Q4 2023 Hydrofarm Holdings Group Inc Earnings Call
Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Hydrofarm Holdings Group 4th Quarter 2023 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, February 29, 2024. I would now like to turn the call over to Anna Kate Heller of ICR. Please go ahead.
Good day, ladies and gentlemen.
Standing by.
Into the Hydro Farm Holdings group Fourthquarter twenty-three 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 February 29th 2020 full.
I would now like to tell them to call over to an escape hello of icy or to begin. Please go ahead.
Anna Kate Heller: Thank you and good morning. With me on the call today are Bill Toler, Hydrofarm's Chairman and Chief Executive Officer, and Jon Lindemann, the company's Chief Financial Officer. By now, everyone should have access to our fourth quarter and full year 2023 earnings release in Form 8K issued this morning. These documents are available on the Investors section of Hydrofarm's website at www.hydrofarm.com.
Thank you and good morning listening on the call today is still tiller How'd, you find as chairman and Chief Executive Officer, and John Lindemann, The company's Chief Financial Officer by now everyone should have access to our fourth quarter and full year 2023 earnings release form 8-K issue. This morning.
These are available on the investors section in Hydrophones website at Www Dot <unk> Dot com before we begin our formula remarks. Please note that our discussion today will include forward looking statements.
Anna Kate Heller: 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 them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from our current expectations.
Looking statements are not guarantee of future performance and therefore, you should not put undue reliance on that.
They are also subject numerous risks and uncertainties it cause actual results to differ materially from my current expectations.
Anna Kate Heller: 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 in our earnings release. With that, I would like to turn the call over to Bill Toler. Thank you, Anna Kate, and good morning, everyone.
For all of you to our recent S V filing for a more detailed discussion of the risks that the impact our future operating results in 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 to visit Israel information should not be considered in isolation or as a substitute for adults who had in accordance with gap and reconciliation to comparable got measures are available in our earnings release would that I would like to turn the call over to Belle Towler.
Thank you and good morning, everyone.
William Douglas Toler: We achieved positive adjusted EBITDA and positive free cash flow for the full year 2023, as we had provided in our outlook, even at lower sales. Throughout 2023, our team worked very hard to execute our restructuring and related cost savings initiatives, which allowed us to achieve the improvement in several profitability metrics that we are reporting today, including adjusted gross profit and adjusted gross profit margin of 23 for both the fourth quarter and the full year. Our initiatives included streamlining our product portfolio to enable a greater emphasis on our higher-margin proprietary brands, continued focus on inventory reduction and overall working capital management, better space utilization in our distribution centers, and cost reductions in our transportation and logistics. Our cash balance, overall liquidity, and ability to generate positive free cash flow, as we have demonstrated in the last two fiscal years, give me confidence about where we are from a balance sheet perspective. On the top line, our 2023 sales fell short of our guidance range due to several key factors. Fourth quarter sales were lower primarily due to industry softness in the U.S. specialty retail channel.
<unk> positive adjusted EBITDA and positive free cash flow for the full year 2000 twenty-three as we had provided in our outlook even at lower sales levels.
Throughout 2023, our team worked very hard to execute our restructuring unrelated cost savings initiatives, which allowed us to achieve the improvement in several profitability metrics that we were reporting today, including adjusted gross profit adjusted gross profit margin and twenty-three for both the fourth quarter and the full year.
Our initiatives included streamlining our product portfolio to enable greater emphasis on a higher margins. Roger brands continued focus on inventory reduction overall working capital management.
Better space utilization, and our distribution centers and cost reductions in our transportation and logistics, our cash balance overall liquidity and ability to generate positive free cash flow as we have demonstrated in the last two fiscal years.
Give me confidence about where we are from a balance sheet perspective.
On the top line or 2023 sales fell short of our guidance range.
Due to several key factors.
Fourth quarter sales were lower primarily due to industry softness in the U S specialty retail channel.
William Douglas Toler: You may hear from others in the industry that retail stores and cultivation facilities have been closing as the U.S. cannabis industry remains bogged down in regulatory challenges. These issues have led to an overall reduction in demand from retail stores and cultivation facilities. For example, regulators are enacting stronger enforcement in Oklahoma, and many facilities and stores are closing down as a result. However, we believe these changes will ultimately be good for the long-term health of our industry, as the stronger players will consolidate and create a more stable market environment. There are a number of bright spots in 2023 that we will carry into 24 and continue to build on, which I'd like to highlight. Our proprietary nutrient brands continue to perform well.
You may hear from others in the industry that retail stores and cultivation facilities have been closing is a U S. Cannabis industry remains bogged down in regulatory challenges. These issues have led to an overall reduction demand from retail stores and cultivation facilities. For example, regulators aren't acting stronger enforcement in Oklahoma and many facilities in stores are closing down as a result, we.
Believe these changes will ultimately be good for the long term health of our industry is a stronger players will consolidate to create a more stable market environment.
There are a number of bright spots in 2023 that we will carry into 24 and continue to build on which I'd like to highlight.
Proprietary nutrient brands continue to form well in fact sales grew in the fourth quarter and for the full year of 2023, when you compare them to 2022.
William Douglas Toler: In fact, sales grew in the fourth quarter and for the full year of 2023 when compared to 2022. Because proprietary nutrient brands is one of our higher-margin product lines, the increased portion of the sales mix helped to support margin improvement and also helped us to achieve positive adjusted EBITDA for 2023. Another area of focus in 2023 was to diversify revenues. We have made progress in this area through both geographic and product diversity. Our international sales, which are to customers outside the U.S. and Canada, and non-Canada sales of CEA products sold into food, floral, lawn and garden, and certain other customers, increased to about 25 percent of our total 2023 sales, up from 22 percent in the prior year.
Because proprietary nutrient brands as one of our higher margin product lines. The increased portion of sales mixed helped to support margin improvement and also helped us to achieve positive adjusted EBITDA for 2023.
Another area of focus on 20 twenty-three, what's a diverse of our revenue streams. We have made progress in this area through both geographic and product diversity or international sales, which would your customers outside of the U S and Canada and non cannabis sales of C. E. A product sold into food floral lawn and garden in certain other customers increase to about 20.
5% of our total 2023 sales up from 22% in the prior year.
William Douglas Toler: In 2024, we will continue to develop geographic and sales channel diversity. Hydroponic sales in the US and Canada are still our core business, but revenue diversity will help support us as we navigate challenging industry dynamics. Several potential catalysts are on the horizon for the cannabis industry. The first is the possibility of federal descheduling, which should inject new life into the industry by reducing taxes on legal plant-touching businesses, enabling them to reinvest. The SAFER Banking Act should attract renewed investment from both institutional and retail players. And importantly, since the beginning of 2023, there are an additional seven U.S. states that have legalized adult-use cannabis, which means now there are an estimated 54% of U.S. adults who live in a legalized state.
In 2024, we will continue to develop geographic and sales channel diversity hydroponic sales in the U S and Canada are still our core business, but the revenue diversity will help support us as we are navigating challenging industry dynamics.
Several potential catalyst are on the horizon for the cannabis industry. The first is the possibility of federal D scheduling, which should inject new life into the industry by reducing taxes on legal plant touching businesses, enabling them to reinvest.
Safer banking act sure attracting renewed investment from both institutional and retail players and.
And importantly, since the beginning of 2023, there are an additional 70 U S states that have legalized adult use cannabis, which means now there's an estimated 54% of U S. Adults who live in Illegalize state.
William Douglas Toler: Momentum is beginning to swing positively internationally as well, as Germany just legalized recreational cannabis use last week. We are confident that Hydrofarm will continue to navigate our path forward, and we are well positioned when the industry returns to growth. I'm very proud of the entire team at Hydrofarm for all their hard work this year in delivering a positive adjusted EBITDA and free cash flow in 2023. With that, I'll turn it over to Jon to discuss further details of the fourth quarter financial results and our outlook for 2024. Jon?
Momentum is beginning to swing positively internationally as well as Germany, just legalize recreational cannabis use last week.
We are confident in a hydrophone will continue to navigate our path forward and we are well positioned when the industry returns to growth I'm very proud of the entire team and harder for them for all their hard work this year and delivery positive adjusted EBITDA and free cash flow in 2023 with that I'll turn it over to John to discuss further details of the fourth quarter <unk>.
Actual results and our outlook for 2024 John.
Jon Robert Andersen: Thanks, Bill. And good morning, everyone. Net sales for the fourth quarter were 47.2 million, down 23.2 percent year over year, driven primarily by an 18.7 percent decrease in sales volume and a 4.5 percent price-mix decline. While we anticipated softer sales volumes in Q4, which is a standard cadence for the business, the softness was larger than we had expected. Our price mix decline in the quarter was primarily driven by promotional activity in our durable products, as well as a higher mix of lower-priced consumable products relative to our higher-priced durables.
Thanks, Bill Good morning, everyone net sales for the fourth quarter or $47.2 million down 23.2% year over year, driven primarily by an 18.7 per cent decrease in sales volume.
A 4.5 per cent price mixed decline.
While we anticipated software sales volumes in queue for which is standard kittens for the business. The softness was larger than we had expected our price mixed decline the quarter was primarily driven by promotional activity in our durable products as well as a higher mix of lower price consumable products relative to our higher priced durable.
Jon Robert Andersen: Our sales mix continues to evolve, and for the full year, consumable products represented approximately 74% of our sales compared to 65% in 2022. Our proprietary brands continue to mix higher on a year-over-year basis and approach 60% of our total net sales in the fourth quarter, our highest ever quarterly level since our IPL. Some of this mixed shift was a reflection of the encouraging demand for our proprietary nutrient brand. Accompanying our favorable brand mix for the quarter was continued sales diversification. As Bill noted, our international and non-cannabis sales increased from a sales mix perspective in Q4'23 and for the full year and now represent approximately a quarter of our total sales. In 2024, we will look to further capitalize on what is working today, focusing on improving our mix of proprietary brands, most notably our proprietary nutrients, as well as driving further momentum in our international and non-cannabis sales. Gross profit in the fourth quarter was $8.4 million, compared to a gross loss of $0.5 million in the year-ago period.
Our sales mix continues to evolve for the full year consumable products represented approximately 74 per cent of our sales compared to 65% in 2022.
Proprietary brands continued to mix higher on a year over year basis, and approached 60 per cent of our total net sales in the fourth quarter <unk>.
Our highest ever quarterly level since our I P O.
Some of this mix shift was a reflection of the encouraging demand for our proprietary nutrient brands.
Accompanying are favorable brand mixed with a quarter was continued sales diversification.
Bill noted our international non Canada sales increase from a sales mix perspective in queue for twenty-three and for the full year and now represent approximately a quarter of our total sales.
In 2024, we will look to further capitalize on what is working today focusing on improving our mix of proprietary brands, most notably are proprietary nutrients as well as driving further on that some in our international and non Canada sales.
Gross profit in the fourth quarter was 8.4 million compared to a gross loss of zero point $5 million a year ago period.
Jon Robert Andersen: Adjusted gross profit was $11.5 million, or 24.3% of net sales, compared to $9 million, or 14.7% of net sales in the year-ago period. This represents a significant adjusted gross profit margin expansion when compared to the fourth quarter of 2022 and a 130 basis point expansion when compared to our vastly improved third quarter margin. This margin expansion demonstrates continued progress on a more favorable brand mix, lower freight costs, and improved productivity. As you may recall from our Q3 call, we initiated a second phase of our restructuring plan, which includes U.S. manufacturing facility consolidations intended to improve efficiency and further right-size our footprint. This second phase is primarily focused on our durable product manufacturing operations. In the fourth quarter, we recorded $1.3 million of restructuring expenses, which included non-cash inventory write-downs associated with a reduction in durable manufacturing and warehousing space.
Just to gross profit was $11.5 million or 24.3% of net sales compared to 9 million or 14.7% of net sales in the year ago period.
This represents a significant adjusted gross profit margin expansion when compared to the fourth quarter of 2022, and 130 basis points basis point expansion when compared to our vastly improved third quarter margin.
This margin expansion demonstrates continued progress on more favorable brand mix lower free costs and improve productivity.
As you may recall from our queue three call. We initiated a second phase of a restructuring plan, which includes U S manufacturing facility consolidations intended to improve efficiency and further right size of our footprint.
The second phase is primarily focused on our adorable products manufacturing operations.
In the fourth quarter, we we recorded $1.3 million, a restructuring expenses, which included non-cash inventory write downs associated with a reduction in durable manufacturing and warehousing space and.
Jon Robert Andersen: In total, when you combine our Phase 1 and Phase 2 restructuring initiatives, along with our sub-lease cost-saving activities, we expect that by the end of 2024, we'll have reduced our company-wide manufacturing and distribution footprint by a little over 25% since the start of 2023. Selling General and Administrative Expense was $19.9 million in the fourth quarter compared to $26.2 million in the year-ago period.
In total when you combine our phase one and phase two restructuring initiatives, along with our sub lease cost saving activities.
We expect that by the end of 2024, we hope will have reduced our company wide manufacturing and distribution footprint a little over 25% since the start of 2023.
Selling general administrative expense was $19.9 million in the fourth quarter compared to $26 2 million a year ago period.
Jon Robert Andersen: Adjusted SG&A expenses were $12 million, a significant 31% reduction when compared to $17.4 million in the year-ago period. The decrease was primarily driven by reductions in headcount, professional fees, lower accounts receivable reserves, distribution center facility costs, and insurance costs. Our Q4 adjusted SG&A expense remained in line with our third quarter, which was our lowest quarterly total since before going public. Justin Ibatia had a loss of $0.6 million in the fourth quarter compared to a loss of $8.4 million in the prior year period.
Justin <unk> expenses were 12 million significant 31 per cent reduction when compared to 17.4 million a year ago period.
Decrease was primarily driven by reductions in head count professional fees lower accounts receivable reserves distribution center facility costs and insurance costs.
R Q4, adjusted SG&A expense remained in line with our third quarter, which was our lowest quarterly total since before going public.
Justin EBITDA was a loss of 0.6 money in the fourth quarter compared to a loss of $8.4 million and the prior year period <unk>.
Jon Robert Andersen: A $7.8 million improvement was driven by lower adjusted SG&A expenses and higher adjusted gross profit. Most notably, for the full year, we achieved positive adjusted EBITDA, which delivered on our expectations and demonstrates the effectiveness of our improved proprietary brand mix and our restructuring productivity and cost-saving initiatives. Moving on to our balance sheet and overall liquidity position, our cash balance as of December 31st, 2023 was $30.3 million, an improvement by $9 million compared to the end of 2022. We ended the year with approximately $123 million of term debt, approximately $132 million of total debt when you include finance lease liabilities, and approximately $102 million of net debt.
7.8 million dollar improvement was driven by our lower adjusted SG&A expenses and our higher adjusted gross profits.
Most notably for the full year, we achieve positive adjusted EBITDA, which deliver on our expectations and demonstrates the effectiveness of our improved proprietary brand Max and a restructuring productivity and cost saving initiatives.
Moving onto our balance sheet over all liquidity position, our cash balance as of December 31st 2023 was 30.3 million an improvement by 9 million compared to the end of 2022.
We ended the year with approximately $123 million a term that approximately 132 million a total that when you include financed lease liabilities and approximately 100 or $2 million of net.
Jon Robert Andersen: As a continued reminder, our terminal facility has no financial maintenance covenant, and our death facility is not mature until October 2028. We continue to maintain a zero bounce on our revolving credit facility throughout the fourth quarter and across the entire 2023 fiscal year. In the fourth quarter, we reported a loss from operating activities of $1.6 million with capital investment of $0.2 million, yielding negative free cash flow of $1.7 million.
Does it continue reminder of term loan facility has no financial maintenance covenant and our depth facility does not mature until October 2028.
We continued to maintain a zero balance on a revolving credit facility throughout the fourth quarter and across and across the entire 2023 fiscal year.
And the fourth quarter, we reported the loss from operating activities of 1.6 million with capital investment 0.2 million.
You'll be negative free cash flow of $1.7 million.
Jon Robert Andersen: However, our positive adjusted EBITDA and our disciplined management of working capital throughout the year helped us generate positive free cash flow as expected for the full year 2023. With that, let me turn to our full year 2024 outlook. We expect net sales to decline below two high teens on a percentage basis for the full year 2024.
However are positive adjusted EBITDA and are disciplined management of working capital throughout the year helped us generate positive free cash flow as expected for the full year 2023.
With that let me turn to our full year 2024 outlook.
We expect net sales declined low to high teens on a percentage basis for the full year 2024.
Jon Robert Andersen: As we have seen each sequential course since Q4 2022, we expect the quarterly declines to decelerate over the coming year. We also expect to see an increase in adjusted gross profit margin, primarily due to improved sales mix and our restructuring and related cost-sharing initiatives. We expect Adjusted EBITDA to be positive for the full year 2024. This assumes improved Adjusted Gross Profit Margin and Adjusted SG&A Expense Savings to more than offset some limited productivity investments. We also do not expect any significant charges related to non-restructuring inventory write-downs or accounts receivable for the full year.
As we have seen each sequential course since Q4 2022, we expect to correlate declines to decelerate over the coming year.
We also expect to see an increase in adjusted gross profit margin, primarily due to improve sales mix and a restructuring and related cost saving initiatives.
We expect adjusted EBITDA that is positive for the full year 2024. This assumes improved adjusted gross profit margin and adjusted SG&A expense savings to more than offset some limited productivity investments we.
We also do not expect any significant charges related non restructuring inventory write downs or accounts receivable for four years.
Jon Robert Andersen: Finally, we expect to generate positive free cash flow in 2024. We will continue to reduce our working capital inventory level. I will note that we do expect capital expenditures of approximately $4 to $5 million in the year.
Finally, we expect January positive free cash flow in 2024, we will continue to reduce our working capital inventory levels.
I will note that we do expect capital expenditures of approximately four to 5 million in a year.
Jon Robert Andersen: In closing, we remain optimistic about the future of the industry and the future of Hydrofarm. This year, we have proved we can operate profitably despite lower sales levels as we deliver positive adjusted EBITDA and positive free cash flow. We look forward to continuing to deliver these results in 2024. Thank you all for joining us, and we are now happy to answer any questions. Operator, please open the line.
In closing, we remain optimistic about the future of the industry and look at your Hydrophile. This year. We proved we can operate profitably despite lower sales levels, because we deliver positive adjusted EBITDA positive free cash flow and we look forward to continuing to deliver the results in 2024.
Thank you all for joining us and we are now happy to answer any questions. Operator, Please open the lines.
Operator: Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Thank you.
Ladies and gentlemen, leaving and that'd be conducting a question and answer session.
You would like to ask a question <unk> add the one on your telephone keypad.
A confirmation dawn will indicate your line isn't a question Q.
Andrew Carter: You may press stars and 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question is from Andrew Carter with Stifel. Please go ahead.
<unk>, if you'd like to remove your question from the <unk>.
Four participants using speaker equipment, it may be necessary to pick up your handset before pressing the stock east.
You said 10 minute wait for a moment <unk> pull for questions.
First question is from Andrew Kadow, That's stiffer. Please go ahead.
Jon Robert Andersen: Yeah, hey, thank you. Good morning. The first thing I wanted to ask is, so your guidance here implies low teens to high teens declining, therefore kind of $27 million to $39 million of lost revenue. But you have flat EBITDA. Could you kind of take us through – I know that there's productivity in there at the gross margin line as well as the SGA. Can you take us through how much productivity slash savings there are versus just improvements in the underlying gross margin from favorable supply chain costs? I assume that'll be hitting on the lag as well as the mix-up of proprietary brands. Thanks. Thanks, everyone. Yeah, good morning, Andrew.
Yeah, Hey, Thank you. Good morning first thing I wanted to ask you. So you guide us your implies low teens.
Hi team decline, therefore kind of 27 million to 39 million of lost revenue, but.
But you have flat EBITDA could you kind of take us through I know that there's productivity in there Apple at the gross margin line as well as the <unk> can you tell us how much is like productivity slash savings versus just improvements in the underlying gross margin from favorable supply chain call us as soon that'll be hitting on her leg as well as.
<unk> you mentioned in the mix up a proprietary branch thanks.
Thanks, Andrew.
Yeah. Good morning, Andrew I can jump in on that yeah. There's a couple of things will be driving it I mean, you heard us mention an improvement adjusted gross profit margin for the full year 2024 versus 23, you know obviously, we ended last year, roughly a 24% <unk>.
Jon Robert Andersen: I can jump in on that. There are a couple things that'll be driving it. I mean, you heard us mention an improvement in adjusted gross profit margin for the full year 2024 versus 2023. You know, obviously, we ended last year roughly at 24%. The Dirty Gross Profit Margin. We expect that with our improved sales mix, so higher proprietary brands, we have a couple hundred basis point opportunity to improve that in 24 versus 23. And I think, as you know, our proprietary nutrients are really inside of that number of proprietary brands more broadly and really represent one of the more profitable pieces of our overall business.
Just a gross profit margin you know we expect that are improved salesman, so higher price Teri brands. So we have a couple of hundred basis point opportunity to improve that in 24 versus 23, and I think as you know our proprietary nutrients are really inside of that number of proprietary branch more broad.
<unk> and really represent one of the more profitable pieces of our overall business. We also think we have a couple of hundred basis point large an opportunity to improve in terms of percentage of sales for proprietary nutrients.
Jon Robert Andersen: We also think we have a couple hundred basis point margin opportunity to improve in terms of percentage of sales for proprietary nutrients. On top of that, with the restructuring that we've been instituting and other related productivity and cost-saving initiatives, we do think that, you know, we'll reduce some space to reduce overhead costs and our labor pool in our Manufacturing Durables facility located in Chicago. We've already instituted some of that, and we have a little bit more work to do there, but overall, that's gone pretty well, and we've reduced basically a third of our space there. We also have an opportunity to further consolidate our manufacturing facilities with respect to some of our consumable operations. And while we haven't yet quite accomplished that, that's on the bill for 24 and should extract savings similar in terms of reducing overhead costs and improving productivity in our main nutrient manufacturing facility. We also, as I think you will see through our results in 2023, we captured some freight savings last year. Really, in the back half of 23, we will get some last benefits, and the 1st half of 24, as we continue to achieve lower and local freight rates. That will be a favorable comparison for the first half of the year.
On top of that with the restructuring that we've been instituting and other related productivity and cost saving initiatives. We do think that you know will reduce some space to reduce overhead costs and our labor pool.
Our manufacturing durable facility located in Chicago, we've already is to some of that and have a little bit more work to do there, but overall, that's gone pretty well and we reduce basically a third of our space there.
We also have an opportunity to further consolidate our manufacturing facilities with respect sort of considerable operations, while we haven't yet quake accomplish that that's on the bill for 24 insurance extract savings similar in terms of reducing overhead costs and improving productivity and our main nutrient manufacturing facility. We all.
Also as I think you see the through our results in 2023, we captured on three savings last year.
Really in the back half of 23, we will get some lap benefit in the first half of 24 as we continued to achieve lower L. T L and local freight rates. So that'll be a favourable comparison in the first half of the year you know.
Jon Robert Andersen: On top of that, at the SG&A level, we still have very many benefits that are coming our way in 2024. We have expected LAP benefits from savings that we achieved last year in terms of headcount reductions. We reduced headcount by almost 25 percent during 2023.
On top of that at the SG&A level, we still have very many benefits that are coming our way in 2024, we have expected lap benefit from <unk> from savings, but we achieved last year in terms of headcount reductions yeah, we reduced headcount by LH by almost 25 per cent during 2023.
William Douglas Toler: In the first half of 2024, we should see some benefit from that. We also expect in 2024 we will have lower professional fees and distribution facility costs related to our subleasing activities. We have been subleasing a lot of our Access Distribution Warehouse Base, and then on top of that, we have some insurance expense savings. So I think you're gathering, there's a lot of savings opportunity, much of which we've already instituted, some of which is still coming, which we think gives us margin opportunity at the gross profit level, as well as more savings at the SG&A level. Thank you. That was very helpful. I guess the second question is, and I think we just got a press release that Grogen picked up the Quest business. Grogen obviously is the largest manufacturer-slash-distributor out there. Scott is focusing more on Signature.
So in the first half of 2024, we should see some benefit from that we also expect in 24 will have lower professional fees distribution facility costs related or subletting activities has been somebody using a lot of our.
Access distribution warehouse space and then on top of that we have some insurance expense savings. So I think.
<unk>, you're gathering I mean, there's a lot of savings opportunity much of which we've already instituted so which is still on the com, which we think gives us margin opportunity at the gross profit level as well as more savings at the yesterday and a level.
Alright. Thanks. Thank you as helpful. I guess the second question is and I think we just got a press release that grabbed you and picked up the quest business. There. Obviously is the largest manufacturer slash distributor out there scotties. His skull, it's focusing more on signature are a lot of like some of the kind of third.
William Douglas Toler: Are a lot of the kind of third-party distributed brands out there kind of in play? Are some of those that were going to direct-to-retail now looking for a different solution? Has it become economical? What is the landscape like out there in terms of the opportunities for third-party? Or should we just think about this more as just focusing on really driving proprietary?
Party distributed brands out there kind of in play or some of those that were going to direct a retail now looking for a different solution has become out comical.
What is the landscape like out there in terms of kind of the opportunities for third party or should we just think about this more of just focusing on on really driving proprietary.
William Douglas Toler: Yeah, I think that clearly the proprietary part of it, Andrew, it's a good question, has been the big winner for us, right? What's happened on the distributed side of things is that the primary hydroponic distributors, primarily us and Hawthorne over the last few years, weren't delivering the volumes. These third-party brands went to other lawn and garden suppliers, direct-to-retail, other number of things.
Yeah, I think that's clearly the proprietary part of an Android. Good question has been the big winner for US right. What's happened in the distributed side of things as as the primary hydroponic distributors, primarily us in Hawthorne over the last few years.
Worn delivering the volume's. These third party brands went to other lawn and garden suppliers director retail other number of things and so they've kind of diluted themselves across the market with a number of supply points. So what we have done Conversely is make sure that we continue to supply though is because it makes us the industry distributed we are but also.
William Douglas Toler: And so they've kind of diluted themselves across the market with a number of supply points. So what we have done, conversely, is make sure that we continue to supply those because it makes us the industry distributor we are, but also really focus on our proprietary signature house brands, however you call them. And in doing that, you're seeing us be able to uphold slightly positive EBIT for last year because of the mixed benefit of dropping the profitable house brands. In my script, and I think in Jon's as well, we said that, you know, our proprietary nutrient brands actually grew year on year. Well, that's a very different story than what our total company did. And weakness, frankly, has been in this, mostly in these distributed brands as they have diluted themselves across a number of supply points across the industry.
Really focus on our proprietary signature house brands wherever you are what you call <unk> and doing that you're seeing that's being able to uphold.
Slightly positive EBITDA for last year, because of the mixed benefit of driving to profitable house brands.
And my script and I'm, taking jobs as well, we said that you know our proprietary nutrient brands actually grew year on year, well, that's a very different story than what our total company did and weakness frankly has been in this mostly in these distributed brands as they are diluted themselves across some number of supply points.
Across the industry and we're talking to all those guys as well to to figure out the right partners to have and we'll go forward with a good mix of distributed brands, but really it's proprietary is kind of driving the bus.
Andrew Carter: And we're talking to all those guys as well to figure out the right partners to have. And we'll go forward with a good mix of distributed brands. But really, proprietary is kind of driving the bus. Thanks, I'll pass it on.
I shall pass it on.
Peter K. Grom: Thanks. Appreciate it, Andrew. Thank you. Our next question is from Peter Grom with UBS. Please go ahead.
Thanks I appreciate it.
[noise]. Thank you next question is from Peter <unk> with U B S. Please go ahead.
Peter K. Grom: Thanks, operator. Good morning, guys. Hope you're doing well. Hey, Peter. I just wanted to ask... How are you doing, Bill? I wanted to ask about visibility.
Thanks, a lot brighter good morning, guys hope you're doing well I just wanted to ask.
<unk> I wanted to ask on visibility.
William Douglas Toler: You kind of take a step back, you kind of look at the implied revenue guidance for this year, and I was just kind of going back to the model. It's even below... You know, 2018 levels, and I know the business has cyclicality, but it just feels like this downward pressure has just been far more pronounced than we all would have anticipated. So when we think about the guidance for this year, low teens to high teens to client, what's your degree of confidence in that, what are the kind of underlying drivers of that, just trying to understand when do you think we will reach a bottom here, just given the kind of performance we've seen over the last several years?
Kind of take a step back and kind of look at the implied revenue guidance for this year and I was just kind of gone back to the Mama, it's even below.
2018 levels, and and and I know the business has cyclicality, but it just feels like this downward pressures and far more pronounced than we all would've had anticipated. So when we think about the guidance for this year low teens to hygiene declined.
What's your degree of confidence in that we're kind of the underlying drivers of that just trying to understand you know.
When do you think we will reach a bottom here and just getting under the performance we've seen over the last several years.
William Douglas Toler: Yeah, I think we have reached the bottom. The question is, when are we coming off of it? Right. And so we really felt like it was important for us to plan the year to be slightly profitable at the lowest sales level we've given out, right? That's kind of our responsibility to come to you with that. And then go out and try and beat those numbers, right?
I think we are reached a bottom question is when are we coming off of it right and so we really felt like it was important for us to plan the year.
At being slightly profitably profitable at the lowest sales level, we've given out right. That's kind of our responsibility to come to you with that and then go out and try and beat those numbers right. That's the that's the goal here is to say alright, let's say, it's in the high teens, which I think you know hopefully is at worst worst case scenario and we need to be ready to be profitable.
William Douglas Toler: That's the goal here is to say, all right, let's say it's in the high teens, which I think, you know, hopefully is a worst, worst case scenario. Then we need to be ready to be profitable at that level. And then we can get better than that.
That level, and then let's get better than that and then and then when she got really nice business aren't really good outcome, but I do think we are at a bottom I think we've been at a bottom frankly for the last four or five months as an industry and I think you're starting to see some things get a little bit better our our visibility.
William Douglas Toler: And then we should have a really nice business and a really good outcome. But I do think we are at the bottom. I think we've been at a bottom, frankly, for the last four or five months as an industry, and I think you're starting to see some things get a little bit better. Our visibility into kind of March, April, May with the pre-bookings around a lot of the grow media looks a good bit better than it did a year ago. But we've got this dilution among the distributed brands that has created this sort of drag and an anchor on us that's creating the total number not being where we'd like it to be. But we also really think it's important that we, you know, put a number out there, set up our cost structures and our strategies around hitting, you know, making money at the lowest possible level that we're talking about and then go out there and try to beat those numbers. And that's really what our goal is and how we structure this year's guidance. No, that's very helpful, Bill.
Visibility into kind of March April may with a pretty bookings around a lot of the <unk> media look a good bit better than it did a year ago, but we got this dilution among the distributor brands has created this sort of dragon and anchor on us that's creating the total number not being where we'd like to debate, but we also really think it's important that we you know put a number out there.
Set up our cost structures and our strategies around hitting you know, making money at the lowest possible level that we're talking about <unk>, and then going out there and try and being those numbers and that's really what are our goal as in how we structure this year's guidance.
No that that's very helpful. Though I guess, maybe pressure following up on that just the positive adjusted EBITDA like kind of following up on Andrew's question like I I I guess, obviously positive is anything about <unk> can you make me provide some guard rails in terms of how we should think about our motto like Theresa kind of similar you know.
Peter K. Grom: And I guess maybe a question just following up on that, just the positive adjusted EBITDA, like kind of following up on Andrew's question, like, I guess, obviously, positive is anything above zero. Can you maybe provide some guardrails in terms of how we should think about our model? Like, should we expect kind of similar, you know, EBITDA profit dollars versus what we saw this year? Should we expect sequential improvement? Just trying to, you know, understand because, you know, both we and ConsenSys have something that's more in the high single-digit million-dollar range. And I'm not sure if that's far too optimistic at this point, given the weaker revenue outlook. Yeah, I think it is.
EBITDA private dollars versus what we saw this year should be exact sequential improvement just trying to understand because you know both we and consensus have something that's more in depth high single digit million dollar range and and I'm not sure. If that's far too optimistic at this point given the.
The weaker revenue outlook, Yeah, I think I think it is I think it is optimistic at this point because you got you know you you had a higher fourth quarter and a higher 24 building off that created that sort of a consensus and and at this point you know, we said modestly positive last year and it was very modest more modest so we'd like to be were saying paused.
William Douglas Toler: I think it is optimistic at this point because you got, you know, you had a higher fourth quarter and a higher 24 building off that that created that sort of a consensus. And at this point, we said modestly positive last year, and it was very modest. It was more modest than we'd like it to be.
William Douglas Toler: We're saying positive things this year. Yeah, I think we'd like to do better than we did certainly in 2023, but we're not nearly in a position yet to start putting any kind of, you know, guardrails around, you know, how much that'll be, how many millions of dollars or where. But, you know, a lot of it depends on what range we come in on the top line. In fact, all of it depends on that range because we've got our costs very much under control. But we're not ready to kind of put any finer points on that.
This year, Yeah, I think we'd like to do better than we did certainly in 2023, but we're not nearly in a position to start putting any kind of you know guard rails around you know how much that will be how many millions of dollars, where but you know it it a lot of it depends on what range would come in on the on the top line in fact, all of it depends on that range, because we've got our cost very much under.
Troll, but we're not ready to kind of put any finer point on that but we expect to be and want to be and are gonna work to be positive EBITDA. This year.
Peter K. Grom: But we expect to be and want to be and are going to work to be positive EBITDA. Got it. Thanks so much. I'll pass it on.
Got it thanks, so much I'll pass it on.
Thanks Peter.
William Bates Chappell: Thanks, Peter. Thank you. Our next question is from the line of Bill Chappell with Truish Securities. Please go ahead. Hi, good morning. This is Davis Holcombe on behalf of Bill Chappell.
Thank you.
Our next question is from the line of Bill Chopper with Jewish Securities. Please go ahead.
Hi, Good morning. This is Davis whole come on for Bill Chappell you. All had mentioned the set a new legalize the W. States in 2023, and we're just kind of wondering what sort of demand you might be see out of those newly legalized states and what kind of maybe a regulatory environments. They may have compared to some of the existing.
Davis Holcombe: You all mentioned the seven new legalized adult use states in 2023. And we're just kind of wondering what sort of demand you might be seeing out of those newly legalized states and what kind of, perhaps, regulatory environments they may have compared to some of the existing space that you all are operating in. Yeah, I think, you know, the newer states, whether it's the Ohio's or Missouri's, they are some of our better performing states right now. The challenge is, first of all, scale-wise, they're very small compared to your Colorado or California or, you know, Oregon or Michigan, so it takes a while to do it. There's a lag between legalization and implementation, and then, of course, there's the kind of political dynamics that have slowed implementation, even in places like New York and New Jersey.
Mm States that you all are operated.
Yeah, I think the you know the newer states whether C Ohio's or miseries. They are some of our better performing states right now.
Challenges first of all those scale wise, they're very small compared to your colorado's or California's or you know, Oregon and Michigan. So it takes a while to do it and there's a lag between legalization of implementation and then of course, there's kind of the political dynamics have slowed implementation even in places like in New York, New Jersey, but they've actually been finally picky.
William Douglas Toler: But they've actually been finally picking up. It's just a matter of scale, that you've got these long legacy states that are a lot bigger than the new ones, but you're definitely seeing that shift now. I mean, California used to be, by itself, 50, 60 percent of the total business. Now it's probably in the, you know, low 30s or less, and I think that's true for everybody in the industry as it shifted, you know, the overall business to the newer states and to a more balanced thing. And you also got that unique dynamic in Oklahoma, where Oklahoma, at one point, had, you know, nearly all of the 20,000 licenses in the U.S. Oklahoma had half of them at one point, but fortunately, Oklahoma's regulatory folks have gotten a little more strict, and they're cutting that down.
<unk>, it's just a matter of scale that you've got these long legacy states that are a lot bigger than the new ones, but you're definitely seeing that shift now I'm in California used to be by itself you know.
50, 60% of the total business now it's probably in the low.
<unk> thirties, or less and I think that's true for everybody in the industry as a <unk> did as it shifted via the overall business you know to the newer states into a more balanced thing and you also get that unique dynamic in Oklahoma, where Oklahoma at one point had.
Nearly so it was just under 20000 licenses in the U S. Oklahoma had half of them at one point, but Fortunately Oklahoma's regulatory folks have gotten a little more strict and they're cutting that down license or are cut in half from what they were in Oklahoma, which is encouraging because you need a good balance of production and consumption. The newer states are.
William Douglas Toler: Licenses are cut in half from what they were in Oklahoma, which is encouraging because you need a good balance of production and consumption. The newer states are seeming to learn from the mistakes of others, and they're doing a much better job of regulating the number of dispensaries tied to the number of grows tied to the actual population and ultimate demand. So people are learning, but it's just been very, very slow and there have been a lot more interruptions than it should have been. The lack of federal guidance and federal, you know, sanity, if you will, in this has really kind of cast a huge, you know, shadow over the whole category for the last three or four years. Excellent color.
<unk> seeming to learn from the mistakes of others in there doing a much better job of regulating the number of dispensaries tied with the number grows type of the the actual population of ultimate demand. So people aren't learning, but it's just been very very slow and a lot more a lot more interruptions and it shouldn't be the lack of lack of federal guidance and federal.
Just in your sanity, if you will and this is really kind of cast a huge shadow over the whole category for the last three or four years.
That's excellent color. Thank you so much I'm gonna pass it on.
Thanks, David.
Thank you next question is from Jesse Redfin with water Toddler research. Please go ahead.
Davis Holcombe: Thank you so much. I'm going to pass it on. Thanks, David. Thank you. Our next question is from Jesse Redmond with Water Tower Research. Please go ahead.
Good morning, guys at a question on the catalyst side would look at the <unk> state operators and just the plan touching businesses certainly the potential for scheduled <unk> E. Removal is the biggest thing on the horizon can you talk a little bit about how to schedule sweep. It can be helpful to you. Although you wanted a plan touching operator, you see that free.
Jesse Redmond: Good morning, guys. I had a question on the catalyst side. We're looking at the multi-state operators and just the plant touching businesses. Certainly, the potential for Schedule 3 and 280E removal is the biggest thing on the horizon. Can you talk a little bit about how Schedule 3 could be helpful to you, although you aren't a plant touching operator?
He got budget substantially increase in Capex or did you see that as not being a meaningful title was for your business.
We think that can be a very important catalyst in terms of particularly durable orders, but also just the confidence and a sentiment around the whole category. It is now time to lean in and and best again, I think you've got <unk> staying on the sidelines, you've got msos staying on the sidelines you people holding capital back in.
William Douglas Toler: Do you see that freeing up budgets and potentially increasing CapEx, or do you see that as not being a meaningful catalyst for your business? No, we think that can be a very important catalyst in terms of particularly durable orders, but also just confidence and a sentiment around the whole category that it's now time to lean in and invest again. I think you've got investors staying on the sidelines, you've got MSOs staying on the sidelines, you've got people holding capital back, interest rates have obviously been lower, so debts, if you can get debt, it's hard to put on these businesses. And so everybody is kind of in a holding pattern as we're waiting for this big move from Schedule 1 to Schedule 3. As you indicated, the biggest benefit there, of course, is that legalized businesses don't have the tax burden they currently have today.
Interest rate. So I've just been harder said, that's if you can get that it's hard to put on these businesses and so everybody is you know kind of in a holding pattern <unk> waiting for this big move from schedule wanted to schedule three as you as you indicated the biggest benefit of area of course is the plant touching legalized businesses don't have tax burden. They currently have today.
And once that freeze up for them and they can retain a lotta those that cash flow for themselves there'll be able to lean back in to the category. So we definitely see that as a benefit to us turning I'll take a little time from when it turns to when people are actually placing orders, but we've seen a number of projects that had been delay delay delay it over the last year or two that are kind of <unk>.
Ramping up and starting so we're hopeful that this catalyst is gonna happen and or the people are gonna get back in his supply and demand. It's come more imbalance says I referenced a moment ago regarding Oklahoma. So all that stuff's speaks to yes, the rescheduling D scheduling would be benefit to the whole industry and it also and I think if people a lot of confidence that now we're gonna get back.
William Douglas Toler: And once that frees up for them, and they can retain a lot of that cash flow for themselves, they'll be able to lean back into the category. So we definitely see that as a benefit to us. Certainly, it will take a little time from when it turns out to when people are actually placing orders, but we've seen a number of projects that have been delayed, delayed, delayed over the last year or two that are kind of ramping up and starting.
Two or more normalized category trajectory normalized broke pattern.
William Douglas Toler: So we're hopeful that this catalyst is going to happen and or that people are going to get back in as supply and demand have come more in balance, as I referenced a moment ago regarding Oklahoma. So all that stuff speaks to, yes, the rescheduling and descheduling would be a benefit to the whole industry. And it also would, I think, give people a lot of confidence that now we're going to get back to a more normalized category trajectory and normalized growth pattern. Helpful thanks, and on the state side, the two biggest markets that could flip rash this year are Florida and Pennsylvania. Can you talk a little bit about those states and if they were to move to adult news sales, how you would see potential spending increasing there? Yes, both are incredible It looks like it is.
That's helpful. Thanks, It on the safe side, the two biggest markets could slip rash this year or Florida, and Pennsylvania can you talk a little bit about those states and if they were to move to adult new sales <unk>, how you would see potential spending increasing their.
Yes, both are incredible opportunities you know <unk>.
Florida is one that has been you know kind of on the docket for awhile and then in terms of People's expectations. It looks like it is the Governor has said it's going to be on the on the ballot here in November which is fantastic, Pennsylvania I think is in a similar situation. Both of those you know with a population of over 20 million in Florida and around 10 million and in Pennsylvania, you can see that these.
Or you know very very important to you know catalyst for she can drive that population number up probably closer to 60 or greater per cent of category. So we do expect that to be a big part of that <unk>.
William Douglas Toler: The governor has said it's going to be on the ballot here in November, which is fantastic. Pennsylvania, I think, is in a similar situation. Both of those, you know, a population of over 20 million in Florida and around 10 million in Pennsylvania.
And Jesse both of those states have been comping better for us than than the overall population has.
Okay.
Great guys I appreciate it thank you.
Thanks, Jesse Thank you. Thank you.
Thank you.
William Douglas Toler: You can see that these are, you know, very, very important catalysts for us to drive that population number up probably closer to 60 or greater percent of the category. So we do expect that to be a big part of the growth going forward. And Jesse, both of those states have been performing better for us than the overall population.
Next question, it's on the line of <unk> with H S. Captain O'clock. Please go ahead.
Good morning, guys How're you doing.
And one of my questions is in regards to the previous issues in regards to inventories has it wouldn't is there any more benefit to see out of that is that imbalance presently.
Satisfied with it.
Yeah, I'll I'll start there there's really two sides of the inventory thing both are trending in the right direction.
Jesse Redmond: Okay. Great guys. I appreciate it. Thank you. Thanks, Jesse.
We've reduced our total inventory and a two year period by close to $100 million. Okay. Some of that was inventory right down but the vast majority of that was simply getting inventories down to manageable workable levels and so we still think we have another you know a bit to go we'd like to be able to run this industry or this company on 90.
Harold Weber: Thank you. Thank you. Our next question is from the line of Harold Weber with Aegis Capital Corp. Please go ahead. Good morning, guys. How are you doing?
William Douglas Toler: One of my questions is, in regards to the previous issues, in regards to inventories, how's that doing? Is there any more benefit to see out of that? Is that in balance presently? I'm satisfied with that. Yeah, I'll start there. There are really two sides to the inventory thing. Both are trending in the right direction.
Days worth of inventory right now we're at a higher number than that and we think we got probably 15 $20 million more we could take out of the total sense a terrific thing the other piece of inventory improvement from twenty-three compared to 22 as we had you know far far far less write downs and twenty-three compared to what we had in 22 as we are again, we're dealing with the supply.
William Douglas Toler: We've reduced our total inventory in a two-year period by close to $100 million, okay? Some of that was inventory right down, but the vast majority of that was simply getting inventories down to manageable, workable levels. And so we still think we have another, you know, bit to go.
<unk> whipsaw from even back to Covid days in the industry high volume days back in 20th 21. So the inventory of gotten you know exaggerated and everybody's everybody's balance sheets. So we've worked all that down. So we didn't have those her right down issues and twenty-three don't expect them again in 24, which is great. Although you still have to manage it every call.
Jon Robert Andersen: We'd like to be able to run this industry or this company on, you know, 90 days' worth of inventory right now. We're at a higher number than that, and we think we've got probably $15, $20 million more we could take out of the total, so that's a terrific thing. The other piece of inventory improvement from 23 compared to 22 is we had, you know, far, far, far fewer write-downs in 23 compared to what we had in 22, as we are, again, dealing with the supply chain whipsaw from even back to COVID days and the industry's high-volume days back in 20 and 21. So the inventory had gotten, you know, exaggerated on everybody's balance sheets. So we've worked all that down, so we didn't have those sort of write-down issues in 23. Don't expect them again in 24, which is great, although you still have to manage them every quarter and every month, and we do so very, very aggressively to try and protect our, you know, protect the balance sheet, protect our inventory investment. Maybe just add some math, too? Yeah. I'm sorry; go ahead.
Order in every month and we do very very aggressively trying to protect protect.
Check the balance sheet protect our inventory investments.
Maybe just <unk>.
Yep.
I'm sorry go ahead.
Yeah, just add to math with the Bill's comment there a second ago you heard him say you know we'd love to manage the business on basically 90 days or one Coors worth of of demand. You know we ended this past year 2023, with roughly $75 million worth of inventory.
The last four quarters, we've been averaging about 56 million sale. So you clearly you know there's real opportunity for us there and that's why you're here is talking about sort of an ability to manage that further down in <unk> 24.
Okay.
Jon Robert Andersen: Yeah, just to add some math to Bill's comment there a second ago. You heard him say, you know, we'd love to manage the business on basically 90 days or one quarter's worth of demand. You know, we ended this past year, 2023, with roughly $75 million worth of inventory. And over the last four quarters, we've been averaging about $56 million in sales.
Regards to either.
Cause that's the latest sofa hopefully we're gonna see it turned up <unk> 20 per cent and you're gonna be able to fulfill that without having to add back a bunch of those whatever.
Whatever cause when you in a closed layoffs.
William Douglas Toler: So clearly, you know, there's real opportunity for us there. And that's why you hear us talking about sort of an ability to manage that further down into 2024. Okay, in regards to your cost cuts you've made and so forth, hopefully we're going to see a turn up, business improves 20%. Are you going to be able to meet that without having to add back a bunch of those, whatever costs, what do you want to call them, layoffs, cap-to-capacity, rightsizing, whatever you like? I would think that based on where you are, you should be able But importantly, as we have come down in the top line, we did not dramatically alter our footprint. We still have six D.C.s in the U.S., we have two in Canada, and we have one in Europe.
Kept like capacity right. So I think whatever you like I would think that basically all yeah, you should be able to increase the business by what do you think before having to stop the AD spending back again.
Oh, you'll have some variable cost obviously with staffing in the D. C has been importantly, as we have come down and top line, we did not dramatically alter footprint, you'll have 60 C. As in the U S. We have two in Canada, and we have one over in Europe and that was the footprint. We had three years ago. What we've done instead is we've been Subletting Uhm Bay.
They can space in an underutilized space to allow us to provide you know a service to others. If you will and so we were able to handle the volumes that we had back in 21, and 22 or 2020 and 21, you know very very easily would have some cost on the way back up is of course, you have more people to talk to you more volume, but <unk>.
Structurally we've got our cost structure really screwed down now to where we can we can make money at these low levels, but also can scale up very quickly and be able to support our customers.
William Douglas Toler: And that was the footprint we had three years ago. What we've done instead is we've been subletting basic, you know, vacant space and underutilized space to allow us to provide, you know, a service to others, if you will. And so we were able to handle the volumes that we had back in 20 and 21, you know, very, very easily. We would have some costs on the way back up, because, of course, you have more people touching more volume. But structurally, we've got our cost structure really screwed down now to where we can make money at these low levels but also can scale up very quickly and be able to support our customers. So that would mean to me that, hopefully, that's going to happen, that our margins should expand quite a bit based on an increase in overall revenue, so to spread the cost more. Is that a reasonable expectation?
So that would mean to me that hopefully that would that that's gonna happen <unk> should expand quite a bit based on a <unk>.
Increase in overall revenues spread the cost more is that reasonable expectation.
Absolutely, let's not forget that.
Three years ago, we were roughly a 10 per cent EBITDA business.
Things were growing and better and we think that with our mixed change toward the more profitable powerful you know brands that our hours that can be very achievable number over time, you're probably not gonna get there any time in the next six to 12 months, but I think as industry growth returns and we were able to drive are profitable proprietary brands that we certainly have a really good position.
William Douglas Toler: Absolutely. Let's not forget that three years ago we were roughly a 10% EBITDA business when things were growing and better, and we think that with our mixed change toward the more profitable, powerful brands that are ours, that could be a very achievable number over time. We're probably not going to get there any time in the next six to 12 months, but I think as industry growth returns and we're able to drive our profitable proprietary brands, we certainly have a really good position going forward.
Going forward.
Great. Thank you very much.
Thank you.
I appreciate the questions.
Thank you.
As there are no further questions I will now have the confidence Silva till the total for that is closing comments.
Thank you Ryan and we appreciate all of your being on the call. This morning, and thanks for your continued support of Hydrophone, We look forward to speaking to you soon take care.
I can't.
The confidence of Hydro Farm Holdings Group has now concluded. Thank you for your participation you may now disconnect your lines.
William Douglas Toler: Great, thank you very much. Thank you. As there are no further questions, I will now hand the conference over to Bill Toler for his closing comments. Bill?
Mmm.
[music].
William Douglas Toler: Thank you, Ryan, and we appreciate all of you being on the call this morning, and thanks for your continued support of Hydrofarm. We look forward to speaking to you soon. Take care. Thank you. The Conference of the Hydrofarm Holdings Group has now concluded. Thank you for your participation. You may now disconnect your lines.