Earnings Call: Q2 2021

Aug 12, 2021

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the GrowGeneration Corp. 2021 Second Quarter Conference Call. During today's presentation, all parties will be in a listen only mode. Following the presentation, the conference will be open for analyst questions. This conference is being recorded today, August 12, 20 21 and the earnings press release accompanying this conference call was issued this morning. On our call today is Darren Lambert, Our CEO and Co Founder, Michael Salomon, President and Co Founder Jeff Lascher, our CFO and Tony Sullivan, our COO and GrowGeneration's Head of Investor Relations, John Evans. I would now like to turn the call over to John Evans. Good morning. I would like to welcome everyone to the GrowGeneration Second Quarter 2021 Earnings Conference Call. After management remarks, there will be a Q and A session. As always, we expect to make forward looking statements this morning, But we want to caution you that our actual results could differ materially from what we say here. Such statements can be identified by the terms such as believe, Expect, intend and may. You should not place undue reliance on forward looking statements. Actual results may differ materially from these forward looking statements, and we do not undertake any obligation to update any forward looking statements we make today. For more information about factors that may cause Actual results to differ materially from forward looking statements, please refer to the press release we issued today as well as risks and uncertainties included in the section under the caption Risk Factors and Management's Discussion and Analysis of Financial Condition and Results of Operation and our Annual Report on Form 10 ks filed with the SEC and any subsequent Form 10 Qs and Form 8ks filed with the SEC. Following prepared remarks today, We will open the call for questions. I'd also like to remind everyone that today's call is being recorded and an archived version of our call will be available on our website later today. I will now turn the call over to our President and Co Founder, Michael Solomon. Thank you, John, and good morning. Our 2nd quarter record results exemplify our continued focus on the execution of our business plan, and we are very proud of the results our team achieved. For the year, we have closed 12 transactions and have added a total of 20 New locations to our portfolio of garden centers that now totals 58. Our company continues to attract The best of breed and largest chains of hydroponic operators as evident with our recent signing of HGS Hydro, the country's 3rd largest chain of hydroponic stores with 7 locations across the State of Michigan. In the quarter, we hired Paul Ritenis as Chief Merchant Officer and Dennis Sheldon, Senior VP of Global Supply Chain and Systems, Along with Jeff Lascher, our Chief Financial Officer and Tony Sullivan, our Chief Operating Officer, had tremendous experience at the C suite level to lead our team and execute our plan. Our strategy set forth several quarters ago have begun to pay dividends with better margins achieved from a wider product mix of private label and proprietary products. As we navigate through construction delays, our new store openings planned for Q3 will be Q4 events. In 2021, 4 states passed legalization, New Mexico, Virginia, Connecticut and New York. Additionally, New York is expected to have licensing starting in 2022. Today, we operate 12 Of the 18 states that have adult use laws with a goal to expand our operations to 14 states by the end of the year. I will now turn the call over to Darren, who will present our Q2 2021 results. Darren? Thank you, Michael. Good morning and welcome to our Q2 2021 earnings conference call. Before I begin with my prepared remarks, I'd like to thank each and every one of our staff and customers for their continued hard work, Dedication and loyalty. Our best in class staff is now over 600 with over 500 of our teammates experienced GrowPros. We have created the largest sales team of hydroponic product specialists in the country. The company generated revenues $126,000,000 in the quarter, a 190% increase year over year with a 60% increase in same store sales. The company reported Q2 2021 GAAP pre tax net income of approximately $9,600,000 compared to pretax net income of $2,700,000 in the same period last year. Earnings per share inclusive of tax expense was $0.11 compared to $0.06 in the same period last year. Adjusted EBITDA grew 230% to $14,500,000 for Q2 2021 compared to $4,400,000 in the same period last year or $0.24 per share. As we continue to expand our operations and serve more customers, we are raising our fiscal year 2021 revenue guidance to $455,000,000 to $475,000,000 and maintaining adjusted EBITDA guidance for 2021 of $54,000,000 to $58,000,000 The company continues to balance store acquisitions with the delays in timing of commercial build outs and new store openings. It should be noted that in Q2, we experienced a higher sales mix of seasonal outdoor products based upon recent acquisitions of West Coast Garden Centers. We operate 58 locations across 12 states today. With the addition of HGS, we'll have added 27 new locations this year. When these transactions closed, Company will have 68 garden centers across the country. We strive to finish the year with over 70 locations and over 100 locations by 2023. In addition, these new locations will enable us to optimize our supply chain for both private label and distributed products to ensure that we have the right product when and where the customers need them either to the store or directly to their Gro operation. We have over 100,000 walk in customers per month to our hydroponic garden centers. Our e commerce channel grew from $3,300,000 to $12,000,000 in the quarter. Transactions were up 55% over some same period last year. And we attracted approximately 1,000,000 unique visitors to growgeneration.com. We continue to see strong growth coming from our e commerce website. We continue to focus on margin expansion strategies That includes furthering the deployment more private label products, acquisitions of proprietary products and driving more efficiencies at the purchasing level as we continue to scale and grow top line revenue. Our private label and proprietary brand sales were over $8,900,000 in the Q2 of 20 compared to 408,000 same period last year. In the first half of the year, our sales of private label are up from $557,000 in 2020 to $14,800,000 in 2021. Our steadfast focus on rapid strategic growth in key markets, both organically and through acquisitions has resulted in a record revenue and EBITDA. With the anticipated addition of HGS, we will operate 1,000,000 square feet of Retail and Warehouse Space. GrowGen is a tremendous team of essential employees who made a commitment to our company and customers I cannot be any prouder. I'm inspired by their efforts and dedication. They've worked tirelessly to serve our customers and communities. I will now turn the call over to Tony Sullivan, our Chief Operating Officer, who will brief everyone on our key operating initiatives executed in Q2 2021. And then turn the call over to our CFO, Jeff Leisure, who will provide more financial details on our Q2 2021 year results. Tony? Thank you, Darren. We had another successful quarter with record financial results and we're very proud of our team's continued growth, execution and performance in the 2nd quarter. In 2021, our company purchased a total of 20 locations and we have integrated the acquisitions of 2 leading proprietary product companies, Canopy Crop Management acquired in December of 2020 and Charcor acquired in March of 2021. Both companies support our important private label strategies moving forward. Also, we have now integrated agron. Io, our B2B online sales platform for our commercial customers. We have developed a documented and consistent team approach to acquisitions and integration of the companies we are purchasing. Our proven process allows us to close multiple transactions in any given month and book the revenue on the day of closing. Our proven GrowGen model ensures we leverage our scale and size to increase sales, improve customer service and efficiencies throughout the process. Most importantly, we plan and spend the necessary time to onboard, teach and train our newest GrowGen family members. We have developed a real estate and 2 year growth strategy that is targeting the best greenfield opportunities throughout the U. S. We are building a DC hub, Multi channel fulfillment and spoke model to better serve the rapid growth we are experiencing in our industry. Today, we operate distribution and fulfillment out of our 60,000 square foot location in Sacramento, California and 40,000 Square Foot in Tulsa, Oklahoma. Earlier this year, we announced the additional 122,000 Square Feet Southern California that will serve as distribution and fulfillment locations for the company. We are in the process of building additional locations that will serve as fulfillment service centers that include 25,000 Square Feet in Phoenix, Arizona and 58,000 Square Feet in Medley, Florida. We expect these locations to be fully operational and contributing by Q4. Turning our attention to the omni channel and our new capabilities in e commerce. We have invested significantly in our new website launching BOPIS, Improving design, navigation, speed and functionality. At growgeneration.com, we are currently testing buy online pickup in store, Pick, Pack and Ship and Curbside Pickup Solutions. As a multichannel retailer, nothing is more important than understanding your Customer shopping needs. We have just completed a detailed brand tracker and customer segmentation analysis that will enable us to better identify, serve and target customers where they consume information. We will be optimizing through mobile and digital solutions to drive additional traffic to all segments of our business. I will now turn it over to Jeff, our CFO to review the financial highlights. Jeff? Thank you, Tony. As Darren previously discussed, revenue for the quarter was $125,900,000 compared to $43,500,000 last year, an increase of $82,400,000 or 190%. An increase of $23,300,000 from same store sales and an $8,700,000 increase in e commerce revenue as that channel grew from $3,300,000 to $12,000,000 Sales from stores opened last year in the Our same store sales comp base for the Q3 is over $50,000,000 and grows to $55,000,000 in the Q4 as we anniversary acquisitions and stronger 2020 sales. Gross profit margin was 28.4 percent for the quarter, up 170 basis points from prior year. Driving this margin expansion was an increase in revenues from both private label products and distributed products, which were 6.75 percent of revenues for the quarter compared to less than 1% of revenues for the same period last year. Gross profit dollar generation was up 208% from prior year from increased revenue and margin expansion. Total operating expenses grew in line with revenue from $8,800,000 to $26,100,000 Store operating cost totaled $12,600,000 for the quarter compared to $3,900,000 for last year. That was driven by the 190% increase in revenues and the addition of 29 locations acquired or opened after Q2 2020 and one location that was acquired during Q2 2020 that had full quarter expenses in 2021. In addition, the company has 6 locations under development that did not produce revenue in the quarter. These locations include 3 greenfield locations that will open in 2021, 2 relocations scheduled for Q4 2021 and one location that is under development. We did leverage selling, general and administrative costs as those expenses increased from $4,400,000 to $10,600,000 a 141 percent increase or $6,200,000 More than explained by support costs for the enterprise that includes the cost associated with establishing the infrastructure necessary to continue to profitably grow the business in future periods. Amortization of intangibles increased from $93,000 in Q2 2020 to $2,100,000 in the Q2 of 2021. We expect amortization expense to continue as a result of intangibles acquired from acquisition. Income tax expense increased year over year from $156,000 in the Q2 of 2020 to $2,900,000 in the same period 2021. Effective tax rate was 30% in the quarter As a result, the disallowed deductions in federal taxable income from intangible amortization and share based compensation. Net income for the quarter was $6,700,000 compared to $2,600,000 for the same period in 2020. Net income per share was $0.11 Adjusted EBITDA, which excludes the expenses associated with interest taxes, Depreciation, amortization and share based compensation was $14,500,000 for the quarter compared to $4,400,000 in 2020. The company ended the quarter with $67,200,000 of cash 57,400,000 are of marketable securities that are mature and available for sale if needed. Total liquidity is $124,500,000 at the end of June. The closing of HGS Hydro will result in a cash payment of approximately $55,000,000 based on present inventory levels at that company. Excluding the commitment the company has made to acquire HGS Hydro, the company retains $70,000,000 of net dry powder for acquisitions or working capital needs. Net cash used in acquisitions and other investments totaled $48,000,000 for the 1st 6 months of 2021. In addition, the company has issued 100,000 shares in conjunction with acquisition activity to date and will issue approximately 400,000 shares in connection with the HGS Hydro acquisition. As Darren discussed, we estimate that revenue for the year will be between $455,000,000 $475,000,000 based on the 68 garden centers and the 2 proprietary brands that we operate now or will operate for the balance of the year. We estimate that EBITDA adjusted for share based compensation with those operations will be between $54,000,000 $58,000,000 In total, we expect the revenue in the second half of twenty twenty one to be between $234,000,000 and $254,000,000 compared to prior year of $117,000,000 of which $102,000,000 is in the same store sales base for the second half of twenty twenty one. Comp base in the first half of twenty twenty was $66,000,000 To add one bit more bit of clarity, included in this guidance is an assumption that we will close the acquisition of and begin to operate HGS Hydro in the 4th quarter. We had a busy quarter of business expansion announcements, including the acquisition of Downriver Hydroponics, a Michigan based garden center and The Harvest Company, a Northern California based garden center with stores in the Emerald Triangle region of California. The second half of twenty twenty one has already resulted in 3 announcements that are included in our guidance. This includes the acquisition of HGS Hydro in Michigan, Aqua Serene in Oregon and Mendocino Garden Supply in California. These acquisitions will result in 10 new GrowGeneration locations. Now I'd like to turn the call back to Darren for concluding remarks before Q and A. Thank you, Jeff. The GrowGen team delivered another record second quarter. The entire enterprise generated more revenue in the first half of twenty twenty one and all of 2020. Our adjusted EBITDA in the first half of twenty twenty one is more than all previous periods combined. Our ability to attract and purchase the best of breed and largest hydroponic operators in the country was again evident with our signing of HCS Hydro, the country's 3rd largest hydroponic chain. The strategies implemented several quarters ago are now positively impacting margins. We increased our inventory positions across all key product categories to get ahead of price increases as well as expanded more private label purchases. Our private label and proprietary products continue to grow. The company continues to focus on building out a world class supply chain With omni channel functionality that will allow the company to continue to deliver just in time inventory for all types of growers and cultivators. Guidance for the balance of the year will be set after the company closes the HTS Hydro transaction. Our leadership position is driven through our corporate mission statement to be the largest chain of hydroponic garden centers in North America. As we look into future years, we think there are still tremendous opportunities to add to our network through acquisitions of independent retailers and open Greenfield location in markets that are expanding customer demand. We look forward to continuing to provide guidance as need be And we're excited to share our successes with our shareholders, our management team and partners. Now we would like to turn the call over to the operator to take a few questions. Thank you. Ladies and gentlemen, we'll now begin the question and answer and your questions will be pulled in the order they are received. Your first question comes from Brian Nagel from Oppenheimer. Brian, please go ahead. Hi, good morning. Congratulations on a really nice Congratulations on a really nice quarter, really nice first half of the year. Thank you, Brian. So my first question, I guess, it's Darren and Jeff and whoever will. Just with respect to guidance, if you look at the trends You reported here in Q2 and your articulation of those trends and the business is clearly strong, if not getting stronger. You've made a number of significant acquisitions. Why not lift sales guidance more given the trends, given even what I perceive to be the beat The expectations in Q2. And then the same kind of question for same type of question for EBITDA. I mean, why only you reiterate the previous guidance for EBITDA here? So I'll go first and then Darren will give some color. When you look at the same store sales For the first half of the year, we were up 60% in Q2 and the team really delivered a very strong quarter In the last 90 days. In the Q1, we were up 52% on a same store sales base. The comp base in that first half was $66,000,000 from 2020. So when we look at the second half Comp base in 2021, we had same store sales in that comp base of $100,000,000 because of the expansion of sales last year in 2020 after the pandemic influenced 1st and second quarter. We feel pretty strongly about the business overall and we're still in the same range of Full year expectations that we discussed earlier in the year of same store sales increase of about 25% Overall, when you blend all 4 quarters together. But it's important to remember that the comp base in the second half does materially impact The same store sales basis as we're comping against more strength in the second half of twenty twenty, which we're proud of by the way. Darren? Yes, Brian, also we're seeing certainly a tremendous slowness to market with new states coming on. The East Coast right now, when you look at New Jersey, you look at New York, When you look at some of the other states coming on board, we've seen very slow movement in licensing. We've seen slowness in building. We had 4 operations that we thought would be operational Early Q3, even late Q2. And we've seen there really because of building supply issues, it's taking us longer to build stores. So certainly some of the largest stores that we have coming to market, we don't expect to come online to the Q4. So we're being extremely conservative with guidance right now to Wall Street. We operate in 12 states. We have 38 states to go. This business has grown from $30,000,000 back in 2018, approaching a $500,000,000 in 2021, and that's with 12 states. We still believe that we have tremendous work to do in the 12 states that we're in. We have tremendous growth left ahead in these 12 states. But even more exciting is the 38 states coming to market. We will see same store sales comping for many years. We've been comping off of Tremendous same store sales growth over the last 3 years. 2018, you saw, again, a $30,000,000 business. And you saw a 37% same store sales growth followed by 63% sales growth. And you're seeing us comping almost in the mid-50s this year. That's in mature states where we have stores that have been in business for over 10 years. So like anything else, we guided Wall Street early this year to same store sales growth, Really high teens to 2020 and we are beating those numbers. But there is no secret that in states that we've been in That are maturing that same store sales growth can't continue at this incredibly rapid pace. So we're taking Look into the business throughout the remainder of the year with supply chain issues with container costs going up. And One of the more impressive parts which you're seeing is an incredibly quick adoption of our private label brands, which is certainly balancing our EBITDA numbers and really balancing our margins, which are almost 2 points higher than last year. So I couldn't be any prouder of what the team has done in the first half of this year. I certainly expect a very strong second half of this year. But right now with COVID and with supply chain issues, we are taking a very conservative approach to guidance right now. That's all very, very helpful. The second question I wanted to ask, I guess maybe a little more strategic in nature, but you called out the E commerce sales. I mean, it seems like you've seen some pretty rapid growth in e commerce sales. So the question I have is, as I understand it, e commerce has, for the most part, been kind of a clearance mechanism for you when you buy stores, there's inventory, you're not going to be carrying, you go through e commerce. Is the strategy changing there to be more of a true sales channel? I'm going to pass it over to Tony. Yes. So as you look at our e commerce business, it may have started out, Brian, as a little bit of a clearance, but it is definitely becoming 2 fold. 2 fold, we have a Retail channel that is performing greatly. As you know, we just recently acquired agron. Io, which gives us additional Sales capability within the B2B and the commercial side of the business. And combined, we are seeing significant growth on both. Perfect. We'll be back again. Thanks for the color. I'll pass it over. Thank you, Brian. Thank you, Brian. Your next question comes from Andrew Carter from Stifel. Andrew, please go ahead. Yes. Thanks. Good morning. What I wanted to ask was you mentioned a lot of the stores that weren't open and went through the plan. So I guess my first question is, What are the costs kind of burdening this quarter? And since they're not opening to the Q4, I would expect that to expand. And within that, what's kind of the delta in kind of your Expectations in contributions from those stores versus now a drag for the Q3 and not operational into the Q4? Thanks. So I'll start off with the cost side and then I'll turn it over to Tony to discuss kind of what we Backed out of the new store openings. But in the cost side, as we talked about, the Units that we plan on opening in the second half, the 2 in LA, the 1 in Oklahoma and we have a unit down in Mississippi. We also have Some relocation, of existing operations. And there is a burden on the business, SG and A and other components of store operating costs while we're opening those locations. We are excited about those locations and coming on online in the second half of this year. We continue to build those locations. We hit some constraints like everybody else, but We do anticipate that those locations will be up and generating revenue in the second half of this year. The overall cost burden in the first half Was less than $1,000,000 but it will mitigate itself in the second half as we Continue to work toward opening those locations. And just to add to that guys, as you guys know and everybody else is reporting, there are Supply chain, logistic disruptions. There are lingering COVID effects going on. As you guys No cities are trying to get back up and running. They're slow to get permits. They're slow to get licensing. And those impacts are Impacting us as well. But as Jeff said, our planned stores, whether they were new stores, relocated or expanded stores, They were planned for late Q2 or into Q3 will be Q4 events. Okay. I mean, I was asking for the cost, but I guess the second or cost for the Q3 as well. But I guess the second question I would ask You mentioned the same store sales base for next year. Are you seeing any number 1, what's the variance in the store performance? And then in that $100,000,000 Same store sales base you're talking about. I know you mentioned slower builds. Could you give a mix of how much of that is durables versus consumables? Because if it's Slower builds and I wouldn't expect your durables performance to be kind of under pressure in the second half of the year. Thanks. So you're referring to our product mix in the second half. We our forecast for the second half has about the same level of Durables and Consumables, as you know, about 60% of our sales comes from the consumable side. And we still see a strong Pipeline of commercial activity in the back half of the year. So we're up against more difficult comps as we've talked about where the first half to 2nd half in twenty twenty grew by 50%, but we're still excited about the growth of the business in the second half of twenty twenty one. Andrew, we've also seen, we're certainly having issues on the building side getting up some of our new operations up and running. We're seeing the same from some of our customers. What you're starting to see is pushback in building. It's not pushback in building, but it's pushback in completing building. So in a growth facility, usually equipment that we sell is last in, Especially on the lighting side. So you're seeing a little slowing in benching coming in, in certain products to get some of these facilities done. So we're seeing a little pushback right now. It's not slowing, it's getting pushed back. So we will see facilities that we thought will be done in the Q3 will be done in the Q4. Notwithstanding that we saw an extremely powerful June coming out on the building side of it, which was probably our strongest month that we've ever seen at GrowGen. So it's not that we're seeing a slowing, we're certainly seeing some pushback Longer length time to get some of these facilities built. We were seeing absolutely no slowdown on our consumable products. I'll pass it on. Your next question comes from Eric De Lloris from Greg Hallum Capital Group. Eric, please go ahead. Great. Thanks for taking my questions and congrats on another strong quarter from you guys here. So, e commerce certainly picking up, especially with this Agron acquisition. I'm wondering if you can help us understand how that's impacting the business from a margin perspective. It's great to see those that line item expanding here with private label. But just wondering if you can help us understand how we should think of e commerce from a margin perspective? Thanks. Yes, guys, this is Michael. The Agron acquisition was done strategically to add a business to business Marketplace. And what we're very proud of and excited about with the Aggron acquisition is that it's demonstrating a higher dollar per Transaction versus our growgeneration.com website, which is attracting more of a craft consumer. So when you look at a blended Strategy between growgeneration.comandagron. Io, we're really attracting the widest And Broadest Reach of Growers in the marketplace. And margins are coming in right on target and right on plan. So we're very excited that, Agron is now fully integrated and contributing to both revenue and EBITDA to the company. Okay, great. And then just I guess any comment there on the margin perspective on the Margin dynamics of Agron or just the e commerce business overall? I mean margins are coming in right in line, Eric. So it's coming in, in the Mid-20s. So we're very, very satisfied with the performance of both websites I mean, they're very, very much in alliance with the budget and the plan that we've set forth for both of those Assets that the company has operate both channels. Yes, Eric, just to be more specific, our e commerce is running usually about 4% to 5% lower than our margin that you're seeing in the overall business. Okay. Yes, I think that's to be expected, but Helpful color. I appreciate that. And then I guess just last from me on the M and A outlook here. So presumably Plenty of more hydroponic stores, I guess, both from an acquisition and organic expansion perspective, especially with more states legalizing here. But maybe as we kind of look beyond new stores, whether it's something like Agron or e commerce or maybe other verticals even, anything else sort of in the pipeline that we should be Expecting, looking out for, or should it be sort of more of the same continued store acquisitions here? Just kind of wondering how you're thinking about your M and A pipeline as the business is evolving and as you guys continue to kind of pull away with market share on the retail level here? Thanks. Eric, as we always said, we target best of breed talent operators own or dominate the markets we operate in. We stay very disciplined on our due diligence and modeling. Today, we haven't seen any material change in acquisition multiples. You'll see more of the same from GrowGen again going forth right through 20 202023. Our pipeline remains large and continues to grow. And like anything else, I think you've seen multi different purchase from GrowGen this year from the product side, from the e commerce side, from the store side And also GrowGen opening new stores. So really there's certainly 4 buckets that you will see GrowGen continuing in. If we find niche products that we believe will fit GrowGen's proprietary brand products, we certainly are out there bidding on them. And certainly on each and every store and the pipeline as large as you're seeing from the recent announcement of the HTS transaction and We're going to continue to do what we're doing. And once again, we're in 12 states, there's 38 to go. And almost a $500,000 in business and growing in these 12 states. So we couldn't be any more excited about the future of GrowGen, what we've built in the past 3 years and really the future of this industry. This is the early stages of many decades growth. This industry right now is a $20,000,000,000 industry compared to the wine and spirits industry, we're seeing almost $1,000,000,000,000 industry. Forecast for this industry is going to $100,000,000,000 by the end of the decade. So you're going to see a lot of building, a lot of new plants in the ground. You'll see a lot of opportunities for GrowGen on a go forward basis. Yes. No doubt lots of runway for growth here. Well, congrats again guys. Thanks. Thank you. Your next question comes from Mark Smith from Lake Street Capital. Mark, please go ahead. Hi, good morning guys. First, I just wanted to ask a clarifying question. What is your guidance Soon for end in store count here at the end of the year and does your guidance revenue guidance in particular include HGS Hydro? So I'll walk you guys through that. So as we said on the script today, we have 58 stores in the business today. All 58 of those are assumed in the revenue guidance. We have 6 stores that we will acquire from HGS Hydro And we will have a 7th HTS Hydro location up and running right about the same time that we Take over the business in Q4 and those 7 stores are assumed in our guidance as well. So The guidance is the book of business that we own or have committed the company to acquire for the balance of 2021. Okay. The guidance does not include any additional acquisitions or and what about the kind of Greenfield stores expected to open later this year? It includes the Greenfield stores, the 2 in Southern California and the 1 in Oklahoma are included similar to what we had in the Q1 And acquisitions that we have not committed the business for are not included and we would do an update if there was a material change to the business' guidance. Excellent. And the second for me, private label sales certainly coming along. Can you talk about the difference in private label sales at comp stores versus kind of new stores? The comp stores trending above this kind of 7% systemwide average? We're seeing consistent private label sales across the board. As you guys can see, we are Ending the quarter up around 7%. It's a significant increase over last year. And as we shared with you in Q1, This was the beginning of building out our entire private label franchise brand collection. We're looking at every department, every area of opportunity. And right now, we're seeing pretty Sysston across the board selling both at our acquired stores as well as our current comp based stores. Okay. And then the last one for me is just looking at operating expenses, maybe up a little bit Here this quarter, what are you guys seeing from a labor inflation standpoint? And then I know you've called out supply chain, Other inflationary headwinds that you guys are seeing that maybe we should be keeping our eye on? Yes. Let me walk you through a couple of the headlines to reiterate some things that we've said on the script. So, the amortization expense, which is included in our total operating expense that you're looking at there, Our amort expense was significantly higher than prior years as we talked about in the script where we went from Less than a couple of 100,000 of amort expense in 2020 to 2,500,000 in 2021. We had a total depreciation and amortization of 2,900,000 In Q2 of 2021 and that compares to $2,100,000 in the Q1. So that was a significant Increase in our Amort expense that's backed out for adjusted EBITDA, but I did want to clarify that that rolls through the net income line. And as we do acquisitions and add intangibles to the business, which gets Expensed over time, we do see that number continuing to increase As we increase the size of the business through acquisitions. As far as our labor cost, If you look at store operations as a percentage growth relative to our revenue, we're in line with that and we're pretty excited about Our maintenance of cost controls in the stores. We have paid our employees, a fair wage for quite some time. We continue to review those wages. We continue to look for opportunities to reward our employees. We consider ourselves a good steward of their career progress and we continue to look for opportunities to improve their Career prospects with us and continue to profit from our growth. We're very excited with our employees and we not only Try to treat them well, but we also value those employees and our associates throughout our 58 stores we have today. And As we acquire the HGS stores into the family, we're excited to welcome them into the family as well. Yes, Mark, what you've also seen is we've built the C suite out as we Certainly, I've told Wall Street, we have brought a world class team into GrowGen. So certainly in the last quarter or 2, you've seen an increase. Certainly, On the C suite side of GrowGen, our C suite is built out right now and we couldn't be any prouder of the team on a go forward basis. Okay. Yes. I mean, it sounds like you guys this year and recently have been building a base for continued future growth as we look at kind of the DCs Building out the C suite, is that kind of a fair way to look at some of the expenses this year? 100%. Yes, absolutely. But again, there is leverage there. I mean, last year, if you look at our SG and A as a percentage of revenue was 10.2% in the Q2. This year was 8.4 In the Q2. So we are leveraging our SG and A as we grow our business. But there is infrastructure needs of the business and we continue to look for opportunities to fill in the holes in the business that were created because of our exceptional growth that we've had Year over year, we've done more revenue in the first half than we did in all of 2020. And that means that we need to bring on Both executives as well as associates within the office staff and look for ways to Service the business better through people, processes and technology and invest it back into the infrastructure of the business to build The business for the future and continue to grow this business in 2022 and 2023. Excellent. Thank you, guys. Your next question comes from Mike Grumbahl from Northland Securities. Mike, please go ahead. Hi, guys. This is Owen on for Mike. I just have a couple of quick questions. How is the expansion of the commercial customer base going? And are there any material updates from the previous quarter? Commercial continues to be a focus for the company. We continue to acquire new commercial customers. I mean our commercial division expands quarter over quarter. We're adding more MSOs quarter over quarter, we're adding Single state operators. And I think what we're most proud of is the service. So not only we're acquiring, we're retaining customers And providing end to end solutions for these commercial customers that are demanding. We're able to customize and provide them a personalized high touch solution for all their product needs. So the commercial division It's certainly a huge growth engine and a major sales channel for the company. Got it. And then are there any other improvements to the customer experience? I think you guys mentioned Curbside pickup and other improvements on the e commerce channel. Just anything else to call out here? Yes. As you guys know and we updated each of you on it both in the Q1 and now in the Q2, We have launched our BOPIS buy online, pickup in store. And as you guys know, we're building and have built a multi channel approach to our business. So we want to be able to get that product to the customer any way they need it, whether it is buy online, pick up in store, curbside, Pick, Pack and Ship, Last Mile, we are working through all of those efficiencies and solutions. And as we also noted, We just brought on Dennis Sheldon, our SVP of Global Supply Chain and Systems, Who is going to take that technology even further. So we're really excited about the new initiatives and where we're headed. Great. Thanks guys and congrats on the quarter. Thank you. Your next question comes from Aaron Grey from Alliance Global. Aaron, please go ahead. Hi, thanks for the questions and congrats on the quarter. Thank you. So just quickly, I just want to know maybe provide some color on maybe some geographic performance during the quarter and So how that baked into your outlook for the back half of the year? Certainly appreciate the answer to the commentary. There might be some conservatism there, but Obviously, going against a different comp base. So just want to know, maybe if you could talk about some specific geographies, to where you might believe you're going against that For a comp base, any kind of color there would be helpful. Thanks. Yes. When we look at the geographic performance of the business, it is Not terribly different across the country. We're still seeing growth in Michigan obviously because of our investment In HGS, we're very bullish on the State of Michigan. And we continue to see growth in other Markets that are less mature than California and Colorado and Oregon and Washington such as Oklahoma and Massachusetts In the Northeast Corridor. So we're excited about those opportunities. And as we look at the pipeline for acquisitions going into 2022, We are focused on building out a network of in the Northeast as to build on our Geographic presence on the West side of the U. S. Okay, great. Thank you. That's helpful there. And then just wanted to dive back into the private label initiative at 7% today, less than 1% last year. I I just want to know in terms of with COVID kind of being able to talk to more people in the stores, any color in terms of you give to how much of a lift you might have seen as stores start So open back up and able to kind of talk to customers coming in and how that's helped with your private label initiative more at a granular level and how you think That will continue to improve as people continue to come to the stores and you can have more of that educated assisted sale. Thank you. So I'll take that as a 2 part question. From the COVID side, as you guys know, we have reported to you multiple Quarters that we ran an essential business and we're an essential supplier. And because of our 5 phase Program Phase 1, 2, 3, 4, 5, we really had the additional protocols. We stayed 1 step ahead of COVID And did not see as much impact because of our essential supplier position. From a private label standpoint, As you know, we've ramped this up from Q1 to Q2. And as we've shared with you guys, 7% of our total revenue. As we've been able to get this product into stores, it has been selling exceptionally. And as you can see and as we've reported over the same 6 months last year, we went from up almost 2,548 percent. So we're pretty excited and bullish on our private label. And as this continues to come into the back half, We expect equally of strong sales. Yes, Aaron, the only thing I would add to that is that the acceptance At the store level, at the customer level has been certainly on plan and we're seeing that the company Strategy of bringing these private label products to our customers at a great price As well as a high quality product is certainly not only helping us on the margin side, It's offering GrowGeneration back product and we're seeing tremendous acceptance from the customers And that relationship between our GroPro and our customers in delivering private label products is working out extremely well for the company. Great. Thanks for the color. Congrats, Dan. Your next question comes from Scott Fortune from ROTH Capital. Scott, please go ahead. Good morning and thanks for the questions. A lot of them have been answered, but real Just as a reminder, bringing the timing of new greenfield builds and how quickly you ramp to get that fully optimized at the store level with Company margins and a strong customer base, just kind of step us through the timing of that full optimization for these new builds as we look out into 2022 here? Yes. So if you take the new process, We anticipate 60 days as we move into the project and have it up and running. We run big grand openings as you guys know. COVID has impacted us a little bit on our ability to do grand openings. But the exciting thing about new builds As you step through, we've got a pipeline of talent ready to go. We've got a proven process that takes us from 60 days out to the grand opening. And then we have a process of training, implementation and getting it up and running with the customer the next 60 days. So we've seen a ramp and we saw it with Tulsa too and we'll walk you guys through it. We've walked you through it before, but We saw a ramp in the 1st 30 days where it did significant volume, but by the next 30 days it was up and running doing 1,000,000 a month. So we expect that it takes 60 days to lead in and 60 days to get to the level we expect out the backside. Perfect. I appreciate the color. That's it for me. Thanks. Your next question comes from Glenn Mattson from Ladenburg. Glenn, please go ahead. Yes. Hi. Thanks for taking the questions. Quick, the Q3, is there as your Increased exposure to outdoor, is there any thoughts about seasonality? Is there like is there any Possibility that top line would be down sequentially or is it is that not really a factor? Again, 2nd quarter, As everyone knows, it's outdoor season out west. We recently purchased Grow Biz, which is a Northern California centric business And a few other shops in Washington and Oregon. So we certainly saw very strong outdoor season this year, in both parts of And also Washington and Oregon. And it's one time planting. So we certainly don't see that outdoor continuing into the 3rd Q4. Okay. Next on the some of the throttle back in the growth rate, it sounds like you're About some disruption in the process of putting on new facilities for some of your customers. So I'm just trying to get a sense of the balance between the temporary factor that that's involved and whether or not just do like a snapback At some point next year or if it's how much of it is kind of like the law of large numbers or just the ability to comp against some of that stuff, Just the give and take between those two forces, some color there would be great. As we said previously, The new store openings, which were scheduled for Q3 are going to be pushed out to the Q4. And I could tell you that our acquisitions Are certainly in line and are as strong as they ever have been in terms of the pipeline. Okay. And I guess lastly, just the on the cash balance post The HGS acquisition, is that clearly it's enough to fund the business and continue to grow, but is there is that a number You're comfortable with in terms of your ability to expand over the next 2 years or do you have to increase that cash position To complete all the acquisition plans you expect over a multiyear period? So I'll take that and then I'll turn it over to Darren for Some comments about it. The company ended the last quarter, the Q2 with $67,000,000 of cash $57,000,000 of marketable securities. When you add those 2 together, sitting at $125,000,000 of total liquidity. Those marketable securities are mature and available for us to use if necessary. So it's a total of $125,000,000 of liquidity. We expect a cash outlay for HCS Hydro in the neighborhood of 55,000,000 based on the present inventory levels. Excluding that commitment, we still have $70,000,000 of liquidity to go after additional Acquisitions and we continue to generate cash over the next 6 quarters to help fund the business As we keep our options open for additional acquisitions over the next year and a half, we have that opportunity. If there's a need for capital, we'll reassess and have a conversation about that internally and then communicate that externally. I think that answers it, Jeff. Yes. Well, thanks for that color. That's it for me, guys. Thanks. There are no further questions at this time. I'll turn it back to Darren for closing remarks. Thank you. I'd like to start by thanking our 600 plus employees for the tremendous job that they have done during very difficult times in our country. Our employees have worked tirelessly to serve our customers and giving back to our communities that we service. I'd like to thank each and every one of our shareholders for having faith in this company. The cannabis industry is not a short term phenomena and we believe there's many decades of hyper growth ahead. GrowGen currently operates in 12 states With incredible potential ahead. Even more exciting as GrowGen has another 38 states to build out. We have scaled this business from $30,000,000 in sales in 2018 To revise guidance for 2021 of $455,000,000 to $475,000,000 I remain as confident as ever in our business model. As for the future, the staff we are building, the executive team and I couldn't be prouder to be the CEO, Co Founder of GrowGen. Everyone stay safe and we look forward to updating everyone in November with our Q3 numbers. Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.