Q4 2020 Hydrofarm Holdings Group Inc Earnings Call
Good day, ladies and gentlemen, and thank you for standing by.
Welcome to the Hydro Farm Holdings Group fourth quarter 2020 earnings Conference call.
At this time, all participants have been placed in a listen only mode and the lines will be opened for your questions. Following the presentation.
Please note that this conference is being recorded today March 30th 2021.
I will now like to turn the call over to Mr. Fitzhugh Taylor men interesting managing director at ICR to begin.
Yeah.
Thank you Victor and good afternoon, everyone.
Let me on the call today is Bill Taylor, Chairman, and Chief Executive Officer, and John London, and Chief Financial Officer.
By now everyone should have access to our fourth quarter 2020 earnings release issued today after market close if not it is available on the investors section of hydro farms and website at www Dot hydrocarbons dotcom.
Before we begin our formal remarks. Please note that our discussion today will include forward looking statements.
These forward looking statements are not guarantees of future performance and therefore, you should not put undue reliance on these.
Statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.
We refer all of you to our recent SEC filings for more detailed discussion of the risks that could impact on future operating results and financial condition.
Lastly, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance.
Pet presentation on this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP and reconciliations to comparable GAAP measures are available and our earnings release with that I'd like to turn the call over to Bill color Phil.
Thank you Beth and good afternoon, everyone. It's great to be speaking with all of you on hydro firms first earnings call as a public company.
We enjoyed a very successful IPO in December and are pleased to be with you today to update you on our progress we'd like to cover several topics on today's call I'm going to begin with our financial highlights and provide a brief overview of hydro farms key business strategies and discuss why we believe we are well positioned for long term growth John wooden review on.
Our fourth quarter financial results in more detail and update you on our current full year 2021 outlook after that we'll open up the call for questions.
We are pleased to cap off a successful 2020 with Q4 top line growth of over 62% in fact, our rate of growth in 2020 increased sequentially across each of the quarters largely in connection with our team's effort to rebuild and restock our inventory positions following extensive supply chain delay.
As many industries fell during COVID-19.
Our strong growth in 'twenty, and 'twenty was broad and diverse as we realized growth across all of our product lines and across our proprietary preferred and distributed brand categories. We were also pleased to see growth and essentially all the geographies that we serve.
During 2020, we also implemented several management initiatives to six.
And if Italy and enhance our profitability.
This is best shown by the dramatic increase and our adjusted EBITDA, which increased over $21 million and 2020, representing an improvement on 1000 basis points as a percentage of net sales compared to the prior year.
Our team and Hydro farm accomplished all of this and 2020, while also grappling with many challenges presented by Covid, such as working remotely and restocking inventory and a challenge supply environment and doing our part to keep our teammates customers and community safe and while I'm very proud of what our team has accomplished I'm, even more bullish about the future.
With near term and long term, let me share with you a few growth drivers that have me excited about the opportunity here at Hydro farm.
First the category dynamics are quite favorable and hydro farm sales momentum reflect that upside and many of you know that hydrocarbons and one of the leading distributors and manufacturers and hydroponics equipment and supplies, serving the fast growing controlled environment agriculture, our CE market quite simply our products make indoor growing and cultivation.
And of fruits plants, and vegetables, more productive our products enable customers to control key farming variables, including temperature humidity.
Light intensity color and nutrients. This in turn delivers greater yield from their crops, while doing so with a more efficient land use better fresh water conservation and lower fertilizer and pesticides use and virtually no chemical runoff.
And then see a category I believe is still on the early innings of a sustainable and significant growth curve brought on by number one ongoing legislative changes here and the U S number two innovation technology and brand power within the category and number three ESG initiatives, which over time help extend the impact of these.
Highly efficient farming practices.
And in fact during the recent November 2020 elections, there were significant legislative actions that should spur further demand for our products such as the passage of adult use cannabis and several new states, including Arizona, New Jersey, Montana, and South Dakota, and most recently just last week state lawmakers and New York finalized a plan to Lee.
Legalized adult use cannabis there as well.
While each state is still finalizing their individual implementation plans, we are expanding warehouse capacity and several key markets and building inventory and <unk>.
The expected surge and demand and I should remind everyone that even with the recent actions of these new states still almost 60% of the U S population resides in our state and does not have.
Access and legal adult use cannabis.
Lastly, the new states will add substantially to our <unk> customer base and 2020, we realized significant growth and some of the more mature adult use and states like California, Oregon, and Maine, and all of which passed adult use legislation more than five years ago.
These dynamics and our own company performance propel greater than 60% topline growth and both of the last two quarters of 2020 and I'm pleased to say our sales momentum at the start of 2021 has continued at a very strong pace.
Second we are committed to innovation and brand building, which will continue to drive our growth innovation and brand building, particularly around our proprietary brands. The brands that we own and represents a key growth opportunity, we have a little more than 60% of our sales and the combined categories are proprietary and preferred brands the bulk of which is proprietary.
And we look to build on that number going forward and proprietary brands drive better margins and provide more control over our own destiny and therefore, we are squarely focused on increasing their penetration a great example of this innovation driven growth and our own brands is our new photo buyout led lights by fans and developed by our <unk>.
And house product development team and extensively tested by third parties against all key competitors are photo bio lights outperformed the competition across key product attributes and our sales team quickly mobilized behind the new photo by our brand and we're seeing excellent traction and the marketplace. This is only one example, but it gives you some.
And the approach to innovation and brand building something that many of the folks on the leadership team here at the farm have focused on and they are across their entire careers.
The third element and our growth strategy is to add strategic distribution relationships and preferred brands to our portfolio.
Through our company's 40, plus year history Hydro firm has taken pride and strategically aligned with powerful brands and the industry and a symbiotic way what we referred to as our preferred brands over the last few years. We've added key partners like Fox Star, Aurora innovations, and and <unk> and others to our preferred portfolio more.
Recently in February of this year, we announced an exclusive distribution agreement in Canada with advanced nutrients one of the largest most respective nutrient brands and the CE space.
The fourth pillar and our growth strategy is to acquire value enhancing businesses for those of you that we met during our roadshow, who are or who read our IPO prospectus. You know we have a keen interest and acquiring value enhancing businesses coming out of the IPO. We are now well capitalized and have an internal team that is well constructed to help us acquire businesses.
And myself and John and our head of corporate development, we have done over 100, M&A transactions combined and our careers.
And while we are open to opportunities across the entire spectrum, our top priority is to buy businesses and the product categories, where we don't already have strong proprietary brands, namely nutrients and growing media or two of those categories. We have built a strong M&A funnel of potential targets and hope to have something to tell you about.
And before mid year and many.
And many of these businesses carry EBITDA margins that are accretive to ours. So we think this is a viable strategy for us moving forward and we look forward to updating you on our progress as we proceed and pursue the growth strategies outlined earlier and benefit from the rapid growth and our industry were also reinvesting in our own infrastructure and 2021, we expect to expand our distribution.
Foot print by about 25% by adding a new DC and relocating and expanding existing facilities.
And there are existing footprint can handle the business and are expecting organic size and 2021, we want to stay ahead of the growth and that we see coming and position our company to better service, our larger and long term customer base. We're also making preparations and all parts of our operation to physician and Hydro farm platform for acquisitions integration and <unk>.
<unk> organic top line growth.
I'll rejoin in a moment for Q&A, but let me turn it over to John to further discuss our fourth quarter financial results and provide some more shape to our 2021 guidance John.
Thanks, Bill and good afternoon, everyone. We are pleased with our fourth quarter results and our significant growth opportunities ahead now for a brief walk through on the quarter.
Let me start with net sales, which increased 62, 6% to 87 4 million and the fourth quarter of 2020 from $53 8 million and the prior year period.
As noted on the earnings release, our topline growth was dominantly volume driven and I should add it was both broad and diverse that we grew and virtually every geography that we served several states, including Oklahoma, Oregon, and California saw year over year growth and the quarter foreign excess of the $62 six we achieved on a consolidated basis.
Growth in the quarter was also strong across proprietary and preferred brand groups.
Such that we finished the full year 2020 with proprietary plus preferred brands up meaningfully and together representing just over 60% of our total sales.
While we are pleased with the progress made in 2020, we anticipate a further favorable sales mix shift in 2020 one.
In the quarter. We also saw gross profit nearly tripled the $16 million and the fourth quarter compared to the same period last year.
And gross profit margin improved to 18, 3% from 10, 2% the dramatic year over year increase was driven by a combination of items.
Moving the higher sales and more favorable sales mix described earlier, but also resulted from inventory adjustments and write offs and connection with the SKU rationalization that negatively impacted the fourth quarter of 2019.
While we are pleased with the overall 800 point.
Improvement in gross profit margin I should note that we did realize higher freight costs and Q4 than we had estimated at the beginning of the quarter. So naturally we are keeping an eye on freight as well as product costs as we move into 2020 one.
Selling general and administrative expenses SG&A was 21 4 million and the fourth quarter of 2020 compared to 13 million and the fourth quarter of 2019.
The largest portion of the increase in SG&A was related to incremental stock based compensation expense triggered by our IPO in December for those of you who read the IPO prospectus you will recall that we estimated this amount at $8 million to $9 million.
And indeed, we came in roughly and the middle of that range.
Excluding stock based comp and depreciation and amortization expense SG&A was $11 2 million or 12, 8% and net sales in Q4 versus 11.1 or 227% of.
Net sales and the prior period and so on this comparative basis, we realized significant operating leverage in 2020 relative to 2019 and this is another metric we intend to further improve and 2021.
Net loss for the fourth quarter was $10 million or <unk> 43 per diluted share compared to net loss last year of $17 7 million or <unk> 86 per diluted share weighted average diluted shares outstanding were approximately $23 1 million for the fourth quarter of 2020, and approximately $20 7 million.
For the prior year period.
Please also note that neither share count reflects a full quarter impact of our IPO, which closed in mid December 2020.
To account for the IPO and its changes to our capital structure, we have calculated pro forma adjusted net income and applaud pro forma weighted average diluted shares outstanding.
As if the IPO had occurred beginning of 2019.
January 2019, which is the earliest comparison period the precise calculation as detailed on our earnings release on the page containing the reconciliation of non-GAAP measures.
We believe the additional information contained on this non-GAAP measure can be helpful and comparing prior periods and on that basis pro forma adjusted net income for the quarter was approximately <unk> 5 million or <unk> <unk> per diluted per pro forma diluted share compared to a loss and the fourth quarter of 2019.
Lastly, adjusted EBITDA increased $10 6 million to positive $5 million.
557% and net sales for the fourth quarter of 2020 from a loss and the prior year period, the increase relates to higher sales higher gross profit margin and the leverage on the SG&A all described earlier.
2020 was a big turning point for the company and a number of ways and we believe our adjusted EBITDA is reflective of this fact.
Moving on to our balance sheet and overall liquidity position as of December 31, 2020, we had $75 2 million and unrestricted cash and cash equivalents and only 1 million and total interest bearing debt outstanding.
This strong capital position at year end is further enhanced by our new credit facility.
Just yesterday, we signed and closed on a new $50 million revolving credit facility, which can expand to $75 million upon our request.
While we enjoyed a very good relationship with our prior lender, our new J P. Morgan Chase credit facility carries numerous advantages include.
Including a lower effective borrowing rate and more favorable borrowing base calculation a provision for permitted acquisitions and added flexibility with respect to our advertising and marketing practices. We are really excited to begin this new credit relationship.
To complete the overall conversation on liquidity I should also point out that and in addition to our balance sheet cash and our new credit facility. The company also anticipates, receiving as much as $56 million and additional equity capital from the future exercise of investor warrants by the investor and warrant holders.
As further described in the IPO prospectus. The company has the right to call the investor warrants under certain conditions.
Further we do not expect and investor warrants are likely to be exercised until such time as the company filed a registration statement to register the common stock underlying the investor warrants.
It's worth noting that we do have some element of control over the timing of the exercise of these investor warrants.
Before we open up the lines for questions. Let me quickly review with you our 2020 one outlook.
And as Bill noted earlier, we were off to a strong start in 2021 and in fact, we expect our Q1 sales growth rate to be similar to the growth rate. We just experienced in Q4, 2020 based in part on this strong start we are now estimating organic net sales growth of 20 and 25% for the full 12 month period ending December 2020.
One.
And adjusted EBITDA of 28% to $31 million for that same period.
Given my earlier comments, you can tell we expect stronger growth and the first half of 2020, one relative to the second half as we begin to lap, particularly strong comparable periods from 2020, and the third and fourth quarter.
We expect our 2021 growth will be dominantly volume driven and in conjunction with the broader demand themes and the <unk> industry that we do anticipate that commodity cost inflation may result in some price increases across the industry during 2021.
We anticipate that our initiatives to drive sales mix by increasing the proportion of our proprietary and preferred brand sales and continuing to drive operating leverage on our SG&A expenses will result in adjusted EBITDA margin expansion as implied by our guidance.
Lastly, let me touch on us on a few select assumptions on our 2021 outlook several of which relate to directly to Bill's earlier comment about investing and our platform.
First as you heard we're now planning on more aggressive DC footprint expansion in 2020 one than previously contemplated which means that we are estimating additional facility expenses. This year of approximately two to 3 million comprised primarily of incremental building rent lease expense this investment of which approximately half is expected to impact the <unk>.
And 21, P&L should put us on in front of the growth, we see coming both in terms of pure organic volume growth, but also the extra space needed to speed and easy integration of any future acquisitions.
Second I should note one expense line and we did not call out on the earnings release and this is additional public company cost of $1 million to $2 million.
And with the value of our public float increasing significantly from our IPO price. We may now need to be fully Sox 404, B compliant in 2020, one which may result in incremental consulting and audit expense, which we have now built into our 2021 plan.
And finally, our planned capital expenditures of approximately three 5% to $4 5 million cover growth oriented capital for the distribution facility expansion effort referenced earlier as well as <unk> related spend to enact further scale benefits inside of our existing system.
As you can see we remain excited about the magnitude of the opportunity in front of us and we look forward to reporting on our progress as we execute against it.
This concludes our prepared remarks, and we're now happy to address any questions you may have.
Operator, you want to open up the lines for questions.
Thank you.
And we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate that Youre line is and the question queue.
You May also press star two if you'd like to remove your question from the queue.
One moment, please while we now poll for questions.
Our first question comes from Andrew Carter with Stifel. Please proceed with your question.
Hey, Thanks, Good afternoon, I wanted to hone in on the input cost inflation kind of questions and maybe also.
Are you looking are you still expecting kind of gross margin expansion for the year and a couple of ways and the input cost might affect number one and just go.
On China on your Bill are you.
And building more inventory because of that and on as far as your non exclusive brands are you happy and absorbed some price and it won't be any delay margins on this I'll I'll stop there.
Yeah, Thanks, Andrew I'll jump in on that one and then bill can add some color if you'd like.
On a couple of things I mean first the two things I think we really hone in on and this area is just freight costs and transportation costs, given the distribution nature of our operations and product cost rate from a free perspective.
We are looking to lock in and have locked in our L. P L rates with the with.
With carriers that really helped mitigate any cost increase there. We think we've roughly covered about half of our freight costs for the year in that manner I'm on.
Obviously, we don't control fuel costs and so there's we.
We like everyone will be dealing with that from a product cost perspective, it's a little harder for us given the broad nature of our SKU set meaning one thousands of different products and the fact that we're primarily a distributor today purchasing finished goods. What we do do is we take inventory positions that may make that maybe two to three months worth on average.
Average and a large number of skus, but for some skus will take a slightly longer position to lock in and otherwise rising costs or to make sure. We have ample supply should transportation delays come into the picture. So that's really the way in which we try to manage it obviously.
Obviously, the third piece of it of course, which I referenced in the and and.
And our notes and our conversation earlier is just how we handle pricing as an industry and I think you know to the extent, we see continued rising costs, we may see some of that across the industry.
And then second question I guess, the input cost and place Dubai.
And just because it might cannibalize the acquisition opportunities or I guess, Conversely, since you've gone public and obviously.
<unk> done very well and what may be.
Compensation and partner with potential targets and guidance in terms of putting stars and there.
And anything like that.
And a kind of an exciting and kind of pre IPO and still there. Thanks.
Yeah. Good question I think.
Certainly what's gone on and this space with us and grow Gen and some of our competitors all trading very well.
All are very.
Lighted about the space and I think that in many ways. It's brought a cottage industry more into the prime time, and so people are anxious to be a part of that I think a lot of folks and these smaller businesses are saying they see the benefit of being a part of a bigger platform and we're working through how that looks with volume.
But yeah, I mean people certainly now think that their business is worth.
And what they probably always thought it was worth and now theres something to validate that so theres a little upward pressure on on prices paid but there certainly is no lack of good opportunities out there and because it's such a fragmented industry Andrew there's a lot of different choices. So if somebody is being unreasonable you you move on to choice number two our choice number three and there's a lot of opportunities too.
Find good brands that can add into the portfolio.
Thanks ill pass it on thank.
Thank you.
Thank you.
Our next question comes from Bill Chappell with <unk> Securities. Please proceed with your question.
Hey, Bill Hey, Thanks, good afternoon.
I guess first question looking at the fourth quarter, and certainly strong and stronger than we'd expected, but was there anything left on the table I mean in terms of capacity constraints and meeting orders or do you feel like you're fully caught up now.
And we left a bit on the table, particularly and lighting, we've gotten our photo buyout was in but.
It came in at touch on October, but they really came in earnest in in Q1, and so we think we're now catching up to that and on a category by category basis, I would say that lighting was actually one of our weaker categories in Q4, and we hope to recover that and keep building from here.
And can you talk a little bit more about photo bio because I guess my understanding is.
The new technology is one where a lot of existing customers or are willing to throw out what they bought and just in the past year or two years and have a full refresh because its just that worked at and so I mean is this a pretty and maybe give us little more color on what.
What this means in terms of lighting sales over the next few years.
Yes, we think that we are now very well positioned with the photo bio product.
Spent a couple of years working on it and have now got a product that tested out very well in terms of the and the actual performance of the brand and the actual sort of.
Impact against competition. So I think we're now we're in a good spot there and our folks are out selling it both into our retail store partners as well as into other relationships and places, but followed by is a great brand and great opportunity for us to take the Phantom brand, which has been our 10 year leadership brand and the lighting category and really expanded and <unk>.
It further so we think we know and a very good spot. After you know having are having some challenges with last year of course, COVID-19 and other things slowed down the development, but now we're where we want to be.
Got it and then last one just.
And again nothing wrong with your guidance and certainly above what we were looking for but is there something you're seeing now in terms of orders as we move to the back half where you think there is a slowdown or a cooling or is it just numbers and comparisons that you are looking at right now and it's too early to tell.
A little bit of that latter part bill.
And we started out the year fairly slow last year up about 20, and and up 40 in Q2, and then over 60 and Q3 and four so we're going to lap pretty strong early and then we start lapping those plus 60 quarters, and Q3 and Q4 and that's pretty daunting at this point.
As we've said all along we're going to try and be conservative, but smart about it and as soon as we see something we'll call it and bring it out and right now and feel very good about the Q1 momentum and that's why we're kind of moving that number from at least 20% to $20 to 25, which is a improvement, but we're not ready to go beyond that yet until we see a little more momentum momentum and we're all starting to.
Lap the sort of the heaviest COVID-19 I.
I would call it a little bit of forward buying if there is such a thing and this industry last year where everybody.
Bought really heavy sort of and mid to late March and early April and we none of us for sure and Euro tap and so the absolute year on year here and this two to four week periods and a little different but I think it's going to smooth out and you'll see very very strong Q1, Q2, and and hopefully Q3, and four will keep going as well.
Great. Thanks, so much thanks Bill.
Thank you.
Our next question comes from Kevin <unk> with Deutsche Bank. Please proceed with your question.
Hi, good afternoon.
So the EBITDA margin guidance is up 80 basis points I think at the midpoint from 2020 levels I'm wondering.
Net backs that you can talk about.
And the big moving pieces of that improvement and then whether you think that improvement is sustainable as we look out over kind of a multi year period based on those pieces and the size of them.
Yeah. Thanks, Kevin I mean really the two main drivers continue to be the two topics I think we've we've tried to stay on course on and one is just the shift and the product mix.
Proprietary and preferred brands as we've spoken about earlier tend to carry on and natural higher margin. We made some improvement on that and 2020 over 2019, we think there's opportunity even without acquisitions for us to continue to affect that and really drive our gross margin up the other piece of it really is the operating leverage on <unk>.
G&A.
And when I speak about SG&A, I'm really talking about SG&A, excluding depreciation and amortization and stock based comp we do think theres some incremental leverage in 2021 relative to what we experienced in 2020. That's also implicit in the adjusted EBITDA margin improvement you see.
I would say and this is part of the reason we called it out and.
And our prepared remarks is we are making some incremental investment and 21 that will have benefit over the next few years, we believe particularly with the additional DC space.
So all things that we think are positive on that front.
And by the way, we do think I'm sorry, the last part of your and your question I think as we thought about margins longer term for our business excluding acquisitions, we've kind of targeted this 8% to 10% EBITDA margin range.
And the area that we think we can fairly quickly work our way up into so I think that hopefully that frames out the backend of your question.
Yes. That's helpful. Thank you and then I guess as a follow up I think you talked about proprietary and preferred brands being just north of 60% and sales in 2020.
Do you guys have a target or an expectation for 2021 or maybe going further out on.
Able to answer the question, but just trying to think about how to frame it yes.
No I mean look this is a.
And Thats a sensitive one to us from a competitive standpoint, I would tell you we move from something that was below 60 to something north of 60, and as we look into 2021, where right now targeting sort of the mid 60% $60 to 70% area is really the ZIP code, we're looking to land and we do think.
Well I.
Should mentioned this with acquisitions that could change that dramatically everything I'm talking about is without acquisitions.
Understood and I'll get back and Keith Thank you.
Okay.
Thank you.
And as a reminder to our audience if you'd like to ask a question. Please press star one on your telephone keypad.
Our next question comes from Andrea to share with Jpmorgan. Please proceed with your question.
Thank you.
And I think if you can't on just like I have two questions for you and you can elaborate more on what's embedded in your guidance for the additional states legalizing adult use cannabis and cultivation and and if I can recall correctly you had said it was obviously multiples.
I think haptics from Sharon.
And those states I guess that then on legal states I was wondering if you can share the typical timeline that you see for.
For the increase.
From there.
And also if you can talk exactly I second question, sorry, but just on the on the BMI forms. So if you.
Can I comment on the commercial customers and and how you're seeing that evolving.
Yes.
10% sure yes.
Thanks Andrea.
On these on the newly legalized states, you've got four with adult use.
Seeing some early on.
Sort of a high percentage increases at relatively small dollars out of Arizona they've been the one that's been the most aggressive about trying to implement literally and the first few months of 2021.
And New Jersey, and some of the others are taking a little longer to sort out the way theyre going to implement and we haven't seen as much from there. So there really isn't a ton of explicit.
Volume planned and our guidance for the new states right.
We learn that used to be 12 to 18 months before you would see them come into the into the volume picture now it's more like six nine or 12, but we try not to get ahead of ourselves and plan them and we're really talking the guidance is mostly run rate and it's mostly sort of momentum and the business and a lot of that to your second question is driven by our traction and commercial.
And we've been adding call it a handful of commercial customers a week and we've got now.
Good number of them many of them are moving on to the BMI platform to get that scheduled delivery that just in time inventory that it takes supply chain out of their hands allow us to be the partner and do that they worry about growing and marketing and selling we worry about helping them with the supply chain.
And a very.
Formidable tool for us to use to work with these commercial customers. So yes that is and is moving along and Andrea on the on that percentage.
Certainly above the 10% is a total commercial group right now and <unk> is a nice subset of that.
Yeah, that's that's why on the phobia and thank you I'll pass it on.
Thanks for your help.
Thank you.
Our next question comes from Jon Andersen with William Blair. Please proceed with your question.
Good afternoon, Bill and J&J and congratulations congrats on a star.
Strong a strong quarter right out of the gates.
I guess, maybe I'll pick up where.
Andrea left off on commercial customers.
Can you talk a little bit about.
What what it takes from a capability standpoint.
To just serve maybe commercial customers.
Are the requirements different are they more.
Kind of high touch and other different capabilities that you need to have or build.
To scale that part of your business over time and how far along you are you know you feel you are on that aspect today.
I would think we're probably half and half two thirds and the way, they're we still don't have what I would call. The full suite of services and offerings that we could or should have in that area. We are developing them pretty quickly and I hope to have them and done over the next few quarters, but yes. It is a different there's a different cell it's much more of a strategic income.
And salted of sell with with layouts, and larger equipment, and HVA and larger and larger.
Peace is going and there versus what goes into a retail store environment and so you do work with them and a different way. It's also a longer sales cycle I mean generally take.
Months to work through either a new commercial build or if youre switching one from a different different supply situation.
A good while to do that so it's a very different kind of cell taken us a while to build the team and the capability because hydro farm historically was very very retail oriented.
And really its entire 40 year plus history. So yeah. It's good question. There are a number of things that are different.
But it really sounds like you feel pretty good about.
Not only you.
And you're moving in the right direction their capability wise, but it's translating into <unk>.
New relationships as you pointed out on a kind of.
Monthly basis, yes, it is John.
I'm never satisfied and we're very much but I'm always encouraged by the progress, we're enjoying and and so I'm anxious for us to do a lot more here I think that there's just a huge world out there that we still are learning how to address and we are addressing it but.
And Theres, just a lot more to do and I would tell you on the on the flip side of that same coin, we're seeing incredible growth and traction and our retail stores all across the country, not just and newly legal states not just and emerging states, but frankly and almost every type of geography, the independent market.
Serving that hobbyist, if you will I think that that Tam that total addressable market is far larger than any of us ever thought and that's one of the reasons youre seeing such incredible numbers out of anybody all the people on this category.
The retail stores are growing the commercials are growing and the new states or building out all of that speaks to this market is probably a lot larger than any of us can really measure and and so a lot of fun to go to go take it on.
Agreed agreed I was.
That point it was interesting in the prepared commentary to hear that I think Oklahoma, Oregon, and California. All grew for you at a rate in excess of the 63% company wide and those are states that have been legal for a while now so what are you seeing there that debt.
Continues to drive.
Such strong growth, I mean, and California, where we been legal for several years now.
I mean, you're in California, specifically, I think youre seeing <unk> and spectrum, you're seeing there. The hobbyists now very comfortable they can grow and not be bothered by any and any other outside influences and youre seeing the commercial side, many of which are shifting away from from high pressure sodium lighting back.
And the Leds youre getting almost a renewal of some equipment plus you're getting the the retail store growth and so you're getting both into that and we didn't quote exact numbers you said, but with what we said was that that sort of Oregon, and California and main states that are all five years or greater are all growing very very rapidly even.
And so they've been around for a while right you mentioned, Oklahoma and <unk>.
Oklahoma is truly the wild wild West that's been one of the fastest growing today and fastest growing states for us and I think for the entire industry and its also.
And sort of in our top top group of states and absolute size, and Oklahoma is and oftentimes and a top group, but it is and this category and.
We have a lot of a lot of folks out there working hard.
Yes, it's interesting last one from me.
On the kind of some of the revisions that youre, making to your plans for your footprint.
Obviously, it's related to demand probably expectations moving up and what can you tell us about.
Little bit more color around.
What youre doing there.
When it will take effect and is it more oriented towards just.
Trying to keep up and satisfy demand or is there also a a service element in the sense that you can.
Get to market faster or support your D on my customers et cetera. Thank you.
John it's really demand and expectation of M&A right.
Demand first of all we've already moved our Portland, Oregon facility to a bigger facility, where and the process over the next three months of moving our northern Cal facility, a few miles east and do a larger facility and a newer one Santa Fe Springs L. A.
John and I are today, we're moving that into a larger facility, that's mostly demand and M&A expectation driven in the east when you got New Jersey, and now New York going probably in the next X number of months, we're going to open up a decent another DC to take some pressure off that we have a great facility and net right outside of Philadelphia Budd.
To service those big markets, we're going to need to take some pressure off debt facility with our support probably in the southeast So thats the footprint, that's evolving but it is really purely demand and and the expectation that we'll be bringing in some businesses and as well.
Thanks, so much and congrats again, thanks, Jeff.
Thank you.
Our next question is from Andrew to share with J P. Morgan. Please proceed with your question.
Thanks, Thanks for taking my and my follow up so you touched on this earlier, but if you can talk a little bit more about the cadence of the quarters. If we should expect from Lumpiness and the June and September quarters.
And also like you also mentioned that I want to make sure that we all understood. It correctly in terms of your supply chain of the lines that come from China Youre comfortable that you don't see any any major disruptions there going forward.
I'll take the lighting on and John can comment on the cadence, but yes, we have leaned into inventory on lighting are much stronger balance sheet and the company position post IPO has given us that flexibility and ability and so we.
Have lots of lights to sell lots of lights on the way and are excited.
And excited about having the inventory and also about the results, we're seeing and the market. So very solidly and good good place there the categories frankly, we're still catching up on inventory are mostly the gro media suppliers to us and in some cases, the nutrient suppliers and many of them are just coming off such strong years last year that.
They're still trying to catch up so that's the category that we probably left a little bit on the table there and.
And now hopefully we will have our own brands and stock on the lighting side and equipment side and and hopefully these guys will be able to catch up pretty soon.
Yeah, and then just the first part of your question and I'll kind of address it two ways. One is just from a rate of growth perspective on a year over year basis across the quarters, and mis and maybe a little bit of a referenced in my prepared comments, but we are expecting.
Faster or higher growth and the first half of the year and more moderated growth and the second half of the year and I think.
As and when we evolve across the span of the year and see something that suggests we should call out a change on that front and we won't hesitate to do it in terms of just absolute dollars Q2, and Q3, we do expect to be a little bit higher than Q1, and Q4 not dissimilar to what you've seen.
And from Us over the last two fiscal years on that front.
Super helpful. Thank you.
Thanks, Andrew.
Thank you.
There are no further questions at this time I'd like to turn the floor back over to Bill Koehler for any closing remarks.
Great. Thank you all folks we appreciate you being a part of our first call and look forward to being back in touch soon take care. Thank you.
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