The Scotts Miracle-Gro Company (SMG) Earnings Call Transcript

I'm Brad Chelton, Head of Investor Relations. We're pleased to have many of our investors and analysts joining us today, both in person here in New York City or on our live webcast. We're excited about the progress we've made over the past few years, and we're excited to talk to you today about where we're headed. We have a comprehensive agenda for you today. Our presentation will run approximately 2.5 hours, followed by a dedicated Q&A session. You'll hear from a number of our senior leaders today, including our executive team as well as functional leaders across marketing, sales, R&D and supply chain. Nate will kick us off with an overview of our SMG 2.0 strategy, followed by deeper dives into our category, our consumer, channel diversification, innovation and operational efficiency. We'll then take a short break, and Mark will wrap us up with our financial outlook. For our virtual audience, a replay of this webcast and all presentation slides will be published on our website at investor.scotts.com following the conclusion of the event. Before we begin, I want to share our safe harbor disclosure and remind everyone that today's presentation will contain forward-looking statements. These statements are based on our current expectations and involve inherent risks and uncertainties that could cause actual results to differ materially. Please refer to our Form 10-K filed with the SEC for details of the full range of risk factors that could impact our results. Additionally, we will reference certain non-GAAP financial measures today. You can find the required reconciliations to the most directly comparable GAAP metrics in the appendix of our presentation slides. With that, it's now my pleasure to turn the floor over to our CEO, Nate Baxter.

I'm going to kick us off here, and we're going to take you on a journey today. So I hope you're going to be patient, sit with us because as we've promised, we're going to go through a lot of detail of the building blocks of the strategy moving forward. We're going to talk about our capital allocation strategy. But before we look forward, I want to sort of reflect back. This company was founded in 1868 by OM Scott, and he was like the original disruptor. He invented weedless grass seed. And if I think about this business and what we've done over the last nearly 160 years and what we want to do moving forward, the key message here is we have to continuously disrupt ourselves. Being in business 158 years, it's not a reason to be careful, we absolutely must be willing to see around corners and try to figure out what comes next. It's a category that, as you'll see when some of the team comes up and talks, people love, people are engaged. We see it continuing to grow. But we also know consumer preferences are changing. And it's important for us to make sure that you understand how we're going to adapt with the time. Before I kick off in detail, I just want to give credit to [ Jim ]. He handed me a company with brands that most CEOs only dream about. And my job isn't really to reinvent what he built, it's to future-proof it. It's to take us in a direction that will follow our consumer and enable us to grow our business. And I'm going to share a little bit how the vision of SMG 2.0 came to life. But first, let's look back a little at the history of Scotts. [Presentation]

So I believe we have a right to win moving forward. But the old saying of what got you to where we are isn't going to get us to where we need to go. And this question is actually the genesis of SMG 2.0. It's a question I started asking the team internally about 2 years ago. And it's a really important question. Who are we and what do we stand for? When I took this job, about half the people I knew thought it was amazing. First of all, I thought I was a little bit nuts for leaving the semiconductor industry. But once they got their head wrapped around that, I'd say about half the folks that I talked to said, "Wow, what a great company, does amazing things, gardening is such a beautiful pass time". But the other half said, "Wow, you're going to a chemical company. That company poisons the world." And I was really surprised by that. So we started with this question, which is if we look at where the consumer is going, we need to ask ourselves, "who are we and what do we stand for?" And we need to make sure once we figure that out, our associates are all in on that. So one of the three key points I want you to take away today is we talk about our superpowers, and we'll talk about innovation and our brands and our supply chain and our sales force. But there's one superpower that underlines all of that, it's our people. And we need to get our people aligned to where we want to go. We'll never be able to sell this to the consumer if we don't believe it with conviction. And so I hope today, by the time you leave here, you have a very, very strong understanding of the people and the culture. So as we dig into this, we started asking ourselves, how do we evolve from thinking about things from a functional standpoint to thinking about things in more of a lifestyle framing. And you've probably heard me say this many times. I will tell you the first time I started saying this internally, I got a lot of side eyes. "Nate, what are you talking about? We're not a lifestyle company. We don't get to decide if we're a lifestyle company." Those are all true, except the first part. I do think we are a lifestyle company. We need to look at things differently, right? You'll hear today, we'll talk less about products. We'll talk more about the living spaces, less about the journey, more about the destination. We're a seasonal business. How do we offset that? You'll hear us talk and there's some examples that [indiscernible] and team will bring to bear that how we're focused on pushing the shoulders of the season, whether it's through the controls business or through the indoor gardening business. The other question we ask ourselves is, "are we really a health and wellness company?" If you read the press, gardening is one of the best activities for not only mental but physical well-being, and we have a right to lean into that. So again, this is how we frame how we want our associates as they think about next-generation products, how to reach the next generation of consumer, we want them to have this mindset. So we started with a purpose. And our purpose is we care for the living spaces that take care of us. So what's embodied in that? As I said, mental health, physical well-being, longevity, care for our families, our pets and the earth. And this point, and I'm going to tell you a story that my team has heard probably a dozen times, but this is when it all came into focus for me. My sister lives in Chicago. She lives in Oak Park, Illinois. It's a suburb, small yards, big houses on fairly small properties, and we were sitting out back having a glass of wine, and I was trying to talk about her grass and her herb garden. But she was talking about how her kids enjoy playing there. They had a pizza oven, they had a pergola. And it became clear to me that it wasn't about any one of those things. It was about the sum of those things, and she treats that just like it's another part of her indoor living space. So for me, that was the pivotal moment of -- it's these living spaces that take care of us and what we enable consumers to do is to take care of those spaces. So again, we told the team, the products are important, and we will talk about them. But let's focus less on the products and more about what they enable. So for us, that was really the baseline of how we set a vision for who we want to be. And by the way, a totally different way of thinking for Scotts. Old Scotts, highly siloed, I would say not a lot of cross-functional cooperation. Everybody was trying to win. The new Scotts is all about breaking those silos down, and I hope you'll see that reflected in the team today as they present. Yes, each business unit needs to stand on its own. Yes, they all want to win. But at the same time, we know the sum of our parts is greater than these parts individually. We know there are cross-marketing opportunities across business units. So you'll start to see some of that come out. We'll talk about technology platforms that span across product categories. So be patient with us on this journey. We've got a lot of material to share today. And I think you'll be surprised at sort of what you learn. All right. So let's start to get a little bit more into the details. The first thing I'm going to tell you, and you're going to hear from the team today is we're going to be honest with ourselves and with our investors about our headwinds. We do have headwinds. We have a brick-and-mortar retail environment that is changing. The last few years, there's been net negative footsteps in those stores. We have a digital world that was accelerated with COVID that, quite frankly, we were behind on. I think less than 2% of our point-of-sale takeaway was through e-com, pre-pandemic 2018 era. We know there is competition out there. We know that CPG companies are attracted to the space. By the way, I see that as a positive. We are the industry leader in terms of spending media talking about lawn and garden. So I always welcome others to spend their money in this space. But that aside, they are fierce competitors, and they have deep pocket books, so we need to be aware of that. Private label. Thankfully, private label share has remained flat, like we've told you, but we take that threat very seriously. And more importantly, the rise of service and tech solutions. We know consumers are pressed for time. So we'll talk a little bit about what we're doing in that space. But this is the level set. This is literally straight out of a memo that I wrote for the Board that said, "Hey, what are our challenges and what do we need to do to overcome these? So as we think about what we need to do, we established pillars. And let me talk -- you're going to hear two terms today. You'll hear pillars, which is these, and then you'll hear building blocks. And the building blocks are the tactics, it's the how. The pillars are the why, all right? The intent here is it's going to reflect how we compete and operate and most importantly, how it shapes the culture within the company so that we're all focused on doing exactly what we need to do and nothing that distracts us. So we've made progress in the last few years. We're out of the cannabis space. But I think it's important for you to know that we are laser-focused on our core lawn and garden. So these pillars are essentially going to set the guardrails and the culture and then the building blocks are going to be the playbook. What is this going to enable? Focus and accountability. Three things I want you to take away. One, we have a passionate team of dedicated employees, and we have an amazing culture. Two, we have a very clear set of building blocks that we believe they're not rocket science. These are not things that you've never heard before, but what they are very focused. And last but not least, you have a commitment from the entire company and special leadership team for us to be accountable and stay focused on these things. So I hope those are the three things you take away as we go through the journey today. So I talk about the people. I wanted to bring this entire team and almost everybody is here. I've had investors ask us, are you going to bring your team? Can we talk to some of the folks that are doing the work in various areas? They are here. They will be available. During Q&A, the speakers will come up, and we can pass the mic around, but we'll also have a little bit of a social hour after we get through. And here, I welcome questions. This team is eager, and I hope you walk away with as much enthusiasm as they have for the category. And it's not just about the executive team. We are powered by people. It is hard not to go to one of our facilities and find somebody smiling and laughing. We have a lot of fun doing what we're doing. We think it's a privilege to be able to do it. And we also think we need to show investors a little bit more behind the scenes. And so you'll see some of that today throughout the presenters. There's just a lot of really passionate people. The great thing about this company is we have multi-generation families that are still working here. Husky will talk a little bit about that when he gets to his section. I think that's a great thing. And what are we trying to do? We're trying to feather in some outside talent. So you've heard me talk about, we brought Nick Miaritis. He'll talk to you today. We're looking for a Chief Innovation Officer. We're looking for a new CIO. We are being very intentional to bring in like-minded outside perspective so that we can build the hybrid bigger. We don't want to crush the culture that's been here, but we also recognize we need to adapt. So what does this result in? Discipline and focus. This is a slide that Mark will go through in detail, but I wanted to show it upfront. If we look back since 2024, when we had our first Investor Day, we have consistently delivered on our financial commitments. We have made significant progress on deleveraging. We have exited the Hawthorne business so we can focus on our core lawn and garden. We've driven tremendous margin expansion. I don't know that I've ever seen this in the 30 years that I've been in business. Sales growth, we'll talk about that. That's a challenge, but we have an algorithm that we believe is going to get us to where we need to be. And partnerships and reinvestment. Now that we're through the pain of our financial challenges, we are now in a position to start investing. You've heard us talk about our stock buyback. We'll be very judicious with that at first, but we also are allocating capital to small tuck-in M&A, and the team will talk about that in more detail. So from our point of view, we've done a great job delivering. And I think the thing the investor community wanted to hear from us the most was, do what you say you're going to do. And we feel like for the most part, we've done that, and you have our commitment that we will continue to do that. All right. Let's pivot and talk about the building blocks. Again, I don't think any of this is a surprise. But what it does bring is focus. And I do not think we had the focus in the past. given the growth spurt that we went through when it was all hands on deck during the pandemic. And then, of course, we had the Hawthorne business, which was growing tremendously. And I think those two things together allowed us to become less focused. And as a result, we weren't holding ourselves accountable. And as a result, the performance of the business hasn't been as good as it can be. So really, what we're telling you is we're here today to let you know that we are absolutely focused like a laser, and there's four components, and the team will go through these. The first is the portfolio optimization and innovation. We've talked about that on earnings calls. We've talked about SKU rationalization, moving out underperforming SKUs, a decision to walk away from a pretty significant chunk of what we call low-margin commodities business. Our growth rate would have been higher than we're projecting this year had we not done that. But we were very intentional, and I think the margin results show we really believe we have a right to be a branded high-margin product company, and we are going to stay focused on that goal. Innovation. Innovation is key. It's honestly probably the area I worry about the most. Innovation is a challenge in this industry. We've been putting down granular fertilizer with a spreader for 50-plus years. How do you innovate in that space? And so the team is going to walk you through it, but a lot of it involves skating to where the next generation of consumer is going. It involves a focus on organics and naturals. It involves us trying to get out of some of the traditional chemistries we've been. And it involves us trying to educate consumers because it can be a complicated category. If any of you have ever done a store walk, you'll see somebody standing at a big box retailer looking at a wall of fertilizer and I would say 1/3 of the time, they walk away with nothing in their hands because they don't know what to do. So that's our job to train those folks. Omnichannel and retail expansion. That's huge because one thing I'm going to tell you is brick-and-mortar is not dead. I think our biggest retailers are certainly challenged, and that's no secret. But if you look at the next tier of secondary -- I shouldn't even call them secondary retailers, specialty retailers, whether it's the clubs, it's the farm and fleet, it's the hardware. As I said on the earnings call, many of those customers grew high single and low double digit in the last quarter. So there is growth. There are stores being added, but we also recognize they have a unique profile to their consumer. So in the Farm and Fleet, it tends to be larger lot sizes. We need to figure out how to adapt our product line, whether it's for the Farm and Fleet, whether it's for the Pro business, whether it's for the e-com business. So you'll hear the team touch on these things today. Category growth and market expansion. I think it was [ Bill Chappell ] last year who asked me if the priority was frequency or household penetration. And at the time, I said both, and I meant it because for us to deliver the results we've delivered the last couple of years, we knew we had to engage our existing consumer and drive frequency because it's a long play on the household penetration. However, what I will tell you now is household penetration is becoming the top priority. This is what Nick Miaritis has joined us for. And I hope he will convince you that we are in a good position, understanding our consumer and where they shop and how they shop and what types of products they like. And you're going to see us make a radical transformation in how we go to market to talk to these consumers. I won't spoil his thunder, but traditionally, we've been heavy on what we'll call linear streaming media. You're going to see us pivot to digital. It allows us to be agile, allows us to be targeted. Obviously, this is not something new. Other companies have been doing this, but we feel like the time is right. And I think you'll be impressed with some of the stats that Nick is going to walk you through. Last but not least, tech-driven operational excellence. I would argue you've seen pretty good results from us, whether it's the margin expansion, whether it's driving our inventory levels down. We continue to lean in and invest in technology. Mark will talk about our CapEx. But when I joined the company, our CapEx was $60 million, $70 million a year. We now project we'll be at a sustained $100 million to $130 million a year for the foreseeable future. A big chunk of it in the near term is our upgrade of our ERP system to enable us for the digital future, but a lot of that capital goes into our plants. And as [ Husky ] will tell you, we have a lot of runway to drive productivity. Some of these plants have lines that are 50 years old. We have over 110 lines out there. If we can convert a few to high-performance lines each year, that will provide massive, massive productivity increases. So the team is going to walk you through these. They're going to give you the detail. I'm going to finish on a slide that Mark is also going to finish with, which is what we're calling our midterm growth algorithm. So we spent a lot of time as a management team and as a Board talking about realistic targets that we want to put out to the investor community. And what we're focused on are, I believe, achievable midterm targets. So we define midterm as fiscal '27 to '29. These are a little different than what we've talked about in the past, but they are building blocks to getting to a longer-term algorithm. I think we can outperform all of these. You can see we've explicitly called out. Mark and I are very aligned. Our long-term target for leverage is to get below 3. We think 3 to 3.5 is where we'll comfortably be in the next few years. We think the net sales growth, we'll talk a lot about that. You'll be able to make your own decision on whether or not that is achievable. Long term, we need to be higher than that. I recognize it. Same with EPS. I think we can outperform this. But for the midterm, we're very comfortable with these numbers. And remember, slow and steady wins the race. This allows us to generate the profitability and cash flow to fund the business, and Mark will talk about all that in detail. So with that, I'm going to turn it over to John Sass.

My name is John Sass. I'm the Senior Vice President and General Manager of our North America business. Now I've been at Scotts for 22 years. I love this company. I have the privilege and honor of every day going to work, working on these businesses and these brands. And I'm the first guy right after 5:00, 6:00, I can't wait to get home, mow my own lawn, spend time in my backyard, probably chase a little bit of that ground Ivy and thistle problems I have. But I truly use these products every single day. And so it's a blast for me to be able to stand up here and talk about this business. I would tell you, you'll see hopefully in the next hour or 2, I'm so excited about the opportunities we have. I'm just as excited as I go to work today as I was 22 years ago when I started. So as Nate alluded to and as Brad set up at the beginning, before we jump into all the fantastic activities and initiatives that we have, you're going to hear from Nick and you're going to hear from Paula and Sadie and Josh and David as well about all the initiatives we have. My job is going to be to level set. I want you to make sure you understand what our category is, where we operate and how we're going to sort of move the ball forward. My hope is that over the course of these couple of slides, you're going to see it's a big category and growing. We have leading market share position in the best brands, and there's still a lot of opportunity for growth, all right? So if you take a step back, Lawn and Garden, the macro lawn and garden category, it's huge. This is everything from backyard gardening in suburbia America to indoor gardening, which has a ton of tailwinds in the category to even here in the city on a fire scape or window fill. The category, when you think of it all toll in, soil, the plant food, everything, including the plants, including outdoor furniture, decor, everything that goes into it, it's a massive $100 billion category. Well, we obviously don't play in all those segments. But where we do play is sizable. We call that the DIY Lawn and Garden category. And for moving forward the rest of the presentation, this is really the category and the segments that we talk about. So $12 billion, it's broken up into three categories and then 11 segments that are underneath that. So our controls business or the controls business, this isn't our numbers, this is category dollars. Controls is about half the category, right? It's about $5.5 billion. The segments underneath it, you could see here, the weed control products, insect control, rodent, controls, it's basically the segment that takes away -- gets rid of all the problems you have, so you can really enjoy that outdoor space. On our business here, it's led by [ Mike Davitt ], who's in the room here today. So if there's any questions about controls, he's the guy to find after. The Gardens business is about 1/3 of the category. It's about $4.5 billion. And as you would expect, the gardens business is one of our key pillars of our company. It's everything you need to have thriving plants in gardening areas. So the soils, potting mixes, mulch, plant foods, et cetera. And then lastly -- and Gardens is also led by Sadie Oldham, who will be presenting today, but she's also here for questions. And then lastly, what finishes up the segment is the lawns category. That's about $2 billion. Again, this is -- since 1868, this is what Scotts has been known for, the fertilizer, grass seed and applicator, so any of the spreaders they use to apply the product. There are some nuances to each of these segments. I'll jump into in the slide here in a second, but that's the foundation of our categories, three categories, 11 segments underneath. Now $12 billion, that's the number as of 2025. But if you looked over the last previous couple of years, it's been growing, and it's a nice increase, steady growth, and this is well past COVID. During COVID, people spent a lot of time investing in their backyards. Now we are the consumables that year in and year out, keep them enjoying that outdoor space. So $12 billion today, and we project by the time that gets to 2030, this could be upwards near $15 billion. So a growing category, and we're excited to be part of that. Now when you look at -- and I mentioned a moment ago, these categories and these segments have some nuances, and they're all -- have different reasons for growth trends that we're seeing as consumer preferences, and Nate alluded to this, consumer preferences change, the rise of organics, the shift to online and e-commerce has sort of made some impact in each of these categories in different ways. The controls category, I mentioned a little bit ago, the biggest. It's also the fastest growing, you could see here. And that's because this category in this segment has -- doesn't have the challenges of brick-and-mortar where there's only so many facings. Consumers today can go on their phone typing the problem they have. And with e-commerce, we are seeing a lot of entrants into the space. So it's definitely a fast-growing category. Gardens, this is our [ Steady Eddie ]. And this one of the last -- if you've gone back even 10 years, you'd see great growth in the gardens category. Trends around growing your own food, and I just mentioned health and wellness, Nate alluded to it, all of the indoor gardening trends that are coming along has really been a nice tailwind for this category and segment. And then Lawns. Lawns, as Nate alluded to, we're going to be honest with some things. This is our most challenging category. You saw it was $2 billion. We've, over the last several years, have seen a lot of consumers changing their preferences and how they enjoy their outdoor space. It wasn't too long ago where the lawn in the backyard was the show piece that people wanted to sort of don't walk on in the perfectly mode lines. Well, that's not the consumers today. People really want to enjoy their outdoor space with kids and pets, and we're seeing how they treat and care for those spaces has evolved as well. When I turn it over to Nick in a little bit here and then you hear from Sadie and Paula and R&D, you're going to hear some of the ways in which we're going to energize and sort of jump-start this category again. Now when you think about where does Scotts Miracle-Gro play, we've said before, we are the leader in lawn and garden, and that's absolutely the truth. When you roll those three categories together, Scotts Miracle-Gro portfolio of brands and products comprise about 1/3 of the category, 33%, and that makes us the category leader. I told you those 11 segments, previous slide, we operate in the #1 leading position in 8 of the 11. In fact, we're the only company in this space that has a leading position in each of the gardens, look controls and lawns category spaces. And we think when I look at that wheel, I see a lot more room for growth. So we're pretty excited. Now why are we so bullish? It's this slide right here, our brands. We have iconic brands in the space, passed down from generation to generation. Three of these brands, Scotts, Ortho and Bonnie are over 100 years old. Miracle-Gro is celebrating its 75th anniversary this year. Incredible brands, iconic, and they have honestly stood the test of time, building consumer trust over the years. The brands across the top are the brands that we own in our portfolio. Obviously, the ones you know and we'll talk about in more detail. And the ones across the bottom here are brands that we brought into the portfolio through key strategic relationships and partnerships. So whether it's Roundup and Bonnie, which you've heard us talk about a lot over the years, and you'll hear more from later today on our two newest partners and strategic partner relationships with Black Kow and Murphy's, which is an up-and-coming natural mosquito repelling brand. So all in told, this page right here is a fantastic portfolio, arguably the best in the category and the best in the business. All of these give us our consumers every product they need to be able to have a great backyard project or any lawn and garden activity that they want to undertake. And I'll conclude right here with this slide. This -- what you're looking at here is a chart of household penetration. This is household penetration of SMG brands. So how many households are buying our products today. You could see soils is about 40% of the way, but nearly every other category we operate in is roughly about a 10% household penetration, which is significant. It gives us tremendous opportunity. And this is why we're so excited about the future. We have the opportunity to bring more people into this category and grow our business. So that's where I'm going to conclude, and I'm going to turn the stage over, but I hope that you see that the category is large and it is growing. We have the best brands and #1 market positions, and we still think there's a ton of runway ahead of us. Now I'm going to turn it over to Nick Miaritis, our Chief Brand Officer. Thank you.

Good morning, Investor Day, brought some swag out here. I saw some people moving out there a little bit. How are we feeling? Feeling good? There we go. Let's go. I'm Nick Miaritis. I'm our Chief Brand Officer. I joined the company officially in June after having the tremendous privilege of serving on the Board of Directors for 2 years. Shout out to some of my Board friends who are here supporting us, you all of the best. During my time on the Board, I had a front row seat to what Nate and the SMG grew were cooking up with SMG 2.0. I started to develop a bit of a sense of FOMO, the fear of missing out. And I decided I'm going to go all in, join the team full time. This is an amazing business with an amazing team, and I couldn't be more excited. So for the next few minutes, I'm going to share an update on the category, the consumer and share some examples of how our teams are bringing 2.0 to life today. We're going to have some fun. here. I feel a little bit. Let's go team. Let's go. Here we go. So we're going to zoom out. Let's start with the category at large. Lawn and Garden is a high engagement category. It is hot and getting hotter by the second. The consumer is leaning in, in a major way. And a key indicator we look at for our category there on the left is social media engagement. This is the liking, the commenting, the viral content every single day that's happening online. And what we see is pretty amazing. Unlike traditional CPG categories there in the brown on the bottom left, our category engagement rates live up in the stratosphere is amazing of lifestyle categories on par with major categories like food and travel, the biggest things in the world. As Nate has been saying, and I've been hearing as a Board member, he's been saying it for 2 years, this is a lifestyle category. It is undeniable and consumers cannot get enough. And it goes beyond engagement. It's not just the passive consumption in social media. Consumers are showing incredible search interest on Google with nearly 3x search interest versus general household CPG. And this is exploding as the consumer shifts to more and more LLM-based search, think GPT and Gemini, which is about 30% of all search now in our category just after 1 year where that's really ramped up. Let's dig a little bit deeper into how we see the consumer opportunity in front of us. Start with the legacy consumer. First, we got to win with this consumer. This is the established core of our business. We love this consumer. They're older homeowners, mostly single family. They lean heavily into DIY. They know us, we know them, and we seek to have our brands be part of their lives for decades to come. Second, the emerging consumer. This is a younger audience, first-time homebuyers and renters, and they over-index Hispanic, which is key to growing new households. I mean this is key with over 50% of all first-time homebuyers being Hispanic by 2030. You cannot win category growth without winning with the Hispanic audience, and we'll dig deeper into that today. And unlike the legacy consumer, where they know us and we know them, there's currently a 26-point awareness gap on our core brands. So this represents a generational opportunity to grow households, and we are not going to miss. So why are consumers drawn to our category? They see this as a lifestyle choice, and they're drawn to it for a variety of reasons. You heard Nate talk about it from mental and physical wellness to taking care and creating spaces for their kids and pets that are safe, so they can do all the activities outside that they want to do. This is not some household chore. This is a lifestyle choice, and it's fantastic. We're seeing the consumer shift to e-commerce quickly in this category with a forecasted 16% annual growth rate for the next 4 years. They are looking for a frictional commerce experience from their feed to the digital card to their door in a nanosecond. It's phenomenal. I don't know if anybody out here shopped our category, but it goes fast now from either Amazon or TikTok shop in seconds, you're going from the top of the funnel all the way through to purchase, and we got to meet for this -- meet everyone in that moment. And just the spring thing. And they mentioned that about selling year-round. This category is starting to explode year-round, whether it's in the garden space where we see 40% of plant care sales happening outside our core season or in our controls business, where 70%, 7-0 percent of consumers participate in the category year-round. We are reimagining how our brands show up to meet this change in demand. So how are we evolving to meet the needs of consumers. I'm going to share some examples of three key areas we're focused on. First, how we're transforming from CPG to more of a lifestyle business. Second, talk to you about our social and AI-first brand building capability, emerging super power for us. And lastly, I'll hit on how we're expanding beyond the core season with an amazing example from our Tomcat brand, shout out to the Tomcat team doing amazing things. All right. Let's start with the transformation from CPG into lifestyle. So when you see things coming from our brands, we've made a dramatic shift from traditional CPG product advertising to claiming more of the high order category benefits Nate and I talked about in the opening. And what we're seeing is pretty special. We have a great example here from our Miracle-Gro brand with their comeback to Earth campaign they did around mental health awareness, urging consumers to stop the doom scroll, the 5 hours we're all spending every day doom scrolling and embrace the Bloom scroll. Let's take a look. [Presentation]

Who are the doom scrollers over here? After this and we break, go on to Miracle-Gro Instagram, like a few things, you'll see that feed start to change immediately. It will feel good, I promise you, better than the stuff you're seeing in there today. And the results are really promising on this type of communication for us with this messaging leading to an 18x increase in brand awareness versus our historical average on Miracle-Gro. We are cultivating this lifestyle every single day, sparking new conversations all across the Internet, whether it's with our CGO, Happy's 85th birthday yesterday to Martha Stewart, by the way, true icon, chopping it up with Bravo's [ Craig Conover ]. If you haven't seen Craig, go watch Southern Charm, talking about life and gardening to what our amazing lawn team is doing with America's 250 to remind everyone why the American lawn is the best room in the house. So take a look. [Presentation]

I feel right here we go. Sorry, everybody online, you don't get the swag. We can [indiscernible] you something we got. And news flash everybody. Everyone gets a hat. We got hats outside, but in the garden. Let's take a look at the Scotts 250 spot. [Presentation]

People are talking as we put this type of work out there with 200% increase in conversation volume across the lifestyle categories that we track. Talked about it before. In order to win new households, we have to win with the Hispanic audience. We are all in on becoming more relevant with the Hispanic consumer. In this year, we shifted focus to having fully dedicated media and creative support and the results have been outstanding. Team put together a little sizzle reel of the work. [Presentation]

We are seeing great early signals from this positive purchase intent across all our major SMG initiatives, and we are going to go big in this space. New households, new households, new households, this has to be true for that strategy to work. Next up, our social and AI-first brand-building capability. I said this is an emerging superpower for us. I couldn't be more excited to share an update with you today. First up, not only do we continue to increase our advertising spend year-over-year, as Nate alluded to, we have completely transformed our mix with over 80% digital and social, which is helping close that 26-point gap in awareness with the emerging consumer we talked about earlier. And so far, it's working. Our shift to digital is paying off with double-digit improvement in media ROI over the last 3 years. Now let's talk about our creative evolution. Now in order to make our media dollars work harder, we're completely reimagining our creative model, shifting from a few seasonal campaigns that we push out all at once to being more always on, generating over 17,000 pieces of content from hundreds of emerging creators and influencers. This not only drives the cost of the creative variable down, but we've also seen it help increase reach and effectiveness on all our major initiatives. And we're leading the way in social commerce. Social commerce is heating up. We were the first major lawn and garden brand to launch on TikTok Shop. You're seeing what the live store for Miracle-Gro looks like. It's pretty dynamic. If you follow us on TikTok, when you see this go live, people are glued to their screens, talking about plants, talking about the products and instantly transacting in that nanosecond I was talking about before. And so they loved us from the jump, and we saw this amazing stack come through, which is so impressive with 35x more impressions than the average launch by brands on TikTok Shops, which is massive. And this test program this year exceeded our revenue goal by 157%. The coolest thing about this is that the team is using social, TikTok Shop to validate new innovations, gather insights before we've launched them nationally with other retailers. We have a great example of this with our creator and affiliate program for our new Ortho kill and Prevent innovation. [Presentation]

This is what the future of advertising and connecting with consumers looks like in this category. And shout-out to the team behind Ortho. If you have not checked this innovation, I think we have a few outside probably, maybe. But this is phenomenal, and it's doing great. Congrats to the team. This is a big slide right here. This is crucial to winning new households. We have some great updates to share. So when a consumer raises their hand and shows interest in our categories online, we win disproportionately versus the competition. We have a dominant 70% organic share of voice versus all other lawn and garden brands. There's a 70% chance when you go on to find something out about lawn and garden that we surface, not in paid advertising, but organically, which is very hard to do. Second, we talked about this emerging AI search to think GPT and Gemini where 30% of the search volume has already gone. Our Scotts and Miracle-Gro brands are #1 ranked brands for AI search in all major Lawn and Garden categories. This is a tremendous accomplishment. This ramped up basically the last 6 or 7 months for this season, and we will probably see this become orders of magnitude more important as we look forward to next season. And then lastly, as Amazon continues to accelerate, we're seeing nearly 1/4 of SMG Amazon consumers are new to our brands discovering us for the first time they're in that channel, and we look great, and the team has done an amazing job scaling that business the past couple of years. Last part of my update, how we're expanding beyond the core season. We got any Tomcat fans here on the seal it. Who likes Chad here? Anybody? Chad fans. I think we've got a few Chad fans. Yes, you're Chad fan. Tomcat is killing it, a pun very intended right there. '25 and '26 were the biggest Tomcat years in the brand's history. And here's what the team is doing to win. First, this is quickly becoming a year-round business for us. As you can see from the chart, with demand spiking in September and October outside our core season that we're known for. Second, the majority of consumers want to buy online in this category. This is a sign of things to come for the rest of the business. And our team is innovating every day to meet them when they raise their hand and show intent to buy. And lastly, it wouldn't be an Investor Day without giving the last word to our friend, Chad. It's an amazing mascot. He helps us break through. He's super ownable. So Chad, take it away. [Presentation]

Not recommended by mice because they're dead, one of the best lines ever. So in closing, we're having a lot of fun. This category is dynamic, and we are reimagining every aspect of how we connect with consumers to grow households and inspire more love for our iconic brands. I'm going to pass it over to Josh now for a section on channel diversification. Josh, let's do it.

All right. Good morning, everyone. I am very excited to be here. I'm Josh Meihls, Chief Growth Officer for Scotts Miracle-Gro. And I'm excited to be here because I get to tell you guys how we're going to take all these great insights, ideas and innovation and implement them into our channel strategy to drive growth here going forward. But before I get into that, just a quick couple of notes about myself. I like John. I've been with Scotts Miracle-Gro for 22 years. It's been an amazing journey. I started in sales at kind of the opening level in the stores, working product, merchandise. And still, what I love to do when I'm a little stressed at work is go back into the stores because we have an amazing team out there that drives local partnerships and really makes a difference in the business. But in those 22 years, our family -- my family has grown up with it as well. As we're out with our 4 kids, unlike John, who's getting in the lawn, I guess, right after work, I've got to run the travel sports practices as maybe some of you out there do, and I'm mowing in the dark, but we get it done overall. So as I dig into this and we talk about how we're going to grow, I think a little history about where we've been is important. So around the time I started 22 years ago, Kmart was actually one of our largest customers at the time. So I've seen the business evolve. I've seen over $1 billion of growth driven in this business, and I've seen how we've gotten there. And it's really gotten to the point we've got deeply rooted partnerships, strategic partnerships in three channels of trade overall, home centers, hardware and mass retailers. And that's because of the superpowers that we have overall, and I want to highlight a few of those. I talked a little bit about the field sales team already. and our sales team in total. We've got key offices across the country that call on our largest customers that have deeply rooted strategic partnerships at all levels within those corporate entities that we deal with. But also at the field level, we've got strategic partnerships on a local level. So we're able to localize those plans. If you think about our business, it's not a one-size fits all across the country. We have regional products, regional timing. You never know when spring is going to hit. You know what's coming, but you don't know if it's the second week of April, the last week of March. You never know when it's going to hit. So that flexibility to be able to have the right products at the right time on the floor for consumers is critical. And only Scotts Miracle-Gro can partner with our largest retailers to make that happen in real time. So it's a big competitive advantage to have our field sales team in stores every day. Partner that with the supply chain that David Huskisson is going to come talk to you about that's able to be flexible, nimble in real time to fulfill demand, varying demand. You never know how hard it's going to spike in a certain market. Are we going to have a sunny weekend in Raleigh, North Carolina, a rainy weekend in Orlando, Florida, what's going to happen? Our ability to adapt and react is a huge competitive advantage for our business overall, and David will walk into that more. Our brands. So John walked you through #1 brands across the board. These brands have been core not just to us, but our key retail partners as well in these channels. They leverage these brands to drive experience, to drive relevance, to drive traffic, and that comes into the retail activation overall that they utilize here. Driving our brands and big events to drive traffic into stores is a huge competitive advantage for them and us overall. And I want to mention, too, in these channels, if you rewind to pre-COVID 2019, almost 90% of our sales was done in these three channels of trade, almost exclusively in brick-and-mortar. So we've evolved a lot since then, and I'll walk you through a little bit about why I'm excited because it truly is an and statement. These channels, as Nate mentioned earlier in his presentation, brick-and-mortar is not dead, not by a long shot, especially when it comes to the experience and the project of Lawn and Garden. So we're going to continue to cultivate these partnerships, and we're going to grow in new channels of trade, and we're already well on this journey. A few that I'll highlight and dive into a little bit more as I go through here, e-commerce, farm and fleet, grocery, club, growing channels that we'll talk about, creating a new channel with Pro and do-it-for-me in a totally new way, and we'll talk a little bit more about that as well. And then leveraging new partnerships. Black Kow and Murphy's provides a whole new opportunity to talk to our customers about a new portfolio to leverage scale that we already have within our supply chain and ability to ship direct to store overall and adding these brands, when you combine it to our service, our superpowers, we've gotten a lot of traction already as we're heading into '27 behind these brands for those reasons. So let me dive in first to e-commerce. And I'm going to start a little bit at the top here. At the end of this year, we'll be around 13% of our total sales will be done through e-com. And that's across all retail. We're partnering with our core retailers, new e-commerce-only retailers like Amazon that we're partnering with to drive sales. So a huge opportunity. If you remember from Nick's part of the presentation, almost 25% of the category is done through e-commerce. So we under-index in this part of it. But just in this past year, we've grown 300 basis points. We've grown nearly 30%. So we're outpacing the category now, and we're on track to take massive share in this space to grow the category through this, and it's a major initiative, not just for us, but our retail partners as well as we move forward. We're going to develop this as our next superpower, our digital space. How are we doing that? That's through dedicated teams. So it is a total team effort. Nick, John and entire team through innovation that Paula, Sadie will walk you through here later. But we have dedicated teams. We're bringing in talent specific to e-commerce that is going to help us drive this. We're driving assortment in this space, so e-commerce-friendly packaging that can be shipped direct to consumers through our retail partners, leveraging those retail partnerships. So as they turn their massive footprints, their stores into nodes to ship out in stocks, the ability to partner with them to drive e-commerce is huge, and we're partnering with them there. We're also partnering with our retailers to drive online-only promotions. So the big events I talked about a slide ago or a couple of slides ago to drive big foot traffic into the stores will still play an important part in our business, but so will these e-com-only deals. And we're looking at how to optimize those. Those may not be massive weekend events. Those may be early in the week, are you planning your project for the weekend, get ready for it? How do we get people prepped for those big jobs and leverage that with our retail partners. And then it plays a role in innovation as well. So historically, we'd wait for the spring season. We go through our line reviews with retailers the year before, we'd sell in these big innovations. And hopefully, it would make its way to the shelf in the spring and consumers would see it. Now we can launch innovation in real time, and we've started down this path. Last summer, we launched the Ortho mosquito kill and Prevent product through TikTok. Nick highlighted a little bit of that. We got that into consumers' hands early. Then the sell is easy as we get into retail channels. We're launching a tip begun product right now that [ Mike Davitt ] and his team are launching online as we speak and getting small retail tests as a result of that. So we can bring innovation in real time as it's ready. We don't have to wait for the spring. So we've got huge goals here. We're going to continue to drive this at a plus 20% rate. Our goal in the near future is to have our total e-com penetration percent of sales above 20%, and we're well on our way to be able to do that, and we think there's a lot of incrementality in this space. Second, we have expanding retail partners. I mentioned those channels of farm and fleet, club, grocery, and I want to walk through each a little bit here. Since 2019, I think it's worth noting in these channels of trade, we've more than doubled our sales. And that's not on accident. We've been down this path for a little while, and there's still a lot more room to grow because, again, these are channels that are opening stores. They have positive foot traffic. We understand how these retailers operate. So we are coming out with specific assortment for these retail channels. An example, we launched a Scotts Max line exclusively with Costco that's turned into a multimillion dollar line. It grew our overall lawn fertilizer business by over 20% within Costco. So we're continuing to grow these type of lines that are specific overall. So club continues to be one that also over-indexes organic. So there's organic lines that we continue to launch and continue to drive differentiation that can meet the value for the member that they expect, but also fits within our overall channel strategy to continue to drive sustained growth within that channel of trade. Then Farm and Fleet, a very similar story overall. The rural consumer, larger lots looking for value in some cases overall. We're actually launching a new rural line that will be live in '27 of spring that we've already got confirmed listings on at key retail partners in the Farm and Fleet channel that's going to be new to the line across lawn fertilizer, outdoor bug, the projects that those consumers are looking for, for their families, pets and farms overall to take care of that property at the right price, the right value and the right offering at the right time. So that's a big initiative overall. And then grocery, last but certainly not least, an area of huge growth opportunity in a couple of ways. So number one, having the right product offering overall. We launched a new Ortho Kitchens line this year that has been in Walmart D13, a space that we have not been in previously. It's having huge success. And we're continuing to expand on that line. Overall, we see that as a big growth opportunity getting to the more convenience, the everyday purchase of the grocery shopper. But also plays into the Hispanic consumer. So Hispanic retail, big in the grocery space. We have gotten new distribution into those channels over the past year as well and continue to expand our partnerships into the Hispanic retail and consumer as well. So we see a lot of growth in this area as we move forward. This is really expanding our roots, those superpowers that I've talked about and bringing it to these retail channels as well and how we grow going forward. And last but certainly not least, a new space, creating a new channel overall for us. And what I want to make very clear when I talk Pro, this is a totally new approach to the Pro. This is important to say what it's not as much as what it is. This is not [ TrueGreen ]. This is not going in and servicing the lawns overall. This is not going after big sort of Pro. What we are going after is that small to medium Pro, that Pro that is servicing households out there. We launched this in two test markets this spring and had very targeted relationships. We had a dedicated team. We developed a Pro council within it. We gained feedback. We were selling essentially the products that we have off our shelf today with those Pros locally. But the whole point of this year was to gain the learnings, to gain the insights of how we attack this opportunity with the small- to medium-sized Pros that are out there servicing lawn fertilizer, grass seed, and they're the ones mowing and blowing the properties overall. And what I'd say is a very successful first year of those learnings. So we've got a new Pro assortment based off those learnings coming to market next year. The teams are hustling on that front that is going to get the needs of this Pro. But don't just take it from me, all right, overall. Let's take it from a couple of Pros here, [ Jordan and Georgia ] with a little testimonial that will play a couple of quick videos about the value they see in the Scotts brands that they can take and sell to their consumers.

Edward, Lawn Doctor Property Treatment here at Indian Lake, Ohio. I really like the Pro line of grass seeds, I've had success at a couple of locations with the new lines came out. But going forward, I'm looking forward to the partnership with Scotts. Hopefully, we can get some details on some trailers, show some people that were out here trying to make it look good.

My name is Georgia. I'm the owner of Green lawn service. We've been around since the '80s, but I've been the owner since 2016. I have been using some of the Scotts products. I've been happy with the results. Everything is nice and green. Everything is thick and lush. I'm super excited about some of the new products that they're going to be bringing out for us to try on the Pro line and looking forward to working with the Scotts Company for years to come.

So you see [ Georgia ] is a real person, I promise you. She has been a great partner. [ Georgia and Jordan ] alone represent over 1,500 households that they service. Just those two alone, as you guys know, a very fragmented market, but partnering with these small- and medium-sized Pros, as I mentioned, they see as a big advantage to be able to sell to households that they're using Scott's products because of the brand equity that our brands bring at the right value for them and the right price for the households. It's a trade-up opportunity for them. To just not go with the normal Pro products that they sell every day at dirt cheap prices. This is an opportunity to trade up for their households and create a new experience and a selling advantage for themselves. So as we partner with the [ Georgia's, Jordan's ] of the world as we move forward, we're going to continue to expand these market tests because this is a market, it was a bullet point on the last slide. This market is 2x the DIY market. John noted we play in kind of a $12 billion market of that DIY. This do-it-for-me is closer to a $24 billion market overall. So we see big opportunities within it. We're going to continue to learn, expand, expand those markets over the next few years, and we're taking a very pragmatic approach, but we see this as a $100 million-plus opportunity as we move forward. So I'll wrap up here. I think the biggest way I could say it is we're going to be everywhere the consumer wants to care for those living spaces, as Nate laid out in a meaningful way. So those advantages, and I would challenge any of you to walk into a home center in the killer spring season and you're going to trip over Scotts Miracle-Gro products when you walk in and you're going to trip over them when you walk out. And that's the goal as we expand omni-wise and we expand into these new channels is you're going to see our brands in a prominent way as retailers leverage them to grow the lawn and garden space with our brands overall. And then create this new channel within Pro with households demanding Scotts Miracle-Gro products in every way when they're taking care of those households, whether they're doing it theirselves or they've got a Pro taking care of it for them. That's what we want with our brands. And we're going to expand those routes into new channels overall. So I couldn't be more excited about the next evolution of our growth to fulfill the growth algorithm that we're going to drive here over the next few years. But with that, I'm going to hand it off to a very key partners here in Sadie and Paula that are going to drive the innovation that's going to help enable this.

I am Dr. Paula Powell, and I have had the privilege of being a product developer at Scotts Miracle-Gro for over 20 years. So as you can tell, we have a lot of tenure. I'm going to be joined on the stage in a little bit by Sadie Oldham, who is our Vice President and General Manager of the Garden team. We are fortunate enough to get to talk to you today about our innovation engine. I don't have a lot of charts and a lot of numbers that I'm going to skew at you. But I have a passion for creating products for this company that I have worked so long for. And I have a bunch of people that help me do that. So let's dive in. We have one of the largest R&Ds in lawn and garden. We were founded by a serial innovator. In 1868, OM Scott saw a consumer need to deliver weed-free grass seed, and that's exactly what he did. We continue that legacy in 1946 when we built the Turf Builder Long program. And in 1974, we established the grounds that we operate on today for research and development. We have over 800 patents to our name worldwide and over 70 patent applications pending. But what makes us a lawn and garden powerhouse isn't just a bunch of statistics. It is our people. They have a broad technical expertise from horticulture, to entomology, to chemistry and engineering. We have been relentless in our pursuit of understanding people digging in the dirt. We have over 110 associates in R&D, over 20 PhDs and over 40 people with master's degrees. But they have pets, and they have kids, and they have problems just like you. And I think that's one of the things that makes us in R&D really, really special is because we have created testing environments that mimic real-world conditions. We are concerned about the consumer. And thankfully, we have been well funded in that regard. We are anchored by three internal biology stations across North America. We have state-of-the-art chemistry laboratories in Marysville. We have a packaging and applicator division that is second to none. And we're backed by world-class quality, regulatory and compliance teams that really help us deliver our products to market. More than that, if we can't do it ourselves, we have an enormous network of research universities, some of which are highlighted here. Indeed, the vision of [ Horst Hagedorn ] to find a need and fill it resonates with every Scotts Miracle-Gro employee. But we know what got us here won't get us there. As you heard from John, Nick and Josh, the modern consumer is changing. But not only the consumer environmental regulations are changing. External pressures on climate are changing. Our resources are getting constrained. So when I think about how we need to transform innovation at Scotts Miracle-Gro to be agile for S&G 2.0, I focus on a three-pronged mandate. The first is to enhance our portfolio resilience. We need -- we have a great legacy consumer, but we have to ensure that we are future-proofing our business against these climate changes and the regulations. We need to drive cost effectiveness in our formulation, and we are committed to our core conviction of being the low-cost manufacturer of our products. We need to give our supply chain freedom to operate. We are being diligent and disciplined as an organization in how we look at our portfolio management. In fact, we have challenged ourselves to actively execute a 30% reduction in our SKU count in both the physical and retail and the digital space. We will be navigating that over the next 3 years, and I'm happy to say we are about 1/3 of the way through. So that brings me to our second mandate, which is cultivating for future growth. The market is evolving. We have our legacy consumer, but you heard Nate talk about our emerging consumer. And we know that we have to bridge the gap between that legacy consumer and that emerging consumer. So we are developing next-generation products in our existing categories. We're expanding into new consumer segments, and we're leveraging emerging technologies and technology in general in our product development. By expanding to new channels, and developing alternative products, we hope to meet the consumer where they are living and where they are shopping. But we have to continue to pioneer new possibilities. Creating disruptive innovation is fundamental to our growth in SMG 2.0. We are obsessing over the consumer experience. We need to understand their pain points before they even know that they have them. We don't want to react to the market. We want to continue to grow in these categories we've built and build new ones. So through increased targeted R&D funding, we're focused on the sweet spot, this highly lucrative intersection of new technology, new insights and new markets. But how do we do that? We know that innovation has to be rooted in consumer preference. We have to deliver results to improve the consumer experience, and we have to improve the value proposition and stewardship through responsible design. Serving as the leader of our world-class R&D organization, I find it incredibly rewarding that we are considered one of the superpowers. But I have to acknowledge that there is more we can do. When I think about the technologies and the platforms that we have created, Nate alluded to it a little bit, we have two platforms within technology and research and development that we are focusing on. The first is making safe and effective products. We are heavily investing in effective targeted bio-based and organic ingredients to create new products. We are also focusing on the fundamentals of health and resilience for plants and soils. We understand that an eco-conscious consumer wants the product to be safe, to use around their family, to use around their pets, but they will not compromise on safety. Through targeted product development, thanks to [ Mike Davitt ] and his team this past year, we have launched Mosquito Kill and Prevent. We have launched Ortho Tick Begone. We are launching -- have launched Ortho [ AMP8 ]. As far as plant and soil health and building resilience from the ground up, we know that Beauty is in the eye of the beholder, right? But the underlying soil vitality, the nutrition of the plants that you eat, excuse me, are important to your healthy lifestyle and being a lifestyle brand. You can see in our Miracle-Gro organics expansion that we are focusing on key alternatives. We are focusing on different organic ingredients. And we are really focusing on chemistries for slow release organic nutrition. That's the backbone of our organics line. But even as a chemist, I have to admit that it's not just what's in the bottle that's important, but the bottle and the package itself. So our second pillar is about removing complexity, clutter and mess from the lawn garden home care space. E-commerce is not the future. E-commerce is right now. Josh talked about it. Nick talked about it. John talked about it. We are obsessing over the unboxing experience. A couple of weeks ago in Marysville, we hosted our Board of Directors, and we talked about how we are focusing on bringing products to your door. E-commerce-ready products and packaging are something that we are really truly going to focus on, not only because the unboxing experience and how you interact with our products is very important, but also because formats form factors and shipping less water is important. So we're focusing on formats as well. Recyclable and renewable materials is part of our stage and gate process as we evaluate new products. Give you my one big stat. Today, you're going to receive a bottle of Miracle-Gro indoor 8-ounce plant food. We achieved a 1.5 gram reduction in the plastic in that bottle, which annually leads to almost 16,000 pounds of plastic waste reduction every year. That's huge for us, and that's at the forefront of what we want to continue to do. As we strive to pioneer new product formats, advanced precision dispensing is also very, very important. It's not just making it fundamentally easier, but we want to make it intuitive for you, too. So by scaling our pillars, we believe we can create robust margin expansion, premiumize our formulas and build resilient customer loyalty. To talk a little bit more about how we're going to do that or how we bring it to life, I'm going to switch the stage with Sadie to stage.

Thank you, Paula. Welcome, everybody. Good morning. I'm excited to be here as a leader of our gardens business. I'm going to highlight a couple of projects that show how we bring our enterprise superpowers into product development and true platform. So you're going to see some real examples of the things we are doing in market and a little sneak peek at some of the new stuff that's coming for us. Starting with the 2023 launch of our Miracle-Gro Organics brand. For decades, organic gardeners were struggling with trade-offs. They had to sacrifice on efficacy, price, sometimes even retail distribution and assortment to garden the way they like to garden. And even ourselves, Scotts Miracle-Gro, we've launched several lines over the last decade, and we struggled to scale because at the end of the day, they often involved trade-offs. But that's a change in 2023. Leveraging our enterprise superpowers, our world-class R&D, our deep sales relationships, our resilient supply chain and of course, our marketing and media machine, we built something that provided 0 trade-off organic gardening for our consumers. So again, same broad efficacy, same performance, same retail distribution and most specifically, same retail price. It's been a huge success for our brand, but I think what really brought it to life wasn't just having the products on shelf. It was how we marketed. It was how we brought it to market to say this emerging category actually can be quite mainstream. So of course, we activated our head [ Dirknerd ], Martha Stewart, kind of put her as the headliner of this mission to launch this brand in a really big and authentic way that people believe what we know to be true and that when you garden organically, there are 0 trade-offs. So since this launch, we've taken a ton of share in the organic category. We welcomed a new wave of consumers to the Miracle-Gro brand, and we're going to continue to evolve in this space. So you see kind of this visual here behind me. Today, we already have an assortment that touches every medium that you could need for an area of growing, in-ground, raised bed, containers, specialty mixes for indoor, whatever you need, we got it. Further, we have a plant food that also works for everything you could possibly need. So you think liquids, granules, spikes, planting pods, again, we got you a solution for Miracle-Gro Organics. Of course, we're going to keep innovating. That brings me to sort of our #2 focus area here. When we think about how do we drive frequency, how do we add a little extra value to those consumers that are growing something that is very variety specific. So we all know Hydrangeas have that need for a little extra acid. So we've got an acid lover soil SKU so that they can turn the Hydrangea blue. We're leaning into fruit and veg, which is one of the most common things that people grow organically. So it's a really nice way to fill the portfolio but also drive that ongoing frequency and to get consumers knowing and loving us all the time. And then of course, we can't be here and not talk about e-commerce. Where we've really been able to tap our super power here is our packaging teams, our supply chain, what they've helped us develop are shippable formats that are lightweight, that are SOC so we can ship in the carton to save us a bunch of money on margin, but also to surprise and delight our customers. So they aren't plugging those giant bags of soil from the boxes. They're being delivered to their front door seamlessly and profitably for us and for our retail partners. So that's a little bit about the organics, the Macro Organics line. This next spotlight actually follows a fairly similar playbook. This is all about our ortho organics line. So much like the organic guardian category, consumers in this controls category were faced with constant trade-offs and the biggest one being performance. They want something that is safe for use around their kids and their pets, but it has to work. Otherwise, what's the point? So what Ortho Organics was able to untap with our formulations team and all of the chemists that we have working every day is to build a really unique formulation that doesn't sacrifice performance. This weed and grass SKU has the fastest speed to kill in market, 15 minutes or less to visible resorts. So this stuff really works, and we can proudly say safe for use around people and pets, which is kind of the mandatory of going in this category. So again, we're seeing this category exploding 2x growth versus the traditional chemistries, and we feel really confident that we have a brand that can span through multiple product categories and can be that one fit solution that they can trust as they move forward. So again, those are just the two spotlights I wanted to leave you all with. But I hope what you see is that we track trends, but what we try to do is make things better. We try to think forward-looking, what's the next consumer is going to want? How can we build something that's sustainable for the next generation of gardeners and control briefs. So that's all I have for me. I'm going to turn it back to Paula to take us home.

Thank you. So before we yield the stage to our partners, I want to talk about the strategic alliances that we have made because we couldn't be where we are without our partners. First, academic powerhouses. We partner with universities, you saw in my first slide, but on this slide as well. We partner with universities across the country like Ohio State, which is in our own backyard, UC Davis and [ Ruckers ] to scale raw science. They have the brightest young minds, and we tap into that very frequently. In addition to that, we actually also use them to do our testing and to understand our emerging consumer because a lot of the scientists doing this work are emerging consumers. The second is our agricultural partners. Their technology pipelines are second to none. Partners like [ Corteva, Syngenta, PBI-Gordon and OnVue ] are very important to us and have got us to where we are today, but their investments in tech-forward future is very important to where we go tomorrow. We have the ability to take that technology and scale it for the consumer. A really great example. We've talked about it a lot today. Mike David and his team brought Ortho Kill and Prevent to market. That came from a partner with In2Care, who was a part of OnVue, and that revolutionized mosquito protection in our backyard. Finally, complementary brands and aligning ourselves with these complementary brands. This creates an integrating gardening ecosystem. It allows our scientists to learn from their scientists and also to impart some of our product development wisdom on them as well. So we're growing our knowledge as category leaders as they are. The biggest take home I want you guys to have from our conversation today is that we are maintaining our product portfolio and actively managing it. We are listening to the next generation of consumers. We are focused on value, experience, organics and soil health. We are partnered with strong strategic alliances. And all of these things together help us secure Scots as a leader in the lawn and garden space for the future. But I have to admit that it can't just be all about innovation. We have to actually be able to commercially scale that innovation. So to talk about our operational excellence, I'm going to invite up David Huskisson.

All right. Good morning. Appreciate everybody coming today. My name is David Huskinson. I get the pleasure of leading one of our superpowers, and that is our supply chain and transformation team. I want to start off first, who all came to Investor Day in 2024 in Marysville. Any hands? I got a couple. All right. Very good. So for those that came, right, you will remember that we made a commitment. We made a commitment to saving $150 million over a 3-year period, right? And that was FY '25 through FY '27. I'm pleased to share, and Joe, you said you wanted the numbers, so here are the numbers. I'm pleased to share that so far coming out of this year, we will have delivered $135 million of that $150 million. We have line of sight to the remainder next year, and in fact, we're going to overdeliver. So I want to talk about a few key themes on where we've driven some of the savings and where we think we still have some opportunity. Number one, network optimization and logistics. You've heard us talk about this a lot. We really rightsized our distribution network, and we centralized some of our logistics activities. What I would tell you is we believe we still have room to run here as we look at our manufacturing footprint, which I'll talk about in a little bit. Automation and efficiencies in manufacturing. We continue to invest in automation. Things like SKU rationalization are also driving efficiencies, and we know that we have room to go. Product cost savings, so looking at the components that go into our products. And then lastly, strategic sourcing. And what I would tell you here is we have this really cool team. They do local sourcing, and they run programs like a barge program, where we move bark fines up and down the Mississippi to get to our Midwest facilities, ultimately allowing us to reduce costs. The key takeaway for everyone coming out of this slide is moving forward, we're going to deliver 1% of net sales and savings per year. We believe this is our long-run steady rate. And what I've said again, right, we're going to overdeliver the $150 million when you look at where we're going next year. All right. Let's shift gears a little bit. We've talked about the numbers, but let's talk about why our supply chain is a strategic competitive advantage in the lawn and garden space. So you'll see by the film kind of running behind me here, we have a very expansive supply chain, something that nobody else can replicate. If you look at this map, what you'll see is we cover the U.S. We have 40 production facilities. Within those 40 facilities, we have 165 production lines. Nobody can match that. We have 90 contract manufacturing partners scattered throughout the U.S. and globally, allowing us to ramp up and ramp down with seasonality. We have six major distribution centers across the U.S., allowing us to reach 91% of our customers within 2 days or less. We ship 360,000 trucks per year. Again, think about the scale of that. On average, in our growing media network, we ship within 150 miles of where we produce it, ultimately allowing us to reduce transportation costs and our carbon footprint. Now let's shift gears to reason number two, we have a competitive advantage. Nate alluded to this early on. It's our people. We do not measure tenure in years. We measure it in generations. We have a team of employees that have gone through the ups, the downs, the seasonality. They're seasoned veterans to our business, and they're passionate about it. We have a core conviction that every associate and every role is critical to our company's success, and they're focused on the right things. I'm pleased to say last year, we reduced our safety incident rate by 18%. When you have a seasoned team and you have talented people, obviously, process improvement comes with that. I'm pleased to share that over the last few years, we've implemented a robust S&OE and S&OP cycle with our team using data, demand sensing, et cetera, to ultimately reduce the amount of inventory we carry on average by over 50%, 52% to be exact, since FY '22. All right. Let's shift into reason #3. We continue to invest in the supply chain where it matters, and we also continue to invest in technology, which I'll touch on momentarily. So what you'll see is 41% of our capital goes towards cost reductions, right? So moving costs out of the business. An example of this would be in Fort Madison, Iowa. We're putting in a new production filler on our -- on line #1. It's going to take us from 80 bottles per minute to 120 bottles per minute once ramped up. So a 50% efficiency gain there. that will ultimately allow us to reduce over time, right, on an oversold line where we see volume growing with the controls business and so forth. We also just opened up -- we've just started producing bags here recently in our new Brighton, Colorado growing media facility. It's our first greenfield facility where we designed it from front to back and really optimize the overall footprint of that. We're really excited about it. 36% of our capital goes towards asset maintenance, all right? So think about -- again, I talked about 165 production lines. got to maintain those, and we got to reinvest in those. So think about palletizers, for example, in a steady state where we're replacing palletizers on an annual basis, not all of them, obviously, but as a cycle. And the last piece is 23% of our capital right now is going towards technology. And I want to dive a little deeper on this because it's not just supply chain, it's total company technology. When Nate joined the organization, he made a statement of we're not a technology company yet or we're going to be a technology company. We just don't know it yet. And I believe that to be true. And it's showing in where we're investing and where we're going. So I'm going to talk to you about three key technologies. We have a bunch, but I'm going to talk about three in particular that frankly, are foundational for where we go with automation and AI. The first one, Nate alluded to this, -- it's going to be our ERP transformation. I want to highlight transformation because this is not an ERP upgrade. This is a transformation. We are going from a 1999 old, heavily customized system to a new modern 2025 [ S/4 HANA ] that's clean core. Why is that important? Because we're going to get our data clean, right, to enable automation. We're going to get our processes standardized to the industry standard, enabling more automation, more AI usage and so forth. This is foundational. The second thing, so obviously, I described our expansive supply chain. Well, we got to optimize it. So we're investing in [ Kinaxis ] supply chain planning. And what this system does is it allows us to scenario plan and ensure that we're utilizing our assets fully. I think it's really cool, you start thinking about different scenarios, right? So let's say Walmart is going to grow 3% on potting mix, for example. We could go in, plug that in and understand what production constraints we might have if that were to happen in a specific region and so forth. This will allow us to further optimize our inventory, which we already talked about a few slides ago. And then the last one is our unified data platform. And I think this is really, really important. We're using enterprise data bricks. This is meant to be the one source of the truth when it comes to our data overall. I see [ Fao ] sitting in the front row here. He leads our AI organization. And he made the statement once. It used to be garbage in, garbage out with data, right? With AI now, it's garbage in, gospel out. And I think the important understanding here is we have to ensure that we get our data right. And [ Databricks ] is going to be a foundational piece of that enabling AI. So I'm going to close out with just a quick synopsis of where we are scaling AI, where we've already been successful. And I think one thing is important to note, probably read a lot of headlines where companies have really gone all in on AI and maybe they've paid some big price tags to do that and not necessarily see the ROI. Nate and [ Falso ] have really challenged us to be pragmatic in our approach to take small strategic bets and understand and learn quickly where the ROI is and where it is not. And I think that's important because we have not seen big expenses or big missteps because of this. We have several examples of where this is working well. I'll just give you a couple. So on the consumer services side, our web page, when we get an inquiry in, 100% of those go through an AI agent. A majority of those are solved and resolved without the interaction of a human at all, allowing us to repurpose and allow that workforce to focus on complex matters. When you think about personalization, so product pages, for example, we've done some tests and we're seeing where we're able to customize a web page on maybe Amazon's page, enabling it to be specific to the consumer, driving revenue overall. Those are just a couple of examples. The other thing is bringing it back to people. We have an engaged workforce when it comes to AI. So our team, they host biweekly office hours with the center of excellence team on AI. And it's an opportunity for people to come and share how they're using AI. It's an opportunity for people to come and learn. And what's been amazing is we have hundreds, hundreds of people show up every other week to come, and they're excited to share what they're doing, and that's allowing us to scale the usage and really make people's lives easier and allowing us to train our associates. So I want to end with kind of where are we going to scale AI over the next several years. One, I already talked about it a little bit, but AI for the consumer. This is very important, right? Continuing to drive the customization, especially as digital becomes more and more important, as e-commerce becomes more and more important, right? We're going to be able to scale the customization via AI. Self-service analytics. We want every employee to be able to go and get rich data and information via AI. [ Databricks ] is a great example, right? Once we get this fully up and going, right, you're able to type in the question, not have to be an expert on queries and then get an output back. Pricing and promo, okay? So we're investing in trade promotion management system with Salesforce. And as you start to look at that, utilizing AI to better optimize and plan where we need to use our trade dollars, allowing us to really improve on the revenue side. Demand intelligence, we've already started with some of this. That has been a big part of pulling our inventory down overall. However, we still have a long way that we can go with integrating this into our S&OP routines. We're really excited, obviously, as a supply chain guy. And then lastly is just intelligent automation, right? We have a lot of manual processes today that we're going through, and we're going to be able to automate over time. And this is where the foundational blocks that I mentioned earlier are critical, right? Getting our core ERP designed in a way that allows and enables the automation of some of those tasks. So hopefully, you get a sense of where we're trying to go, what we're going to do to scale. I'll leave you in closing, right? We're scaling AI. Our supply chain will deliver 1% net sales. Mark is going to hit that again, and we will continue to invest in our business in the right way. So with that, that concludes the first portion of our session today. Really appreciate your patience. There will be some food and snacks outside. We're going to take a 15-minute break. So please do go enjoy that. Come back in, and then Mark is going to bring us home with talking about some of the forward-looking algorithm and financials. Thank you. [Break]

All right. Hello, everyone. We're going to go ahead and get started. So for those out in the crowd, feel free to sit down and get settled in. Hello, everyone. I'm Mark Shier. I'm the Chief Financial Officer of the Scotts Miracle-Gro Company. I'm an avid consumer and lawn and garden enthusiast. For those that know me, I end many of my one-on-one investor meetings with a simple question. If you have any lawn and garden questions, feel free to ask us so we can either answer them now or we can find you the right person at the company that will help you. You heard from a lot of great associates before me. They've got a lot of passion and knowledge for the business. So if you're out there in the crowd, don't be afraid to write a question down, and we'll hopefully answer them for you here later today. We care about the consumer, and I know you all are consumers of our products. We're now moving into the final phase of today's presentation, how we're turning the SMG 2.0 strategy into tangible shareholder value. Nate has made it clear that our long-term growth trajectory is through SMG 2.0, and all associates throughout the company are aligning to this in their daily activities. There's a strong sense of collaboration and commitment from the team around Nate and our SMG 2.0 focus, and I couldn't be more excited. As CFO, you have my commitment to ensure that everything we discuss today, innovation, operational excellence, channel and category expansion is measured by its ability to drive profitable long-term growth. All right. So let's jump into the presentation. So why invest in Scotts Miracle-Gro? For us, the investment thesis is clear. It's built on three main pillars. First, market leadership. We are the undisputed leader in the North American consumer lawn and garden market. We drive industry standards. We drive customer loyalty, and we drive high consumer engagement of our products. Second, core superpowers. Our distinct competitive advantages are anchored in our powerhouse capabilities that you heard today, world-class brand strength, elite impact marketing and our elite field sales force that is in the thousands and connects with consumers and customers every day out in the field. Our cutting-edge R&D that brings new products to market every year in the lawn and garden space. And lastly, our optimized and strong supply chain network that is spread throughout the country and delivers thousands of our products every day to consumers and customers with a high level of service. And third, financial growth. We are at an exciting point in our financial journey post-COVID. This includes a return to consistent sales growth, long-term gross margin expansion, financial deleveraging and a move to a more disciplined, balanced capital allocation approach. We believe these will drive future value creation for the shareholders in the long run. So let's get to our actions and results that we've taken over the past 2 years. Our associates should be proud of this. We've accomplished a lot these past couple of years, and we've been delivering on those results. First, financial commitments. We've been consistently delivering and in some cases, exceeding our external financial commitments in both fiscal '25 and '26. Second, gross margin expansion. Over the past few years, we've grown our gross margins over 790 basis points. And this year, we plan to do that as well. This has been done through supply chain cost-out activities, automation, AI and an emphasis on our branded products. Third, deleveraging progress. Our leverage ratio has come down quite a bit over the past few years to the point where this fiscal year, we are now below 4x. Our goal is to get even further below that, and we are on track to deliver that over the years to come. Fourth, sales growth. The past few years, we've grown our sales by around 2%, and this is in light of a very challenging consumer and housing market. It's been driven by innovation that we brought to the market, strong growth in e-commerce, as you heard earlier, and in naturals and organics focus, like our Miracle-Gro organics line that we launched 2 years ago to resounding success through Martha Stewart as our brand ambassador. Next, lawn and garden focus. Back in April, we completed the divestiture of our Hawthorne business. This has allowed us to streamline our operations further and focus solely on the lawn and garden business. And lastly, partnerships and reinvestment. We are executing on new partnerships like Black Kow and Murphy's to drive top line growth starting next year in fiscal '27 and beyond. In addition, we're scaling our advertising, R&D and CapEx spend to drive longer-term growth for the various initiatives we're working on today. For us, the actions and results have been clear. But in our mind, we have more work to do. So how will SMG 2.0 create this long-term shareholder value? For us, it starts by tenaciously executing and delivering on our new midterm fiscal '27 to '29 growth algorithm. This starts with, first, dependable net sales growth. We're targeting around 2% to 4%. You heard earlier today from Nate and others, a lot of excitement, and we believe we can grow that and potentially outperform it. Second, consistent profitability expansion. Utilizing two metrics we will focus on, we will continue to drive gross margin improvement of at least 50 to 100 basis points of improvement annually, and our track record shows we can do that. Second, adjusted earnings per share growth of between 5% and 8%. I'll touch upon this in a few minutes, but I think this is an area in the near term where we can outperform as well as we delever the balance sheet and continue to do a disciplined capital allocation approach and grow our gross margin. And third, disciplined capital allocation. Looking at two metrics on the capital allocation front that we're focused on, free cash flow generation of at least $275 million annually that will give us the fuel we need to fund our activities. And second, we're targeting leverage between 3 and 3.5x. Now Nate touched on it a little bit in his opening remarks. But longer term, him and I are very much aligned to drive leverage longer term to below 3x. We will give you updates as we go and get closer to the fiscal '29 time period, and we'll provide you more details. All right. Let's jump into the details now. Dependable net sales growth. Our sales growth will come from a balance of the following: First, category and consumer engagement expansion. John Sass and Nick Miaritis provided a great overview of the initiatives and actions we are taking to work on driving further growth in the lawn and garden category through our marketing and brand efforts. Second, innovation, driven by consumer preferences and demand for different and new solutions to their lawn and garden needs. You heard from Sadie and Paula a great snapshot of what we're doing in the naturals and organic space to bring new products to life to the emerging consumer. Third, channel expansion. Josh Meihls provided an overview of new channels we are pushing into and how e-commerce will help drive and define our growth. And lastly, M&A and partnerships. We are walking before we run through our recently announced partnerships like Black Kow and Murphy's. As it relates to Black Kow, it's the #1 soil amendment company in the U.S. It has a strong presence east of the Mississippi. And through our expanded partnership, we expect to really grow this business, delivering 1% to 2% of sales growth next year alone in our U.S. consumer business. I get excited listening to our operators talk about these great opportunities, and I look forward to reporting the progress on a quarterly basis to you all on future earnings calls. Next, let's move to gross margin expansion. Our history has shown we can improve gross margins. We have a strong track record of delivering on supply chain cost-out initiatives. Over the past few years alone, we've grown our gross margin rate by 790 basis points. That's impressive. And that's a testament to all the associates that you saw pictures on up here on the screen and across the country that are doing outstanding work in our factories to deliver on those initiatives. Looking ahead, from a midterm perspective, we are targeting 50 to 100 basis points of gross margin improvement annually. Our SMG 2.0 strategy aligns well with our gross margin expansion as it's consumer and branded focused. Now two areas of the gross margin story I want to highlight are around innovation and supply chain automation. Innovation coming to market will aid in our margin expansion, delivering target margins in excess of 40% at the time of launch. You heard a lot of great innovation around the ortho product line that [ Mike Davitt ] leads. Many of those products are bringing that gross margin profile to real life as we speak this year. On the supply chain front, we have a long runway to go to continue to invest in our manufacturing and distribution CapEx to streamline our operations and deliver 1% of net sales cost out annually. You heard earlier from David Huskisson, he's working on a lot of exciting things in this area and projects and initiatives, and I look forward to the progress as we go. Longer term, we are targeting a gross margin rate of nearly 40%. We don't expect to be there in the next few years. But over the long term, as we bring this innovation to market, including packaging innovation in the e-commerce space and other areas, our goal is to get to that target. And I look forward to giving you an update as we get closer to fiscal '29. So let's look at earnings per share growth. Over the past several years, we've delivered some impressive earnings per share growth, $2.59 per share to be exact, over the past -- from '23 to '25. Key factors in this growth include reorienting our business post-COVID, including divesting of the Hawthorne business. We've stabilized our sales growth trajectory, and we've executed on supply chain savings projects and other cost-out initiatives that have driven both gross margin expansion and operating margin expansion. In addition, we reinvested in our business to drive growth in higher areas like advertising, research and development and technology. We're also spending more on CapEx related to high-return projects. And most importantly, we've been reducing our leverage ratio and paying down debt. Through SMG 2.0, we're targeting a midterm fiscal '27 to '29 goal of 5% to 8% of annual earnings per share growth. This is driven by the consistent sales growth that I've just touched upon, the gross margin expansion as well, a disciplined use of SG&A spend. We are targeting around 17% to 18% of net sales for the next several years in our SG&A spend. We will continue to challenge our SG&A spend and reallocate as necessary to higher return areas like advertising, R&D and technology. And we've done that the past several years now to great success. Our Bonnie Plants joint venture will also continue to be a growth story on the equity income line. As a 50% owner of this $300 million-plus sales business, Bonnie Plants is the #1 herbs and Veggie branded company in the U.S. It's going through its own 2.0 story that you've heard today. The live goods category is a growing and exciting category, and you'll hear more from us on this in the future. Lastly, through disciplined capital allocation, we expect to continue to pay down debt and buy back shares to offset annual shareholder comp expense dilution in the coming years. Now as I said earlier, we've done some great progress here, as you can see. And I would expect versus these long-term growth algorithm in the near term, we could potentially outperform it as we drive our gross margin improvement further. We deliver on partnerships like Black Kow, and we execute on that disciplined capital allocation strategy that I've talked about. For us, the path is clear on how we plan to grow our EPS. Now let's talk about the disciplined capital allocation strategy that I've mentioned so far throughout this presentation. Free cash flow is the lifeblood of our SMG 2.0 strategy. We generate over $275 million of free cash flow annually. This gives us the flexibility to fund consistent growth and return value to shareholders. As we look to capital allocation strategy in the future, two words come to mind for me in describing it, disciplined and balanced. This disciplined and balanced approach will be comprised of the following: first, reinvestment in the business through increased spending in areas like advertising, R&D, technology and CapEx. These provide very high return income to the business and weatherproof it and make it more resilient for the long term. Second, we plan to maintain a high-quality quarterly dividend. Next, we plan to begin to offset our annual shareholder compensation dilution through our recently announced and authorized share repurchase program. Fourth, we continue to strengthen the balance sheet by paying down debt further and targeting our leverage ratio between 3 and 3.5x. And like I said earlier, longer term, we will target below 3x in the future. And then lastly, strategic tuck-in M&A acquisitions. Now let's get to that last point. Revisiting our M&A strategy, it will be intentional, focused and disciplined. We plan to walk before we run. And through Nate's partnership and alignment, we are focused on strategic tuck-in acquisitions that have the following four criteria. They're lawn and garden core or adjacent. They provide us with synergistic highly -- they're highly synergistic and have low execution risk. Next, they provide us strong returns and are financially accretive. And lastly, they're neutral to positive on our leverage ratio. We have a couple of past examples of this up here in a picture format of our consumer lawn and garden business, where we've been real successful. In 2014, we acquired Tomcat. At the time, it was the second or third largest consumer rodent control product out there. And over the course of the next several years, we turned it into the largest, effectively doubling sales. That's been a great resounding success, and you saw a couple of ad campaigns, really cool ad campaigns from it, and I'm excited to see where it goes year-round. Next, you'll see down here a big picture of our soil. We have a leading consumer soils business that's over $1 billion in sales. With the Miracle-Gro and Scotts Soil brands, this is a powerhouse in the industry. We've built that business both through internal CapEx, but also through external acquisitions of regional players. We've leveraged our supply chain capabilities to its utmost advantage to deliver an incredible business to you all today. We also have several partnership companies and opportunities lined up as well like Black Kow that I mentioned in Murphy's earlier, and we've already started the process of learning how to walk with these businesses. Looking ahead, we're working hard to deliver on our midterm fiscal '27 and '29 growth algorithm, and we believe we can outperform it in certain areas. We believe delivering on these goals sets us up long term to provide the shareholder with greater value. In summary, we have the right strategy, the right team and the right financial foundation to deliver consistent results. Our SMG 2.0 growth algorithm couldn't be more clear, and you have my commitment to provide you periodic updates on our performance against these metrics. So with this, this brings us to the conclusion of our presentation today, and I'll now turn it over to Nate Baxter for final remarks.

Thanks, Mark, and thanks, everybody. Hopefully, we were able to weave a narrative that makes sense, is practical and everybody feels comfortable with. What I can say is the three things that I wanted you to make sure you remember as you walk away here. One, this is all powered by our people and our culture. I can't emphasize that enough. For us, we've got a framework of a strategy, but it's the people behind this company. And if you ever join us on one of our tours, whether it's through R&D or going out in the field, you'll see and feel that, and I really believe that's a meaningful benefit. The other is we've defined very, very clear, uncomplicated building blocks and financial targets. I know these targets are not super aggressive. I think that's because we're very intentional with this. We had a long discussion among the management team and the Board, like I said earlier, we feel very good we can deliver. I personally think we can overdeliver, but we know we still have credibility that we need to sort of build back with everybody. So right down the middle of the road there. And last but not least, Mark and I are going to hold ourselves and this entire organization accountable to this. I think those are the three simple things. Everything else will fall into place. You can see there's a lot of excitement. There's a lot of opportunity. You look at that household penetration data, you look at the size of the market, just to sort of comment on the M&A piece, there are hundreds of small brands that are either core or adjacent. And one of their biggest challenges is they get to, call it, the $50 million revenue level. To drive expansion requires capital they don't have. And if you're doing it through third-party partners, it's prohibitively expensive and becomes a sort of a dead business model. We are the vehicle for these brands. And so from my point of view, there's a long line of really interesting opportunities, whether it be in our core, whether it be in live goods. You've heard me talk about that. Mark has really alluded to Bonnie. Bonnie has really done a great job over the last couple of years driving that business. They have a Bonnie 2.0 with a target to get to north of $500 million just in nationwide Urban veggie sales. So I think all of these things put together really give us confidence. So I think now we're going to bring the rest of the team out. Let's get into Q&A. Let's hear what you have to say. Give us some challenging questions. We're up for it. What did you see that you -- or what did you hear that you didn't like? What did you hear that you like?

All right. We're going to what Peter Grom first. Go ahead, Peter.

Peter Grom of UBS. So Mark, I guess I kind of have to ask. So you outlined the 5% to 8% EPS algorithm, but you mentioned that you have confidence in outperformance in the near term. So can you maybe just unpack what that means? And what's really driving that confidence? And I guess, related -- I know we'll give '27 guidance in November, but is there any sort of reason that doesn't apply to next year?

Yes. So I guess maybe a quick statement. We're not giving '27 guidance at this conference. So that's -- I'll just give you that. What gives us confidence is how we've been performing this year. This year was a pretty challenging environment, right, from a weather perspective and commodities. Actually, the past 2 years have been both that. The team has done an outstanding job delivering on the various initiatives, both cost outs and on the sales front, getting new innovation to market. So that's what gives us confidence going into next year. We have some partnerships out there like Black Kow I just spoke to, that have some nice little tailwind to us going into next year. So we're really excited about that. We continue to pay down debt and do all their disciplined capital allocation. So I think if you look all the way down the P&L, as I kind of touched upon it, things like Bonnie Plants, it's an equity method income line that people kind of forget about. But it adds earnings per share growth each year, and it has for the past couple of years now. So I would say that's what gives us confidence that as we look out into '27, we're not giving guidance, but could we outperform the algorithm in that area? I think my answer to you is yes.

Yes. And maybe I'll just add, Peter, just to take it a little bit to sales. I'm sure somebody will ask that question. I'm actually really happy with how the company performed given 2 springs in a row. We had Liberation Day with tariffs and then we had the war in Iran, two things we didn't anticipate. And I think even though from an outside perspective, only achieving low single digit isn't breathtaking. If you look at everything that happened under the hood, remember, we're also in the process of evaluating our portfolio. We walked away from $100 million in low-margin revenue this current fiscal year and replaced it. And for me to grow, call it, low single digit, 1%, something like that by the end of the year, we had to replace all that volume. And I think our margin story tells it. So I think part of the reason we ended up with what maybe are viewed as slightly conservative midterm targets is we just have a lot happening under the hood as we try to flip over and focus on the branded higher-margin products as we try to bring new innovation to market. But our confidence in those things driving both top line and margin in the long run is really strong.

Jonathan Matuszewski from Jefferies. My question was on just your customer set. There's some disclosure around your legacy customers and your emerging consumers. So can you kind of add some more color there, break out those two groups, how do they contribute to overall sales? And maybe just give us some confidence in terms of historical precedents, how you've adjusted to a changing consumer because it seems like the strategy is trying to kind of activate this emerging consumer with Black Kow and natural and organics and things like that. So how much does the 2% to 4% growth over the midterm rely on kind of activating that emerging consumer?

Good. Thanks, Jonathan. Why don't we start, Josh, why don't you talk about the retailer and then we'll pivot to Nick and John and talk a little bit about the consumer.