Hydrofarm Holdings Group, Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Hydro Farm Holdings Group second quarter 2023 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 9th, 2023. I would now like to turn the call over to Anna Kate Heller at ICR to begin.

Thank you, and good afternoon. 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 2023 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 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 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 an 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 Toller.

Thank you, Anne and Kate, and good afternoon, everyone. While we experienced some sequential growth the second quarter in a row, the reality is the growth was very modest, and overall demand levels have remained relatively stable over the last nine months. We are pleased, though, that in the second quarter, we have returned to adjusted EBITDA profitability for the first time since Q1 of 2022. as we generated $2.5 million of adjusted EBITDA this past quarter. We're also proud of how we got there, with significant improvements in gross profit driven by a higher margin mix of products sold and by cutting down on costs that we incurred in 2022. Our Q2 SG&A was the lowest since the second quarter of 2021, before we began acquiring and integrating five companies. While we have reduced costs, we have not compromised our commitment to excellent customer service and to on-time delivery. We still operate six distribution centers here in the U.S., two up in Canada, and one in Spain, just as we did two years ago. And we are pleased to be delivering at a high level of service to our customers with fast turnaround times. Overall, we're very encouraged that even at the current sales level, we have made significant progress on key metrics. like delivering positive adjusted EBITDA and free cash flow in the quarter. We remain focused on controlling our costs, improving productivity, and driving results here at Hydrofarm. There are a number of bright spots on the top and bottom line in Q2. Our consumable business performed well, as we saw strong performance in several key house brands, and those are in our core nutrient and grow media businesses, which those outperform the overall business significantly. We also saw continued improvement in revenue stream diversity, with an increased proportion of our sales coming from outside North American customers and from non-cannabis CEA applications, which include food, floral, lawn, and garden. We told you that in order for us to achieve our previously provided top-line guidance for the year, we needed to see a seasonal lift in the spring. While we did get and experience some of that lift in May and June, particularly in our consumable brands, The seasonal uptick was not enough to offset the softness in our durables business. This has affected our sales outlook for the year, which John will discuss in a few moments. Our profitability improvements demonstrate the success of our previously announced restructuring and related cost savings initiatives. We continue to execute select ongoing initiatives, many of which are working well, including continued inventory and overall working capital management, cost reductions in our transportation and logistics activity, and more recently, increased production efficiencies in selected manufacturing operations. In summary, we remain laser focused on being profitable in a lower demand market. The first phase of our restructuring has been successful, as evidenced by our sequential and year-over-year improvement in adjusted gross profit and adjusted EBITDA margin. We will continue to execute on these key initiatives to find more ways to reduce costs. which may include a second phase of a restructuring. We're also seeing some positive industry signals, and we remain confident that the industry will return to growth. I'm proud of our team at Hydrofarm for returning to adjusted EBITDA profitability in the second quarter at the lower sales levels. Our team's execution demonstrates that Hydrofarm is better positioned than ever to more consistently generate positive adjusted EBITDA in future periods. With that, I'll turn it over to John, who will discuss the second quarter financials. and our outlook for 2023. John?