Earnings Call: Q3 2022

Nov 7, 2022

And welcome to the GrowGeneration's 3rd Quarter 2022 Earnings Conference Call. My name is Keith. I'll be coordinating your call today. Following prepared remarks, we will open the call to questions from analysts with instructions to be given at that time. I will now hand the call over to Clay Krumlis with ICR. Please go ahead. Thank you, and welcome everyone to the GrowGeneration Third Quarter 2022 Earnings Results Conference Call. Today's call is being recorded. With us today are Mr. Darren Lambert, Co Founder and Chief Executive Officer and Greg Sanders, Chief Financial Officer of GrowGeneration Corp. You should have access to the company's 3rd quarter earnings press release issued after the market closed today. This information is available on the on the Investor Relations section of GrowGeneration's website at ir.growgeneration.com. 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 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 our prepared remarks, we will take questions from research analysts. 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 turn the call over to our Co Founder and CEO, Darren Lambert. John? Thanks, Clay, and good afternoon, everyone. Thank you for joining us today to discuss our Q3 2022 Financial results and our updated full year guidance. To start, I'd like to thank each one of our employees across our corporate center and 58 retail locations for your continued support of GrowGen. It's been a challenging year, But I, along with the rest of the executive team, appreciate your continued hard work and dedication to our vision and strategic plan. We are pleased to report that our sales in the 3rd quarter came in ahead of our internal plan at 71,000,000 Bolstered primarily by stronger than expected demand within our distribution and private label business unit. While we expect the broader softness across hydroponics to continue, we are encouraged that our efforts to right size the business Starting to show in our financial results and we are optimistic that the work we are doing is putting GrowGen in a significantly better position going into 2023. As we detailed last quarter, The broader cannabis and hydroponic industry remains in a prolonged downturn that is negatively impacting all participants across the cannabis value chain from growers to suppliers to retailers. With the continued oversupply of cannabis in the marketplace And not enough demand to absorb it. We're not yet seeing growers that have meaningful new capacity and therefore Hydroponic demand remains slow across the United States. While we are seeing some early signs of stabilization, we are still not prepared To definitely say that the worst of this cycle was behind us. With that in mind, we remain dedicated to controlling the areas of the business, which we are able to control. We've made significant progress across many aspects of our company Over the past 9 months, we remain highly fiscally prudent with a hyper focus on cost controls, improving profitability and preserving and growing our capital base. As Greg will detail, excluding Q3 unusual expenses, We believe that the company would have been profitable on an adjusted EBITDA basis. As a result of these efforts, GrowGen remains on solid financial footing. We have a strong balance sheet And we don't anticipate the need for external debt or equity issuance. We currently have $71,000,000 of cash And cash flow covenants with 0 debt, representing a sequential increase of $6,000,000 in our net cash position over the Q2 of 2022. We continue to feel very good about our liquidity position well into the foreseeable future. And I want to reassure you again, the company has the ability to meet the ongoing operational needs of the business without additional capital, even if the current market conditions persist. Now I'd like to provide an update on some of our key strategic initiatives this year and where we stand on each. As you will recall, we recognized the need early this year to shift our focus towards cost control, Store consolidation, inventory reduction and cash generation. I'm proud that we've made excellent progress on those operational initiatives. And in addition, I'm excited about some opportunities to begin repositioning our company for the next phase of growth. As I think it's worth repeating, in the Q3 of 2022, we generated $6,000,000 of cash, Ending the quarter with more than $71,000,000 on the balance sheet. We reduced inventory quarter over quarter by $10,000,000 compared to the end of the Q2 2022, which amounts to an aggregate reduction in our retail business More than $24,100,000 in inventory year to date since December 31, 2021. Our inventory reduction efforts have generally occurred at discounted prices, which clearly resulted in gross margin pressures in the 3rd quarter. We believe it was the prudent thing to do in order to right size our working capital base and prioritize cash generation. We believe that the inventory reduction and SKU rationalization plan will be near completion by the end of fiscal year 2022. On the expense side, we reduced payroll by an incremental $1,700,000 in the quarter And $11,700,000 year to date. This equates to a 28% payroll reduction and a 41% headcount reduction during 2022. We also closed 5 stores during the quarter and opened 2 new stores, bringing our total store count today The 58 locations. Recall that most of these store closures have been to correct overlaps in the retail footprint, Where we expect very little lost sales, but to also lean into our new ERP platform and DC supply chain model, which we believe will deliver more efficiencies and lower costs across the enterprise. As we enter into The 2023 fiscal year, cost savings from store consolidations, reduced payroll expenses, Improved shipping costs from declining ocean freight rates, reduced headwind from inventory discounting on our margins And a greater percentage of private label sales will all have a positive impact on EBITDA and profitability next year. Looking ahead for a moment, with the hydroponic market and consolidation, there are growth opportunities for GrowGen Beginning to emerge. A strong balance sheet along with strong distribution capabilities allows us to selectively take advantage of these opportunities. We believe there are compelling opportunities to acquire stores and fill in white space throughout the country in areas where GrowGen does not have a physical presence. In that regard, we're excited about the addition of 2 new stores in the 4th quarter in Missouri and New Jersey, which represents strategic markets for GrowGen. In 2023, GrowGen aims to begin exploring possibilities in a nascent indoor vertical farming market with our own proprietary fertilizers And Indoor Farming Solutions that are natural extensions of our cannabis business. We are especially excited to announce that we recently entered into an agreement with Doctor. Jorge Vivanco of Colorado State University, One of the country's leading horticulturists, who is focusing on indoor farming with specialty crops, Prop Genetics and water soluble fertilizers and additives. In fact, we're positioning our newest store that opened in Richmond, Virginia in September at the hydroponics and garden center. We think this small shift in branding along with a broader in store product assortment Will allow us to drive increased store traffic by attracting new customers who are interested in growing Prodos indoors. Our private label strategy remains one of our top initiatives and we see this as a key enabler of growth and margins going into next year. We are driving sales of proprietary brands and private label products and we are investing in resources to provide customer service, Product Development and Distribution Excellence. Private label accounted for $7,100,000 of retail and e commerce sales in the 3rd quarter, Which is around 14% of our overall retail and e commerce sales, growing 8% year over year as a percent of sales. As a reminder, our private label products generally enjoy higher gross margins. So as we increase our private label sales mix Relative to our branded sales, we expect the accompanying margin benefit to help drive our profitability improvements. On the legislative front, we continue to monitor and support actions at the national level of moving towards the passage of the SAFE Act with the ultimate end goal of federal cannabis legalization. We were encouraged by President Biden's recent unilateral action to pardon those convicted of federal cannabis possession or usage and his urging of states to do the same to state level convictions. We think it's indicative of the American public's overwhelming support of federal cannabis legalization. While the outcome of tomorrow's midterm elections could result in a setback towards federal legalization, if control of the center were to change, We continue to think it's only a matter of time. In other words, when not if. And as we've said before, Our business model does not depend on legalization. As Greg will detail for you shortly, we are increasing Our full year guidance for both net revenue and adjusted EBITDA. On the top line, the updated guidance reflects stronger third quarter sales and embeds a seasonally slower Q4. I want to welcome Greg to his first public earnings call as the CFO of GrowGen. Greg has been with the company for over 5 years as our Controller. He's intimately familiar not only with the numbers, but also with our entire organization and our executive team. And I am thrilled with how quickly He's embraced his new role and the positive impact he is contributing to the corporation. With that, I will turn the call over to our CFO, Greg Sanders. Thank you, Darren. I'm honored to serve the company and its shareholders. First, I will address our Q3 financial results and then I will discuss our updated full year 2022 guidance. For the Q3, GrowGen generated revenue of $71,000,000 versus $116,000,000 in the Q3 of representing a decline of approximately 38.9%. Our same store sales for the Q3 of 2022 Were $39,900,000 compared to prior year sales of $95,400,000 representing a 58% decline against the comparable year ago quarter. Our e commerce revenue declined on a comp basis from $10,500,000 to 3,000,000 resulting from decreased CapEx demands from the commercial markets. This was partially offset by a 15.1 $1,000,000 increase in our distribution business, including the acquisition and integration of HRG and MMI, which positively contributed to the year over year change. As Darren mentioned, our net revenues in the 3rd quarter Exceeded our internal expectations due to stronger than expected sales within the distribution segment as well as modest developments in new state level cultivation markets within the Retail segment. Gross profit margin was 25.9% for the Q3 of 2022, down approximately 250 basis points sequentially from the 2nd quarter. Gross profit dollar generation in the 3rd quarter decreased 3.5% from the prior year, including the impact of additions of acquisitions in the trailing 12 months. Our retail gross margin in the quarter was down 7.82 basis points compared to last year, Resulting from our inventory reduction plan and clearance events, which we expect to be near completion by the end of the year. The offset in margin performance in Q3 was positively driven by the Distribution segment, which had meaningfully more favorable gross margins. Store operating costs and other operational expenses declined sequentially from the Q2. Overall, The store operating expense declined from $14,500,000 in Q1 to $13,800,000 in Q2 The $13,600,000 in Q3. We anticipate further cost decreases in the Q4 from our store consolidation efforts. Selling, general and administrative or SG and A costs were $8,800,000 in the 3rd quarter, of which $1,300,000 This compares to $10,600,000 in the 2nd quarter with $1,100,000 of stock based compensation. This represents a 17% improvement quarter over quarter. Depreciation and amortization Of intangibles was $3,900,000 in the Q3 of 2022 compared to $3,500,000 in the year ago period. Total SG and A expenses were impacted by a $321,000 of severance related expenses. Compared to the same period last year, SG and A expense decreased $1,700,000 in the Q3 of 2022 with overall savings being driven primarily by payroll reductions And increased cost controls over a broad range of categories. As Darren described earlier, we have taken a number of steps To right size operating expenses, including resizing the payroll, consolidating e commerce web stores that had competing operational expenses, Rationalizing our store count as well as other operational improvements. Throughout the 1st 9 months of the year, We've reduced our general and administrative expense base by roughly $7,000,000 through management rationalization, workforce reduction And tighter day to day expense controls. In total, we estimate that our annual expense run rate in the 3rd quarter Has already decreased by over $14,000,000 annually when compared to the Q4 2021 pace. On an absolute basis, This is inclusive of the expenses added into the business during 2022 for the acquisitions of HRG and MMI. Income tax was a benefit of $718,000 in the quarter. For 2022, We are forecasting a financial loss for tax purposes, but with a full valuation allowance, we do not expect significant income tax provision benefit for expense for the remainder of the year. Net loss for the Q3 was $7,200,000 or negative $0.12 per share Compared to net income of $4,000,000 or $0.07 per share for the comparable year ago quarter. Adjusted EBITDA, Which excludes the expenses associated with interest, taxes, depreciation, amortization And share based compensation was a loss of $2,600,000 for the Q3 of 2022 compared to income of $10,800,000 in the Q3 of 2020 We estimate this quarter's adjusted EBITDA loss includes roughly $4,100,000 of one time and controllable items That we expect should either become less impactful or will not repeat going forward. These items include 3rd quarter clearance and sale events that had an estimated $1,500,000 negative impact on gross margin. One time store closure expenses cost the company approximately $800,000 in the 3rd quarter, which does not include the forward looking expense savings from discontinued store operating costs. Increases to the company's inventory allowances That's $720,000 for obsolete and shrink in the quarter. Dollars 400,000 in excess supply chain And storage costs for 3PLs. The Resell segment recognized $373,000 in accounts receivable bad debt expense. Lastly, the company accrued $321,000 in one time severance expense. Excluding these items, We estimate that our adjusted EBITDA would have been profitable in the Q3. Related to the balance sheet, The company ended the quarter with $71,000,000 in cash. Within working capital, the company reduced inventory by $10,000,000 Offset partially by a $1,800,000 increase in high creditworthy accounts receivable. We also leveraged Approximately $2,200,000 for payments associated with technology and distribution investments. Cash generated from operations in the quarter was $8,300,000 primarily attributed to the reduction in inventory and measures taken to strengthen the balance sheet. I will now discuss our updated expectations for the remainder of the year. In the Q3, we observed relative flatness in retail same store sales on a percentage basis from the Q2 of 2022 and an actualized sales revenue decline of $8,000,000 Further, the Q3 included an uplift from our distribution segment and a quarter over quarter sequential increase in sales revenue of $7,800,000 The company expects further seasonality and a sequential decline in overall sales into the 4th quarter As well as continued industry and economic related headwinds that will continue to impact the sales performance. We are now expecting full year 2022 revenue to be between $270,000,000 $280,000,000 And full year adjusted EBITDA to be a $10,000,000 to $13,000,000 loss. The middle of our guidance range That's a continuation of the current trends we are seeing today and the low end contemplates a further deterioration in the operating environment. We expect gross margins to remain under pressure throughout the remainder of the year due to lower sales volume as well as discounting sales and elevated freight costs. We expect operating expenses to be controlled And sequentially down in the Q4 as we are now planning for fewer retail store openings than we previously expected to add to the absolute dollar operating expense in Q4. We are planning for total capital investments outside of acquisitions, primarily for new store build outs And technology investments of $2,000,000 which is below previous assumptions. Thus far, we have spent $11,000,000 in 2022. We are continuing to take steps and executing our business strategy to focus on generating cash from operations. As we mentioned earlier, we expect that our headcount reductions are largely complete and we see some additional opportunities At least through the end of the year to continue reducing our inventory to clear slower moving and obsolete product. With that, I will turn the call back over to Darren for closing remarks. Thank you, Greg. Before we open the line for questions, I want to reiterate Now while 2022 has been challenging for everyone in the cannabis value chain, GrowGen remains highly focused to ensure that we are in the best place possible to emerge stronger than ever when the industry eventually turns around. We're actively focused on the areas of the business that we can control and we continue to make strong gains against our priorities to drive cost controls, consolidate stores, reduce inventories and improve profitability, while preparing to capture The many growth opportunities that lie ahead. We remain committed to the expansion of our proprietary and distributed brands. We are very satisfied with the results of our private label products, including ChartCorp, Power SI and Drip Hydra. The addition of MMI strengthens our position to gain indoor vertical cultivation projects with their leading benching and racking systems. Controlled environmental agriculture and sustainable ag are only in the developmental stage and we believe that many companies We'll invest in sustainable indoor vertical farms for local production of leafy greens, tomatoes, fruits and other food products. In addition, I do want to mention something that's really important to us. GrowGen remains committed to the community we serve and we work closely with organizations like Harvest 360, an accelerator program based in New Jersey that focuses on social equity license holders. GrowGen and Harvest 360 Technologies launched a new national program To support education and training for social equity applications, regulations in both New York and New Jersey And other new markets seek to create a framework to regulate cannabis in these states in a manner that promotes social equity and economic development, Placing an emphasis on promoting inclusion of diverse populations in the medicinal and recreational cannabis industries. GrowGen together with Harvest 360 is committed to delivering solutions to these operators and supporting their communities. This program with Harvest 360 Gives GrowGen a direct method to help new companies to grow their businesses. These micro grow licenses The New Jersey adult use cannabis market represents a new generation of growers that GrowGen believes will be the next gen of entrepreneurial shift to expand the cannabis industry. To close, RoGen remains on solid financial footing with a strong balance sheet, Healthy liquidity and a solid cash position. We're confident that when the cannabis cycle turns And the excess supply in the marketplace eventually normalizes. GrowGen will be well positioned to recover quickly with a more attractive expense structure on a lower G and A base from which to build. Thank you for your time today and thank you for your interest in GrowGen. We will now take your questions. Operator? Thank We'll take our first question from Brian Nagel with Oppenheimer. Please go ahead. Hi, good afternoon. Good afternoon, Brian. Couple of questions. First off, on the sales line, so Darren, you talked about the Continued pressures within the space. But your sales, as you mentioned, we did the top pretty significantly Expectations out there. So the question I have is, if you look at that upside, I mean, recognizing that now coming off a lower base and you revised guidance down, I mean, Are there signals there, I mean, are there signals that you're actually we're seeing more clearly some type of stabilization, if not improvement in components of the business? Brian, same store sales are down 58% in the 3rd quarter. So it's hard to say that we're seeing tremendous stabilization. We saw a tremendous increase in sales in our distribution and other division, which pretty much fueled the Q3. But what we are seeing right now going into the end of the year, we're starting to see more quoting. We're starting to see more business And backlog coming in, in the Eastern on the Eastern side of the country in Mid Atlantic. So we are starting to see some capital builds in New Jersey and New York and on the East Coast and Mid Atlantic States, Which gives us certain optimism. We haven't seen a further deterioration going into the Q4. And in 2023, we'll be going against very low comp base. We feel pretty good where we are right now, bringing down our cost structure tremendously in 2022. And then just maybe as a follow-up to that, Derek. As we've been talking over the last, say, several months, they know the headwinds out, but you did mention The oversupply situation seems to persist. There's another fact that we've talked about is just the, I guess, the slower than anticipated Licensing on the heels of legalization state by state. Are you starting to see some you mentioned New York, so that's a state that I just recently legalized. But are you starting to see some Pickup, so to say, not licensing activity? We definitely are. We're seeing a pickup along the Eastern States and We're starting to see a pickup in Mississippi. We opened a store in Mississippi about 4 months ago. The store went profitable last month. We have the lion's share of the business in the Mississippi market right now, albeit smaller than we thought, but we're starting to see a tremendous pickup of business in Mississippi, Also starting to see a pickup in business in New Jersey. Our Mount Holly store will be opening next month and we're pretty excited about that. Also, our Missouri store will be opening this month also. So we are starting to see a pickup in the new states. And we're seeing stabilization In certain areas in California, where we're starting to win business. So the question we always have, we're starting to see new business, Which we certainly believe are coming from other stores. You're starting to see right now the market is doing the work for us in certain places. You're seeing tremendous Amount of closings of some of the smaller less capitalized stores around the country. Okay, guys. Well, thank you very much. I'll turn it over to the next question. Thank you, Brian. We'll take our next question from Connor Jensen with Lake Street Capital Markets. Please go ahead. Hey, guys. This is Connor Jensen for Mark Smith with Lake Street. Thanks for taking my call today. Thank you. I was just wondering if there's any specific ballot initiatives Carl, you're watching, that you think could have a direct impact on your sales? We're opening a store in Missouri. And as you probably know, Missouri It's up for adult use. So we're looking pretty closely at that. You're also seeing Arkansas, South Dakota, North Dakota, We don't have stores, but we are looking in the Arkansas market right now. And back east in Maryland, we're opening a store in New Jersey, And we're pretty strong back east. So we do believe that you'll see out of Houston, Maryland. And also you'll see On the ballot Oklahoma, which is not until March. Okay. Yes, definitely makes sense. And then just a follow-up. How are you guys feeling with your inventory levels? I know you said you brought them down in your earlier remarks, but how do you feel about those right now? We've done a tremendous job bringing inventory down this year. We saw the industry turning going into 2022 And one of our initiatives this year was to generate cash and bring inventory down. And we've done a wonderful job at it. Albeit, as Greg said earlier within his comments, some of it has come in has deteriorated some of our margins. But we believe we're pretty far along with our inventory reduction SKU rationalization. And we do believe that we enter 2023 With a much cleaner inventory going forward and a big balance sheet, which gives us the opportunities To buy in bulk and buy cheaper in the markets and our private label products have been performing above expectations. Great. I'll jump back in the queue. Thanks, guys. We'll take our next question from Aaron Grey with Alliance Global Partners. Please go ahead. Hi. This is Remi Smith on for Aaron Grey. Thank you for the questions. You mentioned private labels a few times and how strong they've been this quarter. So in terms of the initiative, what impact You're seeing kind of at the ground level from the broader environment. Cultivator is more likely to move to private label for the savings or the Inventory levels of some branded products driving promotional activity. Any color on that dynamic and how you're managing price gaps of the private labels would be great? Yes, I think you're seeing both. I think you're seeing we do have some best of breed products out there, Charcor on our Cocoa side, I'll power Si of Solicylic acid product and we just launched drip hydro, which is a nutrient line that launched 3 months ago. Growers right now are looking for the best products at the best price. And we're starting to see some of our private label products taking off in the marketplace. And we're quite excited about some of our new launches and some of our launches coming up in 2023. You also saw a wonderful quarter from MMI, which is our vertical racking company that we bought at the beginning of the year. Great. Thank you. I'll hop back in the queue. We'll take our next question from Scott Fortune with Roth Capital Partners. Please go ahead. Good afternoon and thanks for the questions. You mentioned a little bit, Darren, on the competitive landscape. Can I just kind of step us through what you're seeing On that, I know you've gone store expansion in these new states coming aboard Missouri, New Jersey and Virginia, but How is kind of the competitive landscape with potential opportunistic M and A shaping up with many of these stores under stress? And what percentage of these Stores are kind of good stores that you can look at for potential M and A. Just kind of that environment would be helpful for potential growth in 2023 when the market turns here. Yes, Scott, I think it's nothing more than you've seen in other industries. You saw it years ago In the hardware stores and Home Depot and Luvs, are you seeing a market in distress? When markets are in distress, you see consolidation. On the hydroponic market right now is in consolidation as many small and medium sized stores are closing. They just can't compete in this marketplace We don't have the financial wherewithal to do it. GrowGen has a strong balance sheet, dollars 71,000,000 in cash, strong distribution capabilities, Which allows GrowGen to take advantage of basically filling in gaps around the country. And you will see more of that from GrowGen. We're seeing very cheap prices out there right now. Certain places are selling for inventory. And with GrowGen's private label division And really with our financial wherewithal, we have the opportunities to take care of certainly add to our base and pick up stores That are immediately accretive to GrowGen's base. You're seeing new ERP system rolling out of GrowGen January 1, on NetSuite Manhattan, I believe, which will certainly help us in building this business back in 2023. Got it. Appreciate the color there. And then real quick on the e commerce side, I know you're kind of rebuilding We're changing the website from that standpoint, but can you provide a little color on the efforts there of that mix and kind of what the e commerce versus retail mix And kind of the potential focus here, is it more do it yourself craft growers versus commercial? Just kind of thoughts On e commerce, as that's come off a lot on the growth side, but where you're at with that kind of rebuild of that web focus? Yes. It's been a certainly a turbulent times with our e commerce division this year as we brought the Aggron IO last year, Which was a commercial ordering platform, a commercial site. And with commercial builds down 80% this year, We ran into certain issues on the expense side. And what we've done this year is we've aggregated the 2 websites. We consolidated agronandgrowgeneration.com, we have just rolled out our new website and we do believe that you'll See growth going into 2023 with our websites. We are excited about that as a growth opportunity to grow Gen in 2023. And again, we are spending money and but also saving on the other side of it. We have one website Opposed to 2, same marketing, same software, same employees. And we do believe as the markets pick up going into 2023 with our And our website is up and starting to perform and we're pretty excited about it. And there is you do see a mix. We do have commercial customers, but it's more kind of the hobby is do it yourself. But we do see commercial people also learning within our website. Got it. Thanks. I'll jump back in the queue. Take our next question from Erik DeSloares with Craig Hallum Capital Group. Please go ahead. Great. Thanks for taking my question. I was wondering if you could comment a bit on overall pricing dynamics just with Your ability to sort of be a price leader in your markets, I know that previously that was one of your core strategies sort of Being able to sort of match or beat on price and help take share through that strategy, I'm wondering if that's still One of your core strategies for gaining share, especially in these new markets and just kind of talk about the overall Competitive dynamics along the pricing and discounting side? Thanks. Yes. I think, Eric, when it comes to that, we certainly aren't the price leader. We won't be beat on price. So like anything else, we still believe we deserve a fair price for products that we sell. But when an industry is in distress, some of the smaller stores and there's an overcapacity in hydroponics equipment, which you've seen in 2022, There has been a tremendous amount of discounting in the markets, and it has not been led by GrowGen. But with that, GrowGen will not be beat on price, and We've done a wonderful job lowering inventory by almost $25,000,000 this year, together with discounting where we have to discount to sell through overstock inventory. And also, we've spent the last 12 months SKU rationalizing products That we've picked up through a lot of acquisitions at GrowGen. So that part is coming to an end this year, But we will continue to be aggressive on pricing where we have to. And our balance sheet and really our distribution capabilities gives us The ability to do that. Thank you. We'll take our next question from Andrew Carter with Stifel. Please go ahead. Hey, thanks. Good evening, afternoon wherever you are. Just wanted to ask about I know the plan in terms of store openings is very different Now versus what it was at the beginning of the year, you talked a lot about reducing savings, reducing footprint. Was there anything that you didn't Spend or delay that's going to be a catch up in 2023 or I think you said earlier in the call, are you thinking about the business repositioning it in a Much more efficient asset light, I. E. Less stores per new market. Just wanted that's my first question. I think to start with, what you certainly will see from GrowGen is smaller steps and leaning on more distribution. We are in the midst of opening up 100,000 square feet in Ohio market. So that together with our Sacramento warehouse will give us tremendous distribution throughout the country And some of our bigger hubs that we also do use for distribution. So we will lean on that more. We will be bringing down the size of our stores To really fit what we're starting to see in the industry. 2 years ago, whatever product was in your store sold. And I think What most people are starting to realize in the cannabis industry and hydroponics industry is the growth. It will be a growth industry for many years to come, But it's not going to be that 20% year over year growth that you're seeing and people have thought you were seeing. So we've come to the realization That our stores don't have to be as big as we once thought they had to be. We've consolidated 7 stores this year. We probably have a few stores next year to consolidate, but you'll see smaller stores in GrowGen and more distribution capabilities from our company. Second one, regarding the implied 4th quarter guidance, does that include any more potential charges, I. E. Inventory, Just one extra restructuring anything or is that a clean number or is that a pro form a number? I'm going to send that over to Greg. Yes. So the Q4 number itself is assuming a revenue range of $57,000,000 to 47,000,000 With some level of cleanup as we get through our inventory reduction efforts in Q4, we are still continuing to run sale and clearance events To right size our inventory within the business and expect some margin degradation as a result of those efforts. So just to be clear, you all have been pretty good about presenting like a real number for EBITDA versus pro form a. What you've given us in the implied guidance is real number versus a pro form a number, correct? Yes, that is correct. Thanks. I'll pass it on.