Scotts Miracle-Gro Company (The)

Good morning. Welcome to Scott's Miracle-Gro's second quarter 2025 earnings webcast. I'm Brad Shelton, head of investor relations. Speaking today are chairman and CEO Jim Hagedorn and chief financial officer and chief accounting officer Mark Scheuer. Jim will provide a business update, followed by Mark with a review of our financial results. In conjunction with our commentary today, please review our earnings release and supplemental financial presentation slides, which were published on our website at investor.scotts.com prior to this webcast. During our review, we will make forward-looking statements and discuss certain non-GAAP financial measures. Please be aware that our actual results could differ materially from what we share today. Please refer to our Form 10-K filed with the SEC for details of the full range of risk factors that could impact our results. Following the webcast, President and Chief Operating Officer Nate Baxter and Executive Vice President and Chief of Staff Chris Hagedorn will join Jim and Mark for an audio-only Q&A session. To listen to the Q&A, simply remain on this webcast. To participate, please join by the audio link shared in our press release. As always, today's session will be recorded. An archived version will be published on our website at investor.scotts.com. For further discussion after the call, please email or call me directly.

Hello and good morning. I'm Martha Stewart and I would like to welcome all of you to the Scotts Miracle-Gro earnings call. You know, spring is probably one of my favorite times of the year. Everything is coming alive and I personally can't wait to get my gardens fully planted. It's one of the many reasons why I love my role as Chief Gardening Officer. I'm working with the team to bring gardeners, including the new generation, products that they will love and make part of their everyday lives. And that is a very good thing. Now I'll turn it over to Jim Hagedorn.

Good morning. First of all, it's a crazy and confusing macro environment for any company today, but I can simplify things. We're good. Our outlook is unchanged, and we're reaffirming our full-year guidance of $570 to $590 million of EBITDA. As for tariffs, we're largely unaffected in fiscal 25. We see no impact on our margins or pricing for this year. Historically, our equity has been a safe harbor in tough times. Everything you'll hear today is centered around getting back to that crisis. Our results through the first half reflect important progress on financial metrics that are central to our fiscal 25 plan. We delivered double digit increases in consumer takeaway, gained market share, and built momentum. We're happy with our consumer product sales to retailers. They're essentially flat when you exclude AeroGarden and other one-time sales from last year. Despite volatility and uncertainty, the core consumer is relatively healthy and our business tends to be recession resistant. To consumers, our lawn and garden category and our brands are as important as ever. That goes for retailers too. Lawn and garden is among their top categories for the whole year. In my view, our equity price makes zero sense when you consider our accomplishments, our growth trajectory, and our superior position in this very important consumer space. I can only think that our message isn't getting through to the investment community, and I guess that's on me and Mark. Before I dive into our performance, it's important to look back on the past 18 months for context. In fiscal 24, we drove nearly 9% increase in POS units and significant EBITDA growth and margin recovery. Over the past two years, we generated an excess of $1 billion in free cash flow and reduced leverage to much more acceptable levels. We cut costs and invested in the business. So far this year, we achieved a nearly 500 basis point recovery in gross margin and a $36 million EBITDA increase. Debt, interest expense, and leverage continued to decline as we improved the balance sheet and our financial flexibility. POS is a really great story. We delivered a 12.1% increase in units. Our garden business was plus 16% in POS units, and our mulch business plus 46%. Tomcat Northrow outdoor insect each increased 14%. These gains reflect our ability to adapt to conditions. In response to inconsistent weather in Q2, we worked with retailers to boost promotions and pivoted our early season advertising messages. Because favorable weather was a little late this spring, we showed up at Martha Stewart's New York house and made a commercial on the spot. Martha, our chief gardening officer, passionately encouraged people to get their hands dirty, reminding everyone that spring is now. This is the way we want to work. It speaks to speed and agility. Lawns is a special example. Our lawns business has been dealing with unit volume declines over time. I challenge the team to first, hold the line, and second, develop a long-term solution. early results demonstrate initial progress with more to come. At the close of Q2, our total lawns business was plus 4% in POS units. To understand what we're doing differently, it's important to address the underlying issue. Consumers want a nice lawn, all season long, without a lot of work. But they don't always know how to make it happen. The solution is regular feedings to create a thicker lawn that is less susceptible to weeds and disease, and ultimately has less need for pesticides and fungicides. But we got away from marketing regular feedings and multi-bags in favor of one-bag approach for specific problems such as weeds, bugs, or disease. It was effective in selling one bag of fertilizer, but it was ineffective in giving the consumer the lawn they really want. This year, we've returned to a multi-bag strategy. We're helping consumers understand the value and importance of multiple feedings. Our Scott for Scotts commercials feature real consumers talking about how to care for a lawn and the pride they have in their own lawns. We're creating joint promotions with retailers focused on multi-step applications, and the results are solid. Turf Builder Halts, our first step in the multi-feeding program, was up 67% through the first half. In the hardware space, a third of all fertilizer sales come from multi-step programs. And at home centers, multi-bag bundles drove HALT's POS unit gains as high as 100%. And an online deal that we did that gave consumers a free spreader with the purchase of a full-season lawn program exceeded projections by 185%. Where we're headed makes total sense for this legacy, high-margin business. We're reimagining our portfolio in terms of packaging, sizing, formulations, and actives to deliver more of what consumers want and need. We expect to roll out these changes in fiscal 26 and 27. This is an attitude shift. We're no longer working within the safety of the past. I'm really proud of our launch team, and I'll give you a status report at our next earnings call. Innovation is a component of our progress too. The expanded Miracle-Gro Organic line and new O.M. Scott natural grass seed and lawn fertilizer are contributing positively to POS, and we're gaining share across the total organics category. Later this year, we'll introduce flying insect traps and mosquito prevention in our controls portfolio, a growth category with potential, especially in e-commerce. As for competition in the control space, we'll be more aggressive and hold them accountable. P&G is an example. I have great respect for that company, but it was unprofessional to introduce its spruce weed killer product with reckless claims and in packaging that mimics Miracle-Gro. That's why we've taken legal action against Proctor for false marketing claims and trade dress infringement. No one knows more about natural herbicides and insect and weed control than we do. We know what works and we know what doesn't. Across our categories, we see little pressure from private label. On the contrary, our retail partners have been heavily promoting our products and will continue to do so for the rest of the season. This is the result of our significantly increased investments in retailer promotion programs to activate consumers at the shelf level. Retailers, in turn, are putting more of their own money behind this effort. There is only one major rule to these activation investments. Retailers must use the dollars to support our products and not for their own margin support. When retailers commit to these promotions, it shows up in our numbers and their numbers, our market share, and their market share. In addition to promotion investments, we've injected significantly more into our own consumer advertising, brand support, and e-commerce activities. With this kind of firepower and most of our marketing still in front of us, we and our retail partners remain bullish on the season. Let me further explain why we're well-positioned in this economy. Our current exposure to increased tariffs is minimal. We are a stable, 157-year-old American company that manufactures and assembles products in the United States. 90% of our cost of goods sold are domestically sourced. Of the 10% sourced outside of the U.S., at least half are exempt from tariffs. Of the rest of our goods, we have plenty of pre-tariff inventory. For these reasons, we do not anticipate pricing actions in fiscal 25 due to tariffs, nor do we expect margin pressure. If things change in 26 and we do feel more tariff and or margin pressure, we will mitigate the impact and, if necessary, take pricing. During economic uncertainty, consumers gravitate to established and trusted brands. They prioritize value and reliability. That's why promotions and our iconic brands matter. In fact, consumers consider lawn and garden care essential. Our research shows that nearly 75% of all consumers surveyed perceive lawn and garden as a necessity. 25% plan to shift to do it themselves this year. From a historic perspective, during the Great Recession of 2008 and 2009, we drove POS unit increases of 16%. And we all remember our record sales in POS during COVID. While numerous reports paint a dim consumer picture, our consumer is in a better place. They are homeowners with more disposable income. And when you add all this up, our franchise is resilient and has opportunities that many other CPG companies do not. I'll now update two major initiatives. The first is our transformation for cost outs and productivity improvements. Transformation supports our strategy of incrementally investing more in our brands and retailer promotions. This requires significant financial resources, and we intend to redeploy savings to grow the business and return shareholder value. The second is to divest our Hawthorne businesses to improve gross margin and reduce the cannabis sector's volatility on our share price. For Hawthorne, this can lead to value creation opportunities. Our transformation is being driven by a new and powerful team that is getting their sea legs. This includes my team and new talent we've added in leadership positions. Their task is not simple or easy. we're building a different company. We're strengthening our financials and balance sheet while improving the health and power of our franchise. That makes transformation a necessity and the teams are delivering. We're on track for more than $75 million in supply chain cost outs this year and our larger goal of $150 million out by fiscal 27. We're committed to being the lowest cost manufacturer, and that involves bringing more automation and technology to our plants and distribution centers. This will ensure that our supply chain is nimble and responsive to market changes. Credit here goes to Nate, who has been a relentless advocate for technology throughout our supply chain. This effort has extended to other parts of our company. In Q2, we eliminated a number of corporate and overhead positions. We expect these actions to contribute $22 million in annualized savings, with $10 million being realized this year. We're looking at everything to become a more lethal and enduring consumer goods company. We'll take our culture to the next level, and it'll open up new channels for growth. As for Hawthorne, in Q2, we moved the Hawthorne Collective to Bad Dog Holdings, a privately held, unrelated third party. The collective was established in 2021 to invest in areas of the cannabis industry, not under Hawthorne Gardening. Among its holdings is an investment in a vertically integrated cannabis operator called Fluent. Our next step is to sell Hawthorne Gardening to a dedicated cannabis company by fiscal year end. Hawthorne Gardening has delivered two consecutive EBITDA positive quarters and can offer value creating benefits to a cannabis company. These include a debt-free balance sheet, leading brands, unique innovation, a great management team, and 280e tax benefits. And it would maintain a strategic relationship with Scotts for R&D and supply chain support. For Scotts Miracle-Gro, exiting Hawthorne Gardening will allow us to accelerate tax benefits of up to $100 million over the next few years. and it will help us with our banks by eliminating the debanking risk stemming from federal regulator confusion on how to bank with companies adjacent to the cannabis industry. Divestiture will enable our consumer business and Hawthorne to do what they each do best, creating a catalyst for growth that makes both companies better. Because the Hawthorne companies were meant to capitalize on legal cannabis, we will retain an option to recapture any of the future value should the federal government adopt pro-cannabis reforms. The health of the cannabis industry will be accelerated by tax relief and access to capital for investors, which could happen through Cannabis Rescheduling and Safer Banking Act. President Trump has supported both. Here's my final comment on Hawthorne. Mr. President, This industry needs your help. You always say promises made are promises kept. So let's reschedule cannabis and pass safer banking now, please. You're the only person who could help. I'll close with this. I'm pleased with our progress. Our path is right for our franchise and our shareholders. We will give consumers more of what they want and need. Everything I talked about today is part of our singular mission to grow our business and drive value. As we continue to build success each quarter, we move closer to achieving these four financial goals by the end of fiscal 27. One, sustained sales growth of at least 3%. Two, gross margin rate north of 35%. Three, $700 million in EBITDA. And four, strong free cash flow for shareholder-friendly actions. Before turning things over to Mark, I want to make an announcement. A lot of you know Mark from his long relationships with our banks, auditors, and other stakeholders. He's a steady and measured financial executive with a fighter pilot attitude. As interim CFO, he's been a true partner and forged important relationships with investors and analysts. He's making an impact in our transformation. For these and many other reasons, he's been named EVP and CFO. Please join me in congratulating Mark. As always, I appreciate our shareholders, banking partners, and retailers. Your support is critical to our success, and I thank you. Here's Mark.

Thank you, Jim. And hello, everyone. Jim provided an overview of our progress on the key financial metrics in our Fiscal 25 plan, our significant POS gains, and our limited exposure to tariffs. Our year-to-day performance, combined with our unique position in the current macroeconomy, has solidified our confidence in our full-year guidance for EBITDA, U.S. consumer sales, gross margin, and leverage. With that, I'll review the details of our second quarter and first half, starting with the top line. For the quarter, total company net sales were 1.42 billion compared to 1.53 billion a year ago, down 7%. In U.S. consumer, net sales for the current quarter were 1.31 billion versus 1.38 billion last year. down 5%, reflecting the impact of a colder, slower start to the lawn and garden season, along with non-repeating fiscal 24 sales of AeroGarden and bulk raw materials. This slower seasonal start has pushed some shipments from our second to our third quarter. but we've seen similar weather patterns in the past and know how to adapt to them. I'll remind everyone that we expect retailer replenishment to be strong in Q3 as weather conditions continue to improve and we shift to the peak of the season as the third quarter represents approximately 60% of the total POS for the year. Hawthorne net sales in the quarter declined 51% from $66 million to $33 million, including the continued hydroponic market softness combined with the expected impact of its exit from third-party distribution last year. Year-to-date, total net sales on a company-wide basis were $1.84 billion, down 5% from $1.94 billion a year ago. In U.S. consumer, net sales through the first half were $1.65 billion, down 2% from $1.69 billion a year ago. This is largely due to non-repeating fiscal 24 sales for AeroGarden and bulk raw materials. As Jim stated, when you exclude these non-repeating items, U.S. consumer sales are essentially flat to prior year. POS continues to be healthy, as evidenced by the strong consumer takeaway in the early season. Through the second quarter, POS units exceeded prior year by 12.1%, driven by mulch, soils, fertilizer, grass seed, and controls. Excluding mulch, POS units were plus 4.4% through the first six months. POS dollars through the second quarter were 1.5% higher than prior year. The difference between our unit and dollar growth is due to strong early season performance of soils and mulch products, along with increased joint promotional activity with our retail customers. Looking at the month of April, we are pleased that POS trends have remained consistent with our March year-to-date results of double-digit unit growth. With over 50% of the POS remaining from May through the end of the fiscal year, it gives us confidence in reaffirming our full-year U.S. consumer net sales guidance of low single-digit growth, excluding the impact of the non-repeating fiscal 24 sales mentioned earlier. At Hawthorne, net sales for the first half were $85 million, down from $147 million in the first half of fiscal 24. The decline is a result of Hawthorne's strategic exit from low-margin, third-party distribution to focus on more profitable proprietary brands, as well as the impact of the oversupply of cannabis, lack of federal action on cannabis reforms, and the rapid consolidation among cultivators in the cannabis sector. Given this environment, we are no longer providing revenue guidance on Hawthorne. Before I move to the rest of the P&L, I do want to call out that Hawthorne has been at positive EBITDA levels for the past two quarters. And year-to-date, it has earned around $4 million in adjusted EBITDA. The Hawthorne management team will continue to adjust their business model and operations to deliver a similar result in the future. Now, moving to gross margin, we delivered meaningful improvement of nearly 500 basis points through the first half and continue to track to our target of 30% gross margin rate by the fiscal year end. Primary drivers of our gross margin improvement to date include lower material costs, improved product and segment mix, and reduced manufacturing and distribution costs. We have strong visibility here to the balance of the year, and as of the second quarter, more than 80% of our commodities are locked. Approximately two-thirds of our planned $75 million supply chain savings for fiscal 25 were realized in the first half, with the remainder expected over the course of the third and fourth quarters. In addition, in our fourth quarter, we will lap one-time inventory write-offs of $29 million taken in last year's fiscal fourth quarter. For the second quarter, the GAAP gross margin rate was 38.6% versus 30.4% in the prior year. And the non-GAAP adjusted gross margin rate was 39.1% versus 35.3%. Year-to-date, the GAAP gross margin rate was 35% versus 27.2% in prior year. And the non-GAAP adjusted gross margin rate was 35.6% versus 30.7%. Looking down the P&L, SG&A for the quarter increased 5% from $179 million to $188 million. Year-to-date, SG&A increased 7% from $294 million to $313 million. This increase was planned and is attributable to higher performance-based incentive accruals as well as additional investments in our brands and transformation-related investments in technology and e-commerce. We continue to expect current year SG&A to be approximately 17% of net sales versus 16% last year. Moving to EBITDA, in the second quarter, adjusted EBITDA improved from 396 million to 403 million. Through the first half of the fiscal year, adjusted EBITDA increased 36 million from 371 million in fiscal 24 to 407 million this year. This year-over-year improvement in EBITDA reflects our strong gross margin recovery driven by our planned supply chain savings, lower material costs, and improved segment mix, partially offset by higher SG&A. As Jim mentioned earlier, we are reaffirming our adjusted EBITDA guidance of $570 million to $590 million. Below the line, year-to-date interest expense continued on its downward trajectory as we lowered debt balances and benefited from more favorable interest rates. Through our first half of the fiscal year, interest expense was down $17 million to $70 million, and our total debt was $270 million lower versus prior year. Leverage ended the second quarter at 4.41 times net debt to adjusted EBITDA. This is comfortably below our covenant maximum of 5.25, and we remain on a path to the low fours by fiscal year end. The non-GAAP adjusted tax rate was 26% for the first six months. For the full year, the tax rate is still expected to be in a range of 27 to 29%. The second quarter GAAP net income was $217.5 million, or $3.72 per share, compared with the prior year of $157.5 million, or $2.74 per share. Non-GAAP adjusted income for the quarter, which excludes impairment, restructuring, and other non-recurring items, was $232.2 million, or $3.98 per share, versus prior year of $211.9 million, or $3.69 per share, a year ago. On a year-to-date basis, gap net income was $148 million, or $2.53 per share, compared with the prior year of $77 million, or $1.34 per share. Non-gap adjusted income year-to-date was $181.2 million, or $3.09 per share, versus $129.7 million, or $2.26 per share a year ago. Impairment, restructuring, and other non-reoccurring charges totaled $18 million for the quarter and primarily consisted of employee severance, facility closure costs, and costs tied to our Hawthorne Collective transaction. As we reported earlier, we have transferred our Hawthorne Collective subsidiary out of Scott's Miracle-Gro to a privately held third party in exchange for an interest-bearing promissory note. As a result of retaining an option to benefit from these assets in the future, the Hawthorne collective investments will continue to be reflected on our balance sheet, and we will record our proportionate share of Fluent's net profit or loss within the equity earnings line in our P&L, beginning in our third quarter of this fiscal year. Now, moving on to the second half of the year. On June 5th, we will attend and provide our customary seasonal update to our fiscal year at William Blair's Annual Growth Stock Conference in Chicago. At the conference, we will share U.S. consumer POS and shipment performance through May, as well as insight on our Fiscal 25 guidance. Overall, we continue to make substantial progress and are focused on our top three financial objectives for fiscal 25, which are investing in our brands to build upon sustainable net sales growth, driving margin recovery through sales growth and cost savings, and strengthening our balance sheet through generation of strong free cash flow and continued debt pay down. As we deliver on each of these, we will further strengthen our core consumer business and continue to build greater value. I'll close with this. I want to thank Jim and our board of directors for their confidence in me as CFO. I've enjoyed working with our banks, investors, analysts, and other stakeholders, both in my current and previous roles. You can expect me to further advance these important relationships as I work collaboratively with Jim and the team to deliver future growth and shareholder returns. Thank you, and I'll turn it over to the operator to start the Q&A.

Thank you. To ask a question, you will need to press star 11 on your telephone. To remove yourself from the queue, you may press star 11 again. Please limit yourself to one question and one follow up to allow everyone the opportunity to participate. Please stand by while we compile the Q&A roster. Our first question. comes from the line of John Anderson of William Blair. Please go ahead, John.

Good morning. Thank you for the questions. I'll ask both my questions off the top here and let you respond. I wanted to ask about point of sale and gross margin. Beginning with point of sale, could you help us understand a little bit more the delta between the 12% growth in units and the low single-digit growth in dollars, trying to understand how much of that is mix, how much of that may be retailer investments and promotions, and how you gain confidence from those numbers in kind of the mid-single-digit growth for you as a consumer on a full-year basis. And then on gross margin, I may have overread this, but I think I heard you say, Jim, that you know, expect gross margin greater than 35% over your medium-term timeframe. Has anything changed there? Greater visibility, greater confidence in getting to that objective. Thank you. Sure.

out, which we're committed to by fiscal year end, that probably has, I don't know, if I was going to piss people off here, it would be north of 100 basis points. But let's say at least 100 basis points of positive gross margin impact. Our mission, and it's up as a mandate on my board, I'm looking at it right now, is 35%. gross margin, and I use the word you did in the sort of near term. Hawthorne should help that. The team has not volunteered to take the goal up to sort of 36% to 37%, so I think they've got a little bit of room. But I would say we're committed to it. I think we have line of sight to it. And I think the Hawthorne move probably makes it a little bit easier, which you can take however you want. On POS, I think it's a fabulous story, but it tells you a little bit about sort of what's happening out there. You know, I was on Kramer's show on, I don't know what that was, Friday, and talked about that, which is that, you know, coming out of COVID, I wanted the promotional dollars we did to incent sales. I wanted that back. And what we've heard from a lot of retailers is, yo, you know, customer accounts down at the stores, our big, you know, cork durable business is off. It's just we're suffering. It's not a great time to be sort of taking pricing. And I think we also had an issue that, you know, our belief, not an issue, but a belief that, some of our product lines, whether it was grass seed or lawn fertilizer, was getting pretty pricey. And, you know, I ended up with Nate and the sales team agreeing that instead of saying we want the money back, put it to, and listen, this was kind of what, for me, it was a big deal. You know, maybe not for everybody else, but In sort of interrogation with sales, as we talked about this issue, it's that the retailers are promoting very heavily, and they are really trying to build market share and get customer count in the store, and that for all this money, they're spending at least that much behind it. And so that was one of those things where I sort of got in my head, and I think Nate and the sales team agreed, which is, okay, use that money to promote our products, and I think we're seeing that happening. And I think it's a very competitive place out there from sort of pricing point of view. So I know there's people here who would say mix is a part of that. I heard this kind of last week as we were prepping for this, and certainly that's true. But I think what's really happening is you're seeing a very competitive consumer landscape where, you know, if you look at sort of everyday pricing, you're not seeing the velocity as what you see on promotion. And so... Retailers are promoting very hard when they promote hard, and we're seeing that across the board, that this money is being put to work by retailers the way they committed to and the way we had hoped they would. And that on promotion, product is selling really, really well. And I think that, you know, you can view it as a positive or a negative, which is that I think consumers are looking for good deals right now. And that If the deals aren't there, they're a little more careful, but basically all retailers are promoting very heavily now, and I think that's the lion's share of what you're seeing in regard to difference between POS dollars and POS units. I think it's a fabulous story myself, which is that retailers are really pushing lawn and garden, and they're using the money we gave, and It's working really well. And so, you know, when we talked about it here, you know, there's always a bias as we prep for this call. Like, is it we talking dollars or units? And I think the dollar story is just not a very interesting story. I think the unit story is what's really happening out there. So I think mix a little bit. A lot of it is just very steep promotion happening right now. Retailers using the money we gave them. And I got to say, super appreciative, but the consumer very much alive and well, but they appear to like promotion too.

Yeah. John, if I could just jump in and provide some context on both for some of the numbers on the mix and the dollars for POS and then the long-term view on gross margin. So as Jim said, the two big drivers mix, that's a big part of our sales growth strategy too this year. So it lines up very well with how we plan to grow sales this year. But I think of it as 60%, 40%. We're getting a little feedback there. 60%, 40% as far as the mix between those two key drivers. So 60% being kind of a heavy mix with the soils and the mulch, those growing media products and rodenticide products. and then 40% being the heavy customer promotion activity. But both very positive stories, driving traffic both online and in-store. On the gross margin story to 35, Jim alluded to the Hawthorne, you know, providing us the 1% or 100 bps improvement. The rest of the story there is a lot of what you're seeing in the first half of this year, which is really an outstanding gross margin story. I mean, our supply chain team is doing an outstanding job delivering on cost savings initiatives. And Jim, towards the end of last year, talked about $150 million of cost savings over a three-year period. We're through about half of that for this fiscal year, so $75 million of cost savings this fiscal year. And we have another $75 million to go over 26 and 27. And that should provide you well north of 200 basis points of improvement there in our gross margin. And we feel we can outperform that. And we're working hard based on, as Jim alluded to, the whole transformation discussion. So the team is looking at the business very intently. And we feel very confident in that part of the story. The only thing I'll wrap up is around pricing. We do believe it's a long-term part of the build, along with volume growth as well, and that comes with innovation and our product portfolio differentiation. So we were able to take list pricing this fiscal year. We've reinvested it back into promotional activity, which is obviously doing what we thought it was going to do, which is drive good, strong unit growth. So those are just some of the numbers, you know, to kind of follow up from Jim's comments. Thanks so much.

Appreciate it.

Thank you. Our next question comes from the line of Jonathan Matuszewski of Jefferies. Please go ahead, Jonathan.

Great. Good morning, and thanks for taking my question. The first question was on trade down to DIY. Tim, I think you said it's some survey work around 25% of consumers surveyed are planning to trade down this year. Maybe if you could elaborate on that, clarify if there is any benefit associated with trade down in your current sales guidance and any kind of framework to think about any upside for any point or five points or whatever of trade down activity. away from DIFM? That's my first question. Thank you.

All right. I'll let probably Nate take that one, but I'll start with, I don't see it as trade down. I see it as trade up because a lot of what, and I think we're running commercials like this now where we're talking to homeowners that have a huge amount of pride. The whole Martha Stewart side of wanting to garden and pride in your home and your garden. For sure, lawn people have that as well. And so I think what a lot of our thoughts are and some research behind this is that there's a lot of pride and the people who are very prideful and we want to help people do that can get a better result being on a multi-step program that they do themselves versus having, you know, somebody show up, I'm not going to say a minimum wage, but damn near. And remember, we were in that business, the service side. So we know it pretty well. But I think our view is that consumers can get a better lawn doing it themselves for less money. And I think that's what the sort of data is showing us, at least that, there are a significant number of people who are moving into do-it-yourself versus do-it-for-me.

Yeah, just to build on what Jim said, Jonathan, you know, he mentioned in his script 25%, you know, folks that we surveyed indicate that lawn and gardening is so important that if they have to, they'll trade down, I guess, as you say, to DIY. In terms of baking into our numbers? No. I would say that when we look at the historical data, there's probably 20 to 25% of consumers that fluctuate between doing it themselves and do it for me. So I think given that noise, we're not building it into the numbers. But look, there could be a tailwind there for sure. And I know we've talked about the pressures on the small and medium-sized landscapers in terms of finding manpower to do that work. So Maybe, but as I said when we talked earlier, I don't see anything changing in our numbers. We're pretty confident where we're at, and I think that consumers are responding accordingly.

That's helpful. And then just a quick follow-up on private label. Jim, I think you mentioned you're seeing little pressure from private label this past quarter. Maybe if you could give us a sense of the pricing gap that's trending in the market today, maybe your products versus private label products. Is it around that kind of historical 30% norm and, and how you expect maybe that gap to fluctuate as the fiscal year continues as, as store brand pricing changes. Thanks so much.

So I'll start them. Come on, dude. We're going to let everybody talk. You know, I think it's so competitive out there that the price gaps are less than normal because, um, the programs that we put together with the retailers are resulting in a very significant focus on our products and pretty steep pricing action to get consumers in the store. And I think that's not only healthy, but I think that very much reduces pressure on private label. So I don't know, Josh, if you feel any different about that.

No, I would agree. I would say everyday price points You know, you look at that still in the normal range of what we would see, that call it 20% to 30% gap overall. But the promotional plans have closed that gap, especially when you look at fertilizer, grass seed, those categories where we've driven frequency, deeper, sharper discounts on drive items. That's really where we've seen progress against private label.

Thank you.

Thank you. Our next question. comes from the line of Andrew Carter of Stiefel. Please go ahead, Andrew.

Hey, thank you very much. Just wanted to ask a potentially dumb question, but I can't answer it. In terms of where do you see risk ever of a garage load or pantry load, whatever you want to call it, like consumers pushing their purchases to the part of the season? I mean, you've had two really good POS unit numbers, well above what the category should be doing, but Just give us any context around the categories doing, just your individual categories, what you see when you know people coming back, just that risk that's out there. Thanks.

Well, I'll take this one.

Listen, Andrew, I think, right? No, I definitely think it is. I'm not sure I know the answer either.

So I'll just give you some stats on what we're seeing in first half, and I'll sort of pick on lawns on fertilizer. You know, our attachment rate is 2X. historical, obviously driven by a lot of the promotions. But, you know, what's really interesting is roughly 60, or sorry, 40% of those consumers are new consumers coming into the category, or at least ones that haven't participated in the last couple years. So, you know, my view is that it's a non-issue on pantry loading. While certainly there may be some of that, you also see it early season with private label as that stuff tends to go on discount. we're very confident, especially as we start to beat the drum on frequency of feeding. And we are seeing an improvement there. Our frequency is up about 3% in first half. And remember, 60% of our POS is ahead of us in lawn. So, again, I don't see it, and I'm not terribly concerned, and I'm feeling good about the fact that we're bringing new consumers in. And that's not just our data. It's also some of our retailer data. So I feel pretty comfortable that that's not going to be an issue for us.

Then the second question is I think you withdrew Hawthorne revenue guidance for the year, and I apologize if I missed it. I didn't hear if you reiterated the EBITDA. Is it the same EBITDA guidance? I would guess no for the year, but you've reiterated the full year, so I guess where's the incremental strength coming from relative to the old guidance? Thanks.

Sure. So I think in past calls, we've talked about trying to achieve a target for Hawthorne of an EBITDA of 20 million. In my prepared remarks, I mentioned first half of the year, Hawthorne is around adjusted EBITDA of 4 million. So they definitely will fall short of that target. We did not adjust our full year total company EBITDA guidance of 570 to 590 million dollars. If I just go down through the P&L and what gives us confidence in continuing to manage through that, I would say gross margin-wise, we're doing some outstanding work there and continue to perform well versus the target of 30%. So we've got a great line of sight there. On the SG&A front, our SG&A in our guidance, we've mentioned that we guide to 17%. And that's important to note that it just allows us to flex along our P&L as we deal with Hawthorne activities. So we do have some variability to our SG&A that allows us the balance of the year flexibility. And then in addition to that, Jim mentioned transformation in his prepared remarks. We did make some people cuts and we also took some variable non-essential spend out. As we manage the year and really it's it's more of a long-term view And we we feel like we can get further savings If you might remember on the last call Jim challenged us to to achieve around 30 million of incremental overhead cuts And we're well on our way on those activities to deliver that for 26 And part of that gives us confidence for the balance of the year so that's why we didn't adjust our total company adjusted EBITDA for Hawthorne and As I mentioned, we continue to expect them to be profitable over the balance of the next two quarters. The company continues to adjust its business model and do all the right things, as noted, the first two quarters of this fiscal year.

Yeah, I just want to throw out, you know, we had a two-day board meeting that was Thursday, Friday of last week, and I've been very complimentary of Mark and his finance team, and I think it's not probably fair to give credit to the finance team alone, but I think the entire operating group, the healthier our business becomes, the more room we can build in for disappointments in any one little piece of the business. And I think what was clear is that I think the budgeting process was pretty conservative. I think the business is performing at least as well as kind of what we need. And therefore, when they inventoried areas like Mark was just doing of areas where we have protection room built in if anything happens that we aren't anticipating, that there's room And on the opposite side, potential upside as well. So I think we're sticking with the guidance. And I think it's pretty unlikely we fall out of that. And if things go well, which is, you know, we're in sort of peak POS period right now. And so everything sort of depends on what sells out. And then one last thing, which I view as a pretty significant positive, and I know that Some of the analyst community is pretty tight with retail. But, you know, based on tariffs, I think retailers are working really hard to manage their inventory dollars in sort of the fall. And so we're hearing from multiple retailers an openness to sort of extending the season where you would see back-to-school and Halloween sort of taking space out of the lawn and garden. And I think that's a lot of Asian sourced product. And so I think there's a reasonable probability that the season gets extended longer, which is not in our numbers. And so that I think would be healthy too. So I would say that whether it was Mark and his team presenting the financials to the board, Nate and the operators talking about their plans, I think there's a lot of confidence that we sort of have this, you know, and that's kind of where we're at.

Thanks. I'll pass it on.

Thank you. Our next question comes from the line of Joe Alcibello of Raymond James. Your line is open, Joe.

Thanks. Hey, guys. Good morning. I guess first question, maybe, Mark, by the way, congratulations on removing the Interim moniker, could you quantify the amount of sales that might have shifted from Q2 into Q3?

Sure, I'll give it a go. Do you have any idea what the answer is?

I don't.

I'm waiting to hear it. I'll come up with it and you guys can correct me. I think when we've been out on the road, I mean, when we talk to people, the month of March is obviously a big ship month. April is as well. you know, you're looking at daily shipment activity of 30 to 35 million for the U.S. consumer business on an invoice. That's not a net sales. And so that, you know, some of those days can shift quarter to quarter based on, you know, the slower start, you know, and colder weekends the past few in the month of March or into February and stuff. So to contextualize what may have moved I would just say that that's how I kind of like see it. I don't know if these guys have a different point of view. A couple days? No, I'm just saying a couple days can shift easily from Q2.

No, you know that's true. And I think the real story is POS.

Yeah, on that front I would say the momentum that we saw coming out of Q2 in the first half, we obviously all saw a lull with the weather in early April. That's picked right back up as the weather has proceeded and we're on the same trajectory we were on exiting the half. So, you know, mix, you know, just back to the mix thing, you know, that's a good thing. I think, you know, the early season mulching soils bring in consumers to retailers. LaGore got a little bit of a slow start with that weather in April, but it's on fire now. So, you know, I can't quantify it, but I'm feeling pretty good about Q3.

You know, Joe, this is just my comments on everybody wants to exclude, you know, kind of mulch and in soils we we spent a lot of time on this discussion at the board meeting and i think sadie who runs that part of our business reminded us pretty hard that you know people who are buying mulch and people who are buying soils and by the way the soils business is a improving premium business meaning more of it's shifting to branded product um than before that all these people are engaged in gardening. This is not a bad sign. I don't even want to call it commodity because the mulch business is certainly a high dollar, low margin business, but it is absolutely critical to lawn and garden. The fact that it's doing well is a good thing. Sadie's soil business, her Miracle-Gro soils, is doing really, really well. So, you know, I do think that there's a tendency in here for everybody to say X mulch, you know, or X soils. And I think it's a lame thing. It's just the mulch business is not going anywhere. It's powerful. It brings consumers in. It builds market share at retail. It's clearly competitive and low value from a profit point of view. But from a customer point of view and an intent point of view, it's really high. And so I end up lecturing my folks here on stop poo-pooing mulch. It's a big, important business. And the people who do it are all people who are going to engage in gardening activities throughout the season.

Got it. Helpful. Just to follow up on that, I want to go back to your comments about promotions and the delta between PLS units, PLS dollars, you know, I've covered you guys for a long time and I think, you know, correct me if I'm wrong, but I generally view your category as relatively inelastic and driven more by weather really than anything else. So has that changed recently?

Look, here's what I want to say, which is yes. I think that the relatively, I don't know, you know, we, We grew the business, what, 30%, 35% during COVID. We did not give a lot of that away. We grew nearly 10% last year. We grew, I don't know, like the numbers that we reported, the numbers haven't gotten worse, put it that way, since the end of the half. They've gotten marginally better. I think it's we're doing better. I think what we're doing better is we're driving the category. The new marketing team and Nate and his crew, I think is what's happening in our businesses really, really good. I think the challenging part, to be honest, is that by embracing the promotional side of the dollars, which would have been, it would have made our task of getting to 35 so much easier. We're really betting on a model, which is, cut a lot of expenses out of the business, reinvest a large part of that back in sort of activation and brand support, and give a reasonable improvement. And I mean that in a big way because my family cares about it, to improve the financial return of this business. But I think what you're really seeing is the company is doing more and more of the right thing. And I think we're I don't want to say just getting started, but I think we're believers. What I've said to people is having been through the shit of living in the latrine, I think is what I said in the Wall Street Journal, we've become a little bit radicalized on driving the business. And part of when I say I think our valuation is completely unfair, I get it. We're in the penalty box. We've got to prove ourselves. We're going to do that. But I think what you see is a very vibrant consumer business. I think the Wall Street Journal article about Home Depot and their $20 billion secret garden is the truth. It's one of the biggest categories they have. We're absolutely by that. And I think that what you see is a incredible consumer category that is what you said, pretty much immune from this. These are people who own homes. They're not hobos. And that if we do our job better, they will buy more product. And I think that's the radicalized part. And so I think we're well on our way to a And I think that this is a very, very unique consumer franchise that is not being properly valued.

The only other thing I'll add, Joe, is when he talks about radicalizing, on advertising as an example, we are on more times than maybe we have been in the past. We've put that incremental investment to work. So I feel like that is, as long as you stay with it and continue that investment...

year over year which goes back to for example even the fall campaign where we we've continued to invest that drives sales um we know it works it's one of our core convictions look we mark in me and on sort of this end of the corporate building have looked at the value of various consumer franchises you know as a sort of multiple um and i think our view is we sell at a discount. And I think part of what's happened is, is what Mark just said is we have to believe in our sort of business model. We cannot be fair weather brand slash marketeers. We've got to, and we know when we invest, there is a return. And I think we also know the other side when we don't, we don't see. So, you know, listings become harder. The challenges is, you know, when we're negotiating deals become harder. The, The power of our brands matters, and it is only by consistent high spend. And what we're doing, what we call transformation, is converting this company where we can spend that kind of money. You know, we refer to, I think, back in 2008, 2009. I think it was more like 2010. I made this bet that we could increase sales in a really terrible external environment. We could take share and grow sales. We did. We just couldn't afford it. That's why we bailed on it. What's different here is we're reconfiguring the company so we can afford it. That's really what's happening here. That's transformation.

Yeah, not to drag this on, Joe, but just to get to the point. Yes, 100%. The post-pandemic world and how consumers see that value is different than the pre-pandemic world. And our promo dollars, if I look at what we spent in the first half versus historical, it's up. And it's a new business model, and it's working.

Appreciate the call, guys. Thank you.

Thank you. Our next question comes from the line of Eric Bashard of Cleveland Research Company. Please go ahead, Eric.

Thanks. Good morning. Two follow-ups and then a question. First of all, the incremental promotional spend, just trying to get a sense, are you spending more than you planned, more than a year ago, I'm trying to figure out if this is your money or the retailer's money that's being spent on what sounds like heightened promotional spending.

Well, for sure, heightened promotional spend. I would say on budget.

We're on budget. We haven't spent more than we planned on spending, but we are spending more this year. But it's a lot more. Yeah.

Yeah, if you remember, we did take list pricing this year, and we reinvested that into promotional activity this year. for this fiscal year as well. So we were planning for that higher spend.

Yeah, but all within the budget of what we had started the year.

But, Eric, it's a lot more money, but within budget. And, again, this is part of a – I don't know that we knew what the answer would be, but I think we knew one thing, getting pricing, you know, and sort of recovering our margin because this is core to what we've been up to. at the retail level, there was more resistance. So the sort of compromise was spend the money. And what that did is it probably made our mission a little bit harder here. But I think the assurances from sales and I think from retail partners is we're spending at least that much money. And they're very active in bringing... Listen, there's probably not an analyst that knows retail better than you. I mean it. And You know, I think there's so much effort for building share that they're using these dollars to push it. And I think our view is it's working, and I think we'll probably look to build this into a model. But, you know, when I say in the call it requires very significant financial resources, to leave that money, and I'm calling it activation money with the retailers, to significantly increase our brand spend, makes our job a lot harder. It means Mark and Nate's job is a lot harder to figure out. Again, this goes back to this issue of what exactly is transformation. It's completely remodeling this company so we can afford to do these things because our view is as a competitive franchise matter, if we can do that year after year, ultimately we will get paid for the value of this franchise.

Secondly, Jim, you talked about the importance of narrowing the price gap relative to private label. And I guess I just want to dig on that question a little bit because even what you just talked about, you're spending to build a great brand franchise. Why do you need to narrow the gap versus private label? It seems like it suggests that the value of the brand is not as significant.

Can you explain that? Hold on. Eric, all due respect, I don't think that's what I said. I think the gap based on the level of promotion that's occurring in retail has reduced. I also said that I think our grass seed business and our lawn fertilizer business has become pretty pricey. You know, we're doing really, really good work in our lawns business, you know, so that The words you hear, I think sometimes it's hard to read what we're meaning, but the launch team is doing a really fabulous job of saying, what do we have to do to build a multi-step program? And I don't know, John, I had the brand people show up here like they normally would not be in the room, but... You know, if people have the time, and John, you can go pretty quick, where are you headed with lawns?

Yeah, well, I think you mentioned it earlier, Jim.

This is John Sass.

Yes. Thank you. We're changing a lot. The media and marketing campaign is going to continue to emphasize pride of taking care of your own lawn. That, coupled with regular feeding messaging, is super important. And when we drive people to retail... We have great programs at retail to make sure that we're incentivizing that behavior. So multiple bags purchasing really gets consumers taking home two bags at a time and putting them down their lawn. That's what they're aiming to get is a great healthy lawn.

Okay, but I'm going to talk about the uncomfortable part then, which is that the result of this is going to be lawn fertilizer pricing based on basically the products that we're going to be recommending coming down, okay? And this was the uncomfortable part during the board meeting, which is this is going to require, instead of buying one bag, that people buy multi-step. So I think this will help vis-a-vis private label. But I think over time, call it two or three years, you're going to see us very – in a very measured way, bringing prices down for lawn fertilizer. Part of what John is doing with the supply chain is in a way that I have never seen before in this company, because Marysville is like a fixture. The Marysville chem plant is a fixture. And John just said, I can't afford to do business with you guys. And I encouraged him, and I think so did Nate, to say, if you can't do it, We'll manufacture someplace besides Maryville, and I don't even care what that means. I think the result with the supply chain is going to be very beneficial for John's cost of goods. It's going to involve a little bit of capital to reconfigure that plant, but not crazy. And so I think we're not afraid of this, but what we are going to need is multi-bag purchases as opposed to one-bag purchases. But... So I don't know if that really answers the question, but I think the areas where we were concerned with grass seed and lawn fertilizer, I think we've got plans on both of those, and I think we're seeing good results so far.

And, Eric, from a gross margin perspective long term, I mean, if you know our business well enough, you know, having that multi-bag, the incremental volume from like a lawns category is that is incremental to the margin story. So even as Jim talks about price decreases are making it a little different dynamic there, it is margin accretive to the longer trajectory of the company and our goal to get to 35. Okay.

And then the last question, Jim, you're Over the last couple years, you've clearly become more focused on units in a lot of the communication, the messaging. Again, not to quote you, but a comment earlier, units more important than dollars. The concern would be, you know, units aligning also with the gross margin goal. How are you managing a greater focus on units and also the clear commitment you have written on your wall of getting a gross margin? How do you manage that?

First of all, Nate's the one that's responsible for them. But I don't think they conflict.

No, they don't. And I think, look, Eric, the reason we really started shifting our focus to units was really the lawns issue. Because of the pricing we had taken on fertilizer and focusing on POS dollars, it really masked the unit decline. And from our perspective, units is the sweet spot. And as Jim said, we've got to manage the supply chain around that to make sure we're delivering gross margin. So I think they're totally simpatico in terms of looking at units. It's a better metric for my GMs to run their business by. And gross margin is like a number two metric. And I think what we did in lawns or what we're doing, we're not quite there yet, we're going to do across the board. and take costs out and drive efficiency. So I'm not terribly worried about it. It's just become sort of an irrelevant indicator for us, and it's like the prior question.

I think we're in a sweet spot right now in regard to retailers looking to bring consumers in, and that's kind of working and driving a little bit of this unit volume. You know, I think if you look at last year, And this year, I think there's a lot of sort of share combat occurring at the retail level. And that's Northside. I don't know if that, when that goes away, if we will start to see more units hooking up with, but at this point, I think it's fair to say the promotional level is so high out there that it is definitely driving units to our benefit. How long that lasts, you know, I don't know. But again, If you look and say plus 30% during COVID didn't give hardly any of that back, and then picking up, call it, I think we say nine, but 10% last year and double digits this year, it certainly feels good.

And Eric, let me just add, with units, so if I look at my asset utilization across our base, it's not ideal. Volume is good. Volume helps gross margins. it deals with unabsorbed overhead. So it's absolutely one of the biggest levers we have, and that's why units are important.

And from a finance perspective, Eric, just the way I reconcile it, I mean, our soils business is an outstanding margin profile that lines up well to our longer-term trajectory. And then, as Nate alluded to, getting that unit volume growth, the reason we're able to deliver A lot of these supply chain savings longer term, you know, we're utilizing our assets more. We're doing things differently to get those better cost savings. So that all kind of goes hand in hand with each other. And the only thing I'll close on mulch is, you know, it is a product that drives foot traffic and volume across all of our customer base. And that helps us deliver in our sell-in of all of our products, many higher margin products. So it's very much an important part of the overall portfolio. So I think they can work hand-in-hand to the overall story.

Thank you. Our final question comes from the line of William Reuter of Bank of America. Your question, please, William.

Hi, guys. Good morning. Thank you for taking our question. This is Rob Riggi on for Bill. So appreciate all of the color on private label. I guess just one last one on that. How much would you say you're taking in terms of share and then regarding shelf space? Are you taking any shelf space from the private label?

Look, it sort of depends. I think if you look at like the organic business, I think our percent of the promotion right now is higher. And therefore, I think you're seeing that. But I don't know. You're looking at me like weird.

Come on. I would just say, you know, share of shelf, if we were to break that down, I would say it's pretty simple. This is Josh Meehl. But what about share of off shelf? Share of off shelf, absolutely up. And that's driven by the promotions and the bulk out that you need for that.

So I think that's the one that matters. Yeah. It's not that on-shelf doesn't matter. I think off-shelf is such a big part of what happens this time of year.

Yeah. Private label still plays an important role for our retail partners, and heck, we supply a fair amount of that. So I think any narrative here, like this is a war against private label, that's really not the case. This is a war to drive foot traffic to retail and retailers leveraging our brands to do so. And private label still plays a key role for our retail partners, and we're still key partners there. on that side of the business. So I think it's more of a war on foot traffic and leveraging.

But if we can just back it up and maybe I'm going to sound a little defensive, but you know, we, we tend to hear this issue of, are you guys all worried about private label? I don't think we're seeing a big shift. I don't think, I know we're not seeing a big shift to private label.

No. And you can see it, you break it down by category, right? You look at the launch categories, units have declined within the category. it's just consumers leaving it. They aren't trading down to private label. It's more they want the experience, they want the brand. So as we've reinvested back into that and the promotional strategies that we have, we believe we are growing the category for our retail partners as well as growing our brand share within that. So you look at gardening and what we're doing with the Miracle-Gro brand there, that's really driving share to our retail partners and share within the box to Miracle-Gro overall. So I think it plays different roles in different categories for each of our retailers and you know, we really remain key partners with our retailers there to drive that foot traffic in different ways by category.

Great. That's super helpful, Keller. I appreciate that. And then the last one from me, regarding that 3.5 times leverage target by the end of 27, is that where you want to keep leverage long-term? And then would you consider, you know, increasing leverage for M&A or share repurchases?

I don't know. You know, let's start with I think our view if, you know, Mark and I were alone right now, you know, we probably operated like 3.5 to 3.7, I would say, somewhere in there. And I think we felt like we get really good pricing on our debt at that level. I think where we've been, to be fair, the journey – through the cesspool that we've been on like since after COVID probably makes us somewhat more conservative. So I think probably I would say three, five max, you know, maybe three and a quarter. I don't know. I'm sort of looking at Mark. I don't know. I don't know where he is, but I, we have had informally this, this conversation that wherever we have been historically, it's probably a lower number that, would make the street, my family, happier with. In regard to M&A, I don't want to sound like I've gotten old, and I think I criticized Chris and the team at Hawthorne back in the day of, what was it? I don't want to sound gun-shy. I think we believe we have a lot of value with what we're doing. There are probably some close-in adjacency deals that, if they were priced attractively, we could get interested in. But I think the bias right now is to drive our business without M&A. And I think that that's, again, I don't want to sound like I'm just repeating everybody who would criticize us, but as the CEO of the company, having looked at whether it's Smith & Hawkins, maybe our European businesses, Hawthorne, you know, I think that probably like a lot of other businesses, the M&A activity was expensive, and I'm not sure if we had taken all that money and given it back to the shareholders that we wouldn't have a bunch of super happy shareholders and a much higher stock price. So I don't want to sound like I'm getting old and I'm sort of taking that line, but I do think that what you all should expect from me as the leader of the company is is to consider where we've been to take a pretty conservative point of view, which is whether it's leverage or sort of M&A. If you look at the board in front of me here, we do not have a requirement for excessive growth. I think what we're saying is looking for 2% unit volume, about 1% pricing per year total, about 3%. That's what's built into my sort of expectation for Nate and the crew. I think if we start, you know, I think we're just going to have to look at where we get to and whether we think that another point or two of, but I think, I think the business is doing really well. And I think trying to get aggressive, I think complete our recovery. I think that's the big thing is just let's finish the job and let's not immediately. And it's me, I think, mostly hypnotizing myself into thinking we need M&A to get this done. I think we have a very valuable franchise and I think let's try not to screw it up.

Yeah, I would just add, this is Nate, Rob. If I look at our three to five year midterm plan, it's really based on organic growth. When we look at household penetration, We have a lot of opportunity to grow the category. We know e-com is growing at double digits, so we're working both with retailers and with our own D2C plays there. So I'm really satisfied as I look at our roadmap that three to five years, it doesn't, you know, it would be opportunistic. I would put it that way, small tuck-ins. Beyond five years, sure, maybe it's part of our roadmap there, but that's a long ways away. And, you know, our commitment is to get into a really comfortable leverage range. and not swing for the fences and just deliver steady growth.

Well, and I'd add one other thing, which I know any members of my family who are on the call. There's an expectation that we get our share count down. We've used share count to sort of fund stuff when we needed to. And I think we'd like to get our share count reduced. And that's going to require shareholder-friendly actions and a focus of our cash flow on not only earnings, but anything that we have extra once we get a leverage where we want it to reduce share count.

Yeah, and I concur. I mean, three to three and a half times is a real nice sweet spot for us on a leverage. You know, it's where we've traditionally issued debt and gotten favorable rates, and it allows us to navigate, you know, any one year in investments we want to do. And then to Jim's last point there on shareholder-friendly actions in the future, it allows you, you know, given the free cash flow we deliver based on those earnings, we should be able to buy back shares annually at a consistent level, similar to what we used to do pre-COVID, you know, above and beyond our quarterly dividend.

And I want to just throw one last thing out because I – credit goes to everybody in this room and folks who work for us. Getting leverage down, I don't know, it was 4.47, I think. 4.41 this quarter. That, I think, for the journey we've been on, we never saw ours getting to a point where we were north of 4.5. Obviously, we screwed that up. But for getting down below 4.5, which I would say While it's still in the modest leverage, it is back within relatively normal for us and a huge amount of progress. I think the whole team deserves credit for, like I told this to the board, you know, getting down below 4.5 times was a ton of work, and everybody has done really fabulous work, and it's been a lot of blood, sweat, and tears.

Great. Thank you so much.

Thank you. That does conclude today's conference call. Thank you for participating. You may