Earnings call transcript Q1 2023

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Operator

Good day and thank you for standing by. Welcome to The Scotts Miracle-Gro First Quarter Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advise that today’s conference is being recorded.

to President, call Investor like DeLuca, to now Vice Senior Relations. would hand over the Aimee I Please go ahead.

Aimee DeLuca

of to first Thank you pleasure have would coming you forward I Aimee at you recently already DeLuca Scotts of and good lead morning. like I stepped in Scotts years to and Investor call. earnings to XX many conference quarter many am to and The I Miracle-Gro Relations other finance the strategy I meeting look you roles. after and It’s months. meeting more been over a and welcome

Hawthorne. morning Afterwards, Chairman Operating a CFO, Chief for Mike we share will Joining Matt. are me prepared moment, our well your call our questions. Hagedorn; Lukemire, CEO, Officer; new and this from we Garth; as In as Jim brief our and of some will and Chris and Jim remarks the Hagedorn, President open Matt President Division

today out interest of queue. follow-up. please I we of set else and few some with one additional the Matt a that already to the to to would you question stick I time In directly. quite invite see have many in anyone I fill have gaps who one time in of and people the follow-up up to like to me reach and some time,

With that, let’s move call. on to today’s

what differ from so to caution want materially forward-looking shared everyone I As actual we statements, making our results be always, could some will this that we morning.

that the Securities An is call the found the be recorded. and at Investor archived our impact results. be Relations our on should our with will full in be site Commission. being scottsmiraclegro.com. version of Please is could that which XX-K, Those familiarize range of available aware Exchange Investors themselves call risk today’s with factors Form can filed

let’s I over get Hagedorn. started will Jim that, and things to turn With

Jim Hagedorn

actions we I acceptable challenges and and that company the ability hard took the the that aggressive stated our to I morning, it our full was of business talked last had today. to on our shareholders. value This right-size levels Good to the Aimee. we profitability. choices fiscal and drive XXXX, for confidence our everyone. in return and Thanks, leadership me in brings team of call about to

net For exceeded U.S. scrappiness this season. confidence strong the load-in, goal of consumer consumer on QX, we opportunities Hawthorne in our within the consumer resulted total retailers of market. shipments a sales garden cannabis to and indicator the struggling strength find of and the to business Record an lawn in

is up ahead. sum There this will QX light way. I

We right in are the direction. moving

to do. have we are We more work on And once again, it.

Our the Scotts QX reflect Miracle-Gro. results within transformation

We as than very are a company year a different operating ago.

have business. We our reoriented

the are leaner but value. on greatest more We focused driving

have our We strengthened position. financial

the is to We highest discipline. all entire our Most are demonstrating functions company performing across levels. importantly,

me context. Let provide

with demand. tough working impacted engagement For was year first the profitable the keeping comps consumer a Consumer in high posted a in history. shipments QX, second are pace segment, quarter not that only retailer in we our U.S. we time of by ultimately where against ahead remained XXXX for

attitude. of approached have Miracle-Gro QX reality. show XXXX a not Scotts operating a blinked our performance They plan a associates current They winning What the and with numbers challenging exceptional more and do grit is they much our in are never environment. making our

internal targets. what of work snapshot accomplished a our Here’s hard our against

zero, of net times gross nearly improvement points margin leverage that basis almost sales forecast $XX comfortably of within of an million beat XXX EBITDA our plan, the $XX the plan X.X against internal million, of Net X.XX. debt-to-EBITDA by covenant against of maximum

year. guidance exceed the Project on cost original ahead of the for are Springboard, We overachieving to savings schedule and tracking

to We Overall, fiscal I it’s early pleased, am XXXX. declare too versus in SG&A but are mid to guiding outright single-digit decline victory.

to work do. more said, I still As there’s

QX for We and the massive the we success. year. effort U.S. it been season reaffirming see in and a business our a make are There company-wide the has for outlook full to how performing lawn consumer garden

tough to continues market. in Hawthorne operate a

return year sales, its although, increasing end. front, supply it bringing to less committed inventory. is on profitability excess about and about is by unwinding level, This to the hard and working are chain the more overbuild We this team

So and far, and warehousing XX% a reduction costs, SG&A by third. we have in achieved a reduced inventory

operating and the are optimization Additional in works. efficiencies

it. around provide our there I dimensions two to core more business color want as are to

and momentum with loaded and QX. building in making are accomplished all fully in First, sure this us. We retailers

with focus and Second, motivating products. online and QX energizing our load This QX. browse up our shop and and to in consumer the is stores to visit

We result same will in is did we Early attack both critical. the as quarters QX. engagement with

first we know twice consumers May, garden much category. in and make lawn as their spend before who purchases As the

lawn you This high reductions, promotions, last we told quarter despite our investments making enable would growth. year, I we spend year. increasing last stop over our to that cost value investments in and not doubling marketing are

be nearly than spend working in higher XXXX year and and Overall, more pre-pandemic will spend media our is year XXXX. higher media the this XX% total will even it Total than efficient be fiscal targeted. of

the you already Omni-channel the started campaigns, know, season in South. are digital underway. and radio, has As already activation television early

XX% where up We S Texas. in Bonus in two Florida the POS is XX% are past in seeing South positive in growth and the weeks,

the grass We plus are and XX% same strength seed during Florida also plus with in Texas. period in in XX% seeing

introduction Early formula. with And a new and partnering to begin new Roku In March, action her Roundup’s the Stewart we largest of will support is month, non-glyphosate we Gardens. launch with a Season Martha Martha launch Campaign. will product show, this Lawns dual history Miracle-Gro the National in

a examples coming. of what’s These are few just

coordinated early are and plan. media our X activations. joint our garden of have retailers, and I being X the times who efforts foot spend to on investments promotions POS. on times increasing in-store combined Lawn driver behind with in are and their year Our leading the is a multiplier can operating stand traffic

our who December Garth, on QX Matt CFO moments, fiscal became our numbers outlook. elaborate will few Xst, a XXXX In on and the

our revisit to want I strategy. long-term First,

are we our quarter-to-quarter, starting growth. a to business do we with are so managing view toward Although

five reaffirming strategy. to consumer Three growth the of In the fiscal to Hawthorne. others I and unveiled strategy. XXXX, the pillars business we a relate am the five-pillar

consumer the gardeners pillar of a who is of the On The the and us. pandemic our generator side, steady bulk entered still during category the mature, cash. new garden lawn are with

work tolerant and growth and We landscapes through to concert innovation continue our see sustainable to living with products. marketing, the This formulations brands environment. create includes solutions engage that and with consumers in packaging, drought

and A The omni-channel lawn is category X POS, to in shopper. growth spend an shopper, store, who that component shops online for and presence category includes retailer.com online e-commerce our than The a direct-to-consumer shop brick-and-mortar one second products. pillar as much garden in and direct-to-consumer, are used sites. in-store-only learn strong enhances of times our and platforms

and in platform have a we efficiency for to this improved personalization migrated XX new online marketing With tools our product improved content mind, we across brand e-commerce month, and visibility, and last enhanced and sites.

natural gardeners garden years in Consumer over edible over The lawn live two herbs years. journey. vegetables of and more and almost the past to gateway and for consumers goods third two purchases pillar XX% a intend have the plant next and their is remained steady

stations where believers are at well invest as opportunities we their grow innovation enhanced own. as and to consumers inspire to strong through retail with Plants We growing in will Bonnie stores, in more growth precision execute

retain competitive space strategy our in non-plant cannabis professional shift Hawthorne, I is Hawthorne’s where we to Number two-fold. now advantage one, horticulture. the and will will touching

We growers, provider distributors. differentiates are from for primarily us solution who the leading which are those

the in position player to consumer the Number two, cannabis we become largest second retail state a Capital, key New to will consuming through be our behind ourselves RIV space cannabis in investment projected in and California. York,

into network. Hawthorne, I and deeper explained how back we functions Digging office optimizing have are our integrated

focus. We are windowing our

are Just as innovating. importantly, we

quality first work technologies the British and on in underway cannabis our opened the environment Our North to are greenhouses. Columbia, R&D Kelowna, Florida a we and research Ohio trials devoted improve genetics in on energy to efficiency. Similar facility and hemp where scientists other controlled lighting, supplement facility is Oregon, in running nutrients, America yields,

efficient the R&D’s the most the work and to of led advanced ever, Gavita launch LED XXXXe. market’s

year’s the LED Hawthorne’s of portfolio WEGA North with indoor America is and growers innovate of and and last lighting fruits business. now sales Europe flowers. to continued surpass for unit is have WEGA expected one-sixth to We vegetables, in

on XX.X% through of industry billion some the by but is in about toward growth accounts annual trend the annually $XX an rate capitalized projected XXXX. indoor agriculture, U.S. We with a

by Additionally, option we LED spectrum for light the cannabis for can WEGA, modifying excellent an the make no-frills growers. it

ready One the it cannabis final growers it invest recover when be to will CapEx. in and point on will, does industry,

growers. be there ability in strengthen innovative turnaround. we solutions see will to to partnerships opportunities no-cash We Consolidation for and the Hawthorne’s and further to to high-value happening industry is value-added support provide the

RIV integrated includes an growing processing in of will to through four indoor is the side consumer holds I developing XX owns in facility Buffalo. loan cannabis integrated RIV, Etain a and vertically that New and one cannabis convertible state-of-the-art that operation dispensaries, licenses growing shift a our brand. of to retail the and York cultivator

implementing it value a potential. and this with will York in will prevented see the make near-term our developing York through. monster But which in a RIV. From is tripped become and reaching itself me progress rules, New over from in regulatory market its we has There perspective, clear, market investment has let New

we are the strategic moving have we summarize, adjusted in our which forward speed, To pillars.

shareholder that We strengthens to pace flow. we When bias. to on our from a are value. we shift investment control, free EBITDA shifted and a accelerated focused and ability will steady an back remain grow shareholder-friendly have aggressive drive more We to cost but cash approach able, prudent

across phases of quarter, we savings by spoke we last to When two XXXX. $XXX of Project the million annualized Springboard committed fiscal

million the line will to excess fiscal have additional that by sight We of and in commitment. XXXX savings savings achieve in $XXX of now full

year, illuminate associates. of times and determination business, the our our resiliency Reflecting the on these of and the like strength

have talent. We leadership and exceptional

allocation We processes, time our rigor important are at transformation. financial our and an capital bringing forecasting in to

to leadership contribute partners also a a to will our and Thank mutual banks. work Directors, I the been pleasure real has executive and been with of invaluable success. great and Their Board the the to thank team. team retail to support been our has and you. me want commitment partner which and It’s

good in and I earth. our to to diverse Through own express said enhance brands, help with is I lawns statement. themselves to true will and products on be needs. ages often their the people recessions, their all their us to leading consistently close to people as business in no is pandemics our connections and vision life ever. have there’s of this We of emotional Consumers this. turn better comes This have piece which innovation and reflected in to lives. gardens, times, meet today

Thank you.

over this call Now Matt. I will to turn

Matt Garth

consumer a Thank garden would Scotts times products being been of using a Miracle-Gro a noting my excitement firsthand a of you, X by in soil I and year company’s and like achieving Jim, to the lawn, begin and and I knowledge have Miracle-Gro Builder part applying plant hello, The creating have productive family. with everyone. great food. a long Turf

I warmly I joining, wound have and myself to have and been company CFO the practice. resources, interim sales, by was transitioned Dave Since expertly marketing, of welcome down finance human his operations, as he role. immersed in Evans the course,

far, have experience my open, accountable the reinforces so by summarize created To day transparent outstanding an and culture every we his and team. Jim team that

value. will The to proves, create and we this and in leading company’s the is future invest innovation also through long-term delivering. savings improvements and while to quarter extend focused positions the improve on significant discipline our Project financial collective As effort our Springboard strength continue,

softness Now let achieve savings of annualized X% our that QX than of million higher commitment. me more prior Record segment the to the with and of referenced, year-over-year U.S. quarter offset sales, by Project fiscal $XXX Jim end Springboard in combined in December the business robust to well ahead turn Hawthorne. the now expect early consumer year, from savings Springboard our delivered We first performance. the shipments

adjusted Net innovation, Springboard the times. upside of activation potential X.XX can of above urgency growth. our our the comfortably $XXX create continued EBITDA, direct with team into additional as the at leverage quarter maximum of and times actions consumer million X.X covenant within will towards savings move was end XXXX, we we and that

in to on sales. reflected with outstanding teams our on QX. execution in expectations, growth move with Sales P&L the consumer me versus partnership company-wide U.S. last basis were Let down strong Net sales on beginning the X% customer a The QX for sales early supply volumes and build-out. their some chain QX out in getting coordination including were the retailers delivering in year. and season

first load-in half, still than slightly be the to we the half year. our aligned of with For plan expect higher first original last the and

and X% consistent key our with our down across and quarter in XX% line categories. in The dollars. are four customers unit in First was POS declines expectations, at customers largest our units ending POS

grow expect grass full discussed versus and essentially we seed remain last and and units unit fiscal categories in other fertilizers flat XX% still we volume to to year POS product quarter, As XXXX. by

in performance QX. We indicates focus XX% are against the of call is our that QX year represents season tracking Early shifting that in we well full peak appropriately markets our and to Southern our our QX and than less season expectations.

the strong by the year, versus in expected a consumer the retailers. be Replenishment entered with and by slightly will units actions load-in brought retailer takeaway down prior we management year higher. As POS and inventory retailer driven decline half orders QX in have slightly the second units inventory

with production monitoring changes retail consumer our target condition with the we to demand align plans Our in year-end quickly we and levels. positions align are ensure act partners any to inventory

Hawthorne. to Turning

a by general yielded when challenges activity from become oversupply, professional uncertainty and industry-wide will retail grower year-over-year. decline was topline the This on more lower balanced. result and driven XX% stemming market Continued

would Our low-single estimated Hawthorne down to original for full flat guidance year. digits the sales be

Given a the now to whole, the XX% the we decline and soft as industry Hawthorne to start year-over-year. state sales XX% expect of for the business

many reasons about excited of the future are There Hawthorne. be to

prudent We for year, to run position are the actions achieve also our the the of strengthening future. by profitability rate appropriate taking the end while

the growth challenges Gross single-digit full more the now XX%, versus company, sales single-digit a was for a for XXXX facing. guided basis low margin expectation sales year is in low we fiscal full We down year. points reasonable quarter the is year. For decline expect market last XX to given Hawthorne previously the that

pricing, costs. conversion than expected targets higher and Springboard segment volume consumer against progress offset and lower U.S. and better Strong sales mix sooner our largely and commodity Hawthorne

by expect margin lower gross will of to offset Hawthorne in continue Springboard will We be volume fiscal savings. the decline slightly impact as that XXXX

are our one-third At we on goods the locked commodity visibility this the call, fiscal of XX% fairly costs on about our the total of commodities explained to a so total year. last about COGS, cost quarterly total point, As due on of are of sold now rest we levels. good inflation historic north and for XX% locked have

We diesel some The to pallets, cover bright working with underlying spots well like inflationary rates, while our larger in move and resins continued delivering pricing in freight dollar related urea seeing team commodities. with exposure. energy customers costs manage international our our executed and are largely to inputs has and to

We be most evident on decline Our SG&A a SG&A down the for progress or XXXX. expect now is from fiscal full and which XX% on to our is quarter mid Project we million line, Springboard XXXX $XX guided versus results, below given levels, last year fiscal single-digit year. first

guided is P&L, expense borrowings interest call to XXXX. in increased and further the Moving expense down million interest we interest to that mainly of up rates, higher additional $XX up to due

fiscal levels, to for Given the year. current be the million leverage spread incremental to we expense interest and now move in at closer SOFR $XX our expect

tax XX.X% XX% XX%. will we was the and effective anticipate ETR rate be adjusted The between and in full year quarter the

or that I X.X $X.XX year. we loss will loss where was will million compared on $XX through $X.XX a increase million GAAP brings last to approximately shares per for us basis a quarter $XX fully the of here share also diluted end our the with anticipate share million bottomline the That the note year. fiscal shares net or of by per

impairment, per year loss $XX an per or compared restructuring a million basis, ago. loss other with adjusted and million we $X.XX reported excludes items, share On $XX or of a which a $X.XX share, non-recurring of

factors, by and mainly overall year-over-year On was tax interest higher the completely total a driven non-operating expense. decline company basis,

a this million year $X versus year. EBITDA improved of loss to adjusted fact, last $XX million In

arrive adjusted at to restructuring EBITDA and in Springboard are other related our costs operating from include GAAP integration financials in loss release to press the quarter net non-GAAP Adjustments our detailed including projects Hawthorne, efforts, the million and initiatives. ongoing $XX

$XX resulting expected guidance expect to timing Hawthorne We to growth impairments. We depreciation capital the increase lower and are given year adjusted our single-digit EBITDA less expenditures adjusted in year EBITDA. adjustments than mainly in due than year full million, full expense, full be of low in modifying now the

no on allocation me $XXX ended undrawn and revolver capital risk turn approach. refinancing to an million the in near-term Now let over face quarter update our with We capacity.

stay the this capital to seasonal our and financial We expect manage year working within through covenants. build

We to will direct a our free flow cash down, net the below debt year fiscal targeting leverage XXXX. ratio pay by of end X

short in high million $XXX of CapEx and deploying return, requirements projects. maintenance are We funding payback XXXX

also outlook includes support dividend. Our our continued for quarterly

deliver ensuring to SMG. sum, leverage In capital at drive growth fund capability discipline tight and we we and while long-term maintain innovation the down, will

I keep risk. that in not have guidance Please without mind provided is the

diligently are the is driven Performance fiscal back half largely our consumer within what year managing control. engagement. our is in We by of

with prospects season. have value and creative customers and lockstep Jim’s in the early aggressive I growth and consumer potential for Hawthorne to long-term in excitement activate shared for business. is that creation plan We and the an the the the about our throughout also

me first context. year. close of in QX I execute. team ability confidence the of by less full have year is peak place our let plans have putting his to The into in our and is and fast XX% the the approaching put And Mike Lukemire of proper quarter we than typically and

take that, your return I will questions. the to and conclude Operator the we With Thank call so can you.

Operator

Jon you. Instructions] [Operator Our question Blair. William Andersen Thank with first comes from

open. Your line is

Jon Andersen

everybody. for morning, question. Good the Hi. Thanks

Jim Hagedorn

Hey.

Jon Andersen

about to the reads And your ask marketing second plans. more are particularly kind two lawns a to the One, lawns a that part enhance U.S. in anticipate recovery is, you and business first bit might guess, the wanted bit the the love talk I’d little little XXXX? There of business hear I about you business. the in any in, season more that confidence on parts. I can consumer early

about a activating the season has been important in of lot Have how it the successful, taken country approach that you. the that in across in leaning of some kind the talking are Thank around consumers past, and that? is. and details are You early you what

Jim Hagedorn

-- to -- this -- budget to have say, with like tell and you here. the well, try whatever. Okay, The it in, I I the going or John. people a Hagedorn let’s put first, start one. answer think, I can I but am not good is sandbagging people been we to all are questions,

basically entirely flat, conservative need Northeast, our down is think I again, go putting Texas, year. weather. California, on we sucked by almost Midwest, was lawns which We are and [ph]. remember, XX% view And that pretty through to last don’t it

The so plus zero XX are we lawns, for with -- else. everything

So we who us challenging don’t a said, think true the is number, I same was challenging think industry very think, the have we just have year I of us because a for been particularly many time long in and in a it agriculture. weather

season early anybody who’s that here. we speak lawn actually truth So I think, The on don’t pretty look numbers know, Mike? following, good. the I knows

Mike Lukemire

XX%, mean, weeks Yeah. No. two it’s and promotion. -- I It where moving. last really the is we are apply XX% up

Jim Hagedorn

So lawns we do to mean, lawns -- work. we I need to need

of Bonnie kind think, very seeing positive I addition, is like In season. similar numbers, early

So so think look conservative I season early think pretty it’s far. good I part and of the this season -- early numbers the

the talk that, say about runs you I’d Patti want Patti, So like to brands. --

Patti Ziegler

Good morning.

Jim Hagedorn

You -- want to no.

can’t. You

Patti Ziegler

our activity, the the we with our the working in we and pleased seen already and team, well particularly, have and season a in SBU we have product bonus offering about are, the leaders marketing with retailers. season which we partners, are really early The excited partnership with program the Okay. South,

about out that Savings more know our the reflect early pays comments And -- in We are program their named ahead in and are Black [ph], season spends the retailers consumer we that the getting we doing Friday the season with and of very earlier even early partnership to is Lawn in category. launching how Jim’s promotions.

stimulate going support excited of continue do get potential and them So to to we category to this will what in it. the and we are the the consumer, it’s program early about

Jim Hagedorn

spend real And is the high.

Matt Garth

Very Yes. high.

Jim Hagedorn

So nobody here. around is messing

We work. it I wanted to want think work. the to retailers

We are spending it. behind

the event new regular on with season. at advertising, the a the new beginning replaced and Scotsman the we sort personality Scotty We the of big have got talent lawns of

are fire And I Jon, activation before had we So what waiting dollars people we looks and last early. the just weather. was part and year where of not and a if of sort year, of weather gets there great for bought, our think had late my that be weather never cool get is we we the to -- and we to happened point lawn a haven’t big people getting kind out say, it’s reason wet, anyway. There’s them in were

but little very spent bit against it’s well coordinated very the of back So future to a it’s and approach, being a heavily.

I So good I moment. pretty with think, POS, think and the feel so consumer there’s significant no at says problem it, we far, about the the

Jon Andersen

Thanks. you. Thank it I leave will that. with

Jim Hagedorn

you, Jon. Thank

Operator

you. Thank

comes Joseph question Altobello next James. with Our from Raymond

line open. Your is

Joseph Altobello

Hey, Thanks. Good morning. guys.

Jim Hagedorn

Hi, Joe.

Joseph Altobello

on this. question consumer touched retailer a guess as well, you inventories, I on U.S.

of be Sounds your to like little much that are they a heavy, might how this year? shipments

Mike Lukemire

plan, would that our that, there To problem is pump. with I no say

them are they but just a we our want so tighter, may POS based down in at, And baked look. conservative bring that’s little we looking a in plants, on that

So significant they not have of amount talked about they really have inventory. a

Matt Garth

lower what into we year-over-year have Yeah. that plus came in prepared the the POS, my strong had we come was, retailer Joe and inventories up. I those low inventories with and year said December with remarks,

However, year. were last the retailer where inventories are they still below

Mike Lukemire

Yeah.

year X% are below same think I the we at last point. like at

Matt Garth

Yes.

Mike Lukemire

So.

Jim Hagedorn

And positive I a conversations Joe, think internally, that. we first went here, a of clearly quarter, had into the work lot

clear he’s plan. came pretty changing that that half sales load I think been has his really Luke not first in

are not we So additive. its assuming that

think for but... Luke has been I the time conservative first So ever,

Mike Lukemire

running I think, because of out going I but I worried it’s be to product, know. about good, don’t am

Jim Hagedorn

we hard are type. supply keep the working chain that, That to is may issue, just be biggest Joe, our just really

Joseph Altobello

And this outlook was, $XXX That’s call three year. business revenue Hawthorne, the of it, million on months maybe Okay. ago, that helpful. for

roughly looking Now we at are million. $XXX

gotten the for assuming what that that million, XXXX? sort segment and changed last here in loss in mean much revenue one, you of of of it’s have fiscal two, some $XXX worse do dramatically does months. So pretty recovery, couple things expect I or guess,

Chris Hagedorn

Hey.

the Matt sort second really there still I It’s Chris. marketplace, didn’t will this part I an our some but the going we assumption the obviously, and So, latter recovery Yeah. of it’s will had this Joe, in take assumption baked your that we take in. part. of into the recovery first let is -- hoping. of expect year see plan materialize it to market earlier some way quarter the part have in been We it’s that

I worth message out and I over reached plugged mean, at thinking the very here the feel prompt about time. I we close in it’s to Now, you and He President the General I know yesterday to competitor want and in hey, a this with got wins business let time a of the been and -- text a was into stay the Hydroponics bought ours of just my noting, me said, back long you out was from is years industry. for California think, -- [ph] first yesterday he this we and who when and CEO someone someone that

we starting the traction, to obviously, going some the will start part. last checks. are the we gone, year is Matt wait think, So plus that gain to I hear But has to but our with we rumblings are beginning second before and industry counting take I way seeing the let signs, some

Matt Garth

perspective, a profitability a we projection EBITDA from calling for Hawthorne. really or year additive to significant And our increase weren’t Yeah. coming full on

doing from to positive revenue where structure year, and Project EBITDA some to are the last Springboard were to contribution. efforts us bring we demand a through that we where with from component, coming was the remember, realign going you cost If

topline going revenue, hovering plus it that . the we X to through Now with a brings sort the that down of we as around to breakeven and this year. rest continue of so go little call on are down bit navigate

just mitigate And come. said, there, Chris further downside are may like kind any that whatever they of spots bright will

year sort is we XX% of rest the split difference on first down that that up the XX% of coming through so are the some outlook again XX% quarter, see. positivity we for quarters that to a going calling of and So we off

Joseph Altobello

Thank guys. Great. Okay. you,

Operator

Thank you.

Our comes Wells from next Chris with question Fargo. Carey

open. Your line is

Chris Carey

morning. Good Hi.

Jim Hagedorn

Hey.

Chris Carey

consumer. Just I just wanted U.S. to confirm

So half flat shipments the of the front year. for

really POS the you to organic it being -- business consumer and year, sales are and with digits margins seeing to to going away? that other re-expand year things high-single should are is for U.S. business and and much, to for for the be impact are maybe you up up specific, saying imply of that would in the you QX outcome, shipments in Is expect track full the growth be be still Just expectation this going in the would shipments sort are down obviously, with commodity not the below. able U.S. the that consumer shipments or

Matt Garth

we overall pricing So we detailed you through that you the pointed put nicely. year-over-year, the press carrying me seeing down on are very for is quarter, are that and clarify pricing. you are volumes something the That through there. is through What calling as When but actually in we let pushing the topline. look we to see release, in call last

to to that $X that QX. forecasting we revenue. at up that, of So, will be on we year kind going the from spoke into that the look $XX also first we and are to Jim Again, that as what quarter. performance first we pulled slightly quarter QX in million the half are outpaced probably million Jim you second said of thought if we to just hold move

that out first really a strong So proves half.

but However, down really, shipments, that again, volumes meaning pricing coming through. slightly

showing the for the stand later Northeast demonstrated how engagement. spring in that’s perspective, performing up. of that this to the season One, consumer good to and start right well two to From been and in and from are and and parts absolutely I what’s Texas speak components. we of the things performing to and signs That country other going here a heard POS as the of country am early you areas you from Florida, where warm in leads season

operations, a for POS we consumer made recall pricing we at looking should still good just come with be our Again, very slightly at Mike adjustments in a product this to very the working that is the a down, we stronger. as our POS have to come said, perspective going help and in need and producing they from to a ensure point will are level, have level be so lower customers to closely but us that again, strong, at should cash they that

Jim Hagedorn

here. But of would am as of point struggled, with would for I view Dave say and forecast put not pretty I we Jim together from sure heavily this. on my XXXX. think, say Mike -- what we I But kind our I

plug just we zero is And or minus Mike related, also just and lawns conservative we conservative put XX was was a basically thought and we anything, the and which consumer I it’s we number safe. wanted and weather sick on thought after think in to XX, not plus because

were we we that so revenue just are personally and lot I a So looking -- are wouldn’t safe read build to the in we that. numbers basically

we it next lot I to consumer think how more call, is are doing. going the a know

Mike Lukemire

Yeah

Jim Hagedorn

not We get I what was But wanted not internally wicked and forecast. were would everything. wrong on we -- just commit a much on the to to our too precision discussions to side into try put this pretty of

really after last flat what year. a was wanted we to put really confident because crappy number viewed anything we not just have just were other as a the So than we year

Chris Carey

-- so… makes That Yeah.

Mike Lukemire

Yeah.

Chris Carey

the …when you in mean half your shipments organic of you the to you are just expecting front clear. volume flat, say flat, year, be

confirm I wanted to to I that. Sorry, interrupt. mean didn’t just

Jim Hagedorn

No. No. It’s okay.

questions are the and answer. asking one we the to here are You

Matt Garth

the about half first guess, the slightly But first are year-over-year higher slightly in we going to the Chris, is that I across volumes gave, I are half that outlook all be specific topline. be just categories. for when talking, the So on up to

Jim Hagedorn

Great.

it. The here Somebody wants say, people say are motioning. all to

Matt Garth

good. are We

Jim Hagedorn

Okay.

Chris Carey

Okay.

glide right? Okay. follow-up, improvement end are by you neutral, that So the and this you and year, QX segment, of for by you to saying that profit the running the that effectively the path so now a in profit And segment then, then running be just negative. Hawthorne between are are you as zero fiscal expect should

for ability So on the you prior the view again, do and be me. to U.S. of margin, So, just down year, the the it question? the is on end by get just flat on idea that, consumer any up or to that’s have then

Matt Garth

Yeah.

out are the in think segment profitability are that’s, you first seeing obviously, Hawthorn. I of the quarter coming you

be move going get to we bite uptick. So, we yeah, at the apple quarter as I think that in see some here improving path second the another start year are we through and seasonal the glide as will to

you abreast through next happening but quarter. we and yeah, the we of make keep what’s as improving year speak way the Hawthorne time our in we full So will outlook there, progressively

to and running we higher it From have position to perspective, think start that saw to what you place year, of in U.S. were a and that early XXs, what communicated expected, good performance do. about to gross had take to the be volumes the production had in mid-XXs about combination you put out going the us well to actually line a we begin coming team, of we last in the a originally sort we margins lot is as U.S. I are talk what that the have terms in business, like that of able versus have and recover back costs of consumer to Mike a The out facility. margin efficiencies the seen margin of type how think, those consumer you come of

have can our And called and on year. other some maybe to we happens that, about going that That’s we just time come and of of watching is down the that that we going said for what tied up. Remember, my this side to like commodity COGS I prepared in be with of so already and XX% the this get year. remarks, component

be good move those margins forward. pretty to but as will this us So we progress back year, outlook that helping for

Mike Lukemire

No.

think as commodities it’s the going to I adjust. recover

costs as a well. out We of also bunch have

Chris Carey

Yeah.

Mike Lukemire

is -- a for us. factor mix then always And so and

It’s So good mix. strong season. a lawn

to am I going back we optimistic pretty time, yeah. So are get there over

Chris Carey

Okay. Thanks so much.

Operator

Thank you.

Our Eric comes with next question Cleveland from Research. Bosshard

Your line is open.

Eric Bosshard

Good morning.

Jim Hagedorn

Eric. Hey,

Eric Bosshard

I Two things, could. if

upside But all, structure business beyond consumer you the this operating reinvest wanted XXXX, of Matt, of that? off business sustainable into the customers as to side. in and a the serve in obviously, talked saves little First in XXXX, and how do you levers you structure growth trying the to XXXX. of and drive is and on cost ways business the in have sense XXXX think to the mostly dig out about taken of long a got in have of is what’s a to then just or SG&A I amount am bit back about SG&A go I XXXX to you to in just and the get to into XXXX, much we and

Jim Hagedorn

I least. am going start at to take that from Garth to

merchandizing at in are force, there. we look you good If in-store sales our shape

shape the are that’s we happening in there. innovation If good in you work at R&D, look

a We We pillars we in except, people. we what you hired team a of are than you these army. issue that biggest might our is lot chasing were definitely was, did, remember Eric, skinnier five

people was a of feel was of sort has to kind here, think better are a but -- are trip. starting PTSD like been -- there god figured we So lot This been of here. back. -- I I around it’s dam It

to where lot think and lot teams we not of have that’s building, bunch where and a we things back doing. a are that, think spring that we I doing are the at have of a But this be. smaller, gaps a in we be Hawthorne, think pretty plan in should I we lot to much fill I don’t

think of where mindful really to it. we been trying have spend money the need to I spend we

In-store up. dollars are good. Marketing dollars are

well think sort I think and more we committed And see of and will everything that there’s at I cuts we saying, is you XXXX. sustainable do I are pointing not to we in we sort G&A of can that’s, think Garth pretty what have to that think, configured.

of any teams really people. don’t think are we But need lot the I saying a more

side. you there’s were it’s my careful pretty lot different are think now -- a of here hallway, we in if on a look in, I my we people lot --

much I to can have business think who think the were are who been people tighter careful operate people this we stayed say we before. very than we

And we unusual. think really growth we that growth. I the were don’t it’s chasing were

we like people acted up I companies we set the talking think were are anymore. to that. not now they and now careful if of it, lot But pretty who people like way about right here are select a like didn’t they

would anything Mike, you add that? So, on

Mike Lukemire

No.

But we or we lot not efficient. of that more that growth, it’s foundational we took believe and things. think, we cutting more to it measured I be still a of mean in How things will just lot marketing are of COO. ninth President as get I our and in growth. the we growth, are readjusted. first we think there sales year when invested And fundamentals my and then build over, a we I want still streamlined. chase being was pretty I the But streamlined We we are have back,

Eric Bosshard

perspective. to when like or the Okay. same you That’s I -- I bit world helpful. the -- still we your I still you quarter And ago, the committed Jim, figure dramatic invested understand the two then wrote-off XXXX XX%. the Hawthorne, hear write-off pillars. second pillars has just Hawthorne isn’t little little question, year I basically ago pillars, you am vision, sounds business. to think $X put had to better it’s guess Why to had years A it quarter has those mentioned out by wanted on revenue changed I to a you in you target world this was was into guess just this billion are surprised this to from you the capital down in you the maybe business, two changed… a two it I a say when trying your so commit that took I that you

Jim Hagedorn

I No. it’s wouldn’t same. say the

have anybody we blaming victim. listen, we so think am business own I run and acting like -- not been our a I and

am what But we don’t I for So that of paid kind misread business. saying.

a out has Well, We was don’t of Forbes know or that the it going like still Fortune growth bloodbath. I years it’s It been. years three sector. believe in that cannabis is bloodbath a there. the two or be to

And pretty we our myself Mike we down pillars. invested do sort But there at gets be? Chris are the in mean business. with Garth to who of and saying, of look we I coming to and want this carefully and and sort

single-digit group but just rate we and of this said, be the And equity, think it’s a there says. little best low I in Scotts can of the kind I value -- basically be not people it company who growth and of here a the is was chasing should we

What get we we from get from live goods, We Hawthorne what for side paid we direct-to-consumer, what we wrong growth. of And that. from on the got is get that.

pain we -- the question for set taken just have throw it. it is, do the on And We fire?

where Hawken, Smith I that. XXXX, with crisis we economic & had a the bought during situation in

deal didn’t with of together It way screwed I with think up Depot. a we weird had Home a thought in come kind Nardelli. we had

and don’t But & forecast Smith he need profitability CFO nobody you is together Jim, we to was have Dave back contributing. it then, said, the for look, putting here, make on Hawken. & a And Smith a everybody is and decision and Hawken,

sort auctioned is & it in He same put I I or we We not a me Smith that experience. today. it Hawthorne was pieces I the on -- directly Hawken that and -- of burnt situation. off and thing. regret it bad pretty

Hawthorne right to That am than is could Hawken million. was just it clearly that we need now. roughly of you If or chain half of going we $XX Smith is up & north say worth. call bigger profit burn the I supply that by a setting of

lot that’s a and there lot there get there’s and It’s easily think this of margin through we So to a will. I can you have kind happens, this think got think we back contributor because chain. sort that stakes and because hard a view to and opening of and we inventory I pretty of we supply of think resized work of a I it XX% my kind to be EBITDA business here. get of And

York. about possibly say, worse was that can remember, business on up a than poor got But we screwed the policy. went But I lot could you California it’s at XX%. New mean New a recreational believe you blame myself, they to country go entire down California, I and growth public there’s in in it of do York, this that get. very look think I that that and happening in what’s is in all

occasionally challenging do and me reflect if safe federal because would normalization So much I and I -- if has have I -- didn’t we lot things would than happen do been we thought think a by want that assumed of you That more think happen. thought. now. there’s you banking we to But

the at it’s you far that far states permits require. look in as -- up. It of Michigan pretty and think just excess Oklahoma issuing I what as screwed

are growth space, just in invested can the it view. rate it know that’s will we excess grow, we that that’s we of show growth consumer committed are think and profitably. business we don’t But we to we think it fully in and my a I need to that we and through ultimately, us the seeing think without do what give can

Eric Bosshard

No.

Jim Hagedorn

Garth, you got different a view.

Matt Garth

and you through said, a as fairly team frequent on go And down a basis. as not. sit this we Absolutely

aware now, Chris, this, I backwards. am You right of Eric. you moving I very are and are think, Yeah, Eric, I sitting Oh, have been sorry.

not -- of Jim the are aware been probably, advantaged outlined, You this. have industry as position. in just The most you itself,

strategic the And what line a put time have, everyone for think proposition an do I in However, just a saying we it, very and unique. in that that it’s has the somewhat customer the this thought. business that than longer good we industry position place that is not you is fairly we we me the have, we all have position

position, said, that are prepared others feel some not remarks you this talk all together. can an we heard be opt to that in in who his are but and advantaged out Jim there may with also given up there bring position, strategic what market in being we for us, opens the which we That we benefit are

that we from strength a So, are do. perspective, of and business just strengthen this position in you is any maneuver what winning it recovery market, to holistic type our position looking up a is how we a set you how through looking at and how on

Eric Bosshard

helpful. That’s very Thank Understood. you.

Operator

you. Thank

from with comes Andrew Carter question next Our Stifel.

line open. Your is

Andrew Carter

wanted morning. like Good to completely into it Hawthorne about I ask know digging Thank decline. incremental. I XX% you. just Hey. the Vegas

sixth. said I think you

in you that of kind making versus this a that could outlook quarter? topline is sixth of and your also also focus kind Signature into in or in for kind dig incremental. how of you shift is reflected But are year So of rational much the this kind non-distributed year non-distributed and brands of Thanks.

Jim Hagedorn

Yeah. the smart Hi. guys. to it I will leave

Matt Garth

Hey, Andrew. Yeah.

XX% about looking side are year of a Signature we Signature So the distributed breakout this on to things. at of

continue trends that new to and lighting drive us. for So

Andrew Carter

But -- question you focusing distributed? as focused on is, the products are your you are

Chris Hagedorn

is, is numbers give Andrew, mean, Aimee again follow-ups. Yeah. philosophy here you it’s and look and are really focus Tom, can specific and the Yeah. and we Chris. we this more and as more the market more of But that the I what certainly, philosophy towards Signature Matt on which how at towards certainly is is constricted frankly, our internally brands. owned Plus has to focus evolved, past over the model, much the are year, and to here move we as calling moving

of that have we we and proposition a parts distributed our deal of like don’t some don’t think feel have like us, are them. We customers our we essential value brands great then of there’s for we unique that currently, Quest parts and portfolio, relationships other on brands our great dehumidifier. least, These require And that make a with. but offering at money brands again, products are

of say business Signature are been a our right really more we period transitional slight a distributor a a emphasis what I’d Signature much So brands to now in on from offering. moving with has

Matt Garth

Yeah.

Just…

Andrew Carter

guess. I

Matt Garth

thing in makes take sense brands of continuing us out look the of also a the all to on pieces the that focus … the to that where doing we own, Andrew, have the innovation terms key stay close in we right a to continue for hard partnerships key we brands develop the of there other for the there grower. are that category and developed, spirit to really at that

Andrew Carter

you. Got

be I I question guess, the will guess, better. my -- Just say clear, I to

So that go is show you to bit expect quite split, move that asking, a and one meaningfully was guess, I an I any what expect the associated do down of probably. I much sales, kind not XX% that was added headwind do to headwind? year, XX%-XX% asking, split through to might that but That’s i.e., up you

Chris Hagedorn

Hey, Andrew.

steady, going year, will is months the so to of the distributed XX the or XX% to be expect see the say, will I balance over of, we it significant will ratio. Plus distributed we more that able away next we sales Again, a choosing sales. of with towards the Signature and that that relatively think, replace that shift move course remain will we something probably I portion be signature the think for to from I’d be is

is terms dollar recovery from expect what of considering step topline profitability a are see deal each that’s but huge more good what and overall a in per to for So back not in dollar those on we we hoping the marketplace, not sale. terms of sales, revenue in again,

Andrew Carter

on. it it. Got will Thank I you. pass

Chris Hagedorn

Thank you.

Operator

Thank you.

Chappell comes question Truist. with next Our from Bill

open. line Your is

Bill Chappell

Thanks. Good morning.

Jim Hagedorn

Bill. Hi,

Bill Chappell

Hey.

said that guess, was of problem significantly was looking line was replenished? be demand retailers there am problem that kind you a part with that more expected out of of timing would And last a and things. inventory it of in than a few I didn’t of at Just I would little the XQ, inventory or or so retail. at also you back this One, order I assume year, had said there better was You stocks confused you shipments? of then

said there were So had and came think I shipments that XQ. then in some you XQ

less understand kind no are or -- help a, just is more of So [Technical will Difficulty] a me out. this of and I good ahead it’s we really like, plan starting start you am

Jim Hagedorn

All right.

it although, understood, think garbled. somewhat I I became

you know phone, are cell Bill. a So if on I don’t

going very to in sort so it at a Remember focused of had we lot was I in quarter be. than least was the I think we we quarter. really thought was on December, the leverage were managing, that better

Christmas retailers agreements period a of kind really orders that fantastic the that little better. before rational I first a cold I out our But by not and to think out. a challenges load. probably not right had little team it became get painful that a came we but did much, million without supply had half got in think chain bit bit we We job We with and on better, $XX said them shipments where was managing

and no problem think can entire fantastic sort credit -- of and that that inventory I Springboard we we to work, the give have don’t there’s real under especially one at you the the an And had out did retail. all person the think company gun which at orders was I down to a in challenging regard lot get It of effort to. that expenses was people. decisions a drive of make, through company to our very sort

a we lot people I well of and steps who had just it So this know company we and think, that felt I two challenge take a company and get good year, a this I things company that step that us the as do, think were was backwards great for like thing you those well about a last with a, is quarter think, and forward a group. -- operates the a it is

all at had the result expected. the was of that together So that a we better to end quarter came than

big X.XX success for good working for to for a coming to within leverage a gotten at us. be to have have lot result really they us going were was We X.X written And -- us. in people is thought stay of where was I it through a on this.

and long And all But were sure inventory given for our tightness as and side, -- our we could back team product could excessive load our retailers the would work. it get leverage had and our agreeing we would what execute make is numbers QX getting we of not QX the the in natural for load. team would sort our to as fantastic, orders that we to needed and did in But this on of and that goes load, commitments for and meet retailers us. our was a

it a So was I I don’t think know. good result. Mike,

Mike Lukemire

Yeah.

Jim Hagedorn

to numbers give a Springboard credit and view -- any of to people to had lot Springboard a and what very day-to-day is the that do a the meaning noticed this are everybody because give at I Luke cross-functionally said, had of who credit deviations is I intimate to -- a be to running lot immediately. they

have the And not the sales but we past, and great. were. was side requirement for did credit where And of at for and deserve the operated a of supply you then side Mike, business that. that the the this operating I ton marketing a chain, site, in we think think I

Mike Lukemire

working want And with I be retail We partners to No. all ready. our think us.

of gate to earlier. get We are spending want the fast. out We

be have We inventory do not ahead done. the to there. we store I to in that get think now. right chasing want inventory are want and of sets We We the

consumer So and takeaway. the so then we want

Jim Hagedorn

a -- -- spring read thing, which of to easing weird another that, cares the feels just little Everybody a like about, bit about Yeah. got it’s I the Bill, the wants of everybody has think. papers, concern I season. kind retailers up that’s is sort you think,

think wants the to to the partners I do, merchant happen. you talk everybody you and season But think, if probably I

are away lawn accrues focusing so And they much to not benefit from very and people and and backing on garden, garden us. are that lawn

Mike Lukemire

Right. Absolutely.

Bill Chappell

And past of you gateway on Thanks. that talked mean, I that Bonnie, ownership of the majority have then two has know plan bringing I of of your you about business years But kind the it owned specifically in. underperformed consumers I or think it… in had three terms of it’s

Jim Hagedorn

that Well, was…

Bill Chappell

… or on this that’s something year? is it going just different

Mike Lukemire

and not We down urban say, execution the flower which was that some vegetable there. whole well. well, wasn’t -- would as into expanded did I our market actually go and was performed

you indications the are in about are mean, sales away. it’s with see really But So much out more focused getting going and a bunch plants of to early we us getting and integrated on field I throwing are, execution out, Northeast. not our

So from focused. I year good am Bonnie expecting a very

Jim Hagedorn

at you -- you enough. years, of fair if last mean, I look couple disappointed? been have But Mike, But, the

Mike Lukemire

I have our been disappointed opportunities. so especially expansion in

miss our execution of I opportunities. very not expansion varieties, there. many good on some So, Too

Jim Hagedorn

change of And mean, -- do. And wanted there. of say lot doesn’t We by a this that they at -- I and what in and been, have team happens them got in mean is volume harder. I a pretty organized and at I pushed this our it is business think the lot to stuff. they a against Mike know… learned think I fault. our the Bonnie the huge have what at that that guys think a are we on and group and has and we lot the way, of business part down partners and I is their But into But AFC women think,

Mike Lukemire

Yeah.

Jim Hagedorn

this to have achieve they … year.

Mike Lukemire

Yeah.

Jim Hagedorn

to too lot a and a change was Bonnie it try at little much. We

to X% but a for U.S. it love path growth, the I X% business mean tie-in I for consumer and that it and and the is our beyond still a is together execution future gateway So which is with the us. that has growth.

So not it. giving up on

Mike Lukemire

Yeah.

Jim Hagedorn

We just are pulling what would back. better is to I execute say. it We want

Bill Chappell

couple help it just second if of you [Technical Difficulty] in be one -- on then say understand you one into you times, consumption. biggest York invest I New And a Hawthorne that mean, market to could why are the Yeah. can me that further last going and

biggest already in the would consumption, say Some it market it’s second is just illicit.

does and next does how change they California, and that four Michigan years become how if benefit years? an actually the by supplied so still And and actually that Oklahoma don’t or you get opportunity and five over Thanks.

Jim Hagedorn

anything going -- think. in to bodegas their do or Wow, in problem big it’s the the Canada. selling for problem That’s are last, biggest trunks you to not that’s to big state going cars be a is save a their I if one out and or I’d and start of by people enforce.

out And that backyard industry business And the selling thoughtful size the of you market the in beer being there’s a It’s a the market stuff making good the should and their and in plenty much other rolled of sort example people way. how is roll of in -- is of history, of have out. to take chunks not a more cars. Colorado

that starting and allowing they spent or a that the have we the gotten So that, from justice side can will money. the believe they in rational social be I with the it the and is say you who legislature people permits think make market money actually big governor

mid-term like there’s business. think in any short- don’t that I or capital requirement that for

is and that the permits one in $XXX sitting And million I York of properly business think maybe had excess capitalized. -- in few is of on in that New cash.

business giving is capitalized on and it up really it, don’t this accomplishes. just know what So I

own shares RIV. in don’t We

we in RIV to don’t just that a sort right. are investors that as talk And loan. view believe creditor we RIV. I that a this are also partners marketplace our that, is We want of to to

talked and We the NASDAQ are have exchanges, we which can view bank list on with is It actually bank this of federally about it allow that don’t These doesn’t have know market I can internally parameters. we simple really and assumes normalize got we public as with on this or plant-touching it very to matures a ability have that’s NYSE kind of the of companies think I assume relationship outside, touch that rules plants. and that our and if businesses legalization exchange crazy. sort meaning don’t conversion sort conversion. this that to U.S. relationships banks, the

and people holders, But only we creditors senior monster sort I are But we tells most are the to equity like business, the think of is, are creditor business is creditor. market. a that is we what but we not, the capitalized. that It act

not multiple state. are here. We chasing down states We a we say big won basically

I think, knew you guys We on, kind this. early of focused and

New York, Jersey that you New it. would license. say for in to very overpaid states big we the landed be New one of It easy York, or

would not head that. probably think I we to our

doing. think, where are are chasing that’s are. is we we and this extent the up and think. required ultimately, to don’t money going not But But worth we not and where put see more we we capitalized it’s are through we business it The to to

If York listening but who with New out to footprints that’s amount moving actually and the advantage are have the come other the like would their in here be but invested some it’s their billions try but doing. that and for us worth frustrating, dollars it’s actually we been the MSOs would they helpful, money state people New York, invested, in of of give ahead -- -- to actually It’s just rules want. of not

I every say time and to And we ourselves plus think we in. are

in are add Actually, to have hang them. through here you want to us no to this with for in see Chris, this? anything there money there’s like we it’s So not They to got and go. and be default. going They the are on

Chris Hagedorn

Yeah. Sure.

am I I and strongest of has attention of, the think you industry. of business and balance RIV, sheets it’s which I that not great company. most and -- Board to of one the cannabis look, RIV But said a on pay a most deal unique if that the in it.

time. on, need investment, further touched not Jim As don’t least some for at they

a think, right into And York, there’s something steps not there. and New anyone to the course thriving illicit the a bodegas down yeah, persist we that corner in street who it’s sees over many Manhattan now, That years. expect is I of walks market look,

it their not legal dominant market share take more be to the have of but to the standard, of will, we in market, I disposal. -- resonate there just state, be say which the When positioned than becomes wouldn’t the are they the at to resources just their fair -- really believe because

something bit, the the it’s think, and knows we pretty on who’s I had and about in have remain out of But think it’s but cannabis place. side really commitment So is discouraging the upside it. still the the we anyone seen, last my has on course, as year industry, moments, that been involved enthusiastic our a has in side it remains that pushed thesis little firm a certainly I end experienced

Bill Chappell

Thank you. Great.

Operator

you. Thank

Our question Gaurav from with Barclays. next comes Jain

line Your open. is

Gaurav Jain

I questions. have Good a Hi. few morning.

restricted I bond you the and open they debt payment years cash deleverage so restrictions to next have buy understand quarter the can it with free on can sort leverage can billion because it this million and market. of this literally to look company per leverage. of in and $X.X and $XX of about the option accelerate you is the the you you at I buying retire comes higher of is are an of the think when But trading that that you bonds, generate the two dollar, will $X so in billion at one like $X.XX flow So

looking options those at? are are you So

Matt Garth

Yeah.

I that we think use we going flow to are have to cash to deleverage. a number opportunities generate free of the

through. opportunities what are You of our the going is and of debt what is go highest one the and and through named cost practice them what just determining we

we flow it down. rates, the direct So free is as highest pay that generated, interest will cash to

I we will tell do that very have a you profile. maturity nice

out very bonds place in debt laid we for advantageous. a our good our have that are have how and rates is We the on structure very

them. be at A, buy prioritization opportunities down and bonds the So Loan likely would of Term the than taking to for the then potential getting looking back the care revolver more

Gaurav Jain

And flow getting two Xx still to then because come free have Sure. excess next cash improved, the flow billion invested material off like, you is and raw the happens, prices back start because in EBITDA then, believe what are thesis, leverage has again will let’s this say, closer ventures, over in years, and then free you generated cannabis cash the you... long-term

Matt Garth

Well, that thank trap. has -- the you No. for

every you of is Whereby this I and we to convey conversation measuring to approach think growth. expect a determining to we towards tried returns disciplined the have potential generate. that we and dollar payback in all are what the

Hawthorne, made heard to creation very in we industry, there you, to very, cannabis opportunities RIV, conversation at those consolidate comes of and are with basis non-cash. are non-cash valuations. it provide types As There we that investments that the The a value moving you that the low Jim have say and just for involved are forward. had companies

return, The million talk in payback free and capability of we we inside pointing that. do that, investing the have we organic we to one, high that company, you is, growth that making company, those opportunities doing about, the ensure that sure short that are cash the flow and CapEx. $XXX prioritization are of That’s

million to and $XXX cash However, company position to could we generation $XXX those this spend growth flow and for continue in probably free investments. million

is in you flexibility opportunity history pay shareholder approach to balanced the this to to company -- through to between repurchases, X gives for to of down, activity. leverage return X one-time down the gives start X you debt the window looking again. at to share Xx back M&A Moving under Remember, and begin things those pursue shareholder of continued activities the types friendly the do that dividends, things that acquisi those range and

X a over the we priority years and the going lot generate, two cash So are more next a that’s as below deleveraging we the flow, at as to look balanced we then will approach. take with table the generate on $X billion free we move that one

Gaurav Jain

gaps? share apologize Sure. you, worries that private the just now? if And are like question pricing Is has anything that? strong. on and price one there already, comment you is label What What but been answered last very consumer U.S. could I if this right the

Mike Lukemire

about Well, we price are not now. the concerned right gaps

share branded. label up in tend change picking on share, seeing to people not we are consumers We -- fact, versus, private prefer are

So that concern. is not necessarily a

Jim Hagedorn

price contracts think deals. that throw the just once get in bunch losing it on sense larger private let mostly they this. label us, and those the were retailers had than mean, think But that re-price do we between me money allowed, I gap I did Remember, were private year with a and us getting, think I a the as. on I that label of my was too national brand

a I will that pricing think see correction of that possibly not could last are as we pretty we loss did as pricing see private much year you increased gap. label these significant spite to took But we and that double-digit in occurred. share

will But probably that worth to private to look gap you and point versus looking correcting sort that our down. I this from But year. will at I as about see come concern guys we probably think label. pricing of last at talk I at low and think think we you it’s continue

Mike Lukemire

it. seeing Correct. We Yeah. were

So that’s in the right direction.

about growth be about worried retail more always am this more do that. but -- category than and mean partners am worried our So, we run with elasticity sure studies I point. I to price at all am I that I share

Gaurav Jain

Sure. Thank much. you so

Mike Lukemire

Welcome.

Operator

Thank you.

Our next Carla question Casella with comes from JPMorgan.

Your line is open.

Carla Casella

Hi.

a of from big talk implies expecting you and/or down. capital -- debt the the for a leverage lines target about you that? are release the still the X a EBITDA in times little with see year decline $XXX on slight year-end by what of the your timing with Somewhat million you bit if working inventory just same getting to Can pay

Matt Garth

by $X Sure. times XXXX, to said X end flow under by the said And correct. then we years generated the last, beginning year. just of and not think, cash fiscal make billion this so QX of two also I We of sure free over that’s end

That place the a perspective, at right to inventory that taking filled the year, are in now. looking as talking we is out are you take capital $XXX through we a will through look and bit we the When working are take position of move million. obviously, a

year-over-year. to the is about versus are fact and talked down positions that have production down that our X% X% retailer last We year

we inventory place. So that in have we releasing be will that

generate is grow inventory of some AP in have are release million million, help $XXX are to of going to capital pay, the all to $XXX going north to benefit sales, right, is and That are to capital we come that of year we working so because going going some this just and that’s north going through on a $XXX working we net million.

our That excluding leaves less cash CapEx the year from balance next free operations, generate year. working capital, to of flow the cash this and

at as capital you are plus you cash so of release. related that kind in the million $XXX free it look capital way, of looking flow north sort And working nonworking at of

Carla Casella

a I ask Okay. Great. could then And follow-on. just if

liquidity Can versus two about the your the available. was the You just said were availability million if what you on and with $XXX over AR combined? talk $XXX you have million strong drawings facility facilities that ABL

Matt Garth

on facility, really the didn’t over AR revolver. we -- The our that No. much. are last The quarter $XXX -- is you the change and ABL million sitting from

of kind are million range. $XXX they the in think I So

Jim Hagedorn

For the season.

Matt Garth

Yeah.

For the season.

Carla Casella

you Thank Great. Okay. so much.

Operator

you. Thank

question from of William comes next with Bank America. Our Reuter

open. is line Your

William Reuter

Good morning.

Jim Hagedorn

Hey.

William Reuter

us done your am retail and this guys elasticity, is varies trying think for of that year studies way much to know you worked and higher your about last your have terms how -- versus I In said year? by product. prices I with you any But about some are this think there partners to

Jim Hagedorn

Yeah. I -- pricing, I would say know, is, we August, I I took what think? don’t

Matt Garth

Right.

Jim Hagedorn

Which I I that. know what think something like was. don’t probably averaged or X it

Matt Garth

Yeah.

Jim Hagedorn

is will think see up. you will pricing I probably So that what show that’s

Now remember, season. early got we Real promotion have Mondo

retailers. I will increase a something probably XX% I would So you with like I margins compared in -- think in But the That’s we think, retail lower year would to what ago you retail on have. generally, the as see that. what early season, promote particularly lawns is see heavily X% you very a to

William Reuter

Okay.

Matt Garth

exact don’t number I have on that. the

Jim Hagedorn

sell remember, Yeah. think the But their retailers set we it’s pricing. I --

Matt Garth

Yeah.

Jim Hagedorn

are going or all of through to pass of it. But that they some pricing

last is expect to X% than to think should see. I So XX% what higher year you

Matt Garth

Mefford, sitting CFO. the who’s Yeah. am I mean from across Joanna I

Jim Hagedorn

There you go. Oh!

it. got You

Matt Garth

except that part fert seed of volumes. it because from prices price all some coming perspective, up elasticity, So categories, for And the pointing raising that in essentially right? offset POS -- of flat she we to price and is in elasticity way reason XX% has that is that is the being of are and characterized previously a lower

way. So, driving that the POS net-net, that’s what’s

William Reuter

one this just then And some risk Great. the of there year. prepared commentary, is follow-up, you in discussed that

talked You consumer then about engagement. immediately

on there guys major prices You were that your about XX% have mention thinking risks in of I other there this Are products. for didn’t year? you that locked

Jim Hagedorn

with the that, I all say the big always sort throw the done would I the and half consumer. because the that’s is question No. think the the based have there’s work we maybe that factor is probably first biggest -- in we on weather single know of I think consumer health the of economy, the about. the that -- work on consumer, But

business it. come that work looking At shelves, our course, risk it We the consumer to that ship load the in at. and up, is the the going it’s of retailers. in, merchandize We I is the down build with to day, everybody the think of consumer end showing

say, I would was numbers mostly weather. that a risks kind number lawns. -- we last I we Hawthorne, covering And the we lost are is think would of are starting lot world’s in and of flat think have crappiest Again, of conservative half back risk. make get of those we pretty then, think the a I Again, what sales that year, just to to two year

million. can we have got we we say room if It’s we -- to better cover $XXX do than to. When have

activation. they back on how much little positive positive, on are particularly side, money push of think brand people can starting bit I to to overachieve that a they into there’s but that the continue expectation which that, on the feel consumer up, more season reinvest to it’s consumer if already the money I the early activation. is Remember, side side Patti’s is, think

is of to I and And plan. Hawthorne. are of ahead of gives that the So savings continue that I sort ahead will risk think the question, cover think to and think. showing answers the up Springboard room plan, in they consumer us I be big

William Reuter

for That’s you. Thank Perfect. me. all

Jim Hagedorn

you. Thank

Operator

That’s time a the today’s conference. Thank -- all you. we in program have the for we day. you participating Thank now have have great questions. Everyone This does for may you and conclude disconnect.

Jim Hagedorn

you Thank all.

The Scotts Miracle-Gro Company (SMG) 1 Feb 232023 Q1 Earnings call transcript