Q3 2018, one of which was our new e-commerce site, HeavyGardens.com
- Formed GrowGeneration Canada Corp.
- Formed GrowGeneration Hemp Corp.
- Revenue run rate guidance in excess of $42 million heading into 2019, $10.0 million for Q4 2018
Darren Lampert, Co-Founder and CEO, said, "This was another great quarter of growth for GrowGeneration, with revenues growing over 100% quarter over quarter. Our management teams focus on probability was clearly demonstrated with our operating costs being reduced by 16% in the quarter. Our balance sheet, with assets totaling $36.0 million, $14.0 million in cash, well-positions the Company to continue to execute its acquisition plan and begin the process to up list the company to a larger exchange." Our acquisition of HeavyGardens.com sets our e-commerce strategy to offer an omni-channel shopping experience for all of our customers. Further, the formation of GrowGen Canada and GrowGen Hemp Corp demonstrates our commitment to unleash growth from all emerging markets in our industry. As reported, we are forecasting a revenue run rate of approximately $42 million coming out of 2018 and $10 million for Q4 2018."
3rd Quarter 2018 Financial Results:
Net revenue for the three months ended September 30, 2018 increased approximately $4.4 million, or 109%, to approximately $8.4 million, compared to approximately $4.0 million for the three months ended September 30, 2017. The increase in revenues in 2018 was primarily due to the addition of 8 new stores opened or acquired after September 30, 2017, and the new e-commerce site acquired in mid-September 2018. The 8 new stores and the new e-commerce site contributed $4.9 million in revenue for the quarter ended September 30, 2018.
The Company continues to focus on the seven markets and the new e-commerce site noted below and the growth opportunities that exist in each market. We are also focusing on new store acquisitions, proprietary products and on developing our online and Amazon sales which we expect to contribute more to sales in the fourth quarter of 2018.
Sales of the Company's products in the Colorado market declined $17,249 or less that 1% comparing the quarter ended September 30, 2018 to September 30, 2017 and is primarily due to store consolidations and the Company's focus on operating larger more profitable stores. Sales of the Company's products in the California market have seen growth of approximately $2.6 million from the addition of four (4) new stores through acquisitions, offset by a decline in revenues in our Santa Rosa store of approximately $281,000. The California market experienced slower growth in the prior and current quarters as a result of a change in the regulatory environment and the implementation of new rules and regulations which have slowed the issuance of new licenses. However, the Company is positioned to grow as new licenses are issued. Sales in our Santa Rosa store decreased $281,000 or 40% comparing the quarter ended September 30, 2018 to the quarter ended September 30, 2017. Our San Bernardino store increased by 148%, or $200,000, comparing the quarter ended September 30, 2018 to the quarter ended September 30, 2017. We attribute this gain to the Southern CA issuances of licenses in the Riverside County. With the recent acquisition of Santa Rosa Hydro in July 2018, one of the country's largest hydroponic stores, the Company projects to add an incremental $8.0 million in sales in the Santa Rosa market.
The recognition of revenue in the Rhode Island and Michigan markets are the result of these new acquisitions in 2018 for which there was no comparable revenue in 2017. The Company is pursuing new store acquisitions in both of these markets and believes that these markets will be growth markets in the fourth quarter of 2018.
Although revenues in the Nevada market had a slight decline, $22,000, comparing the quarter ended September 30, 2018 to quarter ended September 30, 2017, the decline in revenue was attributable to large one-time sales to a commercial customer during the quarter ended September 30, 2017 related to this customer's initial buildout of their commercial grow facility.
Sales in the Washington market had a slight decrease in revenue of $14,000 comparing the quarter ended September 30, 2018 to the quarter ended September 30, 2017.
The Company had the same 9 stores opened for the entire three months ended September 30, 2018 and 2017, five (5) in Colorado, two (2) in California, One (1) in Nevada, and one (1) in Washington. These same stores generated $3.3 million in sales for the three months ended September 30, 2018, compared to $3.4 million in sales for the same period ended September 30, 2017, a decrease of 4%. With regard to same store sales, our revenue in the Colorado market has declined comparing the three months ended September 30, 2018 to the three months ended September 30, 2017 by approximately $17,000 or approximately 1% primarily due to the loss of customers when we consolidated locations in the first quarter of 2018. While there was a loss of some revenue from customers where stores were consolidated, all operating costs were eliminated from the store that was closed and consolidated into another store location. Revenue in the California market declined by approximately $81,000 or 10% primarily due to the large fires in the Santa Rosa area in October 2017 which closed our store for 17 days due to mandatory evacuations. The Santa Rosa fires also impacted our commercial customer base and revenues in the Santa Rosa area have not returned to their pre-October 2017 revenue levels. The Washington market has a slight decline of revenues of approximately $14,000 of 6%. With regard to the Nevada market, the decline in revenue of $22,000 or 4% was attributable to large one-time sales to a commercial customer during the quarter ended September 30, 2017 related to this customer's initial buildout of their commercial grow facility
Cost of Goods Sold
Cost of goods sold for the three months ended September 30, 2018 increased approximately $3.3 million, or 115%, to approximately $6.2 million, as compared to approximately $2.9 million for the three months ended September 30, 2017. The increase in cost of goods sold was primarily due to the 109% increase in sales comparing the three months ended September 30, 2018 to the three months ended September 30, 2017. The increase in cost of goods sold is directly attributable to the increase in the number of stores as discussed above.
Gross profit was approximately $2.2 million for the three months ended September 30, 2018, compared to approximately $1.1 million for the three months ended September 30, 2017, an increase of approximately $1.1 or 100%. Gross profit as a percentage of sales was 25.7% for the three months ended September 30, 2018, compared to 27.7% for the three months ended September 30, 2017. The decrease in the gross profit percentage is due to 1) the increase in sales to commercial customers that have lower margins than retail customers and 2) the higher cost of inventory for acquired companies. As we acquire companies, the cost of their inventory, recorded at fair market value, has an initial higher cost than pre-acquisition inventory values. As the purchased inventory is being sold, since it has a higher cost basis, margins are lower. Once the acquired inventory is sold through, which takes approximately three months, the cost basis of inventory replaced is at a lower cost basis, which will be realized in future periods as higher gross margins. Commercial customers make up the majority of our revenues and we continue to target large commercial customers. The Company continues to focus on higher margin items and proprietary additives and other consumables that provide higher margin opportunities for us.
Operating Expenses
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