Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Hydrofarm Holdings Group Third Quarter 2021 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode and the lines will be opened for your questions following the presentation. Please note that this conference is being recorded today, November 11, 2021. I would now like to turn the call over to Mr. Fitzhugh Taylor, Managing Director at ICR to begin.

Thank you, Devon, and good afternoon, everyone. 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 2021 earnings release and Form 8-K issued today after market close. These documents are available on the Investors section of Hydrofarm's website at www.hydrofarm.com. Before we begin our formal remarks, please note that our discussions 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. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. 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. 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. With that, I'd like to turn the call over to Bill Toler. Bill?

Thank you, Fitzhugh, and good afternoon, everyone. During the third quarter, we grew our topline by over 28% that improves gross profit by approximately 65% year-over-year. We continue to benefit from the reconfiguration of our product portfolio that's been primarily driven by this year's M&A activity as our proprietary brands have become a larger part of our total sales. This helped drive an improvement in adjusted EBITDA both on an absolute dollar and on a margin percentage basis. Despite the strong year-over-year growth, our third quarter results were below our original plan, primarily due to a well-communicated, short-term agricultural oversupply issue that has put downward pressure on our cannabis growing activity, predominantly in California and in Canada. While John will reaffirm our outlook in more detail, we continue to expect our organic growth for the full-year 2021 to be between 18% and 23%, above the mid-teens historical baseline growth rate we alluded to when we went public last year. We would also note the midpoint of our outlook implies a two-year organic growth of over 75% or an approximate 32% two-year compounded annual organic growth rate. All in all, we continue to believe our long-term growth algorithm remains strong and that we are uniquely positioned to capitalize on the unprecedented long-term expansion of controlled environment agriculture. Let me elaborate on this a bit. When we entered the public market late last year, we set a goal to execute on several key growth strategies for 2021. That included innovation in building our proprietary brands, expanding our distribution footprint, adding strategic distribution relationships and more preferred brands to our portfolio, and acquiring value-enhancing businesses, particularly in categories where we didn't already have strong proprietary brands that included nutrients and grow media. To date, we successfully executed these strategies, as you can see from the following statistics. On a pro forma basis for the five acquisitions we've completed in 2021, now 76% of our year-to-date sales come from either proprietary or preferred brands compared to 65% last year. And more importantly, our proprietary brands, brands that we own, represent over 55% of our sales versus only about 33% last year. The consumable portion of our portfolio has also grown up to 68% of our total sales, and that's on a pro forma basis, including the five acquisitions. Now 36% of our revenue comes from products that we manufacture in-house; a year ago, that number was less than 10%. And again, that's on a pro forma basis for the five deals we did. We've added several preferred brands, most notably Advanced Nutrients in Canada and Technaflora in North America. And we've grown our combined distribution center and manufacturing footprint by over 70%, exceeding the 25% goal we set out to accomplish earlier in the year. We believe what we've accomplished to date in terms of product portfolio and infrastructure has positioned our company well to capitalize on the opportunities ahead. As you know, about 40% of the U.S. population lives in legal adult-use states today. However, within the past year, a number of highly populated states like New York, New Jersey, Connecticut, Virginia, Arizona have passed new adult-use legislation, but several of these states have been slower to implement their adult-use plans, and we expect to see our volumes build significantly there in many of those areas over some period of time. And while we are not yet prepared to offer detailed guidance on fiscal 2022, something we expect to do when we report our Q4 results in a few months, I'd like to touch on briefly our preliminary growth expectations for next year. We currently expect 8% to 10% organic topline growth for 2022. We also expect the organic growth will likely be weighted toward the back half of 2022 as our industry laps very strong comps in the first half of next year, and several new states build even more momentum as we work our way deeper into 2022. In addition, we expect to benefit from the full-year ownership in 22 of the five businesses that we acquired across the last eight months of 2021. Together, we expect this organic growth and the lap benefit from M&A to take us well above our IPO algorithm of 20% plus growth in adjusted EBITDA. Another area of growth we are excited about is our commercial business. We have grown our commercial business by about 400% in 2021. And with our recent acquisition of IGE and their commercial equipment product range, we are excited about the material opportunity ahead of us in the Commercial segment. With that, let me recap our recent acquisition activities. As we mentioned on our last call, we completed our acquisition of Aurora Innovations and Greenstar Plant Products in July and August. Then two weeks ago, we successfully completed our acquisition of IGE or Innovative Growers Equipment, an Illinois-based manufacturer of horticultural benches, racking and LED lighting systems. IGE also has a commercial equipment product range that will complement Hydrofarm's existing lineup of high-performance proprietary branded products. In total, we did five acquisitions during 2021, which have not only provided us with recurring revenue at accretive margins but have also added valuable manufacturing and distribution capabilities to our business. As we work deeper into the fourth quarter, we will reorient our focus to digest and further integrate these recent acquisitions. In addition, we will also be putting plans in place to improve productivity, further reduce costs, which we expect will help offset the ongoing inflationary pressures. Lastly, our recent financing has given us strong liquidity heading into 2022, and we will continue to use our dry powder to remain opportunistic with our acquisition strategy. In closing, we believe the current oversupply situation is temporary in nature, and we are excited about the expected increase in demand in states that have recently legalized adult-use cannabis. Along with a solid portfolio we've built through the five acquisitions this year, as well as improved distribution footprint, we have positioned our company to successfully capitalize on the continued growth in the CEA industry. With that, let me turn it over to John to further discuss our third quarter financial results and provide some further comments on our full-year outlook for 2021. John?

Thanks, Bill, and good afternoon, everyone. Net sales for the third quarter increased 28% to $123.8 million from $96.7 million in the prior year period. The increase in net sales was largely related to the year-over-year impact from the four companies that we acquired between May and August. Together, these companies added 32% to our topline in the third quarter of 2021 relative to the prior year period. And they offset a decline in organic growth, which was impacted by the short-term softness we experienced predominantly in California and Canada, which Bill explained earlier. Excluding California, U.S. sales volume was up 5% year-over-year in Q3, as other markets such as Michigan, Oklahoma, and Maine successfully lapped strong comparable sales last year, while several other states that somewhat recently passed adult-use legislation have not yet gained full momentum. Combined, the volume impact from acquisitions and organic growth yielded an overall 24% increase in volume in Q3. Net sales in our third quarter did benefit from a 2.8% increase in pricing mix as we continue to reassess our portfolio SKUs and take price on those SKUs where we see higher input costs. This is something we expect will continue as we look out across the next several quarters. Year-to-date net sales were up 45% to $369 million from $254.8 million during the same period in 2020. The year-to-date growth in our topline was led by organic growth of approximately 29%, coupled with M&A growth of approximately 16%. Gross profit during the third quarter increased by 65% to $30 million as compared to the year-ago period, while gross profit margin improved by 540 basis points to 24.2%. The expansion of our gross profit margin is primarily related to the favorable sales mix shift towards proprietary and preferred branded products. The proprietary brands we acquired this year are accelerating our mix shift. And as a result, our gross profit margin has increased considerably. During the quarter, we also absorbed approximately $1.7 million in acquisition-related costs within our cost of goods sold, which negatively impacted reported gross profit margin. So on an adjusted basis, our 24.2% reported gross profit margin would adjust to 25.6%. Selling, general, and administrative expense increased to $32.1 million in the third quarter of 2021 compared to $12.5 million in the year-ago period. The increase in SG&A was primarily due to increased costs associated with our accelerated M&A strategy, which directly accounted for over 70% of the total increase, while higher costs associated with supporting our public company status and long-term growth strategy made up the difference. As noted in the press release, SG&A expenses on an adjusted basis were $16.9 million or 13.6% of net sales in the quarter versus $11 million or 11.3% last year. While many of our SG&A expenses are necessary investments in the sense that they are required given our public company status or our accelerated M&A strategy, we will continue to drive efficiency where possible. Reported net income attributed to common stockholders was $17.3 million or $0.37 per diluted share in the third quarter compared to a net income of $2 million or $0.08 per diluted share last year. Note that we had a discrete tax benefit in the quarter, which had a negative impact on our reported net income. The tax benefit resulted from a recent acquisition, which enabled a release of a portion of the valuation allowance against our deferred tax assets. There is further detail on this point in our 10-Q, which will be filed shortly. Weighted average diluted shares outstanding was approximately $46.3 million for the third quarter of 2021. Similar to last year, we have calculated pro forma adjusted net income and applied pro forma weighted average diluted shares outstanding as if the IPO had occurred at the beginning of January 2020, which is the earliest comparison period. On this basis, pro forma adjusted net income for the quarter was approximately $7.7 million or $0.17 per pro forma diluted share compared to a profit of $4.3 million or $0.13 per pro forma diluted shares in the year-ago period. Lastly, adjusted EBITDA more than doubled to $16.1 million or 13% of net sales for the third quarter of 2021 from $7.4 million or 7.7% of net sales in the prior year period. I should also note that on a year-to-date basis, our adjusted EBITDA has more than doubled to $42.2 million from $16.1 million last year. Both of these adjusted EBITDA comparisons for the quarter and for the year-to-date period represent dramatic increases. And though we are far from done, we are very proud of our collective team for all the hard work that has been required to get to this point. Moving on to our balance sheet and overall liquidity position. As of September 30, 2021, we had $14.5 million in cash, cash equivalents, and restricted cash, and approximately $27.7 million in total debt outstanding. Subsequent to the end of the third quarter, as we previously announced, we entered into a new $125 million senior secured term loan facility. We used a portion of the net proceeds from the new term loan to fund the cash portion of the IGE acquisition and to repay the outstanding balance on our existing revolving credit facility. Subsequent to these transactions, we have substantial cash on hand and up to $100 million of available borrowing capacity under our existing revolving credit agreement. We have also leaned into inventory, which is up considerably in the third quarter. With the new term loan and strong inventory positions, our modest leverage provides us the flexibility needed in the near term to enable continued growth while also allowing us to remain opportunistic on future M&A opportunities. Lastly, we are reaffirming our recently updated 2021 outlook. We expect total company net sales growth of 37% to 43%, which translates to approximately $470 million to $490 million in net sales for the 12-month period ending December 2021. We expect organic growth of approximately 18% to 23%, heavily weighted toward the first half of the year and M&A growth of 19% to 20%, heavily weighted toward the second half of the fiscal year. As Bill previously noted, the midpoint of our sales outlook implies a two-year organic growth rate of over 75% and an approximate 32% two-year compounded annual organic growth rate. These numbers remind us that while we may be lapping strong comps from the back half of 2020, our IPO growth algorithm, which called for mid-teens organic growth, is still very much intact. Our outlook also calls for adjusted EBITDA of $47 million to $53 million for the full-year 2021, which represents approximately 10% to 11% of net sales. The midpoint of these full-year estimates implies a higher year-over-year adjusted EBITDA margin for the fourth quarter, albeit a seasonally lower adjusted EBITDA margin for the fourth quarter relative to the third quarter. Please note that this outlook only captures the partial year contribution to the five acquisitions completed between May and early November. And because of this, we also would like to highlight our estimate on a pro forma full-year basis, as if all five acquisitions had occurred on January 1, 2021. And on that basis, the company would have expected to generate between $580 million to $600 million of net sales and $85 million to $95 million of adjusted EBITDA. We believe our strong growth this year underscores the many benefits of our business model, which will continue to be fueled in large part by the considerable growth that we expect is still yet to come in the CEA industry. This concludes our prepared remarks, and we are now happy to answer any questions you might have. Operator, please open the line for questions.

Thank you. We will now be conducting a question-and-answer session. Our first question comes from the line of Andrew Carter with Stifel. Please proceed with your question.

Hey. Thanks. Good morning. Appreciate that you reaffirmed kind of the update, and we're really just, I guess, two, maybe three weeks away from the last one. But it's a pretty wide range in the fourth quarter. So I just want to know if you could talk about that, what you've seen, and kind of what puts you at the low, what puts you at the high end of the range for the fourth quarter?

Yes. I mean, the volume has continued to be in Q4 pretty much what we saw in Q3, right? So this sort of two to three quarter transitory issue that we've talked about and many others have talked about, it sort of stayed at that kind of a level. So we're not going to call anything more than what we are seeing. And so with it trending at a similar level of what we saw in Q3, and we have, of course, the kind of the seasonal downtick that we get in Q4 anyway. Putting those two things together has kept us hopefully conservative here, but we think that the range is still very valid. John, you want to add to that or do you think that covers it?

No, I think that covers it well.

Got it. The second question on the kind of pro forma portfolio you've outlined, it's 14.7% to 15.8% EBITDA margin. Should that be kind of what we are looking at for FY 2022? Anything that would put outsized risk? I know it's probably going to be a difficult first half of the year for you guys. I know you've got input cost inflation, but long inventory positions. But anything that would push you maybe outside that range maybe lower? I know it's early for 2022, but just anything you have there. Thanks.

It is early, but we've obviously started looking at it. And yes, I mean, the inflation, the labor cost, the transportation underneath all of that, we've been able to take some pricing, which is fine, and we'll continue to do that. But eventually, pricing is going to have elasticity, and you don't want to put more pressure on volume. So yes, I think it's fair to say that number is going to have pressure on it in 2022, and we're going to work really hard to hold that number, perhaps do better. But right now, as we look at it, we say, yes, that is a pro forma number for 2021, given all the things that are going on in the world, and the supply chain and the labor and all the things we're all dealing with, there could be some pressure on that. But we're going to work hard at trying to maintain or improve it.

Thanks. I will pass it on.

Thank you. Our next question comes from the line of Peter Grom with UBS. Please proceed with your question.

Yes. Hey. Good afternoon, guys.

Hi, Peter.

Just maybe following up on the margins. So like through all the acquisitions, your business mix has changed quite substantially, right, just a greater percentage of the own brands and nutrients and grow media. So when I think about the implied step down in the EBITDA margin embedded in your guidance for Q4, is that just simply the seasonality of the business now? I know Q4 has always been a bit lower. But it is a pretty meaningful step down sequentially versus Q3. So what's driving that? And then I kind of wanted to go after the pro forma EBITDA for next year in a different fashion, kind of following up on Andrew's question, but like you kind of talked about the 8% to 10% organic top line growth, but you kind of alluded to cost pressures, and I know you're hoping to offset some of those with price increases. But would it be fair to assume that based on those cost pressures you're seeing, and you would expect EBITDA growth off that pro forma number to be below that 8% to 10% organic? Thanks.

Yes. So I'll address the first question surrounding the Q4 seasonally adjusted margin. And yes, no, I think that's right. I mean, I think the seasonality, Peter, in conjunction with the SG&A levels that we're carrying today is really what gets us there. As you know, the leverage point that comes with sort of the dip in seasonal sales that we typically experience would have some impact. We do expect SG&A on an adjusted basis to be a little bit higher in Q4 than it was in Q3, really because we're picking up SG&A from the IGE acquisition, and we'll have a full quarter of some additional costs we had in Q3 from folks that we added to the corporate team.

Yes. And Peter, to your second part of that question, I would just say that’s too early to say on the EBITDA growth for next year. We're not ready to get that far into any kind of an outlook. We certainly want to see expansion. But the 8% to 10% organic, remember, we're going to get a nice lapped benefit on the M&A side, so our total growth number will be quite a bit above that. But we just haven't gotten all the way there to be able to kind of say whether it's going to be at or above or below?

Got it. That’s helpful. I will pass it on.

Thanks, Peter.

Thank you. Our next question comes from the line of Jon Andersen with William Blair. Please proceed with your question.

Good afternoon. Hi, Bill. Hi, John.

Hey, Jon.

A couple of questions for you. One, I was curious if with the slowdown that you're seeing, obviously, California, Canada, primarily, and it's affecting the entire industry. Are you seeing any competitive dynamics changing at all with respect to kind of pricing or promotion? Is anyone trying to lean in and take market share? Just trying to get a sense for whether the competitive backdrop is maybe tenor has changed a little bit during this period or whether it's similar? Thanks.

Yes. I would say there was a little bit of that at the end of Q2, and we certainly saw some activity that was pretty aggressive. We've seen individual activity on the lighting side, where there are a lot of good competitors there. There's sort of four or five brands that are in people's consideration set, and there's been some aggressiveness there. But I think the major competitive factors, both retailers and suppliers and manufacturers have remained pretty rational and just realize that we're in an agricultural category that has these blips every few years, and we certainly plan to be smart and ride it out. We certainly plan to do that, and we're working to find profitable volume and constructive ways to work with our customers. But I haven't seen anybody sort of go to the math, if you will, perhaps people did back in 2018, but this is so different than 2018. I don't think you're going to see any of those behaviors or anybody.

Yes, that makes sense. Okay. And then the second one, kind of a two-parter, I guess. As you look at the portfolio today, with all of the changes that you've made through your own internal development as well as the five acquisitions, as you've noted, where are you today in terms of the status of some of the categories in your own brand or proprietary brand mix? I'm trying to get a sense of where you – how you feel you are in terms of being well represented through proprietary and preferred in the various categories. And then the second part, being so acquisitive, at some point, do you pivot to integration over additional acquisition just in order to kind of make sure that the brands that you've acquired and the operations that you've acquired are integrated in a way that you have kind of a tight platform, if you will. So I'll leave it at that. Thanks. There's a lot there.

Good. No, that's fine. Thanks, Jon. Good question. On the proprietary mix, I'll kind of go through the big categories, if you will. I would say that lighting is still our highest percentage of our total sales in a proprietary brand. I think it's some number like over 90%, primarily with Phantom PHOTOBIO. It's not necessarily our strongest category, and we are catching up after being a late entry on the LEDs, but it's certainly a category where, on a pure percent of total in proprietary, it's the highest development. With the acquisition of the nutrient companies, four of the companies have a nutrient component to them. Now nutrient has a really nice representation of proprietary brands, although we still represent a ton of non-proprietary brands that we enjoy selling as well. So that's a well-developed category. Equipment supplies are sort of in that 40% range of our sales are in our own brands. And then really grow media is probably the lowest, even though we acquired Aurora Innovations, which has wonderful grow media brands, it's still the lowest as a percent of total for us. So that's how those categories now spread out. So to your point, to your second question, yes, we fully believe that while M&A will be an important part of what we do next year, the most important thing is that we take what we've purchased to run it well, drive growth in those businesses, look for productivity and synergies and scale and opportunity, all the things you would do as a natural manufacturer, and natural good company to find those kinds of things. So yes, I think it will be more of a year of integration, optimization, driving innovation within our own core brands because honestly, 2021 was all about getting the portfolio right so that we can compete effectively against the competitive set out there. So we could be the guy that provides a solution for our commercial customers, working through our retailers and working to, of course, the hobbyist to buy from those retailers. All of that plays together, and we're pretty pleased with the amount of progress we made in 2021. So we do want to have a little bit more focus on integration, still tactically acquire as we think it makes sense, build up the categories that need a little more support. But we've got a really solid portfolio at this point.

That makes sense. Thank you for the color.

Thanks, Jon.

Thank you. Our next question comes from the line of Andrea Teixeira with JPMorgan. Please proceed with your question.

Thank you. Good afternoon, everyone. So Bill and John, what gives you comfort on the guide for 8% to 10% organic growth in 2022? And of course, you alluded back end, assuming that this excess inventory and pricing in the earlier part of the year gets resolved? And how we should be thinking on that cadence? And just a clarification on your commentary about margins to Peter and Andrew. Like these kinds of commentary, the 14.7% to 15.8% would be pro forma. But should we be thinking of that realizing already in 2022? Or you're just saying this would be the underlying, but we're still going to have to face those pressures as we go?

Yes. The short answer to your last question for me, at least, and John can certainly add is, yes, we've got to still face the pressures. There's a lot of uncertainty out there right now. And supply chain inflation, price elasticity, pricing, labor, all the things that everybody, every industry is dealing with. So we don't just automatically say it's a pro forma in 2021. Therefore, it's a starting point for 2022. We think that that's a strong number, a really strong number for 2021. And we are going to have pressure on that. We've got to work to get through it. But overall, it's a kind of a place we want to work for. What gives us confidence in the 8% to 10%, I think it is a couple of things you said, Andrea, which is that we see the momentum over two or three years in the category, and it's quite incredible, the 75% two-year, 32% CAGR over the last two years even with the weaker third quarter. And so we say, all right, it's going to keep the momentum going. And so 8% to 10% is a pretty, pretty solid, safe number, we think, primarily growing in the back half, right? Slower in the first, probably better in the second, and picking up nicely in the third and fourth. The other piece is we just got to believe that these four or five states that passed over a year ago now, we're going to start finally implementing and become a much more meaningful part of our business. And to date, they really have it. New York has spiked up a little bit, even places like Louisiana and Missouri have started showing some nice growth on a percentage basis, but they're not really meaningful volume yet. So we think that an 8% to 10% call, I'll call it high single, low double kind of call is pretty much down the middle of the fairway kind of number that we believe that just the natural momentum of implementation, the momentum in the category over the last several years gives us good comfort that we can execute that.

And I appreciate that when you're discussing the places in the states. I think one of your competitors called out Oklahoma. I don't know if you're that exposed to that state, but did you see a slow down there or not really?

Yes. Oklahoma has still done well for us. We've seen it go faster and slower. It hasn't really slowed down as much as I've heard from others, but it's hard to make a relative comparison, right? A lot of it might be kind of from where you started, and a lot of it is sort of depending on the category and maybe the guys who are heavier in equipment did better earlier, and now the nutrient guys are doing a little bit better, and we're a little heavier on the consumables side. So Oklahoma for us has had some fits and starts, but it's still a strong grower for us over the year. And it's a top five state as I'm sure you know.

Thank you very much. I'll pass it on.

Thank you, Andrea.

Thank you. Our next question comes from the line of Bill Chappell with Truist Securities. Please proceed with your question.

Thanks. Good afternoon.

Hey, Bill.

Just a couple of questions. One, kind of what are you – and you made – I'm sorry if you already touched this. What are you looking for, be it legislative or price-wise or whatever? I mean, first, with California to see signs that things have stabilized and gone forward? Is it me walking into my local dispensary and seeing that my favorite product has gone up in price? Or is there something else? And then for like New York, Virginia, Connecticut, New Jersey, is how – what should we be looking for in terms of an early sign that sales are picking up? Is there something legislative or it's tougher, obviously, to track?

Yes, it is tough to track. And mainly, it's the politicians stopping fighting with each other and just deciding that they all need the tax revenue, let's not argue about what color the laws should be. Let's just get the house open and go, right? And that's been slow. And they've had all kinds of rules that people were trying to put on to different things in different states. And some of that's finally going by the board, and it looks like they're going to get things moving because they've all been embarrassingly slow on that. So there's not one piece of legislation or one sort of fell swoop that can go out and knock it all off. It really is now state-by-state. On the first part of your question, it really does come from pricing, right? It comes from the pricing a lot of that kind of hits this middle group, right. I believe that – and John and I were talking about this earlier that net-net, the commercial growers are still going to do a lot of their work, and they're going to keep growing. The hobbyist and kind of the midrange ones are probably the ones that got hit the hardest in a downturn because they're like – they've made a lot of money. They had a lot of cycles. When the price comes down a little bit, they're not necessarily going to take the risk and go do the growing. So it really is to make sure you wait for the pricing to return. And we're hearing a little bit of encouraging news on that, but certainly not a big change that we would like to see to get it back to normalized levels.

Got it. And then just kind of a follow-up on LED lighting. Where are we in kind of the conversion cycle? I mean, I sense a lot of the industry growth in 2020 came from kind of some of the same existing states that had already been recreation legal. And so a lot of the growth came from just upgrades of LED lighting at least from you and your major competitor. Just help me understand that and kind of how you're positioned.

Yes. I think there was a surge last year in kind of the early converters, the people in California are the ones – and remember, California is the only place that you're kind of required to get out of double-ended or high pressure sodium. A lot of other states are still very interested. We still sell a good amount of HPS and double-ended lights under the Phantom brand. So it really is a California thing, but as is true in this category like California does drive a lot of the trends. I think that a year ago, our competitor was better positioned to get more of that. We've now come out with our PHOTOBIO line and while it's doing well. I think we missed the first big surge. So we got a little more ways to go, and we hope to continue to build momentum on that PHOTOBIO line. I think that's where the category has transformed. I think there's a long way to go and a lot more lights to be sold, both LED and non-LED because categories just got so much room to build and to expand underneath in all these new states and across the existing ones as well.

Great. Thanks for the color.

Thanks, Bill.

Thank you. Our next question is a follow-up question from the line of Peter Grom. Please proceed with your question.

Hey. Thanks for taking the follow-up. I just wanted to go back to the 8% to 10%. I mean, let's just say, a scenario where the implementation doesn't occur, for a lot of these new states, does that put the 8% to 10% guidance at risk?

First of all, it's not guidance, just an outlook and a preliminary one at that, right? And I think that given the history in the business, I mean, last year, we did 40% all organic in basically no new states, right? So this category has a natural history. We've done, I guess, its 16 years at 19% compounded. 8% to 10% should be kind of an okay year. We're not really structuring for the guns here. We're all a little hesitant to get ahead of our skis because of what we're seeing right now. So I think 8% to 10% should be a very conservative number. But until it turns, it looks hard, right? You're not there yet. I wouldn't call it ever – hit risk or anything. I think it's just a little bit of an early view that we think is certainly achievable.

Okay. Thank you.

No problem. Thanks, Peter.

Thank you. We have no further questions at this time. I'd like to turn the floor back over to Bill for closing comments.

Great. Thanks so much, Devon, and we appreciate your interest today and questions, and look forward to speaking with you during the follow-ups. Take care. Thank you, guys.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.