Hello, and welcome to GrowGeneration's Third Quarter 2023 Earnings Conference Call. My name is Julie, and I will be coordinating your call today. Following prepared remarks, we will open the call to questions from analysts with instructions to be given at that time. I will now hand the call over to Clay Crumbliss with ICR. Good afternoon, and welcome to the GrowGeneration Third Quarter 2023 Earnings Results Conference Call. Today's call is being recorded. With us are Mr. Darren Lampert, Co-founder and Chief Executive Officer, and Greg Sanders, Chief Financial Officer of GrowGeneration Corp. You should have access to the company's third quarter earnings press release issued after the market closed today. This information is available on the investor relations section of the GrowGeneration website at ir.growgeneration.com. 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- Hello, and welcome to GrowGeneration's Third Quarter 2023 Earnings Conference Call. My name is Julie, and I will be coordinating your call today. Following prepared remarks, we will open the call to questions from analysts, with instructions to be given at that time. I will now hand the call over to Clay Crumbliss with ICR. Good afternoon, and welcome to the Grow Generation Third Quarter 2023 Earnings Results Conference Call. Today's call is being recorded. With us are Mr. Darren Lampert, Co-founder and Chief Executive Officer, and Greg Sanders, Chief Financial Officer of Grow Generation Corp. You should have access to the company's third quarter earnings press release issued after the market closed today. This information is available on the investor relations section of the Grow Generation website at ir.growgeneration.com. 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 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 the non-GAAP financial measures to the most directly comparable GAAP measures, are all available on our website. Following our prepared remarks, we will take questions from research analysts. We ask that you please limit yourself 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 turn the call over to our Co-founder and CEO, Darren Lampert. Darren? ... Thanks, Clay, and good afternoon, everyone. Thank you for joining us today to discuss our third quarter 2023 financial results and our full year 2023 guidance. As always, I want to thank each one of our employees across our company for their continued support of GrowGen. I am grateful to our entire team for their continued hard work, dedication, and for being steadfast in executing our company's strategy. I am pleased with GrowGen's third quarter results, and I'm happy to discuss the progress we have made to drive future growth and profitability, including the launch of our new ERP system and East Region Distribution Center on July 1, and the success of our proprietary brands. Despite the ongoing challenges in our industry, which we have discussed extensively in the past, GrowGen remains in a strong financial position with sufficient liquidity to continue investing for growth while putting profitability at the forefront of all we do. In the third quarter of 2023, we generated net revenue of $55.7 million, which represents a 13% decline over the second quarter of 2023, consistent with the expectations we communicated on our second quarter call. Gross margins improved 320 basis points to 29.1% versus the prior year's comparable quarter of 25.9%, and improved 230 basis points from second quarter gross margins of 26.8%. We ended the third quarter with $66.6 million of cash, cash equivalents, and marketable securities, no debt, and $76 million of inventory on our balance sheet. Year to date, we've generated approximately $2.8 million of operating cash flow. While the federal legislative agenda has not moved definitively in our favor, it does seem to be getting more favorable. There is renewed optimism for federal reform, with the SAFER Act passing the Senate Committee on Banking and potentially heading to the Senate floor for a full vote, and if approved, to the House, then the President. More importantly, there's excitement building around cannabis rescheduling after the Department of Health and Human Services recommended rescheduling cannabis from Schedule I to III, which would remove the 280E tax penalty on licensed cultivators, bringing hundreds of millions of dollars back into the cannabis industry. We expect that this would provide a major tailwind for our industry. With that said, our three main initiatives remain our primary focus. As we discussed last quarter, what that means in practical terms is, number one, we're continuing to bring to market innovative new products and growing our proprietary brand portfolio, attracting a larger customer base. Number two, we're building upon our ERP launch and transforming our technology and digital platforms. And number three, we're putting profitability at the forefront, focusing on margin expansion and profitable growth. Briefly on each of these. First, we remain committed to the expansion of our proprietary and distributor brands, and we are very satisfied with the results. Proprietary products accounted for $7.4 million of retail and e-commerce sales in the third quarter of 2023, which is around 16.6% of our overall retail and e-commerce sales, up from 15% in the second quarter of 2023. Product launches include the introduction of the much-anticipated new Drip powder nutrient line in Q4, delivering a cost-efficient nutrient solution while not compromising on quality. We're expanding Power Si with an advanced granular range of beneficial microbial solutions to bolster plant health and optimize growth to be released in Q4. In Q3, we rolled out Char Coir Coco Coir, entering the propagation market. The Harvest Company, our consumer gardening initiative, is finalizing a diverse product portfolio that includes the already launched premium gloves and pruners, as well as a Garden in a Box kit, an all-in-one solution for gardening enthusiasts that includes raised metal beds, soils, fertilizers, and a curated selection of organic seeds. Lastly, MMI Ag is introducing a single-tier mobile bench and tray systems for indoor and greenhouse growers in Q4. Second, our ERP system has been rolled out across all key business verticals. Like many other ERP rollouts, ours has not been without its challenges, and it will take time before benefits fully materialize, but we are confident in our internal team and their ability to manage through the transition. Encouragingly, most of the issues we've encountered have been relatively minor, and we are pleased with the progress that has been made to date. To further develop our key technology initiatives, we have strengthened our leadership team with the addition of a Senior VP of Technology, who comes to us with impressive credentials and whose mandate includes steering our technological advancements and solidifying our digital infrastructure. And third, we are prioritizing profitable growth, which we believe we will attain through our continued efforts to grow revenue, execute our margin expansion strategies, and consolidate stores. We're constantly analyzing the business for additional optimization and cost savings opportunities, and expect a continued benefit to flow through to our margins through the remainder of 2023 and 2024. As part of these efforts, we continue to analyze the performance of our current stores with respect to redundancies in the footprint and non-performance. We closed and consolidated six retail locations in the third quarter and are in the process of consolidating and closing six additional locations in the fourth quarter that we expect to be finalized in November. That said, we expect a lower operating expense base and aim to retain the key customers from consolidated locations on a revenue basis. Further, with our recently implemented centralized distribution system, consolidation of shipments, and storage, we will reduce our in-store inventory levels and ensure quicker deliveries. The SKU rationalization we executed in Q3 will now allow us to focus on high-demand products and phasing out low-performing SKUs. All these executables are positioning us to operate more effectively and efficiently. Turning to guidance for full year 2023, we are maintaining our guidance of net revenue in the range of $220 million-$225 million, and Adjusted EBITDA loss in the range of -$4 million to -$6 million. With that, I will turn the call over to our CFO, Greg Sanders. Thank you, Darren, and good afternoon, everyone. First, I will address our third quarter 2023 financial results, and then I will discuss our updated full year 2023 guidance. For the third quarter, GrowGeneration generated revenue of $55.7 million versus $70.9 million in the third quarter of 2022, representing a decline of approximately 21.4%. Our same-store sales for the third quarter of 2023 were $40.7 million compared to prior year sales of $47.5 million, representing a 14.4% decline against the comparable year-ago quarter. Comparable same-store sales in the third quarter represent a modest sequential improvement over the prior quarter on a percentage basis. Our e-commerce division generated $2.7 million of revenue versus $3.1 million in the year-ago period, representing a decline of 10.2% YoY. Our distribution and other revenue was $11.5 million for the quarter, compared to $19.8 million in the year-ago period, representing a decline of 42%, largely due to a few large one-time transactions in the year-ago period. Gross profit margin was 29.1% for the third quarter of 2023, which is an improvement of 320 basis points to the year-ago period. The increase in gross margin in the third quarter of 2023 was largely attributed to the improvement of proprietary brand sales as a percent of revenue, which increased to 16.6% of sales in the third quarter versus 13% of sales in the year-ago period. Additionally, the company is executing on more bulk buys with the development of our distribution network that has led to favorable gross margin performance in the quarter. Store operating costs and other operational expenses declined from $13.6 million in the third quarter of 2022 to $11.9 million in the third quarter of 2023, representing a 12.2% reduction. The savings YoY were primarily attributed to rationalization efforts of our store count and personnel expense. We believe that the expense reductions to date are sustainable, and we expect to execute upon further reductions through the balance of the year and into the first quarter 2024. Selling, General, and Administrative, or SG&A costs, were $7.6 million in the third quarter. This compares to $8.8 million in the year-ago period, representing a 13.8% improvement YoY. SG&A expense reductions are being achieved through various cost controls, most notably through personnel. Depreciation and amortization of intangibles was $4.7 million in the third quarter of 2023, compared to $3.9 million in the year-ago period. The increase in depreciation expense is primarily due to the go live of our new business systems in the third quarter, for which we placed the assets into service at July 1. In the third quarter of 2023, the company did not recognize an income tax benefit or expense. GrowGeneration is using a 0% tax rate as its deferred tax assets are not expected to be realizable. As such, the company has established a full valuation allowance against its deferred tax assets. Net loss for the third quarter was $7.3 million, or -$0.12 per share, compared to a net loss of $7.2 million, or -$0.12 per share in the year-ago period. Adjusted EBITDA, which excludes interest, taxes, depreciation, amortization, restructuring charges, and share-based compensation, was a loss of $908,000 for the third quarter of 2023, compared to a loss of $2.7 million in the third quarter of 2022, representing a $1.8 million improvement. Related to the balance sheet, as of September 30, 2023, the company had total cash, cash equivalents, and marketable securities of $66.6 million, which was a decrease of $4 million to the second quarter of 2023. The company increased its prepaids by $4.5 million in the third quarter, primarily to increase our inventory positions in our proprietary branded products, where we are seeing demand increase. Cash used from operations for the third quarter was approximately $4.6 million, primarily related to the aforementioned prepaid investments. Year to date, the company generated positive cash from operations of $2.8 million. That said, the company has sufficient reserves, with over $60 million held in money market accounts and short-term, low-risk investments at September 30th, 2023. In the third quarter, the company decreased inventory by approximately $700,000 compared to the second quarter. As we look at the fourth quarter, we are aiming to further reduce the inventory position and to improve upon turns. The company has instituted promotional sale events for overstock and slow-moving inventory in the fourth quarter to help drive additional sell-through of inventory. During the quarter, we continued to see improvement in our operating expense structure, and we're encouraged by the gross margin improvements in the quarter. Operationally, we transitioned our entire retail and corporate business into new ERP, point of sale, and warehouse management systems. As such, change management and user adoption were a very large focus in the quarter. Now, moving on to our full year 2023 outlook. We are reaffirming our previously communicated guidance, with full-year 2023 revenue to be between $220 million and $225 million, and full-year Adjusted EBITDA loss to be in the range of -$4 million to -$6 million. We believe the fourth quarter should benefit from lower inventories and continued rationalization of operating expenses through our strategic initiatives. In summary, we remain confident in our ability to navigate the industry and will continue to stay focused on managing the balance sheet and controlling costs in our efforts to return the business to profitability and driving long-term shareholder value. Positioning the business for long-term profitability continues to be a top priority today and into 2024. Our approach to capital allocation remains focused on a disciplined approach to return on invested capital, and we see opportunities in long-term planning. We are continuing to invest in digital transformation to propel our company through future business cycles. Further, we continue to invest capital into the development of proprietary products and initiatives that expand our value proposition to a broader base of customers. I'll reiterate that our daily mandate is executing our business strategy with a sharp focus on long-term profitability and shareholder value. With that, I will turn the call back over to Darren for closing remarks. Thank you, Greg. Before we open the line for your questions, I want to reiterate that GrowGen is on solid financial footing, with a strong balance sheet, healthy liquidity, and a solid cash position. We continue to manage our business prudently through the current industry landscape, with an emphasis on sustainable growth, margin expansion, and profitability. We are encouraged by our continued progress and remain laser focused on continuing what we can control to continue to build a stronger, nimbler, and more profitable company. Thank you for your time today, and thank you for your interest in GrowGeneration. We will now take your questions. Operator? Thank you. Ladies and gentlemen, should you have a question, please press the star followed by the one on your touchtone phone. If you'd like to withdraw your question, please press the star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Aaron Grey from Alliance Global Partners. Please go ahead. Hi, good evening, and thank you for the questions. So first question for me, I just want to talk about some of the reform, you know, most notably the potential rescheduling of Schedule III. You know, for you guys, you know, may be more of an indirect impact and obviously not being impacted by the 280E tax right now, but a lot of your clients are. So how do you think about potential indirect impacts a scheduling Schedule III could have, or removal of 280E, particularly with some of your players, maybe pulling back on CapEx initiatives and how that could change and the indirect benefit you guys could have from that? Thank you. Aaron, I find it quite exciting, and I think the industry needs it currently. There's hundreds of millions of dollars right now being spent on 280E tax penalties, as you probably know. I mean, we're talking hundreds of millions of dollars. And with this money coming back into the industry, if rescheduled, the money will go to the MSOs and the large single state operators back onto their balance sheets to strengthen balance sheets. And with that, we do believe we'll start coming into expansion of facilities and also, more importantly, into refreshing facilities. We've seen so many buildouts in from 2019 to 2021, and with the life expectancy of LED lighting and Dus and a lot of the durable products that they use, there will become becoming a tremendous, you know, refresh cycle coming. And there are going to be, you know, there's going to be a lot of durable products going out in the next couple of years to refresh a lot of the facilities out there right now. So we are quite excited. You know, as you know, GrowGen's bread and butter is the large commercial operators out there. So we believe that, you know, we will get a majority and a lot of the business coming out of 280E, if it goes away with the rescheduling. So we're excited about it, and, you know, we got our fingers crossed, and like we all know, in the next couple of months, we should be hearing something. Okay, great. Thanks for that color. And then second one for me. This can kind of bring down, you know, the store fleet. Yeah, 50 now, sounds like you'll be at about, you know, 44 with another, you know, six in the upcoming quarter. Number one, you know, how do you feel with the store fleet at that level? Do I kind of hold there, you know, maybe some smaller, you know, growth opportunities to open up some new stores? And then number two, on the 14% same-store sales decline, could you maybe provide what that might be on a pro forma basis on what the new, you know, 44 will be, including the 6 you plan to consolidate in Q4? Thank you. Yeah, I'll start and then send it over to Greg. With the six stores there, and that brings us down to 50. So you, you're double counting the six. So, you know, we were at, we were at 56. With the six stores we're talking about closing this month, that would bring us down to 50. We've already shut those stores in the midst of consolidating them, so that brings us down to 50. We still do have a small amount of work to do on the portfolio. And the way we're looking at it right now, with the build-out of our distribution center in Ohio, the success of our private label brands and the launch of our ERP system, POS and also warehouse, we're becoming much more efficient. And we're starting to see right now, the stores don't need as much product in it. Our customers are much more reliable. They're planning much better. And with that, we just don't need redundancies within the footprint. And when you take a look at what we've closed in the last four months, it was 12 stores, I think 15 during the last seven or eight months, but most of them were within 30 miles of another store. They were smaller stores that majority were bought through acquisitions, and those weren't the main stores within the acquisitions. So we feel pretty comfortable right now. We believe that, you know, there'll be tremendous savings, not only through the store closures, but also through, you know, consolidation of back office staff and accounting. So it's, you know, it's twofold as opposed to one. When you look at the stores that we've closed, the 12 stores that we closed accounted for about $22 million of business in 2022. Greg, do you have anything to add to that? Yeah, no, I think that's spot on, Darren. And I think, you know, for the comp question in isolation, what we'll see on a quarterly basis is a reduction of approximately, you know, $3 million-$4 million, depending on the quarter at this point. We did see, you know, some down performances in some of those locations that we've consolidated throughout the course of the year and into the fourth quarter as well. And the number around 50, Aaron, just to mention, is inclusive of the Q4 activity, where we've ceased operations within November and expect to conclude the operational procedures around closing by the end of the month. So that's an all-in number for us at this point. Yeah, Aaron- Okay, great. Just a little more color. Aaron, just a little more color. It was seven stores in California, three stores in Colorado, one store in Michigan, and the one store in Washington. That type of color. Appreciate that. Thanks for calling the clarification. I'll jump back in the queue. Thank you, Aaron. Your next question comes from Andrew Carter from Stifel. Please go ahead. Hey, thanks. Just wanted to build on that just a little bit with the same stores. Obviously, you're closing the more redundant locations, and therefore there should be some kind of lift within the cannibalization. So I think looking back in, it seems like the absolute decline is moderating quite a bit in 4Q, given the absence of stores. But when do you think cannibalization category, you could see actually a return to same-store sales growth of the current base? You know, Aaron, I believe that we see it next year. You know, we've been bouncing along the bottom this year. You know, our same-store sales for the last six months have been in that 14% down range. We are seeing a lot more commercial bidding coming into GrowGen right now. And with the uptake of our private label products and distribution and being able to get products to our customers quicker than any other store in the country, you know, we do believe that business is gonna restart, and GrowGen will be a better company for it. Can I tell you it's gonna happen, you know, in the first quarter or the fourth quarter this year? I can't tell you that. But, you know, with what's going on in legislation right now, I think of 280E, I think if we reschedule, you'll see money coming back into this industry. So, you know, we're very optimistic where we've brought the cost levels of this company. We've brought costs down almost $25 million over the last couple of years. We've brought inventory down over $30 million over the last couple of years. So you know, we're working hard at getting this company back profitable and getting same-store sales the other way. We've closed a lot of them. You know, a lot of the stores that we closed were redundant, but, you know, a portion of them were also non-performing, too. With our private label penetration up at about 17% right now, and we believe that goes into the twenties next year, we think that will fuel same-store sales growth at our stores. The second question I wanted to ask, and just kind of stepping back, like, you know, you're closing the stores. I guess during the super cycle, it could have kind of given you some false reads of the category of kind of the necessity of that last mile. Do you believe, like, this step back in the footprint, you'll be just as well positioned with the category accelerates? Or is, is this or are there some trade-offs, or is this a category where last mile isn't as necessary? What I mean is that grower doesn't have to have it in 24 hours. He can live with 48, therefore, ship from Ohio. Just kind of those puts and takes as you're thinking about being prepared for the eventual return to growth in this category. Yeah, when I look at GrowGen right now in our store counts, you know, where we are, and with boots on the ground with our commercial team, I think we're better positioned than we've ever been, with the launch of our new ERP system, distribution, and private label. And, you know, the one thing that we're starting to see is forecasting coming from our customers. And like we've always said, we don't represent that much of the illegal markets. So, you know, our bread and butter is the legal markets. So with more money going back onto the balance sheets, if you see a reschedule, you know, we do believe that business is gonna come to GrowGen, and will make us a better company for it. So it, it's, it's what keeps us optimistic. And, you know, again, we will continue to cut where needed and continue to get this company, Andrew, you know, where it needs to be. And you, you've seen it through the year, you've seen it through our numbers right now. But the most exciting part of GrowGen right now is the uptake of our private label products and, and, and the brands that we're bringing to market. We're launching Drip powders, this quarter, to follow up on our Drip nutrient line that's, that's had a tremendous first year for us. We're adding products onto our Char Coir brands. We're launching single, we're launching a benching from our MMI company, single-tier benching. So there's a lot of excitement at our company right now, but getting costs in line with, with really... It's the, it's, it's the new norm in the business if you ask me. There aren't people waking up in the morning and deciding to go out and start growing. That's kind of, you know, that's run its course. So you're seeing, you know, many more legal growers out there, and also single license in states that are allowing it. You saw in Ohio yesterday, they have very favorable homegrow rules in Ohio. You probably will see a store from GrowGen in Ohio this year. If not, you know, probably first quarter next year. And we'll still be expanding, but you're probably talking one or two stores in states, not what we used to have. The industry right now is more predictable, forecasting is better, so less is more right now for us. Thanks. I'll pass it on. Your next question is from Eric Des Lauriers, from Craig-Hallum Capital Group. Please go ahead. Great. Thank you for taking my question. I guess first I'm just kind of following up on the store outlook here. It sounds like you're mostly consolidating stores in these, you know, more legacy, unlimited license markets here. You mentioned Ohio is a place that you might look to add a store, you know, within the next couple of months here. Beyond, you know, this newly legalized Ohio state here, are there other states that you are looking to sort of continue expanding in? I guess just how should we think of the overall expansion plans kind of going forward here? Is it, is it kind of, you know, following states as they legalize, or do you have, sort of a more extensive roadmap, for, you know, call it the next, the next year or so? Yeah, you know, states that are legalizing dependent upon the rules, you know, and again, the Ohio rules were favorable. We have a 100,000 sq ft warehouse in Ohio, so, you know, we'll probably, you know, probably only need a store in Ohio and ship out of our warehouses within 24 hours. We're still looking at New York, we're looking at Pennsylvania, Maryland, and a couple other states. We'd love to add another store in Missouri and New Jersey. But right now, you know, we're taking a wait and see attitude. The states that we're already in, you know, we believe that we're pretty well, you know, well served in those states and, you know, aren't looking to add to footprints. But if something comes up that's, you know, beneficial to our shareholders, we will do it. You know, what we're really looking for right now is, you know, stores that are closing, we're bringing them into the GrowGen umbrella, buying some inventory from them, and taking customer lists and sometimes some employees. We did that in St. Louis this year, and it worked out tremendously for us. So it's just that wait and see and see where the market goes. But the one thing that we will continue to do is keep our balance sheet extremely strong until we see a real turn in the industry. That's helpful. I appreciate that color. Next one from me, I think I caught in some of the Q&A here that, you think private label as a percentage of overall sales, or maybe it's a, as a percent of retail sales, I'm not sure. But that, that could go, you know, up into the 20s next year. I think that's an increase from sort of previous, commentary. Could you just kind of expand on that a bit of, you know, do you need to get, additional new products, in line here? I know you have, a handful that you've just recently, introduced here. Is this sort of, portfolio of proprietary brands now, sufficient to get you to that, to that, you know, 20% plus level? If you could kind of... Or if you're willing to share any kind of longer-term goals of, you know, where you think private label could be as a percentage of sales, that'd be helpful. Thanks. You know, I believe that what we have in-house right now with the launch of Drip Hydro Powders will bring us into that 20% mark next year. We're also doing a lot of work through the Harvest Company, and we will be launching products into IGC next year. You know, pruners and garden in a box that we've just started to roll out. Certain mushroom kits that we're rolling out. But Char Coir has had a wonderful year this, you know, has had a wonderful 2023, and we continue to launch new Char Coir products from Char Coir. We just entered the propagation space with coco coir. So there's a lot going on right now in our private label division. And it's, you know, it's, it's, it's really what's fueling GrowGen right now, starting to fuel new customers coming to our stores and also on the distribution side of it. So we're excited, and we do believe you will see that number in the 20s next year. You know, further out into 2025, you know, we do believe it'll continue to grow. We believe, you know, there's a lot of wonderful products from other, you know, vendors out there right now. So we believe somewhere between that 30%-35% number when we fully grow up, and that'll probably be 2026, 2027. You know, we do believe we'd reach that number. Thank you. Appreciate it. Your next question comes from Brian Nagel from Oppenheimer. Please go ahead. Hey, guys. Good afternoon. Good afternoon, Brian. Greg? So, I apologize if this is repetitive. I unfortunately jumped on the call late, but just with regard to the store closings, is this just repositioning within markets, or are you, with these closings, exiting some markets? And then a second question, and I again apologize if you may have already laid this out, but how should we think about, you know, kind of the near-term financial implications of closing these stores? I know from a sales loss perspective as well as a, you know, an expense reduction perspective. The 12 stores that we've closed, Brian, in the last four months, we weren't leaving markets, they were redundancies. You know, most, I think probably 10 or 11 of the stores were within 30 miles of another store that we had. They were smaller stores within regions and not performing as well as we would have liked. And we've done a decent job getting out of most of the leases right now and cutting the costs. When you look from a financial side of it, you know, those 12 stores accounted for about $22 million of business in 2022, and that was tailing off into 2023. From a revenue standpoint, what we believe we're going to keep, you know, somewhere in that 50% mark. We usually, you know, we'll keep a majority of the commercial customers. Depending upon which store it is and how close there's another store to it, that's where the homegrown markets will fall. You know, we believe that, you know, again, GrowGen still is the best on... You know, we, we have the, we have the best stock in our stores, we have the best solutions, and, you know, again, people still want to shop with us. So we are incentivizing our staff to keep these customers, to go getting the customers. We're doing work before closing stores, with contacting customers and giving them benefits to come to the next nearest store of GrowGen's. So you know, we'll have a little more color for that, you know, probably in six months when we really get an understanding of what percentage we've kept, but we do track it. You know, right now for guidance, you know, we aren't changing guidance for 2023. So, you know, with that, you know, you'll probably drop $3-$4 million off the fourth quarter, but we still, we're very comfortable with guidance right now for the year. That's very helpful, Darren. And a follow-up question, if I could, sorry, same caveat of you addressing this, I apologize, but gross margin looked a bit better here. You know, I guess want to confirm that, but then also, what are the – how should we think about the drivers here of the better gross margins in Q3? Greg, you can take that. Yeah. So I think, you know, when you look at the third quarter gross margin, the primary driver within the period itself was private label more than any other independent factor. On a QoQ basis, we drove, you know, private label from, you know, 15%-17%, YoY was 13%-17%. Seventy-five percent of our Q3 sales were from the retail business, which in itself improved, you know, 1.5 points on margin, primarily from, you know, some of the private label benefits, also, you know, some improvements in mix, as well as price increases within some of our products as we're focused on profitability of the business. Separate from that, I think you're starting to see early signs of some of the margin improvements from the distribution development and investments that we've made as we're going out and negotiating larger bulk buys, negotiating points off those, you know, SKUs that we're bringing into our portfolio, and then, you know, recognizing a slightly larger margin on the sale itself. So there's a lot of factors that go into it, but we were very, very pleased with, you know, how the quarter reported, and, and we're optimistic that we'll continue to build on this into, you know, future periods. I appreciate the color. Thanks a lot. Yep. Thanks, Brian. Your next question comes from Scott Fortune from Roth MKM. Please go ahead. Yeah, good afternoon. Thanks for the questions. Just kind of follow up on that. Can you, can you break down a little bit or provide a little more color on the sustainable kind of model that you're looking to build with the consumables? What% came from consumables versus equipment mix? I know if we see rescheduling, which we think is likely, that could, can increase the equipment side of it. But just kind of give us a sense of that mix and how you see it kind of going forward in 2024, moving forward with the margin improvement there. Greg, do you have any specifics with that, or you want me to take it? You know, maybe I'll just start, Darren, and pass it over to you. I mean, you know, what we've seen on a, you know, consumables versus durables basis over the last several quarters is certainly more stabilization in the consumables end of our business, primarily in the Char Coir and drip lines, which are our private label brands. I think, you know, Char Coir at this point in time is, you know, maybe our best-selling brand in our entire portfolio. So you're seeing about a 75-25% mix, which has been, you know, generally consistent over the last, you know, three or four quarters as we've looked at the business, and certainly down from, you know, some of the higher-end years or quarters, you know, in 2020 and 2021, when we were seeing a lot of build activity. So we do have a fair amount of comfort at this point with, you know, where consumables are and how they're supporting kind of the baseline of the business. And Darren, I'll pass it over to you. Yeah, Scott, Scott, on the other side of that, you know, with rescheduling, you know, rescheduling does come. There is no question that buildouts will resume, money will come into the industry, and we still believe that there's a tremendous refresh cycle coming. So with that, you know, consumables will stay the same, if not start ticking up a notch as people hopefully, you know, start opening up certain rooms that they've closed. But we do believe you'll see a tremendous lift on the durable side of it, on the lighting side of it, on the DU side of it. And we are seeing much more bidding, you know, we're seeing a tremendous amount of bidding right now on commercial products around the country in anticipation of rescheduling. So I think, you know, our commercial team has been extremely busy, the busiest that they've been in the last couple of years. You know, albeit it takes time to get, you know, to get these projects done. But the amount of quoting we're doing right now is certainly much different than we've seen in... You know, it's much better than we've seen in the last couple of years. Great. I appreciate that color. And then just real, one other: Where are you with the inventory levels? Kind of, obviously, with the discounting of inventory from competitors, is that kind of playing out here, or are we still seeing, some pressure there? And then with consolidating your store base, well, what's kind of the normalized inventory level that you're looking at? I know you have, like, $76 million or something at this quarter. And where are the turns that are kind of you focused on targeting towards, getting on the inventory level side of things? Greg, I'm gonna send that fun question over to you. Yeah. So inventory, we're highly focused on, you know, this quarter. You know, as we moved into our new European warehouse management systems, we loaded on inventory a little bit, adding into that, you know, kind of massive change management piece in our business, which we think went, you know, pretty well. So now we're looking at, you know, eliminating redundancies in our inventory and driving progress in the fourth quarter. You know, we think there is opportunity to improve upon our turns. You know, where we're adding inventory more than anywhere else right now is on our private label side of things, as, you know, there's longer lead times and demand is increasing. You know, we still have a lot of very, very good vendors domestically that, you know, we have great partnerships with as well, that will continue to carry their products and sell through. But we think there's opportunity to reduce inventory, you know, $5 million or so in the fourth quarter, and then, you know, we'll probably have more color on the next call in terms of what that might look like for 2024. Appreciate it. Thanks, guys. Yep. Ladies and gentlemen, as a reminder, should you have a question, please press the star followed by the one. Your next question comes from Mark Smith from Lake Street Capital Markets. Please go ahead. Hi, guys. Just to follow up from that last one. Darren, within your private label, what does, what does your mix look like there of kind of consumables versus durables? I would say consumables probably is about 80% of it right now, on the 17%. And we have a lighting brand, ION Lights, that have been quite successful. It is our leading lighting brand right now in GrowGen. But, you know, the leading part of our portfolio right now on our private label side is certainly Char Coir. And Drip is, you know, Drip has had a tremendous launch this year and is growing very quickly. So, you know, we believe that'll stay somewhere like that 80-20, maybe 90-10, but much more on the consumable side than the durable side. The only thing on the durable side you'll see from GrowGen is a lighting brand, ION, and, you know, again, you know, some people include fans in durables or consumables. We have decent fan business. The DuraBreeze brand has been selling for many years, and that's really the nine yards of what you're seeing. The only difference next year, you know, we are, we are bringing to market a single-tier bench from MMI, that we believe will, will make some inroads into the industry. Okay. Then as we look at, you know, potential growth down the road, what are you seeing in kind of M&A market for stores? I know you said you're looking at some that are kind of closures right now. What's kind of your strategy, as far as mix that you see is, you know, buying versus building? You know, right now, we haven't been 100% concentrating on it, Mark. You know, we've been getting our own house in order, especially with the launch of our ERP system. So, you know, we've had a quiet six months on the M&A side of it. But we do believe next year you will see us back. Certainly nothing like you've seen in the past. You know, we will do it slowly and deliberately. And depends what markets we're going into and what isn't there. You know, we still do believe with our distribution centers working, you know, and our commercial team out there, there's a lot of large commercial growers that don't come to the stores anymore, and we can ship out of our warehouses to them. So, you know, we're just balancing it right now. You know, if you ask me, you know, we'll probably add five stores to the portfolio next year, but you will see some consolidations from GrowGen next year, dependent upon the leases, but, you know, certainly nowhere in the realm of what you've seen this year. Thank you. There are no further questions at this time. Ladies and gentlemen, this concludes your conference call for today. We thank you for joining, and you may now disconnect your lines. Thank you.