Hydrofarm Holdings Group, Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Hydrofarm Holdings Group fourth quarter and fiscal year 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, March 9, 2020-23. I would now like to turn the conference over to Anna-Kate Heller at ICR, To begin, please go ahead.

Thank you, and good afternoon. With me on the call today is Bill Toller, HydroFarm's Chairman and Chief Executive Officer, and John Lindeman, the company's Chief Financial Officer. By now, everyone should have access to our fourth quarter 2022 earnings release and form 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 can impact our future operating results and 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 GAP, and reconciliations to comparable GAP measures are available in our earnings release. With that, I would like to turn the call over to Bill Toller.

Thank you, Anna-Kate, and good afternoon, everyone. 2022 was a challenging year for our industry and, as a result, for Hydrofarm. However, I'm encouraged to report that we finished the year at the upper end of our previously provided outlook for net sales for last year. We also generated positive free cash flow in Q4, marking the third consecutive quarter of positive cash generation. While I'm encouraged by these metrics, it is really the many decisions we made and the actions we took last year that leave me the most optimistic about our future. In Q4, our team here in the U.S. consolidated our product portfolio, eliminating more than 40 brands and 1,100 competitors. SKUs, representing about 20% of our brands and over 33% of our SKUs. We have also begun to right-size our manufacturing and supply chain footprint by closing a nutrient manufacturing facility in Canada, and we've begun subletting some space in our distribution centers. In addition, we have reduced total headcount by more than 30%, primarily as a result of integrating the companies we acquire. We've also aggressively reduced our working capital and have begun to further expand our sales efforts into non-cannabis channels, including CEA, food and floral, and lawn and garden. As you see in today's earnings release, some of these actions started in Q4 and were part of a restructuring initiative, which John will elaborate on later. Collectively, these actions set us up to be a leaner, more nimble, more diverse, and importantly, more profitable business. And so looking ahead, I see brighter days ahead on many fronts. From a sales perspective, we have experienced stabilization in our average daily sales from November of 22 through February of 23. We're also starting to see some positive signals from several industry metrics. Although no single data source captures a complete view of demand in the hydroponic or cannabis industry, we are encouraged to see several data points that reflect some level of stabilization. In particular, according to headset data, U.S. cannabis dispensary inventory in 23 is below the average inventory in 22. And U.S. cannabis prices have been stabilizing in many markets, while U.S. cannabis dispensary sales measured by unit volume has continued to grow. We believe our recent sales trends and these positive signals give us a reason to expect a return to growth in the second half of 2023. From a profit margin standpoint, we expect to see many of the benefits of the actions we took in 2022 come to fruition. Specifically this year, we expect improved sales mix, more focused and efficient trade spend, and increased productivity across our manufacturing and distribution centers, all of which will help and drive improvement in our adjusted EBITDA and our adjusted EBITDA margin. Finally, as we begin a new fiscal year, I'd like to remind all of our stakeholders of my bullish view on the long-term prospects for our category and for Hydroform. Our company has a long history of double-digit compound annual growth despite some brief periods of revenue softness. The fact still remains that in the U.S., the largest consumer economy in the world, a large portion of the population is still just beginning to experience the improved access to cannabis, reduced stigma, and higher quality branded products that come from legalized medical and adult use regulations. and that should drive more reliable and trackable consumption patterns. Given this incredible industry dynamic, our team remains resilient and focused on executing our strategy, positioning the company for higher margins and future growth. For these reasons, I've made several open market purchases in 2022, continuing to increase my personal investment in Hydroform. My actions support my view that we are positioned to be a proven leader in the hydroponic industry. With that, I'll turn it over to John, who will let you discuss further details of our fourth quarter financials and provide our outlook for 2023. John?