Hello, everyone, and welcome to GrowGeneration's third quarter 2026 earnings conference call. My name is Julie, and I will be your operator for today's call. At this time, participants are in a listen-only mode. Following prepared remarks, we will open the call to questions from analysts, with instructions to be given at that time. This conference call is being recorded, and a replay of today's call will be available on the investor relations section of GrowGeneration's website. I will now hand the call over to Phil Carlson with KCSA Strategic Communications for introductions and the reading of the safe harbor statements. Please go ahead, Phil.
Thank you, operator, and welcome everyone to GrowGeneration's third quarter 2026 earnings results conference call. With us today from GrowGeneration are Darren Lampert, Co-Founder and Chief Executive Officer, and Greg Sanders, Chief Financial Officer. The company's third quarter 2026 earnings press release was issued after close of market today. A copy of this press release is available on the investor relations section of the GrowGeneration website at ir.growgeneration.com. I would like to remind everyone that certain comments made on this call include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 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-looking statements.
Please refer to today's press release and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any of the forward-looking statements made today. During the call, we will use some non-GAAP financial measures as we describe business performance. The SEC filing, as well as the earnings press release, which provide reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures, are all available on our website. Following prepared remarks, management will be happy to take your questions. We ask that you please limit yourself to one question and one follow-up. If you have additional questions, please re-enter the queue, and we will take them as time allows. Now, I will hand the call over to GrowGeneration's Co-Founder and CEO, Darren Lampert. Darren, please go ahead.
Thanks, Phil, and good afternoon, everyone. Thank you for joining us to review GrowGeneration's third quarter 2026 financial results and to discuss our outlook for the remainder of the year. The third quarter represents another step in GrowGeneration's transformation into a commercial proprietary brand-driven business. We delivered net sales of $44.8 million, gross margins of 32.4%, and $2.3 million of adjusted EBITDA. These results demonstrate our progress in fundamentally reshaping our business, strengthening our revenue quality, and building a more efficient and profitable operating model. Over the past several years, we have expanded beyond our retail roots to serve commercial growers nationwide. Three priorities have guided us: expanding our commercial sales team, growing sales of our proprietary brands, and lowering the cost of serving customers by making better use of our distribution network. At the center of our transformation is the expansion of our commercial business.
GrowGeneration has developed a national platform serving commercial cultivators across specialty agriculture and controlled environment agriculture. Our competitive advantage is our cultivation expertise and a comprehensive portfolio of cultivation supplies. Proprietary brand sales grew approximately 19% year-over-year to $14.4 million, while surpassing 40% of cultivation and gardening net revenue for the quarter, as we continue to see strong growth from our portfolio of brands. We've also continued to consolidate locations and simplify our distribution network to lower the cost of serving growers. In the third quarter, store and other operating expenses fell approximately 12% year-over-year, from $7.2 million to $6.4 million. During the quarter, we began the process of closing two additional stores, which was completed subsequent to quarter end. We expect to close another two to three locations before year-end, bringing our total fourth quarter closures to approximately four to five locations.
These actions, together with targeted workforce reductions and other operational improvements, are part of our broader restructuring plan to reduce fixed costs and improve operating efficiency. We expect to complete the majority of these initiatives by the end of 2026, positioning GrowGeneration for greater profitability in the year ahead. Technology is another way we're increasing productivity and lowering costs. GrowGen Pro already gives our commercial and wholesale customers a convenient way to manage their accounts and place orders online. In October, we acquired technology from Order Junky to improve our sales team's efficiency. We're integrating tools to bring customer pricing, inventory availability, and freight costs into a single quote that a sales rep can turn into an order without re-entering the details. We're also evaluating the platform's AI capabilities can reduce routine administrative work. For 2027, our goal is to give growers faster, more accurate quotes and make repeat purchases easier.
We expect this will free our sales team to spend more time with customers and help us grow commercial sales without a corresponding increase in overhead. Turning to MMI Storage Solutions, the business generated $9.2 million in third quarter revenue, ahead of our expectations. MMI's performance through September has exceeded our initial expectations for 2026, and we're on track for strong year-over-year revenue growth for the full year. Looking ahead, we see opportunities to put MMI's engineering and manufacturing capabilities to work for more customers in industrial and specialty markets, expanding our business beyond cultivation. The progress we're making is increasingly visible in our profitability. For the nine months ended September 30th, adjusted EBITDA improved to approximately $1 million from a loss of $4 million a year ago. We also reported our highest GAAP net income quarter since 2021.
While the third quarter tariff recovery contributed to that improvement, we're continuing to focus on the underlying initiatives that will continue to drive our business to greater levels of profitability. We ended the quarter with $41.8 million in cash, cash equivalents, and marketable securities, and no debt. That gives us flexibility to invest selectively in our commercial business, proprietary brands, and technology. During the quarter, we also returned approximately $1 million to shareholders through the repurchase of 700,000 shares at an average price of $1.46 per share. Given our progress to date and increased visibility, we are refining our full-year revenue guidance to $163 million-$165 million from our original range of $162 million-$168 million. We're also taking further steps in the fourth quarter to strengthen profitability in 2027.
With four to five additional store closures we plan to complete by year-end, along with other restructuring activities, we believe it is prudent to withdraw our previously full-year adjusted EBITDA guidance. While these actions may create some near-term uncertainty, longer term, they will meaningfully lower our cost base and position the business for improved profitability in 2027. Looking ahead, our plan is to accelerate GrowGeneration's evolution into a leading national commercial cultivation supply and proprietary brand platform with multiple engines for profitable growth. To do that, we will prioritize expanding our proprietary brand penetration within our commercial customer base, establishing deeper strategic relationships with commercial cultivators, expanding their operations, and continuing to broaden MMI's customer base by entering additional verticals. Underlying all of this is our commitment to building a leaner, more efficient, technology-enabled organization.
We intend to leverage our national distribution infrastructure, commercial sales capabilities, proprietary brands, and customer relationships to grow revenue while managing our cost structure. That concludes my remarks. Now I'll turn the call over to our CFO, Greg Sanders.
Thank you, Darren, and good afternoon, everyone. I'll begin with a review of our third quarter 2026 results, and then I'll provide additional context on our outlook for the rest of the year. We reported third quarter results that were consistent with our expectations and reflect the continuing transformation of GrowGeneration. Our results were characterized by strong proprietary brand sales in our cultivation and gardening segment and continued growth and profitability in our Storage Solutions business. We delivered another quarter of positive adjusted EBITDA, as well as a substantial year-over-year improvement in net income, as we reported positive net income for the quarter. For the third quarter of 2026, GrowGeneration reported net sales of $44.8 million compared to $47.3 million during the same period last year.
Our revenue was in line with our guidance range and a slight decrease to 2025 due to a few large one-time transactions in the prior year period. Cultivation and gardening segment net sales were $35.6 million for the quarter compared to $38.4 million in the same period last year. Proprietary brand sales represented 40.6% of cultivation and gardening revenue, up from 31.6% last year. Proprietary brand sales increased $2.3 million, or 19.3%, to $14.4 million for the quarter. Through September, those sales grew $7.6 million, or 23.4%, to $40.1 million, offsetting the decline in third-party product sales and keeping total segment revenue slightly ahead of last year. Storage Solutions net sales were $9.2 million in the third quarter, up from $8.9 million a year ago, and ahead of our expectations. Demand from retail and industrial customers contributed to the segment's performance.
For the first nine months of 2026, sales increased $2.2 million, or 10.2%, to $24 million, putting MMI ahead of our initial plan for the year. Gross profit increased $14.5 million compared to $12.9 million a year ago, and gross margin rose 520 basis points to 32.4% from 27.2%. As anticipated, we recognized a $2.6 million benefit from IEEPA tariff refunds as a reduction in cost of sales. Cultivation and gardening accounted for the increase in gross profit, with segment gross profit up $1.7 million, or 18.4%. In addition to the IEEPA refunds, a higher mix of proprietary brand sales helped margin. Lower sales from a smaller footprint for our stores weighed on gross profit, while pricing pressure, higher transportation costs, and higher estimated inventory obsolescence costs weighed on margin. In storage solutions, gross profit dollars were essentially unchanged, although the segment margin declined modestly.
Turning to expenses. Total operating expenses declined 7.1% to $14.6 million from $15.7 million a year ago. Store and other operating expenses fell 11.9% to $6.4 million from $7.2 million, reflecting our smaller store footprint. SG&A increased to $6.8 million from $5.7 million, driven by higher commercial sales-related spending and one-time charges incurred during the quarter. Depreciation and amortization totaled $1.2 million, down $1.5 million, or 55.2%, compared to $2.6 million in the same period last year. The decrease primarily reflects asset retirements related to cost reduction initiatives and certain intangible assets reaching the end of their useful lives. GAAP net income was $0.2 million, a $2.7 million improvement compared to a net loss of $2.4 million, or -$0.04 per share, in the prior year period.
The improvement was primarily driven by higher gross margin, including the tariff refund benefit, and lower operating expenses, partially offset by lower sales volume. In the third quarter, we delivered our second consecutive quarter of positive adjusted EBITDA. Non-GAAP adjusted EBITDA, as defined in our press release, was $2.3 million, a $1 million year-over-year improvement compared to $1.3 million in the prior year. Now, turning to the balance sheet. We ended the quarter with $41.8 million of cash, cash equivalents, and marketable securities, and no debt. We continue to maintain a debt-free balance sheet. Our cash position gives us the financial flexibility to invest in organic growth, evaluate strategic opportunities, and opportunistically return capital to shareholders. We also returned approximately $1 million to shareholders during the quarter, repurchasing 700,000 shares at an average price of $1.46 per share, excluding transaction costs.
We did so while preserving the liquidity we need to fund operations and invest in the business. At quarter end, approximately $8 million remained available for future repurchase. As Darren outlined, we are narrowing our full-year revenue guidance to $163 million-$165 million. We are also withdrawing our previous adjusted EBITDA guidance of $2 million-$3 million due to the actions we are now taking to lower our ongoing cost base and position GrowGeneration for greater profitability in 2027. While the store closures and other restructuring activities will affect our fourth quarter results, we expect the resulting savings and operating efficiencies to strengthen our financial performance in the year ahead. That said, we are satisfied with our third quarter results and with our performance through September, which was ahead of our initial plan for the year.
We ended the quarter with $41.8 million in cash, cash equivalents, marketable securities, and no debt. We have the financial flexibility to carry out our fourth quarter initiatives while continuing to invest in the business. We believe these actions position us to extend our multi-year track record of improving profitability heading into 2027. With that, I will turn the call back to Darren for closing remarks.
Thanks, Greg, and thank you again to everyone for joining us today. In closing, the most important takeaway today is that GrowGeneration is a fundamentally different business from what we were several years ago. We have substantially transitioned from a retail-centric hydroponic business into a national commercial cultivation supply and proprietary brand platform. We have expanded our proprietary brands, reduced operating expenses, and improved profitability. We have accomplished this while maintaining a strong balance sheet with no debt. Our third quarter results demonstrate the progress we have already made toward building a stronger, more profitable company that generates sustainable cash flow and creates long-term value for our shareholders. I want to thank our employees, customers, vendors, and stakeholders for their continued support. That concludes our prepared remarks. Operator, please open the line for questions.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one. To withdraw a question, press star two. Please limit yourself to one question and one follow-up. One moment, please, for your first question. Your first question comes from Aaron Grey from Alliance Global Partners. Please go ahead.
Hi, good evening. Thank you for the questions. First question from me, just if you could quantify the expected savings from the initiative expected to be completed in 2026. How should we think about 2027 from a margin structure and profitability, given that is what this initiative will be setting up for? Thank you.
Yeah, thanks for the question, Aaron. So far we are encouraged with the performance in 2026. We have brought the business from a $14.5 million adjusted EBITDA loss in 2024 to a $6 million adjusted EBITDA loss last year, and this year we are at a $1 million profit through the first three quarters. We see an opportunity to reposition the business for heightened profitability next year. We are working through the restructuring plan right now. We intend to close two to three additional locations yet this quarter. We have already closed two, so we are already underway. We are looking at other rationalizations across the company, including inventory charges that may occur in the fourth quarter. At this point, obviously we dropped the EBITDA guidance with just the uncertainty around Q4 specifically, but we are aiming to complete most of the actions this quarter.
There may be some additional actions that trail into the first quarter of 2027. Overall, we expect the resulting actions to meaningfully improve profitability in 2027. As we finalize our restructuring accounting, we will issue an 8-K with an update on how we see the incremental improvement translating into our results next year.
Okay, thanks. If not able to quantify now, I guess maybe saying it a different way, the stores that you are closing, the four to five, those were weighing on the margin now. So, getting out of those, and I know there might be some leases you might be able to get out of as well, it is fair to say those were a drag on profitability currently and will be accretive once you get through the respective inventory of those stores, which might take 4Q into 1Q next year?
I think, Aaron, when you take a look at it, we have closed 10 stores since the third quarter of last year. Adding the additional four stores in the fourth quarter, we will be down 14 stores from Q3 last year. Each store closing certainly goes with cost savings, both from store employees, lease, and it funnels down to back office staff and everything that goes into running these stores. When you start taking a look at the EBITDA guidance that we are giving, where we started a couple years ago, back in 2024, we lost about $14.5 million on an adjusted basis. We lost $6 million last year, and we are most likely going to be profitable this year, or profitable through the third quarter. I think it is the whole show. You are talking about transportation, you are talking about distribution costs, you are talking about warehousing costs, inventory costs, inventory obsolescence costs.
I think when you take the whole picture as a whole, and where we've come in the last couple years, going from $14.5 million in 2024 on the loss side to, again, we're positive $1 million this year right now, I think you can kind of look where the future is going. We've been pretty transparent with Wall Street, with the store closings and going to a B2B business, growing proprietary brands, which is over 40% right now, and with margins increasing and expenses going down. We are right now, because everything is working, we're accelerating what we've been doing over the last five years. I think this is probably getting to the end of it. What we're seeing right now is all positive, and so we're accelerating to get where we need to get.
Okay, thanks. I'll jump back in the queue.
Your next question comes from Brian Nagel from Oppenheimer. Please go ahead.
Hey, guys. Good evening.
Good evening, Brian.
I think my question is going to be a follow-up to the prior question, but maybe more qualitative. With the actions you're taking now in the fourth quarter, what spurred this? Is there something specific you saw in the business that caused you to take what seems to be more aggressive actions? Then I will have a follow-up.
I think, Brian, a couple different things. One, when changing business models from a retailer, from a business-to-consumer to a business-to-business, there is certainly a lot to be done. What we are seeing within the business right now is the business-to-business is working, the business-to-consumer is not. The traffic within the stores are just not there. So we are pretty much refined. We are changing the business as we have done over the last five years. There is nothing that is really pushing what we are doing right now, but as you know, costs are going up, transportation costs are going up, distribution costs are going up, container pricing are going up right now. I think we are just being very proactive, but we are being proactive into strength.
The business is working, and we do believe that there is a lot of expenses that we can still take out of this business, and I think it starts with the stores. When you take the store business out, within the store business, the purchasing team gets a little lighter, the supply chain gets lighter. Every component of the cost center of the business drops, and that is what we are working on right now. We were able to get rid of some leases. We paid to get out of some leases. But when you look last year, as I said earlier, third quarter of 2025, we will be down 14 stores from then, and you see it is not really impacting the store. You are not really impacting our sales nor our profitability. Our profitability is going up, and our sales are pretty much staying the same.
I think we've been pretty transparent that when we close stores, we do lose a bunch of walk-in business, but we're picking it up on the commercial side, and we're picking it up on our proprietary brand side, and also our wholesale side. Most of the business is working. The stores are not.
That's very helpful, Darren. I guess just a clarification on that. If we think about the actions you're taking here in the fourth quarter, that's primarily more aggressively closing a larger number of stores?
Again, we're going from, I think we're going from 19 down to 14. On a percentage basis, it's a pretty high number. We still do use some stores for distribution. You'll probably see another couple store closings next year, but you won't see five in one quarter. When you go back to last year, we closed, I think, seven in the third quarter last year and four in the fourth quarter last year. We've been closing pretty quickly. We started with 65 stores back in 2022. We'll be down from 65 stores down to 14 by the end of this year.
Okay. My final question, just with regard to the guidance. It sounds like you're going to have, if I'm understanding correctly, you'll have extra expenses now in this fourth quarter, given these restructured actions. When you report fourth quarter results, will you be able to basically articulate how much of the results are kind of one-time in nature, reflecting these more aggressive restructuring actions versus the ongoing operations of the business?
Yeah, that's exactly right, Brian. Our aim with this action that we're taking in the fourth quarter, that may extend slightly into the first as well, is to quantify the total impact and include the forward-looking guidance in 2027, reflective of the improvements that we believe we can make and execute in this window of time to better position the company for that continued track record of improved profitability that we've delivered the last several years into 2027 and beyond.
Okay. Very helpful. I appreciate all the color. Thank you.
Your next question comes from Mark Smith from Lake Street. Please go ahead.
Hi, guys. Curious, first off, just as we continue to transition more to B2B business here, any call-outs on customer concentration or increased risk that you run there?
I think right now
That's a good question. Yeah. Go ahead, Darren.
Go ahead, Greg.
I was going to say, we as a company, Mark, and it's a very good question, are still very diversified from a customer perspective. There are no customers in our portfolio that account for more than 5% of sales today. When we close stores, we aim to retain all of the commercial customers that shop in that general market or region through another closely approximated store or through our commercial sales team. So from a concentration perspective, we feel that these moves don't present a significant amount of risk from a retention perspective, given the diversified nature of our customer base across the portfolio.
Okay. Just curious if you can give us just an update on your view of the industry and if you've seen any kind of tailwinds develop as we've moved into rescheduling.
I think right now, Mark, it's going to be some time. People are still awaiting rescheduling on adult use, still in front of the ALJ. People are expecting a decision hopefully by the end of the year, but which keeps getting pushed back. I think people are still waiting. Our business has been relatively strong. Again, we've closed 14 stores, this will be 14 stores in the last year, and we do lose business when we close stores. If you took the store closures out, we'd have quite an increase year-over-year on a sales basis. Again, we're certainly making that back on the other side of it by cutting expenses and growing proprietary brands. The proprietary brands were up 19% year-over-year, in a difficult market. We believe you'll see a lot of consolidation on an ongoing basis.
The larger customers want to deal with a company that can handle their needs, from a financing side and from a product side of it, and others from a technical side of it. We have built a pretty incredible technical team at GrowGeneration and a commercial sales team at GrowGeneration. It is certainly helping keep the customers, as we close stores. One of the main, when we take a look at what stores we're closing, it's the stores that have mostly commercial customers that we can service with our commercial team and service through drop shipping from our warehouses. It's not the stores that still do have customer walk-ins. We do still have a number of stores where customers are coming to the stores, shopping at the stores. Those stores we will keep for a while. There's no reason to close some of them.
We still do have some profitable stores within the portfolio. The other side is, when we close stores, then we are getting rid of back office staff, and really cutting down the expenses of this company. I think you guys will be quite happy, when you hear what we've done, within the fourth quarter on really trimming expenses of this company, really without trimming sales forecast for next year. We're excited to go into 2027, and we certainly hope cleaner than we've gone into any other year since 2021.
Great. Thank you.
There are no further questions at this time. I will turn the call back over to Darren for closing remarks.
Thank you. I want to once again thank our employees, customers, vendors, and stakeholders for their continued support in GrowGeneration. I want to wish everybody a happy holiday season, and we look forward to updating everybody with our fourth quarter year-end numbers in March. Hopefully we will have some news out before then. Thank you.
Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.