The Scotts Miracle-Gro Company (NYSE:SMG) Q4 2023 Earnings Call Transcript

Unidentified Analyst: Great. Thanks for taking the time, — to ask what we should be expecting in terms of working capital bills for the next two quarters. And do you expect to generate cash from working capital for the remainder of FY24? And if you expect to be able to fully pay down for a while during 2024?

Matthew Garth: Yeah. So we have a normal seasonal working capital build in our business. As you would expect, we’re a highly seasonal business. So getting inventory in place to be able to ship out to our retailers as the season comes is what we work on in the first quarter. So you see cash absorption in the first quarter, and then you see the peak of our working capital build in the second quarter of the year. That generally goes from an inventory position of where we are plus 25% to 30% higher. And that’s the main driver along with AR as you move through the first half of the year. So that will repeat. And the back half of the year is when we generate the bulk of our free cash-flow. As I said, this year in ’23, pretty much all of our free cash-flow was generated in Q4.

That will be consistent with what happens in ’24. And then we will use that free cash-flow to pay down debt. The debt that we choose to pay down, you pointed to the revolver. We also have Term Loan B that is available to us. We have senior notes that are in place that don’t come due until beginning in 2026, and that is a manageable maturity of $250 million. So we have choices, but it’s most likely going to go to paying down the highest cost debt that we have at that time, which will be either the revolver or the Term Loan B.

Operator: And that concludes our question and answer session. I would now like to turn it back to Chief Operating Officer, Nate Baxter.

Nate Baxter: Thank you. Hey, I just wanted to say that we’re in the beginning stages of planning a field day for investors. We’d like to bring you all out, call it late spring, so stay tuned. I think there’s a lot that’s changed here with Matt and Jim and the rest of the team and I, and we’d like to sort of share with you not only operationally what’s different, but also some of the innovation that we’ve got in the pipeline. So stay tuned for that.

Operator: Thank you for participating in today’s conference. That does conclude the program. You may now disconnect.