Hello, everyone, and welcome to GrowGeneration's Third Quarter 2025 Earnings Conference Call. My name is Joanna, and I will be your operator for today's call. This conference call is being recorded, and a replay of today's call will be available on the Investor Relations section of GrowGeneration's website. I will now hand the call over to Phil Carlson with KCSA for introductions and the reading of the safe harbor statement. Please go ahead.

Thank you, and welcome, everyone, to GrowGeneration's Third Quarter 2025 Earnings Results Conference Call. With us today are Darren Lampert, Co-Founder and Chief Executive Officer; and Greg Sanders, Chief Financial Officer of GrowGeneration. The company's third quarter 2025 earnings press release was issued after the market close today. A copy of this press release is available on the Investor Relations section of the GrowGeneration website. I would like to remind everyone that certain comments made on this call include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any of the forward-looking statements made today. During the call, we'll use some non-GAAP financial measures as we describe business performance. The SEC filings as well as the earnings press release, which provide reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are all available on our website. Following prepared remarks, management will be happy to take your questions. Now I will hand the call over to GrowGeneration's Co-Founder and CEO, Darren Lampert. Darren, please go ahead.

Thanks, Phil, and good afternoon, everyone. Thank you for joining us to review our third quarter 2025 results. Our third quarter marked an inflection point for GrowGeneration. We delivered net sales of $47.3 million, up 15.4% sequentially, expanded gross margins to 27.2% and returned to positive adjusted EBITDA of $1.3 million, a $3.7 million improvement from the same quarter last year. This performance reflects the successful execution of our restructuring plan, lowering operating expenses, improving gross margins and shifting our revenue mix towards higher-margin proprietary brands. What's even more encouraging is that this momentum is being driven by the quality of our revenue, not just volume. Proprietary brands grew to 31.6% of cultivation and gardening revenue compared to 23.8% a year ago. Our leading brands, Char Coir, Drip Hydro, The Harvest Company, Dialed In, and Power Si, all demonstrated strong performance. Char Coir grew more than 30% year-over-year, while Drip Hydro increased over 20%. These brands remain in the early stages of adoption, and we're expanding into new revenue channels and product extensions to position proprietary brands to achieve approximately 40% of cultivation and gardening revenue in 2026. On the cost side, we reduced store operating expenses by 27.8% and total operating expenses by 31.5% year-over-year. This operating discipline, combined with a stronger revenue mix resulted in our first positive adjusted EBITDA quarter in several years. We also continue to optimize our retail footprint. During the quarter, we closed 5 stores, bringing our total to 24 locations. We expect to complete a small number of additional closures in the fourth quarter to focus on higher volume, higher-margin markets, consistent with our goal of becoming a leaner, more efficient, brand-led organization positioned for profitable growth. At the same time, we completed over $7 million in cultivation infrastructure projects. These projects include lighting, benching, fertigation, HVAC, irrigation and automation systems, helping commercial and craft operators modernize existing facilities or build new ones. Demand will remain strong across both multistate operators and craft cultivators, and we expect this business to remain a meaningful contributor to revenue going forward. Our MMI Storage Solutions segment also delivered a second consecutive quarter of sequential growth with $8.9 million in revenue. MMI continues to benefit from diversification into industrial, agriculture and specialty end markets, and we expect steady growth from this segment in 2026. Strategically, we are broadening our reach beyond cannabis into larger specialty agriculture and controlled environmental markets. During the quarter, we began selling our brand into the independent garden center channel and relaunched theharvestco.com to serve greenhouse and specialty crop growers. In addition, we announced a distribution partnership with Arett Sales, expanding our wholesale and B2B reach into thousands of new retail stores across 32 states. This is a major step in our transition from a cannabis-focused retailer to a national controlled environment agricultural supplier. Furthermore, we're taking additional steps to increase our growth trajectory, including our recent entry into the home gardening market through our second quarter acquisition of Viagrow, a domestic brand with distribution across retailers such as Amazon, The Home Depot, Walmart, Lowe's, and Tractor Supply. More importantly, it supplies us with a scalable platform to serve home gardeners and hobbyist cultivators across multiple retail channels nationwide. We're also seeing strong adoption of our B2B Pro portal by commercial and wholesale customers. Increasingly, these customers are moving their purchasing online where they have access to automated ordering, customer catalogs and real-time inventory visibility. This improves order accuracy, reduces transaction costs and drives recurring revenue. Another growth area for GrowGen involves further international expansion by entering new high-growth cultivation markets with growing numbers of hemp and cannabis licenses. We are working to accomplish this through the distribution partnerships, such as our distribution agreement with V1 Solutions to support commercial sales across the European Union. We also recently launched our proprietary products in Costa Rica, one of Central America's most promising cultivation markets. By leveraging these strategic distribution partnerships, we can quickly scale with minimal capital investments to grow our brand presence in these new markets. With $48.3 million in cash and no debt, we have a strong balance sheet to support our inventory needs, infrastructure projects and proprietary brand expansion. This financial strength positions us for sustainable and profitable growth. Looking ahead, we expect fourth quarter revenue of approximately $40 million. And as we move into 2026, we anticipate positive revenue growth as well as positive adjusted EBITDA. Our focus will be on driving proprietary brand mix towards 40% of cultivation and gardening sales, scaling B2B portal automation and recurring commercial orders, expanding revenue across independent garden centers, greenhouse agriculture, specialty crops and cannabis and continuing cultivation infrastructure projects, an offering we are now branding as GrowGeneration Build. The controlled environmental agriculture industry remains in the early stages of its growth cycle. We believe GrowGeneration has substantial runway ahead and is well positioned to lead this evolution with proprietary brands, infrastructure builds and system integration, long-standing customer partnerships, a proven management team, supported by a strong balance sheet and track record of execution.

Thank you, Darren, and good afternoon, everyone. Starting with our third quarter 2025 results, GrowGeneration reported net sales of $47.3 million, exceeding our guidance of $41 million and representing 15.4% sequential growth from our second quarter of 2025. As expected, net sales were lower versus $50 million in the third quarter of 2024, primarily reflecting 19 fewer retail locations since July of 2024 as part of our ongoing footprint optimization strategy. This was partially offset by continued growth in our business-to-business and commercial channels. Net sales in our Cultivation and Gardening segment were $38.4 million for the quarter compared to $41.4 million in the same period last year. Proprietary brand sales represented 31.6% of cultivation and gardening revenue, up from 23.8% in the prior year, driven by strong demand for Drip Hydro and Char Coir. This mix shift continues to expand gross margins and enhance profitability. In our Storage Solutions segment, net sales were $8.9 million, up from $8.6 million in the third quarter of 2024, reflecting steady demand across product lines and the success of our diversification efforts into new end markets. Gross profit increased to $12.9 million, up approximately $2 million from $10.8 million in the prior year period. Gross margin expanded to 27.2% compared to 21.6% in the third quarter of 2024, primarily due to higher proprietary brand penetration and the absence of restructuring-related costs that impacted the prior year. On the expense side, store and other operating expenses declined 27.8% year-over-year to $7.2 million compared to $10 million in 2024. Total operating expenses decreased 31.5% to $15.7 million, reflecting the continued benefit of our cost reduction initiatives. Selling, general and administrative expenses were $5.7 million compared to $7.4 million last year, a 22.9% improvement. Depreciation and amortization totaled $2.6 million, down from $5 million in the same period last year, and we expect this level to remain stable throughout year-end. GAAP net loss narrowed to $2.4 million or negative $0.04 per share compared to a net loss of $11.4 million or negative $0.19 per share in the prior year period. The improvement was primarily driven by higher gross margins, lower operating expenses and the absence of restructuring-related charges incurred in 2024. Non-GAAP adjusted EBITDA turned positive to $1.3 million compared to a loss of $2.4 million in the prior year, reflecting improved sales mix from our proprietary brands and the continued realization of cost reduction initiatives. This represents a $3.7 million year-over-year improvement and a clear indicator that our operating leverage has strengthened. Turning to the balance sheet. We ended the quarter with $48.3 million of cash, cash equivalents and marketable securities and no debt. Our balance sheet remains one of the strongest in our industry, and we do not anticipate any near-term financing needs. In summary, the third quarter demonstrated that our transformation strategy is delivering tangible results. We achieved our strongest adjusted EBITDA performance in 4 years, delivered double-digit sequential sales growth, expanded gross margins and significantly reduced operating expenses, all while maintaining a debt-free balance sheet and ample liquidity to support continued investment in initiatives that drive sustained profitability.

Thanks, Greg, and thank you, everyone, for joining us today. In closing, restructuring actions we've executed over the past few years are clearly working. In the third quarter, we delivered $47.3 million in revenue, 15.4% sequential revenue growth, exceeded our own forecast and returned to profitability with $1.3 million in adjusted EBITDA. Proprietary brands grew to 32% of cultivation and gardening sales, a meaningful year-over-year increase. And this continues to be a key driver of our margin expansion and long-term growth strategy. At the same time, we are becoming a more efficient company. We're reducing operating expenses, closing underperforming stores, exiting leases and shifting more transactions to our B2B e-commerce portal, where adoption continues to exceed expectations. These efforts are helping us build a leaner, more scalable platform. With no debt, $48.3 million in cash and growing demand across commercial, specialty agriculture and retail channels, we are well positioned to continue investing in our proprietary brands. While we're proud of what we've accomplished this quarter, we know we're still early in this transformation, and there's more progress ahead. We appreciate your continued support and look forward to updating you on our execution and growth in the quarters to come. That concludes our prepared remarks. Operator, please open the line for questions.

First question comes from Aaron Grey at Alliance Global Partners.

Great job on returning to profitability. I have a quick question. As we look at the sales mix for the upcoming year, I understand you're expecting proprietary brands to make up 40%. I want to take a moment to consider how you view the current sales mix for cannabis compared to where you see it 12 to 18 months down the line. Additionally, how significant is this in driving the overall increase in your proprietary brand mix?

I think what you're seeing right now, Aaron, is our forecasted 40% still take a large percentage of that into cannabis. So anything else as we transition into lawn and garden specialty ads, we certainly believe that proprietary brands will drive 50% to 60%. So right now, the 40% that you're seeing from us next year, I'd say probably around that 35% minimum will be into the cannabis space.

Okay. Great. That's helpful color. Second question for me, just how best to think about the puts and takes specifically for the gross margin? I know you guys had some expectations earlier this year, some changes that occurred when you took away the guidance. But any color specifically on the gross margin, how we should think about that over the next upcoming quarters? I imagine some lift from the higher proprietary brand mix, but also some offsets given continued pricing pressure and discounting?

Aaron, thank you for the question. I think when you look at our third quarter results, we're still seeing some impact from tariffs, maybe in the range of 1% of sales. We're working through expanding those costs throughout the supply chain, renegotiating with vendors where applicable, passing on costs to our end customers where appropriate as well, while still maintaining competitiveness in the market. When you look at the concentration of revenue in the third quarter, we had about $8.9 million coming from MMI at that low to mid-40s range. But what drove down margins slightly was the amount of durable sales that we had in the period. We ran from $7 million durable sales in the second quarter up to $13 million in the third quarter. We are seeing our pipeline of CapEx or durable sales continue to expand into the fourth and first quarter of next year. So we're excited about that. We think that's going to help our revenue growth quite a bit, but we are tempering some expectations around gross margin in the fourth quarter just relative to the amount of durable activity that we're seeing. With a margin ratio of 27.2% in the third quarter, we felt pretty good about just the blend of different activities that fell into the period. We're expecting some compression in the fourth quarter. We also execute all of our full end of year inventory accounts in December. So there's some risk associated with that, although we have sufficient reserves in our minds for that activity. So I would expect probably slightly down in the fourth quarter just relative to CapEx and a lower total sales volume. I think MMI, you'll see go from a number close to $9 million down to $6 million. So less contribution on the margin side from them as well. But we're still excited about the business in the quarter we just had.

Aaron, in the fourth quarter, we are anticipating our first sequential year-over-year revenue growth since 2021. As you may remember, in the fourth quarter last year, we were around $37 million. Therefore, we believe that this fourth quarter will mark our first sequential revenue growth year-over-year since 2021.

This concludes the Q&A session. I will turn the call back over to Darren Lampert for closing comments.

I'd like to thank our shareholders and all our supporters. We look forward to updating you in March for the year-end and look forward to a strong 2026. Thank you.