Earnings Call: Q1 2021

Feb 3, 2021

Good day, and welcome to The Scotts Miracle Gro Company's First Quarter 2021 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jim King. Please go ahead. Good morning, everyone, and welcome to the Scotts Miracle Gro First Quarter Conference Call. We're taking a slightly different approach this morning as we're managing this call remotely for the first time. In a moment, you'll hear prepared remarks from our Chairman and Chief Executive Jim Hagedorn as well as our Interim Chief Financial Officer, Corey Miller. At the conclusion of those remarks, we'll go live to take your questions. Jim and Corey will participate in the Q and A session as will our President and Chief Operator, Mike Lukemire and Hawthorne Division President, Chris Hagedorn. In the interest of time, we ask that you keep the one question and the one follow-up. I've already scheduled time with many of you after this call to fill in the gaps. We'll work to set up some time as quickly as we can. A couple of IR housekeeping items before we begin. The following week, we will participate in the Raymond James 42nd Annual Institutional Investors Conference. And then later this spring, most likely in early April, We intend to host our own virtual Analyst Day event that will feature recorded presentations from several members of our management team as well as a live Q and A session. The majority of those presentations will likely focus on our Hawthorne segment in order to give you a better understanding of our current business and our future plans. With that, let's move on with today's call. As always, we expect to make forward looking statements this morning, so I want to Caution you that our actual results could differ materially from what we say. Investors should familiarize themselves with the full range of risk factors that could impact our results. Those are filed with our Form 10 ks, which is filed with the Securities and Exchange Commission. I also want to remind everyone that today's call is being recorded. An archived version of the call will be made available on our website as will a transcript of the call. With that, let's get started and turn things over to Jim Hagedorn. Jim? Thanks, Jim, and good morning, everyone. Three things are clear when looking at the results we announced this morning. First, the business continues to benefit from America's renewed love of gardening That resulted in millions of new customers entering our category last spring. 2nd, that the team is doing an excellent job of execution. And 3rd and most importantly, we've taken the right steps over the years to put ourselves in a position to take advantage of the moment that's in front of us now. To post a profit in both the Q4 of 2020 and the Q1 of 'twenty one, quarters in which we have historically posted a loss It's something none of us would have predicted in the past. I've done enough of these calls to know that some of you are already looking to ask about comps we'll face next year. Please don't. That's not on the radar screen right now. Instead, we remain laser focused on driving as hard as we can in 'twenty one. That attack plan mentality is working. Entering February, both major business segments remain ahead of our best case scenarios. In our U. S. Consumer business, sales increased 147% and consumer purchases at our largest retail partners We're up 40% in the Q1 and up 35% entering February. So consumers remain engaged. But shipments are significantly outpacing POS right now as retailers build inventory ahead of the season. As you'll hear later from Corey, we are also building more inventory. If there is upside to our year, we don't want to find ourselves where we were last year And leave sales on the table. But if the upside doesn't materialize, we're confident in our ability to manage inventory levels at year end. Even if we do end up with a little more inventory, I'm okay with that too. It's not just on the cost of goods side where we're making investments. We're increasing our marketing investment with a simple yet aggressive goal in mind to retain the millions of consumers who Entered or reentered the lawn and garden category last season. We'll do that with focused and hyper targeted social media campaigns And complement those efforts with traditional media, including our first ever Super Bowl spot. I'll delve more deeply into all this again in a few moments. At Hawthorne, Q1 sales increased 71% and it was another period of strong growth across the entire product portfolio. And we're already confident enough to increase our full year sales guidance for Hawthorne. The strong growth we continue to see is even more encouraging As we make progress on other long term initiatives too. We've always viewed this business through a long term lens that is focused on establishing ourselves As a true industry leader by driving value for our customers, the cultivators. I'll elaborate on this point later in my remarks and also address some of the other industry dynamics I know are on the minds of many of you. Corey will provide a detailed explanation of the numbers in a few minutes. First though, I want to remind everyone that the Q1 is typically a small part of the year. We know we have a lot of work still ahead of us this season We are head down right now and focusing on execution. This morning, I want to give you an update on the steps we've taken since our last call to drive the business not just in 2021, but in the long run. Before I do, I want to share just a Few thoughts on some of the organizational changes we've made recently. I welcome Corey to this call, and I'm confident in telling all of you he's an As the finance lead at Hawthorne since its inception, He probably knows the nuances of that business better than anyone and has been a true hands on partner for Chris and the entire operating team. I'm sure you'll all soon discover that Corey will add a lot of value to these calls. While he's serving as Interim CFO, He will also be a candidate in the search process, which we will conduct over the next several quarters. The rest of the moves we announced Last month, with the exception of Randy Coleman's departure, were all part of a long standing talent management and succession planning effort. One of the most important aspects of a CEO's job and one that too seldom gets discussed with Wall Street is around human capital management. We've delivered outstanding results over the last several years because our business has been operating with a higher level of effectiveness, And we've been operating with an unprecedented level of intensity over the last 12 months in particular. Clearly, the company we're managing today is different than 5 years ago. In 5 years from now, it likely will be different again. One of the things that's become clear in the COVID environment is that there will be a permanent change in how all of us work, One that requires a different level of flexibility and collaboration than in the past. That requires us to put a team in place That maximizes our likelihood for continued success, and it also means making tough choices at times. Over the past few months, we've done both. Beginning in November, we made a series of organizational changes that ultimately resulted in the departure of 3 senior members of the team. It also resulted in more than a dozen people being moved into new or expanded roles. They are all part of a diverse group of roughly 25 leaders who we had previously identified as the brightest and most talented people in the company. Our goal is to expand their capabilities and give them a better understanding of the breadth of the organization. We're supplementing their real life work experiences with a data driven assessment process that allows them to further leverage their strengths and shore up their weaknesses. In addition to the changes we announced on January 11, Chris Hagedorn was promoted last week to Executive Vice President of Scotts Miracle Gro and Division President of Hawthorne. Dan Paradiso was named Senior Vice President and Chief Operating Chris and Dan have been working closely together as partners for the past 2 years. Hawthorne was established as an operating segment in fiscal 2017 and had revenue of $287,000,000 that year, double the year before because of acquisitions. Our guidance for 2021 would suggest Hawthorne revenue this year of at least $1,200,000,000 and we haven't done an acquisition since 2018. The business has become more complex Chris has demonstrated the vision and leadership skills we believe are needed to take Hawthorne to the next level. Having Dan at his side as his operating partner We'll give Chris more freedom to refine our strategy for Hawthorne, while also ensuring we meet the near term needs of the business and our customers. Every single person who has taken on a new or expanded role in recent months will be part of the group leading this company in the future. These moves are purposeful. They are power plays and are all about creating the next generation of executive leadership. So let's turn the conversation back to running the business and an update on our activity. Let's start with U. S. Consumer. We told you on our last call that we were striving to over deliver on the guidance we provided for the full year. We're increasingly optimistic we can accomplish that goal And our team has been working hard to do so. They remain confident in our ability to retain the millions of consumers who This Sunday, during the Q2 of the Super Bowl, you'll see our first ever TV commercial specially created for this event. It will feature a series of A list celebrities and athletes who all enjoy their backyards and the outdoors and will help us communicate a simple message, keep growing. Our CMO, Josh Peoples told you last quarter we were evolving to have a year round And we didn't simply want to talk about our brands, we wanted to focus on the activity of gardening. We've been engaging with consumers throughout the winter, spending 3 times more in media last quarter than we have ever at this point in the year. Keeping those consumers engaged and motivated is the goal of the Super Bowl initiative, which is part of an 8 week kickoff to the biggest lawn and garden season ever. As you know, the reality of COVID has certainly created a tailwind for our business. While we believe some level of remote work will be permanent, including for Scott's. A lot of people will eventually go back to their offices, back to their kids' soccer games, and once again head off on summer vacations. But that doesn't mean they'll have to give up their garden or their lawn. We're working hard to make sure they don't. We view the broad reach of the Super Bowl as a good investment, especially given the other PR and marketing activation that comes with it. And the timing is right too. Consumers are getting restless this time of year. They want to get back outside. They want to do yard work again. The ability to talk to most of the country at one time makes sense and is a strong complement to the hyper focus of our digital outreach efforts. On that front, we continue to invest behind our analytical capabilities to drive effective and more targeted messages to specific demographic groups. The delivery of those messages will be more precisely timed to coincide with seasonal growing patterns, retailer promotional efforts or more simply The weather outside. We will coordinate our outreach with many of our retail partners, making sure our efforts complement theirs And also leverage promotional activity we expect throughout the season. As it relates to our retail partners, we can't say enough about their engagement. They're leaning into a greater degree than we've ever seen, and that's true in all channels. They see lawn and garden as one of their most attractive categories in 'twenty one. That means greater support for our brands, which is why a significant portion of the 147% sales growth in the Q1 was related to improving retail inventory levels. The pace of shipments remained strong through the 1st month of Q2. We remain confident that we'll be well ahead of our full year guidance at the midway point of the year. And as I said earlier, We're increasingly optimistic about the ability for the U. S. Consumer segment to grow again in 2021. I'll remind everyone that the tough comps don't arrive until May June and about half of U. S. Consumer POS Has historically occurred from May through our fiscal year end in September. As a result, we're going to take a conservative approach before reassessing One more item before I switch gears. We closed on the Bonnie Plants deal at the end of the calendar year And now have a 50% equity stake in that business. This is a big deal for us and speaks to a level of commitment to a category of lawn and garden that we see is critical to our future success. LiveGoods is what draws consumers into the broader lawn and garden space. It has broad demographic appeal and an emotional component that is different from the other products we sell. Bonnie is the best in the world at what it does, Edible Live Goods. And Mike Sutterer, who leads that business, used to be one of the leaders at Scotts Miracle Gro. He's done a great job at Bonnie, and I'm convinced the JV between our two companies will drive a lot of value for both. While Bonnie is an on ramp, especially in the area of edible gardening, there are other areas of live goods that we find just as attractive And like the idea of having a larger and more strategic presence in the overall LiveGoods space. Among other things, Live goods allow us to better leverage the native brands we're building like Knock Knock, Lunarly and Green Digs, which also builds more momentum for our direct to consumer efforts. We're willing to accept the fact that the economics of live goods are not as strong as our traditional products, but they are getting better. But that's not the point. As we look to our future, it's a strategic imperative to own the relationship with consumers. To do that, those consumers must view us as a gardening company, not just a gardening products company. LiveGoods is key to that goal. Okay. Let's switch gears and focus on Hawthorne for a few minutes. This is the 4th consecutive quarter in which Hawthorne reported sales growth of at least 60%. While the rate of growth will likely slow in the months ahead, we're still planning to see growth through September. That's why we're confident enough to raise our sales guidance just 4 months into the fiscal year. The growth we're seeing is coming from across the country with established growers and new ones. It's occurring in more developed markets like California and Colorado, As well as newer authorized markets like Michigan and Oklahoma. It's coming in all product categories as well. Lighting, however, continues to be the biggest driver of growth in North America, up 126% in the quarter. Many of you have asked how we're different than some of the other players in our space that have been successful in going public. I'll tip my hat to all of them. They are solid operators with nice businesses, but our business is different from theirs significantly. Yes, we distribute products just like others, but we don't view ourselves as a distributor because we don't operate like 1. Instead, we operate as a partner to the cultivators who use our products. We know our success requires their trust in the technical solutions that we provide. And we realize that doesn't simply mean buying a light or nutrient mix at the cheapest price. They need to operate efficiently, to have the best quality and plant yields possible, and to continue improving their own operations. Because of this, we embrace our responsibility to innovate. That's why in Q1, we opened the world's first R and D facility in Canada that's focused exclusively on growing cannabis. That's why we also expanded our R and D efforts in Ohio and Oregon related to the hemp market, which we see as a proxy for the cannabis plant. It's why we're working on new nutrient formulations, better control products and better cultural practices. And it's why we're also leveraging our world class talent in Plant Genetics to develop better plants. A distributor just doesn't do that. Our leadership role also requires us to manage and improve the marketplace and our freedom to operate in it. That's why we're investing more than anyone else to influence the political discussions around this industry and why our corporate foundation is supporting social justice issues related to cannabis reform. I'm proud to say I believe we've earned a reputation as one of the smartest, most comprehensive and most strategic companies To have navigated this space and we're far from done. We've never viewed Hawthorne as a quick way to run up our stock Instead, we view this as a strategic opportunity to drive long term shareholder value. To that end, we've had an ongoing discussion for years amongst ourselves and with our Board about whether our current corporate structure is appropriate Given the potential value of Hawthorne, right now we're comfortable that it is. And while nothing is off the table in terms of considering our future options. We're not inclined to make a change unless we see a financial advantage or a business advantage That results in more optionality to grow our business. I'm also not going to sit here and hypothesize on whether the current market valuations for Hawthorne Are appropriate. The market will answer that question. But I will tell you this, 6 years after we've entered this industry, we are just now hitting our stride. We've become stronger, smarter and more strategic, and we have plenty of financial flexibility to invest in the future. What does that mean? It could mean a lot of things. Clearly, we like our portfolio right now, but we're actively looking in adjacent categories to further We also may look to acquire capabilities we don't currently have that improve our knowledge base or skill sets in areas, For example, like Plant Genetics. While it's pretty easy to see this industry has tremendous upside, it's difficult to predict the pace of that change. Our banks have been tremendous partners and we appreciate their support as we've been pioneering in this space. That partnership will remain important as we explore a wider array of options to explore where and how to put money to work. Our continued free cash flow coupled with our borrowing capacity gives us the ability to pursue M and A in both Hawthorne and the U. S. Consumer business, while also maintaining the flexibility to return more cash to shareholders. We also have the ability to invest in areas like marketing, R and D and supply chain To take advantage of the opportunities right in front of us, while also better positioning our businesses for the future. And we have the benefit of our deep bench of talent being nurtured as our future leaders. Those of you who know me also know that I don't obsess about our near term But I truly feel bullish about where we stand right now. I'm highly confident in our guidance and our near term outlook, But I feel even better about what the future holds. A big part of my optimism is due to my partnership with Mike Lukmeier, Who continues to excel at running the business every day. His leadership on the operational side of the business has allowed me to focus more time on strategy And issues like capital structure and talent management. Mostly though, it allows me to focus more time on the significant opportunities that we see in front of us to drive shareholder value. With that, I want to turn the call over to Corey to discuss the financials. Thanks, Jim, and hello, everyone. I appreciate Jim's kind words. It's a privilege for me to talk with all of you today, and I'd like to start by taking a moment to introduce myself. While I've been the finance lead at Hawthorne from the early days of that business, I've been at Scotts Miracle Gro for over 20 years in various finance roles. Most of that time has been spent supporting the U. S. Consumer business. However, I also worked in our external reporting group and as the Head of Internal Audit. Although I've not had a public facing role, I have a comprehensive understanding of the financials and a deep knowledge of the business. I have worked alongside previous CFOs, including Randy, to help them understand the details of the business and to prepare for their interactions with all of you. Want to take a moment to acknowledge Randy myself and to thank him for his support and mentorship. My goal here today is to pick up where he left off, adding color and context to the results we announced today and discussing our outlook for the balance of the fiscal year. So let's jump in. Jim said on our last call that this year could be difficult to predict at times. He also said we'd keep you apprised of any changes to our outlook and adjust our guidance as needed. It only took 1 quarter for that prediction to prove true. The headline for the Q1 Sales growth was significantly higher than we expected in our U. S. Consumer business. That was due in part to the timing of preseason inventory builds by our retailers. Net volume also meant our gross margin rate in the quarter was unusually strong. Those benefits were tempered a bit for two reasons. First, we started to see the impact of emerging input costs. 2nd, we decided to further increase our marketing investment. We expect both of those trends to continue. I'll come back to these topics later, but I want to start by going straight to our bottom line. In Q1, we reported adjusted net income of The quarter was driven by the 147% sales growth we reported in the U. S. Consumer segment. We had expected sales growth to be in line with or slightly ahead of the 90% growth we reported in Q4. POS growth remained strong in the Q1, up 40% versus last year. We saw consumer support Of all of our brands, Scotts, Miracle Gro, Ortho and Tomcat as well as Roundup. What we underestimated in Q1 was the magnitude of preseason inventory build by our retailers. Throughout the quarter, but especially in December, Retailers aggressively stepped up their ordering. While a positive indicator of retailer commitment, we are assuming for now This represents a shift in the timing of sales between quarters rather than a full year increase in sales. One other item to note is that the fiscal calendar shifted this year. As a result, there are 5 more days in the Q1 and 6 fewer days in Q4. The impact of that shift was worth about $24,000,000 in the U. S. Consumer segment in Q1. At Hawthorne, the 71% Sales growth was led by a 77% increase in our North American business. We saw triple digit growth in markets like Oklahoma and Michigan, which were up 178% and 133%, respectively. Sales increased 80% in California. Hawthorne also benefited from an additional 5 days in the quarter, which impacted the top line by $17,000,000 North American sales of our own brands like Gavita, General Hydroponics, Botanicaire and Can Filters, which we call Signature Brands, were up 97%. Sales of Distributed Brands grew by 47%. Signature brands are expected to approach 70% of total Hawthorne sales this year. This percentage is significantly higher than our closest competitors, We primarily sell 3rd party products. Our improving mix is due in part to our continued strength in lighting, which is driven by a firm commitment to R and D. Mix also remains aided by SKU rationalization that became easier to execute with insights gained by launching SAP last year. From a product category perspective, North American hydroponic lighting grew 126%, Growing environment products were up 83%, nutrients increased 53% and growing media was up 40%. Favorable product mix in Hawthorne helped contribute to a 3 40 basis point improvement in gross margin rate for the segment in the quarter. However, fixed cost leverage was the primary driver of rate improvement for both Hawthorne and the U. S. Consumer segment. In fact, it led to a nearly 1200 basis point improvement on a company wide view to 26.7%. While the gross margin rate is off to a great start, the Q1 result is not representative of what we expect for the full year. The fixed cost leverage is due primarily to warehousing costs. The doubling of sales volume in the quarter meant warehousing Was a significantly lower percentage of overall costs in the Q1 than normal. This benefit will reverse in subsequent quarters. Let's move on to SG and A, which was up 31% in the quarter. The single biggest increase was related to the timing of marketing spend. However, we are planning to increase our marketing investment for the full year to a higher level than what we communicated back in November. Still though, we continue to expect SG and A to decline in aggregate for the full year. Segment profit at Hawthorne is a frequent area of questions, So let me address it proactively. As you saw in the press release, segment margin in the Q1, which is based on EBITDA, Was 13% or nearly double a year ago. This is an area where I was particularly focused while working inside Hawthorne, and I'm pleased that we're making real and lasting improvement here. Jim and our Board have been appropriately patient in allowing Hawthorne to get to the right level of profitability Over time, if we force this issue tomorrow, I'm confident there's at least another 200 basis points to 300 basis points of segment profit available to us. However, we continue to make smart investments in sales, supply chain, marketing, R and D, public affairs and in simply building a deeper and better bench of talent. Jim's comment a few minutes ago about taking a long term approach Driving value in Hawthorne is right on point. We're building a moat around the business and behaving like a true industry leader. I'm convinced the business can gain further market share and also take advantage of emerging markets on the East Coast. Before I wrap up comments on the quarter, I have a couple of housekeeping items worth pointing out. First, you may notice Share count is 1,300,000 higher than a year ago. This is due to using diluted shares in the current quarter because we reported a profit. We used the lower basic share number in the prior year, which is required when reporting a loss. And finally, Jim mentioned that we recently closed on the Bonnie transaction And now I have a 50 percent equity stake in the business. At that level of ownership, Bonnie results will not be consolidated into our financials. However, the income we earn from the business will run through the P and L differently than in the past. Our previous stake was based on a financing arrangement, And our earnings from the business were derived from commission, royalties and interest. These showed up on 3 different lines of our P and L. Commission affected the sales line, royalties were recorded as other income and interest was recorded as other non operating income. Beginning at Q2, everything will run through the earnings from equity line on the P and L. The actual year over year impact On the 'twenty one adjusted EPS is likely in the range of $0.12 to $0.15 In Q4 of last year, consistent with prior years, We recorded a non cash fair value adjustment related to the annual revaluation of our option to buy a portion of Bonnie. That was a benefit to our 2020 P and L of $12,000,000 and will not repeat in this fiscal year. The Monty discussion is actually a good transition for an update on our full year guidance. So let me provide you an update on where we stand. We remain committed to the fiscal year 2021 adjusted non GAAP EPS of $8 to $8.40 per share. To be clear, the Bonnie transaction was not in our previous guidance. In addition, based on our strong start And current outlook for Hawthorne, we are increasing our guidance for sales growth in that business to a range of 20% to 30%. This compares to our previous range of 15% to 20%. The likely increase in commodity cost, however, Coupled with previous unplanned increases in SG and A is expected to mostly offset these benefits. We now expect SG and A to decline 3% to 8% from last year's level. Previously, we said SG and A would decline 6% to 11%. The company wide adjusted gross margin rate, which we initially said would decline about 50 basis points in fiscal 2021, Is now expected to decline 125 basis points to 175 basis points compared to 20. We expect the gross margin rate pressure to become apparent in the Q2. Since our Q4 call, we have increased our internal forecast to further build our own inventory. While about 3 quarters of our total commodity costs are locked entering February, We're behind our normal monthly pace on urea and resin due to this higher inventory forecast. In addition, we're seeing cost Pressures from those 2 commodities in particular and also see some emerging cost pressures related to distribution. These cost pressures will likely decrease the gross margin rate in our U. S. Consumer business, which we previously expected to be flat. We still expect Hawthorne gross margin to be in line with our original guidance for the year. However, the higher sales growth in the Hawthorne segment puts even more Negative pressure on the company wide gross margin rate. We would expect both segments to see strong sales growth in the 2nd quarter, but below our Q1 growth rates. U. S. Consumer sales will likely increase upwards of 20% during that period. Hawthorne sales will likely grow at twice that rate. Before we take your questions, I want to say I share Jim's optimism about our full year outlook. We are well ahead of where we expected to be 4 months into the year, and we expect to be well ahead of our full year guidance when we report Q2 earnings in May. Given last year's record second half, we know we have our work cut out for us in the months ahead. Still, the momentum in Hawthorne continues to drive that business to new levels. And we're also taking all of the right steps in the U. S. Consumer business with the peak of the lawn and garden season fast approaching. Thank you for your time this morning. Let me turn things back over to our operator, so we can open the line up for your questions. And we will take our first question from Bill Chappell with Truist Securities. Thanks. Good morning. Hi, Bill. So just help me understand a little bit more on the gross margin kind of bridge and how it works. I think I'm right in saying typically you're locking in 75%, 85% of your commodities by September, October, Then going to pricing agreements with the various retail customers in November. And then so you're pretty well said, good visibility as you go into the next year. But it sounds like, I guess there was a decision made to step up the amount of inventory to capture, which I totally understand, to capture It could be another big season and to hold on to those customers. And so as a result, you're not covered for that excess inventory you built. At the same time, the inventory and the commodity costs went up and so that's and it had already priced, so that's where we are. Is that the right way to think about it? I just want to make sure I understand the dynamics. Corey, Mike, you guys want to take that one? Yes. Hi, this is Corey. I think you have parts of that that are on. If you look at where we're at today with our commodity costs, we are about 75% locked for the year. But we are looking at building inventory over the second half of our year to get in a position to better fulfill the needs of the customers. So as we are looking to build our own inventory, our forecast went up, which will require more urea, resin And just internal distribution costs, then we originally built the forecast. Those are the areas where we're seeing some pressure. So as we have an outlook from this period of time going forward, we're making sure that we have a conservative approach On pricing in those areas for those inputs and feel like we've captured what we think the gross margin rate will be in the go forward plan. Okay. Think about it as we're Go ahead. Go ahead, Bill. I'm sorry. No, Mike. Please, please go ahead. Think about it as if we're flat, we pretty much have as business as usual. We're building that it could be higher and so those costs could come into play. And so we're building ahead And we're expecting a I'm an optimist, so I've got optimist and I want to be ready. And so if the sales aren't there, then I think we're more than usually covered. But if the sales are there, then there is cost pressures at a higher rate. Got you. But just to kind of finish the thought that but at the same point, we're in February. So While you have the excess inventory and or excess costs on the forecast, You're not baking in upside to sales at this point because we haven't really kicked off the season. Is that fair? That's fair. That's so that's but those pressures are out there as sales would increase. So Bill, Hagedorn here. What I would throw out there is that we've talked about this plenty of times We sort of run with kind of 3 set of numbers. 1 is the numbers we tell you guys. One is the numbers that we build our incentive plan off of with the Board and one is, call it Mike's internal operating plan, Which would be the highest of them. Mike is operating somewhere toward his own plan And I agree with it and you would too if you were completely familiar with it. Mike's bigger concern, Honestly, based on how we feel about this year is we can't make enough product for this year. So I think that Try to back into it from that sort of way of looking at it, and I think you'll be it'd be easy to understand what we're talking about. Okay. That's great. I think I'd understand. And then just one follow-up for Corey or Chris, if he's on. Yes. There's a lot of noise about legislation on cannabis. I think I'm right in saying that the most would be kind of on the commerce side and banking laws changing. So can you maybe give us a spin up your thoughts of If we do see something over the next 2, 3 months, when would you start to see any benefits or would you see benefits from that this year? All right. I'll start with that one, and then Chris can pick it up. While I'm sort of sad when I look at people Talking about taxation and stuff, I think the Democrats in both the House and the Senate are much more open minded. The Banking Committee, we talk a lot about Sort of banking and taxation as being sort of ridiculous kind of clear trons in the commerce of marijuana in states where it's legal. And So the banking committee is now chaired by our own Sherrod Brown from Ohio. And We spend a lot of time talking to sort of both delegations in the Senate, but Lately on the Democratic side, and I think we're pretty comfortable over time that you're going to start to see normalization. And we talked a lot as we prep for the call, like what do you think about sort of the environment? And I think as usual, the politicians are the last of the party. But when it goes to the people, the people decided New Jersey was like 2 thirds of the Voters were in favor. So we do think things are getting more positive. It is hard to predict Sort of the glacial pace of politicians for whatever reason they have, but it would be a gigantic benefit to this industry if they were taxed And as a normal company and could bank like normal businesses and have access to credit, etcetera, The question of when sort of state laws change until we start to see benefit, It's a question I know Chris spends a lot of time sort of talking about. Hey, Bill, Chris here. Yes, so as you said, it is something we think a lot about and we Pay close attention to looking at states that have changed their legislation and then doing postmortem and then our business starts to see some impact. Typically, it's about 12 to 18 months From laws passing to the regulations being put in place and then us ultimately seeing an uptick in our business, as cultivators start to build out. So that's the timeline we typically operate on. So again, if you say what the loss changed in November, you just run that out a year or a year and a half. As far as the taxation and banking laws that Jim talked about, obviously those are going to be huge benefits and it's something that we look, we're lucky enough we've got some scale and some influence To actually get in the room to talk to legislators and real change makers, it's an outrage frankly that The cultivators who choose to follow the rules are penalized by a crippling tax rate the way that they are under 280E. It's something we're going to push hard to see changed. As Jim said, predicting the movements of the federal government, I think anybody right now would say it's a pretty unpredictable landscape. It's easier at the state level, but obviously that's not where we need to see quite as much change. So we're continuing to do what we can, but it is a difficult thing to predict. Well, just two things I'd add. Number 1 is, I think the benefit of where we've invested is we don't have any decisions ourselves. This is really we're talking for our customers here. On the selfish side, we would be investing probably differently in this space If the laws were different. And so, we're very optimistic and hopeful that The government gets around to making this a priority in dealing with it for all kinds of reasons. Great. Thanks so much. We'll take our Question from William Reuter with Bank of America. Good morning. First question is, I didn't notice any free cash flow guidance. Previously, it had been $325,000,000 for the year. Is that the same or will Cost inflation and inventory build, it's going to be a little more aggressive, reduce that number. Corey, why don't you take that one? Yes, the free cash flow guidance of $325,000,000 is what is currently out there today. We're going to confirm that guidance going forward. And as we look at the consumer takeaway of products, As we look at what we ship into different customers and the inventory required to hit those service levels, we'll continue to Weigh the inventory levels that we have against any pressure that we might see on that cash flow number. But if If we get in a situation where we're building that inventory, sales are probably in a really good spot as well. So we'll be weighing those things against each other. And we'll talk more On guidance as we roll into the May call. And then, on Jim's comments around M and A, You mentioned Plant Genetics. Previously in the last call, you said that any M and A would probably not be That large or wouldn't increase leverage substantially. Are there some targets there or other targets that may have changed that outlook and that M and A could be, I guess, larger in scale than we previously expected. Look, So Jim Hagedorn here. Good question and fair enough. We went through a process a couple of weeks ago, just sort of saying, there's a lot going on here. What's our kind of our own capital situation and what are we looking at for leverage, etcetera? And based on everything we know and where we think the business is going to come in, Even if we say we have a fairly robust pipe of M and A opportunities at the moment On both the Hawthorne side and on the consumer side, Plus shareholder friendliness, call it roughly what we did last year. We came in kind of right where we expected to and wanted to be and what I think we previously told you guys, which is below 3.5 times on leverage. That's based on what we think the business is doing right now. So I think we're in a real good place from an opportunity point of view. We're already in Q2 and I think we're going to look to time anything that would be meaningful Into sort of the second half of the year, so we have a lot more visibility just like the question you asked earlier, which is how's free cash flow looking. So I think we're not looking to get too far over our skis, but I think we have a pretty robust pipe on both sides of the business And even the ability to be approximately where we were last year on kind of Call it shareholder friendliness, probably mostly looking at a special dividend. So, but That's not final yet. That's what we're in discussions with amongst ourselves and with the Finance Committee of the Board. But I think we're probably leaning more toward excess Money going into a special dividend and then share repurchases at this point, but that again not been decided. So I think when it came down to it, we're not looking to overpay. We feel very comfortable where the business And that there's upside, and that we've got money to do anything we want, and that we have A really good eyesight, I think, to things that we think were exciting and would be good for this business for the future. Very helpful. All right. I'll pass to others. Thank you. You bet. Thank you. We'll take our next question from Joe Altobello with Raymond James. Thanks. Hey, guys. Good morning. I want to go back to the SG and A guidance for a second. And I guess the increase from your previous guide or lower Decrease, I should say. Is that all marketing? I guess number 1. And number 2, if it is, can you help us understand how your thinking Has evolved in the past 3 months, is it simply that you see a greater opportunity this year and want to capitalize on it as much as you can? Or does that come through conversations with your retail partners or both? Mike, why don't you just talk to how you view the sort of opportunity landscape For 21, the relationship with the big retailers. And then we I think it's best then we can We can talk to Corey just about how he's feeling about just SG and A in general, but I do think It's a very exciting time to sort of be at Scotts and it's I don't think we've ever had sort of better More optimism amongst all of our partners. So Mike? Yes. Hey, Joe. This landscape is totally changed. So you really can't think about it like we traditionally said, the big 3, blah, blah, blah promotional. The activity and we ran a bunch of commercials seasonal. It is a dynamic of a continual conversation with the consumers. And what we're doing is we're constantly talking to them, engaging with them. We're seeing that lift That they want to garden, they want to take care of their home and we're communicating. So the marketing that we used to do would probably be 500 pieces and we're doing millions. It's a daily conversation. We're making investments. We're engaging with them. We're tying it back with the retailers. We're changing the way we're It's promotional activity, but it's more targeted, it's more specific. We're going to go across all channels. And what about the convenience and keeping them engaged in the business and really helping them with their health and wellness at the home. So when we look at it, we say there's an opportunity every day to engage with them and talk to them about whether it's in your house for outside and that is following all the way through in our thought process. So engagement on the spend is dynamic to the We're going to continue to build that. I don't see that like it's a one time event. I see it as a continuous improvement to capture the growth. And where do you see your share of voice? What's our share of voice? It's It's been enormous. I'm curious, it sounds like it's going up. Well, it's definitely going up. Well, we learned a lot last year. I would say we were 100% of the share of voice last year. It was Only toward the end sort of when it became safe and that's I'm not calling anybody out on that, but I'm saying When nobody knew what was happening, when nobody understood essentiality, we got behind our own business and I think we were Probably 100% of the entire industry voice for many months, during the sort of height of the season Last year, this year, I assume there'll be some other people messing around in the space. The thing is we ain't messing around. And the retailers, the relationship that we have with our retailers today is so much more healthy. It wasn't bad before. It was just we didn't know any better. Today, the marketers on Scott's side and Retail side are super engaged, working together on a daily basis. It's doing what Mike talked about. Store off, it used to be like Crabtree and his folks would have a relationship with The merchants, Mike and I would do the sort of top to top stuff and that was pretty much it. Now the marketeers are involved and As important to that is store ops. It turns out that I think we all thought store ops people were just a pain in the neck. And I don't know, part of it is the fact that they get what we're doing in lawn and garden and they see how important it is to their stores. It turns out when you bring the store ops people in with merchants, with the marketeers, with the top to top discussions that Mike and I have kind of always had, It is a much healthier environment where everybody is relying on each other to drive the business. And it's Pretty exciting and that's also driving not just work that we're doing for lawn and garden, but work that pretty much every one of the retailers, Both directly and online, use of social media, everything is up. I think probably the one thing is Other than the Super Bowl thing, it's probably broadcast and cable television. I think as people are starting to Get more and more intelligent about our sort of online spend, but it is 100% different, but for sure, we are Mike is operating on A very aggressive point of view, and I think it's the right thing to do. If you look at our sales forecast, The original sales forecast, I think for consumer was like 0 to negative 5. We just don't accept that, okay? The retailers didn't accept that. So the question then is, what are you going to do to make sure that's different? And when I talk about my relationship with Mike and the operating community, This is what is really good for me. I think good for the shareholders, but for me anyway, is that Mike is one of these guys who sleep smartly. We have a conversation about like what are we going to do to drive the consumers and keep the ones we have and if we can Drive the business harder. Remember, our view is, I mean, it's a slightly different number than you've heard before, but I think it's Full and refined. As we think between Hawthorne and Scotts, All of the consumer side, we probably lost nearly $300,000,000 in sales last year that we couldn't ship. And so there were no retailers effectively really promoting other than some of the hardware change and we give them Ton of credit for that work and their bravery in the face of what was an unknown. But People weren't promoting last year. We didn't have the product we needed. So that when I say Mike, We want to keep those customers and grow the business if we can, which is completely different than what we threw out to you guys of 0 to minus 5. That's what we talk about. Mike's operating plan is quite different and very aggressive And not so committed that we can't correct if we don't see everything coming together. And right now, if I were you all Taking anything out of this call, it's having sort of first quarter POS of plus Yes, I think it was, and through the end of the month, like plus 35 or some bullshit, something like that. What do I think? It gives us a lot of faith that the consumer is not going a different way than our client is at the moment. So you do see a lot of inventory build, but you're also seeing Particularly and I'm talking currently, where the weather is good, Florida, Southern California, etcetera, Very excellent POS sales growth. And so it's a pretty exciting time. It's a good question. Corey, I don't know if you want to put it all together in a numeric form, what's happening with SG and A for the year? Yes. Thanks, Jim. Hi, Joe. Looking at SG and A changes that we have, the vast majority of the increase It's going to be in media and marketing. We do have some additional dollars that we're looking to invest in real time analytics to help us improve on our media marketing efforts as well as some improvements in our supply chain and our sales team. So If you look at the increases that we called out though, the majority is within MediaMarketing. Okay. Thank you guys. I appreciate it. We'll take our next question from Eric Bostard with Cleveland Research. Thank you. Hey, dude. Just a little bit of clarity. What I hear you doing is taking Kind of 100 basis points out of gross margin versus the old guidance and adding $25,000,000 to SG and A and doing nothing with the sales guide. And so It's almost like you're giving us the worst case on the margin and nothing on the sales line. And so I guess It's an observation. I guess my question is, what you're outlining on the margin line Kind of only happens if the sales line ends up being better or is there a greater cost of doing business? Oh, dude. That is a very complicated question. I'll try to be as honest as I can. When we put the just remember where we were when we set guidance for 21. Nobody knew where we're going to be With COVID, we never had a bigger difference at least since I've been here between kind of our internal numbers and the guidance we set for the Street. And we felt that that was necessary, Given everything we did not know, okay? And by the way, it still produced an excellent number on the earnings side. So that's kind of how we justified it to ourselves. If you look at the Hawthorne businesses as an example, They just keep blowing through the numbers. And so we basically had no choice but to sort of come off The Hawthorne top line number for the year just because it was going to become impossible to defend, okay? We're close to that on consumer. We just didn't quite bridge it. We spent a lot of time internally talking about it. And so part of what you're seeing, Eric, is the conflict that was sort of always there, But not that obvious. It's going to become more and more obvious as we go through. But remember why we did it. We did it because we didn't know so much And we didn't want to under deliver when we could basically promise or at least guide to a what we thought was a superior result Without much growth and we thought and again, so that gap was huge. We couldn't sustain that conversation, I think logically on Hawthorne, but I don't think we've raised the earnings number for it. I think we just said, watch out on sales gross margin or something. I think that was just but it's more trying to maintain kind of where we are and keep people I don't want to lose this word because You're one of the best guys out there, dude, if not the best, and when it comes to understanding the business. So I recognize the challenge here. So like I said, we were close on the consumer number of saying I think that if you read carefully the script, what you'll see is that we're increasingly optimistic, kind of we blow through the top end of that range. I think That's roughly the words that are out there. And we just don't really want to change our cash flow numbers and our EPS numbers yet So your question gets right in the middle of that to say, I kind of can't help you on that because but I recognize the challenge of it. And to some extent, That's what you get paid for is to kind of listen to our nonsense and see what you make of it. But I think you're right, if that helps. Okay. 2nd, a bit unrelated, in terms of promotions last year, the retailers backed way off. The sales were good. What is the current plan or expectation in terms of their engagement promotion this year? Does that matter for your profitability? And what do you think that means for the influence that has on volumes in consumer in 'twenty one? Oh, dude, I think it's gigantic. So It is not an exaggeration to say if we make Mike's numbers, our numbers will look a lot better on sort of What you guys care about. So that I think is kind of a truism. So If you move to that and say where are the retailers, are they leaning into this, it's insane. Retailers are not just buying the inventory because they want it, they want to sell it. And All of them are planning to move that stuff off the shelf and so are we. The Part of the problem that is it's not a problem. We Eric, we talked about this. We've talked about this for years. I Couldn't really get the retailers there, this commitment to Black Friday events. But We've talked about this on our calls, which is that if you look at Black Friday events, they're extremely costly. They tend to be early in the season And we tended not to get the weather we wanted, so that we did them, they were not that effective. They really messed up margins, Mostly, I think, it was costly for us, but they were also very costly to the retailers from their margin point of view. I think there's a much more sophisticated view of promotion today than there was then. And a lot of it comes out of what everybody learned in COVID. But I think there is a very robust and sophisticated Marketing plan that goes behind all of the retailers. And I have never seen a more unified Group of people who recognize that lawn and garden is an extremely important category to lead the year off on. And I also think that look, your reports are always one of those things that include a lot of views of The retail merchant relationship, what's on the shelf, my understanding is that there is it's challenging to Get a lot of the offshore sourced patio stuff. And so I think our space has also improved because our product is available. And so, I don't know, Mike, anything you disagree with that I said there? No. I think they're a lot more sophisticated on In targeting and the amount of people in the stores and if they're going to promote, Eric, it's just going to be different. It's going to be more effective And they learned a lot this year. So, and I think it will be better for both. That makes sense. Thank you. We'll take our next question from John Anderson with William Blair. Good morning, everybody. Hi, John. I wanted to ask about the newer consumers or households you've Acquired since the start of COVID. How much do you know or what have you learned about these new For kind of reentry consumers and their commitment to the category. And I'm asking just to try and get at What gives you the confidence or the degree of confidence you have in keeping them post COVID? I'm going to say a good question. Mike, you're going to take this once I get done kind of spinning it a little bit. If you look at our numbers over the past few years, and We're spending a lot of time internally as a management team and with our Board talking about sort of the basic assumptions that are in our incentive plans, And kind of what they were designed about. But when we were in the last year of that multi year long term incentive plan, And it's going very well if you're a participant. And but if you look at the assumptions, We looked at the consumer businesses as being kind of a 0% to 2% business. And we Looked at live goods and hydroponics as being sort of 2x to 3x that. So if we could Diversify into some faster growing categories like live goods and like hawthorn. We thought that was good. What we've seen and this is before COVID, so this is in the couple of years leading up to COVID, is that Everyone thought that young people were going to stay in sort of metropolitan areas and they were I live in apartments and condos and didn't want a yard. And it was Craig Meir, I think was the first one who told me, Dude, those metrics are bullshit. Nobody knows more about sort of homes, I think, than we do, Jim, at Depot. And we started like looking at those numbers and we said we see like a lot of growth. And then we started hiring demographers To look at that and we saw it in our own numbers is that 2 became kind of 3 to 4 or 3 to 5. And so this is prior to COVID, okay? And so I think we started seeing a turn Like what Muneer was saying, even before COVID, what is clear in COVID is that People value the home experience. They value a yard, The ability to be with their families, everything that kind of we're about more so. And that if you look at the demographics of whether it's AeroGarden, I don't know, Chris, AeroGarden sales for This last period? For the year, they're up over 100%. So AeroGarden, indoor growing, Younger people, plus 100%. If you look at the sort of indoor, Just in general, it's higher. If you look at herbs and veggies, Younger, pretty significant commitment. So what do I think? I think we're actually being attractive to them. There is the question which gets back to this whole thing with Eric of saying, can we retain these customers? That is the challenge That we're going through for. I don't think what you would find is Less commitment to the space. We've got survey data that says the vast majority of people who participated this year not only intend to do it again, But we tend to do it even bigger and that's true of my wife and I. I mean, we don't fit in that young people category, But I don't I think we're typical, actually, which is we want we've never really done our own garden before. It's just kind of pathetic to say. We've always had people to look for us. Up here, we've done it ourselves. And We learned what worked and what didn't work and we want a better garden. It was a very important thing for us. We've come back if we went somewhere for a day, the first thing we'd say is how does the garden look? It was like one of our kids or something. A lot of people felt that way. So Mike, you want to talk about sort of What we're doing to maintain and how important sort of the younger gardeners are to us? Well, we're talking to them every day, just even from the media. We've got so much analytics. Jim and I are sitting here. We're getting pop from all the marketers on how we're engaging. We have We're just talking differently to the consumer. It is not the traditional Gartner from how you look at it. And I think from that is it We are they're talking to us about convenience. We've stepped up our D2C activity, the Convenience of getting in, they want to know more. Food is a big thing, food supply and safety. And that engagement there is a Curiosity in improving that whole home. And we're getting that our data is so much better than we ever had within our conversations And then we're going to create products. We've created some digitally native brands that relate better like Knock Knock and Lunarly, Which are tied to their home and their improvement in Green Digs, which is the whole. When I think about your home, a plant in your And how it affects the cosmetics of your home and improving your design. So We're so much more engaged and in tune and our innovation is tied and our communication is tied to those people more so than ever. And so that's how we're trying to capture them and communicate with them. And I mean, I'm probably more optimistic. I can go on and on, but we're getting feedback and we're talking Yes. Thank you for all the color. It makes sense to me. The reason I asked is When you work in your yard, you build a garden, there's a certain level of commitment and there's a certain level of benefit you derive from that, which Would seem to have a longer tail on it than perhaps some other Product purchase or activity. So that's helpful. Thank you. The second question is on Hawthorne. You touched on this a little bit, but I'm wondering if you can talk about Your Signature Brands and it sounds like you're moving That part of the portfolio are expected to move it to 70% of the business. Where has that been historically? Where do you think that goes in the future? And then on the margins in Hawthorne, 13% or so from a Segment margin perspective this quarter, what kind of longer term Objective you have for profitability in that part of the business. And Your commitment right now more towards, let's say, if I had to give you a question around Sales growth through aggressive pricing versus profit expansion through more Rational pricing, if you could talk a little bit about how you're weighing those objectives. So again, mix With the Signature Brands, margin objectives and just kind of competitive positioning. Look, I'll start and hand it over to Chris. I think that we do distribute products. We have some very important partner companies that I want to assure We're not looking to shoot them in the head, where we distribute. I think where we view as our kind of key pillars, Our view is, we can rationalize the line and so some of those activities we're going to own. And I but I don't think there's any surprise and I think you can look at our business and see where that is. In regard to kind of the advice I'm giving Mike and Chris, I'd call it a slightly more competitive environment out there than has been in the past. I think largely There's other smart people who are looking at sort of valuations out there and saying we should participate. So it's Now I'm not afraid of that at all. This is not like we're, oh, poor us, it's competitive. But I think that My bias toward them is, I think, I'm probably still biased a little bit this way and I have lot of salesmen in me, I think, is toward for growth. I don't think it would be I don't think making a choice that said, because by the way, I am bothered like a son of a bitch on what's happening to some of the commodities that I think are completely unjustified when it comes to pricing and that you're hearing about Kind of for the first time from us, but we're kind of on it right now as well. This idea of sort of Plastics, ocean freight, domestic freight, insurance, it's a bunch of damn nonsense That people are taking the kind of pricing they're taking on that stuff. I think it's really bad for America and I think it's really bad for America that The folks that now run D. C. Think that they should take tax rates up by 33% on companies like It's seriously like what the hell. So I'm pretty much biased on sales growth with these guys. When it comes to competing, I'm all for that. And I wouldn't make a choice right now to sort of Take excessive amount of pricing. We've very much looked at the Hawthorne programs and Simplify them, there's infinitely fewer versions of our programs. They're very focused, Especially when it comes to competition. We like that. Anyway, I'm going to say, hey, I don't want to take all your shit, Chris. All right. So look, he already said most of the stuff I'm going to say. No, it's cool. In terms of our ratio of sort of owned, what we call signature brands and business relative to what's distributed, I think 70% is probably about where we want to be. It's probably about 20 points higher than where it's been historically. Now One thing to bear in mind here is that Hawthorne, until the Sunlight supply deal 3 years ago, we weren't a distributor at all. All we sold was our own products. So Coming into Sunlight, what is now sort of our distribution kind of hub for Hawthorne, We've been transforming that business into the business that we want it to be, not the business that it was. And I'd say we're probably not done with it, but I think we're getting a lot closer than we have been. Look, there are certain categories that for whatever reason, whether it's just the type of business, it's outside of our wheelhouse, we aren't good at manufacturing or whatever. Certain products that our consumers are always going to want that we might not necessarily want to be in a business of making. And as Jim said, we've got some really key strategic vendor partners We have no intention of moving on from who partner with us in a really excellent way. I also agree with Jim in terms of balancing sort of aggression in terms of trying to take market take and maintain market share relative to I think we are still look, we've been at this for about 6 years at Hawthorne. I still think we are at the infancy of this industry. And I think a bias towards being aggressive in maintaining or taking additional shares where we need to be. I do think we can A little bit hapharcating you too here where as we continue, as Jim said, we had over 20,000 unique Promotional programs and that was largely something that we inherited from both all the businesses we acquired and Sunlight where all of them had unique Individual dealers with individual retailers. And we've gone through a really comprehensive process over the past year and really simplified as Jim said. So we're still promoting. I think we're doing it much, much smarter, much more precisely. And Jim alluded to the competition. Look, we talked about it in the scripted portion. There are people going public in the space acquiring a lot of money and being very aggressive. And I think we need to take that competition seriously, we do. I think we use the breadth of our portfolio, all the products we offer along with targeted promotion to make sure that We're defending our share. So my bias, if you would be towards growth ahead of profitability. But again, I think we can deliver pretty good Margin numbers while attacking the growth numbers as well. Now Corey, do you want to talk about long term kind of margin numbers for Hawthorne? Obviously, it's something you've worked on for years. Sure. Thanks, Chris. John, I know that if you go back a couple of years, we've talked about trying to get to 15% From an earnings from a segment earnings percent, we're still trying to get to that target. So we're balancing The march to 15% against spending against promotions and going out and capturing Additional share space and we're going to continue doing that. We want to grow the category. We want to grow Hawthorne within the category. So we're actually focusing on that. But we never lose sight of the fact that we're trying to get back to that 15% And one thing just to add on to Signature Brand mix. If you look at Signature Brands And if you look at the growth we've had, a lot of that growth is related to the innovation we've had in our products. A big piece of Our Signature Brands is our lighting portfolio. We introduced an LED light a little over a year ago And the growth of that LED light along with the other lights that we have in the market have really driven up the Total Whiting business that we have taking the Signature brand mix up with it. We think the 70% is about right though, and we're not looking to deviate from that number and drive that number either up or down. Thanks. That's really, really helpful. I'm going to cheat and squeeze one more in if I can. Just wanted to ask about Roundup. I think there were some decision points That maybe you were coming up to on Roundup with the relationship with Bayer. Any update there in terms of milestones or thoughts or plans on that business? Thanks. Yes. So I'm looking through a video link at my lawyer. It is a good question. The answer is yes. We had an opportunity to We've the relationship, I don't know, probably about 3 weeks ago. We moved over the last, call it, 18 months, every single board meeting Had a segment on as we led up to that decision, what we're going to do and with Very sort of eyes wide open visibility at the Board level on that decision or at least the recommendation that the management May, which was to let that option expire. I'm not going to say that anybody is perfect in this. I can tell you one thing, we independently believe in the safety of the product. And that's because we've done our own work to look at that. I have an ex EPA administrator on our Board who Has also had an oversized voice as we've made decisions. So we're very comfortable with the safety of the product. I'm generally supportive of buyers work to put this behind them. And I think They've made a lot of progress on that. We look at the contribution that Roundup makes to our business versus the value of the option We had and we just believe that we were comfortable continuing. And so And the business continues to perform well and not only last year, but has continued to perform through the Q1 well. So the answer is yes, we did have an option. It was not that attractive to us and We elected to continue. So Ivan, anything you would add to that? No, I think that's well put. We've Been in conversation with Bayer about this over the months and we're comfortable how they're handling their risk on it And we continue to get good retailer and consumer engagement. And so for all those reasons that you listed, Jim, I think, we've decided to move on from that. Thanks so much. Anyway, question number 3. There you go. We'll take our next question from Alex Marocque with Baird. Good morning, guys. Thanks for taking in. My first one is for Chris. Obviously, the recent news focus for Hawthorne It's been a cannabis opportunity. However, can you give us a sense of the current vertical farming market and discuss any growth in your partners there? Yes. Vertical farming is something we keep an eye on. Obviously, it was one of the initial sort of guiding tenants for Nation of Hawthorne, candidly, it's not something we've seen the degree of growth in that we hoped. I just think It's hard to grow food profitably in an arrangement like that, the way that it exists currently. We're seeing more and more people put money into it. Elon Musk's brother, Kimbal Musk, has been investing aggressively in vertical farming. We've seen a lot of new people Entering the space and attempting to make it work, we obviously encourage all of that. A lot of the products that we've launched, while they are Focused on our developments and our marketing is focused on the cannabis sector. They are applicable for and are used in vertical farming Right now, I don't think it's a very material part of our business. Again, we continue to market things there as sort of a secondary focus for us. But right now, I'd say it's in such a nascent stage that it's not really something that's Is it different in Europe on our radar? Europe, it is different. You're seeing I'd say it's different in Europe less for vertical farming operations than it is just Indoor food production in general, that is really what our European business is kind of centered upon. And we're seeing Good strong growth over there, particularly in our lighting business as we continue to see more and more greenhouses for food production built out. But here in the U. S, think it's we're still at too early, early at the stage to really say. Okay, that's helpful. And then shifting gears a little bit, How will you be assessing the return on the Super Bowl commercial investment versus other marketing you've done in the past? I mean, it's clearly the most watched broadcast annually, but I'm just trying to See how the audience overlaps significantly differs from the normal targeted ad spend coupled with people just walking into retailers and seeing products prominently displayed. I guess I'll take this. I'm not the hugest expert on this. When I first started running kind of a business that I was responsible for, it was our English business. And this dates me a little bit, but there was really only 4 channels in the UK. 2 of them were BBC channels with no commercial TV and 2 ITV channels, kind of one with normal programming and one kind of Educational TV. So it really meant that, there was really one prime channel. And there was a show at the time called Coronation Street, which Like 40% or something like that of all UK televisions were tuned to and it made for an extremely efficient Bye. The Super Bowl has those kind of attributes. You have just a real high viewership. I think demographics are a lot of what we like actually. I think there are young people, a lot of guys. So for certain parts of our business, it's important. So I think when you look at a sort of Cost per 1,000, it's and you look at sort of modern, I don't know what whether it's YouTube and Facebook and Instagram and you look at the sort of the power, TikTok, the power of those buys are Pretty powerful when you look at sort of reach. I think the Super Bowl is like that. We typically tended to spend on sort of basketball a little bit later in March Madness kind of stuff. We didn't really graduate To that the size of that audience, what we're trying to do now and with the retention of what we want for new Consumers, existing consumers that we had last year that we viewed it as something worth doing. And what's interesting about it Is that the activation that goes behind it is like 8 weeks long. It's got like a sweepstakes element to it. Each one of the talent sort of people that we have brought in, which are all really interesting, We can market towards each one of them and each one of them has kind of different demographics. And I think it fits in well with What we're doing now I think people were flashing stuff at me, trying to get me to read, stop, Okay. So I think it's a very interesting way for us to sort of Hack our issue this year, which is retention of people who joined. And it fits in well with a lot of the social media work we're doing. And the marketing team, I think, is completely on their game here, with Almost no rules for Mike and myself as far as how we attack these consumers. I attack them, meaning we communicate and Promote ourselves to them. Mike, would you add anything to this? I think it's that definition of gardening is And we're hitting it really hard. And so it allows us to cascade and reset with all these new consumers. And so I think that that's setting the tone for where we're going versus how we traditionally looked at it. So I'm optimistic it's going to be very effective because I got much higher numbers than we're sharing, but and so. All right. That's very helpful. Thank you. You You want to clarify Roundup or not? Do we think Yes. Why don't you, Jim? If it's not clear, and this must be because we're getting feedback somehow, We have stayed in the relationship and we have not exercised an option to leave the relationship with Bayer. So we are continuing our relationship with Bayer in regard to Roundup, just in case that was not clear. All right, Kathy, I believe that is all the questions that we have in the queue today. So we appreciate everybody joining us. We'll be issuing press releases in the next couple of weeks regarding our participation in both the Truist and Raymond James events. Again, if people have follow-up questions and want to reach out to me directly today or anytime during the week, I'm at 937-578-562. Thanks everybody for joining us and we'll talk to you again soon. That concludes today's presentation. Thank you for your participation. You may now disconnect.