Q2 2024 Hydrofarm Holdings Group Inc Earnings Call

August 8, 2024

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Operator: Peter Grom, William Carter, Jesse Redmond, Hydrofarm. Please stand by; your program is about to begin.

Operator: Please stand by. Your program is about to begin. If you need assistance during your conference call today, please press star zero. Good morning, and welcome to Hydrofarm's second quarter earnings call.

Operator: If you need assistance during your conference today, please press star zero.

Operator: Good morning and welcome to Hydrofarm Second Quarter earnings call. Today's call is being recorded.

Speaker Change: Good morning and welcome to Hydrofarm's second quarter earnings call. Today's call is being recorded. If you would like to ask a question, please press star 1 on your telephone keypad. To remove yourself from the queue, press star 2.

Operator: Today's call is being recorded. If you would like to ask a question, please press star 1 on your telephone keypad. To remove yourself from the queue, press star 2. At this time, I'd like to turn the conference over to Anna Kate Heller, ICR. Please go ahead, ma'am.

Operator: If you would like to ask a question, please press star one on your telephone keypad. To remove yourself from the queue, press star two.

Anna Heller: At this time, I'd like to turn the conference over to Anna Kate Heller. I see our, please go ahead, ma'am.

Speaker Change: At this time, I'd like to turn the conference over to Anna Kate Heller, ICR. Please go ahead, ma'am.

Anna Heller: Thank you and good morning. With me on the call today is Bill Toler, Hydrofarm's Chairman and Chief Executive Officer, and John Lindevin, the company's Chief Financial Officer. By now, everyone should have access to our second quarter 2024 earnings release and Form 8-K issued this morning, as well as an investor presentation available for reference.

Anna Kate Heller: Good morning. With me on the call today is Bill Toler, Hydrofarm's Chairman and Chief Executive Officer, and John Lindeman, the company's Chief Financial Officer. By now, everyone should have access to our second quarter 2024 earnings release in Form 8K issued this morning, as well as an investor presentation available for reference. These documents are available on the investor section of Hydrofarm's website at hydrofarm.com.

Speaker Change: Thank you and good morning.

Speaker Change: With me on the call today is Bill Toler, HydroFarm's Chairman and Chief Executive Officer, and John Lindeman, the company's Chief Financial Officer. By now, everyone should have access to our second quarter 2024 earnings release in Form 8K issued this morning, as well as an investor presentation available for reference.

Anna Heller: These documents are available on the investor section of Hydrofarm's website at Hydrofarm.com. Before we begin our formal remarks, please know that our discussion today will include four looking statements. These four looking statements are not guaranteed the future of performance, and therefore, you should not be undue relies on them. These statements are also subject to numerous risks and uncertainties that can cause actual results to differ materially from current expectations.

Speaker Change: these documents are available on the investors section and hyrophont of websitees at hydroar com

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 guaranteed to predict future performance, and therefore, you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that can cause actual results to differ materially from our current expectations. We refer all of you to our recent S&P filings for a more detailed discussion of the risks that could impact our future operating results and financial conditions.

Anna Kate Heller: Before we begin our formal remarks, please note that our discussion today will include four forward-looking statements. These four forward-looking statements are not guaranteed to predict future performance, and therefore, you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that can cause actual results to differ materially from our current expectations. We refer all of you to our recent S&P filings for a more detailed discussion of the risks that could impact our future operating results and financial conditions.

Speaker Change: Before we begin our formal remarks, please note that our discussion today will include forward-looking statements.

Speaker Change: these forward-looking statements are not guarantees the future performance and therefore you should not been unduerelied of them

Speaker Change: These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from our current expectations. We refer all of you to our recent SB filing for a more detailed discussion of the risks that could impact our future operating results and financial conditions.

Anna Heller: We refer all of you to our recent SD filing for a more detailed discussion as a risk that can impact our future operating results in financial conditions. 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 reconciliation to comparable GAAP measures is available in our earnings release.

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.

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.

Speaker Change: Lastly, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance.

Speaker Change: The presentation of this additional information should not be considered in isolation or 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.

William Toler: With that, I would like to turn the call over to Bill Toler. Thank you, Anna Kate. Good morning, everyone. In the second quarter, we experience sequential improvement in our adjusted gross profit margin over our first quarter levels and also delivered positive adjusted EBADOP for the fourth time in the last five quarters. We realized further favorability on our adjusted SG&A line with substantial savings year-on-year. For the six months year-to-date, we've delivered over $2 million of adjusted EBADOP, up from approximately $300,000 in 2023, and we had the smallest year-over-year net sales decline in the last three years.

Bill Toler: Thank you, Anna Kate. Good morning, everyone.

Bill Toler: In the second quarter, we experienced sequential improvement in our adjusted gross profit margin over our first quarter levels and also delivered positive adjusted EBITDA for the fourth time in the last five quarters. We realized further favorability on our adjusted SG&A line with substantial savings year-on-year. For the six months here today, we've delivered over $2 million of adjusted EBITDA, up from approximately $300,000 in 2023, and we had the smallest year-over-year net sales decline in the last three years. We maintained relatively consistent results across the first two quarters of 2024, despite the second quarter of 2023 being a difficult quarter to lap.

Bill Toler: Thank you, Anna Kate. Good morning, everyone.

Bill Toler: In the second quarter, we experienced sequential improvement in our adjusted gross profit margin over our first quarter levels, and also delivered positive adjusted EBITDA for the fourth time in the last five quarters.

Speaker Change: We realize further favorability on our adjusted SG&A line, with substantial savings year-on-year. For the six months here today, we've delivered over $2 million of adjusted EBITDA, up from approximately $300,000.

Speaker Change: in 2023, and we had the smallest year-over-year net sales decline

William Toler: We maintain relatively consistent results across the first two quarters of 2024, despite the second quarter of 2023 being a difficult quarter to land. We remain laser focused on driving profitability in the business, and we took additional steps in the second quarter to further integrate and optimize our manufacturing operations, which should produce improved efficiencies and reduce costs going forward. These include closing on the sale, the manufacturing equipment and inventory related to our IGE branded products, closing our Paramount, California manufacturing facility, and ceasing production at our smallest grow media manufacturing facility in Goshen, New York. Our cost savings and restructuring actions have been very effective today.

Speaker Change: We maintain relatively consistent results across the first two quarters of 2024, despite the second quarter of 2023 being a difficult quarter to lap.

Bill Toler: We remain laser focused on driving profitability in the business, and we took additional steps in the second quarter to further integrate and optimize our manufacturing operations, which should produce improved efficiencies and reduce costs going forward. These include closing on the sale of the manufacturing, equipment, and inventory related to our IGE branded products, closing our Paramount, California manufacturing facility, and ceasing production at our smallest Gromedia manufacturing facility in Goshen, New York.

Speaker Change: We remain laser-focused on driving profitability in the business, and we took additional steps in the second quarter to further integrate and optimize our manufacturing operations, which should produce improved efficiencies and reduce costs going forward.

Speaker Change: These include closing on the sale, the manufacturing, equipment, and inventory related to our IGE branded products.

Speaker Change: closing our Paramount California manufacturing facility and ceasing production at our smallest Grow Media manufacturing facility in Goshen, New York.

Bill Toler: Our cost savings and restructuring actions have been very effective to date, and we have proven our ability to continue operating profitably at lower sales levels while delivering top-notch service to our customers. Our Q2 net sales were relatively in line with our expectations, and the month of May marked our seventh consecutive month of sequential net sales growth. That was the longest streak of sequential net sales growth for Hydrofarm since going public back in 2020. I'll now highlight some of the areas of strength in the second quarter.

Speaker Change: Our cost savings and restructuring actions have been very effective to date. And we have proven our ability to continue operating profitably at lower sales levels while delivering top-notch service to our customers.

William Toler: And we have proven our ability to continue operating profitably at lower sales levels, while delivering top-notch service to our customers. Our 22 net sales were relatively in line with our expectations. And the month of May marked our seventh consecutive month of sequential net sales growth. That was the longest streak of sequential net sales growth for Hydrofarm since going public back in 2020. I'll now highlight some of the areas of strength in the second quarter. Our proprietary brands, including Active Aqua, PhotoBio, and Roots Organic, all performed well, growing year-on-year. Notably, the strong PhotoBio brand performs a result of recent innovation in lighting.

Speaker Change: our q two net sales were relatively in line with our expectations and the month of may marked our seventh consecutive month of sequential net sales growth that was the longest street of sequential net sales growth for hydrofarm since going public back in two thousand and twenty

Bill Toler: Our proprietary brands, including Active Aqua, Photobio, and Roots Organic, all performed well, growing year on year. Notably, the strong Photobio brand performance is a result of recent innovation in lighting. We are having success with a new generation of lighting products, including our Photobio MX2 model for commercial use and our Phantom cultivar lighting model for in-home use, both delivering exceptional value at affordable prices.

Bill Toler: Our proprietary brands, including Active Aqua, Photo Bio, and Roots Organic, all performed well, growing year on year. Notably, the strong Photobio brand performance is a result of recent innovation in lighting. We are having success with a new generation of lighting products, including our Photobio MX2 model for commercial use and our Phantom Cultivar lighting model for in-home use, both delivering exceptional value at affordable prices.

Speaker Change: i'll now highlight some of the areas of strength in the second quarter our proprietary brands including active oquua tohotobio and roots organic all performed well growing year-own year

Speaker Change: Notably, the strong Photobio brand performance is a result of recent innovation in lighting. We are having success with a new generation of lighting products, including our Photobio MX2 model for commercial use and our Phantom Cultivar lighting model for in-home use, both delivering exceptional value at affordable prices.

William Toler: We are having success with a new generation of lighting products, including our PhotoBio MX-2 model for commercial use, and our Phantom Cultivar lighting model for in-home use, both delivering exceptional value at affordable prices. We will continue to innovate and invest behind our key proprietary brands to address growers' needs as they evolve. In Q2, our non-cannabis and non-US and Canada revenue sources as a percentage of sales remain stable relative to Q2 last year. We do expect growth in our sales mix for full year 2024. As we continue diversifying our revenue sources by expanding our international presence to customers outside the US and Canada, and driving non-cannabis sales, including CEA products sold into food, floral, lawn and garden, and certain other customers.

Bill Toler: We will continue to innovate and invest behind our key proprietary brands to address growers' needs as they evolve. In Q2, will non-cannabis and non-US and Canada revenue sources as a percentage of sales remain stable relative to Q2 last year? We do expect growth in our sales mix for full year 2024, as we continue diversifying our revenue sources by expanding our international presence to customers outside the U.S. and Canada and driving non-cannabis sales, including CEA products sold into food, floral, lawn and garden, and certain other customers.

Bill Toler: We will continue to innovate and invest behind our key proprietary brands to address growers' needs as they evolve. In Q2, our non-cannabis and non-U.S. and Canada revenue sources as a percentage of sales remained stable relative to Q2 last year. We do expect growth in our sales mix for full year 2024, as we continue diversifying our revenue sources by expanding our international presence to customers outside the U.S. and Canada and driving non-cannabis sales, including CEA products sold into food, floral, lawn and garden, and certain other customers.

Speaker Change: We will continue to innovate and invest behind our key proprietary brands to address growers' needs as they evolve. In Q2, our non-cannabis and non-U.S. and Canada revenue sources as a percentage of sales remained stable relative to Q2 last year.

Speaker Change: We do expect growth in our sales mix for full year 2024 as we continue diversifying our revenue sources by expanding our international presence to customers outside the U.S. and Canada and driving non-Canada sales including CEA products.

Speaker Change: sold into food, floral, lawn and garden, and certain other customers.

William Toler: We entered into new distribution relationships with several vendors that have strong brand equity, including Quest, the humidifiers, Hurricane fans, and Mills Nutrients. While our primary focus remains our proprietary brands, these new distributed brands complement our existing portfolio and bring us closer to customers who regularly purchase these brands of products. The initial inventory investment into these brands in Q2 had a slightly negative impact on free cash flow in the quarter, but I expect them to yield very favorable returns in 2024. We are also investing behind several of our key proprietary brands, including innovation behind PhotoBio lighting that I mentioned earlier.

Bill Toler: We entered into new distribution relationships with several vendors that have strong brand equity, including Quest Dehumidifiers, Hurricane Fans, and Mills Nutrients. While our primary focus remains our proprietary brands, these new distributed brands complement our existing portfolio and bring us closer to customers who regularly purchase these branded products. The initial inventory investment into these brands in Q2 had a slightly negative impact on free cash flow in the quarter, but I expect them to yield very favorable returns in 2024.

Speaker Change: We entered into new distribution relationships with several vendors that have strong brand equity, including Quest Dehumidifiers, Hurricane Fans, and Mills Nutrients.

Speaker Change: While our primary focus remains our proprietary brands, these new distributed brands complement our existing portfolio and bring us closer to customers who regularly purchase these branded products. The initial inventory investment

Speaker Change: into these brands in Q2, had a slightly negative impact on free cash flow in the quarter, but I expect them to yield very favorable returns in 2024.

Bill Toler: We are also investing in several of our key proprietary brands, including innovation behind Photovio Lighting that I mentioned earlier. We are investing significantly in several of our proprietary consumer brands, and our team is excited to support several of our top brand offers. We remain optimistic that the regulatory environment for U.S. cannabis growers will improve and deliver a tailwind to the industry in the near future. In May, the DEA proposed the reclassification of cannabis from a Schedule I to a Schedule III drug, which would loosen federal restrictions on cannabis.

Speaker Change: we are also investing behind several of our key proaetary brands including innovation behind photobioollighting that i mentioned earlier we are investing significantly in several of our proprietary considable brands and our team is excited the support several of our top brand offerings

William Toler: We are investing significantly in several of our proprietary considerable brands, and our team is excited to support several of our top brand offerings. We remain optimistic that the regulatory environment for US cannabis growers will improve and deliver a tailwind to the industry in the near future. In May, the DEA proposed the reclassification of cannabis from a Schedule 1 to a Schedule 3 drug, which would loosen federal restrictions on cannabis.

Speaker Change: We remain optimistic that the regulatory environment for U.S. cannabis growers will improve and deliver a tailwind to the industry in the near future.

Bill Toler: Following the proposal, there was a 60-day period for comments, which ended on July 22. Encouragingly, over 90% of the comments received were in favor of rescheduling cannabis, and the vast majority of those comments, more than 60%, advocated for a complete descheduling from the controlled substance list. We're not certain how long it'll take to get a ruling on the matter, but this represents another step forward in the process of legalizing cannabis in the U.S. We are seeing signs of encouragement on the macro level to give us optimism that growth will return, and we believe through the diversification of our revenue streams and our effective cost savings initiatives that we are well positioned to achieve further improvements in profitability as demand and volume increase.

Speaker Change: In May, the DEA proposed the reclassification of cannabis from a Schedule I to a Schedule III drug, which would loosen federal restrictions on cannabis.

William Toler: and Thomas. Following the proposal, there has been a 60-day period for comments, which ended on July 22nd. Encouragingly, over 90% of the comments received were in favor of rescheduling the cannabis, and the vast majority of those comments, more than 60%, advocated for a complete descheduling from the controlled substance list. You're not certain how long it'll take to get a ruling on the matter, but this represents another step forward in the process of legalizing cannabis in the U.S. We are seeing signs of encouragement on the macro level to give us optimism that growth will return, and we believe through diversification of our revenue streams and our effective cost savings initiatives that we are well positioned to achieve further improvements in profitability as demand and volume increase.

Bill Toler: Following the proposal, there was a 60-day period for comments, which ended on July 22. Encouragingly, over 90% of the comments received were in favor of rescheduling cannabis, and the vast majority of those comments, more than 60%, advocated for a complete descheduling from the controlled substance list. We're not certain how long it'll take to get a ruling on the matter, but this represents another step forward in the process of legalizing cannabis in the U.S. To wrap up my remarks today, we are reaffirming our full year of guidance for net sales, adjusted EBITDA, and free cash flow as we remain focused on our brands, diversification of revenue, improving our mix, and controlling and reducing costs. With that, I'll turn it over to John to further discuss the details of our second quarter financial results.

Speaker Change: Following the proposal there has been a 60-day period for comments which ended on July 22nd.

Speaker Change: Encouragingly, over 90% of the comments received were in favor of rescheduling cannabis, and the vast majority of those comments, more than 60%, advocated for a complete descheduling from the controlled substance list.

Speaker Change: They're not certain how long it will take to get a ruling on the matter, but this represents another step forward in the process of legalizing cannabis in the U.S.

Speaker Change: We are seeing signs of encouragement on the macro level to give us optimism that growth will return. And we believe through the diversification of our revenue streams and our effective cost savings initiatives that we are well positioned to achieve further improvements in profitability as demand and volume increase.

William Toler: To wrap up my remarks today, we are reaffirming our full-year guidance for net sales, adjusted EBITDA, and pre-cash glow as we remain focused on our brands, diversification of revenue, improving our mix, and controlling and reducing costs.

Bill Toler: To wrap up my remarks today, we are reaffirming our full year of guidance for net sales, adjusted EBITDA, and free cash flow as we remain focused on our brands, diversification of revenue, improving our mix, and controlling and reducing costs. With that, I'll turn it over to John to further discuss the details of our second quarter financial results and our outlook for the balance of 2024.

Speaker Change: To wrap up my remarks today, we are reaffirming our full year of guidance for net sales, adjusted EBITDA, and pre-cash flow as we remain focused on our brands, diversification of revenue, improving our mix, and controlling and reducing costs.

John Lindevin: With that, I'll turn it over to John to discuss the details of our second quarter financial results and our outlook for the balance of 2024. John?

Speaker Change: With that, I'll turn it over to John to further discuss the details of our second quarter financial results and our outlook for the balance of 2024. John ?

John Lindeman: Thanks, Bill, and good morning, everyone. Net sales for the second quarter were $54.8 million, down 13.1% year-over-year, driven primarily by a 10.3% decrease in volume mix and a 2.6% decline in price. The decrease in volume mix was mainly related to oversupply in the cannabis industry. The pricing decline was largely driven by promotional pricing activity and is something we expect to see for the remainder of 2024. Consumable products continue to make up more than three-quarters of our total sales, representing approximately 76 percent of our total sales in Q2, which is roughly the same amount when compared to the second quarter of 2023. Overall, brand mix was solid in the quarter, with proprietary brands increasing to approximately 58% of our net sales compared to 55% last year.

John Lindevin: Thanks Bill, good morning everyone. Net sales to the second quarter were 54.8 million, down 13.1 percent year over year, driven primarily by a 10.3 percent decrease in volume mix and a 2.6 percent decline in pricing. The decrease in volume mix was mainly related to oversupply in the cannabis industry. The pricing decline was largely driven by promotional pricing activity, and it's something we expect to see for the remainder of 2024. Its global products continue to make up more than three quarters of our total sales, representing approximately 76 percent of our total sales in Q2, which is roughly the same amount when compared to the second quarter of 23.

John: thanks bill and good morning everyone

John: Net sales for the second quarter were $54.8 million.

John: down 13.1 percent year-over-year, driven primarily by a 10.3 percent decrease in volume mix and a 2.6 percent decline in pricing.

John: The decrease in volume mix was mainly related to oversupply in the cannabis industry.

John: The pricing decline was largely driven by promotional pricing activity and is something we expect to see for the remainder of 2024.

John: Consumable products continue to make up more than three quarters of our total sales, representing approximately 76 percent of our total sales in Q2, which is roughly the same amount when compared to the second quarter of 23.

John Lindevin: Overall, brand mix was solid in the quarter, with proprietary brands increasing to approximately 58 percent of our net sales compared to 55 percent last year. Gross profit in the second quarter was 10.9 million compared to 14.5 million in the year-ago period. Adjusted gross profit was 13.3 million, or 24.4 percent of net sales, compared to 17 million, or 27 percent of net sales, in the year-ago period. The decrease in margin is related to a very difficult lap. Typically, we expect to see a rise in our adjusted gross profit margin when we experience a rise in our proprietary brand mix.

John Lindeman: Overall, brand mix was solid in the quarter, with proprietary brands increasing to approximately 58% of our net sales compared to 55% last year. With the cost-saving actions we continue to execute and consistent with our full year 2024 outlook. Our second phase of restructuring is focused primarily on rightsizing our manufacturing footprint, particularly with respect to durable equipment products. In this quarter, we made great progress. We have now fully integrated the ERP system in our PEAT business and will continue to make progress on system integration in other areas.

John: overall brand mix was solid in the quarter with proprietary brands increasing the approximate fifty-eight percent of ournet sales compared to fifty-five percent last year

John Lindeman: Gross profit in the second quarter was $10.9 million, compared to $14.5 million in the year-ago period. The adjusted gross profit was $13.3 million, or 24.4% of net sales, compared to $17 million or 27% of net sales in the year-ago period. The decrease in margin is related to a very difficult lab. Typically, we expect to see a rise in our adjusted gross profit margin when we experience a rise in our proprietary brand net income.

John: gross profit in second quarter was ten point nine million compared to fourteen point five million in the year ago period

John: Adjusted gross profit was $13.3 million, or 24.4% of net sales, compared to $17 million, or 27% of net sales in the year-ago period. The decrease in margin is related to a very difficult lap.

John: typically we expect to see arise in ouradjusted gross profit margin when we experience a rise in our proprietary th brand mix

John Lindeman: However, in Q2 of last year, we experienced particularly strong manufacturing productivity in certain consumable manufacturing facilities due primarily to an early harvest in our peat facility enabled by favorable early spring weather in Alberta, Canada. We also experienced relatively higher manufacturing throughput for select consumable products last year.

John Lindevin: However, in Q2 last year, we experienced particularly strong manufacturing productivity in certain consumable manufacturing facilities, due primarily to an early harvest in our peak facility, enabled by favorable early spring weather in Alberta, Canada. We also experienced relatively higher manufacturing throughput for select consumable products last year. With all that said, we are pleased with our overall adjusted gross profit margin trend, as Q2 represents the third highest level we have recorded in any quarter since our IPO. In this quarter marked the fifth consecutive quarter with adjusted gross profit margins of at least 23 percent. To put that in perspective, our 2021 full year adjusted gross profit margin was 22.9 percent, and that was on much larger sales days.

John: However, in Q2 of last year, we experienced particularly strong manufacturing productivity in certain consumable manufacturing facilities due primarily to an early harvest in our peat facility enabled by favorable early spring weather in Alberta, Canada.

John: We also experienced relatively higher manufacturing throughput for select consumable products last year.

John Lindeman: With all that said, we are pleased with our overall adjusted gross profit margin trend as Q2 represents the third highest level we have recorded in any quarter since our IPO. This quarter marked the fifth consecutive quarter with adjusted gross profit margins of at least 23 percent. To put that into perspective, our 2021 full year adjusted gross profit margin was 22.9%, and that was on much larger sales data. With the cost-saving actions we continue to execute and consistent with our full year 2024 outlook.

John: With all that said, we are pleased with our overall adjusted gross profit margin trend as Q2 represents the third highest level we have recorded in any quarter since our IPO.

John: And this quarter marked the fifth consecutive quarter with adjusted gross profit margins of at least 23 percent.

John: To put that into perspective, our 2021 full-year adjusted gross profit margin was 22.9%, and that was on a much larger sales base.

John Lindevin: With the cost-saving actions, we continue to execute and are consistent with our full year 2024 outlook. We expect our full year 2024 to just a growth profit margin to be higher than it was last year.

John: With the cost-saving actions we continue to execute and consistent with our full year 2024 outlook.

John Lindeman: We expect our full-year 2024 adjusted gross profit margin to be higher than it was last year. I'll now provide an update on our most recent restructuring and cost-saving action. Our second phase of restructuring is focused primarily on rightsizing our manufacturing footprint, particularly with respect to durable equipment products. In this quarter, we made great progress. On May 31st, we closed on the sale of the manufacturing equipment and inventory related to our IGE branded products and are now aligned with an exclusive contract manager to produce those same great products. In June, we closed our Paramount, California manufacturing facility and consolidated those operations into our facility in Northern California.

John: We expect our full year 2024 adjusted gross profit margin to be higher than it was last year.

John Lindevin: I'll now provide an update on our most recent restructuring and cost of the actions. Our second phase of restructuring is focused primarily on right sizing our manufacturing footprint, particularly with respect to durable equipment products. In this quarter, we made great progress. On May 31st, we closed on the sale of the manufacturing equipment in the inventory. We lit it to our IGE branded products and are now aligned with an exclusive contract manager to produce those same great products. In June, we closed our Paramount California manufacturing facility and consolidated those operations into our facility in Northern California.

John Lindeman: Also in June, we ceased production at our smallest Gromedia manufacturing facility and intend to consolidate some or all of those operations into our remaining facilities. In July, we further right-sized our Northern California manufacturing facility, reducing space approximately 31% in the building. After completing these actions, we have now consolidated all of our manufacturing activity into two U.S. locations plus our single peat moss harvesting and processing facility in Alberta, Canada. We have now fully integrated the ERP system in our PEAT business and will continue to make progress on system integration in other areas.

John: i'll now provide an update on our most recent restructuring and costsaving actions

John: Our second phase of restructuring is focused primarily on rightsizing our manufacturing footprint, particularly with respect to durable equipment products. In this quarter, we made great progress.

John: on mayage thirty first we closed on the sale to manufacturing equipment in inventory related to our ig branded products and are now aligned with an exclusive contract manager to produce those sameing grade products

John: In June, we closed our Paramount California manufacturing facility and consolidated those operations into our facility in Northern California.

John Lindevin: Also in June, we ceased production of our smallest grow media manufacturing facility and intend to consolidate some or all of those operations into our remaining facilities. In July, we further right-sized our Northern California manufacturing facility, reducing space approximately 31 percent in the building. After completing these actions, we have now consolidated all of our manufacturing activity into two U.S. locations plus our single peat moss harvesting and processing facility up in Alberta, Canada. We have now fully integrated the ERP system in our peat business and will continue to make progress on system integration in other areas. Lastly, on the restructuring front, as we continue to evaluate opportunities, consolidate, and become more efficient, we are now reassessing our distribution center network.

John: Also, in June , we ceased production in our smallest GrowMedia manufacturing facility and intend to consolidate some or all of those operations into our remaining facilities.

John: In July , we further right-sized our Northern California manufacturing facility, reducing space approximately 31% in the building. After completing these actions, we have now consolidated all of our manufacturing activity into two U.S. locations, plus our single peat moss harvesting and processing facility up in Alberta, Canada.

John: We have now fully integrated the ERP system in our PEAT business and will continue to make progress on system integration in other areas.

John Lindeman: Lastly, on the restructuring front, as we continue to evaluate opportunities to consolidate and become more efficient, we are now reassessing our distribution center network. We expect these actions, together, will help us operate more efficiently and cost-effectively going forward. Moving on to our selling general and administrative expense, which continues to be a good story for us as we continue to take costs out of the business. In the second quarter, our SG&A expense was $18.7 million, compared to $23.5 million last year. Adjusted SGA expenses were $11.6 million, more than a 20% reduction when compared to $14.6 million in the second quarter of 2023. These savings resulted from reductions across a wide range of items, including headcount, facility expenses, professional fees, and insurance costs.

John: Lastly on the restructuring front, as we continue to evaluate opportunities to consolidate and become more efficient, we are now reassessing our distribution center network. We expect these actions collectively will help us operate more efficiently and cost-effectively going forward.

John Lindevin: We expect these actions collectively will help us operate more efficiently and cost-effectively going forward.

John Lindevin: Moving on to our selling, general administrative expense, which continues to be a good story for us, is we continue to take costs out of the business. In the second quarter, our SG&A expense was 18.7 million compared to 23.5 million last year. Just as SG&A expenses were 11.6 million more than 20 percent reductions when compared to 14.6 million in the second quarter of 2023. These savings resulted from reductions across a wide range of items, including headcount, facility expenses, professional fees, and insurance costs. Just as EBITDA was 1.7 million in the second quarter compared to 2.5 million in the prior year period.

John Lindeman: Moving on to our selling general and administrative expense, which continues to be a good story for us as we continue to take costs out of the business. In the second quarter, our SG&A expense was $18.7 million, compared to $23.5 million last year. Our net debt at the end of the quarter decreased to approximately $99 million from approximately $107 million last year. As a reminder, our term loan facility has no financial maintenance covenant, does not mature until October 2028, and we continue to maintain a zero balance on our revolving credit facility.

John: Moving on to our selling general and administrative expense, which continues to be a good story for us as we continue to take cost out of the business.

John: In the second quarter, our SG&A expense was $18.7 million, compared to $23.5 million last year.

John: Jeff Fidesci and expenses were $11.6 million, more than

Jeff Fidesci: twenty percent reductions when compared to fourteen point six million the second quarter oftwo thousand andtwenty three these savings resulted from reductions across a wide range of items including headcount facility expenses professional fees and insurance costs

John Lindeman: Adjusted EBITDA was $1.7 million in the second quarter, compared to $2.5 million in the prior year period. The decrease was in large part due to the dynamics discussed earlier regarding our adjusted gross profit, partially offset by our reduced adjusted SG&A expense. This quarter marks the fourth time in the last five quarters that we've realized positive adjusted EBITDA, further illustrating the success of our restructuring and cost-saving initiatives and our ability to drive profitability against lower sales levels.

Jeff Fidesci: Adjusted EBITDA was $1.7 million in the second quarter compared to $2.5 million in the prior year period. The decrease was in large part due to the dynamics discussed earlier regarding our adjusted gross profit, partially offset by our reduced adjusted SG&A expenses.

John Lindevin: The decrease was in large parts due to the dynamics discussed earlier regarding our adjusted growth profit, partially offset by our reduced adjusted SG&A expenses. This quarter marks the fourth time in the last five quarters that we have realized positive adjusted EBITDA, further illustrating the success of our restructuring and cost-saving initiatives and our ability to drive profitability against lower sales levels.

John: this quarter marks the fourth time in the last five quarters that we have realized positive adjusted ebitda further illustrating the success of our restructuring and cost saving initiatives and our ability to drive profitability against lower sales levels

John Lindevin: Moving on to our balance sheet and overall liquidity position. Our cash balance as of June 30, 2024, was 30.3 million, up significantly compared to our balance of 24.2 million at the end of the first quarter. The increase was primarily related to the net proceeds from the sale of the IGE assets of about 6.3 million. We ended the second quarter with 120.2 million in term debt and approximately 129 million of total debt, inclusive of financial lease liabilities. Our net debt at the end of the quarter decreased to approximately 99 million from approximately 107 million last year.

John Lindeman: Moving on to our balance sheet and overall liquidity, our cash balance as of June 30, 2024 was $30.3 million, up significantly compared to our balance of $24.2 million at the end of the first quarter. The increase was primarily related to the net proceeds from the sale of the IGE assets of about $6.3 million.

John: Moving on to our balance sheet and overall liquidity position.

John: our cash balance as of june thirty two thousand and y four was thirty point three million up significantly compared to our balance of twenty four point two mion at theend of the first quarter the increase was primarily related to the net proceeds from the saleof the iggee assets of about six point three million

John Lindeman: We ended the second quarter with $120.2 million of term debt and approximately $129 million of total debt, inclusive of financial lease liabilities. Our net debt at the end of the quarter decreased to approximately $99 million from approximately $107 million last year. As a reminder, our term loan facility has no financial maintenance covenant, does not mature until October 2028, and we continue to maintain a zero balance on our revolving credit facility.

John: We ended the second quarter with $120.2 million of term debt and approximately $129 million of total debt, inclusive of financial lease liabilities.

Operator: Peter Grom, William Carter, Jesse Redmond, Hydrofarm Please stand by, your program is about to begin. If you need assistance during your conference today, please press star zero. Good morning and welcome to Hydrofarm second quarter earnings call. Today's call is being recorded. If you would like to ask a question, please press star one on your telephone keypad to remove yourself from the queue press star two.

John: our netde tat theend of the quarter decreased to approximately ninety-nine million

John Lindevin: As a reminder, our term loan facility has no financial maintenance covenant, does not mature until October 20, 2028, and we continue to maintain a zero balance on our revolving credit facility. Our cash balance at the end of the quarter of approximately 30 million plus the availability of our, on our revolving lot of credit of approximately 20 million results in total liquidity of 50 million. Lastly, on this point, we continue to make progress towards monetizing non-operating excess land that we own in upstate New York, which could further reduce net debt and/or add to our liquidity when we complete the associated real estate sales.

John: from approximately $107 million last year. As a reminder, our term loan facility has no financial maintenance covenant, does not mature until October 2028, and we continue to maintain a zero balance on our revolving credit facility.

John Lindeman: Our cash balance at the end of the quarter of approximately $30 million, plus the availability on our revolving line of credit of approximately $20 million, results in total liquidity of $50 million. Lastly, on this point, we continue to make progress towards monetizing non-operating excess land that we own in upstate New York, which could further reduce net debt and add to our liquidity when we complete the associated real estate sales. For all these reasons, we continue to feel good about our liquidity.

John: Our cash balance at the end of the quarter of approximately $30 million plus the availability on our revolving line of credit of approximately $20 million results in total liquidity of $50 million.

Speaker Change: lastly on this point we continue to make progress towards monetizing nonoperating excess land that we own an update new york which could further reduce net debtand or add to our liquidity will be complete the associated re real estate sales

John Lindevin: For all these reasons, we continue to feel good about our liquidity position. In the second quarter, reported cash flow from operating activities at 3.8 million, with capital expenditures of 0.4 million, yielding free cash flow of 3.4 million. Our free cash flow would have been about break even for the quarter without the impact of the IGE asset sale, as a portion of the net proceeds were required to be accounted for in operating activities. We achieve this cash flow position for the second quarter despite investing in inventory for new distribution relationships in innovative lighting products, which Bill mentioned earlier.

John: For all these reasons, we continue to feel good about our liquidity position.

John Lindeman: In the second quarter, we reported cash flow from operating activities of $3.8 million, with capital expenditures of $0.4 million, yielding free cash flow of $3.4 million. Our free cash flow would have been about break even for the quarter without the impact of the IGE asset sale, as a portion of the net proceeds were required to be accounted for in operating activities.

John: In the second quarter, we reported cash flow from operating activities of $3.8 million, with capital expenditures of $0.4 million, yielding free cash flow of $3.4 million.

John Lindeman: Our free cash flow would have been about break even for the quarter without the impact of the IGE asset sale, as a portion of the net proceeds were required to be accounted for in operating activities. We achieved this cash flow position for the second quarter despite investing in inventory for new distribution relationships and innovative lighting products, which Bill mentioned earlier. We also reaffirmed all other assumptions in today's earnings release, with the exception of capital expenditures, which are now $3.5 million to $4.5 million for the full year 2024, down slightly from $4 to $5 million previously.

Anna Heller: At this time, I'd like to turn the conference over to Anna Kate Heller. I see our please go ahead, ma'am. Thank you and good morning.

John: Our free cash flow would have been about break-even for the quarter without the impact of the IGE asset sale, as a portion of the net proceeds were required to be accounted for in operating activities.

Anna Heller: With me on the call today is Bill Toler, Hydrofarm's chairman and chief executive officer and John Lindevin, the company's chief financial officer. By now and everyone should have access to our second quarter, 2024 earnings release and form 8K issued this morning, as well as an investor presentation available for reference. These documents are available on the investor section of Hydrofarm's website at Hydrofarm.com.

John Lindeman: We achieved this cash flow position for the second quarter despite investing in inventory for new distribution relationships and innovative lighting products, which Bill mentioned earlier. With that, let me turn to our full year 2024 outlook. We are reaffirming the key metrics for our 2024 guidance, which includes net sales to decline low to high teens on a percentage basis, adjusted EBITDA that is positive for the full year 2024, and positive free cash flow for the full year.

Bill Toler: We achieved this cash flow position for the second quarter despite investing in inventory for new distribution relationships and innovative lighting products, which Bill mentioned earlier.

John Lindevin: With that, let me turn to our full year 2024 outlook. We are reaffirming the key metrics toward 2024 guidance, which includes net sales to decline low to high teams on a percentage basis, adjusted EBITDA that is positive for the full year 2024, and positive free cash flow for the full year. We also reaffirmed all other assumptions and today's earnings release, with the exception of capital expenditures, which is now 3.5 million to 4.5 million for the full year 2024, down slightly from 4 to 5 million previously. Before turning it over for questions, I would like to echo what Bill mentioned earlier that we continue to control what we can and then set up our business to operate profitably with even lower sales.

Speaker Change: With that, let me turn to our full-year 2024 outlook. We are reaffirming the key metrics to our 2024 guidance, which includes net sales to decline low to high teens on a percentage basis,

Anna Heller: Before we begin our formal remarks, please know that our discussion today will include four looking statements. These four looking statements are not guaranteed the future of performance and therefore, you should not be undue relies on them. These statements are also subject to numerous risks and uncertainties that can cause actual results to different materialism or current expectations. We refer all of you to our recent SD filing for a more detailed discussion as a risk that can impact our future operating results in financial conditions.

Bill Toler: adjusted EBITDA that is positive for the full year 2024 and positive free cash flow for the full year.

John Lindeman: We also reaffirmed all other assumptions in today's earnings release, with the exception of capital expenditures, which are now $3.5 million to $4.5 million for the full year 2024, down slightly from $4 to $5 million last year. Before turning it over for questions, I would like to echo what Bill mentioned earlier, that we continue to control what we can and have set up our business to operate profitably with even lower sales. As we look ahead, we are excited about the future.

Bill Toler: We also reaffirmed all other assumptions in today's earnings release, with the exception of capital expenditures, which is now $3.5 million to $4.5 million for the full year 2024, down slightly from $4 to $5 million previously.

John Lindeman: Before turning it over to questions, I would like to echo what Bill mentioned earlier, that we continue to control what we can and have set up our business to operate profitably with even lower sales. Thank you all for joining us this morning. We're now happy to answer your questions. Operator, please open the line.

Bill Toler: Before turning it over for questions, I would like to echo what Bill mentioned earlier, that we continue to control what we can and have set up our business to operate profitably with even lower sales.

Anna 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 an isolation or substitute for results prepared in accordance of GAAP and reconciliation to comparable GAAP measures are available in our earnings release.

John Lindevin: As we look ahead, we are excited about the future. When demand hopefully picks back up, we are in a great position to capitalize on it profitably. Thank you all for joining us this morning.

John Lindeman: When demand hopefully picks back up, we are in a great position to capitalize on it profitably. Thank you all for joining us this morning, and we're now happy to answer your questions. Operator, please open the line.

Bill Toler: As we look ahead, we are excited about the future. When demand hopefully picks back up, we are in a great position to capitalize on it profitably. Thank you all for joining us this morning, and we're now happy to answer your questions. Operator, please open the line.

Operator: We are now happy to answer your questions.

Operator: Operator, please open the line. Thank you. At this time, if you would like to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue by pressing star two. Once again, that is star one to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal.

William Toler: With that, I would like to turn the call over to Bill Toler. Thank you, Anna Kate. Good morning, everyone.

Operator: Thank you. At this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue by pressing star 2. Once again, that is star 1 to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal. And we'll take our first question from Andrew Carter from Stifle.

Speaker Change: thank you at this time if you would like to ask a question please press star one on your telephone keypad you may remove yourself from the queube by pressing star two

William Toler: In the second quarter, we experience sequential improvement in our adjusted gross profit margin over our first quarter levels and also delivered positive adjusted EBADOP for the fourth time in the last five quarters. We realized further favorability on our adjusted SG&A line with substantial savings year-on-year. For the six months year-to-day, we've delivered over $2 million of adjusted EBADOP up from approximately $300,000 in 2023, and we had the smallest year-over-year net sales decline in the last three years. We maintain relatively consistent results across the first two quarters of 2024, despite the second quarter of 2023 being a difficult quarter to land.

Speaker Change: once again that a star one to ask a question i will pause for just a moment to allow everyone an opportunity to signal

Andrew Carter: And we'll take our first question from Andrew Carter from Diffle. Thank you. Good morning. We're going to ask about you mentioned demand trends in the quarter. I think you're sorry to mention the revenue in the quarter. You mentioned May was the seventh highest month sequential growth. I think that there's usually a seasonal build during the quarter. Could you talk about what underlying revenue did as you progressed through the quarter? And do you think the industry helped steady or deteriorated during two queue? Thanks. Thanks, Andrew. Appreciate the question. Yeah, specifically what I had said is that May was the seventh consecutive month of sequential growth going back to October, right?

Bill Toler: And we'll take our first question from Andrew Carter from Stifle.

Andrew Carter: Hey, thank you. Good morning.

Andrew Carter: Thank you. Good morning.

Andrew Carter: I wanted to ask about, you mentioned demand trends in the quarter, I think you, or you mentioned, sorry, demand trends, I mean the revenue in the quarter. You mentioned May was the seventh highest month of sequential growth.

Speaker Change: i think that there's usually a seasonal build during the quarter could you so because you talk aboutwhat underlying revenue did as you progress through the quarter and do you think the industry he steady or deteriorated during two q thanks

William Toler: We remain laser focused on driving profitability in the business, and we took additional steps in the second quarter to further integrate and optimize our manufacturing operations, which should produce improved efficiencies and reduce costs going forward. These include closing on the sale, the manufacturing equipment and inventory related to our IGE branded products, closing our Paramount, California manufacturing facility, and ceasing production at our smallest grow media manufacturing facility in Goshen, New York. Our cost savings and restructuring actions have been very effective today.

Bill Toler: I wanted to ask you about the demand trends in the quarter. I think you, or you meant, sorry, demand trends; I mean revenue in the quarter. You mentioned May was the seventh highest month of sequential growth. I think that there's usually a seasonal buildup during the quarter. Could you, so could you talk about what underlying revenue did as you progressed through the quarter? And do you think the industry held steady or deteriorated during 2Q? Thanks.

Speaker Change: thanks andrew appreciates question yeah what specifically what i had said is that may was the seventh consecutive month of sequential growth going back october right that did not that did not continue in juneor probably would have said june right so may was sort of the the peak of that seven months trend

Bill Toler: Thanks Andrew, I appreciate the question. Yeah, specifically, what I had said is that May was the seventh consecutive month of sequential growth going back to October, right? That did not that did not continue in June, or I probably would have said June, right? So May was sort of the peak of that seven month trend. I think that we saw some encouraging signs in the fact that some of our durable products, you heard me mention active aqua, and you heard me mention photo bio, which of course is lighting, showed year-over-year growth.

William Toler: That did not continue in June, or I probably would have said June, right?

William Toler: So May was sort of the peak of that seven months trend. I think that we saw some encouraging signs on in the fact that some of our durable products; you heard me mention Active Aqua there for healing, and you heard me mention Photo Bio, which of course is lighting, showed year-over-year growth. So the mix has changed a little bit. I think it's an encouraging sign for the industry when durable products are starting to do a little bit better than what it says as people are either replenishing or rebuilding or building new, right? I think that's an overall positive, right?

Andrew Carter: i think that we saw some encouraging signs on in the fact that

Andrew Carter: somemore durable products here mention active awward therefore ing and you heard me mentioned photo bio which of course is lighting showed year-over-year growth so the mix changed a little bit i think ' an encouraging sign for the industry with

Bill Toler: So the mix has changed a little bit. I think it's an encouraging sign for the industry when durable products are starting to do a little bit better than what it says. People are either replenishing or rebuilding or building new, right? So I think that's an overall positive, right? We were lapping some really strong international shipments on our consumable brands in June as we opened up a pipeline into new countries last year, so a year-on-year on consumables didn't look quite as good as we had hoped, but I think overall the demand signs are stable, let's call them, with a little bit of a mix change toward durables, which is encouraging

Bill Toler: So the mix has changed a little bit. I think it's an encouraging sign for the industry when durable products are starting to do a little bit better than what it says, right? People are either replenishing or rebuilding or building new, right? We were lapping some really strong international shipments on our consumable brands in June as we opened up a pipeline into new countries last year.

William Toler: That was the longest streak of sequential net sales growth for Hydrofarm since going public back in 2020.

William Toler: We were lapping some really strong international shipments on our consumable brands in June, as we opened up pipeline into new countries last year, so our year-on-year-on consumables didn't look quite as good as we had hoped. But I think overall, the demand signs are stable. Let's call them with a little bit of a mix change toward durables, which is encouraging.

William Toler: I'll now highlight some of the areas of strength in the second quarter. Our proprietary brands, including Active Aqua, PhotoBio, and Roots Organic, all performed well, rowing year-on-year. Notably, the strong PhotoBio brand performances a result of recent innovation in lighting. We are having success with a new generation of lighting products, including our PhotoBio MX-2 model for commercial use, and our Phantom Cultivar lighting model for in-home use, both delivering exceptional value at affordable prices.

Bill Toler: So year-on-year growth in consumables didn't look quite as good as we had hoped, but I think overall the demand signs are stable, let's call them, with a little bit of a mixed change toward durables, which is encouraging. And then we think that, from here onward, we're maintaining the ability to make a little bit of money at some lower demand levels and then waiting for things to improve as descheduling happens and as new states begin to open up.

Bill Toler: And then we think that, from here onward, we're maintaining the ability to make a little bit of money at some lower demand levels and then waiting for things to improve as descheduling happens and as new states begin to open up.

William Toler: And then we think that, you know, onwards from here, we're maintaining the ability to make a little bit of money and some lower demand levels, and then waiting for things to improve as the scheduling happens and as new states begin to open up. And then the second question I'd ask is like kind of thinking about where your mix is today from a geographical perspective, mature states, licensed cannabis sales, still under pressure, cannabis pricing metrics still under pressure. But how about kind of the new states as a percentage of your mix, New York, obviously, Ohio just opened, Missouri?

William Toler: We will continue to innovate and invest behind our key proprietary brands to address growers' needs as they evolve. In Q2, our non-cannabis and non-US and Canada revenue sources as a percentage of sales remain stable relative to Q2 last year. We do expect growth in our sales mix for full year 2024. As we continue diversifying our revenue sources by expanding our international presence to customers outside the US and Canada, and driving non-cannabis sales, including CEA products sold into food, floral, lawn and garden, and certain other customers.

Bill Toler: And then the second question I'd ask is, like, kind of thinking about where your mix is today from a geographical perspective. Mature states, licensed cannabis sales still under pressure, cannabis pricing metrics still under pressure, but how about the new states as a percentage of your mix? New York, obviously Ohio just opened, and Missouri. Have those achieved any kind of critical mass that could be kind of growth next year, or is it still, your sales base is still dominated by the mature markets? Thanks. Yeah, a good question. They have started to achieve some goals.

Speaker Change: And then second question I would ask is like kind of thinking about where your mix is today from a geographical for Scott perspective mature state licensed cannabis sales still under pressure, Kansas pricing metric still under pressure, but how about kind of the new states as a percentage of your mix New York sale.

Speaker Change: <unk> just opened Missouri are those big did have those kind of achieved any kind of critical mask that could be kind of growth next year or is it still your sales base is still dominated by the mature markets. Thanks.

William Toler: Are those big, have those kind of achieved any kind of critical mask that could be kind of growth next year, or is it still, your sales base is still dominated by the mature markets? Thanks. Yeah, good question. They have started to achieve some level of critical match. It's not enough to move the needle. We're still, I think the whole industry is kind of held back by the size and scale of California, Oklahoma, Michigan, a little bit of Colorado, Oregon, and Washington. But it has been very encouraging to see what places like Minnesota, Missouri, and New York, the ones you mentioned; Virginia is doing pretty well.

Bill Toler: Yeah, good question. They have started to achieve some level of critical mass, but it's not enough to move the needle. We're still, I think the whole industry is kind of held back by the size and scale of California, Oklahoma, Michigan, a little bit of Colorado, Oregon, and Washington. But it has been very encouraging to see what places like Minnesota and Missouri and New York, the ones you mentioned, Virginia is doing pretty well.

Speaker Change: Yes. Good question. They have started to achieve some level of critical mass it's not enough to move the needle. We're still I think the whole industry has kind of held back by the day.

William Toler: We entered into new distribution relationships with several vendors that have strong brand equity, including Quest, the humidifiers, Hurricane fans, and Mills nutrients. While our primary focus remains our proprietary brands, these new distributed brands complement our existing portfolio and bring us closer to customers who regularly purchase these brand of products. The initial inventory investment into these brands in Q2 had a slightly negative impact on free cash flow in the quarter, but I expect them to yield very favorable returns in 2024.

Speaker Change: Size and scale of California, Oklahoma, Michigan, a little bit of Colorado, Oregon, and Washington.

Speaker Change: But it has been very encouraging to see what places like Minnesota, Missouri, and New York. The ones you mentioned, Virginia is doing pretty well.

Bill Toler: Ohio has stepped up. So they are starting to shift that kind of balance of consumption and balance of volume towards the Midwest and the East. But we still have California that's under a lot of pressure. Until that one at least stops declining, we're not going to be able to get over the growth hump. But we are seeing that mix shift. We are seeing that come towards the Midwest and the Mid-Atlantic, and so on.

William Toler: Ohio is stepped up. So they are starting to shift that kind of balance of consumption and balance of volume towards the Midwest and the East, but we still got California; it's under a lot of pressure until that one at least stops declining. We're going to, you know, not be able to get over the growth. But we are seeing that mix shift. We are seeing that come toward the Midwest and the Mid-Atlantic and so on. Of course, the other big one is what's going to happen in Florida. A lot of people are waiting and watching to see how the voting turns out in November.

Speaker Change: Ohio step stepped up so they are starting to ship that kind of balance of consumption and balance of volume towards the Midwest and the east, but we still got California, it's under a lot of pressure and until that one at least stops stops declining.

William Toler: We are also investing behind several of our key proprietary brands, including innovation behind PhotoBio lighting that I mentioned earlier. We are investing significantly in several of our proprietary considerable brands, and our team is excited to support several of our top brand offerings.

Speaker Change: We're going to not be able to get over to get over the growth, but we are seeing that mix shift we are seeing that come towards the Midwest mid Atlantic and and so on of course, the other big one is whats going to happen in Florida, a lot of people are waiting and watching to see how the voting turns out in November and we think that one could have a huge impact on everybody's everybody's opportunity.

Bill Toler: Of course, the other big one is what's going to happen in Florida. A lot of people are waiting and watching to see how the voting turns out in November. We think that one could have a huge impact on everybody's opportunity to grow.

William Toler: We remain optimistic that the regulatory environment for US cannabis growers will improve and deliver a tailwind to the industry in the near future. In May, the DEA proposed the reclassification of cannabis from a schedule 1 to a schedule 3 drug, which would loosen federal restrictions on cannabis, and Thomas. Following the proposal, there has been a 60-day period for comments which ended on July 22nd. Encouragingly, over 90% of the comments received were in favor of rescheduling the cannabis, and the vast majority of those comments, more than 60% advocated for a complete descheduling from the controlled substance list. You're not certain how long it'll take to get a ruling on the matter, but this represents another step forward in the process of legalizing cannabis in the U.S.

Andrew Carter: We think that one could have a huge impact on everybody's, everybody's opportunity to grow. Thanks, Andrew. Thanks.

Speaker Change: Thanks.

Andrew Carter: Thanks, Andrew.

Operator: I'll pass it on. Thanks, Senator.

Speaker Change: Thanks, I'll pass it on.

Andrew Carter: Thanks, Andrew.

Peter Grom: And we'll take our next question from Peter Grom, UBS. Thanks, operator. Good morning, everyone. I wanted to follow up on Mr. Carter's question a little bit, just on the top line progression. I guess just in the context of the guidance, you know, it's still efficiently wide range for the balance of the year, but you're kind of trending at the better half of that, you know, year to date. So he maybe just talked through how we should be thinking about the puts in case as to what we'll put you, you know, towards the better end versus maybe towards the lower end of that guidance range.

Operator: And we'll take our next question from Peter Grom, UBS.

Speaker Change: And we'll take our next question from Peter Grom UBS.

Peter Grom: Thanks, Operator. Good morning, everyone.

Peter Grom: Thanks, operator, good morning, everyone I wanted to follow up of Mr.

Bill Toler: I wanted to follow up on Mr. Carter's question a little bit just on the top line progression. I guess just in the context of the guidance, you know, it's still a decently wide range for the balance of the year, but you're kind of trending at the better half of that, you know, year-to-date. So can you maybe just talk through how we should be thinking about the puts and takes as to what will put you, you know, towards the better end versus maybe towards the lower end of that guidance range, and maybe any thoughts in terms of how you would be thinking about the phasing of that 3Q versus 4Q?

Peter Grom: Mr. Carter's question, a little bit just on the top line for <unk>.

Speaker Change: And I guess just in the context of the guidance.

Peter Grom: I wanted to follow up on Mr. Carter's question a little bit, just on the top line progression, I guess, just in the context of the guidance. You know, still a decently wide range for the balance of the year, but you're kind of trending at the better half of that, you know, year to date. So can you maybe just talk through how we should be thinking about putting some cases to what will put you, you know, towards the better end versus maybe towards the lower end of that guidance range and maybe any thoughts in terms of how you would be thinking about the phasing of that 3Q versus 4Q.

Speaker Change: It's still a decent wide range for the balance of the year, but you are kind of trending at the better half of that year to date. So can you maybe just talk through how we should be thinking about.

Speaker Change: The puts and takes as to what would put you towards the better end versus maybe towards the lower end of that guidance range.

William Toler: We are seeing signs of encouragement on the macro level to give us optimism that growth will return, and we believe through diversification of our revenue streams and our effective cost savings initiatives that we are well positioned to achieve further improvements in profitability as demand and volume increase.

William Toler: And maybe any thoughts in terms of how you would be thinking about the phasing of that three to your versus four kids.

Speaker Change: Maybe any thoughts in terms of how you would be thinking about the phasing of that <unk> versus <unk>.

Bill Toler: Thanks Peter and you know with our first half it's sort of right at 13 and you get just above 13 in Q2 and right under 13 in Q1 obviously we are trending at the better end of our range. We talked about tightening it but honestly felt like that with the uncertainties of things that go on in our industry in Q3 and Q4 we didn't want to get out ahead of ourselves so we thought about look we are at the better end right now we hope to stay there but it's been a it's been a hard nut to call and a hard nut to find and so we're encouraged by overall macro things that I mentioned in answering Andrew's call but we still want to see further stabilization before we you know tighten any more or call the range any better but we are glad to be at the better side of that range right now.

William Toler: Thanks, Peter. And, you know, with a first half, it's sort of right at 13, and you get just above 13 in Q2 and right under 13 in Q1. Obviously, we are trending at the better end of our range. We talked about tightening it, but honestly, we felt like that with the uncertainties of things that go on in our industry and Q3 and Q4, we didn't want to get out ahead of ourselves. So we thought about look, we are at the better end right now. We hope to stay there, but it's been a hard not to call and a hard not to find.

Bill Toler: Thanks, Peter. And, you know, with our first half, it's sort of right at 13, and you get just above 13 in Q2 and right under 13 in Q1. Obviously, we are trending at the better end of our range. We talked about tightening it, but honestly, we felt like that with the uncertainties of things that go on in our industry in Q3 and Q4, we didn't want to get out ahead of ourselves.

Peter Grom: Okay. Thanks Peter.

Speaker Change: With our first half it sort of right at 13, and you've got just about 13 in Q2 and right under 13 in Q1, obviously, we are trending at the better end of our range.

William Toler: To wrap up my remarks today, we are reaffirming our full-year guidance for net sales, adjusted EBITDA and pre-cash glow as we remain focused on our brands, diversification of revenue, improving our mix and controlling and reducing costs.

Speaker Change: Talking about tightening it but honestly, we felt like that with the uncertainties of things that go on in our industry in Q3 and Q4, we didn't want to get out ahead of ourselves. So we thought about look we are at the better and right now we hope to stay there.

Bill Toler: So we thought about, look, we are at the better end right now. We hope to stay there. But it's been a hard nut to call and a hard nut to find. And so we're encouraged by the overall macro things that I mentioned in answering Andrew's call.

John Lindevin: With that, I'll turn it over to John for the discuss the details of our second quarter financial results and our outlook for the balance of 2024. John? Thanks Bill, good morning everyone. Net sales to the second quarter were 54.8 million down 13.1 percent year over year driven primarily by a 10.3 percent decrease in volume mix and a 2.6 percent decline in pricing. The decrease in volume mix was mainly related to oversupply in the cannabis industry.

Speaker Change: But it's been a it's been a hard not to call in a hard not defined and so we're encouraged by overall macro things that I mentioned in answering Andrew's call, but we still want to see further stabilization before we tighten anymore.

William Toler: And so we're encouraged by overall macro things that I mentioned and answering Andrew's call, but we still want to see further stabilization before we tighten anymore or call the range any better. But we are glad to be at the better side of that range right now.

Speaker Change: The range any better, but we are glad to be at the better side of that range right now.

Bill Toler: Okay, and then I guess if I were to just like, you know, thinking about it and just kind of getting back to stabilization, just going back to that point on the monthly sales trends, obviously, June, maybe wasn't that, as you mentioned, but not to call it, you know, not to talk about 2025 now, that you're still having a harder time being a part of, to figure out where to be within the range of the But yeah, I guess just like, would you anticipate, like, just, I don't know, like, do you think we could see better stabilization and just in terms of top line growth? And so, you know, said another way, you know, the

Bill Toler: Okay, and then I guess if I were to just like, you know, thinking about it and just kind of getting back to stabilization, just going back to that point on the monthly sales trends, obviously, June, maybe wasn't that as you mentioned, but not to call it, you know, not to talk about 2025 now, that you're still having a harder time, you know, figuring out where to be within the range of the back half of And so, you know, said another way, the stabilization and top line growth will allow some of the cost savings and restructuring that you're doing to kind of allow some of the better profitability to flow through. So just trying to think about the bigger picture, how you think about maybe, you know, the puts and takes of 25, at this point in time.

William Toler: I guess if I were to just think about it and just kind of get back to stabilization, just going back to that point on the monthly sales trend, obviously Jane maybe wasn't that, as you mentioned, but not to talk about 2025 now, but it's been, you're still having a harder time, you know, if you can't want to be within the range of the back after this year. But I guess it's like, would you anticipate, like just, I don't know, do you think we could see better stabilization in just in terms of top-line growth? And so, you know, set another way, you know, the stabilization and top-line growth will that allow some of the cost savings and restructuring that you're doing to kind of allow some of the better profitability to flow through.

Speaker Change: Okay, and then I guess, if I were to just.

Speaker Change: Thinking about it and just kind of getting back to stabilization just going back to that point on the monthly sales trends, obviously, Joel maybe it wasn't that as you mentioned.

John Lindevin: The pricing decline was largely driven by promotional pricing activity, and it's something we expect to see for the remainder of 2024. Its global products continue to make up more than three quarters of our total sales, representing approximately 76 percent of our total sales in Q2, which is roughly the same amount when compared to the second quarter of 23. Overall, brand mix was solid in the quarter, with proprietary brands increasing the approximately 58 percent of our net sales compared to 55 percent last year.

Speaker Change: Not to call about not to talk about 2025.

Speaker Change: You are still having a harder time.

Speaker Change: Would it be within the range in the back half of this year, but I guess just like would you anticipate like I don't know do you.

Speaker Change: We could see better stabilization and just in terms of top line growth and so said.

Speaker Change: Said another way the stabilization in topline growth that allows some of the cost savings and restructuring that youre doing to kind of allow some of the better profitability to flow through so just trying to think about it bigger picture, how you think about maybe.

John Lindevin: Gross profit in the second quarter was 10.9 million compared to 14.5 million in the year ago period. Adjusted gross profit was 13.3 million or 24.4 percent of net sales compared to 17 million or 27 percent of net sales in the year ago period. The decrease in margin is related to a very difficult lap. Typically, we expect to see a rise in our adjusted gross profit margin when we experience a rise in our proprietary brand mix.

William Toler: So just trying to think about a bigger picture, how you think about maybe, you know, the puts in taste of 25, you know, at this point in time. It's something we've begun to talk about, but we're certainly not ready to call anything in 25. But I think that the momentum is such that the shifting to the middle, you know, middle of the country states and the Northeast states, plus the potential for rescheduling, all those things should lead us to, you know, a growth year in 2025. Not really ready to put a number on that yet, but I think that we've certainly paid our dues longer than we thought we had to across the entire industry with a couple of years' year of declines, so we should be ready to go.

Speaker Change: Puts and takes of 25.

Speaker Change: At this point in time.

Bill Toler: It's something we've begun to talk about, but we're certainly not ready to call anything in 2025. But I think that the momentum is such that the shift to the middle of the country states and the Northeast states, plus the potential for rescheduling, all those things should lead us to a growth year in 2025. Not really ready to put a number on that yet, but I think that we've certainly paid our dues longer than we thought we had to across the entire industry, with a couple of years here of declines.

Speaker Change: Yes, it's something we've begun to talk about but we are certainly not ready to call anything in 'twenty, five, but I think that the most.

Speaker Change: Momentum is such that the shifting to the middle middle of the country States in the northeast States.

Speaker Change: Plus the potential for rescheduling, all those things should lead us to.

Speaker Change: A growth year in 2025, not really ready to put a number on that yet, but I think that we certainly paid our dues longer than we thought we had to.

Speaker Change: The entire industry with a couple of years your declines.

Bill Toler: So we should be ready to go. And I think now that our cost structure is as tight as it is, we will start seeing those much higher profitability numbers popping up with the control on cost, the restructuring done, the shutting of facilities, and the selling of assets. All of that puts us in a great spot that when a little bit of growth does return, not much more of it is going to stick to the bottom line as it flows through.

Bill Toler: So we should be ready to go. And I think now that our cost structure is as tight as it is, we will start seeing those much higher profitability numbers popping up with the control on cost, the restructuring done, the shutting of facilities, and the selling of assets. All of that puts us in a great spot that when a little bit of growth does return, much more of it is going to stick to the bottom line as it flows through.

Speaker Change: We should be ready to go and I think now that our cost structure is as tight as it is we will start seeing those much higher profitability numbers, Bob talking through with the controlling costs. The restructuring done the shutting of facilities the selling of assets all of that puts us in a great spot that wind a little bit of growth does return. It's much more of it is going to stick to the bottom line as it flows through.

William Toler: And I think now that our cost structure is as tight as it is, we will start seeing those much higher profitability numbers popping through. With the control on cost, the restructuring done, the shutting of facilities, the selling of assets, all that puts us in a great spot that when a little bit of growth does return, it's much more what's going to stick to the bottom lines that flows through.

John Lindevin: In this quarter marked the fifth consecutive quarter with adjusted gross profit margins of at least 23 percent. To put that in the perspective, our 2021 full year adjusted gross profit margin was 22.9 percent and that was on much larger sales days. With the cost-saving actions, we continue to execute and consistent with our full year 2024 outlook. We expect our full year 2024 to just a growth profit margin to be higher than it was last year.

John Lindevin: Great. And then maybe just one quick follow-up for John, you know, gross margin extension still expected for the year. Just any thoughts on phasing for gross margin, you know, as well as kind of adjusted EBITDA just as we think about, you know, calibrating our models for 3Q and kind of 4Q. Yeah. Typically, we see, as you know, Peter, a little bit stronger profitability in Q3 than we do in Q4, just because we typically see with the seasonality trends that exist in our business, particularly up in Canada and elsewhere, that, you know, sort of top line in Q4's typically a wee bit lower than it is in Q3 and sort of that effect has a little bit of implication on our margin.

John Lindeman: Great, and then maybe just one quick follow-up for John, you know, gross margin expansion still expected for the year. Any thoughts on phasing for gross margin, you know, as well as kind of adjusted EBITDA, just as we think about, you know, calibrating our models for 3Q and kind of 4Q.

Speaker Change: Great and then maybe just one quick follow up for John Yes, gross margin expansion still expected for the year, just any thoughts on phasing for gross margin as well as kind of adjusted EBITDA, just as we think about calibrating our models for <unk> and kind of forecasts.

John Lindeman: Yeah, typically, we'd see, as you know Peter, a little bit stronger profitability in Q3 than we do in Q4. Just because we typically see, with the seasonality trends that exist in our business, particularly up in Canada and elsewhere, that the top line in Q4 is typically a wee bit lower than it is in Q3, and that effect has a little bit of an impact on our margin. But overall, as we said, we're expecting a stronger margin in the second half, and hopefully that gives you a little bit of insight into sort of the Q3, Q4 aspects of it.

John Lindeman: Yeah, typically, we see, as you know Peter, a little bit stronger profitability in Q3 than we do in Q4. Just because we typically see, with the seasonality trends that exist in our business, particularly up in Canada and elsewhere, that the top line in Q4 is typically a wee bit lower than it is in Q3, and that effect has a little bit of an impact on our margin. But overall, as we said, we're expecting a stronger margin in the second half, and hopefully that gives you a little bit of insight into sort of the Q3, Q4 aspects of it.

Speaker Change: Yes, typically we would see as you know Peter a little bit stronger profitability in Q3 than we do in Q4.

John Lindevin: I'll now provide an update on our most recent restructuring and cost of the actions. Our second phase of restructuring is focused primarily on right sizing our manufacturing footprint, particularly with respect to durable equipment products. In this quarter we made great progress. On May 31st we closed on the sale of the manufacturing equipment in the inventory. We lit it to our IGE branded products and are now aligned with an exclusive contract manager to produce those same great products.

Speaker Change: Just because we typically see with the seasonality trends that exists in our business, particularly up in Canada and elsewhere that are sort of the top line in Q4 is typically as we bid.

Speaker Change: Lower than it is in Q3 and sort of that effect has a little bit of an implication on our margin, but but overall as we said you know we're expecting stronger margin in the second half.

John Lindevin: But overall, as we said, you know, we're expecting stronger margin in the second half. And hopefully that gives you a little bit of insight on sort of the Q3, Q4 aspects of it.

Speaker Change: <unk>.

Speaker Change: And hopefully that gives you a little bit of insight on sort of the Q3 Q4 aspects of it.

John Lindevin: In June we closed our paramount California manufacturing facility and consolidated those operations into our facility in Northern California. Also in June we ceased production our smallest grow media manufacturing facility and intend to consolidate some or all of those operations into our remaining facilities. In July we further right sized our Northern California manufacturing facility, reducing space approximately 31 percent in the building. After completing these actions we have now consolidated all of our manufacturing activity into two US locations plus our single peat moss harvesting and processing facility up in Alberta, Canada. We have now fully integrated the ERP system in our peat business and will continue to make progress on system integration in other areas.

Peter Grom: Awesome. Thank you both. I'll pass it on. Thanks, Peter.

Operator: Awesome. Thank you both. I'll pass it on. Thanks, Peter.

Speaker Change: Awesome. Thank you both I will pass it on.

Peter Grom: Thanks Peter.

Speaker Change: Yeah.

Jesse Redmond: And we'll take our next question from Jesse Redmond, Water Tower Research. Good morning, guys, and congratulations on the quarter. I had a question about Ohio. I know we saw a pretty strong production ramp heading into launching sales just a few days ago. Can you talk about how you may have benefited from that production ramp and how much of that you expect to persist, which I guess maybe speaks to a little bit about the consumables versus the herbals? Yeah. Thanks, Jesse. Ohio has been trending well as you get kind of these bursts of opportunities with new things happening.

Operator: And we'll take our next question from Jesse Redmond of Water Tower Research.

Speaker Change: And well take our next question from Jeffrey Rodman from water Tower research.

Jesse Redmond: Good morning, guys. And congratulations on the quarter. I had a question about Ohio.

Jesse Redmond: Good morning, guys, and congratulations on the quarter. I had a question about Ohio.

Jeffrey Rodman: Good morning, guys and congratulations on the quarter.

Jeffrey Rodman: Question on Ohio, and then we saw a pretty strong production ramp heading into watching sales.

Bill Toler: I know we saw a pretty strong production ramp heading into launching sales just a few days ago. Can you talk about how you may have benefited from that production ramp? And how much of that you expect to persist, which I guess maybe speaks to a little bit about consumables versus durables.

Jesse Redmond: I know we saw a pretty strong production ramp heading into launching sales just a few days ago. Can you talk about how you may have benefited from that production ramp and how much of that you expect to persist, which I guess maybe speaks to a little bit about consumables versus durables.

Jeffrey Rodman: Just a few days ago can you talk about how you may have benefited from that production ramp and how much of that do you expect to persist, which I guess, maybe speaks to a little bit about the consumer.

Speaker Change: Consumables versus durables.

Bill Toler: Yeah, thanks Jesse. Ohio has been trending well as you get kind of these bursts of opportunities with new things happening. It's been a strong state for us for a while. We've got good people on the ground there and good relationships with the key customers in that area. So that has been a good one.

Bill Toler: Thanks, Jesse. Ohio has been trending well as you get these bursts of opportunities with new things happening. It's been a strong state for us for a while. We've got good people on the ground there and good relationships with the key customers in that area, so that has been a good one. But there have been others.

Speaker Change: Yes, Thanks, Jesse Ohio has been trending well as you get kind of these burst of opportunities with new new things happening and it's been a strong state for us for a while get good good people on the ground there and good good relationships with key customers in that area. So that has been a good one but there have been others, Missouri has been strong as well.

John Lindevin: Lastly on the restructuring front as we continue to evaluate opportunities, consolidate and become more efficient, we are now reassessing our distribution center network. We expect these actions collectively will help us operate more efficiently and cost effectively going forward.

William Toler: The spin and strong state for us for a while would get good people on the ground there and good good relationships with the key customers in that area. So that has been a good one. But there have been others. I mean, Missouri has been strong as well. You know, some of the stuff finally Virginia has come around after a couple of years to get it fully implemented. You know, a number of these states that have been slowed to implement and slow to start, they have happened and without about 75, 78% of our business now in consumables. Generally, a new state's going to benefit the durable side a little bit first and in consumables.

Bill Toler: Missouri has been strong as well. Some of this stuff, finally, Virginia has come around after a couple of years to get it fully implemented. A number of these states that have been slow to implement, slow to start, have happened. We've got about 75-78% of our business now in consumables. Generally, a new state is going to benefit the durable side a little bit first and then consumables. Of course, you've got to build the facility before you can run it.

Bill Toler: But there have been others. I mean, Missouri's been strong as well. You know some of the stuff; finally, Virginia has come around after a couple of years to get it fully implemented. You know a number of these states that have been slow to implement and slow to start. They have happened. And with about 75-78% of our business now in consumables, generally, a new state's going to benefit the durable side a little bit first and then consumables. Of course, you have to build the facility before you can run it.

John Lindevin: Moving on to our selling general administrative expense, which continues to be a good story for us is we continue to take costs out of the business. In the second quarter our SG&A expense was 18.7 million compared to 23.5 million last year. Just as SG&A expenses were 11.6 million more than 20 percent reductions when compared to 14.6 million in the second quarter of 2023. These savings resulted from reductions across a wide range of items including headcount, facility expenses, professional fees and insurance costs.

Speaker Change: Some of this stuff finally, Virginia has come around after a couple of years to get it fully implemented a number of these states that have been slow to implement and slow to start they have they have happened without about $75, 78% of our business now in consumables generally a new state is going to benefit the durable side, a little bit first and then consumables of course.

William Toler: Of course, you got to build the facility before you can run it. And you know, part of that is why that our durable business is done a bit better driven by the innovation, photo bios, the innovation, all phantom and of course, these new states are rolling out. You know, the challenge for all of us has been that the size and scale of the California, Michigan, and Oklahoma until the country kind of adjust to absorb the new business in each of the newer states, which by definition are smaller until they scale up until that shift happens.

Speaker Change: So you got to build the facility before you can run it.

Bill Toler: Part of that is why our durable business has done a bit better, driven by the innovation of Photobio, the innovation of Phantom, and, of course, these new states are rolling out. The challenge for all of us has been the size and scale of California, Michigan, and Oklahoma until the country adjusts to absorb the new business in each of the newer states, which by definition are smaller, until they scale up. Until that shift happens, we're not going to see an Ohio or any state really big enough to drive growth, but it is good to see that shift. It is good to see it spreading out a little bit and not being nearly as concentrated as it was a couple of years ago.

Bill Toler: And you know part of that is why our durable business has done a bit better, driven by the innovation of Photobio, the innovation of Phantom, and, of course, these new states are rolling out. You know, the challenge for all of us has been the size and scale of California, Michigan, and Oklahoma. Until the country kind of adjusts to absorb the new business in each of the newer states, which by definition are smaller, until they scale up, until that shift happens, we're not going to see, you know, an Ohio or any state really big enough to drive growth. But it is good to see that shift. It is good to see it spreading out a little bit and not being nearly as concentrated as it was a couple of years ago.

Speaker Change: And part of that is why that are durable business has done a bit better driven by the innovation all photobiology innovation, all Phantom and and of course. These new states are rolling out the challenge for all of US has been that the size and scale of the California, Michigan and Oklahoma until the country kind of adjust to absorb the new business in each of the.

John Lindevin: Just as EBITDA was 1.7 million in the second quarter compared to 2.5 million in the prior year period. The decrease was in large parts due to the dynamics discussed earlier regarding our adjusted growth profit, partially offset by our reduced adjusted SG&A expenses. This quarter marks the fourth time in the last five quarters that we have realized positive adjusted EBITDA, further illustrating the success of our restructuring and cost saving initiatives and our ability to drive profitability against lower sales levels.

Speaker Change: The newer states, which by definition are smaller until they scale up.

Bill Toler: Until that shift happens, we're not going to see.

William Toler: We're not going to see, you know, an Ohio or any state really big enough to drive growth.

Speaker Change: Or any state really big enough to drive growth, but it is good to see that shift is good to see it spreading out a little bit of not being nearly as concentrate concentrated as it was a couple of years ago.

Jesse Redmond: But it is good to see that shift; it is good to see it spreading out a little bit and not being nearly as concentrated as it was a couple of years ago. that's helpful. Thank you.

John Lindevin: Moving on to our balance sheet and overall liquidity position. Our cash balance as of June 30, 2024 was 30.3 million up significantly compared to our balance of 24.2 million at the end of the first quarter. The increase was primarily related to the net proceeds from the sale of the IGE assets of about 6.3 million. We ended the second quarter with 120.2 million a term debt and approximately 129 million of total debt, inclusive of financial lease liabilities.

Bill Toler: That's helpful. Thank you. And also, I was wondering if you had any We talk a lot about what's going on in the cannabis space, obviously, because that drives most of the revenue. And there are a lot of exciting catalysts on the state and federal level, but also curious what's going on in the non-cannabis world and maybe add insights to the kind of foods, florals, lawn, and garden area of the business.

Speaker Change: That's helpful. Thank you and also I was wondering if you had any we talk a lot about what's going on in the cannabis space, obviously, because that drives most of the revenue and there's a lot of exciting catalysts on the state and federal level, but also curious what's going on in the non cannabis world than if you added the insights to the kind of the foods Forest modern garden area of that.

William Toler: And also, we talked a lot about what's going on in the cannabis space, obviously, because that drives most of the revenue, and there's a lot of exciting catalysts on the state and federal level. But also curious what's going on in the non-cannabis world and maybe added the insights to the kind of the foods for modern garden area of the business. Yeah, that industry, while we've got a pretty good business in the lawn and garden side up in Canada, we've spent a good bit of time in the U.S. developing lawn and garden relationships. The business I would call it, well, cannabis has been declining.

Speaker Change: <unk>.

Bill Toler: Yeah, that industry, while we've got a pretty good business in the lawn and garden side in Canada, we've spent a good bit of time in the U.S. developing lawn and garden relationships. That business, I would call it, while cannabis has been declining, that's usually a pretty stable and slattish business. Lawn and garden can grow by a couple of percentage points a year, and it has shown those kind of trends here over the last few quarters. So, we're getting deeper into that.

Speaker Change: Yes that that industry, while we've.

Speaker Change: Kind of a pretty good business in the lawn and garden side up in Canada. We've spent a good bit of time in the U S developing lawn and garden relationships that business I would call. It while candidates has been declining that's usually a pretty stable and flattish business lawn and garden can grow.

John Lindevin: Our net debt at the end of the quarter decreased to approximately 99 million from approximately 107 million last year. As a reminder, our term loan facility has no financial maintenance covenant does not mature until October 20, 20, 28 and we continue to maintain a zero balance on our revolving credit facility. Our cash balance at the end of the quarter of approximately 30 million plus the availability of our, on our revolving lot of credit of approximately 20 million results in total liquidity of 50 million.

William Toler: That's usually a pretty stable and slat-ish business. The lawn and garden can grow, you know, a couple of percentage points a year, and it has shown those kinds of trends here over the last few quarters. So we're getting deeper into that. We are seeing that to be a much slower business to adopt change. And we've been working now for a better part of the year, more in getting into new stores and new areas. One of the things we've done is we're selling kind of integrated planagrams into some of these lawn and garden retailers. And that's had some nice traction working with, you know, good partners and in some of the lawn and garden distributors that are working with us to help get volume, you know, out into these stores.

Bill Toler: Couple of percentage points, a year and it has shown those kind of trends here over the last few quarters. So we're getting deeper into that we are seeing that to be a much slower business to adopt change and we've been working now for better part of year more and getting into any into new stores and new areas. One of the things. We've done is we're selling kind of integrated <unk>.

John Lindeman: We are seeing that to be a much slower business to adopt change, and we've been working for the better part of a year or more on getting into new stores and new areas. One of the things we've done is we're selling kind of integrated planograms into some of these lawn and garden retailers, and that's had some nice traction, working with good partners in some of the lawn and garden distributors that are working with us to help get volume out into these stores.

Bill Toler: We are seeing that to be a much slower business to adopt change, and we've been working for the better part of a year or more on getting into new stores and new areas. One of the things we've done is we're selling kind of integrated planograms into some of these lawn and garden retailers, and that's had some nice traction working with good partners in some of the lawn and garden distributors that are working with us to help get volume out into these stores.

John Lindevin: Lastly, on this point, we continue to make progress towards monetizing non-operating excess land that we own in upstate New York, which could further reduce net debt and or add to our liquidity when we complete the associated real estate sales. For all these reasons, we continue to feel good about our liquidity position.

Speaker Change: Planet grams into some of these lawn and garden retailers and that's had some nice traction working with good partners.

Some of the lawn and garden distributors that are working with us to help get volume out into these stores and so those partnerships are developing but it is a slower burn and it takes a while to develop significant volume there, but we think that will continue to help us a little more into 'twenty four and on into 'twenty five.

John Lindeman: So, those partnerships are developing, but it's a slower burn, and it takes a while to develop significant volume there, but we think that will continue to help us a little more into 2024 and beyond.

Bill Toler: And so, those partnerships are developing, but it's a slower burn, and it takes a while to develop significant volume there. But we think that'll continue to help us a little more into 2024 and on into 2025.

William Toler: And so those partnerships are developing, but it's a slower burn, and it takes a while to develop significant volume there. But we think that will continue to help us a little more into 24 and on into 25. And just add on to that too, Jesse, you know, our peep business, which tends to skew much more food and floral than it does cannabis, has generally been a very steady business force, and we expect that to continue. And then, as I think we've noted on prior calls, from an international standpoint, which we sort of consider outside of the US and Canada.

John Lindevin: In the second quarter reported cash flow from operating activities at 3.8 million with capital expenditures of 0.4 million yielding free cash flow of 3.4 million. Our free cash flow would have been about break even for the quarter without the impact of the IGE asset sale as a portion of the net proceeds were required to be accounted for in operating activities. We achieve this cash flow position for the second quarter despite investing in inventory for new distribution relationships in innovative lighting products, which Bill mentioned earlier.

John Lindeman: And just to add to that, Jesse, our peat business, which tends to skew much more food and floral than it does cannabis, has generally been a very steady business force, and we expect that to continue. And then, as I think we've noted on prior calls, from an international standpoint, which we sort of consider outside of the U.S. and Canada, we had very strong growth last year. The numbers are still small in absolute dollar terms, but they showed very strong growth in percentage terms last year.

John Lindeman: Just to add to that too, Jesse, our peat business, which tends to skew much more food and floral than it does cannabis, has generally been a very steady business for us, and we expect that to continue. And then, as I think we've noted on prior calls, from an international standpoint, which we sort of consider outside of the US and Canada, we had very strong growth last year. The numbers are still small in absolute dollar terms, but they showed very strong growth in percentage terms last year.

Speaker Change: And just just to add just to add onto that to Jessie RP business, which tends to skew much more food and floral than it does Canada has generally been very steady business for us and we expect that to continue and then as I think we've noted on prior calls from an international standpoint, which we sort of consider outside of the.

John Lindeman: The U S and Canada, we had very strong growth last year. The numbers are still small in absolute dollar terms, but very strong growth percentage terms last year little.

William Toler: We had very strong growth last year. Numbers are still small and absolute dollar terms, but very strong growth percentage terms last year. A little sort of flatish in the first half of this year, but with words we can see an expectations with new distributions and geographies. You know, we are expecting growth in the back half, and that's how the business as well. So all these things are sort of combining to help us diversify.

John Lindevin: With that, let me turn to our full year 2024 outlook. We are reaffirming the key metrics toward 2024 guidance, which includes net sales to decline low to high teams on a percentage basis, adjusted EBITDA that is positive for the full year 2024 and positive free cash flow for the full year. We also reaffirmed all other assumptions and today's earnings release with the exception of capital expenditures, which is now 3.5 million to 4.5 million for the full year 2024 down slightly from 4 to 5 million previously.

John Lindeman: A little sort of flattish in the first half of this year, but with the orders we can see and expectations with new distributions and geographies, you know, we are expecting growth in the back half and that side of the business as well. So you know, all these things are sort of combining to help us diversify.

John Lindeman: A little sort of flattish in the first half of this year, but with the orders we can see and expectations with new distributions and geographies, we are expecting growth in the back half and that side of the business as well. So all of these things are sort of combining to help us diversify.

Speaker Change: Sort of flattish in the first half of this year, but with orders, we can see and expectations with new distributions and geographies. We are expecting growth in the back half in that side of the business as well. So all of these things are sort of combining to help us diversify.

Jesse Redmond: That's great.

John Lindeman: That's great, and I could just get one more quick one and maybe, maybe for you, John, it looks like you're making continued progress on the cost cutting side. Any comments on where you are in that cycle? And how much room there might be to squeeze more out of SG&A or other areas? Yeah, great.

Jesse Redmond: That's great, and I could just get one more quick one and maybe, maybe for you, John, it looks like you're making continued progress on the Costco cutting side. Any comments on where you are in that cycle and how much room there might be able to squeeze more out of SGA or other areas? Yeah, great.

Speaker Change: That's great and I could just get one more quick one.

John Lindevin: And I could just get one more quick one, and maybe, maybe for you, John, it looks like you're making continued progress on the cost-cutting side. Any comments on where you are in that cycle and how much room I'd be able to squeeze more out of SG&A or other areas. Yeah, great question. I was, you know, looking at this morning. If you look on a trailing 12 month basis, you know, as we ended this Q2 and compare that to a trailing 12 month basis. Due to one year ago, our adjusted growth profit margin is up for 540 basis points year over year.

John Lindeman: Maybe for you John it looks like Youre getting making continued progress on the cost cutting side any comments on where you are in that cycle and how much runway might be able to squeeze more out of SG&A or other areas.

John Lindevin: Before turning it over for questions, I would like to echo what Bill mentioned earlier that we continue to control what we can and then set up our business to operate profitably with even lower sales. As we look ahead, we are excited about the future. When demand hopefully picks back up, we are in a great position to capitalize on it profitably.

John Lindeman: Yeah, great question. I was, you know, looking at it this morning. If you look on a trailing 12-month basis, you know, as we ended this Q2 and compare that to a trailing 12-month basis Q2 one year ago, our adjusted gross profit margin is up 540 basis points year-over-year, so a substantial improvement. And we've taken $17.1 million out of adjusted SG&A expense. So, you know, really big changes in connection with the restructuring and cost-saving actions we've taken.

John Lindeman: Yeah, great question. I was, you know, looking at it this morning. If you look on a trailing 12-month basis, as we ended this Q2, and compare that to a trailing 12-month basis due a year ago, our adjusted gross profit margin is up 540 basis points year over year, so a substantial improvement. And we've taken $17.1 million out of adjusted SG&A expense. So, you know, really big changes in connection with the restructuring and cost-saving actions we've taken.

Speaker Change: Yeah, Great question I was looking at this morning, if you look on a trailing 12 month basis. As we ended this Q2 and compare that to a trailing 12 month basis Q2, one year ago. Our adjusted gross profit margin is up 540 basis points year over year.

John Lindevin: Thank you all for joining us this morning.

Operator: We are now happy to answer your questions.

Operator: Operator, please open the line. Thank you. At this time, if you would like to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue by pressing star two. Once again, that is star one to ask a question and we'll pause for just a moment to allow everyone an opportunity to signal.

John Lindevin: So substantial improvement. And we've taken 17.1 million dollars out of Adjust the Desk. DNA expense. So, you know, really big movements in connection with the restructuring cost of the actions we've taken. You know, I think as we said before and it was kind of alluded to in the cut in response, we give the Peter's question. If we get any energy on the top line across the category and continue to make progress on our own initiative, continue to drive more proprietary brands, in particular, in some of our consumable products that are fairly profitable for us and higher margin.

John Lindeman: The substantial improvement.

John Lindeman: And we've taken the $17 $1 million out of adjusted SG&A expense.

John Lindeman: So.

John Lindeman: Really big movements.

John Lindeman: In connection with the restructuring and cost saving actions we've taken.

John Lindeman: You know, I think as we said before, and it was kind of alluded to in the response we gave to Peter's question, if we get any energy on the top line across the category and continue to make progress on our own initiative to continue to drive more proprietary brands, in particular in some of our consumable products that are fairly profitable for us and higher-margin, we have the opportunity to see our adjusted gross profit margin expand to sort of a couple And, you know, we're excited to see that prospect come to fruition.

John Lindeman: You know, I think as we said before, and it was kind of alluded to in the response we gave to Peter's question, if we get any energy on the top line across the category and continue to make progress on our own initiative to continue to drive more proprietary brands, in particular in some of our consumable products that are fairly profitable for us at higher margins, we have the opportunity to see our adjusted gross profit margin expand to sort of a couple hundred basis And, you know, we're excited to see that prospect come to fruition.

Speaker Change: As we said before and it was kind of alluded to in the account and the response, we gave the Peter's question, if we get any energy on the topline across the category and continue to make progress on our own initiatives to continue to drive more proprietary brands in particular in some of our consumable products that are.

William Toler: And we'll take our first question from Andrew Carter from Diffle. Thank you. Good morning. We're going to ask about you mentioned demand trends in the quarter. I think you're sorry to mention the revenue in the quarter. You mentioned May was the the seventh highest month sequential growth. I think that there's usually a seasonal build during the quarter. Could you talk about what underlying revenue did as you progressed through the quarter? And do you think the industry helped steady or deteriorated during two queue?

John Lindevin: And, you know, we have the opportunity to see our adjusted growth profit margin expand into sort of a couple hundred basis points higher than where we've been here the last couple of quarters. And, you know, we're excited to see that prospect come to fruition.

John Lindeman: You know, we're excited to see that prospect come to fruition.

William Toler: Thanks. Thanks Andrew. Appreciate the question. Yeah, specifically what I had said is that May was the seventh consecutive month of sequential growth going back to October, right? That did not continue in June or I probably would have said June, right? So May was sort of the peak of that seven months trend. I think that we saw some encouraging signs on in the fact that some of our durable products, you heard me mention active aqua there for healing and you heard me mention photo bio, which of course is lighting showed year over year growth.

Jesse Redmond: Great. Thanks very much for the comments. Thanks, Jesse.

Jesse Redmond: Great, thanks very much for the comments.

Operator: Great, thanks very much for the comments.

Speaker Change: Great. Thanks, very much for the comments.

Jesse Redmond: Thanks Jesse.

Operator: And, with no further questions in the queue, I will turn the program back over to your presenters for any additional or closing remarks. Great, thank you.

William Toler: And with no further questions in the queue, I will turn the program back over to your presenters for any additional or closing remarks. Great. Thank you, operator, and everyone. We appreciate your supportive hydropharm and look forward to speaking with you soon. Take care.

Speaker Change: And with no further questions in the queue I will turn the program back over to your presenters for any additional or closing remarks.

Operator: Great. Thank you, Operator, and everyone. We appreciate your support of Hydrofarm and look forward to speaking with you soon. Take care. And this concludes today's program. You may disconnect at this time.

Bill Toler: Great. Thank you, Operator, and everyone. We appreciate your support of Hydrofarm and look forward to speaking with you soon. Take care. And this concludes today's program. You may disconnect at this time.

Speaker Change: Great. Thank you operator and everyone. We appreciate your support of Hydro farm and look forward to speaking with you soon take care.

William Toler: So the mix has changed a little bit. I think it's an encouraging sign for the industry when Durable products are starting to do a little bit better than what it says as people are either replenishing or rebuilding or building new, right? I think that's an overall positive, right? We were lapping some really strong international shipments on our consumable brands in June, as we opened up pipeline into new countries last year, so our year-on-year-on consumables didn't look quite as good as we had hoped.

Operator: And this concludes today's program. You may disconnect at this time.

Bill Toler: And this concludes today's program.

Bill Toler: You may disconnect at this time.

Operator: [music].

Operator: Humming

William Toler: But I think overall, the demand signs are stable. Let's call them with a little bit of a mix change toward Durables, which is encouraging. And then we think that, you know, onwards from here, we're maintaining the ability to make a little bit of money and some lower demand levels, and then waiting for things to improve as the scheduling happens and as new states begin to open up.

William Toler: And then the second question I'd ask is like kind of thinking about where your mix is today from a geographical perspective, mature states, licensed cannabis sales, still under pressure, cannabis pricing metrics still under pressure. But how about kind of the new states as a percentage of your mix, New York, obviously Ohio just opened Missouri? Are those big, have those kind of achieved any kind of critical mask that could be kind of growth next year, or is it still, your sales base is still dominated by the mature markets?

William Toler: Thanks. Yeah, good question. They have started to achieve some level of critical match. It's not enough to move the needle. We're still, I think the whole industry is kind of held back by the size and scale of California Oklahoma, Michigan, a little bit of Colorado organ in Washington. But it has been very encouraging to seeing what places like Minnesota and Missouri and New York, the ones you mentioned, Virginia is doing pretty well.

William Toler: Ohio is stepped up. So they are starting to shift that kind of balance of consumption and balance of volume towards the Midwest and the East, but we still got California, it's under a lot of pressure until that one at least stops declining. We're going to, you know, not be able to get over the growth. But we are seeing that mix shift. We are seeing that come toward the Midwest and the Mid-Atlantic and so on.

William Toler: Of course, the other big one is what's going to happen in Florida. A lot of people are waiting and watching to see how the voting turns out in November. We think that one could have a huge impact on everybody's, everybody's opportunity to grow. Thanks, Andrew. Thanks. I'll pass it on. Thanks, Senator.

Peter Grom: And maybe any thoughts in terms of how you would be thinking about the phasing of that three to your versus four kids. Thanks, Peter. And, you know, with a first half, it's sort of right at 13 and you get just above 13 and Q2 and right under 13 and Q1. Obviously, we are trending at the better end of our range. We talked about tightening it, but honestly, we felt like that with the uncertainties of things that go on in our industry and Q3 and Q4, we didn't want to get out ahead of ourselves.

Peter Grom: So we thought about look, we are at the better end right now. We hope to stay there, but it's been a it's been a hard not to call and a hard not to find. And so we're encouraged by overall macro things that I mentioned and answering Andrews call, but we still want to see further stabilization before we tighten anymore or call the range any better. But we are glad to be at the better side of that range right now.

Peter Grom: I guess if I were to just thinking about it and just kind of getting back to stabilization, just going back to that point on the monthly sales trend, obviously Jane maybe wasn't that, as you mentioned, but not to talk about 2025 now, but it's been, you're still having a harder time, you know, if you can't want to be within the range of the back after this year. But I guess it's like, would you anticipate, like just, I don't know, do you think we could see better stabilization in just in terms of top-line growth, and so, you know, set another way, you know, the stabilization and top-line growth will that allow some of the cost savings and restructuring that you're doing to kind of allow some of the better profitability to flow through.

Peter Grom: So just trying to think about a bigger picture, how you think about maybe, you know, the puts in taste of 25, you know, at this point in time. It's something we've begun to talk about, but we're certainly not ready to call anything in 25, but I think that the momentum is such that the shifting to the middle, you know, middle of the country states and the Northeast states, plus the potential for rescheduling all those things should lead us to, you know, a growth year in 2025.

Peter Grom: Not really ready to put a number on that yet, but I think that we've certainly paid our dues longer than we thought we had to across the entire industry with a couple of years year of declines, so we should be ready to go. And I think now that our cost structure is as tight as it is, we will start seeing those much higher profitability numbers popping through with the control on cost, the restructuring done, the shutting of facilities, the selling of assets, all that puts us in a great spot that when a little bit of growth does return, it's much more what's going to stick to the bottom lines that flows through.

Peter Grom: Great. And then maybe just one quick follow up for John, you know, gross margin extension still expected for the year. Just any thoughts on phasing for gross margin, you know, as well as kind of adjusted EBITDA just as we think about, you know, calibrating our models for 3Q and kind of 4Q. Yeah. Typically, we see, as you know, Peter, a little bit stronger profitability in Q3 than we do in Q4, just because we typically see with the seasonality trends that exist in our business, particularly up in Canada and elsewhere, that, you know, sort of top line in Q4s typically a wee bit lower than it is in Q3 and sort of that effect has a little bit of implication on our margin.

Peter Grom: But overall, as we said, you know, we're expecting stronger margin in the second half. And hopefully that gives you a little bit of insight on sort of the Q3, Q4 aspects of it. Awesome. Thank you both.

William Toler: I'll pass it on.

Jesse Redmond: Thanks, Peter. And we'll take our next question from Jesse Redmond Water Tower Research. Good morning, guys, and congratulations on the quarter.

William Toler: I had a question about Ohio. I know we saw a pretty strong production ramp heading into launching sales just a few days ago. Can you talk about how you may have benefited from that production ramp and how much of that you expect to persist, which I guess maybe speaks to a little bit about the consumables versus the herbals? Yeah. Thanks, Jesse. Ohio has been trending well as you get kind of these burst of opportunities with new things happening.

William Toler: The spin and strong state for us for a while would get good people on the ground there and good good relationships with the key customers in that area. So that has been a good one. But there have been others. I mean, Missouri has been strong as well, you know, some of the stuff finally Virginia has come around after a couple of years to get it fully implemented. You know, a number of these states that have been slowed to implement and slow to start, they have, they have happened and without about 75, 78% of our business now in consumables, generally a new state's going to benefit the durable side a little bit first and in consumables.

William Toler: Of course, you got to build the facility before you can run it. And you know, part of that is why that our durable business is done a bit better driven by the innovation, photo bios, the innovation, all phantom and of course, these new states are rolling out. You know, the challenge for all of us has been that the size and scale of the California Michigan and Oklahoma until the country kind of adjust to absorb the new business in each of the newer states, which by definition are smaller until they scale up until that shift happens.

William Toler: We're not going to see, you know, an Ohio or any state really big enough to drive growth. But it is good to see that shift is good to see it spreading out a little bit and not being nearly as concentrated as it was a couple of years ago, that's helpful. Thank you.

William Toler: And also, we talked a lot about what's going on in the cannabis space, obviously, because that drives most of the revenue, and there's a lot of exciting catalysts on the state and federal level, but also curious what's going on in the non-cannabis world and maybe added the insights to the kind of the foods for modern garden area of the business. Yeah, that industry, while we've got a pretty good business in the lawn and garden side up in Canada, we've spent a good bit of time in the U.S, developing lawn and garden relationships.

William Toler: The business I would call it, well, cannabis has been declining. That's usually a pretty stable and slat-ish business. The lawn and garden can grow, you know, a couple of percentage points a year, and it has shown those kind of trends here over the last few quarters. So we're getting deeper into that. We are seeing that to be a much slower business to adopt change. And we've been working now for a better part of year, more in getting into new stores and new areas.

William Toler: One of the things we've done is we're selling kind of integrated planagrams into some of these lawn and garden retailers. And that's had some nice traction working with, you know, good partners and in some of the lawn and garden distributors that are working with us to help get volume, you know, out into these stores. And so those partnerships are developing, but it's a slower burn and it takes a while to develop significant volume there.

William Toler: But we think that will continue to help us a little more into 24 and on into 25. And just add on to that too, Jesse, you know, our peep business, which tends to skew much more food and floral than it does cannabis has generally been very steady business force and we expect that to continue. And then as I think we've noted on prior calls from an international standpoint, which we sort of consider outside of the US and Canada.

William Toler: We had very strong growth last year. Numbers are still small and absolute dollar terms, but very strong growth percentage terms last year. A little sort of flatish in the first half of this year, but with words we can see an expectations with new distributions and geographies. You know, we are expecting growth in the back half and that's how the business as well. So all these things are sort of combining to help us diversify. That's great.

John Lindevin: And I could just get one more quick one and maybe maybe for you, John, it looks like you're getting making continued progress on the cost cutting side. Any comments on where you are in that cycle and how much room I'd be able to squeeze more out of SG&A or other areas. Yeah, great question. I was, you know, looking at this morning, if you look on a trailing 12 month basis, you know, as we ended this Q2 and compare that to a trailing 12 month basis.

John Lindevin: Due to one year ago, our adjusted growth profit margin is up for 540 basis points year over year. So substantial improvement. And we've taken 17.1 million dollars out of adjust the desk. DNA expense. So, you know, really big movements in connection with the restructuring cost of the actions we've taken. You know, I think as we said before and it was kind of alluded to in the cut in response, we give the Peter's question.

John Lindevin: If we get any energy on the top line across the category and continue to make progress on our own initiative, continue to drive more proprietary brands, in particular, in some of our consumable products that are fairly profitable for us and higher margin. And, you know, we have the opportunity to see our adjusted growth profit margin expand into sort of a couple hundred basis points higher than where we've been here last couple of quarters. And, you know, we're excited to see that prospect come to fruition.

Jesse Redmond: Great. Thanks very much for the comments. Thanks, Jesse.

William Toler: And with no further questions in the queue, I will turn the program back over to your presenters for any additional or closing remarks. Great. Thank you, operator, and everyone.

Operator: We appreciate your supportive hydropharm and look forward to speaking with you soon. Take care.

Operator: And this concludes today's program. You may disconnect at this time.

Q2 2024 Hydrofarm Holdings Group Inc Earnings Call

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