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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| | | | | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For Quarter Ended: June 30, 2023
OR
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to |
Commission File Number: 333-207889
GROWGENERATION CORP.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Colorado | | 46-5008129 |
(State of other jurisdiction of incorporation) | | (IRS Employer ID No.) |
5619 DTC Parkway, Suite 900
Greenwood Village, Colorado 80111
(Address of principal executive offices)
(800) 935-8420
(Issuer’s Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading symbol | | Name of each exchange on which registered |
Common Stock, par value $0.001 per share | | GRWG | | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large accelerated filer | ☐ | Accelerated filer | ☒ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 31, 2023 there were 61,231,786 shares of the registrant’s common stock issued and outstanding.
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GROWGENERATION CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except shares and per share amounts)
| | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 29,587 | | | $ | 40,054 | |
Marketable securities | 40,986 | | | 31,852 | |
Accounts receivable, net of allowance for credit losses of $0.8 million and $0.7 million at June 30, 2023 and December 31, 2022 | 7,318 | | | 8,336 | |
Notes receivable, current, net of allowance for credit losses of $1.7 million and $1.3 million at June 30, 2023 and December 31, 2022 | — | | | 1,214 | |
Inventory | 76,689 | | | 77,091 | |
Prepaid income taxes | 477 | | | 5,679 | |
Prepaids and other current assets | 7,864 | | | 6,455 | |
Total current assets | 162,921 | | | 170,681 | |
| | | |
Property and equipment, net | 30,682 | | | 28,669 | |
Operating leases right-of-use assets | 42,692 | | | 46,433 | |
Intangible assets, net | 26,707 | | | 30,878 | |
Goodwill | 16,808 | | | 15,978 | |
Other assets | 881 | | | 803 | |
TOTAL ASSETS | $ | 280,691 | | | $ | 293,442 | |
| | | |
LIABILITIES & STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 17,905 | | | $ | 15,728 | |
Accrued liabilities | 2,575 | | | 1,535 | |
Payroll and payroll tax liabilities | 2,828 | | | 4,671 | |
Customer deposits | 3,746 | | | 4,338 | |
Sales tax payable | 1,473 | | | 1,341 | |
Current maturities of lease liability | 8,152 | | | 8,131 | |
Current portion of long-term debt | 17 | | | 50 | |
Total current liabilities | 36,696 | | | 35,794 | |
Commitments and contingencies (Note 12) | | | |
Operating lease liability, net of current maturities | 37,191 | | | 40,659 | |
Other long-term liabilities | 316 | | | 593 | |
Total liabilities | 74,203 | | | 77,046 | |
| | | |
Stockholders’ equity: | | | |
Common stock; $0.001 par value; 100,000,000 shares authorized, 61,229,051 and 61,010,155 shares issued and outstanding as of June 30, 2023 and December 31, 2022 | 61 | | | 61 | |
Additional paid-in capital | 371,863 | | | 369,938 | |
Retained earnings (deficit) | (165,436) | | | (153,603) | |
Total stockholders’ equity | 206,488 | | | 216,396 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 280,691 | | | $ | 293,442 | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
GROWGENERATION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except shares and per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | | |
Net sales | | $ | 63,925 | | | $ | 71,093 | | | $ | 120,752 | | | $ | 152,860 | |
Cost of sales (exclusive of depreciation and amortization shown below) | | 46,788 | | | 50,866 | | | 87,326 | | | 110,493 | |
Gross profit | | 17,137 | | | 20,227 | | | 33,426 | | | 42,367 | |
| | | | | | | | |
Operating expenses: | | | | | | | | |
Store operations and other operational expenses | | 12,269 | | | 13,767 | | | 25,235 | | | 28,299 | |
Selling, general, and administrative | | 7,503 | | | 9,759 | | | 14,341 | | | 19,368 | |
Bad debt expense | | 107 | | | 888 | | | 424 | | | 1,602 | |
Depreciation and amortization | | 3,824 | | | 4,783 | | | 7,756 | | | 9,289 | |
Impairment loss | | — | | | 127,831 | | | — | | | 127,831 | |
| | | | | | | | |
Total operating expenses | | 23,703 | | | 157,028 | | | 47,756 | | | 186,389 | |
| | | | | | | | |
Income (Loss) from operations | | (6,566) | | | (136,801) | | | (14,330) | | | (144,022) | |
| | | | | | | | |
Other income (expense): | | | | | | | | |
Other income (expense) | | 1,391 | | | 104 | | | 2,595 | | | 513 | |
Interest income | | — | | | 45 | | | — | | | 47 | |
Interest expense | | (431) | | | (10) | | | (5) | | | (13) | |
Total non-operating income (expense), net | | 960 | | | 139 | | | 2,590 | | | 547 | |
| | | | | | | | |
Net income (loss) before taxes | | (5,606) | | | (136,662) | | | (11,740) | | | (143,475) | |
| | | | | | | | |
Benefit (provision) for income taxes | | (93) | | | 283 | | | (93) | | | 1,919 | |
| | | | | | | | |
Net income (loss) | | $ | (5,699) | | | $ | (136,379) | | | $ | (11,833) | | | $ | (141,556) | |
| | | | | | | | |
Net income (loss) per share, basic | | $ | (0.09) | | | $ | (2.24) | | | $ | (0.19) | | | $ | (2.33) | |
Net income (loss) per share, diluted | | $ | (0.09) | | | $ | (2.24) | | | $ | (0.19) | | | $ | (2.33) | |
| | | | | | | | |
Weighted average shares outstanding, basic | | 61,077 | | | 60,756 | | | 61,053 | | | 60,742 | |
Weighted average shares outstanding, diluted | | 61,077 | | | 60,756 | | | 61,053 | | | 60,742 | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
GROWGENERATION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
SIX MONTHS ENDED JUNE 30, 2023 AND 2022
(Unaudited)
(in thousands, except shares and per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings (Deficit) | | Total Stockholders’ Equity |
| Shares | | Amount | | | |
Balances, March 31, 2023 | 61,035 | | | $ | 61 | | | $ | 370,379 | | | $ | (159,737) | | | $ | 210,703 | |
Common stock issued for share based compensation | 159 | | | — | | | — | | | — | | | — | |
Common stock withheld for employee payroll taxes | — | | | — | | | (105) | | | — | | | (105) | |
Share based compensation | — | | | — | | | 816 | | | — | | | 816 | |
Noncash repurchase of liability awards | — | | | $ | — | | | $ | 653 | | | $ | — | | | $ | 653 | |
Liability redemption associated with business acquisition | 35 | | | $ | — | | | $ | 120 | | | $ | — | | | $ | 120 | |
Net income (loss) | — | | | — | | | — | | | (5,699) | | | (5,699) | |
Balances, June 30, 2023 | 61,229 | | | $ | 61 | | | $ | 371,863 | | | $ | (165,436) | | | $ | 206,488 | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings (Deficit) | | Total Stockholders’ Equity |
| Shares | | Amount | | | |
Balances, March 31, 2022 | 60,728 | | | $ | 61 | | | $ | 367,064 | | | $ | 4,967 | | | $ | 372,092 | |
Common stock issued for share-based compensation | 28 | | | — | | | — | | | — | | | — | |
Common stock withheld for employee payroll taxes | — | | | — | | | (93) | | | — | | | (93) | |
Share based compensation | — | | | — | | | 1,106 | | | — | | | 1,106 | |
Common stock issued upon cashless exercise of options | 12 | | | — | | | — | | | — | | | — | |
Common stock issued upon cashless exercise of warrants | 14 | | | — | | | — | | | — | | | — | |
Net income (loss) | — | | | — | | | — | | | (136,379) | | | (136,379) | |
Balances, June 30, 2022 | 60,782 | | | $ | 61 | | | $ | 368,077 | | | $ | (131,412) | | | $ | 236,726 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings (Deficit) | | Total Stockholders’ Equity |
| Shares | | Amount | | | |
Balances, December 31, 2022 | 61,010 | | | 61 | | | 369,938 | | | (153,603) | | | $ | 216,396 | |
Common stock issued for share based compensation | 184 | | | — | | | — | | | — | | | $ | — | |
Common stock withheld for employee payroll taxes | — | | | — | | | (175) | | | — | | | $ | (175) | |
Share based compensation | — | | | — | | | 1,327 | | | — | | | $ | 1,327 | |
Noncash repurchase of liabilty awards | — | | | — | | | 653 | | | — | | | $ | 653 | |
Liability redemption associated with business acquisition | 35 | | | — | | | 120 | | | — | | | $ | 120 | |
Net income (loss) | — | | | $ | — | | | $ | — | | | $ | (11,833) | | | $ | (11,833) | |
Balances, June 30, 2023 | 61,229 | | | $ | 61 | | | $ | 371,863 | | | $ | (165,436) | | | $ | 206,488 | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings (Deficit) | | Total Stockholders’ Equity |
| Shares | | Amount | | | |
Balances, December 31, 2021 | 59,929 | | | $ | 60 | | | $ | 361,087 | | | $ | 10,144 | | | $ | 371,291 | |
Common stock issued in connection with business combination | 650 | | | 1 | | | 5,749 | | | — | | | 5,750 | |
Common stock issued for share-based compensation | 177 | | | — | | | — | | | — | | | — | |
Common stock withheld for employee payroll taxes | — | | | — | | | (1,448) | | | — | | | (1,448) | |
Share based compensation | — | | | — | | | 2,689 | | | — | | | 2,689 | |
Common stock issued upon cashless exercise of options | 12 | | | — | | | — | | | — | | | — | |
Common stock issued upon cashless exercise of warrants | 14 | | | — | | | — | | | — | | | — | |
Net income (loss) | — | | | — | | | — | | | (141,556) | | | (141,556) | |
Balances, June 30, 2022 | 60,782 | | | $ | 61 | | | $ | 368,077 | | | $ | (131,412) | | | $ | 236,726 | |
| | | | | | | | | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
GROWGENERATION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands, except shares and per share amounts) | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 |
Cash flows from operating activities: | | | |
Net income (loss) | $ | (11,833) | | | $ | (141,556) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Depreciation and amortization | 7,756 | | | 9,289 | |
Stock-based compensation expense | 1,514 | | | 2,689 | |
Bad debt expense, net of recoveries | 424 | | | 1,602 | |
Gain (loss) on asset disposition | 21 | | | 12 | |
Impairment loss | — | | | 127,831 | |
Deferred taxes | — | | | (1,919) | |
Changes in operating assets and liabilities (net of the effect of acquisitions): | | | |
Accounts and notes receivable | 1,808 | | | (3,106) | |
Inventory | 1,989 | | | 10,616 | |
Prepaid expenses and other assets | 4,008 | | | 7,482 | |
Accounts payable and accrued liabilities | 3,526 | | | (1,805) | |
Operating leases | 469 | | | 299 | |
Payroll and payroll tax liabilities | (1,843) | | | (3,066) | |
Customer deposits | (592) | | | (6,634) | |
Sales tax payable | 132 | | | (184) | |
Net cash provided by (used in) operating activities | 7,379 | | | 1,550 | |
Cash flows from investing activities: | | | |
Acquisitions, net of cash acquired | (3,197) | | | (6,806) | |
Purchase of marketable securities | (51,700) | | | — | |
Maturities from marketable securities | 42,566 | | | 29,793 | |
Purchase of property and equipment | (5,533) | | | (8,822) | |
Disposal of assets | 226 | | | — | |
Net cash provided by (used in) investing activities | (17,638) | | | 14,165 | |
Cash flows from financing activities: | | | |
Principal payments on long term debt | (33) | | | (45) | |
Common stock withheld for employee payroll taxes | (175) | | | (1,448) | |
Net cash provided by (used in) financing activities | (208) | | | (1,493) | |
Net change | (10,467) | | | 14,222 | |
Cash and cash equivalents at the beginning of period | 40,054 | | | 41,372 | |
Cash and cash equivalents at the end of period | $ | 29,587 | | | $ | 55,594 | |
| | | |
Supplemental disclosures of non-cash activities: | | | |
Cash paid for interest | $ | 5 | | | $ | 13 | |
Common stock issued for business combination | $ | — | | | $ | 5,750 | |
Right of use assets acquired under new operating leases | $ | 2,748 | | | $ | 6,221 | |
| | | |
| | | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
GrowGeneration Corp.
Notes To Condensed Consolidated Financial Statements
June 30, 2023
(Unaudited)
1.GENERAL
GrowGeneration Corp. (together with its direct and indirect wholly owned subsidiaries, collectively “GrowGeneration” or the “Company”) is a leading marketer and distributor of nutrients, growing media, lighting, benching and racking, environmental control systems, and other products for both indoor and outdoor hydroponic and organic gardening, including proprietary brands such as Charcoir, Drip Hydro, Power Si, MMI benching and racking, Ion lights, Durabreeze fans, and more. Incorporated in Colorado in 2014, GrowGeneration is the largest chain of specialty retail hydroponic and organic garden centers in the U.S. As of June 30, 2023, GrowGeneration has 62 retail locations across 18 states in the U.S. The Company also operates an online superstore for cultivators at growgeneration.com, as well as a wholesale business for resellers, HRG Distribution, and a benching, racking, and storage solutions business, MMI. GrowGeneration also provides facility design services to commercial growers.
Basis of Presentation
The accompanying interim unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. These statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (“2022 Form 10-K”). There were no significant changes to our significant accounting policies as disclosed in our 2022 Form 10-K. The results of operations for our interim periods are not necessarily indicative of results for the full fiscal year.
All amounts included in the accompanying footnotes to the consolidated financial statements, except share and per share data, are in thousands (000).
Reclassifications
Certain amounts in the prior period consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported consolidated net income.
Use of Estimates
Management uses estimates and assumptions in preparing these consolidated financial statements in accordance with U.S. GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported revenues and expenses during the reporting period. Actual results could vary from the estimates that were used.
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
June 30, 2023
2.FAIR VALUE MEASUREMENTS
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
•Level 1—Quoted prices in active markets for identical assets or liabilities.
•Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
•Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgement. Accordingly, the degree of judgement exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The carrying amounts of cash and cash equivalents, accounts receivable, available for sale securities, accounts payable, and all other current liabilities approximate fair values due to their short-term nature. The fair value of notes receivable approximates the outstanding balance and is reviewed for impairment at least annually. The fair value of impaired notes receivable is determined based on estimated future payments discounted back to present value using the notes' effective interest rate.
| | | | | | | | | | | | | | | | | |
| Level | | June 30, 2023 | | December 31, 2022 |
Cash equivalents | 1 | | $ | 10,160 | | | $ | 25,087 | |
Marketable securities | 2 | | $ | 40,986 | | | $ | 31,852 | |
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
June 30, 2023
3.RECENT ACCOUNTING PRONOUNCEMENTS
New Accounting Pronouncements
From time to time, the Financial Accounting Standards Board (“FASB”) or other standard setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification (“ASC”) are communicated through issuance of an Accounting Standards Update (“ASU”). We have implemented all new accounting pronouncements that are in effect and that may impact our financial statements. We have evaluated recently issued accounting pronouncements and determined that there is no material impact on our financial position or results of operations.
In June 2016, FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326),” changing the impairment model for most financial instruments by requiring companies to recognize an allowance for expected losses, rather than incurred losses as required previously by the other-than-temporary impairment model. The ASU applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, available-for-sale and held-to-maturity debt securities, net investments in leases, and off-balance sheet credit exposures. ASU No. 2016-13 was effective January 1, 2020. The Company has adopted this standard effective January 1, 2023. The adoption of this standard primarily applied to the valuation of the Company’s accounts receivable. Based on the composition of the Company’s accounts receivable, investment portfolio, and other financial assets, including current market conditions and historical credit loss activity, the adoption of this standard did not have a material impact on the Company’s consolidated financial statements or disclosures. Specifically, the Company’s estimate of expected credit losses as of June 30, 2023, using the expected credit loss evaluation process described above, resulted in no adjustments to the provision for credit losses and no cumulative-effect adjustment to accumulated deficit on the adoption date of the standard.
4.REVENUE RECOGNITION
Disaggregation of Revenues
Sales are disaggregated by our segments, which represent our principal lines of business, as well as by our private label products versus distributed brands, or by commercial fixture revenue. See Note 13, Segments, for disaggregated revenue by segment.
The opening and closing balances of the Company’s customer trade receivables and customer deposit liability are as follows:
| | | | | | | | | | | |
| Receivables | | Customer Deposit Liability |
Opening balance, January 1, 2023 | $ | 8,336 | | | $ | 4,338 | |
Closing balance, June 30, 2023 | 7,318 | | | 3,746 | |
Increase (decrease) | $ | (1,018) | | | $ | (592) | |
| | | |
Opening balance, January 1, 2022 | $ | 5,741 | | | $ | 11,686 | |
Closing balance, June 30, 2022 | 8,313 | | | 6,294 | |
Increase (decrease) | $ | 2,572 | | | $ | (5,392) | |
Of the total amount of customer deposit liability as of January 1, 2023, $2.9 million was reported as revenue during the six months ended June 30, 2023. Of the total amount of customer deposit liability as of January 1, 2022, $11.1 million was reported as revenue during the six months ended June 30, 2022.
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
June 30, 2023
5.PROPERTY AND EQUIPMENT
| | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
Vehicles | $ | 2,603 | | | $ | 2,176 | |
Building | 2,121 | | | 2,121 | |
Leasehold improvements | 12,341 | | | 12,562 | |
Furniture, fixtures and equipment | 14,334 | | | 13,195 | |
Capitalized software | 2,761 | | | 2,644 | |
Construction-in-progress | 13,267 | | | 9,569 | |
Total property and equipment, gross | 47,427 | | | 42,267 | |
Accumulated depreciation | (16,745) | | | (13,598) | |
Property and equipment, net | $ | 30,682 | | | $ | 28,669 | |
Depreciation expense for the three and six months ended June 30, 2023 was $1.6 million and $3.3 million. Depreciation expense for the three and six months ended June 30, 2022 was $2.0 million and $3.7 million.
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
June 30, 2023
6. GOODWILL AND INTANGIBLE ASSETS
The Company performs its goodwill impairment testing annually during the fourth quarter, or more frequently if events or if circumstances were to occur that would more likely than not reduce the fair value of our reporting unit below its carrying amount. The Company would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill. The adjusted carrying amount of goodwill shall be its new accounting basis.
During the second quarter of 2022, the Company’s market capitalization fell below total net assets. In addition, financial performance continued to weaken during the quarter, which was contrary to prior experience. Management reassessed business performance expectations following persistent adverse developments in equity markets, deterioration in the environment in which we operate, inflation, lower than expected sales, and an increase in operating expenses. These indicators, in the aggregate, required impairment testing for finite-lived intangible assets at the asset group level and goodwill at the reporting unit level.
Under ASC 360, we performed a cash recoverability test on the following intangible assets: customer relationships, trade name, and non-compete. The carrying amounts of any assets that are not within the scope of ASC 360-10, other than goodwill, were adjusted for impairment, as necessary, prior to testing long-lived assets and goodwill. The Company recognized impairment losses as disclosed in the table below.
For goodwill impairment testing purposes, the Company determined four reporting units, three of which were subject to a quantitative assessment. We determined fair value using the income approach, where estimated future returns are discounted to present value at an appropriate rate of return. The Company completed its interim goodwill impairment test as of June 30, 2022 and recognized impairment losses as disclosed in the table below. There were no goodwill impairments recognized during the six months ended June 30, 2023.
The changes in goodwill are as follows:
| | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
Balance, beginning of period | $ | 15,978 | | | $ | 125,401 | |
Goodwill additions and measurement period adjustments | 830 | | | 7,234 | |
Impairment | — | | | (116,657) | |
Balance, end of period | $ | 16,808 | | | $ | 15,978 | |
The goodwill balance and impairment by segment are as follows:
| | | | | | | | | | | | | | |
| Retail | E-commerce | Distribution | Total |
Gross carrying value at December 31, 2021 | $ | 101,811 | | $ | 11,659 | | $ | 11,931 | | $ | 125,401 | |
Acquisitions & measurement period adjustments | 1,418 | | (341) | | 6,157 | | 7,234 | |
Gross carrying value at December 31, 2022 | 103,229 | | 11,318 | | 18,088 | | 132,635 | |
Acquisitions & measurement period adjustments | 830 | | — | | — | | 830 | |
Gross carrying value, at June 30, 2023 | $ | 104,059 | | $ | 11,318 | | $ | 18,088 | | $ | 133,465 | |
| | | | |
Accumulated impairment losses at December 31, 2021 | $ | — | | $ | — | | $ | — | | $ | — | |
Impairment | (103,094) | | (9,848) | | (3,715) | | (116,657) | |
Accumulated impairment losses at December 31, 2022 | (103,094) | | (9,848) | | (3,715) | | (116,657) | |
Impairment | — | | — | | — | | — | |
Accumulated impairment losses at June 30, 2023 | $ | (103,094) | | $ | (9,848) | | $ | (3,715) | | $ | (116,657) | |
| | | | |
Net carrying value at December 31, 2022 | $ | 135 | | $ | 1,470 | | $ | 14,373 | | $ | 15,978 | |
Net carrying value at June 30, 2023 | $ | 965 | | $ | 1,470 | | $ | 14,373 | | $ | 16,808 | |
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
June 30, 2023
A summary of intangible assets is as follows:
| | | | | | | | |
| | Weighted-Average |
| | Amortization Period |
| | of Intangible Assets |
| | as of June 30, 2023 |
| | (in years) |
Trade names | | 2.71 |
Patents | | 2.50 |
Customer relationships | | 4.11 |
Non-competes | | 0.58 |
Intellectual property | | 2.67 |
Total | | 3.21 |
Intangible assets consist of the following:
| | | | | | | | | | | | | | | | | |
| June 30, 2023 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Trade names | $ | 29,063 | | | $ | (13,613) | | | $ | 15,450 | |
Patents | 100 | | | (63) | | | 37 | |
Customer relationships | 17,542 | | | (7,686) | | | 9,856 | |
Non-competes | 932 | | | (669) | | | 263 | |
Intellectual property | 2,065 | | | (964) | | | 1,101 | |
Total | $ | 49,702 | | | $ | (22,995) | | | $ | 26,707 | |
| | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | |
Trade names | $ | 29,062 | | | $ | (10,517) | | | $ | 18,545 | | |
Patents | 100 | | | (56) | | | 44 | | |
Customer relationships | 17,102 | | | (6,501) | | | 10,601 | | |
Non-competes | 932 | | | (551) | | | 381 | | |
Intellectual property | 2,065 | | | (758) | | | 1,307 | | |
Total | $ | 49,261 | | | $ | (18,383) | | | $ | 30,878 | | |
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
June 30, 2023
Intangibles and impairment by segment are as follows:
| | | | | | | | | | | | | | |
| Retail | E-commerce | Distribution | Total |
Gross carrying value at December 31, 2021 | $ | 37,825 | | $ | 2,501 | | $ | 16,698 | | $ | 57,024 | |
Acquisitions & measurement period adjustments | 229 | | — | | 3,182 | | 3,411 | |
Gross carrying value at December 31, 2022 | 38,054 | | 2,501 | | 19,880 | | 60,435 | |
Acquisitions & measurement period adjustments | 441 | | — | | — | | 441 | |
Gross carrying value at June 30, 2023 | $ | 38,495 | | $ | 2,501 | | $ | 19,880 | | $ | 60,876 | |
| | | | |
Accumulated amortization at December 31, 2021 | $ | (6,285) | | $ | (354) | | $ | (1,983) | | $ | (8,622) | |
Amortization | (5,721) | | (460) | | (3,580) | | (9,761) | |
Accumulated amortization at December 31, 2022 | (12,006) | | (814) | | (5,563) | | (18,383) | |
Amortization | (2,572) | | (224) | | (1,816) | | (4,612) | |
Accumulated amortization at June 30, 2023 | $ | (14,578) | | $ | (1,038) | | $ | (7,379) | | $ | (22,995) | |
| | | | |
Accumulated impairment losses at December 31, 2021 | $ | — | | $ | — | | $ | — | | $ | — | |
Impairments | (11,079) | | (95) | | — | | (11,174) | |
Accumulated impairment losses at December 31, 2022 | (11,079) | | (95) | | — | | (11,174) | |
Impairments | — | | — | | — | | — | |
Accumulated impairment losses June 30, 2023 | $ | (11,079) | | $ | (95) | | $ | — | | $ | (11,174) | |
| | | | |
Net carrying value at December 31, 2022 | $ | 14,969 | | $ | 1,592 | | $ | 14,317 | | $ | 30,878 | |
Net carrying value June 30, 2023 | $ | 12,838 | | $ | 1,368 | | $ | 12,501 | | $ | 26,707 | |
Amortization expense for the three and six months ended June 30, 2023 was $2.4 million and $4.6 million. Amortization expense for the three and six months ended June 30, 2022 was $2.8 million and $5.6 million.
Future amortization expense is as follows: | | | | | |
| |
2023, remainder | $ | 4,470 | |
2024 | 8,799 | |
2025 | 8,426 | |
2026 | 3,663 | |
2027 | 1,217 | |
Thereafter | 132 | |
Total | $ | 26,707 | |
7. INCOME TAXES
For the six months ended June 30, 2023, the effective tax rate was zero%, compared to 1.42% for the six months ended June 30, 2022. The decrease in the effective tax rate is primarily due to the Company recording a valuation allowance against deferred tax assets. The effective tax rate for the six months ended June 30, 2023 is lower than the U.S. federal statutory rate of 21.0%, which is also primarily due to the Company recording a valuation allowance against deferred tax assets. The Company has evaluated positive and negative evidence and has concluded that its deferred tax assets are not expected to be realizable and has recorded a valuation allowance in the current period.
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
June 30, 2023
8. LEASES
We determine if a contract contains a lease at inception. Our material operating leases consist of retail and warehouse locations as well as office space. Our leases generally have remaining terms of 1 to 10 years, most of which include options to extend the leases for additional 3 to 5-year periods. Generally, the lease term is the minimum of the non-cancellable period of the lease or the lease term inclusive of reasonably certain renewal periods.
Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of remaining lease payments over the lease term. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we estimate incremental secured borrowing rates corresponding to the maturities of the leases. Our leases typically contain rent escalations over the lease term. We recognize expense for these leases on a straight-line basis over the lease term.
We have elected the practical expedient to account for lease and non-lease components as a single component for our entire population of leases.
Short-term disclosures include only those leases with a term greater than one month and less than or equal to 12 months, and expense is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less that do not include an option to purchase the underlying asset that we are reasonably certain to exercise are not recorded on the balance sheet.
Lease expense is recorded within our consolidated statements of operations based upon the nature of the assets. Where assets are used to directly serve our customers, such as facilities dedicated to customer contracts, lease costs are recorded in “store operating costs.” Facilities and assets which serve management and support functions are expensed through general and administrative expenses.
| | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
Right of use assets, operating lease assets | $ | 42,692 | | | $ | 46,433 | |
| | | |
Current lease liability | $ | 8,152 | | | $ | 8,131 | |
Non-current lease liability | 37,191 | | | 40,659 | |
Total lease liability | $ | 45,343 | | | $ | 48,790 | |
| | | | | | | | | | | |
| June 30, 2023 | | June 30, 2022 |
Weighted average remaining lease term | 6.26 years | | 6.60 years |
Weighted average discount rate | 5.8 | % | | 5.6 | % |
| | | | | | | | | | | |
| Three Months Ended June 30, |
| 2023 | | 2022 |
Operating lease costs | $ | 2,803 | | | $ | 2,783 | |
Variable lease costs | 570 | | | 477 | |
Short-term lease costs | 97 | | | 111 | |
Total operating lease costs | $ | 3,470 | | | $ | 3,371 | |
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
June 30, 2023
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 |
Operating lease costs | $ | 5,696 | | | $ | 5,445 | |
Variable lease costs | 1,169 | | | 1,340 | |
Short-term lease costs | 264 | | | 237 | |
Total operating lease costs | $ | 7,129 | | | $ | 7,022 | |
The following table presents the maturity of the Company’s operating lease liabilities as of June 30, 2023:
| | | | | |
2023 (remainder of the year) | $ | 5,418 | |
2024 | 9,923 | |
2025 | 9,135 | |
2026 | 7,562 | |
2027 | 5,534 | |
Thereafter | 16,771 | |
Total lease payments | 54,343 | |
Less: Imputed interest | (9,000) | |
Lease Liability at June 30, 2023 | $ | 45,343 | |
9. SHARE BASED PAYMENTS
The Company maintains long-term incentive plans for employees, non-employee members of our Board of Directors, and consultants. The plans allow us to grant equity-based compensation awards, including stock options, stock appreciation rights, performance share units, restricted stock units, restricted stock awards, or a combination of awards (collectively, "share-based awards").
The Company accounts for share-based payments through the measurement and recognition of compensation expense for share-based awards made to employees and directors of the Company, including stock options and restricted shares. The Company also issues share-based awards in the form of common stock warrants to non-employees.
The following table presents share-based award expense for the three and six months ended June 30, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Restricted stock | $ | 947 | | | $ | 750 | | | $ | 1,514 | | | $ | 1,951 | |
Stock options | — | | | 16 | | | — | | | 59 | |
Warrants | — | | | 340 | | | — | | | 679 | |
Total | $ | 947 | | | $ | 1,106 | | | $ | 1,514 | | | $ | 2,689 | |
As of June 30, 2023, the Company had approximately $5.4 million of unamortized share-based compensation for option awards and restricted stock awards, which are expected to be recognized over a weighted average period of approximately 3.1 years.
Restricted Stock
The Company issues shares of restricted stock to eligible employees, which are subject to forfeiture until the end of an applicable vesting period. The awards generally vest on the first, second, third, or fourth anniversary of the date of grant, subject to the employee’s continuing employment as of that date. Restricted stock is valued using market value on the grant date.
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
June 30, 2023
Restricted stock activity for the six months ended June 30, 2023 is presented in the following table:
| | | | | | | | | | | |
| Shares | | Weighted Average Grant Date Fair Value |
Nonvested, December 31, 2022 | 614,875 | | | $ | 9.41 | |
Granted | 1,000,000 | | | $ | 3.80 | |
Vested | (223,166) | | | $ | 6.51 | |
Forfeited | (318,750) | | | $ | 4.23 | |
Nonvested, June 30, 2023 | 1,072,959 | | | $ | 5.64 | |
The table below summarizes all option activity under all plans during the six months ended June 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Options | | Shares | | Weighted - Average Exercise Price | | Weighted - Average Remaining Contractual Term | | Weighted - Average Grant Date Fair Value |
Outstanding at December 31, 2022 | | 604,498 | | | $ | 3.97 | | | 1.87 | | $ | 2.24 | |
Granted | | — | | | — | | | — | | | — | |
Exercised | | — | | | — | | | — | | | — | |
Forfeited or expired | | — | | | — | | | — | | | — | |
Outstanding at June 30, 2023 | | 604,498 | | | $ | 3.97 | | | 1.38 | | $ | 2.24 | |
Vested at June 30, 2023 | | 604,498 | | | $ | 3.97 | | | 1.38 | | $ | 2.24 | |
A summary of the status of the Company’s outstanding stock purchase warrants for the six months ended June 30, 2023 is as follows:
| | | | | | | | | | | |
| Warrants | | Weighted Average Exercise Price |
Outstanding at December 31, 2022 | 32,500 | | | $ | 15.82 | |
Issued | — | | | — | |
Exercised | — | | | — | |
Forfeited | — | | | — | |
Outstanding at June 30, 2023 | 32,500 | | | $ | 15.82 | |
Liability Awards
In August 2022, the Company issued certain stock awards classified as liabilities based on the guidance set forth at ASC 480-10-25 and ASC 718-10-25. These awards entitled the employees to receive an equity award with a specified dollar value of common stock on future dates ranging from June 15, 2023, through June 15, 2025. The awards generally vested over three years subject to the employee’s continued employment. On June 15, 2023, the three employees subject to these awards entered into new employment agreements which superseded the prior agreements and removed the liability awards from their compensation package. In accordance with ASC 718-20-35-2A through 718-20-35-9, these awards were evaluated and accounted for as modified awards. The liability of $0.7 million was relieved to additional paid-in capital and the incremental expense of $0.1 million will be recognized over the remaining term of the modified awards.
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
June 30, 2023
10. EARNINGS (LOSS) PER SHARE
The following table sets forth the composition of the weighted average shares (denominator) used in the basic and dilutive earnings per share computation for the three and six months ended June 30, 2023 and 2022:
| | | | | | | | | | | |
| Three Months Ended |
| June 30, 2023 | | June 30, 2022 |
Net income (loss) | $ | (5,699) | | | $ | (136,379) | |
Weighted average shares outstanding, basic | 61,077 | | | 60,756 | |
Effect of dilution | — | | | — | |
Adjusted weighted average shares outstanding, dilutive | 61,077 | | | 60,756 | |
Basic earnings (loss) per share | $ | (0.09) | | | $ | (2.24) | |
Dilutive earnings (loss) per share | $ | (0.09) | | | $ | (2.24) | |
| | | | | | | | | | | |
| Six Months Ended |
| June 30, 2023 | | June 30, 2022 |
Net income (loss) | $ | (11,833) | | | $ | (141,556) | |
Weighted average shares outstanding, basic | 61,053 | | | 60,742 | |
Effect of dilution | — | | | — | |
Adjusted weighted average shares outstanding, dilutive | 61,053 | | | 60,742 | |
Basic earnings (loss) per share | $ | (0.19) | | | $ | (2.33) | |
Dilutive earnings (loss) per share | $ | (0.19) | | | $ | (2.33) | |
The following potentially outstanding restricted stock and stock options were excluded from the computation of diluted earnings per share because the effect would have been antidilutive:
| | | | | | | | | | | |
| Three Months Ended |
| June 30, 2023 | | June 30, 2022 |
Restricted stock | 1,868 | | 511 |
Stock options | — | | 202 |
Total | 1,868 | | 713 |
| | | | | | | | | | | |
| Six Months Ended |
| June 30, 2023 | | June 30, 2022 |
Restricted stock | 1,949 | | 511 |
Stock options | — | | 320 |
Total | 1,949 | | 831 |
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
June 30, 2023
11. ACQUISITIONS
Our acquisition strategy is primarily to acquire (i) well-established, profitable hydroponic garden centers in markets where the Company does not have a market presence or in markets where it is increasing its market presence; and (ii) proprietary brands and private label brands. The Company accounts for acquisitions in accordance with ASC 805 “Business Combinations.” Assets acquired and liabilities assumed are recorded in the accompanying Condensed Consolidated Balance Sheets at their estimated fair values, as of the acquisition date. For all acquisitions, the preliminary allocation of purchase price was based upon the preliminary valuation, and the Company's estimates and assumptions are subject to change within the measurement period as valuations are finalized, not to exceed one year from the acquisition date. The Company has made adjustments to the preliminary valuations of the acquisitions based on valuation analyses prepared by independent third-party valuation consultants. There have been no measurement period adjustments during the current year. During the six months ended June 30, 2022, our measurement period adjustments included increasing goodwill by $1.3 million offset with intangible assets. As a result of these measurement period adjustments, we made an insignificant reduction in amortization expense. All acquisition costs are expensed as incurred and recorded in general and administrative expenses in the Condensed Consolidated Statements of Operations.
Acquisitions during the six months ended June 30, 2023
On May 23, 2023, the Company purchased substantially all of the assets of Southside Garden Supply ("Alaska"), a two-store chain of indoor/outdoor garden centers. The total consideration for the purchase of the Alaska assets was approximately $2.0 million, including $1.9 million in cash and an indemnity holdback of $0.1 million. The Alaska asset acquisition also included acquired goodwill of approximately $0.6 million, which represents the value expected to rise from organic growth and an opportunity for the Company to expand into a new market. Alaska is included in our Retail segment.
Additionally, the Company made other, individually immaterial acquisitions during the six months ended June 30, 2023. Total consideration for these purchases was approximately $1.2 million, including $1.1 million paid in cash and indemnity holdbacks of less than $0.1 million. These individually immaterial acquisitions also included aggregate acquired goodwill of approximately $0.3 million, which represents the value expected to rise from organic growth and an opportunity for the Company to expand into a new market. These acquisitions are included in our Retail segment.
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
June 30, 2023
The table below represents the allocation of the purchase price to the acquired net assets during the six months ended June 30, 2023.
| | | | | | | | | | | | | | | | | | |
| Alaska | Other | Total | | | | | | | |
Inventory | $ | 720 | | $ | 867 | | $ | 1,587 | | | | | | | | |
Prepaids and other current assets | 292 | | 2 | | 294 | | | | | | | | |
Furniture and equipment | — | | 47 | | 47 | | | | | | | | |
Operating lease right of use asset | 630 | | 648 | | 1,278 | | | | | | | | |
Operating lease liability | (630) | | (648) | | (1,278) | | | | | | | | |
Customer relationships | 440 | | — | | 440 | | | | | | | | |
Goodwill | 577 | | 252 | | 829 | | | | | | | | |
Total | $ | 2,029 | | $ | 1,168 | | $ | 3,197 | | | | | | | | |
The table below represents the consideration paid for the net assets acquired in business combinations during the six months ended June 30, 2023.
| | | | | | | | | | | | | | | | | | |
| Alaska | Other | Total | | | | | | | |
Cash | $ | 1,922 | | $ | 1,128 | | $ | 3,050 | | | | | | | | |
Indemnity holdback | 107 | | 40 | | 147 | | | | | | | | |
Total | $ | 2,029 | | $ | 1,168 | | $ | 3,197 | | | | | | | | |
The following table discloses the date of the acquisitions noted above and the revenue and earnings included in the Condensed Consolidated Statement of Operations for the six months ended June 30, 2023.
| | | | | | | | | | | | | | | | | | |
| Alaska | Other | Total | | | | | | | |
Acquisition date | May 23, 2023 | | | | | | | | | |
Revenue | $ | 392 | | $ | 916 | | $ | 1,308 | | | | | | | | |
Net income (loss) | $ | (83) | | $ | (32) | | $ | (114) | | | | | | | | |
The following represents the pro forma Condensed Consolidated Statement of Operations as if the acquisition had been included in the consolidated results of the Company for the entire period for the three and six months ended June 30, 2023, and June 30, 2022.
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | Six Months Ended June 30, | | | | | | | |
| 2023 | 2022 | 2023 | 2022 | | | | | | | |
Revenue | $ | 122,966 | | $ | 154,168 | | $ | 122,966 | | 154,168 | | | | | | | | |
Net income (loss) | $ | (11,491) | | $ | (141,670) | | $ | (11,491) | | (141,670) | | | | | | | | |
Acquisitions during 2022
On February 1, 2022, the Company purchased all of the assets of Horticultural Rep Group, Inc. ("HRG"), a specialty marketing and sales organization of horticultural products based in Ogden, Utah. The total consideration for the purchase of the assets of HRG was approximately $13.4 million, including $6.8 million in cash and common stock valued at $5.7 million. The Asset Purchase Agreement also provides for an indemnity holdback to be settled in common stock of the Company valued at $0.9 million. Acquired goodwill represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. HRG is included in our Distribution and other segment.
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
June 30, 2023
The table below represents the allocation of the purchase price to the acquired net assets during the six months ended June 30, 2022.
| | | | | | | | | | | | |
| HRG | | | | | | | |
Inventory | $ | 4,170 | | | | | | | | |
Prepaids and other current assets | 76 | | | | | | | | |
Furniture and equipment | 148 | | | | | | | | |
Operating lease right of use asset | 666 | | | | | | | | |
Operating lease liability | (666) | | | | | | | | |
Customer relationships | 2,430 | | | | | | | | |
Trademark | 496 | | | | | | | | |
Non-compete | 255 | | | | | | | | |
Goodwill | 5,816 | | | | | | | | |
Total | $ | 13,391 | | | | | | | | |
The table below represents the consideration paid for the net assets acquired in business combinations during the six months ended June 30, 2022.
| | | | | |
| HRG |
Cash | $ | 6,806 | |
Indemnity stock holdback | 875 | |
Common stock | 5,710 | |
Total | $ | 13,391 | |
The following table discloses the date of the acquisition noted above and the revenue and earnings included in the Condensed Consolidated Statement of Operations for the six months ended June 30, 2022. Revenue and earnings amounts include other proprietary brands now being included under HRG for operations.
| | | | | |
| HRG |
Acquisition date | February 1, 2022 |
Revenue | $ | 8,086 | |
Net Income (loss) | $ | 130 | |
The following represents the pro forma Condensed Consolidated Statement of Operations as if the acquisition had been included in the consolidated results of the Company for the entire period for the three and six months ended June 30, 2022.
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2022 | | Six Months Ended June 30, 2022 | | |
Revenue | | $ | 70,939 | | | $ | 154,542 | | | |
Net income (loss) | | $ | (8,626) | | | $ | (13,802) | | | |
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
June 30, 2023
12. COMMITMENTS AND CONTINGENCIES
Legal Matters
We are involved in lawsuits and claims which arise in the normal course of our business, including the initiation and defense of proceedings related to contract and employment disputes. In our opinion, these claims individually and in the aggregate are not expected to have a material adverse effect on our financial condition, results of operations, or cash flows.
In December 2021, the Company was sued in the U.S. District Court for the Southern District of Texas related to a Promissory Note & Asset Acquisition Rights Option (“Note & Option”) with TGC Systems, LLC (“Total Grow”). The case was dismissed and the parties submitted the matter to arbitration pursuant to the arbitration clause of the Note & Option. Among other claims, Total Grow alleged that the Company was liable to Total Grow based on promissory estoppel and breach of contract for failing to consummate the acquisition of Total Grow by the Company. The Company counterclaimed for repayment of $1.5 million principal plus interest loaned by the Company to Total Grow pursuant to the Note & Option. The Company accrued a reserve of $1.5 million against the Note & Option. As discussed in Note 14, Subsequent Events, on July 26, 2023, the arbitrator denied all of Total Grow's claims and defenses, determined that the Company prevailed in its counterclaim, and awarded the Company an award in full settlement of the matter.
There can be no assurance that future developments related to pending claims or claims filed in the future, whether as a result of adverse outcomes or as a result of significant defense costs, will not have a material effect on the Company’s financial condition, results of operations, or cash flows. We believe that our assessment of contingencies is reasonable and that the related accruals, in the aggregate, are adequate; however, there can be no assurance that the final resolution of these matters will not have a material effect on our financial condition, results of operations, or cash flows.
Indemnifications
In the ordinary course of its business, the Company makes certain indemnities under which it may be required to make payments in relation to certain transactions. As of June 30, 2023, the Company did not have any liabilities associated with indemnities.
In addition, the Company, as permitted under Colorado law and in accordance with its amended and restated certificate of incorporation and amended and restated bylaws, in each case, as amended to date, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company’s request in such capacity. The duration of these indemnifications varies. The Company has a director and officer insurance policy that may enable it to recover a portion of any future amounts paid. The Company accrues for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable. No such losses have been recorded to date.
13. SEGMENTS
The Company has segmented its operations to reflect the manner in which management reviews and evaluates the results of its operations. The structure reflects the manner in which the chief operating decision maker regularly assesses information for decision-making purposes, including the allocation of resources. Shared services and other corporate costs are allocated to an individual segment based on that segment's profitability.
Retail – The core of our business strategy is to operate the largest chain of retail garden centers in the U.S. The hydroponic retail landscape is fragmented, which allows us to acquire “best of breed” hydroponic retail operations and leverage efficiencies of a centralized organization. Some of our garden centers have multi-functions, with added capabilities that include warehousing, distribution, and fulfillment for our online platforms and direct fulfillment to our commercial customers.
Our retail segment also includes our commercial sales organization, which is focused on selling products and services, including end-to-end solutions, for large commercial cultivators outside of the physical retail network. When commercial customers gain new cultivation licenses, they need lighting, benching, environmental control systems, irrigation, fertigation, and other products to outfit their facilities. Existing facilities also need consumable products for operations, as well as equipment updates from time to time. Commercial customers typically purchase large dollar amounts, quantities, and sizes of products. We offer commercial customers volume pricing, terms, and financing.
E-commerce – Our digital strategy is primarily focused on capturing the home, craft, and commercial grower online. GrowGeneration.com offers thousands of hydroponic products, all curated by our product team. GrowGeneration.com offers
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
June 30, 2023
customers the option to have their orders shipped directly to their locations, anywhere in North America. GrowGeneration also sells its products through its distribution website, HRGdist.com, and online marketplaces such as Amazon and Walmart.
Distribution and other – In December 2020, GrowGeneration purchased the business of Canopy Crop Management Corp., the developer of the popular PowerSi line of monosilicic acid products, a widely used nutrient additive for plants. In March 2021, the Company purchased Charcoir, a line of premium coco pots, cubes and medium. In December 2021, the Company purchased the assets of Mobile Media, Inc. ("MMI"), a mobile shelving and storage solutions developer and manufacturer. In February 2022, the Company purchased the assets of Horticultural Rep Group, Inc. ("HRG"), a specialty marketing and sales organization specializing in horticultural products. The Company is in the process of combining the operations and management of these non-retail enterprises. The products these companies provide are integrated into our retail, e-commerce, and direct sales activities, and we receive incremental revenue from the sale of these products.
Disaggregated revenue by segment is presented in the following table:
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | 2022 | | 2023 | 2022 |
Sales, net | | | | | |
Retail | | | | | |
Private label sales | $ | 7,200 | | $ | 6,000 | | | $ | 13,801 | | $ | 13,096 | |
Non-private label sales | 39,717 | | 49,354 | | | 72,517 | | 106,554 | |
Total retail | 46,917 | | 55,354 | | | 86,318 | | 119,650 | |
E-Commerce | | | | | |
Private label sales | 400 | | 300 | | | 661 | | 700 | |
Non-private label sales | 3,334 | | 3,395 | | | 6,334 | | 8,263 | |
Total e-commerce | 3,734 | | 3,695 | | | 6,995 | | 8,963 | |
Distribution and other | | | | | |
Private label sales | 1,700 | | 3,200 | | | 3,865 | | 6,000 | |
Non-private label sales | 3,200 | | 3,744 | | | 7,500 | | 7,947 | |
Commercial fixture sales | 8,374 | | 5,100 | | | 16,074 | | 10,300 | |
Total distribution and other | 13,274 | | 12,044 | | | 27,439 | | 24,247 | |
Total | $ | 63,925 | | $ | 71,093 | | | $ | 120,752 | | $ | 152,860 | |
Selected information by segment is presented in the following tables:
| | | | | | | | | | | | | | |
| Three Months Ended June 30, | Six Months Ended June 30, |
| 2023 | 2022 | 2023 | 2022 |
Net sales | | | | |
Retail | $ | 46,917 | | $ | 55,354 | | $ | 86,318 | | $ | 119,650 | |
E-Commerce | 3,734 | | 3,695 | | 6,995 | | 8,963 | |
Distribution and other | 13,274 | | 12,044 | | 27,439 | | 24,247 | |
Total | $ | 63,925 | | $ | 71,093 | | $ | 120,752 | | $ | 152,860 | |
GrowGeneration Corp.
Notes To Unaudited Condensed Consolidated Financial Statements
June 30, 2023
| | | | | | | | | | | | | | |
| Three Months Ended June 30, | Six Months Ended June 30, |
| 2023 | 2022 | 2023 | 2022 |
Gross profit | | | | |
Retail | $ | 11,521 | | $ | 15,601 | | $ | 22,258 | | $ | 31,094 | |
E-Commerce | 819 | | 709 | | 1,681 | | 2,454 | |
Distribution and other | 4,797 | | 3,917 | | 9,487 | | 8,819 | |
Total | $ | 17,137 | | $ | 20,227 | | $ | 33,426 | | $ | 42,367 | |
| | | | | | | | | | | | | | |
| Three Months Ended June 30, | Six Months Ended June 30, |
| 2023 | 2022 | 2023 | 2022 |
Income (Loss) from operations | | | | |
Retail | $ | (6,547) | | $ | (107,103) | | $ | (13,622) | | $ | (114,286) | |
E-Commerce | (444) | | (8,607) | | (928) | | (9,039) | |
Distribution and other | 425 | | (21,091) | | 220 | | (20,697) | |
Total | $ | (6,566) | | $ | (136,801) | | $ | (14,330) | | $ | (144,022) | |
14. SUBSEQUENT EVENTS
In December 2021, the Company was sued in the U.S. District Court for the Southern District of Texas related to a Promissory Note & Asset Acquisition Rights Option (“Note & Option”) with TGC Systems, LLC (“Total Grow”). The case was dismissed and the parties submitted the matter to arbitration pursuant to the arbitration clause of the Note & Option. Among other claims, Total Grow alleged that the Company was liable to Total Grow based on promissory estoppel and breach of contract for failing to consummate the acquisition of Total Grow by the Company. The Company counterclaimed for repayment of $1.5 million principal plus interest loaned by the Company to Total Grow pursuant to the Note & Option.
On July 26, 2023, the arbitrator denied all of Total Grow’s claims and defenses, determined that the Company prevailed in its counterclaim, and granted the Company an award of $1.5 million, with interest at the rate of 8% compounded annually beginning on March 15, 2021 until paid in full, and certain other costs. The Award is in full settlement of all claims and counterclaims related to the matter.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere in this report as well as our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 16, 2023. We caution readers regarding certain forward-looking statements, within the meaning of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, in the following discussion and elsewhere in this report. Forward looking statements are statements not based on historical information and which relate to future operations, strategies, financial results, or other developments. Forward looking statements, particularly those identified with the words, “anticipates,” “believes,” “expects,” “plans,” “intends,” “objectives,” and similar expressions, are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf. We disclaim any obligation to update forward looking statements, except as required by law.
OVERVIEW
GrowGeneration Corp. (together with all of its direct and indirect wholly-owned subsidiaries, collectively “GrowGeneration” or the “Company”) was incorporated in Colorado in 2014. GrowGeneration is the largest chain of hydroponic garden centers in the United States and is a leading marketer and distributor of nutrients, growing media, advanced indoor and greenhouse lighting, environmental control systems, and accessories for hydroponic gardening. GrowGeneration also owns and operates an e-commerce platform, www.growgeneration.com, Mobile Media, a vertical racking and storage solutions business, Horticultural Rep Group, a horticultural products sales representative and distributor organization, and proprietary brands across multiple product categories, from lighting to nutrients and additives to environmental control systems.
Our business is driven by a wide selection of products, facility design services, solutions driven staff, and pick, pack and ship distribution and fulfillment capabilities. GrowGeneration carries and sells thousands of products, including nutrients, growing media, lighting, environmental control systems, vertical benching, and accessories for hydroponic gardening, as well as other indoor and outdoor growing products, that are capable of growing and maximizing yield and quality of a wide range of plants. Our products include proprietary brands such as Charcoir, Drip Hydro, Power Si, MMI benching and racking, Ion lights, Durabreeze fans, and more. GrowGeneration also provides facility design services to commercial growers. As of June 30, 2023, we employed approximately 481 employees, a majority of whom have been branded by us as “Grow Pros”, and our operations span over 953,000 square feet of retail and warehouse space.
Markets and Business Segments
Our target customer segments include the commercial growers in the plant-based medicine market, the craft grower, and vertical and urban farmers who grow organic herbs, fruits, and vegetables. Additionally, we sell products from our distribution and other segment to wholesalers, resellers, and retailers. Unlike the traditional agricultural industry, these cultivators use innovative indoor and outdoor growing techniques to produce specialty crops in highly controlled environments. This enables them to produce crops at higher yields and quality, regardless of the season or weather conditions.
The Company has three primary reportable segments, including retail operations, e-commerce, and all other. The Company has segmented its operations to reflect the manner in which management reviews and evaluates the results of its operations. The structure reflects the manner in which the chief operating decision maker regularly assesses information for decision-making purposes, including the allocation of resources.
We recognize specifically identifiable operating costs such as cost of sales, distribution expenses, and selling and general administrative expenses within each segment. Certain general and administrative expenses, such as administrative and management expenses, salaries and benefits, share based compensation, director fees, legal expenses, accounting and consulting expenses, and technology costs, are not allocated to the specific segments and are reflected in the enterprise results.
Competitive Advantages
The markets in which we sell our products are highly competitive. Our key competitors include many local and national vendors of gardening supplies, local product resellers of hydroponic and other specialty growing equipment, and online product resellers and large online marketplaces such as Amazon and eBay. Our industry is highly fragmented, with around 1,000 hydroponic retailers throughout the U.S. by management's estimates.
Notwithstanding the foregoing, we are the largest chain of hydroponic garden centers in the U.S. by management's estimates, and our pricing, inventory and product availability, and overall customer service provide us the ability to compete in our industry. In addition, as we continue to increase the scope of our operations, including both retail and distribution, we expect to be able to continue to purchase inventory at lower volume prices, which we expect will enable us to price competitively and deliver the products that our customers are seeking. The Company competes by delivering a one-stop shopping experience that includes the widest selection of hydroponics products, end-to-end solutions for all types of cultivation environments, in-store sales and product support, direct manufacturer pricing, and industry-leading expertise and customer service.
Growth Strategy
Core to our growth strategy is to expand the number of our retail garden centers in the U.S., especially in markets where we do not already have a physical presence or where our existing physical presence is limited. During the first six months of 2023, the Company acquired 5 new locations and expanded into two new states. Our plan is to continue to acquire, open, and operate garden centers.
GrowGeneration will also pursue growth through expansion of its commercial sales and distribution capabilities to sell more product to commercial cultivators for large grow operations and independent retail garden centers for resale, as well as by promoting and expanding its portfolio of proprietary brands to increase its market share, product offerings, and profitability.
RESULTS OF OPERATIONS
Comparison of the three months ended June 30, 2023 and 2022
Net Sales
Net sales for the three months ended June 30, 2023 was approximately $63.9 million, compared to $71.1 million for the three months ended June 30, 2022, a decrease of approximately $7.2 million or 10.1%. The decrease was primarily attributed to a decrease of approximately $7.9 million related to same store sales, which represented an approximate 15.1% decrease year over year. Overall sales in our retail segment declined from $55.4 million for the three months ended June 30, 2022 to $46.9 million for the same period in 2023. Distributed sales increased to $13.3 million for the three months ended June 30, 2023, compared to $12.0 million for the three months ended June 30, 2022. E-commerce sales were relatively flat from $3.7 million for the three months ended June 30, 2022, to $3.7 million for the same period in 2023.
Cost of Sales
Cost of sales for the three months ended June 30, 2023 was approximately $46.8 million, compared to approximately $50.9 million for the three months ended June 30, 2022, a decrease of approximately $4.1 million or 8.0%. The decrease in cost of sales was primarily due to the 10.1% decrease in sales comparing the three months ended June 30, 2023 to the three months ended June 30, 2022.
Gross Profit
Gross profit was approximately $17.1 million for the three months ended June 30, 2023, compared to approximately $20.2 million for the three months ended June 30, 2022, a decrease of approximately $3.1 million or 15.3%. The decrease in gross profit is primarily related to the 10.1% decrease in net sales comparing the three months ended June 30, 2023 to the three months ended June 30, 2022. Gross profit as a percentage of net sales was 26.8% for the three months ended June 30, 2023, compared to 28.5% for the three months ended June 30, 2022. Gross profit in our retail segment declined from $15.6 million for the three months ended June 30, 2022, to $11.5 million for the same period in 2023. Gross profit from distributed sales increased to $4.8 million for the three months ended June 30, 2023, compared to $3.9 million for the three months ended June 30, 2022. Gross profit from our e-commerce segment was $0.8 million for the three months ended June 30, 2023, compared to $0.7 million for the three months ended June 30, 2022.
Operating Expenses
Operating expenses are comprised of store operations, selling, general, and administrative, and depreciation and amortization. Operating costs were approximately $23.7 million for the three months ended June 30, 2023 and approximately $157.0 million for the three months ended June 30, 2022, a decrease of approximately $133.3 million or 85%. The decrease in operating expenses is primarily attributable the impairment loss of $127.8 million recorded during the three months ended June 30, 2022.
Store operating costs were approximately $12.3 million for the three months ended June 30, 2023, compared to $13.8 million for the three months ended June 30, 2022, a decrease of $1.5 million or 11%. The decrease in store operating costs was directly attributable to payroll reductions and expense savings recognized from store consolidations.
Total corporate overhead, which is comprised of selling, general, and administrative expense and depreciation and amortization expense, was approximately $11.4 million for the three months ended June 30, 2023, compared to $15.4 million for the three months ended June 30, 2022, a decrease of $4.0 million or 26%. Selling, general, and administrative costs were approximately $7.5 million for the three months ended June 30, 2023, compared to approximately $9.8 million for the three months ended June 30, 2022. Salaries expense decreased to $3.4 million for the three months ended June 30, 2023, from $5.4 million for the same period in 2022. General and administrative expenses decreased to $3.2 million for the three months ended June 30, 2023, from $4.1 million for the same period in 2022.
Other Income/Expense
Total other income was approximately $1.0 million for the three months ended June 30, 2023, compared to expense of $0.1 million for the three months ended June 30, 2022. This increase is primarily attributable to interest income driven from capital investments.
Segment Operating Income
Operating loss in our retail segment dropped from $107.1 million to an operating loss of $6.5 million. The operating loss for our e-commerce segment decreased from $8.6 million for the three months ended June 30, 2022 to a loss of $0.4 million for the same period in 2023. Operating income in the distribution and other segment other increases to a loss of $0.4 million in the three months ended June 30, 2023, compared to a loss of of $21.1 million in the three months ended June 30, 2022.
Income Taxes
Income tax benefit was $0.1 million for the three months ended June 30, 2023, compared to income tax expense of $0.3 million for the three months ended June 30, 2022. The effective tax rate for the six months ended June 30, 2023 is lower than the U.S. federal statutory rate of 21.0%, which is also primarily due to the Company recording a valuation allowance against deferred tax assets. The Company has evaluated positive and negative evidence and has concluded that its deferred tax assets are not expected to be realizable and has recorded a valuation allowance in the current period.
Net Income
Net loss for the three months ended June 30, 2023 was approximately $5.7 million, compared to net loss of approximately $136.4 million for the three months ended June 30, 2022, an increase of approximately $130.7 million.
Comparison of the six months ended June 30, 2023 and 2022
Net Sales
Net sales for the six months ended June 30, 2023 was approximately $120.8 million, compared to $152.9 million for the six months ended June 30, 2022, a decrease of approximately $32.1 million or 21%. The decrease was primarily attributed to a decrease of approximately $29.7 million related to same store sales, which represented an approximate 26.5% decrease year over year. Overall sales in our retail segment declined from $119.7 million for the six months ended June 30, 2022, to $86.3 million for the same period in 2023. Distributed sales increased to $27.4 million for the six months ended June 30, 2023 compared to $24.2 million for the six months ended June 30, 2022. E-commerce sales decreased from $9.0 million for the six months ended June 30, 2022, to $7.0 million for the same period in 2023.
Cost of Sales
Cost of sales for the six months ended June 30, 2023 was approximately $87.3 million, compared to approximately $110.5 million for the six months ended June 30, 2022, a decrease of approximately $23.2 million or 21%. The decrease in cost of sales was primarily due to the 21% decrease in sales comparing the six months ended June 30, 2023 to the six months ended June 30, 2022.
Gross Profit
Gross profit was approximately $33.4 million for the six months ended June 30, 2023, compared to approximately $42.4 million for the six months ended June 30, 2022, a decrease of approximately $8.9 million or 21%. The decrease in gross profit is primarily related to the 21% decrease in net sales comparing the six months ended June 30, 2023 to the six months ended June 30, 2022. Gross profit as a percentage of net sales was 27.7% for the six months ended June 30, 2023, compared to 27.7% for the six months ended June 30, 2022. Gross profit in our retail segment declined from $31.1 million for the six months ended June 30, 2022, to $22.3 million for the same period in 2023. Gross profit from distributed sales increased to $9.5 million for the six months ended June 30, 2023, compared to $8.8 million for the six months ended June 30, 2022. Gross profit from our e-commerce segment was $1.7 million for the six months ended June 30, 2023, compared to $2.5 million for the six months ended June 30, 2022.
Operating Expenses
Operating expenses are comprised of store operations, selling, general, and administrative, and depreciation and amortization. Operating costs were approximately $47.8 million for the six months ended June 30, 2023 and approximately $186.4 million for the six months ended June 30, 2022, a decrease of approximately $138.6 million or 74%. The decrease in operating expenses is primarily attributable to a $127.8 million impairment loss recognized in the prior year.
Store operating costs were approximately $25.2 million for the six months ended June 30, 2023, compared to $28.3 million for the six months ended June 30, 2022, a decrease of $3.1 million or 11%. The decrease in store operating costs was directly attributable to payroll reductions and expense savings recognized from store consolidations.
Total corporate overhead, which is comprised of selling, general, and administrative expense and depreciation and amortization expense, was approximately $22.5 million for the six months ended June 30, 2023, compared to $30.3 million for the six months ended June 30, 2022, a decrease of $7.7 million or 26%. Selling, general, and administrative costs were approximately $14.3 million for the six months ended June 30, 2023, compared to approximately $19.4 million for the six months ended June 30, 2022. Salaries expense decreased to $6.9 million for the six months ended June 30, 2023, from $10.6 million for the same period in 2022. General and administrative expenses decreased to $6.4 million for the six months ended June 30, 2023, from $7.7 million for the same period in 2022.
Other Income/Expense
Total other income was approximately $2.6 million for the six months ended June 30, 2023, compared to expense of $0.5 million for the six months ended June 30, 2022. This increase is primarily attributable to income generated from capital investments.
Segment Operating Income
Operating loss in our retail segment decreased from $114.3 million to an operating loss of $13.6 million. The operating loss for our e-commerce segment decreased from $9.0 million for the six months ended June 30, 2022 to a loss of $0.9 million for the same period in 2023. Operating income in the distribution and other segment decreased to income of $0.2 million in the six months ended June 30, 2023, compared to income of $20.7 million in the six months ended June 30, 2022.
Income Taxes
Income tax expense was $0.1 million for the six months ended June 30, 2023, compared to income tax benefit of $1.9 million for the six months ended June 30, 2022. The effective tax rate for the six months ended June 30, 2023 is lower than the U.S. federal statutory rate of 21.0%, which is also primarily due to the Company recording a valuation allowance against deferred tax assets. The Company has evaluated positive and negative evidence and has concluded that its deferred tax assets are not expected to be realizable and has recorded a valuation allowance in the current period.
Net Income
Net loss for the six months ended June 30, 2023 was approximately $11.8 million, compared to net loss of approximately $141.6 million for the six months ended June 30, 2022, an increase of approximately $129.7 million.
Operating Activities
Net cash provided by operating activities for the six months ended June 30, 2023 was approximately $7.4 million, compared to $1.6 million used for the six months ended June 30, 2022. The Company continued to decrease inventory and improve on receivable collection, partially offset by reductions to customer deposits and payroll and payroll tax liabilities.
Net cash used by investing activities was approximately $17.6 million for the six months ended June 30, 2023, compared to cash provided by investing activities of approximately $14.2 million for the six months ended June 30, 2022. Investing activities in 2023 were primarily attributable to investment of excess cash into marketable securities of $51.7 million, partially offset by maturity of marketable securities of $42.6 million. The Company also had vehicle and store equipment purchases of $5.5 million and business acquisitions of $3.2 million. Investing activities for the six months ended June 30, 2022 were primarily related to maturities of marketable securities of $29.8 million, partially offset by store acquisitions of $6.8 million and the purchase of vehicles and store equipment to support new store operations of $8.8 million.
Net cash used in financing activities for the six months ended June 30, 2023 was approximately $0.2 million and was primarily attributable to common stock withheld for employee payroll taxes. Net cash used by financing activities for the six months ended June 30, 2022 was $1.5 million and was primarily attributable to stock withheld to cover payroll taxes.
Use of Non-GAAP Financial Information
The Company believes that the presentation of results excluding certain items in “Adjusted EBITDA,” such as non-cash equity compensation charges, provides meaningful supplemental information to both management and investors, facilitating the evaluation of performance across reporting periods. The Company uses these non-GAAP measures for internal planning and reporting purposes. These non-GAAP measures are not in accordance with, or an alternative for, U.S. GAAP and may be different from non-GAAP measures used by other companies. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income or net income per share prepared in accordance with generally accepted accounting principles.
Set forth below is a reconciliation of Adjusted EBITDA to net income (loss):
| | | | | | | | | | | |
| Three Months Ended June 30, |
| 2023 | | 2022 |
| (000) | | (000) |
Net income (loss) | $ | (5,699) | | | $ | (136,379) | |
Income taxes | 93 | | | (283) | |
Interest income | — | | | (45) | |
Interest expense | 431 | | | 10 | |
Depreciation, and amortization | 3,824 | | | 4,783 | |
EBITDA | $ | (1,351) | | | $ | (131,914) | |
Impairment loss | — | | | 127,831 | |
Share based compensation (option compensation, warrant compensation, stock issued for services) | 947 | | | 1,106 | |
Restructuring charges | 1,220 | | | — | |