Hydrofarm Holdings Group, Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Hydrofarm Holdings Group first quarter 2022 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 10, 2022. I'd now like to turn the conference over to Mr. Fitzhugh Taylor, Managing Director at ICR, to begin.

Thank you, Claudia, and good afternoon. With me on today's call is Bill Toller, Hydrofarm's Chairman and Chief Executive Officer, and John Lindemann, the company's Chief Financial Officer. By now, everyone should have access to our first quarter 2022 earnings release, Inform 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 our current expectations. We refer all of you to our recent SEC filings for a more detailed discussion of the risk that can 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 like to turn the call over to Bill Tuller. Bill?

Thank you, Fitzhugh, and good afternoon, everyone. Since our IPO in December of 2020, we've worked hard to strengthen our business and lay a foundation for long-term success. We've completed five acquisitions that have reshaped our product portfolio with a focus on higher margin consumables, increasing both our proprietary and preferred brands. We have also expanded our distribution and manufacturing footprint by over 70% and completed three financings to further solidify our balance sheet. We have added new skills to our management team here at Hydrofarm as well. With a long history of consistent growth, combined with the strong tailwinds of the CEA hydroponic growth, we believe our optimism is grounded. However, while optimistic about the future of our business and our long-term potential, recent volume trends across the industry have been impacted by the external environment due to the agriculture oversupply that has hampered cannabis growing activity across the U.S. and Canada. Our sales in Q1 are essentially flat compared to last year's first quarter, supported largely by our M&A volume. With that in mind, we believe it's prudent to adjust our outlook for 2022, which John will discuss in further detail in a moment. Nevertheless, beside these transient challenges, we should not lose sight of the fact that end consumption of cannabis continues to grow. The best proxy we have for this is dispensary unit volume data measured by headset, which is showing increasing volume, both sequentially and year over year. This end-use consumption is leveling out cannabis inventories, which should help the hydroponic industry return to more normalized growth. During this challenging time, we are working to control the controllables by taking additional actions to control cost, increase prices, and protect our business. These include price increases, passing on fuel surcharges, passing on higher freight costs. We have also reduced our employee base by about 11% by the end of the first quarter and continue to optimize our organization as we capture cost synergies from the acquisitions completed in 2021. The results of these actions are helping to mitigate inflationary costs and beginning to positively impact our P&L. We are using the short-term volume challenges as a time to make us a better operator and a stronger, leaner company, so when growth returns, we will be more profitable and a stronger business. In addition to these actions, the growth drivers we laid out in prior communications are actually performing relatively well. When you look at IGE and our commercial business, they both enjoyed a solid first quarter. Several of the newer legalized states are doing pretty well, and also our PEAT business, we're seeing solid performance. However, this has been offset by softness in our core retail business, including legacy markets like California, Michigan, and Oklahoma. Lastly, we continue to believe that adult use legislation will provide us with significant growth opportunities in the future. While the new states have been slow to implement, we continue to see an opportunity for growth and cultivation activity in late 2022. Ultimately, we expect an acceleration in the cannabis market growth resulting from these state legislative changes and increasing popular support. In summary, the actions we've taken combined with our growth drivers have not only helped us refine and optimize our organization, but also equipped us to move past the near-term challenges. Moreover, with strong product portfolio and a healthy balance sheet, we believe we're well positioned to capture the tremendous growth opportunities that lie ahead. With that, I'll turn it over to John to further discuss the details of our first quarter financials and provide comments on our updated full year 2022 outlook. John?