Hydrofarm Holdings Group, Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Hydrofarm Holdings Group third 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, November 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 third quarter 2023 earnings release in Form 8K issued today after market close. These documents are available on the Investors section of Hydrofarm's website at 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 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 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 Poehler.

Thank you, Anna Kate, and good afternoon, everyone. We are pleased that in the third quarter we achieved adjusted EBITDA profitability for the second quarter in a row. The successful execution of our restructuring and related cost-saving initiatives has driven significant improvement in our adjusted gross profits. which was also driven by greater emphasis on our own proprietary brands, which typically carry a higher margin. Our quarter-end cash balance is the highest it's been since the second quarter of 2021, putting us in a much stronger position as a result of our laser focus on optimizing our business to drive profitability. We've maintained our dedication to excellent customer service and on-time deliveries, even as we reduce costs. While we've implemented operational changes, Our distribution footprint remains customer-centric, and we maintain our commitment to providing top-notch service. We're glad to report that even at current sales levels, we've achieved significant progress in many areas this quarter, delivering both positive adjusted EBITDA and strong free cash flow. Our primary focus at Hydrofarm continues to be diversifying our revenue stream and controlling costs. whether it's through right-sizing the company, improving operational efficiency, or emphasizing profitability throughout everything we do. I'll start by highlighting a few positives on the top and bottom line in Q3. Our proprietary nutrient business, which is one of our highest margin product lines, again delivered a strong performance. We saw excellent results in numerous key proprietary brands, which contributed nicely to this quarter's margin expansion. Our proprietary brand nutrient sales grew over 20% versus third quarter of last year, in large part to our great brands, including House and Garden, Grotech, and Heavy 16. We also continue to enhance the diversity of our revenue streams with a growing proportion of sales originating from customers outside of the U.S. and Canada. Additionally, we observed an uptick in sales year-to-date versus last year from non-cannabis CEA applications, including food, floral, lawn and gardens, making our progress in diversifying revenue sources. I'm pleased to announce that our restructuring and related cost savings actions have been successful, as evidenced by our strong year-over-year improvement adjusted gross margin and adjusted SG&A, as well as positive adjusted EBITDA for the second quarter in a row. We still have work to do, but these improvements demonstrate significant progress. Given the current industry backdrop, we initiated a second phase of restructuring, focused primarily on our durables businesses. which John will talk about more in a moment. We will continue to control what we can by driving improved brand mix, distribution center and manufacturing productivity, and reducing SG&A. I am encouraged by our team's discipline and execution during the quarter, achieving adjusted EBITDA profitability of these lower sales rates and adjusted gross margin improvement that we saw in third quarter versus last year as a testament to the success of our recent actions, which has put us in a stronger position heading into 2024 and beyond. We are seeing positive momentum from a regulatory standpoint, and we remain confident the industry will return to growth. Several potential catalysts are on the horizon for the cannabis industry. The first is the possibility of now the Safer Banking Act and federal descheduling or rescheduling, which could inject new life into the industry by attracting renewed investment from both institutional and retail players. Another notable catalyst lies in the U.S. states where adult-use cannabis has been approved, but there's been a slow start, but now these states are starting to position themselves for significant growth. And Ohio, it's a recent addition to the list, having just legalized adult use cannabis on November the 7th, making it the 24th state to do so. We are hopeful the Ohio State Legislature will follow the will of the people and approve this measure. Being the seventh most populated state in the U.S., this is certainly significant, and it actually pushes the total U.S. adult use population to over 50% for the first time. There is increasing momentum in additional states as well, like Pennsylvania, Virginia, and Florida, where we believe we may have fully legalized adult-use cannabis on the ballot in the near future and have successfully expanded the industry's reach and present new growth opportunities. With that, I'll turn it over to John to further discuss the details of our third quarter financial results and our outlook for 2023. John?