Hydrofarm Holdings Group Inc (HYFM) 2024 Q3 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Hydrofarm third-quarter earnings call. (Operator Instructions)

女士們先生們，美好的一天，謝謝你們的支持。歡迎參加 Hydrofarm 第三季財報電話會議。 （操作員說明）

Please note that this conference is being recorded today, November 7, 2024. I would now like to turn the call over to Anna Kate Heller at ICR to begin.

請注意，本次會議將於今天（2024 年 11 月 7 日）進行錄製。

Thank you, and good morning. With me on the call today is Bill Toler, Hydrofarm's Chairman and Chief Executive Officer; and John Lindeman, the company's Chief Financial Officer. By now, everyone should have access to our third quarter 2024 earnings release and Form 8-K issued this morning as well as an investor presentation available for reference. These documents are available on the Investors section of Hydrofarm's website at hydrofarm.com.

謝謝你，早安。今天與我一起參加電話會議的是 Hydrofarm 董事長兼執行長 Bill Toler；以及公司財務長約翰林德曼 (John Lindeman)。到目前為止，每個人都應該可以存取我們今天早上發布的 2024 年第三季收益報告和 8-K 表格以及可供參考的投資者簡報。這些文件可在 Hydrofarm 網站 Hydrofarm.com 的投資者部分取得。

Before we begin our formal remarks, please note that our discussion today will include forward-looking statements. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them.

在我們開始正式發言之前，請注意，我們今天的討論將包括前瞻性陳述。這些前瞻性陳述並不是對未來績效的保證，因此，您不應過度依賴它們。

These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from our current expectations. We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition.

這些陳述也面臨許多風險和不確定性，可能導致實際結果與我們目前的預期有重大差異。我們建議大家參閱我們最近向 SEC 提交的文件，以更詳細地討論可能影響我們未來經營業績和財務狀況的風險。

Lastly, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP and reconciliations to comparable GAAP measures are available in our earnings release.

最後，在今天的電話會議中，我們將討論非公認會計準則衡量標準，我們相信這些衡量標準有助於評估我們的績效。這些附加資訊的呈現不應被孤立地考慮，也不應作為根據 GAAP 準備的結果的替代品，並且我們的收益發布中提供了與可比較 GAAP 指標的對帳。

With that, I would like to turn the call over to Bill Toler.

說到這裡，我想把電話轉給比爾·托勒。

Thank you, Anna Kate, good morning, everyone. In the third quarter, we achieved solid year-on-year improvements in our gross profit margin and adjusted gross profit margin. Our continuing focus on our proprietary brands is yielding results as they have increased as a percentage of our net sales, both in the quarter and year-to-date, providing a boost for our margins.

謝謝安娜凱特，大家早安。第三季度，我們的毛利率和調整後毛利率較去年同期實現穩健改善。我們對自有品牌的持續關注正在取得成果，因為它們在本季和年初至今占我們淨銷售額的百分比都有所增加，從而提高了我們的利潤率。

We also continue to realize significant savings on the adjusted SG&A line through our effective cost savings and restructuring actions. Our net sales were seasonally weaker for us as industry challenges remain, and we have seen several large retailers close stores. With that said, we remain on track to hit our full year outlook on our key metrics.

我們也透過有效的成本節約和重組行動，繼續在調整後的銷售、管理和行政費用上實現大幅節省。由於行業挑戰依然存在，我們的淨銷售額季節性疲軟，我們已經看到幾家大型零售商關閉了商店。話雖如此，我們仍有望實現關鍵指標的全年展望。

I'd now like to cover a number of the other bright spots in the third quarter. We saw strong performances from select proprietary consumable brands in the grow media and nutrient categories. Specifically in the quarter, we saw Aurora Peat achieved significant year-over-year growth, while several of our key proprietary nutrient brands had solid results.

現在我想介紹第三季的一些其他亮點。我們看到精選的專有消耗品品牌在生長介質和營養品類別中表現強勁。具體來說，在本季度，我們看到 Aurora Peat 實現了顯著的同比增長，而我們的幾個主要專有營養品品牌也取得了穩健的業績。

On the durable side, we saw good performances on our proprietary Active Aqua and our PHOTOBIO lighting brand. We will continue to strategically invest behind our key proprietary brands as we look to meet growers' evolving needs. Last quarter, we announced the distribution relationships or new distribution relationships with several partner brands, including Quest dehumidifiers, Hurricane Fans and Mills Nutrients.

在耐用方面，我們專有的 Active Aqua 和 PHOTOBIO 照明品牌表現出色。我們將繼續對我們的主要專有品牌進行策略性投資，以滿足種植者不斷變化的需求。在上季度，我們宣布了與多個合作夥伴品牌的分銷關係或新的分銷關係，包括 Quest 除濕機、Hurricane Fans 和 Mills Nutrients。

These new partner brands added to our top line in the third quarter. However, they did weigh a bit on our cash flow in the period. We remain optimistic about future performance for these partner brands, but we'll balance the upside of more sales with the inventory investment.

這些新的合作夥伴品牌增加了我們第三季的營收。然而，它們確實對我們在此期間的現金流造成了一些壓力。我們對這些合作夥伴品牌的未來表現仍然持樂觀態度，但我們將平衡更多銷售的優勢與庫存投資。

We also saw progress in the diversification of our revenue sources. We continue to expand our international presence outside the US and Canada and continue to seek ways to drive non-cannabis sales, including CEA products sold into food, floral, lawn and garden and certain other customer channels. As a percentage of sales, our non-cannabis and non US.

我們也看到了收入來源多元化的進展。我們繼續擴大美國和加拿大以外的國際業務，並繼續尋求推動非大麻銷售的方法，包括將 CEA 產品銷售到食品、花卉、草坪和花園以及某些其他客戶管道。作為銷售額的百分比，我們的非大麻和非美國。

Canada revenue sources increased several hundred basis points compared to Q3 last year. We are finding ways to become more diverse and less reliant on cannabis in the US and Canada. And we expect these revenue sources to be a greater percentage of sales this year than they were in 2023.

與去年第三季相比，加拿大的收入來源增加了數百個基點。我們正在尋找方法，使美國和加拿大的大麻更加多樣化並減少對大麻的依賴。我們預計這些收入來源在今年銷售額中所佔的比例將高於 2023 年。

Improving profitability remains a top priority, and we took more steps in the third quarter to integrate, consolidate and optimize our manufacturing footprint as we drive productivity and cost efficiencies where possible. Notably, since the beginning of 2023, we have now reduced our manufacturing footprint by nearly 60% and have reduced our total manufacturing and distribution space by almost 45%.

提高獲利能力仍然是首要任務，我們在第三季採取了更多措施來整合、鞏固和優化我們的製造足跡，盡可能提高生產力和成本效率。值得注意的是，自 2023 年初以來，我們的製造足跡現已減少近 60%，並將總製造和分銷空間減少近 45%。

Our actions have enhanced profitability and efficiency throughout our operations, and we have completed these initiatives while maintaining excellent customer service, on-time deliveries and a customer-centric distribution footprint.

我們的行動提高了整個營運的獲利能力和效率，我們完成了這些舉措，同時保持了卓越的客戶服務、準時交貨和以客戶為中心的分銷足跡。

A testament to the effectiveness of our cost savings and restructuring initiatives, we have now realized six consecutive quarters of adjusted gross profit margins at or above 23% and nine consecutive quarters of meaningful year-on-year adjusted SG&A savings. And our absolute adjusted SG&A dollar cost is below our pre-IPO level. We've also achieved an increase in adjusted EBITDA for the nine months year-to-date.

我們現已連續六個季度調整後毛利率達到或超過 23%，並且連續九個季度調整後銷售、管理及行政費用同比大幅節省，這證明了我們成本節約和重組舉措的有效性。我們調整後的絕對SG&A 美元成本低於首次公開募股前的水平。今年迄今的九個月裡，我們也實現了調整後 EBITDA 的成長。

I'd like to give a quick update on the state of the industry. We continue to operate in a challenging environment as we move into the last quarter of 2024. With that said, there are some positive indicators, including actual growth in monthly cannabis users, the amount of actual cannabis being consumed. That continues across the country, which is encouraging.

我想快速介紹一下該行業的最新情況。進入 2024 年最後一個季度，我們繼續在充滿挑戰的環境中運作。這種情況在全國範圍內持續存在，這是令人鼓舞的。

And according to 2023 National survey, nearly 70% of adults consider cannabis as readily available, which is up significantly. This indicates a great runway or a massive runway for the future of our industry.

根據 2023 年全國調查，近 70% 的成年人認為大麻很容易獲得，這一比例顯著上升。這為我們行業的未來指明了一條偉大的跑道或一條巨大的跑道。

One other source of encouragement continues to be the progressing regulatory environment for US cannabis growers. The DEA has scheduled a hearing on December 2, regarding the proposed reclassification of cannabis from Schedule I to Schedule III, which would loosen restrictions on cannabis and help cash flow dynamics for licensed growers across legalized states.

另一個令人鼓舞的來源仍然是美國大麻種植者不斷進步的監管環境。 DEA 已安排於12 月2 日舉行聽證會，討論將大麻從附表I 重新分類為附表III 的提議，這將放寬對大麻的限制，並有助於合法化州內持證種植者的現金流動態。

These positive developments would inject more life in the supply side of the industry and represent a step forward towards legalization of cannabis in the US. We are still optimistic demand for our products will turn around and deliver growth in the future. In the meantime, we have continued to show our ability to drive additional cost savings.

這些積極的發展將為該行業的供應注入更多活力，並代表美國大麻合法化向前邁出了一步。我們仍然對我們產品的需求將在未來扭轉並實現成長持樂觀態度。同時，我們繼續展示我們推動額外成本節約的能力。

Looking ahead with our strategic focus on our proprietary brands, revenue source diversification and cost controls and related restructuring initiatives, we're confident that we are positioned for growth once demand and volume return to the industry. I am happy to reaffirm our full year 2024 guidance for net sales, adjusted EBITDA and free cash flow.

展望未來，我們的策略重點是我們的自有品牌、收入來源多元化和成本控制以及相關的重組舉措，我們相信，一旦行業需求和銷售恢復，我們就能實現成長。我很高興重申我們 2024 年全年淨銷售額、調整後 EBITDA 和自由現金流的指引。

With that, I'll turn it over to John to talk about the details of the third quarter financial and further about our outlook for 2024. John?

接下來，我將把它交給約翰來討論第三季財務的細節，並進一步討論我們對 2024 年的展望。

Thanks, Bill, and good morning, everyone. Net sales for the third quarter were $44 million, down 18.8% year-over-year, driven primarily by a 13.7% decrease in volume mix and a 4.9% decline in pricing. The decrease in volume mix was mainly related to oversupply in the cannabis industry. The pricing decline was driven largely by promotional pricing activity during the period. We alluded to this last quarter and expect to see a similar pricing dynamic for the remainder of the year.

謝謝比爾，大家早安。第三季淨銷售額為 4,400 萬美元，年減 18.8%，主要是由於銷售組合下降 13.7% 和定價下降 4.9%。銷量下降主要與大麻產業供應過剩有關。定價下降主要是由於該期間的促銷定價活動造成的。我們在上個季度提到這一點，並預計今年剩餘時間將出現類似的定價動態。

Consumable products. Once again, made up more than three quarters of our total sales, outperforming durables, consumable products comprised approximately 79% of our total sales in Q3. An increase compared to last year overall brand mix with solid during Q3 as our proprietary brands represented 56% of our total net sales compared to 54% in the prior year period.

消耗品。消耗品再次占我們總銷售額的四分之三以上，表現優於耐用品，而消費品在第三季占我們總銷售額的約 79%。第三季整體品牌組合較去年增加，因為我們的自有品牌佔總淨銷售額的 56%，而去年同期為 54%。

Importantly, even with our proprietary, -- even within our proprietary brand bucket, we sold a greater mix of our higher margin brands compared to last year. Gross profit in the third quarter was $8.5 million or 19.4% of net sales compared to $3.3 million or 6.1% of net sales in the year ago period, adjusted gross profit was $10.7 million or 24.3% of net sales compared to $12.5 million or 23% of net sales last year.

重要的是，即使在我們的專有品牌範圍內，即使在我們的專有品牌範圍內，與去年相比，我們也銷售了更多利潤率較高的品牌。第三季毛利為850 萬美元，佔淨銷售額的19.4%，去年同期毛利為330 萬美元，佔淨銷售額的6.1%；調整後毛利為1,070 萬美元，佔淨銷售額的24.3 %，而去年同期毛利為1,250 萬美元，佔淨銷售額的23%去年的淨銷售額。

The 130 basis point increase is primarily due to a better mix of our higher margin, proprietary branded sales in the quarter and increased productivity within select manufacturing facilities. We also recorded no significant inventory write downs during the quarter. As Bill mentioned, this was our sixth consecutive quarter with adjusted gross profit margins at or above 23%.

130 個基點的成長主要是由於我們更高的利潤率、本季專有品牌銷售以及特定製造工廠生產力的提高的更好組合。本季我們還沒有記錄重大庫存減記。正如比爾所提到的，這是我們連續第六個季度調整後毛利率達到或超過 23%。

That said there continues to be room for improvement if we continue to execute on our strategic priorities, including our focus on proprietary brand sales and further improving our operational productivity.

也就是說，如果我們繼續執行我們的策略重點，包括我們專注於自營品牌銷售和進一步提高我們的營運生產力，那麼我們仍然有改進的空間。

A quick update here on some of our recent restructuring, cost saving actions. As we mentioned last quarter in June, we consolidated our grow media manufacturing by closing our smallest facility followed by a greater than 30% reduction in our Northern California facility in July.

這裡是我們最近的一些重組、成本節約行動的快速更新。正如我們在 6 月上個季度提到的，我們透過關閉最小的工廠來整合我們的生長介質製造，隨後 7 月我們的北加州工廠的產量減少了 30% 以上。

Our manufacturing is now concentrated in two US locations plus our peat moss harvesting and processing facility in Canada. During the quarter, we began to realize small but incremental efficiencies and cost savings from these consolidations.

我們的製造現在集中在美國的兩個地點以及加拿大的泥炭蘚收割和加工設施。在本季度，我們開始透過這些整合實現小規模但增量的效率和成本節約。

We are currently evaluating opportunities to optimize our distribution center network including potential third party logistics partnerships for one or more of our DCs in the US and Canada. Lastly, we successfully integrated one of our Canadian entities into our main ERP system during the quarter. Building on these achievements and our previously consolidated back office functions.

我們目前正在評估優化配送中心網路的機會，包括與我們在美國和加拿大的一個或多個配送中心建立潛在的第三方物流合作夥伴關係。最後，我們在本季成功地將我們的一個加拿大實體整合到我們的主要 ERP 系統中。以這些成就和我們先前整合的後台職能為基礎。

We now intend to fully integrate our US and Canadian front office and operating teams over the next two quarters, we expect these actions to drive operation -- operating efficiencies and potential revenue synergies on both sides of the border. We look forward to sharing more details next quarter as we further streamline our business into one cohesive team.

我們現在打算在接下來的兩個季度完全整合我們的美國和加拿大前台和營運團隊，我們預計這些行動將推動營運——邊境兩側的營運效率和潛在收入協同效應。隨著我們進一步將業務精簡為一個有凝聚力的團隊，我們期待在下個季度分享更多細節。

Moving on to our selling general administrative expense where we continue to realize significant savings. In the third quarter., our SG&A and a expense was $17.6 million compared to $19.5 million last year adjusted SG&A expenses were $10.7 million, a nearly 11% reduction when compared to $12 million last year. These savings are due to reductions across a wide range of items including facility expenses, head count reductions, professional fees and insurance costs.

接下來是我們的銷售一般管理費用，我們繼續實現大量節省。第三季度，我們的 SG&A 和費用為 1,760 萬美元，去年為 1,950 萬美元，調整後的 SG&A 費用為 1,070 萬美元，比去年的 1,200 萬美元減少了近 11%。這些節省是由於各種項目的減少，包括設施費用、人員減少、專業費用和保險費用。

Year-to-date, we have achieved a 19% reduction on the adjusted SG&A line compared to last year. Adjusted EBITA was slightly positive in the third quarter and year-to-date our adjusted EBITA of $2.1 million has more than doubled compared to 2023. Demonstrating the success of our restructuring and cost saving initiatives and our ability to operate profitably on lower sales levels.

今年迄今為止，與去年相比，我們調整後的 SG&A 線減少了 19%。第三季調整後 EBITA 略為正值，年初至今，我們調整後 EBITA 為 210 萬美元，與 2023 年相比增加了一倍多。展示我們的重組和成本節約舉措的成功以及我們在較低銷售水平下實現盈利的能力。

Moving on to our balance sheet and overall liquidity position our cash balance as of September 30, was $24.4 million down from our balance of $30.3 million. At the end of the second quarter last year. We ended the third quarter with $119.6 million of term debt and approximately $128 million of total debt inclusive of financial lease liabilities. Our net debt at the end of the quarter was approximately $104 million.

看看我們的資產負債表和整體流動性狀況，截至 9 月 30 日，我們的現金餘額從 3,030 萬美元減少了 2,440 萬美元。去年第二季末。截至第三季末，我們的定期債務為 1.196 億美元，總債務約為 1.28 億美元，其中包括金融租賃負債。本季末我們的淨債務約為 1.04 億美元。

As a reminder, our term loan facility has no financial maintenance covenant does not mature until October 2028. We continue to maintain a zero balance in our revolving credit facility with our cash on hand and over $17 million of availability on our untapped revolving line of credit. We have over $41 million of total liquidity. A comfortable position for us.

提醒一下，我們的定期貸款融資沒有財務維持契約，直到 2028 年 10 月才會到期。我們的循環信貸額度繼續保持零餘額，手頭現金和未動用的循環信貸額度超過 1700 萬美元。我們的總流動資金超過 4,100 萬美元。對我們來說是一個舒適的位置。

In the third quarter, we reported cash flow from operating activities of negative $4.5 million with capital expenditures of $ 0.8 million yielding free cash flow of negative $ 5.3 million cash flow in the quarter was impacted by our investment in new partner brands that bill referenced earlier and temporary working capital delays from our US, Canadian ERP and related people integration.

第三季度，我們報告經營活動現金流為負450 萬美元，資本支出為80 萬美元，自由現金流為負530 萬美元。投資的影響我們的美國、加拿大 ERP 和相關人員整合導致臨時營運資金延遲。

While these impacts have put pressure on free cash flow. We are reaffirming our expectations to achieve positive free cash flow for both the fourth quarter and the full year. With that. Let me turn now to our full year 2024 outlook.

雖然這些影響給自由現金流帶來了壓力。我們重申我們對第四季和全年實現正自由現金流的預期。就這樣。現在讓我談談我們對 2024 年全年的展望。

We are reaffirming our 2024 guidance on key metrics. Net sales are tracking towards the middle of our outlook range which calls for a decline of low to high teens on a percentage basis. We are also reaffirming our expectation for adjust but now that is positive for the full year 2024 and positive free cash flow for the full year as well, which includes an updated expectation of $2.5 million to $3.5 million of capital expenditures.

我們重申 2024 年關鍵指標指引。淨銷售額正朝著我們的預期範圍的中間方向發展，這要求按百分比​​從低到高的數字下降。我們也重申了我們的調整預期，但現在這對 2024 年全年是積極的，全年自由現金流也是積極的，其中包括 250 萬至 350 萬美元的資本支出的最新預期。

We also included a couple of updates to our full year assumptions in today's earnings release. We are confident in the long term potential of this business. We continue to successfully execute on our cost saving initiatives and have proven the ability to operate profitably at lower sales levels.

我們也在今天的財報中對全年假設進行了一些更新。我們對這項業務的長期潛力充滿信心。我們繼續成功執行成本節約計劃，並證明有能力在較低的銷售水平下實現盈利。

We remain committed to our strategic priorities including diversifying our revenue streams and further improving our sales mix via our proprietary brands. We are also optimistic about an eventual industry turnaround and believe we are well positioned to capture any incremental demand profitably. I will now turn the call back over to Bill.

我們仍然致力於我們的策略重點，包括實現收入來源多元化，並透過我們的專有品牌進一步改善我們的銷售組合。我們也對行業最終的改善持樂觀態度，並相信我們有能力抓住任何增量需求並實現盈利。我現在將把電話轉回給比爾。

Thanks John. And before we take questions, as we announced last month, I am retiring from the CEO role in transitioning to executive Chairman effective on January 1, 2025. When John will take over as the CEO having turned 65 earlier this year.

謝謝約翰。在我們回答問題之前，正如我們上個月宣布的那樣，我將從執行長職位上退休，並於 2025 年 1 月 1 日起過渡為執行董事長。約翰將於今年稍早年滿 65 歲，接任執行長。

This is the right time for me to make change. That said I'm not really going anywhere. I'm just as committed now to the success of the company will be closely involved as executive Chairman and as one of the company's largest shareholders, I strongly believe in the long term fundamentals and the growth opportunity for Hydrofarm.

這是我做出改變的正確時機。這就是說我真的不會去任何地方。我現在同樣致力於公司的成功，並將作為執行主席和公司最大股東之一密切參與其中，我堅信 Hydrofarm 的長期基本面和成長機會。

This is a very natural progression. John is a proven leader who's been an integral part of this business for the last five years helping drive us through numerous complex industry environments. The transition to John and the team will be seamless and provide the necessary continuity of leadership.

這是一個非常自然的進展。約翰是一位久經考驗的領導者，過去五年來他一直是這項業務不可或缺的一部分，幫助我們度過了許多複雜的產業環境。約翰和團隊的過渡將是無縫的，並提供必要的領導連續性。

The board and I could not be more confident in John and the deep leadership team we already have in place around him and I'll support them as necessary as we seek to realize the potential for Hydrofarm.

董事會和我對 John 和我們周圍已經擁有的深度領導團隊充滿信心，在我們尋求實現 Hydrofarm 潛力的過程中，我將在必要時支持他們。

Thank you all for joining us this morning. We're now happy to answer your questions. Operator. Please open the line.

感謝大家今天早上加入我們。我們現在很高興回答您的問題。操作員。請打開線路。

(Operator Instructions)

（操作員說明）

Andrew Carter, Stifel.

安德魯卡特，斯蒂菲爾。

Hey, thank you. Good morning. First question I wanted to ask is around the distributed brands you signed up some new partners, which you mentioned, it does weigh on cash flow. Could you, quantify what the outlook is for for partners out there?

嘿，謝謝你。早安.我想問的第一個問題是關於您簽署的一些新合作夥伴的分散式品牌，您提到，這確實對現金流造成壓力。您能否量化一下合作夥伴的前景？

Obviously, Hawthorne is no longer distributing third party, but they've helped cement the BFGs position. Is there a lot out there that's profitable or are the demands out there of anyone looking to distribute a lot of times not worth it either on a profit basis or just the incremental working capital demands? Thanks.

顯然，Hawthorne 不再分銷第三方，但他們幫助鞏固了 BFG 的地位。是否有很多東西是有利可圖的，或者任何想要多次分配的人的需求是否不值得，無論是基於利潤還是僅僅增量營運資金需求？謝謝。

Yeah, the partner brands work for us and they work for us particularly well, when we have scale, right? Obviously, with recent demand trends scale has been a challenge for us and for the whole entire industry.

是的，合作夥伴品牌為我們服務，而且當我們有規模時，它們對我們特別有效，對嗎？顯然，從最近的需求趨勢來看，規模對我們和整個產業來說都是一個挑戰。

So there are a handful of the partner ones that are -- that have come our way that we think have really, really good, good long term potential. The ones I just mentioned are at the top of that list, right, the Quest and Mills and Hurricane are certainly really good brands for that.

因此，我們認為有一些合作夥伴具有非常非常好的長期潛力。我剛才提到的那些是在該清單的頂部，對吧，Quest、Mills 和 Hurricane 無疑是非常好的品牌。

There's also been some further consolidation of some very large lawn and garden brands, on the grow media and nutrient side who have consolidated down to taken certain distributors out of the mix. And they've kind of come to us in a interesting way. So that's actually provided us some opportunity really that won't be realized until 2025.

一些非常大的草坪和花園品牌在生長介質和營養物方面也進行了進一步整合，這些品牌已經整合以將某些經銷商排除在外。他們以一種有趣的方式來到我們身邊。所以這實際上為我們提供了一些要到 2025 年才能實現的機會。

But we're clearly lining up to where that we are a big part of the distribution industry today. And we think that's a viable business for us, especially once the industry comes back. You know, that being said, we are also making sure that we have the right distribution footprint that we have the right SKU count and the right viable levels of service to our customers.

但我們顯然正在努力成為當今分銷行業的重要組成部分。我們認為這對我們來說是一項可行的業務，尤其是當該行業復甦後。你知道，話雖這麼說，我們也確保我們擁有正確的分銷足跡，我們擁有正確的 SKU 數量以及為客戶提供正確可行的服務水準。

So distribution can be a good business at scale. We've all struggled to get to that scale in the last few years, but we think that hopefully we're close to that coming back to being a positive force.

因此，大規模分銷可能是一項不錯的業務。在過去的幾年裡，我們都在努力達到這樣的規模，但我們認為希望我們已經接近恢復成為一股積極力量的目標。

Got it. And then a second question, I know you mentioned that the independent retail closures are out there. You've got two customer sets, you have independent retail and then you have a commercial business.

知道了。然後是第二個問題，我知道你提到獨立零售店已經關閉了。你有兩個客戶群，你有獨立零售，然後你有商業業務。

We understand on the independent retail. Are you seeing stability on your commercial customers or are you seeing churn from either just exiting the industry or just anything on kind of the underlying trends there? Thanks.

我們了解獨立零售。您是否看到商業客戶的穩定性，或者您是否看到因退出該行業或任何潛在趨勢而造成的流失？謝謝。

Yeah, the -- you're right, the retailer -- the brick and mortar retailers have been consolidated. I think that's largely over now. But what happens is you have two step dynamic, right? They close the stores and that means those stores stop buying, but then they also have to eat their own inventory and consolidate that inventory back into their other stores.

是的，你是對的，零售商——實體零售商已經被整合。我認為現在基本上已經結束了。但會發生什麼，你有兩步動態，對吧？他們關閉商店，這意味著這些商店停止購買，但隨後他們也必須吃掉自己的庫存，並將庫存整合回其他商店。

So there's really a delayed effect on us because as they're consolidating inventory from one store to another and really consuming their own pipe, if you will, it takes longer for it to come back to us. So we certainly felt that in Q3, we've felt that all year, right? On the other side of things, commercial has been -- it has been okay, but certainly way below the levels it was few years ago.

因此，這對我們確實產生了延遲影響，因為當他們將庫存從一家商店整合到另一家商店並真正消耗他們自己的管道時，如果你願意的話，它需要更長的時間才能回到我們手中。所以我們在第三季當然感覺到了，我們一整年都有這樣的感覺，對吧？另一方面，商業化還不錯，但肯定遠低於幾年前的水平。

There was a lot of people that have been kind of waiting for these regulatory changes to come through. Obviously, we all saw that Florida did not pass. The majority of people of Florida wanted to have it pass, but it didn't get to the 60% threshold. It's not really that surprising.

很多人一直在等待這些監管變革的實施。顯然，我們都看到佛羅裡達沒有通過。佛羅裡達州的大多數人希望該法案能夠通過，但未能達到 60% 的門檻。這其實沒有那麼令人驚訝。

It usually takes one or two times for these things to pass and hopefully it will soon. And we've got the big DEA meeting coming up in early December. I think that will be the catalyst that gets commercial going again. Another channel that's been very viable for us in the last -- this year and certainly the last couple of years is ecommerce.

這些事情通常需要一兩次才能過去，希望很快就會過去。DEA 大型會議將於 12 月初舉行。我認為這將成為商業活動再次啟動的催化劑。過去、今年以及過去幾年對我們來說非常可行的另一個管道是電子商務。

So ecommerce now is a big -- bigger part of the business than it had been over the last few years as people are more in ordering from Ecommerce and getting products delivered that way. So really, you've got weakness in brick and mortar.

因此，與過去幾年相比，電子商務現在已成為業務的一個重要組成部分，因為人們更多地從電子商務訂購並以這種方式交付產品。所以說實話，你在實體方面有弱點。

You've got commercial that's been a bit on hold. But I think it's going to pick back up, especially if there's a rescheduling event. And you've got ecommerce that's probably emerging as a strong ongoing channel for the industry.

你的廣告有點被擱置了。但我認為它會回升，特別是如果有重新安排的活動。電子商務可能正在成為該行業一個強大的持續管道。

Thanks, Andrew.

謝謝，安德魯。

Thanks. Passed on.

謝謝。過去了。

Appreciate it.

欣賞它。

Jesse Redmond, Water Tower research.

傑西·雷德蒙德，水塔研究。

Good morning, I was curious to know if you could talk a little bit more about, Florida. That's a couple of billion dollar medical market that we were hoping would more than double over time. I know you're not specifically super leverage that market but curious if you could talk about what specific implications that not passing would have for Hydrofarm.

早上好，我很想知道你是否可以多談談佛羅裡達州。這是價值數十億美元的醫療市場，我們希望隨著時間的推移，該市場將成長一倍以上。我知道您並不是特別擅長利用該市場，但我很好奇您能否談談不通過會對 Hydrofarm 產生什麼具體影響。

Yeah. It certainly was a setback for the progression that we know is ultimately going to take place here. The fact that almost 57% voted. Yes. Say that people want it and they'll eventually get it. These things generally take, you know, more than one time before they do pass Florida setting the bar at 60. The fact that the very popular governor was not for this is probably the reason that it didn't get through.

是的。對於我們知道最終將在這裡發生的進展來說，這無疑是一個挫折。事實上，幾乎有 57% 的人投票了。是的。說人們想要它，他們最終會得到它。你知道，這些事情通常要經過不只一次才能通過佛羅裡達州，將標準定為 60 分。事實上，這位非常受歡迎的州長並不支持這一點，這可能是它沒有通過的原因。

I am encouraged that, Trump came out and said he's in far in favor of it. So that kind of leads me to believe that, good things can and should happen going forward.

令我感到鼓舞的是，川普站出來表示他非常贊成。所以這讓我相信，美好的事情可以而且應該繼續發生。

But you're right, we don't have a huge footprint in Florida. We don't have any distribution centers, really the closest distribution center we have here is Pennsylvania. So we don't have a lot of infrastructure in the state. We obviously don't operate any brick and mortar. So our opportunity here was for the consumption growth and for the growth in infrastructure and the growth in consumables and things.

但你是對的，我們在佛羅裡達州的足跡並不大。我們沒有任何配送中心，實際上我們這裡最近的配送中心是賓州。所以我們州沒有很多基礎設施。顯然我們不經營任何實體店。因此，我們的機會在於消費成長、基礎設施成長以及消費品和物品的成長。

But we don't really have the cost leverage or the cost challenges down here like some other people might. So we think that, while a setback it is headed our direction and we are going to have other macro things. Hopefully, the rescheduling that far outweigh the benefit of what might have happened down here in Florida.

但我們並沒有像其他人一樣真正擁有成本槓桿或成本挑戰。因此，我們認為，雖然遭遇了挫折，但它正朝著我們的方向前進，我們將會有其他宏觀的事情。希望重新安排的好處遠遠超過佛羅裡達州可能發生的事情的好處。

And with your strong balance sheet and cash position, you're operating from a position of relative strength. Can you talk a little bit more about opportunities you're seeing on the M&A front to perhaps do some consolidation?

憑藉強大的資產負債表和現金狀況，您的營運處於相對優勢地位。您能否多談談您在併購方面看到的可能進行一些整合的機會？

Yeah, I think that the M&A front really has a couple of different things. There we've been continuing to have dialogue and admittedly with our preservation of cash for all the right reasons and with our current, equity price, we're not going to go out and do a lot of M&A.

是的，我認為併購方面確實有一些不同的事情。我們一直在繼續進行對話，誠然，出於所有正確的原因，我們保留了現金，而且以我們目前的股價，我們不會出去進行大量併購。

But there's a couple of things that are going on if not M&A then perhaps people are looking at outsourcing their volume to us, meaning a smaller player can no longer afford to keep his own plant operating.

但是，如果不是併購，那麼可能會發生一些事情，那麼人們可能會考慮將業務外包給我們，這意味著較小的參與者無法再維持自己的工廠運作。

So with that consolidation, perhaps we pick up volume that way, those opportunities while they haven't come to us fully yet have also been discussed with a number of different people. So we may pick up some volume that way as we're looking to help other people get through this downturn.

因此，透過這種整合，也許我們會以這種方式增加銷量，這些機會雖然還沒有完全來到我們身邊，但也已經與許多不同的人進行了討論。因此，我們可能會透過這種方式增加一些銷量，因為我們希望幫助其他人度過這次低迷。

On that same front we still remain having multiple dialogues with people about potential, combinations and different strategic approaches that make sense for us and for the industry.

在同一方面，我們仍然與人們就潛力、組合和對我們和行業有意義的不同策略方法進行多次對話。

And we do have a lot of good brands to leverage. We have a lot of good distributor partners to leverage. We have a lot of good things that can ultimately lead to the right solution. But we have been prudent in not rushing into anything that wasn't the right situation for us or what didn't create long term value for our shareholders because we know that like you said, our balance sheet is in good shape and we've got an undrawn revolver.

我們確實有很多好的品牌可以利用。我們有許多優秀的經銷商夥伴可以利用。我們有很多好的東西最終可以帶來正確的解決方案。但我們一直謹慎行事，不會倉促採取任何不適合我們的情況或無法為股東創造長期價值的事情，因為我們知道，正如您所說，我們的資產負債表狀況良好，而且我們已經得到一把未拔出的左輪手槍。

We've got debt that's still not due for four more years. We've got all kinds of things that protect where we are. We've been making money in five out of the last six quarters and so we get where we stand. We want to change that position over time. But we also know we got to do it in a disciplined and prudent way.

我們的債務還有四年才到期。我們擁有各種可以保護我們所在位置的東西。在過去的六個季度中，我們有五個季度都在獲利，因此我們達到了目前的水平。我們希望隨著時間的推移改變這一立場。但我們也知道我們必須以有紀律和謹慎的方式來做這件事。

That's helpful. Thanks. And finally, congratulations on the continued cost controls. Can you talk a little bit about how we might be thinking about SG&A and a moving forward in '25? How much more room you have to cut there?

這很有幫助。謝謝。最後，恭喜持續的成本控制。您能否談談我們如何考慮 SG&A 以及 25 年的發展？那裡還需要削減多少空間？

Yeah, thanks, Jesse. I'll, jump in on that one. Yeah, there is a little bit more room. I mean, look, we've, I think proven over time now that we find ways to nip and tuck where we can to continue to bring that down. I mean, we are at pre IPO levels, as Bill mentioned in our comments earlier. So it does get a little bit tougher, but there's some more opportunity there for us in '25.

是的，謝謝，傑西。我會，加入那個。是的，還有一點空間。我的意思是，看，我認為隨著時間的推移，我們已經找到了方法來繼續降低這種情況。我的意思是，正如比爾之前在評論中提到的那樣，我們處於首次公開募股前的水平。所以它確實變得有點困難，但 25 年我們還有更多機會。

Great. That's all for me. Thank you.

偉大的。這就是我的全部。謝謝。

Great, Jessie. Thank you.

太棒了，傑西。謝謝。

Thank you. I'd like to turn the call back over to Bill Toler for any final or closing remarks.

謝謝。我想將電話轉回給比爾·托勒，讓他發表最後或結束語。

Great. Thanks Marjorie and thanks everyone on the call for the support and continued interest in Hydrofarm. And we look forward to speaking to you soon. Take care.

偉大的。感謝 Marjorie 並感謝所有參加電話會議的人對 Hydrofarm 的支持和持續關注。我們期待盡快與您交談。小心。

Thank you, ladies and gentlemen, that does conclude today's conference. We thank you for your participation. You may now disconnect.

謝謝女士們、先生們，今天的會議到此結束。我們感謝您的參與。您現在可以斷開連線。