Q1 2021 Hydrofarm Holdings Group Inc Earnings Call

May 13, 2021

[music].

Good day, ladies and gentlemen, and thank you for standing by welcome to the Hydro for arm Holdings Group first quarter 2021 earnings Conference call. At this time, all participants have been placed in a listen only mode and the lines will be open for your questions. Following the please.

Please note that this conference is being recorded today May 13 2021.

Now I'd like to turn the call over to Mr. Fits you tailor managing director of IR director at ICR to begin.

Thank you for the Molly and good afternoon.

With me on the call today is Bill Taylor, how did your farms, Chairman and Chief Executive Officer, and John London on the company's Chief Financial Officer.

By now everyone should have access to our first quarter 2021 earnings release and form 8-K issued today after market close.

These documents are available on the investors section hydro farms, the website of www Dot hydrophone Dot com.

Before we begin our formal remarks. Please note that our discussions 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 them.

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 a more detailed discussion of the risks that could impact our 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 the.

Presentation of 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 on our earnings release with that I would now like to turn the call over to Bill Taylor Belk.

Thank you fits you of good afternoon, everyone. We're pleased with the continued momentum in our business as of Q1 revenues grew 66, 5% versus last year.

Completing our third straight quarter of organic sales growth greater than 60 per cent. We're also pleased to report a record adjusted EBITDA of $9 9 million an increase of over 500 per cent from last years first quarter. Our revenue growth was once again across virtually all of our product lines and geographies. This includes both.

New markets and mature markets and is across the board on all virtually all of our brands and categories and as demonstrated by our EBITDA growth. We continue to benefit from a favorable sales mix as our proprietary brands are becoming a larger part of our total sales and that drives the margin expansion.

Our exciting growth also gave us the leverage on SG&A. Despite the fact, we're spending more actual dollars in SG&A on a percentage of total went down the.

The strength of our results not only in this quarter, but over the last year are indicative of our unique positioning as a leading distributor and manufacturer of differ.

Differentiated branded hydroponic equipment supplies, serving of $9 5 billion dollar controlled environment agriculture market as many of you know it's the market. We believe is in the early innings of the sustainable and significant growth curve brought on by a broad based increase in home hydroponic gardening ongoing domestic legislative.

Approvals related to cannabis and advances in innovation technology and brand strength within the category.

We also believe longer term the ESG advantages of hydroponics.

Coming more mainstream and these efficient farming practices will continue to expand on.

We were operating with a strong tailwind it is worth noting that our differentiated branded offerings are a driver of our results over 60% of our sales come from products that you'd primarily purchase in the hydroponics channel from hydro for them not only does it give us the stickiness we want the successful growers tend to stay with the brand.

Give them their own differentiated formula for these products also drive advantageous margins for us.

That formula is evident in the profitability improvement we displayed over the last few quarters.

As we look ahead, our focus will remain on three growth drivers product innovation and brand building.

Adding strategic distribution relationships and the acquisition of value enhancing businesses.

Let me quickly touch on the first two before talking about our recent acquisition.

First of the commitment to innovation and brand building as you know we currently have a little more of 60% of our sales and proprietary and preferred brands. The bulk of which is in our own proprietary brands with better margin profiles are proprietary brands represent a key growth opportunity.

The Great example of that is our innovation of our new photo bio by Phantom Elliot. The lives that we began selling broadly late in Q1 building on the success of the photo buyout index form factor. Our continued push for innovation has led us to the recent unveiling of the photo buy a cheap and the photo biotechs, both lights and we've started.

Selling late in the first quarter.

We believe these two products are smart and affordable investments for growers looking to successfully cultivate all types of crops and controlled environment agriculture.

We also introduce additional proprietary and preferred brands in the in the first quarter, including products and supplies nutrients and the growing media categories. This included the brand long term growth star of a new line of premium lab grade 10, testers for soil as well as new products or any of the existing brands like auto pilot plant success rock nutrient.

And roots organic.

The newest additions for all develop of our either our in house product development team or our partner suppliers product development teams work together to further expand our portfolio of innovative and proprietary branded products.

Secondly, we continue to focus on adding strategic distribution relationships and preferred brands for our portfolio. As we previously mentioned in early February we signed the new exclusive distribution agreement in Canada with advanced nutrients one of the most largest and most respected nutrient brands in the <unk> space. The strategic partnership has allowed us to make.

The best in class nutrients already the available to Canadian growers, who are eager to unlock the true genetic potential of their crops and introduce the highest quality in products to their markets and by the end of the first quarter of 2021 advances already become one of our fastest selling brands in Canada.

Lastly, one of our top priorities is to acquire value enhancing businesses to broaden our industry footprint and strengthen our product portfolio.

We remain opportunistic across all product segments, we have been focused on the nutrients and growing media categories in particular, largely because of these product categories, our consumables for our growers and recurring revenue for hydro farm and our retail partners. Additionally, many of these brands on very healthy EBITDA margins and our categories, where we currently don't.

Half of our own strong proprietary brands.

To that end in late April we announced the acquisition of <unk>, a leading and highly respected manufacturer and supplier of plant nutritional products used in all stages of the plant in growth to help increase the yield and quality of the crops.

In addition to be of highly compatible and complementary.

Complementary business within our existing product line have you <unk> has a compelling financial profile with strong revenue growth and impressive margins and we expect to be accretive to our adjusted EBITDA This year and beyond.

Furthermore, we believe we have an excellent opportunity to expand the heavy <unk> footprint as the product line is currently only sold at about 300 of the 200 stores in the U S and 90% of its sales are in just for states. We're excited to welcome the talented <unk> team into the hydro from family and we believe this acquisition.

As well as the proprietary brand for hydro farming of the nutrient category and will further solidify our position as the acquirer of choice in this highly fragmented and fast growing industry.

So I hope you can see we're hard at work executing the strategies, we laid out back in December of our IPO with the reason.

That's for completion of our secondary offering of common stock and the increased borrowing capacity you would have from a new credit facility. We have further strengthened our balance sheet. Since we became public as a result, we are well positioned to continue to invest in our organic growth as well as execute our acquisition strategy going forward, coupled with our innovative high performing products.

<unk> on our own strong service offerings. We believe we are uniquely positioned to capitalize on unprecedented growth in CE and we're convinced with the only scratched the surface of the opportunity in front of US now I'll turn it over to John to discuss the first quarter financial results in detail and to provide some update on our 2021 guidance John.

Thanks, Bill and good afternoon, everyone. We are very pleased to report first quarter of 2021 results that included a record quarter for hydro farm in terms of sales and adjusted EBITDA.

Net sales for the first quarter increased 66, 5% to of $111 4 million from $66 9 million in the prior year period.

Our topline growth continues to be predominantly volume driven with increased demand across multiple end markets to give you some perspective on how broad and diverse the growth from the quarter was.

We experienced over 100% year over year sales growth in 15 different U S states on while some of these states are still relatively modest in dollar terms today, we expect our sales of many of these states.

The continue to grow significantly in size over the coming quarters and years, our sales growth in the first quarter was also particularly strong in our proprietary brands, which outpaced our preferred and distributed brands.

We also saw gross profit more than double to $23 2 million in the first quarter compared to the same period last year and gross profit margin improved to 28% from $17 three.

This year over year improvement in gross profit margin was primarily driven by a sales mix more heavily weighted towards proprietary branded products, which typically carry a higher natural profit margin than pure distributed brands. We also achieved incremental labor efficiency related the scale benefits in the internal initiatives within our own distribution centers.

Which further enhanced our gross profit margin.

Selling general and administrative expense increase of $16 8 million in the first quarter of 2021 compared to $11 7 million in the year ago period the.

The increase in SG&A was primarily due to increased cost associated with running a public company and supporting our long term growth strategy.

Specifically, we realized higher compensation cost consulting fees, including acquisition related costs insurance costs and share of the share based comp expenses.

Excluding share based comp compensation, and depreciation and amortization expenses SG&A was $14 2 million or 12, 7% of net sales versus $10, one or 15, 1% of on net sales in the prior year period.

So long as comparative basis, we realized significant operating leverage in the quarter.

Reported net income attributable common stockholders was $4 9 million were <unk> 13 per diluted share in the quarter compared to a net loss of $3 7 million or 18.

Per diluted share last year.

Weighted average diluted shares outstanding were approximately $39 million for the first quarter of 2021 and approximately $27 million for the prior year period. Please note that during the prior year share count does not reflect the impact of our December 2020, I P O.

And so similar to last quarter, we have calculated pro forma adjusted net income and applied pro forma of weighted average diluted shares outstanding as if the IPO had occurred at the beginning of January 2020, which is the earliest comparison period the precise.

Calculations detailed on our earnings release on the page containing the reconciliation of non-GAAP measures.

We believe the additional information contained in the non-GAAP measure can be helpful on comparing prior periods.

On this basis pro forma adjusted net income for the quarter was approximately $7 3 million or 19.

Per pro forma diluted share compared to a loss of $1 6 million or <unk> <unk>.

Per pro forma diluted share in the year ago period.

Lastly, adjusted EBITDA increased over five fold to $9 9 million for eight 9% of net sales for.

For the first quarter of 2021 versus $1 6 million or two four percentage of net sales in the prior year period.

Higher sales the improvement of gross profit margin and further leverage on SG&A expenses, all contributed to the record adjusted EBITDA in the first quarter.

Moving onto our balance sheet and overall liquidity position.

As of March 31, 2021, we had $62 million in cash cash equivalents in the restricted cash is $50 million of available borrowing capacity under our existing credit agreement and only $1 1 million in the aggregate amount of outstanding debt.

Subsequent to the quarter end, we completed a follow on equity offering raising approximately $310 million and net cash proceeds to the company. We also completed the heavy 16 acquisition, which resulted in the cash use of approximately $61 million.

When you consider the equity offering the heavy 16 acquisition, our cash position our cash position at quarter end the availability under our current debt agreement and as much as $57 million in additional proceeds for the company from the future exercise of industrial warrants. We currently have over $400 million available to deploy against the growth.

Strategy, the bill outlined earlier.

Before we open the lines for questions. Let me quickly review, our revised 2021 outlook.

Based on the strong start of 2021 and the recent completion of our of <unk>.

<unk> 16 acquisition, we are updating our outlook for the full year.

We are now expecting total company net sales growth of 30% to 40% for the 12 month period ended December 2021.

And adjusted EBITDA of 36% to $42 million for the same period.

We continue to expect the stronger year over year growth in the first half of 2021 relative to the second half as we will be lapping strong comparable periods in the third and fourth quarter of 2020.

And while our revised outlook for the full year implies the stronger adjusted EBITDA margin than our prior outlook, we remain somewhat cautious about further margin expansion as we move across the quarters for the remainder of 2021 due in large parts of the overall commodity cost environment.

In the earnings release earlier today, we noted select the assumptions embedded in our 2021 outlook it.

There was only one change in the outlook assumptions from those previously presented in March and that relates to a $5 million increase on our capex to approximately 4 million to $5 million for the full year to account for additional growth capital expenditures at the heavy 16 manufacturing plant.

As you can see from the quarter results and our recently completed capital raise and the heavy 16 acquisition, we remain quite active in executing against our growth plan.

And we look forward to reporting our progress again next quarter.

This concludes our prepared remarks, and we are now happy to answer questions that you might have operator, please open the lines for questions.

And at this time of will be conducting a question and answer session. If you'd like to ask the question. Please press star one on the telephone keypad income.

Information tool will indicate your line is in the question queue you.

You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up on your handset before pressing the star one.

The only please while we poll for questions.

Our first question is from Andrew Carter with Stifel. Please proceed with your question.

Hey, Thanks, Good afternoon I appreciate that you have kind of of more subdued and margin outlook for the remainder of the year given some caution.

Around the input cost environment are you seeing an eight 9% EBITDA margin first quarter seasonally kind of weakness.

Seven eight to $8 seven so I just want to help help us understand kind of that caution is it cost out of the mix, yes, theres inflation, but you've got pricing and then in particular with the heavy <unk> acquisition will be EBITDA margin accretive here in year one.

Okay.

Okay I'll jump in on that one Andrew Thanks for thanks for the question.

Well look I mean, we did just reported an all time record quarter and we do not believe we have we have yet seen the full impact of overall commodity cost environment for.

For example, our new LTE, all freight rate, which we locked in for the remainder of 2021 set the rise during Q2.

This is a fairly easily identifiable cost that we know is rising but there may be other rising costs coming our way across the roughly 6000, skus that we sell and as we discussed before we can take an inventory position of the Biosimilar time. We can also consider price increases to help mitigate some of these rising costs with just given the overall environment, we thought it seemed appropriate the guide and the man.

At this point.

And yes to your point of view.

We do believe the heavy <unk> acquisition will be accretive.

Nice.

Circle in on just a little bit on that I guess could you talk about how this acquisition fits in kind of what the future acquisition expectations of acquiring true bands do we think of this as like the platform asset with the manufacturing cash capacity to onboard the other nutrient brands potentially partially of brands quickly. Realizing the synergies are instead would you need the manufacturing.

As you can keep up with the growth of having the <unk> as well as potential business because you're on.

Morning. Thanks.

Yeah. Good question Andrew.

Thank you.

Need more than just sort of your 16 to really have a full platform of nutrients. It's a fantastic business sits in a brand new but relatively small physical facility in Los Angeles and look you know the nutrient industry shifts a lot of water very expensive water very expensive transportation of these blades and so ultimately I'd like to think of of a world where you have the regional.

The capability to produce and ship things a lot less distance and a lot less water moving around because I think that's a better model for the for the longer term. So the specific answer to your question is it's certainly the a nice start in building a platform, but there's more of that needs to be done to really give us the kind of the full range that we would like to have.

Thanks for all of ethanol.

Thanks, a lot.

The next question is from Andrea Teixeira with J P. Morgan. Please proceed with your question.

Thank you the rest I know I just wanted to go back to the guidance and try it's not it's all of the math is correct I think you're looking at out of seen Meda contribution to of course sales from go ahead of the 16, So correct me if I'm wrong.

Your guide probably implies about singing since that day.

Thanks for the center organic growth for 2021, and if you can help us like for like I think you've got about 6% of growth and pricing. If you can decompose that and also the components of the EBIT guide in Queens, the thing organic N and <unk>.

For having 16.

Yes, sure just I'll jump in.

Andrea for the question, Yeah, I mean in terms of the organic.

Growth split versus M&A, which is really at this point of having 16, yes I think your the numbers you mentioned are certainly in the ballpark.

I would say in terms of the EBITDA Guide I mean, I think you can.

Kind of decompose the math a little bit on heavy 16 based on sort of the Breadcrumb Trail. We left in the in the press release for the signing announcement on <unk> 16, I think when you do that you can you can kind of imply from our organic EBITDA that you know, it's quite strong and certainly.

On the guide up from what we had previously provided back at the end of March.

Yeah, No I I.

I can take it offline, but it's consistent.

Consistent with adjusted when you sat in the it's a pretty high EBITDA margin right, so and I thank them.

When I'm thinking of like how accretive it is and not on any of that how your commentary about faith in commodity costs in general.

Should we expect you to build into that 6% I think for 6% that I debt I signed up for these ride on pricing since you can buildings of that and the NGO pricing as well and therefore you have some questions on the salaries are sending volumes until the back half.

Yeah, the their husband, some cost increase and as John outlined I mean, obviously of bottles of the RASM going out from gone up a good bit theres a lot of pressure on a number of things of the other piece of we're having trouble with is labor not just of the cost of labor, but just physically getting people to.

To find the higher so that's the only in cost of the areas. We're trying to accelerate the production can cause the ability of <unk> 16, and frankly, the whole distribution network is a big pressure on that one of them, but yeah. It you can assume the pricing there's been pricing on the category. We generally work very hard to make sure we price through all.

All cost increases we get from our supply base you can expect us to do that when we see them come through there will be some pricing.

Now going forward, but it's it's a it's a challenging time and I. Appreciate Andrew's question a minute ago Andrea on on the Mark of the overall margin mix question, we are being cautious because of the the unknown, it's where the the challenge of calm and we really part of lot of it off in Q1 and end up with the great margin.

Had some pent up demand on some really profitable products that got shipped out of March sort of probably got a little ahead of ourselves for the year on the margin there, but I think overall, we feel good about where we sit and feel like the evolution is coming through as we had hoped.

Yeah.

Yeah that and you're seeing the competitors doing the same passing on the price increases.

Yes.

On the husband some pricing for.

From quite a few factors in the in the categories we compete in.

Perfect I'll pass it on thank you again.

Thanks, Andrew.

Yeah.

And our next question is from Kevin Merrick for Deutsche Bank. Please proceed with your other question.

Hey, guys. Good afternoon. Thanks for the question.

Just wondering if you can comment on trends exiting the quarter kind of what you've seen.

In April on through the first two weeks of the main two thiago since of the comp and some thinking about framing growth as we progress through the year.

Yeah, the absolute volume level has stayed.

If not very consistent with Q1 actually it's kicked up a bit as you would expect as we go into our Q2, which is our strongest volume quarter of Q2 and Q3, but we are running up against bigger comps as we have cautioned.

Before the year, we had of plus 20 in Q1 that we just lapped to the plus 66. Our Q2 was plus 40 last year that we're now lapping and then we hit $2 <unk> in the back half. So absolute volumes are continuing to I would say seasonally adjusted on a larger.

Which is great, but we are running up against the bigger comps from last year.

Okay.

Got it understood.

And then kind of within that growth that you are seeing other kind of there are they're varying trends between some of the categories that are worth noting I mean in the prepared remarks I noted that.

The growth was broad based but I'm wondering if there's anything to call out.

Yeah, I would say that frankly, we've had very good year on kind of on our equipment categories on a couple of key brands.

ROE media, even though it had a wonderful year last year is doing the same thing again and the nutrient nutrient side of the remainder of real strong I mean, the the growth. It is differentiated by category, but they're all kind of in a kind of similar players serving the year. When you started out the year of plus 66 per cent everything is doing pretty well.

Right I appreciate that it is a good place to be.

Maybe just one more if I could pass it on.

Sure the M&A environment.

What does your pipeline look like what kind of conversations are you having.

You know on the heels of having 16 and calendar year are strong.

On the balance sheet any out there any update there would be great. Thanks.

Yes pipeline is still very good and.

There's a lot of interest and activity in a number of these deals right now more than there was six months ago, I think us coming out and coming out in the situation that we were in and then doing the secondary than doing heavy 16 is kind of showing people that we really are here to do deals and we're going to be adding businesses and but the market's very.

Competitive for the east kind of assets, particularly ones that have the <unk>.

Growth and profit profile and the opportunity to enter.

Massive category like controlled environment, agriculture, and the suppliers for that.

So I would say, it's a very good pipeline that we're working with but theres a lot of people that have interest in the categories as well.

Understood I appreciate it thank you.

Thank you Kevin.

Okay.

And our next question is from Jon Andersen with William Blair. Please proceed with your question.

Hey, good afternoon. Thanks for the question Hey, John how are you.

Hi, good the.

Congrats on a strong start by the way I wanted to just ask about the mix of the business across the brand segment.

It sounds like you were strong across the board, but could you talk a little bit more about that.

The relative strength of the proprietary brands.

Versus the preferred and distributed are you seeing where you are from an overall mix perspective, now and maybe what you're targeting or what you think would be an optimum mix.

A couple of years down the road when you'll get more of a kind of a run rate level.

Yeah.

Our proprietary brands are growing.

A good bit faster than our distributor brands right now and that's a very good thing for our P&L and that's one of the things for them in the margin in Q1 weighted historically been sort of in the low thirties as a percentage of total on proprietary the numbers now moved up to kind of mid to high Thirty's. If you will as a percent and we even had.

Month over 40.

That's kind of the trend, we're seeing sort of three or 400 basis points of the.

The expanded.

Penetration in proprietary which is key for us to keep remixing the margins our goal via M&A and innovation and focus would be to get that number.

The the forties and fifties and if you talk about three to five years from now I'd like to be you know.

60 per cent of greater than our own brands.

And that's not to say the partner and preferred and distributor of arent important but to really give us control of our own destiny and to drive our own branded differentiated.

Success for our retail customers and ultimately with growers.

You need to have our own innovation of our own brands and we do that with.

Hope beautiful other than we do that and combine it with one of our partner brands do and give us the scale and that sort of frequently shop product that we know we can distribute very efficiently and effectively so there's two things they work hand in glove, they don't have to work against each other.

Yeah that makes that makes sense.

Just one more for me on on heavy 16, you mentioned it.

I think available in the 300 of the 1200, some odd hydroponic storage across the country and fairly concentrated on AR.

State basis could you talk about why why that is and what you can do.

And over what kind of timeframe to kind of effect that the.

The positive fashion. Thanks.

Yeah no. It's good it's a good question it was kind of a surprise to us because of the business got started in California. So it's not surprising it's from California right. They also got into Michigan very early and did a really good sampling and selling in the demo program in Michigan and got a great presence there and then kind of as often happens in this industry.

<unk> sort of word of mouth and relationship in and people talking about the products.

Are you exposed to the other the other customers other growers of Michigan went really well and Oklahoma opened up really rapidly as we all know and everybody got did well in Oklahoma and that became the spin off from you know for another state for them and of course, Colorado as the for state, where they do really well and it gives us the kind of Colorado has obviously been around a long time, so that's an easier one day to understand.

Our goal is to take the.

This into other states with kind of the Michigan model that they use of launch there a few years ago to get product into People's hands to work with our retail partners and growers locally in each market to create the opportunities for people to use of 16 that may not have heard of it done understand its simplicity and sort of the elegance of the brand on her.

How it works on the simple two part formula that on.

The represents all of those things are really.

The way to get a brand like this launched into new markets and so we were literally on a call today with our you know our sales team and started talking about the retail implementation of this we're keeping all of the heavy 16 salespeople that's kind of the category experts our focus will be the generalist there'll be the category experts and we'll just keep building this brand together and building all of our nutrient partner.

Brands as well because we can now take more of of category management approach to this versus the individual brand approach.

Absolutely. Thanks for the help on that and good luck on forward.

Thanks, Sean.

And just as a quick reminder, if anyone has any questions. You May press star one on your telephone keypad. Our next question is from Bill Chappell with true of Securities. Please proceed with your question.

Thanks, Good afternoon.

Hey, Bill.

Hey, just one last one on on the heavy <unk> thinking.

Think of them right in saying that it didn't grow as fast as the industry or is your sales last year, because it was capacity constrained.

<unk> talked about the $500000 expansion in Capex, the near term how long does it take to kind of get it up to where it needs to be in terms of the capacity for you to be able to it for it to either able to grow and move into all of these different states will grow at least as fast as your core business.

It actually we grew 45% last year. They grew 57, so they did a great job even in that limited capacity right. They have a number of products that are some are co packed summer packs of at home. So they get a little bit of both right.

We you know we can of half of going in there and working with their ops people, we've already gotten the production up to kind of 30 40, 50% heading to the higher numbers just from some basic block and tackle changes that we've been able to put in so we think we can support a lot of the growth now with just some basic stuff and then the the new line that we're buying.

As you know for some of the larger sizes, that's going to take about 14 weeks to get them. Once it's in so call that much of a three or four months, we should be in the back half of ready to go with that with that the expanded capacity as well. So these are fairly simple processes, there, they're highly technical formulations, but they're simple process of the blending and bottling. So once we get the <unk>.

<unk> on the workflow is really the biggest issue once we get that work flow built in right.

Can expand capacity of pretty quick, but also only running one shift and so there's another opportunity. There. If we can find people to get the another shift added on other thing.

Sure and then.

The second just looking at your updated guidance of 30 to 40 per cent topline of there's some of that.

The from having 16 some of Thats from the first quarter outperformance, but I'm just trying to look at is the the organic or is the remainder of the year or your optimistic outlook for the remainder of the year how much of the it's coming from.

The new states new customers versus just the the continued strength of and it could be you know existing customers.

Upgrading to new lighting I just this is John.

Help to understand how much of it you know.

It seems like it's really is mining the core markets its not really new markets right now.

That's right I mean on New York pushed out of the 22, New Jersey still arguing other states aren't sure you know the past when people think of the next day is going to get sort of start order in the work that way of Arizona is the exception in Arizona on when it passed in November by by Q1 of this year of volume was up three or four X off of small base from from from the.

Before so it's very hard to say are still our fastest growing area in terms of dollars just California right. That's the biggest states. It doesn't have to grow a much to be the fastest dollar but it is the fastest and that's the speaks to like you say people are relaxing of shifting away from high pressure sodium of Devil ended on the Leds, they're building new for.

It's just a massive amount of growth going on across almost every geography every brand category and every type of growth. We think of the obvious kind of home use market is one of the reasons of this thing is growing underneath so fast because the Tam is actually a lot larger than people think and can identify for you.

We've got states that haven't even move legislatively, youre seeing nice growth and because of a hobbyist or back end doing what they're doing and so it is just a fun business to watch because you've got growth from all different aspects that you don't have a lot of that a lot of industries.

Sure No absolutely and then the last one for me just back on the the M&A pipeline I mean.

Since you went public the Hawthorne is.

Now publically said, they're more interested in M&A than they had been in the past for past few years. So.

Are you comfortable that that all of the the potential sellers don't hear of Hey, I've got a bidding war I want top dollar and you just kind of kind of.

It ends up pricing a lot of these deals out of the market.

Yes, I think first of all of their overall of disciplined company, we try to be a discipline the company as well I think they will show up for the the the.

The bids that are appropriate and important to move their needle right and we're going to show up for the ones that move our needle.

And that'll have a little bit different definition right for.

You know for them, which of the market cap you know far greater than ours, they probably have a little higher bar in terms of things that are interesting to them for us. We can do a lot of things on the tuck in basis of and a lot of value of our company.

And just keep building from there.

Great well, thanks, so much.

Thanks Bill.

Okay.

We have reached the end of the question and answer session I'll now turn the call back over to management for closing remarks.

That's great. Thank you all very much for being a part of the call today and we're glad to get Q1 on the books and tell you about it and we look forward to more good news down the road. Thanks, so much take care.

Okay.

This concludes today's conference and you may disconnect your lines of at this time. Thank you for your participation.

[music].

Good day, ladies and gentlemen, and thank you for standing by and welcome to the Hydro from Holdings Group first quarter 2021 earnings Conference call. At this time, all participants have been placed in a listen only mode and the lines will be open for your questions. Following the presentation.

Please note that this conference is being recorded today May 13 2021.

I'd now like to turn the call over to Mr. Fits you tailor managing director of a director at ICR to begin.

Thank you for the Molly and good afternoon.

With me on the call today is bill Toler Hydro farms, Chairman and Chief Executive Officer, and John London on the company's Chief Financial Officer.

By now everyone should have access to our first quarter 2021 earnings release and form 8-K issued today after market close.

These documents are available on the investors section hydro farms the website at www Dot hydro on Dot com.

Before we begin our formal remarks. Please note that our discussions 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 them.

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 a more detailed discussion of the risks that could impact our 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 the.

Thank you fits you and good afternoon, everyone. We're pleased with the continued momentum in our business as of Q1 revenues grew 66, 5% versus last year.

Completing our third straight quarter of organic sales growth greater than 60 per cent.

We're also pleased to report a record adjusted EBITDA of $9 9 million an increase of over 500 per cent from last year's first quarter on revenue growth was once again across virtually all of our product lines and geographies. This includes both new markets and mature markets and is across the board on all virtually all of our brands on category.

And as demonstrated by our EBITDA growth, we continue to benefit from a favorable sales mix as our proprietary brands are becoming a larger part of our total sales and that drives margin expansion.

Our exciting growth also gave us the leverage on SG&A. Despite the fact, we're spending more actual dollars in SG&A on a percentage of total went down.

The strength of our results not only in this quarter, but over the last year are indicative of our unique positioning as the leading distributor and manufacturer of differentiated branded hydroponic equipment supplies serving of $9 5 billion dollar controlled environment agriculture market.

Many of you know it's the market. We believe is in the early innings of the sustainable and significant growth curve brought on by a broad based increase in home hydroponic gardening on.

Ongoing domestic legislative approvals related to the cannabis and advances in innovation technology and brand strength within the category.

We also believe longer term the ESG advantages of hydroponics are becoming more mainstream and these efficient farming practices will continue to expand.

While we were operating with a strong tailwind it is worth noting that our differentiated branded offerings are a driver of our results over 60% of our sales come from products that you'd primarily purchase in the hydroponic channel from hydro for them not only does it give us the stickiness, we want a successful growers tend to stay with the brand.

But give them their own differentiated formula for these products also drive advantageous margins for us.

That's formulas evident on the profitability improvement we displayed over the last few quarters.

As we look ahead, our focus will remain on three growth drivers product innovation and brand building.

Adding strategic distribution relationships and the acquisition of value enhancing businesses let.

Let me quickly touch on the first two before talking about our recent acquisition.

The Great example of that is our innovation of our new photo bio by Phantom Elliot. The lives that we began selling broadly late in Q1 building on the success of the photo of buyout index form factor our continued push for innovation as well as to the recent unveiling of the photo of by a cheat and the photo biotechs, both lights and when it started.

Selling late in the first quarter.

We believe these two products are smart and affordable investments for growers looking to successfully cultivate all types of crops and controlled environment agriculture.

We also introduced additional proprietary and preferred brands in the in the first quarter, including products and supplies nutrients and the growing media categories. This income.

The brand of long term growth star of a new line of premium lab grade 10, testers for soil as well as new products or any of the existing brands like auto pilot plant success rock nutrients and roots of organics.

Secondly, we continue to focus on adding strategic distribution relationships and preferred brands for our portfolio. As we previously mentioned in early February we signed the new exclusive distribution agreement in Canada with advanced nutrients one of the most largest and most respected nutrient brands and the CEO of <unk> space. This strategic partnership has allowed us to make.

Lastly, one of our top priorities is to acquire value enhancing businesses to broaden our industry footprint and strengthen our product portfolio.

We remain opportunistic across all product segments, we have been focused on the nutrients and growing media categories in particular, largely because of these product categories, our consumables for our growers and recurring revenue for hydro farm and our retail partners. Additionally, many of these brands have very healthy EBITDA margins and our categories, where we currently do.

On have our own strong proprietary brands.

To that end in late April we announced the acquisition of having 16, a leading and highly respected manufacturer and supplier of plants of nutritional products used at all stages of the plant in growth to help increase the yield and quality of the crops.

In addition to be of highly compatible and complementary business within our existing product line have you <unk> has a compelling financial profile with strong revenue growth and impressive margins that we expect to be accretive to our adjusted EBITDA This year and beyond.

Furthermore, we believe we have an excellent opportunity to expand the heavy <unk> footprint as the product line is currently only sold at about 300 of the 200 stores in the U S and 90% of its sales are in just for states. We're excited to welcome the talented heavy 16 team into the hydro from family and we believe this acquisition.

The <unk> fits well as the proprietary brand for hydro farming of the nutrient category and will further solidify our position as the acquirer of choice in this highly fragmented and fast growing industry.

So I hope you can see we're hard at work executing the strategies, we laid out back in December of our IPO with the successful completion of our secondary offering of common stock and the increased borrowing capacity you would have from a new credit facility. We have further strengthened our balance sheet central became public as a result, we are well positioned to continue to invest.

On our organic growth as well as the execute our acquisition strategy going forward.

With our innovative high performing products on our own strong service offerings. We believe we are uniquely positioned to capitalize on unprecedented growth in <unk> and we are convinced with the only scratched the surface of the opportunity in front of US now I'll turn it over to John to discuss the first quarter financial results in detail and the provide some update on R 22.

The one guidance John.

Thanks, Bill and good afternoon, everyone. We are very pleased to report first quarter of 2021 results that included a record quarter for hydro farm in terms of sales and adjusted EBITDA.

Net sales for the first quarter increased 66, 5% to of $111 4 million from $66 9 million in the prior year period.

Our topline growth continues to be predominantly volume driven with increased demand across multiple end markets to give you some perspective on how broad and diverse the growth in the quarter was.

To continue to grow significantly in size over the coming quarters and years, our sales growth in the first quarter was also particularly strong in our proprietary brands, which outpaced our preferred and distributed brands.

We also saw gross profit more than double to $23 2 million in the first quarter compared to the same period last year and gross profit margin improved to 28% from $17 three.

This year over year improvement in gross profit margin was primarily driven by a sales mix more heavily weighted towards proprietary branded products, which typically carry a higher natural profit margin than pure of distributed brands. We also achieved incremental labor efficiency related the scale benefits in the internal initiatives within our own distribution centers.

Which further enhanced our gross profit margin.

Selling general and administrative expense increase of $16 8 million in the first quarter of 2021 compared to $11 7 million in the year ago period. The increase in SG&A was primarily due to increased cost associated with running a public company and supporting our long term growth strategy.

Specifically, we realized higher compensation cost consulting fees, including acquisition related costs insurance costs and share of the share based comp expenses.

Excluding share based compensation and depreciation and amortization expenses SG&A was $14 2 million or 12, 7% of net sales versus 10, one or 15, 1% of net sales in the prior year period.

So long as comparative basis, we realized significant operating leverage in the quarter.

Reported net income attributable common stockholders was $4 9 million were <unk> 13 per diluted share in the quarter compared to a net loss of $3 7 million or 18 cents per.

Per diluted share last year.

Weighted average diluted shares outstanding were approximately $39 million for the first quarter of 2021, and approximately $20 7 million for the prior year period. Please note that during the prior year share count does not reflect the impact of our December 2020, I P O.

Calculations detailed on our earnings release on the page containing the reconciliation of non-GAAP measures.

We believe the additional information contained in the non-GAAP measure can be helpful on comparing prior periods.

On this basis pro forma adjusted net income for the quarter was approximately $7 $3 million or <unk> 19 per.

Pro forma diluted share compared to a loss of $1 6 million or <unk> <unk>.

Per pro forma diluted share in the year ago period.

Lastly, adjusted EBITDA increased over five fold to $9 9 million for eight 9% of net sales.

For the first quarter of 2021 versus $1 6 million or two four per cent of net sales in the prior year period.

Higher sales the improvement of gross profit margin and further leverage on SG&A expenses, all contributed to the record adjusted EBITDA in the first quarter.

Moving onto our balance sheet and overall liquidity position.

When you consider the equity offering the heavy 16 acquisition, our cash position of a cash position at quarter end the availability under our current debt agreement and as much as 57 million in additional proceeds for the company from the future exercise of industrial warrants. We currently have over $400 million available to deploy against the growth.

Strategy of the Bill outlined earlier.

Before we open the lines for questions. Let me quickly review, our revised 2021 outlook.

Based on the strong start the 2021 and the recent completion of our <unk>.

<unk> 16 acquisition, we are updating our outlook for the full year.

We are now expecting total company net sales growth of 30% to 40% for the 12 month period ended December 2021.

And adjusted EBITDA of $36 million to $42 million for the same period.

We continue to expect the stronger year over year growth in the first half of 2021 relative to the second half as we will be of lapping strong comparable periods in the third and fourth quarter of 2020.

In the earnings release earlier today, we noted select the assumptions embedded in our 2021 outlook it was on.

Only one change in the outlook assumptions from those previously presented in March and that relates to of half a million dollar increase on our capex to approximately 4 million to $5 million for the full year to account for additional growth capital expenditures at the heavy 16 manufacturing plant.

As you can see from the quarter results and our recently completed capital raise and the heavy 16 acquisition, we remain quite active in executing against our growth plan.

And we look forward to reporting our progress again next quarter. This.

This concludes our prepared remarks, and we are now happy to answer questions that you might have on.

Operator, please open the lines for questions.

And at this time of will be conducting a question and answer session. If you'd like to ask the question. Please press star one on your telephone keypad. The confirmation tone will indicate your line is on the question. Keith you May price started to if you like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up on your handset before Christmas turkeys.

One moment, please while we poll for questions.

Our first question is from Andrew Carter with Stifel. Please proceed with your question.

Hey, Thanks, Good afternoon I appreciate that you have the kind of a more subdued and margin outlook for the remainder of the year given some caution.

Around the input cost environment are you seeing an eight 9% EBITDA margin first quarter seasonally kind of the weakest updated seven eight to $8 seven so I just want to help help us understand kind of that caution is it cost out of the mix, yes, there's inflation, but you've got pricing and then in particular with the heavy 16 acquisition will be EBITDA.

Is it accretive here in year one.

Okay.

Okay I'll jump in on that one Andrew Thanks for thanks for the question.

Well look I mean, we did just reported an all time record quarter and we do not believe we have we have yet seen the full impact of overall commodity cost environment for.

For example, our new L T L freight rate, which we locked in for the remainder of 2021 set to rise during Q2.

This is a fairly easily identifiable cost that we know is rising but there may be other rising costs coming our way across the roughly 6000, skus that we sell and as we discussed before we can take an inventory position of the bio. Some time. We can also consider price increases to help mitigate some of these rising costs with just given the overall environment, we thought it seemed appropriate for <unk>.

The amount of a at this point.

And yes to your point of view.

We do believe the heavy 16 acquisition will be accretive.

Nice.

And on just a little bit on that I guess could you talk about how this acquisition fits in kind of what the future acquisition expectations of acquiring true pants do we think of this as like the platform asset with the manufacturing cash capacity to onboard other nutrient brands potentially partially of brands quickly realizing the synergies on stag will you need the manufacturing.

As you can keep up with the growth of having 16 as well as potential business that you're.

Yeah. Good question, Andrew and thank you yeah, we're in the new.

Need more than just have used <unk> to really have the full platform of nutrients. It's a fantastic business. It's in a brand new but relatively small physical facility in Los Angeles and look you know the nutrient industry shifts a lot of water very expensive water of our extensive transportation of these rates and so ultimately I'd like to think of a world where you have the regional.

The capability to produce and ship things a lot less distance and a lot less water moving around because I think that's a better model for the for the longer term. So the specific answer to your question is it's certainly the a nice start in the building a platform, but there's more of the needs to be done to really give us the kind of the full range that we would like to have.

Thanks, I'll pass it on.

Thanks, a lot.

And our next question is from Andrea Teixeira with Jpmorgan. Please proceed with your question.

Thank you of what else or no I just wanted to go back to the guidance and try and follow the math is correct I think you're looking at out it seem to me the contribution to of course sales from go ahead of the 16, So correct me if I'm wrong.

Guide, probably implies about 6% organic growth for 2021, and if you can help us like for like I think you've got about 6% of growth in pricing. If you can decompose that and also the components of the EBITDA guide in Queens the thing on Guy.

On it and.

We're having the same.

Yeah sure just I'll jump in.

Andrea for the question, Yeah, I mean in terms of the organic.

Growth split versus M&A, which is really at this point of having 16, yes I think your the numbers you mentioned are certainly in the ballpark.

I would say in terms of the EBITDA Guide I mean, I think you can.

Kind of decompose the the math a little bit on heavy <unk> based on sort of the Breadcrumb Trail. We left in the in the press release for the signing announcement on having 16 I think when you do that you can you can kind of imply from our organic EBITDA that you know.

It's quite strong and certainly the guide up from what we had previously provided back at the end of March.

Yeah, no I can take it offline, but it's.

Consistent with just the one is that it's the it's a pretty high EBITDA margin right, so and I thank them.

When I'm thinking of like how accretive it is and not only of that how your commentary about faith on commodity costs in general.

Should we expect you to build into that 6% I think was 6% that I that I signed up for these ride on pricing. So if you can buildings of that and and grow pricing as well and therefore, you have some cushion for the salaries are sending volumes until the back half.

Yeah. The there has been some cost increase and as John outlined I mean, obviously bottles of the RASM going up of gone up a good bit theres a lot of pressure on member of things of the other piece, we were having trouble with is labor not just of the cost of labor, but just physically getting people to.

To find the higher so that's all in cost of the areas. We're trying to accelerate the production capability of <unk> 16, and frankly, the whole distribution network as having pressure on that one but.

But yeah. If you you can assume the pricing there's been pricing on the category. We generally work very hard to make sure we price through all of our cost increases we get from our supply base. So you can expect us to do that when we see them come through so there will be some price.

Now going forward, but it's it's a it's a challenging time and I appreciate Andrew's question a minute ago Indra on.

On on the Mark of the overall margin mix question, we are being cautious because of the.

Unknown, it's where the the challenge of come in and we really part of a lot of it off in Q1 and ended up with the great margin. We had some pent up demand on some really profitable products that got shipped out of March on sort of.

We probably got a little ahead of ourselves for the year on the margin there, but I think overall, we feel good about where we sit and feel like the evolution is coming through as we had hoped.

Yeah that and you're seeing the competitors.

On the same testing on this price increases.

Yes, yes, the husband some pricing for.

From quite a few factors in the in the categories we compete in.

Perfect I'll pass it on thank you again.

Thanks, Andrew.

And our next question is from Kevin Merrick for Deutsche Bank. Please proceed with your question.

Hey, guys. Good afternoon. Thanks for the question.

Just wondering if you can comment on trends exiting the quarter kind of what you've seen.

In April on through the first two weeks of the main two other since on the comp and some thinking about framing growth as we progress through the year.

Yeah, the absolute volume level has.

Jade.

If not very consistent with Q1 actually it's kicked up a bit as you would expect as we go into our Q2, which was our strongest volume quarter of Q2, and Q3, but we're running up against the bigger comps as we had kind of caution.

Before the year, we had of plus 20 in Q1 that we just lapped to the plus 66 of our Q2 was plus 40 last year that we're now lapping and then when you hit two sixties in the back half. So absolute volumes are continuing to I would say seasonally adjusted of larger.

Which is great, but we are running up against the bigger comps from last year.

Okay.

Got it understood.

And then kind of within that growth that you are seeing other kind of their other varying trends between some of the categories that are worth, noting I mean in the prepared remarks I notice of that.

You said the growth was broad based but I'm wondering if there's anything to call out.

Yeah, I would say that frankly, we've had very good year on kind of on our equipment categories on a couple of key brands.

Grow media, even though it had a wonderful year last year is doing the same thing again.

And the nutrient nutrient side of the remainder of real strong I mean, the the growth. It is differentiated by category, but there are all kind of in a kind of <unk>.

Other players serving the year when you started out the year plus 66 per cent everything is doing pretty well.

Right I appreciate that the it's a good place to be.

Just one more if I could pass it on.

For the M&A environment.

What does your pipeline look like what kind of conversations are you having.

You know on the heels of 16 in tons or you're a stronger balance sheet and the out there any update there would be great. Thanks.

Yes pipeline is still very good.

There's a lot of interest and activity in a number of these deals right now I'm more than there was six months ago, I think us coming out and coming out in the situation that we were in then do it in the secondary than doing heavy 16 is kind of showing people that we really are here to do deals and we're going to be adding businesses in but the.

Markets for a competitive for the east kind of assets, particularly ones that have the growth and profit profile and the opportunity to enter.

Massive category like controlled environment, agriculture, and the suppliers for them.

So I would say, it's a very good pipeline that we're working with but theres a lot of people that have interest in the categories as well.

Understood I appreciate it thank you.

Thank you Kevin.

And our next question is from Jon Andersen with William Blair. Please proceed with your question.

Hey, good afternoon. Thanks for the question Hey, John how are you on hi.

Hi, good.

Congrats on a strong start by the way.

I wanted to just ask about the mix of the business across the brand segment.

It sounds like you were strong across the board, but could you talk a little bit more about maybe the relative strength of the proprietary brands.

Versus the preferred and distribute it.

Are you seeing where you are from an overall mix perspective, now and maybe what you're targeting or what you think would be an optimum mix you know a couple of years down the road when you'll get more of a kind of a run rate level.

Yeah.

The proprietary brands are growing.

The good bit faster than our distributor brands right now and that's a very good thing for our P&L and that's one of the things that's driven the margin.

Q1 weighted historically been sort of in the low <unk> as a percentage of total on proprietary the numbers now moved up to kind of mid to high Thirty's. If you will as a percent.

We even had a month over 40.

But the.

It's kind of the trend, we're seeing sort of three or 400 basis points of the.

The expanded Penn.

Penetration in proprietary which is key for us to keep remixing the margins our goal via M&A and innovation and focus would be to get that number.

And of the forties and fifties and if you talk about three to five years from now I'd like to be.

<unk> 60 per cent of greater than our own brands.

It's not to say the partner and preferred and distributor of aren't important but to really give us control of our own destiny and to drive our own branded differentiated the success with our retail customers and ultimately with growers, we need to have our own innovation of our own brands and we do that.

We hope beautiful other than we do that and combine it with what our partner brands do and give us the scale and that sort of frequently shop product that we know we can distribute very efficiently and effectively so those two things. They work hand in glove I don't have to work against each other.

Yeah that makes that makes sense.

Just one more for me on on heavy 16, you mentioned debt.

I think available on and 300 of the 1200, some odd hydroponic storage across the country and fairly concentrated on a.

Eight basis could you talk about why.

Why that is and what you can do.

And over what kind of timeframe to kind of affect that on a positive fashion.

Yeah no. It's good it's a good question it was kind of a surprise to us because of the business got started in California. So it's not surprising it's from California right. They also got into Michigan very early and did a really good sampling and selling in Devon demo program in Michigan and got a great presence there and then kind of as often happens in the Sim.

History sort of word of mouth and relationship then from people talking about the products.

You're exposed to the other the other customers other growers from Michigan went really well and Oklahoma opened up really rapidly as we all know and everybody got did well in Oklahoma and that the <unk>.

The spin off from you know for another state for them and of course, Colorado as the force state, where they do really well and it gives us the kind of Colorado has obviously been around a long time. So that's an easier one day to understand our our goal is to take these this into other states with kind of the Michigan model that they used the launch there a few years ago to get product in the <unk>.

Fans to work with our retail partners and growers locally in each market to create the opportunities for people to use of the 16 that may not have heard of it done understand its simplicity and sort of the elegance of the brand on how it works in the simple two part formula.

It represents all of those things are really the way to get a brand like this launched into new markets and so we were literally on a call today with R. R.

Our sales team and started talking about the retail implementation of this we're keeping all of the heavy 16 salespeople. It's kind of the category experts are folks who would be the generalist there'll be the category experts and we'll just keep building this brand together and building all of our nutrient partner brands as well because we can now take more of of category management approach to this versus the individual.

Brand approach.

Absolutely. Thanks for the help on that and good luck on forward.

Thanks, Sean.

And just as a quick reminder, if anyone has any questions you May press star one on your telephone keypad our net.

The question is from Bill Chappell with true of Securities. Please proceed with your question.

Thanks, Good afternoon.

Hey, Bill Hey.

Just one last one on on the heavy 16 thinking.

Think of it right in saying that it didn't grow as fast as the industry or your sales last year, because it was capacity constrained.

<unk> talked about the $500000 expansion.

Capex for new.

Near term how long does it take the kind of get it up to where it needs to be in terms of the capacity for you to be able the importance of either able to grow and you know and moving to all these different states or grow at least as fast as your core business.

We weaken of half of going in there and working with their ops people, we've already gotten the production up to kind of 30%, 40%, 50% heading to the higher numbers of some basic block and tackle changes that we've been able to put in so we think we can support a lot of the growth now with just some basic stuff and then the new line that we're buying.

For some of the larger sizes, that's going to take about 14 weeks to get them. Once it's in so call that much of three or four months, we should be in the back half of ready to go with that with that the expanded capacity as well. So these are fairly simple processes, they're highly technical of formulations, but they're simple processes of the blending and bottling. So once we get the <unk>.

Of Pasadena in the workflow is really the biggest issue once we get that workflow built in right.

Can expand capacity of pretty quick, but also only running one shift and so there's another opportunity. There. If we can find people to get the another shift out of the other thing.

Sure and then.

The second just looking at your updated guidance of 30 to 40 per cent topline of some of that.

The state's new customers versus just the the continued strength of <unk> and it could be you know existing customers just on.

Upgrading to new lighting I just this is John.

Hope to understand how much of it you know.

It seems like it's really as mining of the core markets its not really new markets right now.

That's right I mean, you on New York pushed out of the 22, New Jersey still arguing other states aren't sure you know the past when people think of the next day is going to get sort of start order and the work that way.

Zona is the exception of Arizona when it passed in November by by Q1 of this year of volume was up three or four X off of small base from from from the year before so it's very hard to say are still our fastest growing area in terms of dollars just California right. That's the <unk>.

Biggest states it doesn't have to grow much to be the fastest dollar but it is the fastest and that just speaks to like you say people are re lapping of shifting away from high pressure sodium and Devil ended in the Leds there building new partners.

Massive amount of growth going on across almost every geography every brand category and every type of growth. We think of the hobbyist kind of home use market is one of the reasons of this thing is growing underneath so fast because the Tam is actually a lot larger than people think and can have identified so you've got states. It.

That haven't even move legislatively, youre seeing nice growth and because of the hobbyist or back end doing what they're doing and so it is just a fun business to watch because you've got growth from all different aspects that you don't have on a lot of that a lot of industries.

Sure No absolutely and then the last one for me just back on the M&A pipeline I mean since you went public the Hawthorne as of now publically said, they're more interested in M&A than they had been in the past for past few years. So.

Are you comfortable that that all of the the potential sellers don't hear of Hey, I've got a bidding war I want top dollar and you just kind of kind of is it ends up pricing a lot of these deals out of the market.

Yes, I think first of all of their overall of disciplined company. We tried to be of disciplined company as well I think they will show up for the day the.

The bids that are appropriate and important to move their needle right and we're going to show up for the ones that move our needle and that'll have a little bit different definition right for you know for them, which of the market cap far greater than ours, they probably of a little higher bar in terms of things that are interesting to them for us we can do a lot of things on the tuck in.

Basis of and a lot of value of our company.

And just keep building from there.

Great well, thanks, so much.

Thanks Bill.

Yes.

We have reached the end of the question and answer session I will now turn the call back over to management for closing remarks.

Okay.

This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.

Q1 2021 Hydrofarm Holdings Group Inc Earnings Call

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