Good morning, everyone, and thank you for joining us. My name is Martin Mitela, and I work with Joe Altobello here in the Raymond James Leisure Equity Research Group. We're very pleased to have us with today for a fireside chat, Scotts Miracle-Gro CFO, Matt Garth. For those of you unfamiliar with the story, Scotts Miracle-Gro is a leader in the U.S. consumer lawn and garden industry, with brands that include Scotts and Miracle-Gro, obviously, as well as Ortho and Roundup. In addition, its Hawthorne Hydroponics segment is a leading supplier to cannabis cultivators. It's quite an understatement to say that the past couple of years have been a challenge for Scotts, and so let's start if we could, Matt. I realize we've only been here for a little over a year, but perhaps you could walk us through the headwinds you've experienced in each of your two segments since the start of COVID? Oh, wow! That is a long, kinda answer to a short question, so let me dig into it. First, thank you again for having us. I hope Joe gets back on his feet quickly. Okay, the post-COVID story was a very well-performing company that was growing top line around 1%-2% in the proper Scotts Miracle-Gro business, generating free cash flow of about 7%-10% of sales that was being used to go directly back to shareholders through, share repurchases, through dividends, and making opportunistic investments in areas of the business, including acquiring other brands. Also, during that time period, really beginning in 2016, the company made advancements in developing the core cultivating position in the cannabis space through investments that created Hawthorne. Kinda through 2018 and 2019, through 2020, you started to see the pandemic lift. You started to see really strong performance take place across our gardens, growing media, our controls business. Lawns saw a smaller pickup, but again, was still picking up, and then the Hawthorne side of the house was just booming, growing at kind of a 25% CAGR. That continued through 2021. 2021 was a year in which the company posted all kinds of records. The company's market cap was around $14 billion. Free cash flow was north of $700 million. Real good performance taking place based on the investments the company had made. There were decisions that were made during the pandemic to extend positions, improve distribution capability, make investments in inventory position to be able to capture the maximum amount of sales that were available to the company. 2022, in kind of the March-May timeframe, so early spring, late spring for us, which is the main part of our season, consumer wasn't showing up, the cannabis industry was going through a change, wholesale prices of cannabis cratered, and you saw a large retrenchment take place, not just with us, but amongst retailers, and consumers went to different experiences. In 2023, one of the things that we tracked was: What are consumers spending their money on? Well, they were spending their money on really two things, which are travel and experiences outside the home. That's not what our core consumer should be doing. There's usually a balance between those things and appreciating your yard, having a beautiful growing yard with a great lawn that you can entertain in, a yard space that you can entertain in. And so that created a condition as we looked at 2023, where... Look, here are the hard numbers. The lawns business in 2022 fell 20% versus 2021. In 2023, it's down another 10%. Well, we did not expect that. We expected the lawns business to actually just rebound from where it was in 2022, because that would have been much more on a natural trend line from what we had seen prior to COVID. And so now, lawns is kinda back where it was pre-COVID. Growing media gardens, where we saw people come into the space in size, we've maintained a good portion of those people who've come in, and those businesses are far outperforming where they were pre-pandemic. On the Hawthorne side of the house, you're just seeing today, so kind of let's go back 18 months, where you started to see wholesale prices crater. They were wholesale prices of cannabis, which is a marker for cash flow, which we are on the infrastructure side, building out the cultivator's capability, so they need cash to buy those goods. You saw wholesale prices go from north of 2,000 down into the mid- to high hundreds, and now that's started to come back. We've started to see some stability in the wholesale price of cannabis. So along that path, all kinds of movement. As those trend lines came down post-pandemic and consumers started looking at doing other things with their wallet, we've made significant changes to the business. We've taken out nearly $300 million in costs. We have right-sized our distribution network. We are focusing on the things that matter the most to our organization, which is marketing, our sales force, because remember, our sales force is differentiated from anybody else's. We have 2,000 seasonal associates that are on the floor of our customers every single day during season, and innovation. So we are continuing to invest in those three things, despite the fact that we are right-sizing our organization and creating efficiencies everywhere else, and frankly, those are the three things that matter most. On the Hawthorne side, same thing. We've taken out significant costs. I think we've taken out on a total workforce of about 1,400 people, we've taken out 1,000 people. We have significantly improved the cost position of that business, and this year we are expecting it to be roughly break even after losing about $50 million last year. So actions and activities, that is what we've been doing, that's what we've been working on, that's what the past few years, frankly, has presented us with. And we are now projecting for 2024, growth in our U.S. consumer business, which you're gonna get to in a second, I know. And stability, kind of slightly down, frankly, in total revenue in the Hawthorne business. The net of that, these are our three core drivers for the year. Driving margin to generate $575 million of EBITDA, which, by the way, is our comp plan, and we can talk about why we got it that way, if you want to. The balance of $1 billion in free cash flow. So we did $440 million last year. We need to do $560 million this year. We will do that. And then the third piece is finding a strategic solution for Hawthorne, which we are well underway pursuing that. So we'll talk about that as well. Yeah. Thanks for the background. Let's shift over to your initial fiscal 2024 guidance, which you provided in early November. What was most surprising to the street was the outlook for the high single-digit revenue growth for your U.S. consumer segment. Can you walk us through the underlying assumptions you've baked into that? Yeah. First and foremost, and this probably didn't come across in the conference call, but it's subsequently what we have been re-emphasizing, and we said it on the call: We are expecting the consumer to do nothing different in 2024 versus 2023. So all else equal, POS units, zero as a baseline. That's just because we expected them to go up 10% in 2023, and we said, "Okay, let's not bet on the consumer as a first planning block." What we did from there is, we've worked very closely with our retail partners, leaning in on the areas that they feel we need to be active in, we need to have a bigger share of shelf in. And we are growing share in core areas, garden, growing media. We have new introductions that are coming into the market throughout lawns, and so and throughout growing media, by the way, and so those will extend positions. So listings, a mix of growing our share and also new listings into the market. Promotional activity, so everybody's favorite promotional activity here, and I'm sure you all do it, is your five for $10 at one of your local retailers for mulch. That could be a mix of programs as you move across the nation. Those will move more and more towards a Scotts program, and those are important, right? That's a first step, constant contact type promotion, for the consumer, where they get to really enter into the Scotts family. It's a nice, low-cost way to do it, and then they'll graduate up into the soils, which are higher cost, also very high margin for us, and then into lawns, which are kind of at the higher end of the margin spectrum. So growing our overall position through our relationships, new listings, promotional activity, and then we are taking price down. So what we've told everyone is we're gonna reduce price by about 2%. Top line for the company, 2% impact. That is taking place in selected SKUs across the network. So in 2023, what we found out is we were mispriced in some of our most important SKUs. The retailers didn't like it. Consumers were kind of mixed on it. Remember, when the consumer goes to a local retailer, whether it's a large box or a small box, they are walking into a garden center that is primarily Scotts Miracle-Gro. And when they see significant differences in pricing on things like seeds, which is the example we gave where it was most egregious, so a private label versus a branded product, they're gonna choose the private label product. Now, that is counter to what we've seen over decades, which is they always will take the branded product. So we have reduced price on selected SKUs. There is some positive elasticity that bakes into the high single digits growth, but it's low, low, low, low single digits that is in that stack. The two biggest pieces are the new listings, expansion of listings, and the promotional activity. Great. You did mention the incremental listing in shelf space. How confident are you that this will indeed materialize? Very confident. We have new product launches in lawns, both with a club store. Our program there is national, it's big, it's rebranding, it is a very attractive package. It is a Max Lawn, what we're calling it. That will have a unique proposition for that club store. We have a new product that's coming out in lawns also, that you'll see in your big box retailers, which is called Healthy, which is... Look at the evolution of lawns, and I'm certain you all have gorgeous lawns, and if you don't, you know who to call, right? Please do, 'cause I am a lawn aficionado. I will give you lawn advice, and then we can talk about the company. That is the priority. We're coming out with a product that's called Healthy. We have been bundling capabilities and actions into a bag because consumers, over time. Look, I used to put down four bags a year, and I still do. Many don't. They may do one or two, and if they're gonna do one or two, it's gonna come at a higher price point, but there needs to be more in that bag. That's what our Triple Action product is about, and we are coming out with Healthy, which is a combination of, yes, feed your lawn, take care of your weeds, but also take care of the diseases that come into your lawn. Now, you may all think during the summer when your lawn starts to brown out, that that is a lack of water, so you hit it more with water.... As a matter of fact, many times it's a disease in your lawn, and so having this step built into a consumer product is marketing genius, because most people don't realize that that's what's taking place in their lawn, and so having it conveniently packaged into the product will be a big assist for them. So those are the types of innovations coming into the market that have us feeling better about growing the overall, overall position on, the shelf. Plus, we have worked closely with our retail partners, which I think as many of you know, they set their shelves in this time period that we're talking right now, October, November, December. Their shelves are largely set, and you're working with them on programs throughout the late summer months, to be able to get those listings secured, and so that's what we've done. We've worked very closely with our retail partners, again, on those areas that are meaningful to us and meaningful to them, and it does result in some market share growth. Your question is: what are your competitors doing? My answer is, I speak to the sales team quite a bit. You have to take a look at the full competitor set. There is no one direct competitor for Scotts. You have to pull it together through a few different companies, and you have to remember, there is a whole series of regional competitors that you may not really see 'cause they're not publicly traded, they're moms and pops, they're regional players, that we are working at taking some share from. Great. That actually was my next question, but to follow up on that, does this create a tough compare for the next year? I would like to get through one year before looking at the next year. I don't know. I don't think so. I think there's durability in what we've done because, again, it's based on the strong proposition that we are bringing. I'm gonna be more definitive in my answer now. I'm actually here. I don't think so. I think it sets the basis for where Scotts Miracle-Gro should be. Again, we're gonna be bringing new products to the market, even in 2025, strengthening our positions, giving them more durability. We are going to be working hard with our retailers on the areas that matter most to them and to us, which is what we've done in 2024, so kind of rinse, wash and repeat, or wash, rinse, repeat. And we can be flexible on pricing, in so much as it's not just margin accretive for our partners, it goes to the consumer, which empowers the consumer and becomes margin accretive to us. And given the scale that we have in lawn and garden in our retailer stores, that should be a dynamic that we can play off should we need to. So I feel good about our positions in 2025. I do want to get through 2024. Do not confuse anything about Scotts Miracle-Gro. We are 100% activated on 2024, which means growing margins by 250 basis points, $575 million of EBITDA, the balance of $1 billion from free cash flow and find a strategic solution to Hawthorne. I'm gonna say it, like, eight more times. All right. Sticking with fiscal 2024, as we approach the winter, where do retail inventory stand? And do you expect any meaningful destocking or restocking? Retailer inventory positions, and I think you all know this, the retailers have a way of expressing their inventory position as a percentage of total POS, and typically, it's by 15% of total POS. We're slightly above that, but it's still healthy, and the reason that we think it's healthy is, there were some load-ins for these expanded listings that we have into the fall months, and then we also had a large load-in ahead of the season for our rodenticide businesses, so Tomcat and maybe some of the other controlled businesses. So all big stuff, all important movers for us, that helped load the season for us and them, and put their inventory positions slightly higher, but they've been worked down. We do anticipate for 2024, that they're gonna get back down to that natural kind of 15% of POS position, so that will be more inventory out of the system. We are certainly taking more inventory out of our system, which is some of the reason that maybe if anybody in the room has a question, the reason we're not getting what we've talked about as another 600 basis points of full value is because we still have a high inventory position, high cost inventory position, that we're working down in 2024. That should be fully relieved as we go into 2025. So we need to get through our inventory position. They're getting through their inventory position. We're holding back production by about 20% to enable that. You've touched on the expected cadence of shipments on your last earnings call. It's probably helpful to understand this a little bit better. How does a return to more seasonal or more normal seasonality impact your quarterly year-over-year comparisons? Yeah. So the first half, if you look at it... So, let's break it down into two halves. This is the Scotts Miracle-Gro business on the lawn and garden side. You basically have a really well-orchestrated load-in through the first half of our fiscal year, and that's teaming with the retailer, setting the shelves, so that day one of spring, which is really the second half of the year, product is available for all consumers, because it's really a 16-week season. You want to have a full load-in, full availability for your consumer, day one. And so that takes a massive amount of work. That takes months to do, and that's what we are working on right now.... The first quarter of 2024 will be lower than first quarter of 2023. It's just, last year was a large load in, and we were pacing our load in around trying to achieve that 10% up, while also trying to achieve our financial covenants, and so you saw some push and pull there. This year, pressure a little bit less, so you load in a little bit lower in Q1. Q2 will be roughly the same, which means your second half in 2024 will be higher than your second half of 2023, and that's because of the expansion of positions and the continuation of the business that we think we've gained this year. Great. Let's move on to gross margin for a second. Last year, you were under 24%, but you're calling for a fairly sizable improvement in fiscal 2024. Can you quantify that improvement and walk us through the drivers between pricing, higher volumes, input costs, and et cetera? Yeah. Well, like I said, pricing's gonna be down. Mm-hmm. So that is gonna have a negative impact on your margins, of course. Mix will be slightly favorable, but we're really driving the margin expansion through our cost outs, through Project Springboard, efficiency gains that we're gaining through our production line, with a slight increase in production, and then also higher volumes across the network that we're getting from these expanded positions. So frankly, the margin profile feels good going into 2024. There is some risk around volume. Look, if you wanna talk about where the risks are, we got 10 minutes left. It's really where the consumer shows up, right? I can't. It's hard for me. I've been in the business a year. There is significant work that goes on. We have a new COO who is doing a tremendous amount of great work on identifying algorithms that work to understand how consumers are going to spend their money. Again, that's plus or minus variance analysis, and so the consumer, as every retailer will tell you, and every consumer product company will tell you, is the caveat here. So margin, feel good about, top line, feel good about. Feel really good about expense control on the SG&A line and how we can keep that around 15%. We'll do everything we can to pay down as much debt and to manage our interest expense as tightly as we can, but our interest expense was $178 million in 2023. It's gonna be basically the same in 2024 because rates have gone up, the timing of our cash flows, but we're gonna pay down $350 million in debt in 2023. We're gonna do the same in 2024. Just the timing and interest rate movements are gonna have the same interest expense. So building out the full model, those are kind of some of the big moving pieces. And tax rates, you know, we had a, a disadvantaged tax rate this year. When you're making lower money... Sorry, when you're making less money, you have a higher impact from discrete tax items, and that's what we had in 2023. It'll go back to somewhat more normal in 2024. More long term, you've talked about getting back to consolidated gross margin north of 30% at some point. What has to happen to get there, and what's the potential timing? Yeah. So in 2025, you will start to see the release of the difference in our procured raw material cost and the inventoried pandemic costs that are working through our system. That is the biggest mover. Once we get our inventory down, we will be able to get production back into the more normal range that we expect, which would also generate a couple hundred basis points of margin improvement. And so between those two items... Right, so let's do the math here. You just ended up at 23.7%. We're kind of saying 250 basis points in 2024. The remainder of the way onto the 30 comes from those two items. Okay, great. Project Springboard has been a very successful program for you, as it seems you've consistently raised your expectations in terms of targeted savings. Where do we stand now on that currently? I believe we're around $300 million. Mm-hmm. What's enabled you to walk that number up over time? The first round of Springboard was a necessary, "Let's go. Let's see how quickly we can get costs." It came out of the change in that revenue trajectory that we talked about in 2022. Well thought out, well executed, the second $100 million was a, "This is necessary. Let's just delayer the organization and do it somewhat indiscriminately." Through that first $200 million, it was north of $200 million, it was roughly split between Hawthorne and U.S. Consumer and Corporate, and it was roughly headcount and the other half being fixed costs and other associated expense items. As you look at this third $100 million, this is now focusing on U.S. Consumer, driving efficiencies through that organization and the corporation. The corporation needs to be extremely value-oriented, and every dollar that we spend is an expense, and that matters. Having that type of prioritization helps us control costs and will create efficiencies as we move forward. Jim, who's the chairman of the company, often likes to say, "Look, this is a pattern that we've gone through over a few decades, but it sets up the next decade of outperformance for the company, because we can streamline and then manage costs appropriately and fund the things that matter, primarily marketing, for the next decade when we structure ourselves right." That's what we're doing right now. ... Moving on to Hawthorne. That's a business where revenue is down by two-thirds over the past two years, yet demand for cannabis seems to be fairly healthy. Are we nearing a bottom, and what needs to happen to see growth in that business once again? Are you still assuming segment profit around breakeven for this year versus a loss of $48 million last year? You just said demand. See, cannabis does not have a demand issue, and that's not even a smiley matter. It is a $100 billion market. The split between legal and illicit is a challenge, and this is something that... Please, go follow Jim Hagedorn. Go hear what he says. There is a significant amount of discussion taking place right now at the state level as to what legal versus illicit means. No place more probably than in New York, where things have not gone how anybody projected them to. When would proper regulation legalization happen? Well, we've been saying in five years for the last 10 years. So it is a mystery, but there have been significant advancements in technology. Hawthorne has an industry-leading position in the full value chain, from genetics through to proper nutrients, consumables, the substrate in which you grow in, the hydroponics that you can bring, and the environmental control systems. So we would be the partner of choice with cultivators in providing the highest quality, lowest cost cannabis, and that's where we see ourselves. Now, we just talked about on the legal side of the market, which is the fastest growing portion of the market, there are challenges. Regulatory environments have challenged the cash flow capability of those wishing to be legal, which has stopped some of the development. But we are nearing a replenishment cycle. I was just out at MJBiz in Las Vegas. Lots of excitement, and it's been a couple of years between when people were last able to make investments in their cultivations, and so that will be coming. Now, they need to have access to capital, is gonna be the question. We've made significant changes to Hawthorne. The business itself, again, it is not a demand-challenged environment for the entire market. It is from a legal versus illicit side and a capital development side that is a challenge in cannabis right now. You need proper regulatory environments. You need safe banking. You need a process by which cannabis companies, leaf-touching cannabis companies, are not paying 85% tax rates. I mean, not that we're all capitalists in the room, but this is kind of egregious, what's being done in a market that, should capital be able to go to it, would be very, very efficient. What is the end game for Hawthorne, and what sort of timing do you have in mind? The goal, it would seem, would be to merge Hawthorne with another player or players so Scotts can participate in any upside, but with minimal impact on the P&L. Is that fair? Very fair. I think, like I said, the value proposition of Hawthorne is such that we are a first-call opportunity for leaf-touching and non-leaf touching businesses. And so Chris Hagedorn, myself, we spend a good amount of time with people having the discussion on what a partnership would look like. And yeah, there are potential equity splits that come through in a potential partnership, and for us, that may mean a controlling position in which I'd have it on the balance sheet and in the financials, or a equity pickup, where it would be out. But by the way, it is navigating towards a future where Hawthorne is on its own, and that, that eventually could be when the regulatory environment allows it. Because if, if we were to partner with, let's say, with a fast-growing, 40%, leaf-touching business and provide a structure under which Scotts could hold that, because, by the way, we have that today through our investment in RIV. I couldn't spin that out to shareholders today, 'cause you, you couldn't hold it, 'cause you can't, by and large, hold leaf-touching businesses, many of you. So that would be a challenge. So making sure that we are navigating with that asset, which has extreme value potential, maximizing the value of that, what I'll call option, through smart partnerships and doing it in a tight timeframe. So what we said is, this year we want to make momentum on that. So in 2024, we need to provide you more clarity, more insight, and frankly, I think we need to have a transaction underway that gives you a line of sight as to what that actually looks like. Great, and we're just about at time, so let me thank you once again. Yeah.