GrowGeneration - Q2 2024

Executive Summary

• Net revenue was $53.5 million, up 11.8% quarter-over-quarter; gross margin improved to 26.9% (+110 bps q/q); net loss narrowed sequentially to $5.9 million; adjusted EBITDA loss improved to $1.1 million.
• Management announced a comprehensive restructuring: closing 19 stores in 2024 (7 already closed in H1), targeting ~$12 million annualized cost savings, and focusing on proprietary brands and digital B2B sales; FY24 revenue guidance cut to $190–$195 million and FY24 adjusted EBITDA guidance withdrawn.
• Proprietary brands reached 21.5% of Cultivation & Gardening sales (vs. 16.7% YoY), consumables mix rose to 73.0% (vs. 69.7% YoY); Storage Solutions revenue was softer on project timing (pushed into Q3).
• Street consensus (S&P Global) was unavailable at time of retrieval; we cannot assess beat/miss vs estimates (S&P Global data not accessible due to limit).

What Went Well and What Went Wrong

What Went Well

• Sequential acceleration: net revenue increased 11.8% q/q to $53.5 million despite 7 store closures between Q1 and Q2, underscoring strength of remaining footprint.
• Margin and mix improvement: consolidated gross margin reached 26.9% (+110 bps q/q), driven by proprietary brands; Storage Solutions gross margin was 46.9%.
• Proprietary brands gaining traction: proprietary brand sales were 21.5% of Cultivation & Gardening, up from 16.7% a year ago; management targets 35% of total sales by end-2025—“a clear target for our proprietary brands to account for 35% of total sales by the end of 2025”.
• Balance sheet resilience: $56.0 million in cash, cash equivalents, and marketable securities; no debt.

What Went Wrong

• Year-over-year decline: net sales fell 16.3% YoY to $53.5 million, primarily from store consolidations/closures; same-store sales decreased 6.2% YoY.
• Near-term margin headwinds ahead: management expects gross margin to dip to the low-to-mid 20s in H2’24 due to inventory rationalization from restructurings before returning to high 20s/low 30s in 2025.
• Guidance reduction and uncertainty: FY24 revenue guidance lowered to $190–$195 million; FY24 adjusted EBITDA guidance withdrawn amid restructuring timing and actions.
• Segment softness: Storage Solutions revenue declined 11.3% YoY to $7.4 million on project timing; regional headwinds persisted in Oklahoma and the Northeast.

Transcript

Operator (participant)

Hello, everyone, and welcome to GrowGeneration's Second Quarter 2024 Earnings Conference Call. My name is Nick, and I will be your operator for today's call. At this time, participants are in a listen-only mode. Following prepared remarks, we will open the call to questions from analysts with instructions to be given at that time. This conference call is being recorded and a replay of today's call will be available in 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.

Phil Carlson (Head of Investor Relations)

Thank you, and welcome everyone to GrowGeneration's Second Quarter 2024 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 second quarter earnings press release was issued after the market closed today. A copy of this press release is available on the investor relations section of the GrowGeneration website at ir.growgeneration.com. I would like to remind everyone that certain comments made on this call include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements.

Please refer to today's press release and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any of the forward-looking statements made today. During the call, we'll use some non-GAAP financial measures as we describe business performance. The SEC filing, as well as the earnings press release, which provide reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures, are all available on our website. Following prepared remarks, management will be happy to take your questions. We ask that you please limit yourselves to one question and one follow-up. If you have additional questions, please reenter the queue, and we will take them as time allows. Now, I will hand the call over to our co-founder and CEO, Darren Lampert. Darren, please go ahead.

Darren Lampert (Co-founder and CEO)

Thanks, Phil, and good afternoon, everyone. Thank you for joining us today to discuss our second quarter 2024 financial results. Today, we reported solid second quarter results that were consistent with our expectations as we continue to leverage our strong portfolio of proprietary brands. As always, I want to thank our GrowGen team members. All of our employees have worked tirelessly to help drive our results, and we appreciate all their hard work and commitment to our company's continued growth. GrowGen's second quarter results included net revenue of $53.5 million, an increase of 11.7% sequentially from $47.9 million in the first quarter. In addition to sequential sales growth, adjusted EBITDA loss was $1.1 million for the quarter, a $1.7 million improvement from Q1.

Importantly, proprietary brand sales remained relatively flat as a percentage of cultivation and gardening net sales during the quarter, but increased from 21.5% compared to 16.7% in the same period last year. It's important to note that proprietary brand sales increased in July, with the increase of sales of Drip Hydro, Char Coir, and The Harvest Company, as customers migrate from trials to sales. As some of you may know, for quite some time, we've been taking actions to expand sales of these higher-margin proprietary products. This percentage increase highlights the growing market adoption of our proprietary brands, including Char Coir, Drip Hydro, and The Harvest Company, and the success of these initiatives. In addition to our top-line success, gross margins for the second quarter was 27%, a 110 basis point improvement from the last quarter.

These results reflect the growing percentage of our proprietary brand sales, as well as ongoing focus on streamlining our business with margin expansion and cost reductions front of mind in all our operations. Before Greg takes you through our second quarter financials in more detail, I'd like to talk about our recent announcement regarding our strategic restructuring plan and expected path to profitability. Last month, we provided details on a comprehensive restructuring plan that is designed to fundamentally reposition our company. Over the past few years, we have already been delivering on our key strategic priorities, which include expanding our proprietary brand portfolio, maximizing operational efficiencies while improving our cost structure, and driving increased profitability through margin expansion. This new restructuring plan is the next phase in this process to position GrowGen for sustainable, recurring revenue growth driven by our commercial and B2B customers, as well as long-term profitability.

This plan has three major components. One, a focus on proprietary brands. This is more than just a statement. We have a clear target for our proprietary brands to account for 35% of total sales by the end of 2025. As part of this initiative, we will continue to launch e-commerce-enabled, brand-specific websites. An example of this is The Harvest Company e-commerce-enabled website, which went live and has already received positive customer feedback. We invite you to take a look at it yourself by visiting www.theharvestco.com. We also intend to add approximately 50 new products to the proprietary brand lineup over the next 12 months. Two, a digital transformation of sales throughout our entire organization with a B2B customer focus. This will entail the launch of a B2B e-commerce portal, migrating some of our transactional activity from our brick-and-mortar retail stores onto this digital platform.

We expect to launch the new platform in the fourth quarter of this year. Complementing this digital transformation, we intend to implement a fulfillment strategy where commercial customers will shop online and have access to products at existing warehouse-style stores or for convenient pickup. Three, and lastly, continuing streamlining of our operational infrastructure. Most importantly, we will continue to rightsize GrowGeneration's national retail footprint to align with current industry-wide conditions by closing 19 redundant or underperforming stores in 2024. This process is well underway, as seven of these locations were already closed in the first half of the year. The remainder are expected to be substantially completed by early Q4. Following these closures, going forward, the company will have 31 operational stores.

As we make this transition, we intend to retain the majority of our commercial customers and direct walk-in customers through adjacent locations, commercial sales force, and our new B2B portal. This streamlining will also include the reorganization of our sales, marketing, and administrative activities to reduce expenses while seeking efficiencies to drive sales and conduct operations more cost effectively. As part of this, we'll also look to continue to rationalize our inventory, revisit, enhance our strategic vendor relationships, and improve recovery of freight expense. Although there will be near-term impacts to margins and expenses as we execute on these initiatives, as there are with any restructuring, we expect that in the future, they will generate margin gains, improve profitability, and reduce expenses by approximately $12 million on an annualized basis.

We are committed to implementing these changes swiftly and effectively to solidify GrowGeneration's position as a leader in the hydroponics and organic gardening supply industry. As such, our cash position remains strong, reflected by the company's share repurchase program, which was authorized in March by our board of directors. Throughout the quarter, we repurchased more than $4 million in shares. Switching to the topic of guidance. As a result of this restructuring plan and the actions we've outlined today, we will now be revisiting our full year 2024 net revenue and Adjusted EBITDA guidance. We're analyzing the full effects of these actions, including our digital transformation, store closures, and the related cost savings we expect to achieve. At this time, we're estimating full year 2024 net sales to be in the range of $190 million to $195 million.

As for our previously stated adjusted EBITDA guidance, we are removing this guidance altogether, as the timing of actions taken in accordance with our previously announced restructuring may cause results to differ. As we go through the second half of 2024, we have additional data as well as greater visibility on the specific results and benefits of our restructuring initiatives, and we will make the appropriate revisions to our adjusted EBITDA guidance at a later date. Finally, before I turn it over to Greg to review our second quarter financials, I want to briefly talk about the latest updates on our storage solution segment, as well as cannabis reform and federal rescheduling. As we've mentioned on previous calls, we hired Lake Street Capital to seek strategic opportunities as it relates to the storage solution segment of our business, MMI.

As most of you know, MMI is a leader in providing mobile shelving and racking solutions, and there is a significant opportunity to further monetize this business. We remain engaged with Lake Street Capital and will share news with our stakeholders and the investment community we have information to announce. Moving to rescheduling. The public comment period regarding the DEA's proposed rescheduling rule for cannabis, which would reschedule cannabis from a Schedule I to a Schedule III controlled substance, recently closed on July 22nd, with over 42,000 comments submitted. According to data from Headset, over 92% of those comments were in favor of rescheduling or the complete descheduling of cannabis under the Federal Controlled Substances Act. As we said previously, rescheduling would be a major milestone in the regulatory landscape, would likely be very beneficial to many of our customers and therefore to GrowGen's business.

It would ease restrictions on cannabis research and strengthen the cash flow and balance sheets of state legal cannabis operators by allowing them to take federal tax deductions for their business expenses. We would also expect this to expand market opportunities for our products, as cultivators would have increased access to capital that they could invest into building out new cultivation facilities and refreshing existing ones. While this is all still subject to a final ruling by the DEA, we continue to be encouraged by the rescheduling process and will continue to monitor events as they unfold. ... In summary, our second quarter results were in line with our expectations and reflect the considerable progress we have made in many facets of our business, including expanding sales of our proprietary brands.

While we have already made great strides to date, we recognize there is still more work to do, and we're confident that the measures we've outlined for you today will put us on solid path for accelerated and sustainable revenue growth and long-term profitability. In addition to our own actions that we control, we are also encouraged by recent industry developments with federal cannabis reform, which should have positive implications for both us and our customers. We're excited about the future of our business and look forward to sharing updates on our progress with you as we execute on our strategic plans. I will now turn the call over to our CFO, Greg Sanders. Greg?

Greg Sanders (CFO)

Thank you, Darren, and good afternoon, everyone. As Darren mentioned, we are pleased to report that our second quarter results were generally in line with expectations, and we made solid progress in several key areas. Starting with second quarter sales, GrowGeneration reported net revenue of $53.5 million, compared to $63.9 million in the year-ago period, representing a 16.3% decline. On an absolute basis, this includes 19 fewer retail locations to close the second quarter. On a sequential basis, revenue increased from $47.9 million to $53.5 million, representing an 11.8% improvement. This improvement was achieved despite closing 7 stores between the first and second quarters of 2024, illustrating the strength of the existing stores in our portfolio.

Same-store sales for the second quarter were $41.1 million, compared to $43.9 million in the prior year, a decrease of 6.2%. Excluding e-commerce sales from the same-store sales comparison, the retail business declined by 3.4% compared to the year-over-year period. While we saw signs of strength in the California and Michigan markets, we felt continued pressure in Oklahoma, as well as headwinds in the Northeast markets that had an impact on the overall same-store sales metric. As we have highlighted, we will continue to rightsize our retail footprint in the back half of 2024 to prioritize our strongest-performing store locations that service higher volumes of commercial growers.

Storage solutions revenue for the second quarter was $7.4 million, compared to $8.4 million in the prior year, a decrease of 11.3%, which was largely due to various projects being pushed into the third quarter from a timing perspective. On an absolute basis, private label, our proprietary brand sales were $9.9 million for the second quarter, compared to $9.3 million in the second quarter of 2023. Proprietary brands accounted for 21.5% of gardening and cultivation sales in the second quarter of 2024, compared to 16.7% in the comparable year-ago period. The 4.7% year-over-year improvement is due to stronger penetration of our Drip nutrient line, Char Coir soil products, and ION lights, which has become the company's best-selling lighting brand.

The development of our proprietary brands has become one of our core competencies, and we are now targeting proprietary brands to account for 35% of total sales in fiscal year 2025. Gross profit margin was 26.9% in the second quarter of 2024, representing a sequential improvement of 110 basis points from the first quarter of 2024, and a 10 basis point improvement year-over-year. The improvements in gross margin on a year-over-year and quarter-over-quarter basis were achieved despite continued challenging macroeconomic and industry conditions. We continue to see positive impacts from expansion of proprietary brand sales, which have been partially offset from pricing pressure on distributed products and higher freight costs.

Looking into the back half of 2024, we are planning to reduce our distributed inventory position, and we expect that this activity will have a negative impact on gross margin as we position the business for our 2025 proprietary brand goal of 35% of sales. However, we remain confident that our long-term focus on margin expansion through proprietary brand development and a more nimble footprint will lead towards long-term gross margin growth. Store operating expenses decreased to $10.2 million in the second quarter, compared to $12 million in the year-ago period, representing a $1.8 million improvement. Sequentially to the first quarter, store operating expenses decreased $400,000, as we continue to see cost savings flow through our results from our strategic rationalization efforts.

Meanwhile, selling, general, and administrative, or SG&A costs, were $7.1 million in the second quarter, compared to $7.5 million in the comparable year-ago period, representing a $400,000 improvement. The progress that we have communicated regarding our cost base was in line with our expectations, and we see continued opportunity to further reduce costs through the remainder of the year and into 2025. As we outlined in our restructuring plans, we expect to generate approximately $12 million in annualized cost savings over the next 12 months to help achieve long-term sustainable profitability. Net loss for the second quarter 2024 was $5.9 million, or -$0.10 per share, compared to a net loss of $5.7 million, or -$0.09 per share for the comparable year-ago period.

Compared to the first quarter of 2024, net loss improved by $2.9 million sequentially, compared to a net loss of $8.8 million last quarter. Adjusted EBITDA, as defined in our press release, was negative $1.1 million, compared to a $0.9 million profit in the second quarter of 2023. On a quarter-over-quarter basis, adjusted EBITDA loss improved from $2.9 million loss to a $1.1 million loss, a $1.7 million improvement to the sequential period. Turning to the balance sheet, as of June 30, 2024, the company had total cash, cash equivalents, and marketable securities of $56 million, which was a decrease of $5.3 million to the prior quarter. The decrease in cash was primarily due to $4.2 million of capital deployed to repurchase company shares.

The company's cash position remains a core strength of the business, and we do not foresee any near-term financing needs. As Darren mentioned, we are reducing our full-year 2024 guidance for revenue to be in the range of $190 million-$195 million, and we are eliminating our full-year 2024 Adjusted EBITDA guidance. These updates regarding full-year guidance are a result of the restructuring announcement that was published in July. In closing, GrowGeneration remains in a strong financial position as we enter the second half of 2024. Our second quarter results demonstrate continued discipline with reducing expenses alongside our margin growth initiatives, as the bigger picture remains focused on profitability. During the back half of 2024, the execution of the strategic restructuring plan will be the center of our attention.

We believe that the business is poised to emerge in 2025 with a more robust operating model to deliver our shareholders a more profitable and sustainable long-term investment. With that, I will hand the call back over to Darren for closing remarks.

Darren Lampert (Co-founder and CEO)

Thank you, Greg. We are very proud of the results we delivered for the second quarter, including sequential revenue growth and increased sales from our proprietary branded products. This, in turn, drove margin and Adjusted EBITDA improvement during the quarter. At the same time, even with the progress we have already made, we recognize there is more work to be done. We are looking ahead to the remainder of 2024 and into 2025 as we implement our strategic restructuring plan to expand our brand portfolio, accelerate revenue growth, reduce costs, drive higher margins, and position GrowGen for long-term profitability as the market landscape continues to evolve and improve. Again, I'd like to thank our investors for their continued support, as well as all our team members for their hard work, which makes our success possible. That concludes our prepared remarks.

I'll now ask the operator to open the line for questions. Operator?

Operator (participant)

Thank you. Ladies and gentlemen, we will now begin the Q&A session. Should you have a question, please press the star followed by the number one on your touch-tone phone. You will then hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number two. If you are using a speakerphone, please lift the handset before pressing any key. One moment, please, for your first question. Our first question is from Mark Smith, from Lake Street Capital Markets.

Mark Smith (Senior Research Analyst)

Hi, guys. Greg, I wanted to just circle back first off on, on something that you had said. Just, is there any additional kind of guidance or insights you can give us on gross profit margin, both kind of near term, and I know it's gonna be choppy as, as you guys close some stores and maybe, you know, liquidate some, some inventory in those stores, but also kind of long term, if you guys have kind of set kind of goals or, or an idea of where you would like to be longer term on gross profit margin?

Greg Sanders (CFO)

Yeah, Mark, as we work through the restructuring announcement that was published in July, we anticipate moving out of position of certain inventory products that will have an impact in the third and fourth quarter of this year. We believe at this point, the second quarter was our strongest gross margin period relative to the work that we have to do on that end to prepare the business, for 2025. You know, we expect it's probably in that, you know, low to mid-20s range as we work through a lot of the, you know, inventory reductions that we'll experience in the back half of the year.

We believe what that will ultimately lead to for the business in 25 is a margin point in the high 20s, low 30s, as we look forward at the business, particularly with our strategic goal in mind of increasing proprietary brand sales next year.

Mark Smith (Senior Research Analyst)

Perfect. And then the only other question I had, kind of restructuring here, just any update on the timing of these closures? I think, Darren, you'd said you expect to be done by early Q1. Should we expect this to be kind of fluid month-to-month, or will we see any lumpiness in the closures here over the next couple of months?

Darren Lampert (Co-founder and CEO)

Yeah, right, right now, we're scheduling three for the next three months. So, you know, we believe that, you know, all nine stores will be closed... you know, probably in that November timeframe. So we believe everything will be closed before year-end. There may be some legacy leases that go over to 2025. We certainly hope not. We're working hard on transferring leases and working out payment plans and getting rid of leases as we speak. We have some favorable leases within our portfolio that we'll have no issues getting rid of. But like anything else, during restructuring and closing 19 stores, there are some problem leases always, but none of them are material, and we will work through them.

Brian Nagel (Managing Director and Senior Analyst)

Sounds great. Thank you.

Operator (participant)

Next question will be coming from Brian Nagel, from Oppenheimer.

Brian Nagel (Managing Director and Senior Analyst)

So my question, you know, just with this restructuring and repositioning the business, what should, how should we think about the investment needed to execute this? I mean, both from a, maybe from a money standpoint mind, but then also just kind of, even a process standpoint. I mean, how cumbersome or expensive could this be?

Darren Lampert (Co-founder and CEO)

We believe not much, Brian. In prior closings, we were up to 65 stores, so we've closed over 20 stores in the last couple of years. They've been running anywhere from 150 to 250 a store. You know, right now we have 9 stores left, so you're talking somewhere in that $3 million-$5 million range, and some of it's inventory, some of it's working out leases, and some of it's severance to our employees. But we believe that, you know, 80% of that will be done before year-end, and we will be going into 2025, you know, pretty as a pretty clean company. And there was a question asked earlier by Mark Smith with regards to inventory and margins.

The one thing, when closing stores, there are two things we do with existing inventory in stores. One, as we rationalize it, we put all of it on sale opposed to moving it. It keeps goodwill with customers, it keeps customers with GrowGen to shop at, you know, adjacent stores or online or through our commercial team. So we do a tremendous amount of discounting right now when closing stores, and that's why you will see degradation in margins over the next two quarters.

Brian Nagel (Managing Director and Senior Analyst)

Got it. But I guess, you know, beyond closing stores, the reposition of the real estate there, I would think there's also some other reposition of the business, right, Darren?

Darren Lampert (Co-founder and CEO)

100%. You know, with 31 stores, we will be much more nimble. We will be focusing on private label brands and really business to business. The industry has changed in our mind. We've seen it over the last couple of years. We've been closing stores, and we haven't really been in the market buying. Really what we're positioning GrowGen for is new product launches. We're getting our private label division up to 35, 35% of sales, which is our highest margin business. And really, basically taking care of our commercial customers, which amount probably right now to 60%-70% of our business. 25% of that goes to our commercial team right now, the remainder shops within our stores.

But the industry has changed over time, and we're changing with it. You know, we believe coming out of this restructuring, you will have a leaner company with a tremendously different cost structure. We've cut over $40 million of expenses to date. There's another $12 million of expenses coming. You'll see a higher margin business, and you'll see a company that's starting to make money and grow, and we couldn't be any more excited about it. You know, we've done it slowly. We've closed one store a quarter, two stores a quarter, and, you know, with that, it hasn't gotten us to where we wanna get. It hasn't gotten us to be able to cut enough from the back end of it, from the corporate side of it. So, you know, we're doing what we have to do, and we're doing...

Really going back to our core, which is servicing business to business, commercial, and product launches. Our product launches are going well. We had our highest percentage of private label sales in the month of July. We had sort of a big bump up in July over the second quarter. So, you know, it's another two quarters of hard work, Brian, but we believe that our shareholders in the company will bear the benefits of it going into 2025.

Brian Nagel (Managing Director and Senior Analyst)

Yeah, I appreciate all the color, Darren. Thank you.

Darren Lampert (Co-founder and CEO)

Thank you, Brian.

Operator (participant)

Next in line will be coming from Aaron Grey, from Alliance Global Partners.

Aaron Grey (Managing Director and Head of Consumer Research)

Hi, good evening, and thank you very much for the questions. So, first one from me, just in terms of the digital initiative, you know, while part of the decision, you know, appears to be, you know, cost-based, I'm just curious, could that also open up the ability to service some new customers that might not have been in the vicinity of your prior brick-and-mortar stores? And then, just if you could help in terms of how it'll be structured. Now, have you already kind of piloted how the program will work in terms of the ease of transitioning the customers to the model, including the potential to pick up from warehouse or potentially have it delivered?

Darren Lampert (Co-founder and CEO)

Yes, we have. I mean, just to start with, Aaron, you know, majority of the stores we're closing are within proximity to stores of ours. As this industry transforms into business-to-business, which it is going, commercial customers, you know, want a portal. They want, opposed to calling and sending in, you know, orders, they much rather go on the portal, know that the product is there and order it. You know, we opened a 100,000 sq ft distribution facility in Ohio this year. We have one out in Sacramento, so and we also have some mini hubs around the country where the growers are. So we are 100% capable of fulfilling orders, especially private label and distributed products. So I think we're there right now.

What we're also doing on the B2B side and the product side of it is we're opening up individual portals for products that individuals can now go on our websites and buy the products that will be shipped through our warehouses. So just again, cutting costs and just getting back to, you know, the industry was a lot about learning and teaching and individuals coming into the stores every day. But over the last couple of years, you know, we've seen, you know, definitely the flow within our stores has gone down. And we think that we can service our customers better in a much cheaper way and keep pricing down by doing what we're doing right now, by cutting our store counts down, increasing our warehouse capabilities, and also our B2B build online capabilities.

Aaron Grey (Managing Director and Head of Consumer Research)

Appreciate that color there. Second one for me, Darren, just in terms of the proprietary brands, so you're now at about, you know, $50 million run rate based on the quarter. I know you have aspirations, you know, to increase that to 35% from 21%. But, you know, just want to get your take in terms of the brand equity that's been built within the proprietary brands, and how that might offer opportunities for you to increasingly build the brands into third-party stores and distributor, and distributors outside of just your own. Thank you.

Darren Lampert (Co-founder and CEO)

I think right now, about 50% of our brands are going into other stores and going through the distribution channels outside of GrowGen. So we have built that to date. And we are building brand equity, you know, by the day. And, you know, Drip Hydro is off to a wonderful start. We launched the powders back in January. We had, you know, almost 500 trial active trials going around the country, and they're starting to convert. And we saw that in July as we saw a really nice increase in our private label brand sales in July. It was the highest month we've seen, and it was, you know, again, it was a tremendous bump from what you saw in the second quarter from us. We're also starting to launch a lot of new products under the Char Coir brands.

There's new soils coming out, there's Coco Coins and propagation coming out of that company that we believe will land in the IGC world. But the feedback that we're getting from customers, from other stores and distributors, has been nothing short of amazing. As we said earlier, that we will have another 50 products being launched over the next 12 months, to get us to where we wanna go. And with that, you know, again, when we talk about margins again, you know, during the next two quarters, we are rationalizing certain distributed products, companies that haven't been good partners to GrowGen. And we're again, we're shrinking the amount of products that we are carrying in our stores and our warehouses.

But, you know, we have a lot of great partners out there that we continue to support, that continue to support GrowGen.

Aaron Grey (Managing Director and Head of Consumer Research)

Okay, great. Appreciate that, Darren. I'll go and jump back in the queue.

Darren Lampert (Co-founder and CEO)

Thank you, Aaron.

Operator (participant)

If you have any questions, please press the star followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised. Next question will be coming from Andrew Carter from Stifel.

W. Andrew Carter (VP and Senior Equity Analyst)

Hey, thank you very much. Kind of a question I wanted to ask here about you kind of gave the gross margin, high 20s, low 30s. Could you kinda speak to what, at this, this revenue base of $195 million, what your kind of EBITDA margin kind of prospects are, and do you need to meaningfully grow to get to mid-single digit? Do you think you can grow next year? Anything that could kinda help on, on that side. Thanks.

Darren Lampert (Co-founder and CEO)

Greg, do you wanna try to unpack that, and then I'll finish it up?

Greg Sanders (CFO)

Yeah. No, absolutely. You know, as we look at next year, it's a little bit early for us to meaningfully say what our EBITDA is going to look like. We do anticipate for the remainder of the year that, you know, revenue is gonna be in that $190 million-$195 million mix, which we feel comfortable with. Bringing down revenue for the back half of the year is really just a symptom of the amount of stores we've decided to close in the third quarter, being 12, more than anything else. But we do expect margins to return, you know, in 2025, and we do believe that positions the business back for profitability in 2025. But I couldn't give an exact figure out yet just because it's too early for us.

W. Andrew Carter (VP and Senior Equity Analyst)

I guess the second question is, with the focus on proprietary, pro- proprietary brands, remind us, you don't own a lot of manufacturing. I mean, to hit your goals, do you, do you think that you might need to invest in that, or do you have enough kind of in a co-packer, co-manufacturing network to kinda support your needs and your penetration goals? Thanks.

Darren Lampert (Co-founder and CEO)

Yeah, I think right now, Andrew, you know, our co-packers, you know, around the country and around the world that we use, we have wonderful relationships with. So, you know, we're usually ahead of the game with bringing products in. You know, unless our drip liquids are being manufactured in California, really, you know, our hub right now. But a lot of our products are still being, you know, manufactured overseas, but we have a pretty decent handle on it. We know our co-packers well, and we visit with them. I was with our Char Coir owners the other day out in Seattle. They flew in from India. So I think it's, you know, at this time, we're not a manufacturer, so I think we're gonna stick to what we're doing on the co-packing side of it.

W. Andrew Carter (VP and Senior Equity Analyst)

Thanks. I'll pass it on.

Operator (participant)

There are no further questions at this time. I'd now like to turn the call back over to Mr. Darren Lampert for final closing comments.

Darren Lampert (Co-founder and CEO)

I'd like to thank our shareholders and our employees for their hard work, for their dedication, and for their support of GrowGen. We look forward to keeping you apprised of our progress on our restructuring, and we look forward to talking to everyone in September. Thank you.

Operator (participant)

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line.