Good day, and welcome to the Scotts Miracle-Gro 2017 First Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to, Jim King. Please go ahead.

Thank you, Matt. Good morning, everyone and welcome to the Scotts Miracle-Gro first quarter conference call. With me this morning in Ohio are, Jim Hagedorn, our Chairman and CEO; Randy Coleman, our CFO; as well as our President and COO, Mike Lukemire and several other members of our management team. Our prepared remarks this morning will be divided into three sections. Jim will provide the bookends. He'll share a few thoughts about the quarter, and then provide a more extensive update on some of the strategic elements of Project Focus. In between Jim's remarks, Randy will discuss the Q1 financials. After our prepared remarks, Jim, Randy and Mike will take your questions. In the interest of time, please keep to just one question, and one follow-up. One piece of housekeeping to share before we start, I want to remind everyone that we're holding our Analyst Day event on February 21st at the Boca Raton Marriott in Florida. Here's what to expect. Jim, Randy and Mike will spend the first 45 minutes or so on a high-level update of our strategy, and view of the current business environment. Then, we'll have a series of brief presentations led by each of our respective brand leaders in our core U.S. business. From there, we'll leave the hotel, and travel to garden centers at our major retail partners in the area. We plan to start the meeting at 8:00 AM, leave for stores at approximately 10:00 AM, and then return to the hotel for lunch and a Q&A session at roughly noon. We hope to adjourn shortly after 1:00 PM. If you plan to attend, and haven't let us know yet, please do so by the end of the week. You can RSVP on our Investor Relations website or by e-mail at investor@scotts.com. Of course, you're also free to call my office directly at 937-578-5622. Let's move on to the business at hand. Before we start our prepared remarks, I want to remind everyone that our comments this morning will contain forward-looking statements, and so our actual results could differ materially. We encourage investors to familiarize themselves with the risk factors that could impact those results. Those risk factors can be found in our Form 10-K, which is filed with the SEC. I also want to remind everyone that this call is being recorded. An archived version of the call will be made available later today, on our Investor Relations website. With that, let me turn things over to Jim Hagedorn to get us started. Jim?

Thanks, Jim. Good morning, everyone. We're going to take a slightly different approach this morning. I'm going to share just a few high-level thoughts about the strong first quarter results we announced today, and then Randy will cover the financials. Then he's going to turn it back over to me, so I can provide you an update on two significant initiatives. First, Hawthorne. As we prepare to begin reporting Hawthorne as a business segment, I want you to understand what we see as the next steps in this space, that includes making some changes that we believe will allow us to better leverage the opportunities that exist in the hydroponic channel. And second, executive compensation. We've been hinting in the past two calls that we're making changes, and I want to share those with you, today. I believe, we've created an innovative program, better aligns our pay with Project Focus in both our short-term and long-term pay plans. Before we hit these issues though, let me share just a few thoughts about Q1. Try not to overreact to our Q1 results, because they represent less than 10% of the year, and because consumer activity really relates to the end of last season. That said, POS in the quarter was up 7% against a double-digit comparison, the year before. You might recall that, fall weather was good in most markets with warm temperatures and below-average precipitation, that kept both our retailers and our consumers heavily engaged right through Thanksgiving. I was especially pleased with consumer purchases of lawn fertilizer, which was up 7%. Beyond lawn fertilizer, we saw a 31% increase in grass seed, 43% in Scotts cleaners, 11% in Miracle-Gro soils, 10% in rodenticides, and 1% in Roundup. AeroGrow also had a strong quarter due to holiday sales, but I'll…

Thanks, Jim, and good morning, everyone. Obviously, we had a great start to the year, as you can see in the results we announced this morning, As Jim said, we saw strong consumer demand all the way until winter hit, which gave us a lot of momentum. And as expected, we got a big jolt from the year-over-year acquisitions within Hawthorne. It's important to remember that Q1 is small, and that it's difficult to draw any conclusions or trends from what we see during the quarter. Given the small sales base, it's easy to see the percentages move pretty dramatically in either direction. Fortunately for us, all of those numbers moved in a positive direction this year. You're not going to hear any change in our guidance today, and we'll be seeing many of you again in a few weeks, so I'm going to be quick in covering the numbers, and then we'll turn things back over to, Jim. Before I start, I want to remind everyone that our adjusted pro forma results are the basis of our full-year earnings guidance. Those numbers give you the best apples-to-apples comparison after the contribution of SOS into the joint venture with TruGreen. I recognize that the strong Q1 results are well-ahead of what was expected. I'll be joining Jim King this afternoon to follow-up calls on today's results. I'll try where I can, to help you understand, where you might want to adjust some of your phasing and modeling assumptions for the rest of the year. Let's start by looking at sales, which were up 27% on a company-wide basis to $247 million. Within that number, U.S. consumer sales were up by $126 million, up 11% and driven by the strong consumer demand, Jim mentioned earlier. One other point worth making about…

Thanks, Randy. As I said at the beginning, I want to brief you on two things; Hawthorne and changes we've made to better align executive pay with our strategic plan. Let's start with Hawthorne, which is really a story about growth. Some of you probably recall my pessimistic view of the consumer a few years ago when I said we were living in a no-growth world. I told you, we wouldn't chase growth that wasn't there. And for a while, we returned most of our cash to shareholders. But as growth emerged in adjacent areas of lawn and garden, we pursued it. That's how we wound up with Tomcat, which we've nearly doubled in size since we acquired the brand in 2013. It's also why we partnered last year with Bonnie Plants, another category where we see significant potential. That philosophy of pursuing adjacent growth is also what gave birth to Hawthorne. Initially, Hawthorne was focused on exploiting demographic trends by making a play in the area of urban and indoor gardening, a segment we hadn't been in. Our focus on developing and acquiring craft brands was intended to reach an emerging group of gardeners who demanded the highest-quality products brought to them by brands that these consumers perceived as sharing their values. That opportunity remains very real. In fact, we're focused even more intently on it, and I'll come back to that in a minute. But since the birth of Hawthorne, we've become even more encouraged by the growth opportunities that exist in hydroponics. The acquisition in the past 24 months of three of the most important brands in hydroponic growing presents new opportunities for us and our shareholders. Hawthorne has quickly put together an industry-leading portfolio of the leading brands in the hydroponic channel; all-purpose nutrients, high-end soils,…

Thank you. And we will take our first question from Jon Andersen with William Blair. Jon R. Andersen - William Blair & Co. LLC: Good morning. Thanks for the question.

Hey. Jon R. Andersen - William Blair & Co. LLC: I wanted to start on the core business. Why is it still right to kind of think about the core business growing 1% to 2% this year, given a couple of things, I guess, given the strong start to the year in the consumer engagement that you've seen, given the commentary around the strong retailer support for the business and even the recovery in some businesses that perhaps haven't performed as well of late, like fertilizer which had a strong quarter?

Well, look, I'm not sure there's a good answer for that question. I think we might view it as somewhat conservative. I know, Mike's using a higher number than that internally. I do think that talking to you guys that under-promising is our modus operandi here. And so, I think we're optimistic for the year. I can't tell you though how many times I've had – look, I want to call the numbers up, okay, just not now. And we've gone into a lot of marches where I've gone home and told my wife, I don't even have to go to work anymore unless it snows every day, we're going to blow our numbers away and then I find us struggling for the rest of the year. You heard me say that. That just means we work all the summer, and it seems like that's been our last call at least four years is really strong start, April goes to hell and then we're just working our butts off all summer to sort of make it back up again. And I give a lot of credit for the team to have developed plans that allow us to sort of deal with contingencies. So, look, I want to call the numbers up, I just don't think we're ready to do that and let's just see how we end up at the end of next quarter. But do I think the numbers, we could beat them? Yes. Jon R. Andersen - William Blair & Co. LLC: Okay. Shifting gears to hydroponics just for my follow-up or Hawthorne, I guess, more broadly. You've indicated you haven't revised your expectation for Hawthorne. You're looking for high single-digit growth. There are a couple of components to Hawthorne on note two (38:55), right, you have the craft side of the business and the hydro side of the business. What are your expectations for those two components of Hawthorne in aggregate? And then on the hydro side, it sounds like you're thinking a little bit more about additional M&A there. And I'm wondering, is that, you're just seeing some new opportunities, some gaps in the current portfolio that you think you can fill, and kind of your timing associated with any additional actions there? Thank you.

You're welcome. No, I think that we've already split Hawthorne. So, when we split out Hawthorne, it will be pure hydroponics. So, call it we are throwing out there and call it 10% just for grins, high-single digits. The markets are growing faster than that. But, again, I think that what we're trying not to do is put a ton of pressure on the team. And so, I think, again, that scenario where we have a pretty conservative number, which I think we believe we can do better, there are some headwinds in a little bit in it sort of in a reporting period, they sort of ended the year with a push on sales, many of which there were earn-outs for the old shareholders there. So, we're aware of that. We're not surprised by it. But I think if you look at sort of category growth, if you just view it broadly as a category, it's probably mid-20%s or something like that is probably what the categories are growing. So, a little bit of just year-to-year adjustment issues based on sort of the way sales timing, but I think we have a pretty conservative number in – for Hawthorne. And I think that's a righteous place for us to be, to be honest, as we're not – keep changing their numbers and pushing their sales numbers up, which at a time, we're basically investing in G&A for them to sort of build that team out. On the M&A side, getting the Botanicare deal closed really allowed us to sort of then look at the industry and say, are there places we aren't that we should be. And Chris, we were down at a board meeting in Florida, this is Election Day, I think he was in, like Quintus Hotel (41:35) like the party that didn't happen. But he put together probably the best people, both in companies that we've purchased and sort of companies that we have a ton of respect for, and individuals we have a ton of respect for in the hydroponics space, and basically started their first really deep strategic planning meeting with basically a lot of the industry there. And I think what was discovered is, there probably are a couple of gaps, what I think Chris will call pillars of that business, where there is opportunity for us to potentially acquire or develop our own brands for that space. And so, I think that's effectively what you're hearing. So, well, I would say I think there's a good pipeline. Maybe that's what I'm trying to say. So I think there's a good pipeline of very fairly priced deals. Who knows if they're all going to happen? But I think it's effectively a sort of filling out these pillars where there's some space. Okay.

And we will now hear from Joe Altobello with Raymond James. Joseph Nicholas Altobello - Raymond James & Associates, Inc.: Hey, guys. Good morning.

Hey. Joseph Nicholas Altobello - Raymond James & Associates, Inc.: Just wanted to follow-up on Hawthorne for a second. You did a good job of sort of bridging the up 6% this quarter versus, I guess, up 11% on a pro forma basis, adjusting for some of those timing issues. But that's still below the plus 24% that we saw in the fourth quarter. So, maybe why that business slowed a little bit, even if you adjust for the timing issues?

Joe, this is Randy. Hey, a little more color on what happened there. When you think about the Botanicare deal that closed in early October, as sellers naturally do, there was a big push towards the end of September. We structured the deal, so it was based on calendar year 2016 earnings. So, we are protected for that September push, because we're looking at the full year, so it doesn't affect the price we paid, but it does affect the shipments in Q1. And then if you look back to the original General Hydroponics and Vermicrop deal that we did back in March of 2015, I believe, the way that deal was structured, there was a similar earn-out based on calendar 2015 earnings. And there was a late push in Q1 last year by Vermicrop in particular to make sure that they hit their earn-outs. So, those are the two events that are more purchase price acquisition related that make Q1 sales look a little bit odd year-over-year, but when you think about the price we paid and the values of the deals, they're structured appropriately, we made sure we're protected, and this one particular quarter, it just looks a little bit odd. Joseph Nicholas Altobello - Raymond James & Associates, Inc.: Right. So, that gets you from the 6% to 11%, right? But I'm just curious why it slowed from last quarter plus it slowed below, I guess, industry growth?

Listen, my view is if you look at year-over-year sales of these companies, they're exactly – they're not losing out to the industry, we're not losing share. And I don't see growth rates declining. I mean, of course business beat all of our internal numbers, and particularly on hydro side. And so, I'm really pleased with it and not concerned at all. Okay, so. Joseph Nicholas Altobello - Raymond James & Associates, Inc.: Okay. That's helpful. And just one last one on the dilution from the JV. You guys had mentioned that you thought that equity income would be about flat with last year. Has that changed or are you looking for additional dilution this year given what you talked about for fiscal 2Q?

This is Randy again, Joe. We're not changing our outlook, it's just that the phasing of it looks a little strange when we look at how the models reflect the year. And we think about the leverage from the deal, so we're seeing a lot of incremental interest expense coming year-over-year and the deal didn't close until April of last year. So, a lot of that is going to fall into Q1, especially Q2. And then, the non-cash amortization from writing up assets, we'll see a lot of that fall through the P&L as well. So, we'll help folks straightening out their models this afternoon. But there's no change in the full year outlook. In fact, we just had a board meeting last week in New York on the TruGreen business, and actually I feel more encouraged now than we did a few months ago as we look forward into 2017. Joseph Nicholas Altobello - Raymond James & Associates, Inc.: Okay. Great. Thanks, guys.

Thank you.

And our next participant is Jeff Zekauskas with JPMorgan.

Hi. Thanks very much. Good morning.

Good morning.

Hi. The current administration is reaching out to various companies to ask them about tax law changes, there is the proposal of a much, much lower rate, there are border tax adjustments. In your first look at that, is that something that's good for Scotts or bad for Scotts? How do you assess it?

Jeff, this is Randy. We were really optimistic right after the election, whether we looked at the Trump plan or looked at a border congressional plan, just probably we're going through the details, and it definitely changing the initial starting point down to 15% or 20% would help us tremendously. I think like a lot of companies, we're evaluating the border adjustment and what that would mean. We do source some reasonable imports of Sphagnum Peat from Canada. So, that's one thing we're looking at. Urea, we probably import about 20% of our annual requirements; the rest being sourced domestically, so a couple of areas that we're looking at there. So, I think the details are going to be important, I think, if we phased out interest, I'm not sure that makes a lot of sense for a company like us that's using leverage to grow and really deliver value to shareholders. I think the domestic manufacturing deductions, that were to be phased out, that doesn't help us in that, we have most entirely domestic production, especially – or what we sell in the U.S. The only place where we do have production located out the U.S. is in Europe where we sell in Europe. And, obviously, we're looking at alternatives for that business. So, you would think in the big picture that any kind of change in the tax laws would be a big boost to Scotts. Depending on the details, that may not necessarily be the case, and we're actively working with both Congress and trying to reach the administration to make sure they understand situations like ours in that the intent of really trying to boost America, support companies like us that have been located in Marysville, Ohio since 1868. If there's not a greater American company than Scotts, and I had a hard time putting my finger on it. You think we'd be the primary beneficiary of changes in the tax law. And if that doesn't turn out to be the case, really, we'll be just scratching our head quite a bit.

Yeah. I mean, what I would add to that is – and we're working pretty close through ways and means right now on sort of why we think this border adjustment is not that great of an idea. And – so, if you look at our sort of combined State and Federal rate of call it 36.5, I just sort of defy people to say there's many companies that pay a higher rate than that. And so, you would assume then that this would be really good for us. We're a company that's in growth mode, so this is not like oh, always me, so I'd answer sort of the headline is like neutral, but I think that's a bunch of bullshit, okay? It shouldn't be neutral for us. If you look at our peer group of, and these are for real consumer marketing companies, we aren't just sort of near the top, we are the worst company of like 20 companies that we look at ourselves against when we look at compensation in – just sort of industry. So for us to be at the highest, and really because of, Pete (50:20) and our sort of acquisitive ways, which means we're using leverage at this moment, that we end up in a neutral place, where let's just say, taxes go down 10-plus percent, but then go back up 10% based on cross-border and interest rate, it's very disappointing, put it that way, if that's what get signed into law, and we're working hard to sort of – because I don't think you find a more sort of American company than us. And so, it just sort of defies logic as far as I'm concerned, because I'm going to say it, I was a supporter of Donald Trump. I continue to be a supporter of Donald Trump. I voted for him, and I voted for him largely because, I expected it to be good for our business, and I hope that turns out to be the case. But look, bottom line is we're doing fine. It's not like we were so desperate for tax reduction. That said, every dollar of tax reduction that we get, we're going to invest in our business, and in America, okay. So, if that's – and my advertisement is over.

Okay. And I guess, for my follow-up. In your compensation plan, you talk about cumulative free cash flow generation. Is the cumulative free cash flow generation calculated after capital expenditures and after acquisitions?

Jeff, it's calculated after capital expenditures, it's not calculated after M&A. And the target is essentially more or less consistent with what we've done in the past, plus expected improvement from Hawthorne. The max payout we've based on about a $600 million improvement versus that target over five years. So really, healthy return to shareholders.

But I think that, to some extent the question begs a little bit of clarification. We do intend to M&A, just ourselves. And if the stock prices is not viewed as attractive, we'll return. So we intend to buy our own business back over time, and not – so it's not public anymore. But to have a significant reduction in our share count. So our intent is that the, absent a sort of pipeline that we've already identified, within hydroponics that we talked about earlier in the call, when that's done, we're done. The reconfiguration of this company is over, and it's now cash flow for a purpose, which is to buy our own shares back, or if that's not attractive, return it through dividend. So it's important that, that'd be clear.

Yeah. Jeff, let me clarify what I said. So, we're starting with operating cash flow, and then we're backing off internal CapEx to get to free cash flow, so we're not subtracting the capital used for M&A. However, if we do M&A, the earnings for that will be included, but there's a trade-off against our investor return, and that we'll be buying back our shares, et cetera. So I think there's appropriate tension in the model to make sure that we're doing what's best for shareholders. But I just want to clarify, it's not a deduction on the cash used, but we will include the cash generated.

Okay. Great. Thank you.

Thanks.

And we will now hear from Jason Gere with KeyBanc Capital Markets.

Okay, thanks. Good morning, guys. A couple of question. I guess, the first one, just because, over the last few years, and you've talked about the ups and downs of the spring season with weather, I was just wondering, I know you're – the retailers are pretty high going into the season. Just anything different in terms of merchandising this year? And maybe, from your end, how you're going after maybe some of the up-start demographic, such as millennials? So I was just wondering, one, if you could talk about anything you're doing different there, and how the A&P spending kind of plays into that?

This is Mike Lukemire. If you come down to Florida, you're actually going to see, when you look at the live goods, a lot of cross-merchandising with Bonnie and Miracle-Gro to tie that solution, you're going to see a lot more of that solution selling. You're going to see a new Roundup selective weed product, which actually ties – completes the Roundup weed portfolio, that it works on, whether it's on the lawns or gardens or patios, you'll start seeing that type of activity. And we've also timed all of our advertising with the major retailers to tie to their promotions in a more timely basis, to actually begin to bundle these solutions together. So we'll talk about that a lot in Florida, but we're really optimistic of category growth. And in some markets, we've actually outgrown the store average, which is our new objective with our retail partners.

Look, I just want to throw in there that, I've worked with a lot of guys sort of – and I ran North America myself – Mike's got, I think, a very good view of where to take this business, and it's big time being executed. And so, I think if you look at our programs, our new products, our sort of pipelines, and our relationship with very willing partners on the retail side, I think, we've got really good programs for 2017, and I think we've got good plans going forward where we just do what we know we need to do in 2018. This is all stuff that we've kind of run the business as a bunch of brands as opposed to running it as a just one category. And I think, Mike's got a really good handle on it. I think his sales team has got a good handle on it, our category leaders. There's a lot of good work happening in the business. And in regard to sort of the demographics, this is part of the move of our craft brands into Mike Sutterer's business is, we very much think that's important. And I think we're going to be even more active there, and then allow – because another part of that demographic shift is hydroponics. And so, I think we're active in all those areas that you were sort of implying. And I must say, it's a really good story.

Yeah.

Okay, great. No, I appreciate the color. And then, I guess, the follow-up question is really just on how we should think about the gross margins, and clearly, what you did in the first quarter, in the smallest quarter of the year. You're saying that, those trends are not going to repeat, but a lot of it depends on the sales. Just because, I know there's still a lot of confusion in the P&L with how to treat TruGreen, and I do understand that SG&A should be kind of flattish this year, so I appreciate the color, there. How should we kind of like range the gross margin in terms of hitting what you would say the U.S. segment being kind of conservative, 1% to 2% growth versus where the upside could be? I mean, can you give a little bit more color in terms of how we should think about gross margin kind of playing out for the year, with all the puts and takes that you've kind of laid out over the course of the call?

Sure. This is Randy again, Jason. When you think about margin rate by business, our U.S. consumer business has the highest margin rate. So it's similar to Q1, the better we do there, the more that's going to fall through to the bottom line. In Europe, our gross margin rates are quite a bit lower, still north of 30%, but not nearly as productive as what we see in the U.S. And then with Hawthorne, the rates are, from a gross margin perspective, in the low-30s as well, more consistent with Europe right now than what we see in the U.S. But again, from an operating margin rate, those businesses individually have operating margin rates of around 20% or even north of that. So, we'll see a lot more benefit on the bottom line than what we'd see in the gross margin rate. And as far as timing, Q2 will be interesting. We had the strong comps in the Midwest and Northeast from last year in Q2 that we'll have to match. But really, it's more of a load quarter than anything else. So I think, like any other year, we'll be able to sit down in mid-May, and have a really good read, by the middle of June, we'll know the answer for the most part. I don't expect that to be much different from what we've seen in the past.

I don't know what the answer is, Randy probably does. 100 basis points of growth would equal sort of what percent gross margin improvement over what we're telling people.

Well, what it drops through is typically, call it, mid-30s. There's usually some offsets against that, potentially. And in some comp if we have a year that exceeds our expectations, and what you're expecting right now. But call it, 20%, 25% drop through if we see an extra point.

So – look, so far, so good. And I think the rain on the West Coast has been super helpful, so I think we're not going to have all sort of drought worries; dude, it's going to be – kind of April and May, you're going to tell the story as usual.

Okay. And then, just like on that – I know, you said, Hawthorne for the full-year, the gross margin is still lower than Corporate. How big does Hawthorne have to be to kind of get back to the Corporate average, how to scale it? I guess, how should we think about that over the next couple of years?

Well, I'd expect the gross margins to look a lot more like the U.S. over the next two or three years. So I think, lot of synergy opportunities. We've bought three businesses right now, they're still operating independently for the most part. A lot of what Hawthorne's going to focus on in the next couple of years is integrating those, finding those operational synergies on the supply chain side, while we don't take our eye off of just trying to keep up with the tremendous growth that we're seeing. So it's going to be a fun ride, and I'd expect gross margin rates to look a lot more like U.S. once we're done with all the integration.

Okay. Great. Thanks a lot, guys, for the color.

Thank you.

Our next question comes from the line of Christopher Carey with Bank of America.

Hi, thanks for taking my question. Just staying on hydroponics, how would you assess the distribution opportunity for that business? And I say that for the existing hydroponic retail channel, but more specifically into traditional channels, where you already have leading positions in your core business. And then, just beyond that on the margin question, that was just asked, what is the opportunity to improve the margin structure in that business, considering the fact that a majority of that business or all of that business still goes through distributors? And then, I have a follow-up. Thanks.

Those are like minefield questions, (01:01:34) lot of people in that business going to be listening to this response. Let's start with interest, okay? I don't think there's a retailer that sells lawn and garden products in the United States that's not interested in this opportunity, okay. So, I'll sort of leave it at that, only because today, these are very much professional, I guess, what Chris calls, expert brands that are sold through sort of unique distribution. We've got to figure out a little bit like the way we have in the United States, how to sort of satisfy the retailer interest in the space without screwing up the sort of brand imagery and the support we have from the existing retail channel, okay. So that's really important. Distribution is definitely more expensive than what you're seeing in sort of conventional lawn and garden back in the day. Now, they pick up a lot of risk, and they have a, I think, generally distribution has an excellent sales force. I think, as we've looked at our American business, if we're looking back at what we did to Scotts North America, and say, this is kind of Hawthorne North America, I think there's work to be done on figuring out how to sort of rationalize distribution in a way that's good for the industry, it's good for us and it's good for our partners. And I think, there's a lot of work happening strategically at Hawthorne to figure that out, but it is not without landlines, and because there are very deep relationships there. In a category with a very unique culture that is based on kind of being brothers. And so, there's a lot of work to be done here, and I can't just sort of casually throw it out there except to say, all the things you mentioned, we're thinking about. And I'd sort of wrap it around this idea that is, Mike is dealing with sort of our big retail partners in the United States. I don't think there's a single one of them that aren't interested in the space, and so that means, we got to figure it out. Okay?

Yeah, thanks. That make sense. Just to follow-up on the hydroponics as well, like where are you seeing the main growth drivers in that business? Is it coming from like smaller home growers? Is it coming from more of a commercial channel that's selling into retail? Do you see the mix of that end consumer changing with additional legalization in more states?

I guess, I'd probably say all of the above. And the reason for that, in part, like we start a board meeting later this week in Colorado, in a place that we chose on purpose, so that the board can sort of be in that state. And so, some of the stuff is being presented, and I'm reviewing decks that, Chris and his team are going to present on, Friday. I think, we're likely to see growth in both residential personal growing and small operations growing. But I think the biggest single piece, if things continue the way they are, is more the sort of medium to large growing opportunities, and that's an opportunity for us, that we see, and that we're on. So, I think we're, at least without sort of taking you through the board deck, that like it's not even final at this point, I would say, we see growth in all those areas, but particularly in the sort of medium to larger size growth.

Got it. Thanks very much.

You bet.

And we will now hear from Bill Chappell with SunTrust.

Thanks. Good morning.

Hey, dude.

Hi, Bill.

Hey. I know it's somewhat semantics, but kind of putting out the line in the sand for when you will stop acquisitions and really start to return cash to shareholders. I mean, why does that make sense? I think we put a line in the sand a year ago, and maybe 18 months ago, similar, and what's to say more acquisitions won't come up. And I guess with that in mind, I mean, why is it taking so long? I guess we really started looking at the hydroponics-type acquisitions 18 months ago, and you're giving yourself another nine months. I mean, are there companies that are still emerging or is it just hard to negotiate or trying to understand the changes?

Good question, dude, okay. What would I say? To start with, I think we have a sort of new appreciation of our, I think, unique opportunity to consolidate the space, okay? And our view is that, it's valuable to our shareholders. Okay, so I'm going to start with those. I think, we said right up till now that, our sort of M&A book was open through about now. I think, that's what we said. What I think we've seen – I'm not seeing like a huge delta with what we've told you guys in the past. What has changed in addition to what I said previously is, Chris, had this meeting in New York in November, where basically it was the first time we could take all these experts in the field and say, what are we missing here? What should we own? How should we set it up? How do we attack this marketplace? Where is the market going? That was really important. And when Mike and I finished the Scotts' Board meeting in Florida, we immediately went to New York to get a download from that team on what their thought process was, and what it did is, it outlined a couple of sort of open areas that really should be a part of the business, and that we believe are available to us. And not – by the way, not for a ton of money. In addition, I think this issue as we look forward is one where we basically say, is there a sort of move that we could make that would be sort of dramatic, and really cement a little bit like – if I look at Scotts, I like our market position. I think we've got a big army. We've got a lot of…

Got it. And just to follow-up on that, and not to belabor this point, but are you building a separate company? Because, I mean, maybe this is for, Mike, I mean, nutrients, soil supplements, I think that's what you do every day. And so, why can't there be some synergies of building into these new markets just from the core business or do you have to really go and buy out every little piece?

Oh, dude. I don't need, Mike for this.

Sorry.

You travel with me, dude. That's what I would say. You go out and travel with me or my son, and what you'll see is, I'll bet for you, and for me, it's such a unique culture that – do I think there's opportunities? It's part of the reasons that Black Magic is now in Sutterer's group, and that's pretty much a Home Depot business, is because there is overlap. If you look at the sort of staffing that Chris has collected within his business, he's got quite a few Scotts people there that have been transferred and not backfilled. And that is part of the synergies you're talking about. We are in that business. We know how to make things. We know how to do R&D. All this back stuff, there are huge – I mean huge. There are important synergies where we don't have to duplicate things, even if we're moving them onto Chris' P&L, but they're being liberated from the Scotts' P&L. So I think that we're taking advantage of those. But I think that this space – and look, I think this is why a lot of people lose a lot of money in this space, not us, because I think, if you had a bunch of old guys from Ohio with gray hair trying to run that business, we would screw it up hard. And so, I think that this idea of saying, why can't you just use the same sales force and everything else misses the point. And I would say, travel with my son for two days, and you'll see.

Sounds good. I'll turn it over from there.

Mike, would you add anything to that?

Yeah. No. I think if you go walk a hydro store, the level of expertise that you see in there, if you're a really serious grower versus traditional channels, hydro has a place, but it's probably more simplified. And I think we're trying to find that right balance of solutions. And so, it will depend on the consumer and the technical expertise. There are things that will cross over, which we'll take advantage of. There are things that are different that need to be specialized for that specific grower.

Sounds good. Thanks for the color.

And we will now hear from Carla Casella with JPMorgan.

Hi. This is (01:16:02) on for Carla Casella. Just a few quick housekeeping items. I'm wondering if you guys could give me CapEx for the quarter, revolver or outstanding? And any drawings under the AR facility?

Thank God, I don't know those answers, so... (01:16:20-01:16:25)

CapEx for the quarter is...

Oh, he's looking over the charts... (01:16:37)

It is exactly $16 million, which ironically was the same numbers last year.

Got it.

The second part to your question?

Revolver.

Revolver. Yeah.

So the revolver borrowings during the quarter were $460 million if that helps you. So we have seen some changes in the cap structure as we issued the new bonds. But we're comfortable as where we are, really comfortable with 3.1 times, and getting back to the questions about M&A, we have plenty of capacity to do all the deals that we've planned to do, plus potentially new ones that maybe added to the list, if we want to go there. So, no concerns on the cap structure basis at all at this point.

Thanks. Just a quick follow-up on working capital forecast. Does that change your cash generation of $30 million to $40 million, depend on selling Europe?

No. We're just thinking about the base business for the most part that – typically, we've been very much a sales-focused company. More recently, we've done really well by focusing on earnings, and I think the next frontier for this company is thinking about cash flow, and I've seen tremendous impact just in the last several months as we've talked about changing our short-term incentive plan, our long-term incentive plan, it's gotten everyone's attention, so we're driving inventories down but we're maintaining all the fill rates and making sure we don't miss any shipment, but we can do better just by trying to do better. And then, beyond inventory and just thinking about cash flow more broadly, there's continuing improvement that we can make, not only next quarter and this year, but as we look forward over the next few years. So, I'm optimistic we're going to see a lot of improvement.

Got it. Thanks.

Thank you.

And our next question comes from Eric Bosshard with Cleveland Research Company.

Hey, dude.

Good morning. The comment that you made, Jim, I just want to understand a little bit better, and that was the market moving more towards medium to large growers. And the question is this, it seems like the portfolio build is for perhaps the smaller, maybe medium-sized grower. As the market evolves, is this something that you can address with acquisitions or is the current portfolio such that it also can be attractive and you can maintain the really high market share you have if the market goes to the medium to large volume growers?

Eric, I think it's the latter. So, I think the business we have is for sort of the category that we have at the professional level, at the grower level. And again, this is just me reading the decks that I have in front of me before the board meeting this week. They clearly see the largest growth, all of them growing. But the largest growth being in the mid to larger size. And I think we've got the businesses we need for that. Part of what we're looking to build – and I think, I've told you guys this, but this is one where – we know the Pro (01:19:58) business pretty well. I mean, we were leading Pro Hort (01:20:01) business in the world, a business we've sold to Israeli Chemicals, not under pressure, but because we're focusing on consumer. And if we understand sort of how to be professional reseller of high-end growing products. And that's with a technical sales force, the products that they need, programs they need to put them together. I mean, it's – that's where Hawthorne is going, okay; is to create a partner to these professionals that helps them achieve their profit numbers and be successful in whatever it is they're growing. And so, I think that's what you're likely to see as this company evolves into a much more of a sort of combined professional sales company is, more like what you would have seen back in the Scotts Pro Hort (01:20:58) days with a very technical sales force, very deep technical support to help these professionals deliver their objectives or achieve their objectives and a product line that is evolved to meet the needs of the larger size grower. So I think, we don't need to buy companies to do that. We just have to adapt our product lines and our selling solutions to that. I don't know, Mike, if you'd add anything to that.

No, I think if you think about (01:21:32) with the high-end peak that we bought, maybe a professional business up there, it fits nicely into the larger growers. And we also have a lot of nutrient and water-soluble capability off our base business that could tie to larger growers, plus Gavita is really the standard in lighting in these large commercial growers. So I think we're well-positioned.

And I think, we've already seen this. If you look at the sizes that like GH is selling, you're getting to larger and larger sizes of nutrient packages. And so, I think this evolution is happening. We just have to sort of definitively basically say, we are a professional supply company and we need to have the products they need, with the technical support they need at the right price. And I think we can do all those. And this is where being part of Scotts is a giant deal.

Right. So we have a lot of capability that we can bring in to support. And so, I was just out there is Santa Rosa, and so we ran a special, which probably skewed the quarter from the previous year for two weeks, and most of the larger size is sold. The 5 liter, 63 pound (01:22:44), you have to pick those things up, but we moved a lot of that material in two weeks. So I think, we've got everything that we need. We just have to put it together.

Okay. That's helpful. Thank you.

And we will now hear from Jim Barrett with C.L. King & Associates. Jim Barrett - C.L. King & Associates, Inc.: Good morning, everyone.

Good morning, Jim.

Good morning, Jim. Jim Barrett - C.L. King & Associates, Inc.: Hey, Randy. I think, this is a question for you. You mentioned there was a P&L impact to the new incentive program. Can you give us some sense, and it may be easier to do it for 2017 and 2018 if the company, if the management reaches the mid-point of its targets, what sort of impact should we expect?

So for the short-term incentive plan, I assume you're speaking to? Jim Barrett - C.L. King & Associates, Inc.: Yes.

Yeah. So, for the short-term plan, well, let me (01:23:40) my answer. So short-term, with the guidance right now that we've provided, if we hit the middle of that range, incentive expense will be a little bit less than a year ago. So that would be favorable to the P&L. If we hit towards the higher-end of that range, it will probably be about neutral to a year ago, and if we outperform beyond that, it might be a little bit more. We think about the longer-term incentive plan that, Jim outlined this morning. The incremental expense for the current year fiscal 2017 versus last year is in the $0.06 to $0.07 range, and we have that covered. It was already included in our budget several months ago, and we're absorbing that, in fact, again this quarter. When you exclude all the SG&A from acquired businesses, we're able to absorb that, and still keep our SG&A flat. So building our plan, we'll be able to digest it easily, and not an issue. Jim Barrett - C.L. King & Associates, Inc.: And my follow-up, Jim, I heard your comments about share repurchase versus dividend. Under this new incentive, do dividends potentially play a larger role in the capital return to shareholders?

Jim, this is, Randy. I'll answer the question. So, the way we're calculating, call it the shareholder return proxy, we're calling it internally calculated investor return, it's really earnings which includes operating earnings plus the impact on EPS from share repurchases, plus impacts of dividends, whether they're annual dividends or one-time special dividends. I mean, at this point, we're not planning on any one-time special dividends or biases to buy back shares. But all of those components are pulled together in what we call our calculated investor return component for the long-term plan.

And we're trying to make it neutral. I think it depends on the share price. I mean, I think we were surprised by the share price. So I think, we tried to make this as we architected this plan to be fairly neutral to how we return cash to shareholders. Jim Barrett - C.L. King & Associates, Inc.: Yeah. Well, thank you both.

Thank you, Jim.

And that concludes our question-and-answer session for today. I will now turn the call back over to Jim King for any additional or closing remarks.

All right. Thanks, Matt. If we haven't covered anything that anybody else wants to talk about, feel free to call me directly later today or tomorrow, 937-578-5622 is my direct number. Otherwise, we hope to see as many of you as possible on the 21st in Boca Raton. Thanks for calling. Have a great day, guys.

And that concludes today's conference. Thank you for your participation. You may now disconnect.