The Scotts Miracle-Gro Company (SMG)

Analyst Day 2017

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Feb 21, 2017

Good morning, everyone. I'm Jim King with Fastener Group And welcome to our Analyst Day meeting here in Boca. Yes. I'm getting the fish now. So we're going to have a I think a really robust 2 hour discussion here about the business. Let me just help everybody kind of set expectations on what we're going to do this morning and then how the day will proceed. So So, I'm going to start in a few minutes with an overview of the business from Jim Hagedorn, Randy Coleman and Mike Luke Meyer. Kind of a soft touch on the update on the strategy. I wouldn't expect anything big coming out of this. Sorry to disappoint, but apparently CNBC had a story Friday night saying that we were going to have big news coming out of this and we're going to announce the spin off. That ain't happening. Did they? They did. They did. So that's not happening, but if you're listening to CNBC, you can listen or you can hang up. It's up to you. Maybe they took us spinning him off. Exactly. So that's not happening. But light touch on an update on the strategy that we outlined for all of you last year that we call project focus. From there, we're going to turn really the rest of the day over to the sales and marketing folks at the company. You're going to hear a little bit from Emily Winters about Store of the Future. We're going to talk about what we're doing in the Live business. If you recall our Analyst Day meeting a year ago, we talked about our first investment into that space in a partnership with Bonnie Plants, really good progress there. So you'll see more, hear more about that. Discussion about our lawns business and what we're doing with technology. Again, last year we talked to you about something called a Connected Yard. You'll hear an update on the progress that we've made there. And towards the end of the morning, a discussion we'll talk about our controls business in that segment as well, some new products coming out of our controls business based on the new Roundup agreement that we amended 1.5 years ago, so some news there. And then we're going to spend some time talking about our hydroponics business, which I know is a big subject of interest for all of you. From there, we're going to leave here and we're going to get on 3 buses just outside the door here to go on store walks. We'll do that for approximately 2 hours come back here and then do Q and A after the fact back here. So folks who are listening in on the webcast, we're going to stay live until roughly 10 We'll shut down until probably around 12:30, when we start the Q and A session. Obviously, we're going to talk about forward looking things today. So here's the legal disclaimer and we'd ask people to familiarize themselves with the risk factors. Other than that, I'm going to get out of the way and let Jim and Mike and Randy take over. Thanks. All right. Good morning, everybody. So I think I hope we'll do a good job. I believe. No. What I told people yesterday when we were down here kind of getting our stuff together was we've got a great company. We've got a good strategy. We're executing against that strategy. Everything is going well. And so you take anything away from this, it's a quiet confidence. It is kind of what you need. Don't scare civilians. That would be sort of my advice to them. So I don't think we're going to do that. I think we've got a and so these 2 are my sort of most closest operating partners. So Randy counts the money. Mike runs the business. And I would say a lot of what we do besides sort of the public work like this is Randy and I sort of figure out how we want to capitalize the business and how we want to allocate capital so Mike can grow and execute. And so that's kind of so these are my sort of my partners in crime. I have a super easy intro here because it's really just kind of tell you what I already told you which is we're doing what we said and we're on track and everything's going fine. And so if you take anything away that's what I would say. I do want to just talk a little bit about how I'm going to operate today just so that people's expectations of that. My wife had both hips replaced last week. And I thought I could get out of her. I mean I would have thought I'd be more independent or she would be more independent, of course, than she was. So I'm going to be down with you. Yesterday was a little bit like a vacation to get away for this. I would say to everybody who's been a caregiver, it's hard work, let me tell you. And I know she would do the same for me. Today, I'm feeling a little more guilty than I was yesterday. So I'm going to do store loss and then I think I'm just going to head back to New York and go be with her and she's with sort of temporary nurse staff that keeps rolling in and out. And so I'm like a common So if you guys don't mind, if you have any particular questions either we'll pick them up here. We've got to run a few minutes late getting out of here for me. The rest of the team is more than capable of covering or I will be on the retail stores so we can hook up on the bus or whatever and keep going across, okay? So I think we're all in a big herd. So I'll try to make sure I get to visit. But if people want to visit with me, all you got to do is say so, okay? I also want to say I got like my we're really lucky hearing that we have I think over half the equity is represented in this room right now. So again, thank you guys so much for sort of trusting us with your money. My oldest sister Susan who chairs our limited partnership, but she is the biggest shareholder of the company is here. My twin sister Kate who's a Board member is here. I got Adam Hamp who's a Board member who's here. And every time I give like these sort of I usually use a lot of foul language. And a lot of times it shows up in a Board meeting. So he said, did you know when he met with the investors? He said, fuck like 20 times. We'll be counting, Adam. So let's just talk about what we kind of said we were going to talk about, which is this is our plan. Start with we have a fabulous business, okay? I'm going to jump forward and like make a slide kind of irrelevant later, which is we overproduced last year and so far the business is great, okay? So the core business in Q1, I think Mike reported we were in a staff meeting before we reported numbers and he said, I think it's the first time we've had every single one of our business units in Q1, okay? So going back to the everything is on track and I think that Mike and his entire sort of sales and execution team who's run by Mike Carbonaro over there, there's a lot of confidence that retailers are being set well that our early season sort of Southern business is doing well. So I would just say so far so good. And so focused on the core, I think we've made a ton of progress. I think I probably have had a reputation of a little bit eating my young when it comes to my Chief Operators. Mike is no Mike is the best operator I've ever had working for him. And if you look at what Mike has done with the business, and remember, he's Mike is the manufacturing guy. That's where he started as Scott and built his phones. He got in a little trouble with me. I sent him down to run a sales region. And from getting in trouble with me to being my main operating partner is a result of engagement with the business. So he took over the southern region, which is based in Palm. He went out and visited every single salesperson. He talked to people and said, what do you need? We then gave him the entire country. We then gave him all of our BDTs, which are our retailer offices. So he was running everything. Then North America then runs our global business. And Mike is one of those guys where first of all when I talk to Mike and say, I'm thinking this will be a good idea and we mostly agree on the stuff that I think he's a good partner to have. We don't disagree a tremendous amount a little bit sometimes. But he's like, I like that. Let's go do it. And then he does it. So it's a really great execution partner for me to have. And so when you say focus on the core and you say are there a lot of things you guys could do to improve your core business and I think Mike is going to talk about some of this stuff. The answer is hell yes to me. And there's more room to improve the business. But Mike is one of these guys and I'm going to say Mike's entire team and my team are working together really well. So it all starts with run our core like it matters and don't get all crazed about sort of hydro or Tomcat or whatever in the hell else we're playing. The next part of this is reconfigure the portfolio. All I'm doing is repeating the strategy. This is we talk about this a lot and I think we talk about this to you guys a lot. But I like it because it's not changing, okay? Reconfigure the portfolio. You can well, first, we had this was a couple of years ago, I sat down with the team and said, if we could be anything we want, would we be who we are? Europe lawn service. And I think we said, probably not. So I said, what's stopping us from being what would we be? And we're headed in that direction, so I don't really define that much. And we said I thought what's stopping us? So we spent probably a good 6 months studying what would we want to be. It's really very much focusing on America, hydro, sort of live goods, rodenticides. I mean, it's not a crazy one. It's exactly what we've been saying. We said we would do that. Mean we would reconfigure the portfolio effectively. And so we all started to believe, presented to the Board, this is like coming up on 2 years ago. And the Board is like, I love that. So we did it. And so basically it's long term is out, probably Europe out and I don't think we have anything to really add on that except that they were making process, okay? So I would say it sums up there. Bonnie Inn, but a kind of unique deal with Bonnie where they wanted a fifty-fifty deal. It's fifty-fifty. We're not the easiest people to get along with all the time. And so fifty-fifty sounds like kind of like how do you break ties and it could become dysfunctional. So they didn't want to do 51%. I didn't really want to do fifty-fifty. Randy said I thought we could do 25% of that. Why not? I mean, we can block as long as we have a right to buy up what we do. And so we got that deal done. We've got Comcast. There's probably more deals that we haven't hydro in, really cracked in, which is creation of Hawthorne. And we'll talk about that a little more about the splitting of Hawthorne really to allow Chris and his business and New York to focus on hydro and stutter to sort of take the craft side, which is a lot of stuff sold in our existing channel. So that's effectively the reconfiguration. And I think I'm going to bring up something which I know we kind of prepped for which is when are you done with that? I thought you said by now you'd be done. It's true. Obviously, you said that. I think here's what we think that less the feds like actually becoming active on enforcement on cannabis on a federal level that we like the type of thing. And we should probably do a visit where I could spend an hour or 2 talking to you about what I can really think about hydro. And I'm not this is not some global share. It's really exciting. I was visiting with the Coke family out in Wichita and I was saying people talk about like government sort of involvement in regulations and leadership, Because the Feds act like the legal marijuana business doesn't exist, it's pretty much unregulated because they have their head in the sand on this issue. So there is no federal regulations on this because it's just illegal as far as that's concerned. So in a lot of ways, it's an unregulated business, meaning that if you want to see how a business can operate in a kind of pure entrepreneurial way with like young people who are really good at what they do and are making tons of money in a high growth high margin business, look at that business. And I defy someone to say whether you agree with it or not that if you want to see negatives of regulation and just people like all the stuff we do every day, When it doesn't exist, it allows a super happy sort of entrepreneurial high growth, why not? Let's just do it. I think part of what's interesting about this company, if I were you, and I think, listen, we are investors, so I do feel this way, is the thing about like focus on the core, reconfigure was we just said to ourselves, who's stopping us? Why don't we just do what we want? And got the Board to agree. And I think the reaction was discrete. It's been very positive to this kind of reconfiguring. Now, so why haven't we kind of shut the door? Look, we have some small deals that are in the works that I think were absolutely consistent with our original guidance that we'd be pretty much done by now. Some of those deals are just a little slower because we're dealing with families and they have their own particular sort of situation. But this is I would put it in a small beer category. We're just there are some highly strategic moves we could make in the space that we're just working our way through right now. And that's the only reason that we said we're not sure if we're done or not and closing our acquisition book. And then sort of Phase 3 here is move into where we have been in the past, which is shareholder friendly. And my view is subject to the stock being affordable and I don't know exactly what that means. I trust my finance partners and our external advisors for that is I think the best company we could buy is us. I like our company a lot. So I think a way of returning cash to our shareholders with a bias toward repurchasing shares is the most important thing that I want to do. And so I am not interested in sort of saying, well, just leave the book open, why put a line in the sand, which a lot of our the analyst communities, why not just shut up about like the windows open for mostly because I want to close that chapter and move into the like reduce our share count. And if I can't do that because the share price is happily too high, we'll do a dividend. And so that is our plan and it's not changing. And my resistance to it is that, I think that Mike and I this is why Randy is so important. Mike and I will buy it toward growth, okay? And we like to acquire because acquiring shit is fun, okay? We particularly in the hydro space, it's fun. I don't want to be like I don't want to stay in fun. I mean the hardest part of what we're doing which is why we put that new incentive plan in is because we're going to go into a period of somewhere between 5 10 years, where it's absolutely about cash flow generation. It is absolutely about returning that cash to shareholders through either repurchases or dividends. And that's the part that's the hard part, right? It's just running our existing business hard. And we're going to do that. And that is my reluctance to say, oh, you guys, why don't you just stop talking about shutting the acquisitions and just do what you're going to do. And if it's a good deal go ahead and buy it. Well, because the problem is Mike and I will find plenty of deals and we'll spend all of our money doing that. And it might be a great idea, but I think we like the strategy, okay? And we're sticking with it. And we have a strategic opportunity that we're looking at and we haven't made an internal decision on. We haven't like gotten board approval for us. And that's the only reason to keep it open and that probably would take us another 6 months, okay? But that's really all we got working on. You keep pushing a button like this one. The results have been good, okay? I don't need to say any more than that, okay? Share price is happy. Q1 good, so far so good. I think I'm done now. Thank you. So that was that's my contribution today I think. So you're either 4 minutes ahead or I have 4 minutes left. Whatever. All right. So I'm going to talk about in conjunction with what Jim was saying, the next phase of focus, thinking about cash flow, whether we're talking about generating cash or using cash, both aspects of that are an important part of the project focus. So, on to the next slide. Here, I think this is a really helpful graph that shows over time what our operating cash flow and our free cash flow looks like. You can see CapEx is pretty consistent year after year after year. And you can see that big dip in 2011 and 2012. For the people that have been with us, over time you probably remember that period. For the people less familiar, what really happened at that point, 2011, we had big growth expectations. We've built a lot of inventory. The year didn't come together after record 2009 and 2010. 2012, we said we're going to run the same play, do it again, get the same results. And at that point, that summer of 2012, when we sat down as management team with Vermont and said, all right, we're going to have to run the business a little bit differently here. And we've done that. I'm glad to say 2013, 2014, 2015, 2016 and I feel really good about 2017. We've got our earnings numbers year after year after year. But if you look at the cash flow numbers and you look at 2,005 on the far left end and 2016, we've essentially made no progress on annual basis on cash flow. So great earnings growth and I think we've developed a lot as a company to move from almost exclusively on the top line where earnings was a benefit to keep that in balance look at earnings too. But the next frontier for this company is really about cash flow and keeping all that in balance. One reason why this is a little different than what you might see from our non GAAP EPS numbers over time is we have taken significant restructurings over a period of time that we exclude for non GAAP EPS. But when you're looking at cash flows everything counts. So again, I think that's one thing as a shareholder looking forward everything is going to count and I think that's an important check on us. As far as what we're going to do differently, I think maintaining growth. I we have again a great track record over the last 4 years and feeling good about this year as well. So that's 1st and foremost most important thing to cash flow. 80% to 90% is essentially earnings growth. Broadened decision making processes. I'm glad to say my partner here, Mike Luthmyer, he's really changed the culture in the last 2 or 3 years. So 2 or 3 years ago, I don't think we would have been able to think about cash flow as an organization because we're still very siloed in our thinking and how we operated. And now we truly operate as one team in an operating sense and it really just makes that collaboration much easier to actually think about running our business differently. And then incentives, I think what gets measured gets done, an important change to our incentive plans is for 2017 for the short term plan, the 1 year plan, 25% of that now is based on a cash flow metric. And we haven't had that in place for several years. And we introduced that as a 25% of the total pie just to get people starting to think about this because our long term 5 year plan is 66% or 2 thirds of the metrics for the payout on that plan. So very biased towards cash flow in the long run. This 1st year, we're just introducing that. But again, we're trying to put our money where our mouth is. And then, supply chain. So again, 80% to 90% is really earnings based, about the last 10% to 20%. A lot of that is based on how we run our supply chain. And that's what the next few pages go through. So our vision here, modernization. So our retailers have changed over the last 15 years. We've changed a little bit, but we know we need to accelerate that change and work with them collaboratively to essentially rebuild our supply chain in a way that's more efficient the entire value chain from us to them. And we're doing that. So changing the paradigm, thinking about cash flow, that's really important, optimizing the way we run our facilities. Mike hired a gentleman about 6 months ago who's had a big impact on just how we think about filling up our plants and how we utilize our assets. The work has seen a lot of benefit from that. And then inventory and distribution, again, working with our retailers collaboratively to take inventory out of the overall system. And we put numbers on the bottom of this page here. It says year end cash flow improvement. That's really a proxy for working capital improvement, separate from earnings benefit we'll see during the year. Dollars 30,000,000 is the number we've put on $17,000,000 $65,000,000 plus over 4 years. Even as a CFO, I think these are really conservative numbers. And I think you'll see in 2017 that will be a really nice down payment on what we're going to see over time. So very achievable numbers on this slide. So as far as inventory and asset efficiency, One thing that we've typically done is we introduce new products as we do. We're aggressive. We have big expectations. And we've on occasion, we've built too much inventory. We've launched something new. So we're getting a little bit more precise with our planning and our expectations out of the shoot. Things are going well. We have the capacity to catch up and build more inventory. But we're being a little more prudent in how we're doing that. So that's one change. Another thing we did, we invested in new systems a couple of years ago. And we're just starting to see the benefit of that now, so we could plan better and bring some of that inventory out of the system. And then from a safety stock point of view, this isn't necessarily revolutionary, but we don't treat every SKU the same. So our big power SKUs, wheat and seeds for example, high volume, high margin, we want to make sure we don't run to that. That's definitely an ASQ. But some of our smaller SKUs with lower volume, lower margins, again we have the capacity to catch up with need be, but we're being a little more thoughtful in how we build inventory. So all this comes together as far as inventory and asset efficiency. As far as manufacturing, so we made a change from who's running this initiative at this point. I think that's helped a lot. And the other thing we're doing a little bit differently is historically, especially around growing media, we've made a lot of CapEx investments in building out our supply chain network to make sure that we have an appropriate footprint. And now we have over 40 plants across North America. Really helps with serving our retailers. It really minimizes the freight cost. It's a very freight dependent business, both on bringing inventory into a growing media facility and then shipping back out. But what they were doing now is looking across the entire continent and saying there's probably ways that places where we can use co packers to fill in some of those planes that will minimize some of our freight costs from facility to facility and also minimize our CapEx. So if you go back to how we're going to measure free cash flow going forward, stop bringing cash flow less CapEx. So it builds some tension into the system and that's intentional. And then as far as payment terms and cash flow, I'm really encouraged by the progress our purchasing team has made so far right out of the gate. Typically when we talk to vendors, it's very much negotiation of ops and they're trying to find the lowest price. And most of the time that makes sense. But sometimes depending on the circumstances and the particular vendor, it may make sense to talk more about terms and take a more balanced perspective on how we negotiate with certain vendors. So we're doing that now. And really it's been quite a shift in the way we think about things. And then distribution and inventory. Again, 15 years ago, the home centers didn't have the level of maturity in their supply chains that they have today. So what we've done is essentially sit down with the retailers and say how can we work collaboratively here, figure out what's the optimal way that we can go to business together. So we're finding savings by doing that and we're sharing some of that with our partners, but really for the entire good and entire value chain it's much better. So for example, we've had 10 DCs in the last few years. So for 2017, we're going from 10 to 8. For next year, we intend to reduce that again. And in the facilities that we do have, that existing footprint is going to shrink as well. So we'll just smaller warehouses, better leveraging our retailer warehouses. By doing that, we'll also be able to increase the fulfillment, the order sizes, what rides on a truck, so then our freight costs for shipments will go down. Again, there's a little bit of an offset there with fewer facilities. We may need to ship a little bit farther distribution. But net, net, net, we think we're going to go out way ahead. And then preseason direct store loads on key items. Again, nothing revolutionary there, nothing new, but we have much better analytics than we had in the past and we have much more collaborative relationships with our retail partners. So we're able to optimize how we do inventory builds going into a season and so we're really thinking about that. So you bring all that together, I'm going to say we're focused on free cash flow, something we're getting paid on, we're measuring it, organization is really behind this initiative and I'm confident that we're going to be able to get it done. So with that, I'm going to hand it over to Mike to make sure that things do get done and he's going to talk a little bit about how we run our business and then as well introduce the rest of the team. Thanks Mike. We'll make a good supply chain. I'm really optimistic about where we're going as a company. Jim has this we say crazy ideals. I think they're actually at first when I first met Jim 21 years ago and I've been with the company I've done just about every job, they go, that's crazy. The answer is no. Now I listen and said, can I get that done? Maybe I can get that done. When can I get that done? Let's just go do it. And I think the change for us and where we're going is there's more passion. I always talk about passion, collaboration and trust. And what we're trying to build with this organization is that we do that as one team across the company. And so these ideals of focusing on North America and Hydro Space, everybody is wrapped around the one goal, one P and L and integrating the business. The team is going to talk about these activities. I'm optimistic. I walked with a major retailer last week. I'm walking out and they go, Mike, I think this might be the best year ever. You're going to see a lot of things that are different. The team is going to talk about solutions. If you don't hear the word solution 100 times a day, I will be very disappointed. Solution selling, bundling, making it easier for the consumer, we're really optimistic. I talked about the hydroponic channel. My gosh, how can we not get excited about that? I mean, it's happening in the country. We grow things. We're a growing company. Number one use of Miracle Gro back in the day was for that industry. It was kind of hidden, but Miracle Gro grows special things. Now we're in the hydro space. And it's also for fruits and vegetables. And so I'm a growing fanatic. I've got more AeroGardens in my basement than you can imagine. I'm trying to figure out can I not buy anything in the store for the year? But think about it. I know exactly what I'm putting on that vegetable, whether it's a pesticide or an herbicide. You want to talk about health, you want to talk about wellness, you want to talk about solution. What kind of dirt are you growing your product in? What are you putting on there? It's all about trust. We want that consumer trust. When you go to the store and we're talking about solutions, We are talking about building a relationship with the consumer and the retailer that is far beyond where we've ever been. Randy throws number 1 to 3 growth. Our plans are certainly much higher than that. So and so there's so much opportunity out there to bring consumers into the category. When we meet with retailers now, I will tell you that now all our advertising, our promotional activity, our digital efforts are all integrated. The timing is all matched up. We're operating as one team to maximize their margins, our margins to satisfy the consumer. Emily is going to come up here and talk to you about the Store of the Future. I can't go and talk to a retailer that doesn't talk about Store of the Future. And how it looks like today and where we're going, we're going to tell you some more about that. You'll see the beginnings of this. I would say over time, it's significantly going to change. And so and it is a topic for the next generation. I did have a slide on that, but paradigm is changing. It's about simplification. It's about solutions. And that's really where we're going as a company. We have to be authentic. We have to be in tune. We made a great success. We've always had great talent in this company. We just never worked together. We have met the enemy. The enemy was us, because we would compete for our own space. For the first time, you're going to see Miracle Gro and Scott together. You're going to see Bonnie and Scott. We're going to say, what how do these great brands match up to be solutions for our consumer? And that's really where we're going. And this is the team and they're going to tell you a lot more. So if I could go down, I could go down live goods rabbit hole, I can go down the hydro rabbit hole. This is my team. And what I would say about all these individuals is they truly do collaborate and work together. And you'll see the signs of that today that I would say and I've been here 21 years, we really never had that. We always had talent. We didn't have the full commitment of the team. You have to be passionate. You have to immerse. You have to trust. We have to do what we say we're going to do. I'd rather deal with results than get up here and try to sell you because the results will come out and prove itself. So I'm actually anxious for you to hear the team and then see what you see out there. And then we're only showing you 3 stores. There's a whole lot of other areas, places we're working that are much broader than that. So don't get into the thing that we're showing you Depot, Lowe's and Walmart. Chris is working. He's got he's into Bed Bath and Beyond with AeroGuard. And so IKEA on LiveGoods, there's a whole host of places we can go that we haven't been before. And so that's why I'm actually really optimistic about the capabilities because the solutions can sell everything. And so we just want the consumer engaged. We want that consumer to do whatever retailer. Their job is to make it attractive for their businesses to bring it in, but we want to be everywhere. We want to be the most trusted authentic company for lawn and garden in the home anywhere. You trust us. You call us first. And so and that's really how we're thinking about it. And so do we get everything right sometimes? No. But I'll tell you, my other word is perseverance. We will never be outworked. With this team, we will we'll make mistakes. We've got more trials going on across the country on different types of sets in that than you can imagine, more than we ever have. It used to be slow. Now we get about there. Let's go try that. Let's go try this. And so we're learning so much and we're changing. But we have to get to that level. We will get that growth. And so the time proves that. So I'm going to let the team. Emily is going to talk about Store of the Future. I could talk all day. I've got 9 minutes left. And so Emily, why don't you come on up and we'll go from there. Don't trip. That's a good start. Like Mike said, my name is Emily Winters, and I lead our shopper marketing and business execution team at Scotts. And I'm really excited to be starting my 10th spring here at Scotts Miracle Gro. It's a great place to be. We know we've been talking for a while about the opportunity to make a more inspirational and intuitive experience for our consumers in the retail environment. And you're going to see a lot of examples of that throughout the presentations this morning and on your store walk. But we know that our consumer is going to continue to evolve and we need to be ready to meet them on their journey and of how they experience the retail space. So we envision a world where the consumer is moving from today where they want to buy goods and services and they want to buy a total solution to a world where they're looking to buy an entire experience. And the experience that they have in the store is part of that overall journey. So let's look at how a consumer would move through the store today. Our consumer in this example is looking to plant a tomato in a container. So they enter the outdoor garden center and they see all these beautiful lush live goods, veggies, flowers, herbs, and they find the tomato that they want to buy. Well, then they need to have some soil to put it in. And that's in a completely different area of the store, way over on the other side of the garden center. They were going to plant that in a container. So they have to go find the container back over on the other side of the garden center. And then if they want to seed that plant to get the best result, they have to go find some Miracle Gro in the plant food section in a different area of the store. And then lastly, the tomato cage is located back over where they picked up that live food in the first place. And so while everything the consumer needs for that project is located in the garden center, it's not exactly the most intuitive experience. And I would say we've made a lot of progress against that with some of our cross merchandising efforts. Again, you're going to see those when you go to the store today. But we want to take a look at if we were to redesign the garden center experience overall, how could we make it more inspirational and intuitive for the consumer? So we've taken a look in conjunction with our retail partners at the future of The Garden Center design. We've looked at this again with inspiration, making it intuitive and aimed at a newer consumer in the space. So how does a first time gardener how would they approach their outdoor lawn and garden space? In this model, when a consumer enters the garden center, they see the world like they see their outdoors. So if they want to plant veggies and herbs, everything you need from the container to the plant to the soil would be merchandised in the same space. If you want to do a project in your lawn, the lawn fertilizer, the spreader, the grass seeds, but also the lawn mowers, the string trimmers, all of those things are located in the same space. In your outdoor garden area where you have mowers, lawn furniture, color, those things are also all located in the same space. In the indoor garden center, there's a section for hydroponics. There's a section for other indoor growing projects. And we think that this is intuitive and will inspire that younger consumer, but it will also be convenient for a more experienced gardener. In this model, a lot of the bulky heavy items, the majority of that inventory moves more to the back of the store back here, which facilitates this pickup area, so that it's more convenient for all shoppers to get everything they need for their project. We think this is going to grow the category and build the basket in a couple of One, everything I need for my project is in one space. And 2, with the convenience of the pickup being part of the overall journey and the experience, now I don't have to worry about putting heavy soil and faulty soil and delicate lightweight plants in my cart at the same time. I can get all of that in one trip. I can get more soil. I can get more mulch, because I don't have to I'm not limited by the size of my cart that I'm pushing around the floor. Another key feature of the Garden Center of the Future is what we call the Immersion Entry. When you walk into the space, it's a welcoming environment. Think about your favorite book store. When you walk into your favorite book store, the employees say, here's what I'm reading now. Here's some great suggestions about what you should take home with you today. Same idea with this Immersion Entry. It features simple projects, key things that you should be doing in your space right now so you leave the store with those products in your cart today. The examples we feature here are growing herbs in a container. There's a lawn patching project. And this example also features a kiosk where you could order that project or order more of your product while you're in the store, do your shopping and they're ready for you and pick up when you leave. We believe as leaders in the gardening category and our partnerships with LiveGoods that we have the ability to partner with our retailers and really lay out this vision for The Garden Center of the future. And we're really excited to continue to work on it with them throughout this year and bring it to life in store as early as next season. So now I'll turn it over to Mike Suttters, who leads our LiveGoods and Crafts business team and he'll take you through more of our LiveGoods partnership. Really excited about this business. It's the most fun definitely I've had in my time at Scott. Just as a refresher, it was about a year ago that we signed our agreement to acquire a 25% interest in Bonnie Plants. And it's been an amazing 12 months and we've made a lot of progress and made a lot of positive changes in just one year, many of which you'll see out in stores today as you walk stores later. Bonnie is our foundational partner in live goods, but we're really excited about this category because of the growth potential, especially vegetables and herbs, which is Bonnie's focus area, that's what they're core in, we're seeing growth of 5% to 7% a year in this segment. So it's really exciting. And it's being driven by those younger millennial consumers that Mike talked about as they engage in healthier eating habits and really embrace the farm to table movement. There's a lot of growth out there for us in the future. Just to go a little bit deeper in the Bonnie partnership since we announced this partnership and deal after our Analyst Day last year, this really is a unique partnership for Scott. While we acquired a 25 percent ownership stake in Bonnie with options to increase that over time, It really is about each of us leveraging our core strengths, to help grow this business. So Bonnie Plants on their side, they are focused on and they are world class in growing and distributing live vegetable and herb plants. Bonnie is the largest and really only national supplier of live vegetables and herbs in the U. S. They have the scale to really make an impact. 72 greenhouses located in 41 states around the country allows them to compete at a level that nobody else can. From a Scott standpoint, you combine that with our focus on marketing and really consumer relevant research and development And we're really all about getting those plants that Bonnie does such a great job getting to the store, getting them out of the store and having the consumer have success with them in their home garden. And that's really what we're focused on and really how the marriage and the partnership is going to help drive growth in this segment for us. What's great about LiveGoods and our Bonnie partnership as well is we can win 2 ways. Scott is going to create value 2 ways. 1, we're going to drive growth of the underlying Bonnie business. We're about inspiring and engaging new consumers to get into the vegetable and herb gardening. And then the second piece is about solution selling, which Mike and Emily talked about and we'll get into a little bit more detail about what we're doing with Bonnie Plants there as well. But back to driving innovation and growth on the core Bonnie business. We have put a lot of marketing and R and D effort in just 12 short months against this space. We're launching new products like recipe inspired combination containers that put all the plants you need to grow a salsa garden or a pizza garden or a stir fry garden all in one container, making it really simple and really easy for consumers to create a successful recipe. In fact, we're even putting the recipe card in the plant with it to simplify it further. Another thing we're driving are patio ready containers, which are the larger containers you'll see here. These larger plants, many have tomatoes and peppers already on them, are require no transplant. Just take them home from the store and literally put them on your patio. In many cases, the consumer can buy the plant today and start harvesting tomorrow. So it really does speak to that need for instant gratification that we're seeing from a consumer trend standpoint. The last new product that we're excited to launch in 2017 is a complete new line of organic vegetables and herbs from Bonnie. And this really speaks to consumers' number one desire when it comes to edible gardening, things you're going to eat, put in your body, and that is wanting a strong organic solution. And we're launching that with the Bonnie organic line in 2017. All of these items are really under our Success Made Simple line for Bonnie, which is a new line that we're launching this year. And we're already seeing a tremendous amount of positive momentum behind those product launches as well as a lot of positive consumer and retailer feedback as well. We're excited about the growth potential. It's really about driving new consumers into the veggie and herb category. And the reason we love that is because of the second way that we win with LiveGoods and with our Bonnie partnership as well and that's through driving attachment to our core soils and plant food business. Right now today only about 20% of shoppers who buy plants, who buy a Bonnie plant or buy any plant also put a soil or a plant food in their shopping cart at the same time. That's just 20%. We think there's a lot of upside potential by attaching our soil and plant food or offering the consumer a complete planting solution. Just by example, there are almost 150,000,000 Bonnie plants sold every year, 150,000,000. Even a little change or a little improvement in attachment or solution selling is going to have a huge impact on our underlying core Soil and Plant Foods business. Now I'd like to introduce John Sasse, who's the General Manager of our Soil and Plant Foods business. He's going to talk about the steps we're taking already in 2017 to better connect Bonnie and Miracle Gro and sell the complete solution. John? Great. Thank you, Mike. As everyone mentioned, good morning, everybody. My name is John Sasse, and I am the General Manager on our Gardens business. Those of you who don't know what that means, that's all the stuff you need to make a successful garden with all the stuff that Mike told you about. So all the soils, the plant food, mulch products that go into your garden are where my responsibility. And so you could see how excited I get about all the stuff that Mike just talked about. So all the new solutions, all the edibles and the emphasis around getting people into gardening really benefits the side of the house that I oversee, which is our Miracle Gro brand. And we showed the map earlier of that consumer journey that goes through the store, 4 or 5 different pieces of parts of the store that a consumer would have to navigate through to be successful. And that's one of the things that I want to talk about a little bit more. Consumers today have a challenge to being successful because they don't know everything they need. We want to be able to solve that problem for consumers. One of the ideas that we're working towards, and this is a concept right now, but think about from a consumer experience as we drive these new consumers into the gardening category to walk into a retail environment and see everything you need front and center. Emily mentioned this earlier in her display. Imagine for the same thing to have an edible garden with every product you need. So not only the Bonnie Live Goods, the Miracle Gro Soils, the Plant Food, even the accessories, the gloves, the shovels, everything else you would need, giving the consumers the total solution. And think about the win win win of that. So the consumers have everything they need. The retailers can help drive a bigger basket. And also, obviously, we benefit by having multiple parts of our product lines leaving the store with the consumer. But before we get to there, we're going to still keep working on future solutions like this, but we're going to work real hard right now to make sure that we can connect these 2 great brands together in store. And a lot of the stuff you're going to get to see here in just a couple of hours when you go over to the store and see the products for yourself. One of the things that Mike Sutter did when he came on to the business, and Luke Meyer mentioned this earlier about us being aggressive and learning and testing and moving fast. Mike came on to the business, and every single piece of printed material from a Bonnie perspective has been updated to include that cross sell with Miracle Gro. You see here the logo lock up at the top Bonnie with Miracle Gro, Plan It Right, Use Miracle Gro Soil. That communication, that attachment message is on every piece of communication in store. You'll see it today when you go see it for yourself. The bottom left here, the plant trays have the tag on it. The Bonnie plants that you actually take home have the message on the wrapper. The tag that goes in the plant as well. We are going to continue to make sure consumers take all of our products home with them because we know it's going to make them more successful. We know it's going to have them build a better garden. In addition to that, and here's a visual from a retail store we have today, you can't walk very far to not see our soils and plant foods right next to the live good racks as well. So Mike Carbonara and all the sales guys have done a great job of cross merchandising in store, making sure again that these two brands are connected pretty well. In addition to that, we're not waiting for a consumer to get to the store to be able to see this relationship and this partnership with our 2 great brands. We're going to use all of our media marketing tools as well to tell consumers, as they enter into the category, everything they need with Miracle Gro and Bonnie. So one of the things that we're doing on our side of the house with our advertising on Miracle Gro, every Miracle Gro potting mix TV commercial this year will be tagged with a call to action about planting your garden with Bonnie and Miracle Grow. And so I want to show you just one of those examples here if we could show the TV commercial. So just a it's a quick example, and we have many, many more of these. But we want to make sure that consumers know that if you're going to start your garden, you want to do what the best plants available in Bonnie brand and also make sure you start it right with Miracle Groove. So that message is carried out through a lot of our advertising this year. In addition, the work that Mike is going to do on the Bonnie advertising also include the cross sell with the Miracle Growth Soils. So you'll see that come to life here in the next couple of weeks for spring. In addition, we're creating all new custom content for our digital and online solutions that have projects for consumers that really incorporate both Bonnie and Miracle Gro to really help sort of solve those challenges for new consumers that come into the category. And lastly, I mentioned Mike has touched just about every piece of POP. Well, we're leaving no stone unturned here because Mike has even worked on updating the delivery trucks that are going to drive the Bonnie Plants 2 stores. Also, you'll see rolling out this starting this spring, the cross sell with the Bonnie and Miracle Gro relationship. So again, making sure that we are utilizing all of our assets that we have, all of those marketing tactics to connect these 2 great brands. And fundamentally, at the end of the day, not only does it work well for our business to drive growth for the soils and plant foods, we know it's going to make consumers much more successful in their gardens and keeps them in the category and coming back to do more. So we're really excited about this partnership. But at this point, I'm going to turn it over. We're going to switch gears. I'm going to call up Josh Peoples. He's our General Manager on our lawns business. He's going to talk to you about some of the Scotts programs that we have. Good morning, everybody. Again, my name is Josh Peoples and I lead our lawns business. This will actually be my 18th season here at Scott's. So it's really amazing I think to see how the company has just transformed itself not only from the products and a lot of things that are being introduced to you today, but really on how well it is integrated together. And I've got some, I think some really cool novel things that we're going to be doing here in 2017 and beyond. One piece I'd like to start with and I know Randy and Mike hit on this a little bit earlier, but for the lawns business, and when I say lawns specifically, I'm talking about our lawn fertilizers, our grass seed, our spreaders and also our new endeavor over the last couple years into outdoor cleaners. But one of the things that is really imperative for our company, and its financial health is our lawns business, primarily our fertilizer side of it. And I would say 2 critical things that come about whenever I call this the Scotts play is, 1, it being multifaceted. So historically, we spend a lot of time selling a product kind of at a price and that's been a little bit of the relationship. And what you see here is how multifaceted the strategic selling is with our sales partners as well as with the retailers on it's not just about the product. There are so many other components that come into this that we need to be very, very tightly integrated in with them. The second piece of this is how this is done over multi years. So not only again is it multifaceted, but doing it over multi years as well, not just kind of looking at 2017 or I guess now we're already planning into 2018, but giving a longer view of how we can truly grow not only our brands, but obviously the categories as well. And this becomes really, really imperative here with our launch business. So I'll quickly take you around the horn here. We're still the bread and butter of this is still about our consumable business and innovation. And I would say there's a really robust pipeline that's coming and has been working for some time now over the last few years. The second piece of this though is really looking at non core category growth. So one of the things that was alluded to earlier was our hydroponic space. But another thing and Patty Ziegler is the next presenter that will come up here will get into a little bit more depth around this is the whole smart home and connected devices that we've actually made some acquisitions within the past 12 months as well that we're going to be, I think really making this impactful for consumers to simplify not only the experience but make sure that they are getting tremendous success as well. Continuing to leverage our sales support all the way through the solution selling pieces of this. Randy hit I think on one of the really important things especially on our fertilizer business which is around integrated supply chain and making sure that we are becoming as efficient and continuing to evolve how we distribute and get products to the retailers, especially as their supply chain evolves as well. The marketing and media collaboration, I'll jump into that a little bit more on the next slide. But I think it's become so impactful on how it's not just from aligning on timing, it's also on the mediums, it's also on the messaging and how we can make sure that those are integrated and working well together hit consumers at all points as they're going through kind of the funnel and getting ready to either make purchases to after they've already put down a product and used it and are able to respond back socially and other mechanisms. And then the last thing here around the shared risk and share reward, I think it's been brought up quite a few times and you'll see this in the stores today, but just how much or how many new things that we are trying and testing and learning and making very quick decisions to be able to then scale those out more nationally. I think we were probably always a little, slow to the punch in the past. And now I think you're really seeing how quickly that we can react to market conditions and then be able to really take advantage of those on a very, very broad scale. So let's look at some proof points. And I think, again, this is one that we started with a few customers here in 2016, and now we're taking that through what I'll call kind of our top 10 here as we move into 2017 2018 around running the Scotts play. And one of the biggest pieces of this has been just the unbelievable integration and collaboration that we've had with many of our retailers. And you see it's everything from, like I said, outside of the store with TV and media all the way through in store displays and really making it easy for consumers to know what to buy, when to apply and why Scotts is the product they should be using. And I think what becomes even more impactful is the result, right? A little bit of proof here I think goes a long way where the customers over this past year where we actually ran, I'll call it, the total Scotts play, they saw, call it, mid- to high single digit category growth. Scotts was in line with that. And I think we started to see a ton of momentum to where we got basically our top 5 customers running the Scott's play here over the back half of the calendar year and you can see the results that have happened, up 12% on the overall Scotts' lawn business. Our lawn fertilizer is up 8%. And you know that this is a category that has been stagnant over some time. So seeing these results, I think, really shows the power of integrating and collaborating together. And what's even more powerful here is the 1st 6 weeks of the season in some of our key markets here in the South, you're seeing that lawn fertilizer number be up anywhere from 2 to 3x that number out of the gate. So again, I think it's showing the power of working together, doing it over a longer horizon and not just being kind of a short term win and really pushing the category and Scott's being the leader within that. So what's next? I think this was alluded to earlier. And while maybe it shouldn't have taken us 149 years to bring these two brands together. But what we're going to be doing for the first time in 2017 is actually kicking off the season here in a couple of weeks in the South, bringing Scotts and Miracle Gro together. And I think what's really powerful about this is this is a big category push. This is for those that are fence sitters. I'll say those that are probably more reactive to the category only when there's a problem. And this is meant to inspire them. This is also meant to give them an incentive to buy multiple products and provide the solution. And it's a totally integrated plan both with media as well as in store components. And I think what's cool about it is that again over a longer horizon to where 2018 is obviously a big anniversary for us where we'll celebrate our 150th. So this is something that we're going to roll out here in 2017. We'll be able to scale out bigger in 2018 and beyond. But I think similar to what they went through on the the team went through on Bonnie and Miracle Gro, Just another way to bring the power of these 2 iconic brands together to get people out and going to kick off spring. So with that, we've got the TV spot that we'll run. It's spring, and we can't wait to open our sheds and get working on our yards. Scotts and Miracle Gro are here to help. We make it easy to grow thick, healthy lawns, spectacular plants, and bountiful flowers. Because when spring starts right, the months that follow stay perfect. Load up your shed with Scotts and Miracle Gro. It's time to get outside. So as you can see, call to action, get kind of revved up with spring is here and spring fever is hit and obviously then providing consumers an incentive to go out to bundle up and buy everything that they need for the upcoming season. The other thing and the last thing that I'll hit on here is a new look for the Scotts brand when it comes to from a messaging standpoint. And really the point of this is to really hit on 2 things that we've learned over the past couple of years. 1 is consumers want to know what to apply. Just help give me the basics. And number 2, it's when should I be doing that? And I think what we've tried to do within this campaign here is to wrap this up in a really authentic straightforward way that presents the product actually in a much different way than we've done in the past. And in this execution here, we even go and leverage and utilize one of our sciences to really, I think, bring to life what the Scotts brand is about and has been about for over 149 years now. And the fact that we spend a tremendous amount of time and effort and expertise to make it as simple and as goof proof as possible for consumers. So this is one spot of many that we'll be rolling out here in 20 And again, does a great job of really connecting and activating that hand raiser and person that's in the category and letting them know what to buy, when to apply it and why Scott should be the choice for them. So really excited. We're off to a great start. Again, I think a lot of the collaboration and integrations that we're doing with the retailers have really, really shown some awesome momentum and we're going to continue to push that not only in the 2017 season, but years ahead as well. With that, I'm going to bring up Patti Ziegler. As I alluded to, some really cool stuff on the technology side, not only from an app and digital standpoint, but also from the devices. And it's really exciting stuff. Thank you, Josh. So as Josh said, I'm Patty Ziegler, and I am lucky enough to be starting my 6th season at Scotts and looking forward to it. 4 11, I'll never forget my first day, such as an easy number to remember. So we're heading into it, and I'm pretty excited. So Josh talked about engaging consumers. He talked about kicking off the season. And I'm here to talk to you a little bit about how technology is going to make that even better by engaging even a little more deeply. All of you have this little thing in your pockets. It's the window to your garden is the way I like to think about it. And that's why we came up with the concept of the connected yards mirrored on the smart home. But at Scotts Miracle Gro, we call it the Grow experience. Run the video please. Temperature, humidity, wind, soil and pest conditions and can automate everyday maintenance, help you save water, grow with confidence and have a more personalized relationship with the green in your life. So the Gro experience in the future and actually this future is actually right here mostly today. You can have all of these things connected through your smartphone to help you run your lawn and garden activities. So instead of a chore, most of it is automated. It's automated by learning, just like your Nest thermostat can learn with you. Working with Alexa, you could actually have your garden speak to you and tell you what chores you need to do personally today. You could have your robotic mower out there taking care of the lawn every single day, so you don't have to always have that nice smell and that nice crisp lawn. And all this is done through the integration with a smart controller and a smart sensor, which are 2 of the products Scotts is bringing to market this year underneath the growth experience. So here is just a simple simplified version of how the system works. So you have your Grow app, which is on your phone, which you should all V2 went into the iTunes store yesterday, so be sure and download the Grow app. That means we will have this many more downloads. And then you can use it to look coordinate with your sensors and your controllers as well as helping you identify projects that are of interest to you, that are trending in your area, that are easy to do with plants that are native to your area and help you not only manage your water and your resources but your time more effectively. So we talk about how it helps you get connected to the green in your life. Exciting news, which Josh alluded to, on the Blossom and PlantLink water controller and plant sensor are now part of the Scotts brand experience and will be Scotts branded or integrated through the devices through the app. We have the technology supporting direct to consumer. So within the Gro experience, you can now engage with activities as well as purchase products to help you again simplify in creating another solution that brings the lawn and garden experience that much closer to you all through the window in your pocket. So we launched the Scotts app, the My Lawns app, and that was launched 3 years ago now. It has tremendous consumer engagement. So Josh talked about that consumer that just needs to know what to do and when to do it. The app takes care of that. We continue to iterate and improve on it and are very excited about the results with consumer engagement. So in a world where lots of apps are deleted from people's phones, this one sticks around and has a very high reconnection rate. The Grow app we launched last year and this year we just launched version 2, learning from some of the feedback we had from consumers and improving it as well as creating a little more intuitive experience connected to the devices, which we have been challenged by Jim to be sure that it is seamless and continue to work to make sure it is. Looking into 2018 and thinking about total plant health and water management. And John talked a little bit about the soil management and finding plants and all of those things where you have the plant sensor and you can be sure total plant health as well as managing your lawn. Water innovation, and this is sort of the pipeline of what is to come. So the Connected Yard, I've told you a lot about this year and what we're launching. We are having some drip irrigation products that we are putting into the portfolio as well as looking to LiquiFeed and how we can add more aqua feeding to your process. And alluding back to Emma or going back to what Emily talked about, where we are growing now. So the Grow app and water management and some of the new devices are going to be aggregated within the retail environment, providing more and more opportunities to get the consumer engaged in the category, remind them that the smartphone can help them identify what they need to do, when they need to do it, connecting that consumer and helpfully encourage them to do more. We do know that if consumers know more, they do more. And so we continue to drive education, whether it's through the mobile device, the laptop and the mobile tablets. So we are ensured that they are everywhere we are everywhere they need to be and the Scotts Digital ecosystem has grown over the last years to do that. So we are very active in all the media channels you would anticipate and engaging our consumers in an ongoing dialogue about the green and their life. Thank you. I'm introducing Tim, who is going to talk to you about controlling the controls world. Thank you, Patty. Good morning. My name is Tim Martin. In a couple of months, I will be celebrating my 15th year here at The Scotts Company. And over that tenure, I've had the opportunity to work on just about every brand in a marketing capacity at Scotts. And today, I lead the controls business. And so what is the controls business? It's basically a portfolio of brands that help consumers solve problems, help solve lawn and garden problems. And so if you look at left to right there, Roundup arguably the biggest brand in the control segment. Home Defense and Ortho, we've got 100 years' worth of experience in consumers trusting the ortho brand to solve their myriad of lawn and garden problems from weed control to plant disease, but more specifically, in insect. And then finally, our newest brand in the portfolio, only 3 years old as far as we're concerned, the Tomcat brand. And in those 3 years, we've taken a brand that was number 3 in the category and catapulted it to the number one brand in mice and rat control. And so with these three powerful brands, we feel that it is our responsibility to grow the category. In fact, it's our number one priority. And so what I'd like to do today is just walk you through our plans with each of these businesses to show you how we're extending the brands into new spaces beyond what they are today and helping provide complete solutions for the consumer in the controls category. So first, we'll start with Roundup. A little background here in case I'm sure most of you know, but the Roundup business today is a share we share the earnings of the Roundup business with the Monsanto Corporation and that is specific to the non selective products that we offer. So your base Roundup with the Blue Cap or Weed and Grass Killer, Roundup Extended Control, Roundup 365, Roundup Poison Ivy, all of those products we shared the earnings with Monsanto. In 2015, we signed an agreement with Monsanto that allowed us to do 2 things, extend the brand into new segments beyond those that I just mentioned. And then secondly, those earnings are 100% Scotts Miracle Growth. So we do not share these the earnings from these brand extensions that we'll be launching in the next couple of years. So first up is Roundup For Launch in 2017. And so what you'll see here in the stores today is how we integrate this new launch of Roundup for launch as a selective weed killer. You can actually use Roundup now in your lawn and it won't harm the grass. It will just kill the weeds. And we'll put it in context with the rest of the portfolio. And so again, sort of providing the consumer with a complete weed solution regardless of the area that you're using it in. So you'll see this end cap in Home Depot. It's the number one end cap in Depot. We also have great placements at Lowe's and Walmart and it will be supported with a tremendous advertising campaign linked to the draw the line campaign that we launched last year and we can run that advertising. Today, it's the dawn of a new lawn. That's because new Roundup for lawns has arrived. Finally, there's a Roundup made just for your lawn, so you can put unwelcome lawn weeds to rest. Draw the line. With Roundup For Lawns, there's no better way to kill lawn weeds to the root without harming a single blade of grass. It's a great day to be a lawn. Draw the line with Roundup for lawns. And for weeds and other spaces, turn to Roundup weed and grass killer products. And again, you can see at the end of that spot how we tie in the rest of the Roundup family to help reduce consumer confusion, also, incent them to put more Roundup products in their basket for basket building and then in the end, obviously, drive the category in 2017 drive category growth. Switching over to ortho and home defense. Today Ortho Home Defense is a product. It is the number 1 indoor and perimeter insect control ready to use product in the marketplace. In 2017, we're launching a broader portfolio of products under the Home Defense brand. So no longer will it be just a product, it's going to be a total complete solution for consumers to control insects in and around their home. This includes ant and roach bait, a line of home defense aerosol, And we're even extending it outside into the yard with a line of home defense lawn insect products and ICS, a granular product, a concentrates and you can see here how we're communicating it in store and online. It's this idea of whole home protection. There are layers of protection that you can keep bugs out of your house by applying it inside around the perimeter and then even extending it into the lawn where ticks, fleas and mosquitoes, those things that mom is always concerned about attacking her kids and her pets for a total solution in home defense. We're also launching a line of home defense bed bugs. You saw a picture of it in the slide earlier. It's a portfolio of products that help consumers treat if they do have bed bugs. If you know anybody that has had a bed bug issue, it's an extremely, extremely emotional issue to have. And home defense is designed to provide the most effective product out in the marketplace today. A majority of bed bugs are resistant to pyrethroids, which is what our competitors base their formulas in. Ours are not. They are targeted towards specifically those resistant bed bugs to make sure that consumers have a tremendous amount of confidence that they're going to get the problem solved. Later on this year in the summer, we will launch a bed bug trap with a pesticide free patented pheromone that will likely revolutionize the bed bug category. So here is a product that you simply just sets underneath your bed. It attracts the bed bugs to it, out of their hiding places and then traps them and kills them. So we're very excited about that launch later on this summer. And then finally, Tomcat. So extending the brand here again, that's the theme of the story. Today, Tomcat is the leading brand in rat and mice control. We're extending that brand into a broader animal nuisance category. And so we'll take our existing repellents business and move it into the Tomcat brand. And we'll also be launching a new Tomcat trash bag that is designed to repel raccoons and other rodents and keep them away from your trash. So on trash day when you walk outside, you don't have trash all over the place. This does 2 things for us. Number 1, it provides an entire solution. It opens our aperture as we look at this category and start to innovate within the Tomcat brand and look at other animal nuisance opportunities beyond rats and mice as we do today. And then secondly, it extends the brand across the entire year. So we get out of the spike that we normally see in the fall with rats and mice. It gets cold, they start to move into your house. Now we have a portfolio of products that you see there on the right, that's a solution display that we'll have up in stores this year. We can have that display up all year long. In the spring, we can talk about a repellent and protecting your vegetables and your landscape plants from deer and other critters that might eat them. In the summer, we can focus on mow and bolt to protect your lawn from those. And then in the fall, back again to our heritage in the mice and rats category, all while all year long being anchored by those Tomcat trash bags. So we have a ton of new news coming out in 2017. I'm really, really excited and I think it's going to be a fantastic year for the CONTROLS brand. And with that, I will hand it over to Chris to talk about hydroponics. Thanks, Chris. You're welcome. All right, guys. So, let me talk to you about hydro. Also spent a little bit of time talking about our craft brands, which Mike Sutter will join with. I think he's probably right there. We just hang out there for a little bit. All right. So when I spoke to you guys last year about the Hawthorne business, we really had it broken up into 2 kind of distinct segments. We had what we called our craft business, which was kind of the roots of Hawthorne, which was brands that were designed for younger consumers, much more traditional gardening brands and hydro, so soils, organic plant foods that kind of thing, brands like Whitney Farms and the distressed and our initial investment of Adeo Garden. The other side of the business was our expert business or hydroponics, which is one that I know people want to hear about. We've spent a lot of time and a lot of money on over the past year. We made the decision about 4 or 5 months ago. We started discussing at least the idea of breaking the two businesses apart and really just having a Hawthorne management team focused exclusively on hydroponics and hand the craft team off to a brand team in Marysville, in this case run by Mike Sutter also of LiveGoods fame. Again, we went through the planning probably starting around October after our national sales conference. We closed our BotanicCare deal. We continue to see a lot of momentum there, a lot of interest from folks like you. And when we thought about, we said, it's between focus and just our ability to continue progressing the business and keep momentum. Make sense to split the brands up, particularly with Pratt's focus from a retail perspective, really settling into SMG kind of core retail channels at places like Walmart, Lowe's, Home Depot, it seems to make sense to give that business to someone who understood what we were trying to do with those brands and also understood the channels that they were selling and even better than we did. So with that in mind, we split the businesses kind of at the beginning of this calendar year. So we've recently gone through that kind of restructuring, leaving my team squarely focused on hydro. So with that said, over the next couple of slides here, Mike will talk a little bit about the Pratt business. Great. Thanks, Chris. Appreciate it. And thank you for leaving me with an awesome business with a lot of momentum on it. I'm really excited about the kraft hydroponics side of the business or mass hydro side of the business. It is a rapidly growing dynamic part of the business for us and really an opportunity for us to create a category that didn't really exist just a few years ago. I'm talking specifically about indoor gardening. So the numbers, the growth trajectory here, this is all focused on sort of craft mass hydro side of the business. Chris will talk more later about the expert pro side. But today 14% of households participate in hydroponic gardening. And that number while small is double what it was just 12 months ago. So it's doubled in just 12 months. And as you can see from the chart, another 38% of households have strong interest in participating in Hydro Guardian. So if you total that all up, it's 52% is the total opportunity, 52% of households. And that number is actually on par with the same penetration we see on our traditional outdoor categories, outdoor gardening categories. So a lot of upside potential here. And the thing that we really like about it as well is, as Chris mentioned, these shoppers, the Mass Hydro Shopper, they want and expect hydro solutions to be available at traditional lawn and garden retailers like Home Depot, Lowe's, Walmart and others. So it sets up really well for Scott to be able to capitalize on this opportunity. And these craft growers, it's really not just about growing a single crop in their home. They really are looking to grow a wide variety of things, vegetables, herbs, flowers, fruits, really anything that you can grow. These consumers are looking to grow hydroponically and specifically indoor. And what really motivates them is the ability to grow 3 65 days a year, which is unique in gardening, being able to participate all year long. And what's really exciting about that for us is they need to buy and use our products to support growing 3 65 days a year. So unlike traditional gardening products, which primarily are focused on purchasing in the spring and a little bit in the summer, this is really truly a year round category and a year round opportunity for us. As we think about capturing that opportunity from a craft standpoint, we've created 2 new brands each with a unique positioning that we're really excited about. Blackmagic was our first foray into mass hydro. We launched that last year with Home Depot. That really has a more edgy focus or an edgier focus and is targeted really more to the traditional hydro grower. In 2017, we're launching the Root Farm brand, which will be at Lowe's. That has a much softer focus and really is positioned or targeted more towards vegetable and herb growing inside the home. We think these two brands are a great way to get some in market learning, especially as this is a dynamic, rapidly changing category. We want to be out in front of it. We also have designs where we're starting with Home Depot and Lowe's, this opportunity extends to Walmart, 8th and other retailers as well. So we're not just limiting our focus in craft or mass hydro to these two customers. One of the other really exciting things about leveraging the work that Chris is doing and his team with the MAS or kraft hydro opportunity is coming to life in the solutions that we put together for the mass hydro or kraft hydro consumer. And I'm going to spotlight 1 here, although an focus on this growing system that really has been developed in a partnership leveraging our pro or expert hydro businesses like General Hydroponics and others, taking that expertise and combining it with the Scotts Miracle Gro Research and Development and Marketing team and their focus really on the consumer home gardener has really designed a unique innovative new system that will help consumers be successful in the mass space with an indoor growing system. So on the left, this image on the left here is really the industry standard in, kind of traditional hydro channels. That is a general hydroponics grow pale or grow bucket. It essentially is a bucket that you grow hydroponically in. In the that is going to be commercialized here in the very near future, just the next couple of weeks, that simplifies dramatically the growing experience inside the home hydroponically. It's cleaner, it's self contained, it's easier. And probably the most important thing for this mass hydro target, it's much more aesthetically appealing. That system right there allows us to take hydroponic rolling out of the basement or the closet and really put it into the living room or kitchen because that feels like an accessory that you wouldn't mind having out in your home 12 months out of the year. So as I said, that's one example. We do have a complete line that's been developed of mass hydro products, which includes the lighting, which you need to grow indoors successfully, again, leveraging our partnerships on our AeroGrow side of the business, as well as nutrients and other supporting products that a consumer would need to be successful in this place. And we've done it in a very, very short period of time. Lastly, because we are entering a new category or really creating a new category with indoor gardening, we need to take a different approach from an in store merchandising and marketing standpoint. So we have implemented some unique in store merchandising vehicles. You'll see some of these as you walk stores today. It's really about getting hydroponic gardening or getting indoor gardening out of the traditional gardening set into a different area of the store, presenting it in a unique and different way because these are different shoppers than the traditional gardening consumer. So we want to intercept them with a different merchandising concept in store. And from a marketing standpoint, we're really targeting non more nontraditional media vehicles to reach these consumers, much more digitally focused, much more focused on social media, targeting consumers where they are with relevant content and information to inspire them to grow hydroponically. And I'd like to show a couple of different videos now. 1 is focused on our Blackmagic brand. So you'll see a commercial for Blackmagic that's going to be airing digitally and then follow that up with our Root Farm brand. I think it will do a nice job of showing the differences as well between the two brands. So could we roll the Blackmagic video please? These are growers. You'll find them above diet bars, basements, and under the cover of darkness. They seek perfection on a level that would drive lesser souls to madness. At Blackmagic, we salute them. They don't need our praise. They'd rather have our soil. New York, rich, crafted to deliver performance that doesn't yield to conventional limits. Blackmagic. Yield to no one. Available exclusively at Farm grows food 360 craft hydro space and the opportunity we have there particularly growing with our traditional lawn and garden retailers. I'm going to turn it back over to Chris who's going to talk about all the great stuff we have in Expert. Thanks, Chris. All right, guys. So getting back to sort of the Expert or sort of core hydro side for us. And really the way we looked at it was it was separated by kind of channel. So Mike kind of took over the things that were sold through SMB's traditional channels and we hung out of things that were sold through either our hydro channels or unique channels like Bed Bath and Beyond as Mike mentioned earlier with the Aerobro brand. So moving into the Hawthorne, the story is good. The outlook remains pretty strong. The brands are they're healthy businesses, so 3 year CAGR of over 20%. We made our base cases for these deals pretty conservatively. We had some assumptions in there that we would incur frictional losses just due to the deal and integration. So we made our base case financials pretty conservative and we've outperformed those consistently. Our 2017 guidance again is a relatively conservative 10%. I think we are our internal expectations between you I and all of us are that we'll exceed those. But again, we want to take a relatively conservative pace that still exceeds the deal economics and that makes us feel pretty good. Now one thing that we do need to keep in mind with these high growth brands is that quarterly growth rates are going to be a little chunky and I'll explain kind of why that is here, because it's a very different type of business than traditional lawn and garden. And there are really three main factors that go into explaining why the growth rate tend to get kind of a saw to pattern as it goes through the year. Now if you follow that line all the way across, it's a good kind of upward trend. But what we're looking at is the business is divided right now between consumables like grown media and nutrients and then more kind of high ticket kind of hard goods like lights and systems and plastic trays that kind of thing. Those two different categories of products are consumed really differently by growers. The nutrients in the growing media really fit the SMG model of or kind of the Procter model of things you kind of flush down the toilet or flush down the sink every day. So those are getting bought on a pretty consistent basis, annual every week or 2 weeks by growers throughout the year. There's some seasonality, but pretty limited. The other products lighting, trade that kind of thing, those are what you call project driven purchases. So when you have a large scale growth that is being installed in Denver or as legislation continues to change in places like Massachusetts, Maine, Nevada, what you see is someone showing up and coming to our lighting company to be this and saying, I have a 10,000 light project that I'm doing and that's a 10,000 light sale. Now those guys aren't going to buy lights again for another few years. So you see a real big spike. And some projects that are large enough where you'll say, boom, that's the quarter is done with one sale for one grower because it's a project that large. The same goes for things like our BotanicCare Trades. Again, people buy those once and they don't have to buy them again for a few years. So you'll see some chunks when you just get big projects that are coming online. Another thing is timing of promotions. They're really promotionally based business. From a retail perspective, retailers really like driving promotions through, the distributors like it as well. So the timing of the promotions tends to really increase sales. And related to that, this is a 2 step distribution model. All of our products with a couple of exceptions goes through one of the 3 main hydro retailers, some might supply BWGS, Bloomington Wholesale Garden Supply, Hydro Farm. Now those distributors, they load in products, so they'll load up all their warehouses and DCs and sell through that product over the course of the year. So when those large distributors make their purchases, we'll get a big spike in our POS or our revenue and then they will sell through that product. So again, just to explain a little bit, if you guys dig into the numbers, it will look a little funky relative to SMG. It's just the nature of Hypotronics. But overall, the story is really positive, really strong. Really building on the sort of positivity that it's a really, really great time to be in hydroponics right now. The word that we've kind of avoided saying up to this point has been cannabis. We're not in the cannabis business, but we serve the cannabis business and we want to work closely with it. So for us, looking at the state of affairs right now in the United States, particularly coming through Election Day, which was personally speaking a mixed bag, it was a really good day for our business. We had a lot of states that voted positively for us. And we got a guy who at least claims to be pro business. So I'm optimistic in that regard in the White House. But the bottom line is more states than anyone expected voted positively on this topic, more states legalized. The one state that had recreational on the ballot that didn't pass it was Arizona. And we're actually, as of last week, we are in the process of trying to hire the people who behind the marketing campaign that stopped that from succeeding. So I figured, we can't beat them, hire them, have them help us. It was primarily pharmaceutical companies. So there's a company in Arizona called Insta Therapeutics, the largest producer of fentanyl in the country. They very publicly put a few $1,000,000 behind the campaign to get that amendment defeated. So you take that to what you will, whether they're trying to protect their fentanyl and sort of opioid sales or trying to sort of box out until they develop a synthetic kind of cannabinoid replacement. That's something I don't know. What I do know is they've been pretty open that pharmaceuticals have been the people lobbying against this, in states that have been successful, which have been limited. That said, the business is growing like crazy. The category is growing well. And there's just there is national acceptance on a level we haven't seen. More people are choosing to use cannabis than we've seen before. And I think a lot of that's related to different ways that people can intake the product, where it used to just be a flower that you smoke in some way. Now there are edibles, extracts and concentrates and other things that make it a lot easier because you don't want to smoke something, particularly when a lot of states this is considered a medicine to ingest that medicine in a way that they would consider healthy. So it's a really exciting category for us right now. There's so much that's going well for us and so many tailwinds. And one of the really exciting things is you see the change and it makes it interesting that every state up to this point has unique legislation. Some legislation like you see in California, Proposition 64 that passed in November says that the ball really limits the size of growers when you see a lot of really small growers in California, which is interesting and it works well for us because it's really where our business has been optimized up to this point. What we expect to see on a more national scale though is for larger scale commercial growers, the likes of which you see in Nevada and Colorado begin to be the norm. And that's a huge amount of growth for us. Now they expect different things from product, different things from service. And those are all things that we'll develop and we'll talk about in a little bit. But you want to be your solution again. So our plan becomes the leading solution provider for hydroponic growers, both small scale hobbyist and large scale commercial. And that means, again, we talked about this before, some probably some additional M and A work to come, nothing huge, maybe some pretty sizable deals, but some really exciting strategic moves for us. So we're a couple of years into the whole Hawthorne journey. We've learned a lot, I think, and some real key success drivers have emerged. And they're really what we expected, I think, which was, if we want to do deals with successful companies and we do and we have, we don't want to those businesses up. Again, with those deal financials, we assumed some degree of kind of frictional loss just due to integrating into a larger business, people who've gone from really informally operated family businesses to being part of a much larger, much more structured business. We knew that keeping the teams in place, maintaining cultural kind of continuity was important for us and we were successful in that and I'm really proud of it. The other thing was we don't know this space or at least we didn't at the time. We from Hawthorne or from SMG. We know lawn and garden, but isn't traditional lawn and garden, it's different. So keeping the sort of founders of the business in place is important. We're able to do that as well. So we've kept a really smooth transition through the business. We've been integrating. We've really just begun the integration. There's a lot more work to do, continuing M and A activity, like I said. And we've hit our numbers all the time. So it's been a good story of trying to do a lot, trying to keep a lot of balls in there at the same time. And obviously, most important thing is actually make your numbers and we've been successful with that. So we really have 3 key objectives moving into this year, moving to 2017 and beyond. The first, obviously, is integration optimization of the businesses that we've acquired. We've got a lot of work to do there. Really hand in hand with that is integrate those businesses so that we can deliver the best service in the class. And again, whether we're talking about how we're going to service a retailer who sells to individual hobbyist with one plant or how we're going to sell directly to a large scale commercial grower with 10,000 or 100,000 plants. We have all the tools to be the best service provider to this industry and we plan to do it. And then finally, as I said, continue to fill in the gaps in our portfolio with some tuck in acquisitions and some other things on the M and A side. So digging briefly into each of those. From the integration side, it's a pretty complicated task. We bought businesses in California, Arizona, Amsterdam, Colorado. All those businesses are successful. They all have their own distinct meat cultures, their own sales team, their own branding and their own supply chain. So we're looking to integrate both from a supply chain perspective, all of the businesses we bought along with where applicable SMG supply chain is going to be really important for us. Making sure that we're handling our brands intelligently so that we're not fighting ourselves, that we're using our brands to protect one another against competition, integrating our sales team, which is nationwide now. And then finally, just introducing for the first time ever to the category, real professional category management. You have brands that have products that compete with themselves within one brand. So being able to introduce a real professional category management approach, I think, is going to really help us out with our retailers and it's going to feed into this next step of providing the best service that we can. When we talk about supporting revenue growth, it's not just making sure that our plants can supply enough product for us to get through our promotional periods or anything like that. It's supporting the revenue growth of our retailers and our end consumers as well. As their business grow, we need to be there with them to support them. And that's somewhat unique in our category because a lot of people don't have the ability to scale. As this goes naturally, we truly nationalize more East Coast states come online. And I just want to sort of set people's expectations there that when you see a state like Maine or Massachusetts legalizing cannabis at a recreational level, don't fall into the trap of thinking that there's going to be an immediate sales month in those states. The legislation takes at least a year to be rolled out and then probably another 6 to 12 months to be implemented. So there is a little bit of kind of a lag time on those states. But when they come online, very few of our competitors now have the ability to get product at a good price to those regions, simply because the businesses are all kind of based on the West Coast aside from us. Execute the operational synergies, as I said, move on to SAP. And SAP is big for us again. As we expand nationally, being able to plug easily into the existing FMG infrastructure is going to be a huge advantage for us. And SAP allows us to do that. And it's already been implemented at GH, it's rolling out to the Tanicare and Gavita as we speak. Finally, M and A growth for us. As has been said a couple of times already, we're still learning about the category. And to be frank, the category is still evolving. Still a lot of things that no one knows because it's all happening as we watch. So the work that we've done is we've seen it to be a total solution provider to this category and be able to walk into a large scale commercial growth that isn't built yet and say we can offer you every single product you need, including an ongoing tech service relationship well beyond the point of sale is something that we need to do. And to do it, we need to acquire some additional capabilities, some additional skill sets. When you look at the business, you see things like air and water handling, things that Scotts doesn't really do, certainly Hawthorne and none of our brands do, it seems like we have a need to go out and make some deals. And I think we've got line of sight to deals that are relatively small now, businesses that are pretty immature that have really breakthrough technology that if we can acquire them or partner with them now before they grow along with those large scale growers, we think we can get a pretty good deal on them. So that's our intent. We've got a lot of really exciting stuff to announce to you guys over the next probably 6 to 12 months on the deal front. But we're super optimistic. R and D has has got a lot of innovation coming and it's a great time to be in Hydra. So that's all I got. Good morning. I'm Mike Carbonara. I'm President of North American Sales. I've been with Scott's Miracle Company for 23 years and retail sales business for 38 years. So needless to say, the current retail environment continues to be competitive. However, it's changing rapidly. And as a result of that, our customers are taking an omni channel approach to finding a way to connect with the customer, so they can be everywhere where the consumer is. Really an interconnected experience, if you will, across mobile, digital and in store. And we're leveraging our apps like Mylon and Gro to support these interconnected touch points. So we can provide inspiration, how tos and expanded video content, so we can be everywhere the consumer wants to be. At retailer, productivity and collaboration is imperative in today's changing retail environment. Working with retail partners to achieve shared efficiencies in our supply chain network as you heard from Randy Coleman. We also continue to have a product assortment so that our customers have the right product, the right placement at the right time. And you've heard numerous people talk about solution selling, so I won't beat a dead horse, but I will tell you how we support that at the retail level. And it's really about a couple of things. Number 1 is that what makes us successful is having the people to be able to support these solutions, us have the products and us have the experience and know how to make it come to life. I think you'll find that when we go into the stores, you'll see the opportunity firsthand of what these solution centers look like. From a promotion excuse me, from a retailer's partnership standpoint, I think it's really about top to top relationships. And what you'll find is that we created top to top relationships with all of our key customers. We get together 1 on a quarterly basis and we align our strategic initiatives and have joint business plans to ensure that we grow together. As a matter of fact, this Friday, we actually have a top to top with the largest customer in Marysville. From a line promotional standpoint, you heard Mike Lueckmeyer talk a little bit about the fact that we are now working much closely with our marketing and media partners with all of our customers. And as a result of that, you'll find that we will have more impactful promotions, promotions that are synergistic and ultimately promotions that give us a bigger POS lift. At the field sales team level, continues to be one of our biggest assets And they really are and continue to play a critical role in us being successful as they create a frontline sales force that integrates and communicates with both the consumer and our customers. I think you'll realize here though is that we will get the full realization this year of our integration with Bonnie. So we currently had last year about 2,500 people at retailer retail, excuse me. This year, we are adding the Bonnie sales force into ours that gives us over 3,100 retail presence during the course of the season. That's a 25% increase over last year. And what that does for us obviously other than just gives us scale, it gives us the opportunity to instead of fighting for display space to collaborate with Bonnie to work together to give us a bigger share of the store. And that's a huge competitive advantage for us. And I think it's actually coming back to merchandising in the store. It's really about key decision making relationships. And Scotts Meerford Row has the best one in Lawn and Garden and I'd argue that maybe in the entire industry. The bottom line is that we do regional operation plans with our key customers at store level and we talk about the strategic initiatives that we want to accomplish. And then secondly, what we do is we talk about regional opportunities. And some examples of that are the La Nina effect that are happening in the West and the South right now or the opportunities in the Northeast and the Mid South on drought recovery. And lastly, it's really about growth. It's about growing the category and most importantly growing all of our customers not just some. And it's really we've had conversations with virtually every one of our customers and they all tell us the same thing. And it's pretty straightforward. They cannot grow their lawn and garden category if they don't grow their Scotts business faster than the store average. And that's exactly what our objective for North American sales for 2017 is. So I'm optimistic by nature. I'm a sales guy. I've been doing this a long time. I'm not here to make predictions or projections, but I will tell you I really like the vibe that's happening at retail right now, both with the retailer and with our customers. And I think you'll find the same thing when you go out there. There's an energy that's out there we haven't seen in the last couple of years. And the bottom line is we've obviously started off strong. I don't think that's coincidental. So again, I won't make a prediction, but I'll tell you that pretty excited about what's going to happen. And I think you'll see firsthand what I'm talking about. So with that, I'd like to turn it over to Jim King. Thanks, Mike. We're running a little bit early, so we're going to do some rapid fire Q and A here in a second. But before we start that up, just put my own top spin on what you all heard this morning because I talked to all of you on a daily basis and have been for more than 15 years now that I've been at Scott. And I think somebody Randy and I were out doing some marketing last year and somebody asked why we were making how it was that we could all of a sudden make the changes that we've made and move so quickly. And Jim's talked about the changes to the management team and the streamlining of the business. And our honest response to people when they ask us is that we've really evolved the culture of this company in a very short period of time. And I think what I shared with some of my colleagues yesterday, which may have been lost on them for this audience, is the speed at which things are changing now is really, really different than what you heard and saw from this company a few years ago. When we did the Roundup deal a couple of years ago, I guess 1.5 years ago, we had that step change in the profitability of the business. And we told folks that what we are hoping to do is bring new products to market by 2019. We did that in a year. The new hydro system, we did that in a year. The Bonney agreement, we've done that in less than a year. So the changes that are happening in the organization and the speed, I think, is really different and the story is much different than what I've shared with many of you for 15 years now. So that's my top spin on what you've heard. I'm really optimistic about the things that we're doing. So what we're going to do is we're going to take a little bit of Q and A with Jim before he leaves. There he is. We're going to try to do something just rapid fire for about 10 minutes. Then he's going to go out on the bus that's going to go to Home Depot and stay there. So everybody will have an opportunity to interact with him there. So let's take a few questions. Thank you. Hey, just before we start, I just want to say that I've been doing this for a bunch of years. I usually interrupt like a son of a bitch. I think this was one where it was really fun just watching the team. I don't know for a lot of folks, Barrett is one of them who've been following us for a long time. This was a really good presentation that talked about where we're going as a company. And the excitement is not bullshit. It's for real. So there's a lot of really good stuff happening. And I think there's the team itself. If you go to Marysville and we have a team that if you looked at our business sort of 10 years ago and today, it's younger, it's and it's more diverse. And I say that only because the business is being run by some women, but a lot of guys. You go back to Marysville, Marysville is a much younger place for us now. It is a lot more ladies and different skin colors, the whole bullshit. And Michelle Rhee is on our Board. She should have done she should have taken the education job I think, but she didn't listen to me. But she runs Comp and Home for us. And one of her things is Jim like diversity is not just a skin color issue. Diversity is a it's experiences and how people think about things. And so behind all these presentations, there is a much younger crew that you're not seeing. And I would say anybody who wants to come visit should do that because it's a pretty interesting and different company than we were 10 years ago. So I'm really proud of the work that everybody did here. So thank you guys all. Just two questions on Hydro. I guess first I'm trying to put the Hawthorne growth into perspective. How fast is the expert portion of that category growing if there is an industry growth rate at this point? And number 2, how do you see it evolving between consumer versus commercial? And if it goes more toward commercial, how brand oriented are those growers versus the consumer? Thanks. I'm going to sort of trip around on this one a little bit. This is sort of let's just call it category growth rates. I think that the numbers if you looked at it over the last couple of years, these are they'd start with a 2. So that I view this market as a little bit like when you saw the U. S. Consumer market consolidating around depolos and Walmart, it was a lot of time if you weren't growing 30% with those guys, you were definitely losing share. So I think we view and I wanted to really talk about this and I sort of kicked myself for not having mentioned it. If you look at what we're talking about and I think we're trying to be conservative here, all right? I think on our core, I think our view is we want to grow more than 2%, okay? So beyond below 2% on the core, we'd be disappointed. I think we've got a good year going, by the way. So I think we can do better and I think the stuff that we talked about says that. I think if you look at live goods, I think we'd say 5% to 10% is what we ought to be getting. I think Tomcat is a brand where I think that would be a start with a 2. We're that's how that category is growing. And then hydro, we're trying to come up Mike and I were this is one where we're not trying to put a lot of pressure on Chris' business. I start with sort of simple math, okay? Say is everything that's occurring in this country, positive, negative or neutral, okay? Definitely on this space, it's positive, okay? And I'd start with that. We don't want to sort of put too much pressure on Chris' business because we started with a business case, which is how we did our acquisition economics that is very conservative, okay? And Chris' unit has outperformed not only those numbers, but Chris' unit has also outperformed their budget, okay? So for our point of view, we've talked to you guys a lot about do not overpromise, okay? And we're not going to do that here. Mike and I were talking yesterday just because it seems like with the analyst community and maybe just the investor community, I'll start with the analyst community, we can't get you all to shut the fuck up on this issue. And so it means we were not probably communicating properly. I'll take that on ourselves. What number would we say if we are not growing at a level we would be disappointed, okay? And I think where Mike and I got to, and the consolidated number we had was mine was lower than Mike's is if we're not growing at 15% on this space, we're disappointed, okay, on a per year basis. And I think that's one that we're willing because we kind of went around the room yesterday and said what can we share with these guys where we're not putting Chris in a box where he creates a disappointment, okay? Because there's no reason for that, okay? If you look at I thought it was a good presentation by the way, because it kind of says the journey we're on right now. The place we are right now is we have a few more targets we're looking at and we have a big integration task ahead of us, okay, and a positive environment external to us. So we don't want to put him in a place where you guys are saying to us, fuck, that's not what you said. So we sat around yesterday and said, okay, what would be a number that we couldn't grow that level, we'd be disappointed. And we did it. How do we feel about it in the live business space? How do we feel about it in our core space? And how do we feel about it in the hydro space? And that's the number that we sort of came up with a consensus. And I think it is worthwhile guidance. Mike's number was higher and I think what we're effectively not trying to do is succeed but somehow feel like we're screwing up because within the deals virtually every one of these deals we've done has had a performance like payout to the pre existing owners. So you don't get really smooth numbers where you have people who get paid a bunch more money if they make a certain number, they're going to make those numbers. Now Chris has been making his numbers in spite of the fact that a lot of these numbers come up at year end. And so you're not going to get super smoothness, not only what he described, but there's also earn outs. And the earn outs then drive performance into sort of calendar periods that work for the seller that are somewhat artificial, okay? So what I'm saying is, I think our view is categorized rates north of 15% would be what we would expect on a go forward long term basis. And we think that's conservative. Okay. Thanks. Maybe if you could talk a little bit about the changing retail environment. Obviously, we're seeing a lot more e commerce. You touched a little bit upon it in the last I think the last segment. Where is e commerce now? Where is it going? And then just in terms of how you work with the brick and mortar retailers, thankfully you're not in like the enclosed malls that you have the anchors that are out there. But how they have conversations with you in terms of driving that traffic because yours is more of a touch and feel kind of category? Well, I'd like Mike to take more of this except I do want to go back to say, we want to sell wherever people are buying, okay? And that's where our loyalty is, is to our consumers. And that doesn't mean we're disloyal to our brick and mortar retailers. And it's Lawn and Garden still within the online marketplace, except for like AeroGarden, stuff like that, is still pretty immature. But I do want to say, to start with, our loyalty is to our gardeners, okay? And we will go wherever we have to stay with them. I think we have these big relationships with our sort of legacy retailers. And I want to tell you guys that like when I got involved well, when we merged Scotts and Miracle Gro, Home Depot was not national. Lowe's was not national. Walmart was not national. I mean we all look at these retailers now and say but you just say it doesn't seem that long ago to me because this was 1995. These there was it was Kmart and sort of the hardware co ops were the only national players in town. So it's evolved a lot so that we have these 3 big retailers, which Mike and his team have done a fabulous job. And our brands are important. I mean, it's we're a very good partner to these guys and we appreciate their support as well and we're looking to drive their business and sort of the quality of their business. But it's something we're very interested in, which is how is the market evolving on a sort of e commerce point of view. Mike, you want to take that? Yes. I mean, we're working with all the retailers on whether we want to drop ship or put it in their warehouses. Because of the distribution, you almost have to drop ship. So we have to develop a network with the retailers that no matter what retailer or whether we ship it directly ourselves it comes out of our factories or our warehouses and we'll sell online with anybody. So we're doing it with Amazon, Depot, Lowe's, Walmart and we even ship some stuff through our AeroGarden business ourselves. So we'll just continue to evolve that. And think about all the content that has to go into that. Who has the most content? Who has the most knowledge? Who has the most expertise? And a couple of months. So we want consumers to get the products however they want them. And we'll work through with whatever venue, allow them to get that and have the information. So and our big retailers are into it big time. So years ago they would be upset that we would do that. But we actually have to have the infrastructure to do it or they won't be able to do it. Yes. I would just add one more into that, which is that it is not the threatening environment that they used to be where they would act like they'd kill you if you went on Amazon. That is not the issue. I think they're very much I'm not going to say even struggling. I think trying to figure out how to start with Depots, how they can use their store infrastructure, their distribution infrastructure, their relationship with the consumers to participate in a more convenient way of getting products. And so I think everybody is just trying to figure it out. And I think the good news for us is it's not super mature. So we're not like all behind on us. But I think it starts with saying our loyalty has to be with our end consumer. So just on this idea of solution solving a solution for the customer, improving the in store experience with better merchandising, putting the location of different products into one area. How are retailers responding to that? Because sometimes retailers want customers to be able to work through the store, purchase different products. And so now they're going to have all the solutions in one space. So it seems to me that while retailers are certainly going You should ask a harder question. I mean, it's a good question in that I would look at lawn and garden retailing and say, if you want to look at sort of a merchandising approach that's like stuck in concrete, I'd go to lawn and garden department, okay? And so one of the questions which I think drives the genesis of the question is why has it taken them so long? So the answer is they're very interested in the experience. I think this was one of the opportunities of the testing we do with Blackmagic at Depot. They're looking for like a different experience. And so I was at one of our retailers and they said, look man, we need you guys to be more agile. We want to try lots of different merchandising approaches. And I said like where do you see this kind of experience? And so this is Depo. And they said IKEA. I mean this is where this is like we want like specialty kind of weird sections that are branded, and that's a whole different outlook. So I would say all the retailers, all the major retailers are very interested in the experience. And that I think this I've told you the guys that like I went to visit Frank Blake before he retired. He called me down there and he was worried. And he said like I just can't support this equity at sort of growing our business at sort of 2%. I need like 4% growth to sort of justify our equity. And I'm worried about how we're going to do it and how can we work together to sort of have sort of GDP plus a couple call it. And I think they're all thinking that way which is if they're going to get GDP plus a couple, it is not going to be the way it's been done before. And you just can't go to a lawn and garden department and say it's not kind of stale. It is. It looks kind of like going to Kmart 20 years ago. Ago. And so I think there's a lot of room for improvement. And we've talked about it. They've talked about it. We haven't done much about it. I think there are folks like Mike and Mike's whole staff on the retail side that are very interested in doing this and recognize that if they're going to especially when you're dealing with online competition, you're going to have to change the experience and provide that sort of project focus, which is go in and you say yourself, I need that, I need that, I need that. And it's hard the way it is today. So I don't know. Mike, would you add anything on that? No. Most of the tests we're running. So if you think about it, they're not adding any more brick and mortar, but they want to increase their sales by 5% to 10%. So this experience actually increases the market basket. And so you're going to tie in online and solution selling to the experience. You fill up the market basket, you make it convenient and utilize the same space to increase their sales. So they're looking at how all that ties together and Well, look attachment rate. I mean this is a big deal with Sutterer's business, which is you're dealing with depending whether you're looking at nutrients or soils like between a 10% 20% attachment rate on live goods. So think about it. Somebody is leaving with a live goods and there's a 90% to 80% chance they're leaving with nothing else, meaning and they need the other stuff. So it's a pretty big failure, I think, to say 10% or 20% attachment. Those are terrible numbers really when you think about it. All right. So we're going to end the Q and A for now and pick it back up when we come back. The way that we're going to move out of here everybody on your badge you have two numbers on the back. You're already sitting at one of the numbers. But your bus number will be on there as well. So head to one of those buses. The restrooms are out to the left if anybody wants to grab them on the way. One thing I want to add just before we I can see everybody is getting up. For all the folks who are investors and trusting us with their money, I want to like thank you like major or what would Trump say bigly. I want to thank you guys bigly for trusting us with your doubt. Thank you. So we're going to do that. A couple of really simple rules and I'm saying this because my counterparts at the retailers ask me to. Some of you cover spaces in these retailers outside of lawn and garden. Please stick to lawn and garden. If you want to do a store walk later, God bless. But on this, we did request that you stick with us in the lawn and garden department, so I'd appreciate So we're going to move in small groups. The first stop is going to be roughly 25, 30 minutes. That we're going to shift. All these stores are really close to each other, so it's just a couple of minute bus ride. And then they'll be shorter and shorter as the morning goes on because it'll be somewhat redundant. Jim is going to stay at Home Depot. The other person that's going to stay at Home Depot is Mike Sutterer. So the kind of biggest discussion on Bonnie will happen there and you'll see that display there. So with that, let's just move outside. If you're listening on webcast, probably around 12:30 we'll be back online. Right. I mean but that's We're going to start a Q and A session. Are we back online? All right. So we're back on the webcast. Even though it's a pretty intimate crowd and we can probably all hear each other here, if people have questions, if we can get a stick mic to them so we can hear it on the webcast that would be great. So we'll start with the person who came in just for Q and A Mr. Chappell. No wonder he's asked a lot of questions. Thanks. Maybe talk a little bit about how you're thinking about commodities, not just for this year, but kind of the next 2, 3 years? And is there any changes? I mean, going back, I think it was 4, 5 years ago, there was a thought on a big gross margin push. And we completely change our supply chain and get 200, 300 basis points of margin improvement and that was kind of scrapped. So has there been ever a revisit? Are there real meaningful ways to improve both from a commodity standpoint, from a supply chain standpoint, the gross margin side? Or is it just kind of a 2 50 basis points here or there each year? Just kind of trying to understand the big picture if that's even thought about over the long term. Sure. So Luke why don't I start and then you can add color? Yes. Yes. Pretty low. So I'd say last year Bill we made dramatic improvement in gross margin rates. So I think we're up 170 basis points I believe something like that. So we plan to see more margin accretion again this year and we expect to continue to see that over time. So we talk about our 18% operating margin rate. A lot of that's going to come from gross margin improvement. There's a little bit of work we can still do around SG and A, but for the most part to get from where we are assume divestiture and then 2 or 3 years down the road of continued gross margin improvement. We still think we can get to that 18% operating margin rate. But a lot of it's going to be built around gross margin improvement, pricing here and there as necessary. We need to know certain commodities are starting to move up. We're already buying like we typically do for next year. So we're in a good place. We have a long track record of being able to take pricing, continue to improve gross margins and that's very much part of our plan. And it depends by category. So where we compete, what we need to do and then a lot of new innovation is helping our margins. And just to follow-up, is all innovation It's accretive this year. Yes. So as a rule of thumb, yes, I want to say never say never, never say always. But Very more often than not, yes. Everything I've seen is I would say yes, but I don't want to say that and then turn around and say was that accretive or not. So maybe if we're just continuing on the whole margin front, maybe if you could talk a little bit about selling expenses. So just trying to think about, I mean, when we were going through the stores, we saw some of the kiosks and that component there. I've been hearing about Bonnie's and some of the people who are there that will probably help on the selling side. So what's the optimal level of selling expense during the peak season? How do you kind of measure the return that you're getting on it? And what's the right amount to have? What you need more investments? Like maybe if you could just talk a little bit about that concept? Sure. So we've done tests over many years of trying to figure out if we do invest more in selling and merchandising, we'll get a payback for that. So in some cases, we can do that for geographies on the right weekend when the business is going crazy. We tested A stores and said can we make them better? Can we test these stores and move them up? And it's difficult to get a good return on that. So the way that we think about it more at this point is just a strategic advantage, competitive advantage that we want to maintain what we have, invest more and make sure we're not slipping back. But do you think we can do a surge in that particular area and get a big return from it? We haven't been able to prove that out. But like I think Carbonara said this morning, 25% increase in the store, right? So it's terrific competitive advantage in the way that we're incenting the volume of people on Miracle Gro results and Scotch results and vice versa. Now they're collaborating working together in the store instead of trying to take space from each other. So in that regard, I think it's an excellent move. And just one more. If you think about the actual floor space going into this season, can you talk about where maybe you've done some more incremental shelf space? And then the changes you've made in terms of the purchasing ability of your customers bringing things closer together, so making it easier. Can you just maybe talk a little bit about that? Were you did the retailers give more shelf space in general? And I know it's different retailer by retailer. Were you getting the incremental space? Did some of your competitors lose some? I mean, Anthony, you can say that you want to stay over a webcam. Sure. We've all over the board. I would say for the most part, we gained a lot more space by selling solutions. And so we get the number 1 end cap at Home Depot. We didn't have that last year. So that's like a home run. And so the Bonnie plants and the cross merchandising is certainly and every retailer has been a big push. So I mean I go through and you went into Home Depot. I didn't like the I had almost all the displays except one. I want them all. So and I would say in general, I'd say we are up this year. And we evaluate that and we can actually pretty much no share losses in games as the season starts. It's almost predictable. So it's a little more difficult in nature is on the floor and where we're seeing big benefits are what Mike was talking about with projects and cross merchandising Retailers being able to bundle our products with live goods or so on, pretty much the bonding model, but even taken to the nth degree. I think in areas like that we're definitely gaining. Just a quick one on supply chain. You talked about that this morning and trying to optimize that. And supply chain for Scotts has always been a major differentiator between you and your competitors. And I guess is there a balance between leveraging third parties co packers etcetera and losing control over that supply chain over time? We only use co packers as needed as a capital play. We don't lose control over what they make. So we're not really giving up control. It's just better asset utilization. So look at it as incremental to the space, but it's not losing any control. And then secondly, one more of a question for you Mike and I asked Jim this earlier, but you and Jim have both alluded to doing better than 1% to 3% this year on the core business. It seems like the upside, if there is any upside, would come from POS or would it be more market share driven? I think it's both. I think with that roundup selected weed, we expect huge market share gain. And Tim's a little more tepid on his, but his number is pretty large. It will show up in POS and definitely market share. I would say, right now all boats are rising. Lawns we had a really good fall program. And what we're banking on and because that was the 1st solution selling initiative we had. It's the first time we ever outgrew the store average and that was in a fall program. Indicators now is we're outgrowing the store average. Because if you're outgrowing the store average, you also get incremental space in the retail market. And that is really what we're trying to accomplish with putting all this together is, if you do that for years they'd say, well, it's a seasonal business. You can't do that. We're seeing the effects of that. Now, 1 quarter doesn't make a trend, but indicator so far is we're doing the right things and we're going to continue. And we don't think we're even close to being where we want to be. So, early trends, I'm really optimistic. So I have to be out. He has to control what I say. So I'm not putting my number out here. So but I have a much higher number. If you look at store averages from retail, you know what I'm targeting above the store average. What's that number exactly? Sort of a broad based question. And then related to the outlook on cash flow and the increased focus there. So talking to Mike Carpenter earlier on how has the retail environment changed with respect to inventory levels. We saw throughout last year there was a push towards tighter inventory levels at retail and then that's normalized over the course of the year. But there's also been a bigger focus on inventory as a part of cash flow and working capital. So does the changing retail environment impact your ability to achieve the cash flow numbers that you put out there? And then related to that, how the various components of your cash flow outlook, I know you talked about growth, aligning short and long term incentives to pay with cash flow. But how do all these contribute to your out year targets? Is most of it going to come from working capital? Is most of it going to come from growth? I realize this is a long question. But lastly, like how are you incentivizing people to drive cash flow? And how deep in the organization does that even go, right? I imagine the sales folks are thinking about different outcomes. So maybe I'll take those in reverse order. Sales plan is up for people in the field, POS based and shipment based both. There's a little bit of an earnings component, 25% at this point. With management people, management's on a plan, historically, it's been 100% EBITDA for the last few years. So this year, it'll be 75 EBITDA and 25% cash flow. And then the long term plan is 2 thirds cash flow and 1 third what we call a calculated investor return. That's essentially a proxy for TSR. So that's the way people are paid. Your question about the growth over time and cash flow, most of it's going to be earnings based. So we feel like we continue the track record we've had. And back to Bill's question, gross margin rate will help operating rate and we'll see benefits from that. Beyond that, inventory, we know it can get better. We've actually seen our turns get worse the last couple of years versus where they were a few years ago. So and we're already seeing great improvement this year without any concerns about missing shipments or keeping retailers supplied at all. And then retailers are like us and that they're gross margin focused and inventory focused. But on that end, the latest inventory at retail and these are all averages, it's about flat even though POS was up 7% 1st quarter. So small quarter able to keep up and we were able to make retailers as clean as possible exiting last fall. So we're clean and ready to go into the spring and no real concerns there about it being a drag on our shipments. In fact, one thing we've done differently going forward just with that concern in mind is a lot of our trade programs are based now on shipment growth rather than POS growth. Just to address that concern that retailers are going to dilute the reload, We need to make sure we're going to get paid too. So that's a change we actually made for the year. That's going to a true partnership. So and not extracting one for the other. So we're all worried about inventory programs. We get paid in shipments. We have to pay our programs out in shipments. So they're really linked much more than they used to be. Chris, I think I hit every one of those points. All right. Randy, in developing the long term incentive program, 2 thirds cash flow focused, how did you arrive at that to focus on that metric as opposed to, for example, return on invested capital or something more return driven, which on occasion the company has focused on in the past? So we bounced around a little bit. I think it was 70five-twenty 5, fifty-fifty. I said, it came to what I think is appropriate was because again project focused. A lot of it's about how we're going to use our cash. So we need to generate more to achieve our objectives and repurchase as many shares as we can over Jim will say 10 years. We have a plan in place for 5 years. So and I think it's an area that we just neglected over time. So it was pretty easy to get the Board and comp and work committee on board that that was the right kind of metric to use and it didn't require an incredible amount of persuasion to get everybody on board on that one. Just one on customers, which I wish Jim was still here. He'd answer more forthcomingly. But on your if you look at the past 3, 4, 5 years, it always seems like season is going great and then your one large mass customer pulls you back down to earth. And it never seems to outperform, never even seems to be in line with category growth. So I guess where are we in that cycle? Are they getting better? Are they is there a chance? Or is it kind of that's the way it works? It's a Home Depot, Lowe's market and the others will kind of go as they go? No. I think I'm optimistic. I think they changed their strategy and I think we're coming out of that and I think we'll be fine. I think the programs are great. I think we have a lot of wins there. And they cleaned out their barns. They discounted. So POS was not really what it was what people thought it was. Units were actually up. And so the adjustment in the strategy I think is they're headed in the right direction. And so and it will I think it will show. I'm optimistic about where they're at. I guess in particular staffing and inventory were always the issues you think from both cases they're in the I think they're staffed up in their stores. They've cut their headquarters I think in a lot. There are several retailers that are cutting their headquarters and putting more people in the stores. So I would say that that's happening across a lot of retailers. So store service matters. And so I would say ahead of Walmart here anything I'm missing there? We're on track with our plan year to date. We're on track with our plan year to date. So and I'll pay for saying that too. Anybody else? Going on. Going quiet. Thank you, everyone. So couple of little things. Knowing that most of you are getting on airplanes going somewhere trying to get some gift bags that has fertilizer or something through TSA is not an optimal way to try to go home. So I think Heather's got everybody's contact information and mailing address. You should be getting an Aerogrow gardening kit sent to you. So it's a fantastic device I use. I think we all use them. So go home, grow some lettuce or herbs or whatever you grow. If you don't know something if you don't want to grow, give it to somebody who does. And other than that, thanks for attending. And I also wanted to just thank all of my colleagues for their help today. I think the presentations that they put together were great and the work in the store obviously was on display for everybody to see. This is the peak of the year and we're trying to run a business here and I'm being disruptive and trying to have an Investor Day. And I appreciate all of the sacrifices they made. They did a great job. So you all for attending. And if you ever need anything else, just you know where to find me and give me a call direct. Thanks.

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