GrowGeneration Corp. (GRWG) — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing also presents fourth-quarter results; it is an annual report, not a standalone Q4 filing. GrowGeneration operates hydroponic and gardening stores, commercial sales and e-commerce businesses, and sells proprietary and private-label products. At year-end it reported 52 stores across 12 states.
Financial results and liquidity
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Revenue | $193.4 million | $79.7 million |
| Gross profit / gross margin | $51.0 million / 26.4% | $22.0 million / 27.6% |
| Operating income | $8.4 million | $1.6 million |
| Net income | $5.3 million | $1.3 million |
| Adjusted EBITDA (non-GAAP) | $19.2 million | $5.3 million |
| Operating cash flow | $(0.2) million | $(3.3) million |
- Revenue rose 142.5%. Management attributed the increase to store acquisitions and openings, growth at stores open in both periods, e-commerce and commercial sales. The reported 13-store same-store cohort grew 63% to $72.3 million.
- Gross margin declined year over year as commercial and e-commerce sales—lower-margin channels than retail—made up a larger share of revenue. Store operating costs fell to 9.7% of revenue from 12.7%.
- Q4 revenue was $61.9 million, up 144% year over year. Gross margin was 25.8% versus 23.6%; operating income was $2.6 million versus an operating loss of $1.1 million; net income was $1.5 million versus a net loss of $1.0 million. Q4 adjusted EBITDA was $5.6 million versus $0.9 million.
- Year-end cash and cash equivalents were $177.9 million and working capital was $222.9 million. Cash increased substantially following 2020 stock offerings and warrant exercises; financing cash flow was $211.0 million.
- Investing activities used $45.8 million, mainly for acquisitions and equipment. Inventory reached $54.0 million, up from $21.6 million, and goodwill rose to $63.0 million from $17.8 million.
- Reported long-term debt was approximately $0.24 million. Operating lease liabilities were $12.5 million, including current and non-current portions.
Material changes and notable items
- The company completed eight acquisitions in 2020, adding stores and product businesses; acquisition consideration totaled approximately $80.4 million, paid in cash and stock. It also completed further store, brand and e-commerce acquisitions after year-end.
- Two 2020 public offerings generated approximately $207.1 million in net proceeds. Shares outstanding increased from 36.9 million at year-end 2019 to 57.2 million at year-end 2020; the filing reports 58.5 million as of March 26, 2021.
- Share-based compensation rose to $7.9 million from $2.5 million, contributing to higher corporate overhead. The company reported FY 2020 basic and diluted GAAP EPS of $0.12 and $0.11, respectively.
- The company revised its 2019 comparative statements for accumulated vendor-rebate accounting errors. Management said the errors were not material to prior statements; the revision reduced 2019 inventory and net income but did not affect cash.
Outlook, risks and controls
- No quantified revenue, earnings or margin guidance is provided. Management plans continued store expansion and acquisitions, and expects private-label growth to support margins. It anticipated additional fulfillment locations opening in 2021 and said future financing may be needed to fund expansion.
- Risks include changing cannabis and hemp laws and demand, competition and potential margin pressure, acquisition integration and impairment risks, COVID-related supply interruptions, and reliance on key suppliers. Two suppliers represented 41% of purchases. The company stated it did not maintain product-liability insurance.
- Management said COVID-19 had not materially affected the business, while disclosing reduced store hours, some shipment delays and mitigation measures. The filing also cautions that pandemic effects remain uncertain.
- Disclosure controls and internal control over financial reporting were deemed ineffective at December 31, 2020 due to material weaknesses, including insufficient accounting resources, inadequate bank-account duty segregation and IT access-control deficiencies. Remediation was ongoing.
- The financial statements received an unqualified audit opinion. The auditor did not audit or opine on internal control effectiveness. The filing reports no material legal proceedings and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Reconcile the filing’s same-store base disclosures: one section refers to 21 stores, while the MD&A describes a 13-store comparable cohort.
- Track remediation and testing of the disclosed material weaknesses, and whether future filings report effective controls.
- Assess how much growth and profitability came from comparable-store demand versus acquisitions, and whether acquired businesses meet expectations.
- Monitor operating cash generation, inventory and receivables growth, acquisition spending, and cash remaining after subsequent acquisitions.
- Review adjusted EBITDA reconciliations and the effects of stock-based compensation, dilution and the enlarged share count.