Hydrofarm Holdings Group, Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Hydrofarm Holdings Group first quarter 2021 earnings conference call. At this time, all participants have been placed in a listen-only mode, and the lines will be open for your questions following the presentation. Please note that this conference is being recorded today, May 13th, 2021. I would now like to turn the call over to Mr. Fitzhugh Taylor, Managing Director at ICR, to begin.

Thank you, Shamali, and good afternoon. With me on the call today is Bill Toler, Hydrofarm's Chairman and Chief Executive Officer, and John Lundeman, the company's Chief Financial Officer. By now, everyone should have access to our first quarter 2021 earnings release and Form 8K issued today after market close. These documents are available on the investor section of Hydrofarm's website at www.hydrofarm.com. Before we begin our formal remarks, please note that our discussions today will include forward-looking statements. These forward-looking statements are not guarantees of future performance, and therefore you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. Lastly, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP, and reconciliations to comparable GAAP measures are available in our earnings release. With that, I would now like to turn the call over to Bill Tolar. Bill?

Thank you, Fitzhugh. Good afternoon, everyone. We're pleased with the continued momentum in our business as Q1 revenues grew 66.5% versus last year, completing our third straight quarter of organic sales growth greater than 60%. We're also pleased to report a record adjusted EBITDA of $9.9 million, an increase of over 500% from last year's first quarter. Our revenue growth was once again across virtually all of our product lines and geographies. This includes both new markets and mature markets and is across the board in virtually all of our brands and categories. And as demonstrated by our EBITDA growth, we continue to benefit from a favorable sales mix as our proprietary brands are becoming a larger part of our total sales, and that drives margin expansion. Our exciting growth also gave us leverage on SG&A. Despite the fact we're spending more actual dollars in SG&A, our percent of total went down. The strength of our results not only in this quarter but over the last year are indicative of our unique positioning as a leading distributor and manufacturer of differentiated branded hydroponic equipment supplies serving a $9.5 billion controlled environment agriculture market. As many of you know, it's a market that we believe is in the early innings of a sustainable and significant growth curve brought on by a broad-based increase in home hydroponic gardening, ongoing domestic legislative approvals related to cannabis, and advances in innovation technology and brand strength within the category. We also believe longer term the ESG advantages of hydroponics are becoming more mainstream and these efficient farming practices will continue to expand. While we are operating with a strong tailwind, it is worth noting that our differentiated branded offerings are a driver of our results. Over 60% of our sales come from products that you primarily purchase in the hydroponic channel from Hydrofarm. Not only does it give us the stickiness we want, as successful growers tend to stay with the brands that give them their own differentiated formula, but these products also drive advantageous margins for us. That formula is evident in the profitability improvement we displayed over the last few quarters. As we look ahead, our focus will remain on three growth drivers, product innovation and brand building, adding strategic distribution relationships, and the acquisition of value-enhancing businesses. Let me quickly touch on the first two before talking about our recent acquisition. First is a commitment to innovation and brand building. As you know, we currently have a little more than 60% of our sales in proprietary and preferred brands, the bulk of which is in our own proprietary brands. With better margin profiles, our proprietary brands represent a key growth opportunity. A great example of that is our innovation, our new Photobio by Phantom LED lights that we began selling broadly late in Q1. Building on the success of the Photobio MX form factor, our continued push for innovation has led us to the recent unveiling of the Photobio T and the Photobio TX, both lights that we've started selling late in the first quarter. We believe these two products are smart and affordable investments for growers looking to successfully cultivate all types of crops and controlled environment agriculture. We also introduced additional proprietary preferred brands in the first quarter, including products and supplies, nutrients, and the grow media categories. This included the brand launch from GrowStar, a new line of premium lab-grade pen testers for soil, as well as new products under the existing brands like Autopilot, Plant Success, Rock Nutrients, and Roots Organics. The newest additions were all developed by either our in-house product development team or our partner supplier's product development teams or together to further expand our portfolio of innovative and proprietary branded products. Secondly, we continue to focus on adding strategic distribution relationships and preferred brands to our portfolio. As we previously mentioned, in early February, we signed a new exclusive distribution agreement in Canada with Advanced Nutrients, one of the most largest and most respected nutrient brands in the cea space this strategic partnership has allowed us to make the best in class nutrients already available to canadian growers who are eager to unlock the true genetic potential of their crops and introduce the highest quality end products to their markets and by the end of the first quarter of 2021 advance has already become one of our fastest selling brands in canada lastly one of our top priorities is to acquire value enhancing businesses to broaden our industry footprint and strengthen our product portfolio. While we remain opportunistic across all product segments, we have been focused on the nutrients and grow media categories in particular, largely because these product categories are consumables for our growers and recurring revenue for Hydrofarm and our retail partners. Additionally, many of these brands have very healthy EBITDA margins and are categories where we currently don't have our own strong proprietary brands. To that end, in late April, we announced the acquisition of Heavy 16, a leading and highly respected manufacturer and supplier of plant nutritional products, used in all stages of plant growth to help increase the yield and quality of the crops. In addition to being a highly compatible and complementary business with our existing product line, Heavy 16 has a compelling financial profile with strong revenue growth and impressive margins that we expect to be accretive to our adjusted EBITDA this year and beyond. Furthermore, we believe we have an excellent opportunity to expand the heavy 16 footprint as a product line is currently only sold at about 300 of the 1200 stores in the US and 90% of its sales are in just four states. We're excited to welcome the talented heavy 16 team into the hydro farm family and we believe this acquisition fits well as a proprietary brand for hydro farm in the nutrient category. and will further solidify our position as the acquirer of choice in this highly fragmented and fast-growing industry. So I hope you can see we're hard at work executing the strategies we laid out back in December at our IPO. With the successful completion of our secondary offering of common stock and the increased borrowing capacity we have from our new credit facility, we have further strengthened our balance sheet since we became public. As a result, we are well-positioned to continue to invest in our organic growth, as well as execute our acquisition strategy going forward. Coupled with our innovative, high-performing products and our own strong service offerings, we believe we are uniquely positioned to capitalize on unprecedented growth in CEA. And we are convinced we've only scratched the surface of the opportunity in front of us. Now I'll turn it over to John to discuss the first quarter financial results in detail and to provide some update on our 2021 guidance. John?