Hydrofarm Holdings Group, Inc.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Hydro Farm Holdings Group's second 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, August 9, 2022. I would now like to turn the call over to Mr. Fitzhugh Taylor, Managing Director at ICR, to begin.

Thank you, Anthony, and good afternoon. With me on the call today is Bill Toller, HydroFarm's Chairman, Chief Executive Officer, and John Lindemann, the company's Chief Financial Officer. By now, everyone should have access to our second quarter 2022 earnings release, Inform 8K, issued today after market close. These documents are available on the Investors section of HydroFarm's website at www.hydrofarm.com. Before we begin our formal remarks, please note that our discussion today will include forward-looking statements. These forward-looking statements are not guarantees of future performance, and therefore you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from our current expectations. 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. 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'd like to turn the call over to Bill Teller. Bill?

Thank you, Fitzhugh, and good afternoon, everyone. As we announced in our press release last week, our second quarter results continued to feel the impact of the hydroponics industry recession in the US and Canada. Initially in the quarter, we were encouraged by our results early in Q2 as sales trends displayed signs of stabilizing. However, these trends weakened as the quarter progressed and our mix shifts to less profitable products, impacting our results for Q2 and our expectations for the remainder of the year. More specifically, originally our business plan for 2022 had always expected a seasonal improvement in the spring and summer months, with sales volume continuing to build from there. Once we did not get the expected improvement in Q2, we have now assumed the current trends will continue through the third quarter, and that Q4 will have its normally lower volumes, but off again a lower base. Now, we didn't get the build in Q2, so we took the volume out for the entire year. While the industry recession has lasted longer than expected, we remain confident in the long-term opportunities ahead of us. According to headset data, which is the best measurement of volume sold through dispensaries, units sold continues to grow, albeit at lower prices. Furthermore, with cannabis consumption growing in the US and Canada, ultimately supply and demand will balance and pricing should strengthen. This should invite many growers back to the category and give MSOs, the multi-state operators, the expansion signals they are looking for. When that occurs, we are well positioned for the rebound. The strength of Hydrofarm is, of course, in our brands and people, in our unique customer relationships, and in our manufacturing and distribution footprint. This has not changed. As a reminder, we drive over 50% of our sales in our own brands, and we also proudly represent many of the industries top distributed brands. Just last month, we added Emerald Harvest, a leading nutrient to our preferred brand lineup. This new addition will further strengthen our consumables portfolio, which is currently about 66% of our sales, which we believe provides us even more insulation against weakness in the industry. Another important measure of Hydroform's competitive position is our relative market share. Our sales declines, while disappointing, are less than the decline seen by other public reporting entities, suggesting that we are building market share. During this difficult time, we continue to focus our efforts on leveraging and strengthening our core assets, while right-sizing where necessary in order to maintain the long-term health of our business. In fact, during the second quarter, through our team's networking capital management, we increased our cash position, lowered our net debt, and maintained a solid liquidity position, which John will talk about in more detail. Aiding this effort were the positive steps we've taken to lower our cost structure. As we did in the first quarter, during the second quarter, we continued to take strategic price increases, further increased freight surcharges, reduced our employee base, and took steps to capture cost synergies from our 2021 acquisitions. More specifically, we enacted further expense cutting measures, including Continued headcount optimization. Since the end of last year, we've reduced headcount by about 25%. We've also reduced shifts at our plants to increase efficiency and protect inventory levels. And finally, we've cut select outside services and expenses to tighten our belts across the board. All in all, we estimate we've reduced our costs by about $14 or $15 million on an annualized basis. and we'll continue to find efficiencies and further streamline our business as the business conditions dictate. As we look ahead, we believe we have appropriately reset the full year expectations and can successfully build back from here. Additionally, we remain confident the industry will eventually return to historical growth rates and the actions we're taking to refine and optimize our organization will leave us leaner and stronger and as a result, better positioned to take advantage of future growth opportunities. With that, let me turn it over to John, who will further discuss the details of our second quarter financial results and provide comments on the updated full year 2022 outlook. John?