GrowGeneration Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

ACQUISITIONS

ACQUISITIONS

9 Months Ended

Sep. 30, 2021

Business Combination and Asset Acquisition [Abstract]

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 consolidated balance sheets at their estimated fair values, as of the acquisition date. For all acquisitions, the preliminary allocation of the purchase price was based upon a preliminary valuation, and the Company’s estimates and assumptions are subject to change within the measurement period as valuations are finalized. The Company has made adjustments to the preliminary valuations of the acquisition based on valuation analysis prepared by independent third-party valuation consultants. During the nine months ended September 30, 2021 our measurement period adjustments included reducing intangible assets by $1.0 million and increasing goodwill by the same amount. As a result of these measurement period adjustments, we made an insignificant reduction in amortization expense which is included in the income statement. All acquisition costs are expensed as incurred and recorded in general and administrative expenses in the consolidated statements of operations.

Acquisitions during the nine months ended September 30, 2021

On January 25, 2021, the Company purchased the assets of Indoor Garden & Lighting, Inc, a two-store chain of hydroponic and equipment and indoor gardening supply stores serving the Seattle and Tacoma, Washington area. The total consideration for the purchase of Garden & Lighting was approximately $1.7 million, including $1.2 million in cash and common stock valued at approximately $0.5 million. Acquired goodwill of approximately $0.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

On February 1, 2021, the Company purchased the assets of J.A.R.B., Inc d/b/a Grow Depot Maine, a two-store chain in Auburn and Augusta, Maine. The total consideration for the purchase of Grow Depot Maine was approximately $2.1 million, including $1.7 million in cash and common stock valued at approximately $0.4 million. Acquired goodwill of approximately $0.9 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

13.ACQUISITIONS, continued

On February 15, 2021, the Company purchased the assets of Grow Warehouse LLC, a four-store chain of hydroponic and organic garden stores in Colorado (3) and Oklahoma (1). The total consideration for the purchase of Grow Warehouse LLC was approximately $17.8 million, including $8.1 million in cash and common stock valued at approximately $9.7 million. Acquired goodwill of approximately $11.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

On February 22, 2021, the Company purchased the assets of San Diego Hydroponics & Organics, a four-store chain of hydroponic and organic garden stores in San Diego, California. The total consideration for the purchase of San Diego Hydroponics was approximately $9.3 million, including $4.8 million in cash and common stock valued at approximately $4.5 million. Acquired goodwill of approximately $5.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

On March 12, 2021, the Company purchased the assets of Charcoir Corporation, which sells an RHP-certified growing medium made from the highest-grade coconut fiber. The total consideration for the purchase of Charcoir was approximately $16.4 million, including $9.9 million in cash and common stock valued at approximately $6.5 million. Acquired goodwill of approximately $6.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established distribution market for the Company of a proprietary brand.

On March 15, 2021, the Company purchased the assets of 55 Hydroponics, a hydroponic and organic superstore located in Santa Ana, California. The total consideration for the purchase of 55 Hydroponics was approximately $6.5 million, including $5.4 million in cash and common stock valued at approximately $1.1 million. Acquired goodwill of approximately $3.9 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

On March 15, 2021, the Company purchased the assets of Aquarius, a hydroponic and organic garden store in Springfield, Massachusetts. The total consideration for the purchase of Aquarius was approximately $3.6 million, including $2.4 million in cash and common stock valued at approximately $1.2 million. Acquired goodwill of approximately $1.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

On March 19, 2021, the Company purchased the assets of Agron, LLC, an online seller of growing equipment. The total consideration for the purchase of Agron was approximately $11.3 million, including $6 million in cash and common stock valued at approximately $5.3 million. Acquired goodwill of approximately $8.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established e-commerce market for the Company targeting the commercial customer.

On April 19, 2021, the Company purchased the assets of Grow Depot LLC ("Down River Hydro"), a hydroponic and indoor gardening supply store in Brownstown, Michigan. The total consideration for the purchase of Down River Hydro was approximately $4.4 million, including approximately $3.2 million in cash and common stock valued at approximately $1.2 million. Acquired goodwill of approximately $2.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well established market for the Company.

On May 24, 2021, the Company purchased the assets of The Harvest Company ("Harvest"), a northern California-based hydroponic supply center and cultivation design innovator with stores in Redding and Trinity Counties. The total consideration for the purchase of Harvest was approximately $8.3 million, including approximately $5.6 million in cash and common stock valued at approximately $2.8 million. Acquired goodwill of approximately $4.6 million represents the value expected to rise from organic growth and an opportunity to expand into a well established market for the Company.

On July 19, 2021, the Company purchased the assets of Aqua Serene, Inc., ("Aqua Serene") an Oregon corporation which consists of an indoor/outdoor garden center with stores in Eugene and Ashland, Oregon. The total consideration for the purchase was $11.7 million, including approximately $9.9 million in cash and common stock valued at approximately $1.8 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.

13.ACQUISITIONS, continued

On July 3, 2021, the Company purchased the assets of Mendocino Greenhouse & Garden Supply, Inc, a Northern California-based hydroponic garden center located in Mendocino, California. The purchase agreement was modified on July 19, 2021 to amend the purchase price. The total consideration for the purchase was $4.0 million in cash. This acquisition allows the Company to expand its footprint in the Northern California.

On August 24, 2021, the Company purchased the assets of Commercial Grow Supply, Inc. ("CGS"), a hydroponic superstore located in Santa Clarita, California. The total consideration for the purchase was $7.2 million, including approximately $6.0 million in cash and common stock valued at approximately $1.3 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.

On August 23, 2021 the Company purchased the assets of Hoagtech Hydroponics, Inc. ("Hoagtech"), a Washington -based corporation consisting of a hydroponic and garden supply center serving the Bellingham, Washington area. The total consideration for the purchase was $3.9 million in cash. The Asset Purchase Agreement contains a contingent payment equal to $0.6 million to be settled in GrowGen common stock if this garden supply center reaches $8.0 million in revenue within a 12-month calendar period from the date of close. The Company used a third-party specialist to value this contingent consideration. The probability that the target will be reached was determined to be 5% which resulted in a value of approximately $29 thousand of contingent consideration which was offset against goodwill. This acquisition expands our footprint in the Pacific Northwest. Acquired goodwill represents the value expected to rise from organic growth and an opportunity to expand into a well established market for the Company.

The table below represents the allocation of the purchase price to the acquired net assets during the nine months ended September 30, 2021.


	Agron		Aquarius		Aqua Serene		55 Hydro		Charcoir		San Diego Hydro		Mendocino		Hoagtech
Inventory	$	—	$	957	$	1,696	$	780	$	839	$	1,400	753		751
Prepaids and other current assets	29		12		2		29		534		36		1		37
Furniture and equipment	46		63		500		50		—		315		160		144
Liabilities	—		—		—		—		—		—		—		—
Operating lease right to use asset	98		108		1,177		861		—		1,079		408		1,569
Operating lease liability	(98)		(108)		(1,177)		(861)		—		(1,079)		(408)		(1,569)
Customer relationships	832		339		1,235		809		5,712		605		575		493
Trade name	1,530		485		1,231		870		1,099		1,192		449		428
Non-compete	139		—		11		26		—		6		6		3
Intellectual property	—		—		—		—		2,065		—		—		—
Goodwill	8,673		1,702		6,976		3,915		6,119		5,728		2,056		2,076
Total	$	11,249	$	3,558	$	11,651	$	6,479	$	16,368	$	9,282	$	4,000	$	3,932


	CGS		Grow Warehouse		Grow Depot Maine		Indoor Garden		Down River Hydro		Harvest		Total
Inventory	875		$	2,450	$	326	$	372	$	824	$	1,204	$	13,227
Prepaids and other current assets	1		30		3		—		3		7		724
Furniture and equipment	100		250		25		94		50		100		1,897
Liabilities	—		(169)		—		—		—		—		(169)
Operating lease right to use asset	746		641		92		137		273		3,782		10,971
Operating lease liability	(746)		(641)		(92)		(137)		(273)		(3,782)		(10,971)
Customer relationships	1,382		1,256		549		210		634		1,016		15,647
Trade name	852		2,748		344		353		698		1,392		13,671
Non-compete	11		94		36		2		16		—		350
Intellectual property	—		—		—		—		—		—		2,065
Goodwill	4,027		11,120		866		661		2,126		4,606		60,651
Total	$	7,248	$	17,779	$	2,149	$	1,692	$	4,351	$	8,325	$	108,063

The table below represents the consideration paid for the net assets acquired in business combinations.


	Agron		Aquarius		Aqua Serene		55 Hydro		Charcoir		San Diego Hydro		Mendocino		Hoagtech
Cash	$	5,973	$	2,331	$	9,860	$	5,347	$	9,902	$	4,751	$	4,000	$	3,932
Common stock	5,276		1,227		1,791		1,132		6,466		4,531		—		—
Total	$	11,249	$	3,558	$	11,651	$	6,479	$	16,368	$	9,282	$	4,000	$	3,932


	CGS		Grow Warehouse		Grow Depot Maine		Indoor Garden		Down River Hydro		Harvest		Total
Cash	5,976		$	8,100	$	1,738	$	1,165	$	3,177	$	5,561	$	71,813
Common stock	1,272		9,679		411		527		1,174		2,764		36,250
Total	$	7,248	$	17,779	$	2,149	$	1,692	$	4,351	$	8,325	$	108,063

The following table discloses the date of the acquisitions noted above and the revenue and earnings included in the consolidated income statement for the period ended September 30, 2021.


	Agron		Aquarius		Aqua Serene		55 Hydro		Charcoir		San Diego Hydro		Mendocino		Hoagtech
Acquisition date	3/19/2021		3/15/2021		7/19/21		3/15/2021		3/12/2021		2/22/2021		7/19/21		8/23/21
Revenue	$	10,587	$	5,555	$	1,590	$	4,482	$	4,048	$	5,525	$	1,085	$	483
Net Income	$	149	$	1,145	$	331	$	393	$	723	$	839	$	158	$	36


	CGS		Grow Warehouse		Grow Depot Maine		Indoor Garden		Down River Hydro		Harvest		Total
Acquisition date	8/24/21		2/15/2021		2/1/2021		1/25/2021		4/19/2021		5/24/21
Revenue	$	447	$	10,153	$	4,660	$	4,508	$	2,460	$	4,444	$	60,027
Net Income	$	(1)	$	1,812	$	907	$	520	$	277	$	756	$	8,045

13.ACQUISITIONS, continued

The following represents the pro forma consolidated income statement as if the acquisitions had been included in the consolidated results of the Company for the entire period for the three and nine months ended September 30, 2021 and 2020.


	Three Months Ended		Nine Months Ended
	September 30, 2021 (Unaudited)		September 30, 2021 (Unaudited)
Revenue	$	146,030	$	361,937
Net income	$	5,299	$	23,276


	Three Months Ended		Nine Months Ended
	September 30, 2020 (Unaudited)		September 30, 2020 (Unaudited)
Revenue	$	121,809	$	222,193
Net income	$	6,412	$	15,681

Acquisitions during the nine months ended September 30, 2020

On February 26, 2020, we acquired certain assets of Health & Harvest LLC in a transaction valued at approximately $2.85 million. Acquired goodwill of approximately $1.1 million represented the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Cash consideration was funded from the Company’s existing working capital.

On June 16, 2020, we acquired certain assets of H2O Hydroponics, LLC in a transaction valued at approximately $2.0 million. Acquired goodwill of approximately $1.0 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Cash consideration was funded from the Company's existing working capital.

On August 10, 2020, we acquired certain assets of Benzakry Family Corp, d/b/a Emerald City Garden, in a transaction valued at $1.0 million. Acquired goodwill of approximately $0.6 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Cash consideration was funded from the Company’s existing working capital.

The table below represents the allocation of the purchase price to the acquired net assets during the nine months ended September 30, 2020.


	Emerald City Garden		H2O Hydroponics LLC		Health & Harvest LLC		Total
Inventory	$	150	$	498	$	1,054	$	1,702
Prepaids and other current assets	—		4		—		4
Furniture and equipment	10		50		51		111
Right to use asset	140		906		324		1,370
Lease liability	(140)		(906)		(324)		(1,370)
Customer relationships	212		150		255		617
Trade name	—		234		357		591
Non-compete	14		43		6		63
Goodwill	614		1,008		1,130		2,752
Total	$	1,000	$	1,987	$	2,853	$	5,840

The table below represents the consideration paid for the net assets acquired in business combinations.


	Emerald City Garden		H2O Hydroponics LLC		Health & Harvest LLC		Total
Cash	$	1,000	$	1,282	$	1,750	$	4,032
Common stock	—		705		1,103		1,808
Total	$	1,000	$	1,987	$	2,853	$	5,840

The following table discloses the date of the acquisitions noted above and the revenue and earnings included in the consolidated income statement from the date of acquisition to the nine months ended September 30, 2020.


	Emerald City Gardens		H2O Hydroponics LLC		Health & Harvest LLC		Total
Acquisition date	8/10/20		6/26/20		2/26/2020
Revenue	$	472	$	2,769	$	5,887	$	9,128
Earnings	$	74	$	504	$	831	$	1,409

Pro forma consolidated income statement:


	Three Months Ended		Nine Months Ended
	September 30, 2019 (Unaudited)		September 30, 2019 (Unaudited)
Revenue	$	24,651	$	61,176
Earnings	$	1,220	$	2,603