Earnings Call: Q3 2016

Aug 3, 2016

Good day, and welcome to the 2016 Third Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Jim King. Please go ahead, sir. Thanks, Andrea. Good morning, everyone, and welcome to the Scottsmere Brook Road Third Quarter Conference Call. With me this morning is our Chairman and CEO, Jim Hagedorn our CFO, Randy Coleman and also joining us for the Q and A session is Mike Lukemire, our President and Chief Operating Officer. In a moment, Jim and Randy will share some prepared remarks. Afterwards, we'll open the call for your questions. In the interest of time, we ask that you keep to one question and to one follow-up. I've already scheduled time with many of you later today to follow-up and fill in any gaps. Anyone else who wants to set up some time can call me directly at 937-578-5622. Before we begin, let me tend to a bit of housekeeping. Randy and I will be presenting on September 13 at the C. L. King Conference in New York. We'll also be conducting 1 on 1 meetings at that event for those who register. And for your planning purposes, we will not be holding an Investor Day event this year in December, rather we'll be likely to sponsor a more low key event in February in Florida as we have in the past that will include brief management presentations as well as visits to lawn and garden centers. So with that, let's move on with today's call. As always, we expect to make forward looking statements. So I want to caution everyone that our actual results could differ materially from what we say today. Investors should familiarize themselves with a full range of risk factors that can impact our results, and those are filed with our Form 10 ks with the SEC. I want to remind everybody, as Audra said, that today's call is being recorded. An archived version of the call will be available on our website as well. So with that, let's get things started, and I'll turn things over to Jim Hagedorn. Thanks, Jim. Good morning, everyone. As you can see from our press release, we've got quite a bit of news to share and discuss. Our performance in the quarter was solid as we've been successfully navigating an unpredictable season that's had its fair shares of highs and lows. In addition to navigating the season, we've also been extremely busy implementing our long term plan, which we're calling project focus. Since our last conference call, we've completed or signed definitive agreements for 2 more acquisitions. We've continued to successfully integrate the transactions we've made in the past and we've begun to pivot toward more shareholder friendly activities like increasing our dividend and our share repurchase authorization. As it relates to this year, we're making some revisions to our guidance. We're likely to wind up on the high end of our gross margin guidance, which will help us make up for lower than expected sales. And adjusted EPS, while likely in the lower half of our original guidance, is actually a pretty good result given higher than expected dilution from the Scotts Loan Service transaction and the impact of weather in the peak weeks of the year. The other metric that I'm really pleased with is how is our operating margin. Randy will spend more time on this in a few minutes, but I wanted to add my own comments. The reason we call our plan project focus is because of focus we're putting on our North American business, which has an operating margin of roughly 20%. While we believe our European business is the best in the industry, we also know that it's significantly dilutive to our operating margin and that we're probably not the best long term owner for this business. Scotts Lawn Service had a high growth rate and a good track record and service is a category that we really like over the long run. But to truly drive value, we needed more scale and the only way to get it was to find a partner or find a way to partner with TruGreen. We'd rather be a 1 third owner of a fully integrated market leader than having to invest $1,000,000,000 and take on the integration risk ourselves. And frankly, categories like live goods and hydroponics, which actually have more in common with our core than service is a better use of our time and resources. In fiscal 2015, our company wide operating margin or EBIT margin was less than 13%. On a pro form a basis taking out SLS, it was 14%. And we're tracking for that rate to be 15.5% this year with a goal of getting to 18% over the next several years. An eventual exit of our European business would result in another jump, but it's our investment in faster growing areas like organics, live goods and hydroponics that will ultimately get us to our goal. These businesses as well as deals like Tomcat diversify both our consumer base as well as our retailer base. Achieving our long term goals requires more than just reconfiguring our portfolio. It requires the execution of our near term business plans. So let me shift gears here. I'll start by tipping my hat to Mike Lukmeier and the entire operating team. They did an outstanding job preparing for the season and executing throughout the year. Consumer purchases entering the 4th quarter are up 2% on a year to date basis as we saw strong consumer engagement after mid May when the weather finally started to cooperate. Despite an extremely strong start to the season, year to date POS fell to a negative 2% shortly after our Q2 conference call in May. So the level of consumer engagement since then has been extremely strong. In fact, POS in June was up 13%. At the start of Q4, we were in positive territory in every part of the country except the Southwest, which was due to terrible spring weather in Texas. But even the Southwest is down less than 1%. Our strongest region has been the Southeast, which is up 3%. The critical Northeast and Midwest are both up 2%. Pac West is also up 2%, thanks to a strong rebound in California. In terms of retailers, we're seeing our best performance this year in the hardware channel, which aggressively supported our brands all season long. The home center channel also was above average. Where we've seen slippage has been in mass retail. Our discussions regarding 2017 season are well underway with all of our retail partners. We're optimistic about our initial plans, but we're extremely focused on mass retail. From a product perspective in 2016, our gardening business continues to be strong. Consumer purchases of soils are up 6% entering the 4th quarter. We continue to be optimistic about the future of this business as we increase our commitment to organics and benefit from our new partnership with Bonnie Plants. Entering Q4, grass seed is up 9%, cleaners are up 65%, mulch units are up 10% excluding some commodity business that we walked away from. Our Tomcat business is up 37% as we prepare for the peak of that season and Roundup is up 3%. In the constant back and forth with the insect control business, our ortho insect products are down mid single digits this year. Lawn fertilizers were down 5% year to date entering Q4. But behind the numbers, the story is better than it looks. The category got off to a strong start, but then slipped in April, our most important month for lawn fertilizer as weather presented a series of challenges. You'll recall that POS of fertilizers was down 8% at the time of our last call. Since then, the category has been strong led by our Scotts Turf Builder Weed and Feed product. We also have good fall programs in place with our retail partners and we're optimistic that consumer purchases of Scotts WinterGuard product will help us close the year to date gap even further. I want to stress that our adjusted gross margin rate is up 200 basis points year to date despite the challenges with lawn fertilizer, which is our highest margin business. While we have a number of good story lines, all of us are disappointed with our top line performance in the core business this year. In a nutshell, the 6 most critical weeks of the season were soft, largely due to weather. I don't want weather to be a crutch because categories like mulch, soil and Roundup did better over the course of the season. But lawn fertilizer sales are concentrated in earlier 2 month window and it's a category that is more susceptible to spring weather. The difference between flat fertilizer sales and our current projection is probably worth a dime to the bottom line. So I'd say our legacy business has had a decent season, not a great season, but one that we can be proud of given the rough patch we saw in April early May. In the Hawthorne Gardening Company, we continue to see a great story emerging. The business is up more than 300% from last year. While acquisitions are driving that performance, we're seeing strong levels of organic growth. General hydroponics continues to grow at a rate better than 20%. The growth at General Hydroponics consistently has been twice as high as the business case we used to justify the acquisition. More than just the performance of GH, we're benefiting from the knowledge as we continue to gain in the hydroponic space and we're quickly putting that knowledge to work. As many of you know, we also rolled out a new hydroponic offering this year called Blackmagic that's sold exclusively at Home Depot. The products, which are liquid nutrients and high quality grower media are being tested in roughly 165 stores around the United States. Even though it's just a test, we supported Blackmagic with both online and television advertising that looks and sounds nothing like the type of marketing we used to support our legacy brands. The marketing is more gritty and reflecting of the demographics in the hydroponic space. The response to the product and marketing has been strong and we believe there is more upside from Blackmagic as we look ahead. As I mentioned earlier, we recently completed a second hydroponics transaction and just this week we signed a definitive agreement on a third. The first deal is the purchase of a $75 per stake in a Netherlands based company named Gavita, which is the leading global provider of hydroponic lighting equipment and related hardware. With sales of roughly $100,000,000 and more than a 20 percent EBIT agreement to purchase Arizona based BotanaCare, which is primarily focused on plant nutrients and supplements. They also have a leading line of hydroponic growing systems, including growing containers and other accessories. BotanaCare has sales of roughly $40,000,000 and margins consistent with the rest of our hydro portfolio. Subject to normal closing conditions, we expect to close the deal by the end of the calendar year. Once we close Botanicare, our hydroponic business, including our investment in AeroGarden, will have annual sales of approximately $250,000,000 Like General Hydroponics, both Gavita and Botanic Care are growing at double digit rates and both own brands that are valued by growers in the hydroponic space. So in less than 18 months, we've created what we hope to, a complete product offering of hydroponic products for the benefit of both retailers and growers. I know that many people listen to this call or read the transcript. So to our new friends in the hydroponic space, I want you to know that we take seriously our responsibility as the industry leader. And since we're an outsider, I know a lot of people will be watching to see how we behave. We've done more than just assemble a portfolio of the best brands within the various industry categories. Along the way, we've also assembled a great array of talent, entrepreneurs who have built strong companies from the ground floor. The goal is not simply to buy their businesses. The goal, in fact, the obligation is to make them better, whether it's through innovation, new products, improved technical support, improved packaging, excuse me, or registered control products. Our job is to be great stewards of these brands and partners with this industry. For nearly 150 years, this company has been committed to helping people grow things and that commitment is now being extended into hydroponics. This is a core business for us. Because it's so critical, we've assembled a great internal team as well From sales to marketing to finance to R and D and HR, we've put strong leaders in Hawthorne. They're off to a good start and I want to thank them for their commitment and congratulate them for what they've accomplished so far. Shareholders should know that once we get the BotanicCare deal closed, our focus will shift to integrating these deals. We will begin to move away from any further significant M and A activity just as we said we would. While we may still have a small tuck in deal here or there, our use of cash will be for shareholder friendly activities like dividends and share repurchases. I'm extremely confident that project focus and I know my colleagues sitting here with me this morning share that optimism. Given our confidence in the ability to succeed with the portfolio we've assembled, we're going to invest in our own company. Clearly, we have the support of our Board of Directors, which this week raised our quarterly dividend by 6% and also improved the authorization to purchase $500,000,000 of our shares. This new authorization is in addition to our existing plan, which still allows us to purchase another $400,000,000 of shares. So there should be no doubt that we're putting our money where our mouths are. In fact, our focus on shareholder friendly actions will result in changes to our short term incentive compensation plan. Until now, management's incentives have been solely based on operating income. Beginning next year, we'll add free cash flow component to the mix as well. I've been a long time believer that cash flow is what drives value and I want to make sure we emphasize that point within the organization. We're also exploring some pretty dramatic changes to our long term equity based incentive plan. Those changes also will focus on making sure our incentive structure is clearly aligned with living up to the commitments we've made to our shareholders. Before I turn things over to Randy, I want to emphasize one more point. I've asked Mike and the entire operating team to focus on finishing the year strong. Fall is an important season for us and it's critical that we keep both our retail partners and consumers engaged all the way to the finish line. While we're saying we'll likely be in the lower half of our earnings range, it doesn't mean we won't push to do better than that. We'll work hard to deliver every last dollar of sales and penny of earnings. But what we won't do is cut mission critical investments that hurt us going into next year. As you would expect, we've begun to turn the page from a planning perspective and I like what I see right now about our prospects in 2017. Macroeconomic factors will continue to be a benefit. We'll begin to see the cost savings from the Scotts loan service joint venture with TruGreen. We'll see EPS accretion from the hydroponics acquisitions we've made. We'll see increased opportunities for our minority investment in Bonnie Pines. And will supplement the natural earnings growth of the business through a share repurchase effort. When we announced Project Focus, someone asked what the impetus was. To be more precise, someone asked if we had been pressured by an activist investor. The funny thing is the answer is yes, except I'm the activist. So are the people here with me today. We know we can drive more value from this business. Each and every one of us is confident in the plans we're executing and believe we're on the right path to get that done. I'll cover more during Q and A, but right now let me turn things over to Randy to cover the financials. Thank you, Jim, and good morning. I want to spend my time this morning focusing on 3 areas. First, I'm going to spend a fair amount of time walking through the Q3 and year to date P and L. We told you earlier in the year that the P and L would be complicated this year due to the Scotts Lawn Service deal, our revised Roundup agreement, new acquisitions and also new reporting segments. I want to make sure we're as clear as possible so that you can begin refining your models for next year and beyond. 2nd, as I'm walking through the numbers, I want to give you a more detailed look at how we see the full year coming together. And 3rd, I'll address some potential questions related to 2017. We are not providing any specific guidance for next year at this time, but it will address some of the major themes. This includes an overview of the commodity environment as well as some initial thoughts about returning cash to shareholders as we now have the capacity to repurchase up to $900,000,000 of our own stock. Let's start by looking at the quarter. And I want to begin by reminding everyone about the impact of the shift in our fiscal calendar. Recall that our accounting convention is based on a fourfourfive calendar. In other words, the 1st 2nd months of each quarter have 4 weeks and the 3rd month has 5 weeks. This convention results in a 6 day shift in our calendar every 6 years. So in years like 2016, there are 6 more days in Q1 and 6 fewer days in Q4. Q2 and Q3 both start and end 6 days later than a year ago. Given the seasonal nature of our business, that shift was material to our results in both Q2 and Q3. In Q2, the shift added just under $105,000,000 to sales. In Q3, the shift lowered sales by roughly 90,000,000 That said, company wide sales in the quarter were $994,000,000 compared with $1,100,000,000 in the Q3 last year. If you look at sales by segment, both the U. S. And European consumer segments were down 13% in the quarter. Aside from the calendar shift, there was simply a matter of lower shipments, primarily in April early May that were largely driven by weather. Jim has already told you we saw strong bounce back in consumer participation levels, but there simply won't be enough time left in the year to make up the ground on shipments. On a year to date basis, sales are up 3% to $2,400,000,000 When you exclude the calendar shift, year to date sales are up roughly 2%. Right now, I expect the U. S. Business to be roughly flat on the top line for the full year. Europe will likely decline mid single digits due to FX and exit of a non core business. Hawthorne has been performing strongly as expected and we'll get another small incremental benefit in Q4 from the timing of the DaVita transaction. As you know, acquisitions are the main driver for Hawthorne this year and will also be the primary driver on a company wide basis too. My current expectation is that sales will grow roughly 2% for the full year with 3% attributed to M and A and with FX having a negative impact of roughly 1% for the year. Before I move on, I want to briefly discuss the impact of weather on our business. It seems that almost every year we have weather challenges in certain areas of the country, but weather tends to normalize geographically by the end of our fiscal year. We benefit from the large land mass of the U. S. With different climates and a product portfolio that complements diversity and weather patterns. While I'm a bit disappointed in our sales results this year, I'm also very proud of the team's ability to navigate weather and consistently deliver earnings growth year after year after year. Moving on from sales, I'm highly encouraged by what I've seen on the gross margin line. Adjusted gross margins increased again in the quarter and are up 200 basis points year to date. Commodities have helped. The new Roundup agreement has helped. Distribution improvements have helped. Pricing has also helped. The product mix has been a headwind as mulch has again outperformed our expectations and lawn fertilizer sales were less than planned. You might recall the midpoint of our original guidance for the gross margin rate was 125 basis points. Entering Q2, we raised the midpoint to a 150 basis point improvement. And right now, I believe we'll be on the high end of our range, which was 175 basis point improvement on a full year SG and A was down 2% in the quarter and is up 4% year to date. I'm expecting full year SG and A to be up about 3% and the vast majority of the increase will come from acquisitions and related deal costs. In our core business and corporate overhead functions, SG and A is essentially flat. When you combine gross margin improvement, strong expense control and the reconfiguration of our business, you see an impressive improvement in our operating margins. In his remarks, Jim talked about operating margin and now I want to elaborate further. Entering the year, I said I expected operating margin or EBIT margin to be 15.5% this year compared to a pro form a rate of 14% a year ago. Right now, we are tracking to the goal I outlined. Whether we fall a little short or exceed our goal, it's a terrific outcome either way. And I remain confident in the goal we outlined to improve our EBIT margin to 18% over the next few years. Part of the benefit to this margin rate was the first step in the reconfiguration of our portfolio, specifically the contribution of Scotts Lawn Service into a joint venture with True Green. You'll recall that on a pro form a basis, we said in December when we announced the transaction that we expected this deal to be dilutive by about $0.10 this year. I now believe that number will be at least $0.15 primarily due to delayed realization of synergies. We continue to believe the combined business will achieve the $50,000,000 cost synergies we outlined back in December. But the closing of the deal occurred more than 2 full months later than expected, So the timing related to some of those savings will be delayed. Interest expense and taxes are pretty much in line with what we expected. So when you look at the bottom line, pro form a adjusted income was $134,000,000 in the quarter or $2.16 per share compared with 167,000,000 dollars or $2.68 per share last year. Year to date, those numbers are $251,000,000 or $4.04 per share compared with $226,000,000 or $3.65 per share a year ago. The difference between the pro form a number and the GAAP number is significant. I want to make sure everyone understands them. In Q3, net income attributable to controlling interest was 213,000,000 dollars or $3.44 per share compared with $133,000,000 or $2.14 per share a year ago. On a year to date basis, the number is $342,000,000 or $5.50 per share compared with $183,000,000 or $2.95 per share. The year over year difference is primarily due to 2 factors. In last year's Q3, we incurred significant costs related to our bonus S product issue. We excluded those numbers from our adjusted EPS, but they obviously were included in the GAAP results. In addition, in 2016, we received and recognized as income the related insurance reimbursements associated with these costs. So the year over year difference in impairment restructuring and other lines was an improvement of $111,000,000 for this matter. The other factor affecting the Q3 GAAP numbers relates to our divestiture of the SLS business in exchange for a 30% ownership in the newly combined TruGreen joint venture. First, we recognized an $86,000,000 gain on the contribution of the Esalas business in exchange for our 30% ownership in the JV. This gain represents the excess of our fair value of our 30% ownership interest in the JV, plus the book value of our long service business and related transaction costs. The gain on this transaction has been adjusted out of our pro form a results. 2nd, we've begun to recognize and record our 30% share of the earnings on a new line on our income statement titled Equity and Income of unconsolidated affiliates. Going forward within our GAAP and adjusted earnings, we will be recognizing our share of the TruGreen earnings on this line. Consistent with our past non GAAP practice, we'll be adjusting the GAAP measure for non recurring unusual items recorded within this new line item. For Q3, TruGreen recognized deal integration costs and restructuring costs and other non cash transaction related charges as it began the process of obtaining cost synergies. Our share of these expenses was $17,000,000 which has been adjusted out of our pro form a adjusted earnings as we believe it provides a more accurate base off which to build your financial models. We will continue to focus on pro form a adjusted results until the Q2 of fiscal 2017 because we believe it's the most accurate way for investors to look at the business on a comparable basis looking both backward and forward. However, in the weeks ahead, we'll be finding an 8 ks that will provide 2 years of quarterly historical data on our new reporting segments with Scotts Lawn Service out of the mix. Also assuming the Botanic Care deal closes before we file our 10 ks, we would expect to once again restate our segments within Hawthorne or with Hawthorne removed from the other segment to become its own reportable segment. This will provide a greater level of transparency on the progress of this business in the years to come. So if I summarize the updated guidance, it looks like this. We expect sales to be up 2%, gross margin rate to be up roughly 175 basis points, SG and A should increase about 3% due to acquisitions And adjusted EPS will likely be on the bottom half of our range of $3.75 to $3.95 as the dilution from the triggering deal will likely be too large for us to reach the top end of the range. Jim said earlier, he believed 2016 will be a good year, not a great one, but one that we could be proud of given the peak season challenges. As a 17 year Scotts veteran, I don't agree. He also said that we'll push hard to the finish line, but won't take any steps that impact 2017. As I look ahead, I really like what I see. Our purchasing team continues to do an outstanding job of managing the commodity environment as we expect to see continued tailwinds from lower input costs. The TruGreen deal should be neutral to our EPS number in 2017 versus 2016 as cost synergies begin to offset higher interest expense and non cash amortization. Hawthorne's M and A activity will be accretive to EPS by $0.15 to $0.20 per share next year. And I expect to invest at least $300,000,000 in share repurchase activities before the end of next year, which will begin to enhance our EPS calculation as well. I'll provide a more detailed overview of our 2017 outlook during our next call, but I would expect to see EPS improvement of no less than 10%. And with the 6% increase in our dividend payment and share repurchases as well, I'd expect to see solid double digit improvement in total shareholder return. As we've been executing our plans this year, I'm more convinced than ever that our project focus initiative is absolutely the right plan at the right time. That belief has been reinforced in the dozens of face to face meetings we've had with shareholders. We are focusing on those areas that drive the highest returns and have the highest probability of success. The combination of reconfiguring our business to focus on margins along with a smart capital allocation strategy gives me confidence in our ability to continue driving long term shareholder value. Thank you for your time today. And now let me turn the call back to the operator, so we begin to take your questions. Thank And we'll go first to John Anderson at William Blair. Hey, good morning, guys. Hey. I guess I wanted to just ask about a couple of the businesses which are have been a little softer this season, both ortho, which you mentioned down mid single digit and then fertilizer, just kind of in general. Can you talk about any of the season specific dynamics that you think has led to that performance and maybe plans or expectations for both of those businesses as you look ahead to 2017? Thanks. Hey, John, this is Mike Luke Meyer. So on fertilizer, it's a series of micro seasons. So I would say the good news is like our new 2 product is up, but our early season with the HALT's business was down. And then we had some problems in Texas on like bone assess. But we started down minus 8, we're minus 4. I think what we've learned this year is with the micro seasons also the call to action and be in earlier and also looking at our product assortment, where we're going to try to extend those seasons. So I'm actually bullish on lawns. On ortho, we went out aggressive last year with pricing. We had some competitive pressures on the Accu Shot that was expanded by spec. However, we're reconfiguring the ortho brand. We brought Roundup and we're going to be introducing some new Roundup products next year and reconfiguring how ortho plays with a combination of Roundup and RAID and the OFF product. And so I think what you're going to see with ortho is we really have a good strategy, but it's really been a transition year for us. Okay. Thanks. Follow-up on Hawthorne. With the completion of the 2 deals that you've announced, it looks like that's a business now that you've got at about 10% of your overall consumer sales. Should we be thinking about Hawthorne going forward as a double digit grower and as a result, kind of a mechanism to accelerate the underlying organic growth of the entire company? That's okay. The answer that could be a simple yes. Maybe that's the easiest way to say is yes. What I'd like to do is just go back a little bit on the sort of lawns and pest side. We as we prep for this meeting, one of the things I told Mike is there's sure to be questions on lawns and ortho. So have your stuff together on that one. I've asked the operating team to get back to me where if you look at just total pounds we've sort of shipped over the last decade per year, it's down. And I was hopeful that we'd have a great weather year this year that seemed to start well and then not go as well. And the lawns business is the most impacted because it's a pretty short discrete window that happens in sort of April, early May. And it's pretty much across the entire country because of the southern dormant grasses are coming out right when sort of the northern dandelion sort of rush is happening. So it's if you lose that part of the season, it's very impactful on a pretty high margin part of our business. And so I want to say it was just another one of those shitty weather years. On the other hand, I think it would be wrong to say should we be looking to see if there's a trend. And I think that the business and the operator community is eyes wide open on this issue, and we're really carefully evaluating it because we have a pretty outsized spend on the marketing side on our lawns business. And I just think we want to fully understand sort of the embracing our reality of that business. So I appreciate Mike's optimism. I just want to make sure that Randy and I on the corporate side can look at it and say, yes, fair enough. I mean, the investment sort of is related to what we think the opportunity is in the brand. Jim, I appreciate that comment and that's kind of what I was getting at and just to follow-up on that. I mean, are you seeing any how are your big retail customers, the home centers thinking about that category, thinking about space allocation to lawn in light of what the trend has been over the past several years, putting weather aside? I think it's important. We it was in my script, which was mass. And so it's a relatively complicated story that we sort of don't spend a lot of time on like these calls really going through. But I do think that what you saw this year was for those of us who lived in the Northeast, just kind of April early May sucked. Texas just had huge amounts of rain and then the drought really didn't sort of start to get better in California until sort of the second half of the season. So I would argue that if you sort of screw with California, Texas and the Northeast, you can't have a good year in lawns. I also think that if you look at the retail sort of situation, I think the challenges in mass also had a sort of outsized impact on it. So that it's a slightly more complicated story than you can just sort of touch at without sort of really peeling back the onion, which we've done and are doing. But I think we have action plans sort of for all of those things. But I would say largely, if you say that most of our business is DIY and hardware, I think those businesses are continue to be fully committed to the lawn fertilizer business. I haven't seen any change in space, John. I think investment in call to action and is really important in lawns. And we saw some decrease in that at the retailers and the plans for 2017 is to re up that. And John, this is Randy. The other comment I'd make is if you look across our largest retailers, the ones that supported lawn fertilizers the most this year had the best years. Yes. I mean that this is something as we were sort of building the scripts up, we spent a lot of time saying that people who are kind of on the program, who drink kind of the Scotts Kool Aid, if you want to call it that, had by far the best result. And I think that's a message that Mike is going to be taking on the road next week as he meets a lot of our largest retailers, including retailers in the mass side. On the pest side, I just wanted to sort of add to what Mike said, which is the new Roundup deal that was kind of mine and Randy's deal, I think is a big opportunity for Mike. So Mike is going to have new Roundup products that were really allowed to happen as a result of the new Roundup deal that we did. And so if you basically say between our Roundup business and new products that are micro is bringing out in this coming fiscal year, Sort of reorientation is a much more competitive brand on the ortho side, plus our SCJ partnership with OFF and RAID, and I mean this with massive respect, but the opportunities that Zika presents in the United States, I think we feel really good about sort of the portfolio of brands we have on pest and that there's a really good plan coming up for next year. So I guess I have to say it was a good question since we spent a lot of time on it. Thanks for all the color. Appreciate it. I'll pass it on. You bet. We'll move next to Olivia Tong at Bank of America Merrill Lynch. Great. Thank you. Can you talk about the comps as you close out the rest of the year in your main businesses? And then really what I want to boil down to is Hawthorne, what kind of what level of investment do you think you need in the businesses that are already acquired? I'm trying to understand the comments around your ability to consolidate the area and that we saw in some of the press and then also, obviously, your desire to return cash? So Olivia, this is Randy. So I'll start on the question related to comps for the rest of the year. So last year, August was up low single digits and September was about flat. So looks like pretty reasonable comps going forward for the next 2 months. And then regarding Hawthorne, I'd Well, I'd also add that in regard to sort of relatively easy comps for the remainder of the fiscal year is that inventory levels are quite a bit lower than they were this time last year. So I think that there's no headwinds on that if anything is a tailwind on the inventory at retail side. So I think easy comps and lower inventory numbers in the trade than there was this time last year. And then related to Hawthorne, so to answer your question about investments, I think about 2 ways. So as far as significant outlays of capital, we're done for the most part when it comes to Hawthorne. There still may be some smaller tuck ins that will make sense. But as far as significant uses of cash, we're done after the Botanacare deal. As far as investments within the businesses we've purchased, and part of the reason the operating margins are so attractive is there's not historically a lot of investment below gross margin. So going forward, we're going to look at R and D, look at marketing. We may be more aggressive than what these companies have done in the past, but they're growing at such a significant rate right now that a lot of this is just trying to keep up with the demand that we're seeing in the marketplace. So right now in the short term, there's not a huge need to continue to drive consumer activity that way. Yes. I mean, I would say, Olivia, relatively small, sort of capital required for the consolidation and integration. I signed a par, I think, last week or the week before, which is an appropriation request for like SAP at GH. And I think that these are probably the biggest single numbers is going to be sort of integrating our systems into Hawthorne's and their acquired companies so that we're operating on the same system. It's probably the biggest single thing we do is probably integrating SAP in the various companies over time. Got it. That's helpful. So as I think about it, you're doing this one way of consolidation, need some time to integrate it, bring it on board, so the capital requirements will be relatively low. But my sense is that there's still a significant amount of consolidation and that you're interested in doing that within this category. So it return to be coming back into the spotlight at some point in the future? And how does that impact your ability to return cash to shareholders? And then just generally speaking, how's the M and A environment in the core DIY lawn and garden business? Well, I think we should be super clear on this that, remember, what we're consolidating is hydroponic supply, okay? There may be opportunities for other people in sort of that space to consolidate other areas. That's not of particular interest to us at the moment, okay. Our interest is sort of the hydroponic supply space. And I think that what you see is if you look at that and say nutrients, growing media, pesticides, hydroponic systems, lighting that we will have if you were to look at a sort of pie chart of where a lot of the dollars are and a lot of the margin is, I think we will have the leading position in the spaces that we found interesting. And at that point, other than I think what we've been calling small tuck ins and we try to quantify that this morning as we were sort of talking about it, which is sort of plus or minus about $50,000,000 which would be for Mike's business, including Hawthorne. So not exclusively for Hawthorne that that's it, okay. And the only other major M and A transaction we have would be sort of the disposition of our European business. So that's it. And that's what we're sort of at that point, we're done with the reconfiguration. And then beyond that, virtually 100% of our free cash and our capacity will be used for shareholder friendly actions. And Olivia, just to clarify on your question about P and L Investments in Hawthorne, we would actually expect synergies going forward. So P and L improvement, not investments required to combine the businesses. So certainly there will be some required investments to consolidate the 3 businesses, but there should be big significant synergies as a result of doing that work. Great. Thank you very much. Appreciate it. Thank you. You bet. And we'll go next to William Reuter at Bank of America. Hi. This is actually Jinani on for Bill today. Thanks for taking our questions. So could you give us an update on your outlook for commodities for the remainder of the year? And can you quantify the benefit you expect to achieve from lower commodities? Sure. This is Randy again. On commodities for the balance of the year, it's really a pretty small story. So we're about 95% purchased on our significant commodities that we track and that we talk about externally. So essentially a done story for 2016. For 2017, we expect commodities to be a tailwind again, perhaps not to the same level we saw in 2016, but we are expecting a double digit number again for next year. So again, more good news to come. Great. And then you talked about mass retail being very weak and you're heavily focused on mass right now. Can you provide more details as to what drove that weakness and your plans, you're focusing on to improve this going forward? Okay. Just in order to save myself from phone calls right after this from retail. I'm not sure I said very weak, okay? But I think that it was the poorest performance of our sort of major retail partner categories was mass. Mike, you want to pick up the other part of the question? Yes. I think there was a change in philosophy around call to action. I think we have really good programs and we thought those programs would carry through. And so we're going to be working on reinstituting some of those call to action activities, in mass. That's really the What do you mean by call to action? And it's kind of like running tab support and those type of things, some early spring activities that we didn't repeat from the previous year. Those are the type of things that bring people in the store, and there was a movement just to be at everyday low price. And we had really great programs. We were confident we would actually we thought we would do better there, and it just didn't work. So we're adjusting and we're going to be making some adjustments next year and we're working with them and that is a focus for us. Great. And then lastly for me, you mentioned that the timing of the $15,000,000 in cost savings from the SLS TruGreen joint venture will now be delayed. Could you just lay out the new timing of when you expect to achieve those savings? Sure. The total cost savings is $50,000,000 to be clear, not $15,000,000 but that $50,000,000 will be almost completely complete by the end of calendar 2017. So a little bit of slippage this year just because of the timing of the deal that closed 6 to 8 weeks later than we expected. And on a calendar year basis, we're really not seeing any slippage, but some of it that we would have expected earlier in the year will fall into October, November, December. But by the end of calendar 2017, the $50,000,000 is still a really good number. And I can tell you, Mike Lukemeyer and I are on the Board of TruGreen. We had our 2nd Board meeting last week and we're really encouraged by the progress the team is making. Integration is on track given the timing of the close. The team is working hard to bring things together and I couldn't be any more satisfied with the progress so far. Great. I'll pass it along. Thanks. Thank you. We'll take our next question from Joe Altobello at Raymond James. Hey, guys. Good morning. Jim, you mentioned Europe earlier. Obviously, you had a deal in place or thought you did and that kind of fell through. So could you help us understand what's going on there? Is there anything that's going on in terms of timing of reconfiguring that business? Well, first, the business continues to perform well, okay? And so I think what do we know coming out of the process we were part of is that we've got the best business in town and that business is performing pretty well. In fact, I think Phil was outspoken when we were preparing that it's outperforming the North American business. So the business continues to sort of get better. That said, it is still dilutive to our margin. And I think we'd argue that we got lots of opportunities to take advantage of, including investing in our own company, which is more North American centric. So I think that the answer is the business continues to perform better than it has been and probably historically good. That said, is there action? And are we evaluating our choices here? The answer is yes. And I think we're pretty comfortable about that. I don't know Randy Randy, it's really Randy's project. You want to talk about it all? No, Jim is right on. We're exploring a lot of ideas with potential partners and making progress. And I think at some point, we'll have something to announce, nothing imminent at this point, but we're focused on it. Okay. There's been some chatter about some changes in the regulatory environment in Europe. Does that complicate your plans? Look, the business in Europe for everyone is very pesticidal, okay. And so if you look at where the margin is for us, Syngenta, everybody who's got consumer businesses, I mean, the sort of old Syngenta, compo, pesticides matter, okay? And if you're seeing more activity on sort of Canadian like activity on green actives, you could either say it's a big issue and I think Mike and I have talked about this before or you could say it's a big opportunity. And I think it's turned into a big opportunity for us in Canada, but you got to start by saying, yo, I was going to use some bad language, MF, embrace your reality and stop like hoping you can change the sort of green motion and some of these regulatory environments like Europe or Canada and start saying we need to have unique and interesting actives. A lot of the actives today are pretty much commodities, okay. The ability to have actives that work in these environments tends to offer the people who do it a much more unique and proprietary opportunity to exploit margin. And Mike and I think his R and D community have made a tremendous amount of progress in identifying access that we could use that give consumers a reasonable response. The Roundup deal that we did was a very significant contributor toward that sort of opportunity. In the past, you'd have look, first of all, I believe glyphosate is a superb and safe active, okay. I don't really understand sort of the criticisms of it when there has been repeated sort of evaluations of the active by both the German and Canadian government that have said it's a clean active. And I think if you look and say relative to sort of the arsenic based herbicides that existed in the world of agriculture prior to it, a very good and low impact, active ingredient, glyphosate continues to be. But it doesn't change the fact that there is pressure within Europe on glyphosate unfortunately. But that said, part of our new agreement that Randy and I worked out with our partners in St. Louis, was not just making it a safer agreement for us, but also giving us the opportunities to substitute actives beyond besides glyphosate and use the Roundup mark. And we're very deep in that process. And I think so I think that we're in a really good spot, to be honest. I think that we've got alternative actives. The agreement with Roundup made it very simple to substitute natural actives, which we have for those products. And Mike's work with some of our big ag suppliers on natural or low impact actives, I think are look really good for the future. So Randy? Yes. The other thing I'd add, Joe, is it's an obvious question that comes up in conversations. So we're obviously transparent from the very start on this. But we've been investing a couple of $1,000,000 in R and D, regulatory in Europe over the last couple of years just to prepare for the inevitable. So we feel like we've been proactive. We're ahead of the curve. And even though there's some bands that are coming, call it 2019, 2020, what we've actually seen is a lot of those transitions we're making at retail today. So by the time we get to the point where there's an official ban, we've already gone through these transitions and substitution. So we feel like we're being proactive and we're ahead of the game. And we haven't received a whole lot of pushback on that from exploratory discussions that we've had because I think it's a sincere point of view. Great. That's very helpful. Just one quick one for me. The $900,000,000 in incremental share repo, it's a pretty big number. It's about 20% of your market cap. What's the timing on that? Is it that the next 3 years or so you expect to do that? I think that's a fair time line. Next year, we're targeting around 300,000,000 dollars And as we continue to grow and generate more cash and continue to maintain leverage around 3.5 times, it will provide 2018, 2019 similar numbers, if not larger. But Joe, we talked about this in regards to sort of long term comp plans, which we have a meeting, I go right into a comp and org meeting because we're at a Board meeting right now, right out of this meeting. This project focus plan for us is the longest I think it's the most clear and obvious strategic plan we've sort of ever had. I think our board agrees with that and I think a lot of our big investors do as well. But it's beyond the 5 year plan. So I think if you say this 900,000,000 dollars it's part of what we're trying to drive with this incentive is that once we close the M and A book, and let's just make the assumption that includes Europe, now we're totally focused on sort of the shareholder friendly side of this. And I think we've been pretty clear, that all things being equal, we'd like to see a very significant reduction in our share count without sort of getting to the point where we deal with sort of more independence issues and stuff like that. And I think that's pretty clear that we don't sort of drive the Hagedorn's over sort of 50%, which is a residual and alive part of the merger agreement that would force sort of the Hagadorn's to make an offer to buy the whole company, which I don't think we're looking to push toward that. And I think everybody is happy about that, the family and the Board. So we're looking at a pretty significant reduction, but not so far that it would drive that. And to do that within sort of the leverage and cash flow, which are the sort of two limits that would drive that limits that we have, it's probably something less than 10 years and probably something more than 5 years. So that the 900 really is an authority to sort of get it on, but we're not looking to stop there. We're looking to continue. And so what we're trying to do is align our long term plan where somebody would say, well, how exciting is it really being at Scotts? If what you're doing is kind of trying to run your business like a private equity player would run it. Part of it is, I've got some gray haired people around the table with me here and they either are or would be, over the period of the plan retirement eligible. And so part of our long term plan is to keep them engaged, make it exciting and get people to the finish line. But the finish line is beyond sort of the scope of what we generally have been talking about, which we tend to talk in sort of 3 year terms. So this will be a multiple of that. And this authorization from the Board for $900,000,000 really is just the beginning of that process. Great. Thank you, guys. You bet. We'll go next to Jeff Zekauskas at JPMorgan. Thanks very much. I think some of the pricing you got in your products this year had to do with raw material cost inflation that happened a few years ago. And obviously, raw materials have come down this year, they'll come down next year. As a base case, do you expect your product prices to fall in 2017 in the U. S? Or do you think it will be 2018 before you feel the price pressure? Listen, our belief is that we need to be sort of picking up about a half point of gross margin accretion per year and we think that's reasonable. And that's sort of across the entire it's not sort of byproduct, but it would be sort of across the entire matrix of products that we sell. I do think that we're seeing more sort of so the idea of prices going down with us, definitely not. Okay. So I can answer that one easily, and I'm sure Mike will pick up the pieces here and help with that. But definitely do not see, are taking our prices down. I think we see a little more pressure and pushback at the retailer level, which is we haven't seen in a while, which is sort of more consumer oriented. And that's I think that's fine. And so that's not I wouldn't take that as a negative. I view that as retailers sort of up until call it maybe this year or last year have been like whatever you guys want to do is okay. They're now sort of pushing back a little bit. And I view this is what you're seeing with Walmart and Craig Muneer at Depot. And I view that as not challenging or negative at all, except to say they're more outspoken, I think, about sort of distribution costs and how to share opportunities that we can jointly find. But that does not mean, we don't see pricing for next year, we do. But I do think that there's some tension in the discussion and I think that's generally healthy. And so I am not concerned about sort of our goal of sort of 50 basis points of accretion. I see that as important to us, but it's the jet fuel it takes to invest in our business. And I think our retailers need to understand that healthy margins within our business allow us to invest in our business and grow these categories. And I think without growth, it's a whole fucked up bullshit place to be and I'm not okay with that, okay. So I do think we need to we are the leaders in this business and we can't just say, we're happy with flat, we're not. I think we had the discussion earlier on lawns and we're looking very hard at saying what truly is happening in our lawns business. We also talked about the pesticide business, which I feel really good that Mike's got a plan on. So I don't think gross margins are a bad story. While I think we're seeing some tailwinds, we're still taking pricing. It's just smaller than we were back in the day when we were taking 3%, 4% per year, but we still intend to take pricing this year next this coming year in 2017. Everybody wants to talk on this one. Yes, this is Randy again. So just for a little context, in my 17 years here, I can only recall one instance where we reduced pricing on a branded product and it wasn't tied to commodities. It was due to competitive situation a couple of years ago, which we've talked about at length. So that's really not the dynamic that we see in our category. And the other thing is our pricing capability has improved a lot over recent years. So in years past, we may have taken a peanut butter price increase on invoice sales. Now it's much more targeted. It's done in a way that both the retailer and we can win and it doesn't price the consumer out of a particular place. And the other thing I'd add is pricing can take various forms. So there's ways to enhance margin without having to just take a price increase on a product. There's resizing in different ways to get to the same answer. And we're thinking through all those types of approaches. Trade promotion. So all those got to be effective. And the reinvestment is to go back to drive category growth. As a category leader, we need to drive growth. So a lot of this is repurposed to drive more growth. Okay. And for my follow-up, you've bought Gavita. In rough terms, how did the sales split between Europe and the U. S? And my impression is these are relatively expensive grow lights or that's the main thing that they do. Is there a negative price dynamic or a positive price dynamic? Or do you worry about prices for these lights over time? Well, it's probably say I worry about everything. Right now, I would say they can't make things fast enough, okay? So and they don't sell themselves. These first, I think I've said this a bunch of times, which the people we've met in the businesses we've purchased or bought large shares of, these are not the dregs. These are the top of the line business leaders in this space, is the companies we've been investing in. And the DaVita team, I want to call them out sort of specifically, these are extremely professional operators, okay? And so the first part, I think 80 plus percent of their business is U. S.-based, okay? They no bones that they operate at the high end of the market and that their lights are better, okay? So I don't think they operate that. We are looking at that and saying, who's the competitors? I mean, this is part of what we can add, okay? And is let's look at the entire category and do we need to play just in the sort of premium space or are there opportunities to play in sort of the mid tier prices as well? I'm not sure we have any desire to participate at the sort of the commodity and opening price point side, which I think generally are reserved for our distributors. They're selling appliances, I'll call them that for the moment, in that space. But I think on the mid tier, there are opportunities, that we're looking at. And when we talk about sort of within Hawthorne, some of the money that Mike has sort of before the M and A book closes this year is focused on Hawthorne. And we're looking at opportunities on that sort of mid tier lighting side. But I think probably we'd want to participate mid tier and high end. Okay. Thank you so much. You bet. We'll move next to Eric Bosshard at Cleveland Research Company. Thanks. A couple of things. First of all, it wasn't totally clear within the guide on the U. S. Growth that up 2% that I think you reported through June and then you talked about August September. Can you give us a sense of what that up 2% you're expecting by the end of the year and within that what happened in July? Sure, Eric. This is Randy. The 2% year to date we're expecting to be closer to flat by the end of the year. The primary reason is this timing of how our calendar works. So we're going to lose about a point of growth or more than that actually for the whole company over the Q4. And the rest of that is just trying to end the season in a good place. So make sure that we have plenty of inventory in the stores to match POS, but we don't want to do anything dramatic and make sure we're in good shape going into next year as well. And then July, any insight I know the month is over now. Any insight on July? Yes. June is about twice the size of July. June was up 13%, July was about flat. So when you average it out, the summer's done well. Sometimes you say the spring kind of moves into June, halfway through June, you're talking summer. But we're pleased with the outlook over the next 2 months, and we think we're going to finish the year strongly. And when Heath says about flat, it's not negative about flat, it's positive about flat. So maybe we're arguing over nothing, but we're not trying to hide something here. Exactly. Okay. And then secondly, I think 40% of the is fertilizer and controls and now it sounds like 10% is Hawthorne. And 2 separate questions on the 40% and I appreciate the bullishness about the fertilizer business, but it seems like there's been some market challenges in growing fertilizer for a while. And more recently, there's been pricing challenges, it feels like, in the controls business. So I guess as you look out over the next 3 or 4 years, what's the vision for the growth profile of that 40%? I know the 10% is interesting, but in sustained performance there? Well, I think on fertilizer, if I can get 1%, I'd be happy. I think there's some other trying to get out of the micro season of having one application and depending on those micro seasons is very tough for us. And so HALT would be an example. I would say we doubled down on that bet. I'd still make that same bet, but the season cut off and then you missed the season. So because we were up like 15%. So if there's things we can do with the product to extend it and make it a more full solution, which we are working on, I'm actually bullish on that. I also think the number of apps in the new summer product will actually drive activity, so which is actually more related to water. On the controls, I'm really excited about the round of extensions. And I think what you're going to see there is premium products. And so I look at tremendous growth there in the category and using ortho. We're kind of repositioning ortho that has a true meaning on bug and using it as a fighter and weed, use of raid and the off brand. So you're going to see that whole I actually think that we're going to actually do very, very well there. So projection of growth, I'd be throwing out a number, but it's mid single digits. Okay, how about that? They're all looking at me. So Jim will write it. I wasn't actually looking at you, dude. But I'm really bullish on that change, but it was something we needed to do. And then we got some natural products in that category and also natural products for the lawn category that will be game changing. So I'm bullish about where we're going with that. See, I know you want to go negative on this. And look, I'd start by saying of our entire analyst community, I think you are super tight. And so while I may not always agree with you, I think you're a really good analyst. And so I know when I'm talking that you know what I'm talking about, which is that this season for lawns almost could not have been worse, okay? And so I don't want to get too crazed over like I said before, you mess up Texas, California and New York, you can't have a good season, okay? And that's part of what's going on here. I think we said that Mass did less well. That has a lot to do with the numbers. So if you were to pull apart and you had our numbers, I think you'd say, well, there's a story there, okay? And it is what it is. I mean, and we're working on that. And I know our retail partners are engaged in trying to do better as well where there's opportunity to do that. In addition, there are is more activity in R and D. This new, I think, wheat stick or something we call it technology, which is a brand new granule that gives like 40% better performance on the same level of active on the granule, that's a brand new product that happened in 2016. So major improvement in how the product works occurred the year we're in right now. There are new products and combos that say, you know what, if we to me in lawns, there's kind of people who apply one bag and then there's people who apply like 5 bags, okay? And that equates to a number we have not moved the number the needle very much on, which is how many bags per year do people put down? I mean, I think we've talked about it a lot. We haven't made a lot of progress on getting people to apply more bags. I'd make the argument that if to some extent, we can embrace if you say there's a one group, one bag person and then there's like a 5 bag like step person, that, that one bag person, let's sell them a better product. Let's sell them better, something that can do crab and dandelion in the same application. And we've got made a ton of progress on being able to do that. And I think Mike's got a plan to introduce that probably in 2018. It's just registration stuff to do, plus improved actives, in our Southern product, which is to continue to look for actives beyond just atrazine for our Southern braced weed feeders or weed killers. So what do I think? I don't think the story is like all glum. And if Mike is especially, which is I'm a big believer in embrace to reality saying, look, if I get 1% of lawns, I'm okay. I think we can easily do that. And so I'm fairly confident. And I think Mike explained well the pesticide. He's got a good pesticide program. And we tend to see a lot of progress and then fighting back from a strong competitor like spec where it's like, God damn it, we should have killed them when we could have when they weren't bankrupt. And Mike's got a new program. And so I think we tend to be in a little bit of a tit for tat period, but I think we've got a way better program with ortho Roundup non glyphosate products and, Radonoff. I just think we've got a really complete program and Mike wants to jihad with it. So I'm pretty happy with that. Okay. And then last thing, within the Hawthorne portfolio, just a bit of clarity on where you look at creating value within this. Is this buying into a fast growing business? Or do you think there are things you can do in expanding their distribution or increasing product investment? Just trying to understand the case for creating value with this portfolio that you've now built. No, dude, see, I think of you as a smart dude. It's both. First of all, this is a business that everyone we've invested in is growing, call it, roughly 25% per year. I don't see that stopping. And if you look at sort of the medicinal laws that are sort of taking place in the United States, I think they enhance that. You're now over more than half the states, now Ohio went medicinal. So I think the opportunities, there is good runway ahead of us just on outsized growth relative to our existing core business and that makes it attractive. In addition, these are good businesses to begin with. I think we have a good vision for where we want to go with that, which means how do we put it together into a singular business a little bit like we did with Scotts North America back in the day because remember, Scotts was a bunch of businesses much like these businesses. And I think we've done a really good job of being an essential partner with our retailers and consumers, on our conventional lawn and garden business. And I think we can do that here and tie it all together with a little bit more of a professional bent, which would include technical sales support, high levels of R and D spend, much more professional supply chain management. So I think really on both sides of just do we think the integrated business has higher growth rates that are just sort of systemic to a fast growing business? Yes. And I think we have a good vision on where we want to go with it, that doesn't freak out my Board or my lawyers. And I'm really pleased with that. So but I think it's both. I think it's both we have ideas on how we can be good stewards of these businesses and really become essential partners to the community of people who use these products, 1, and 2, just take advantage of something that's high margin, high growth. And I had this debate with Mike Porter when Mike was a Board member here that basically was this does so much for us. It's a younger community compared to a much grayer community on our conventional lawn and garden. It diversifies us on the retailer side. This is a much more independent based business than our conventional lawn and garden businesses. It's much more West Coast than this is. It's not very suburban. It's more urban and rural. So I think that in so many ways, this is a very interesting opportunity for us. That's helpful. Thank you. Audra, let me jump in here real quick in the interest of time. I think we're going to take one more question. So let's move forward. And we'll go with Jim Barrett at C. L. King and Associates. Good morning, everyone. Jim, to follow-up on that your last point, would you compare and contrast Botanacare and GH in terms of franchise quality, financial performance? Is management sticking around with BotanicCare and was it an auction process? No, not an auction process, okay. We without getting into sort of, I think, private details, we have an employment agreement that's been pre negotiated and agreed to with the CEO. So the answer is yes. And we want the management to continue to stay. So the answer is yes on that. Was that a part of question I missed? Talk about the brands and the financial performance relative to GH, please. So I think that both GH and Botanicare are very focused on Nutrien side. BotanicCare also has a sort of plastics side of the business. It's very interesting for us. So I call it sort of hydroponic systems that helps us further expand the line of products. GH had a very important part as sort of the center of our catalyst for our first acquisition in the space, and I'm really grateful for Larry Brook and his family to have sort of entrusted the business to us. It was a much more informally managed business, I think, than Botanicare. So I think Botanicare has very robust financial systems and management systems that actually make this a easier integration for us than but I would say similar businesses in sort of the product line, although Botanica are a little more on the hydroponic systems, not maybe a little more, a lot more on hydroponic systems than GH. But and probably from financial metrics, probably pretty similar, I'd say, sort of percentages. But I think we expect a much easier integration than we had with BotanicCare than we had with GH. And so my hats off to the BotanicCare folks for running a real tight business. Okay. Thank you and good luck. Thank you. And that does conclude today's question and answer session. At this time, I'll turn the conference back over to Mr. King for any closing remarks. Okay. Thanks, Andres. Since Jim Barrett was the last person to ask a question, I'll just remind everybody that Randy and I will be at his conference, I think September 18 in New York. So you can see us there. And I think there were some people who were in the queue that we didn't get to, so feel free to give me a call directly. That's 937-578-5622. Thanks for joining us, and have a good day. Otherwise, we will talk to you all during our Q4 conference call in early November. Bye now. And that does conclude today's conference. Again, thank you for your participation.