UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For transition period from to Commission File Number: 001-39773 Hydrofarm Holdings Group, Inc. (Exact name of registrant as specified in its charter) Delaware 81-4895761 (State or other jurisdiction of inc ...

[Financial Performance Summary](index=1&type=section&id=Hydrofarm%20Holdings%20Group%20Announces%20Fourth%20Quarter%20and%20Full%20Year%202023%20Results) [Fourth Quarter 2023 Highlights](index=1&type=section&id=Fourth%20Quarter%202023%20Highlights%20vs.%20Prior%20Year%20Period%3A) Q4 2023 net sales decreased to $47.2 million, but profitability significantly improved with positive gross profit and narrowed net loss Q4 2023 vs. Q4 2022 Financial Highlights | Metric | Q4 2023 | Q4 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $47.2M | $61.5M | -23.2% | | Gross Profit (Loss) | $8.4M | $(0.5)M | Improvement | | Gross Profit Margin | 17.9% | (0.8)% | +18.7 p.p. | | Adjusted Gross Profit | $11.5M | $9.0M | +27.8% | | Adjusted Gross Profit Margin | 24.3% | 14.7% | +9.6 p.p. | | Net Loss | $(15.2)M | $(35.3)M | Improvement | | Adjusted EBITDA | $(0.6)M | $(8.4)M | Improvement | [Full Year 2023 Highlights](index=1&type=section&id=Fiscal%20Year%202023%20Highlights%20vs.%20Prior%20Year%3A) FY2023 net sales declined to $226.6 million, yet operational improvements yielded positive Adjusted EBITDA and Free Cash Flow, significantly reducing net loss Full Year 2023 vs. 2022 Financial Highlights | Metric | FY 2023 | FY 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $226.6M | $344.5M | -34.2% | | Gross Profit | $37.6M | $29.3M | +28.3% | | Gross Profit Margin | 16.6% | 8.5% | +8.1 p.p. | | Adjusted Gross Profit | $55.0M | $48.2M | +14.1% | | Adjusted Gross Profit Margin | 24.3% | 14.0% | +10.3 p.p. | | Net Loss | $(64.8)M | $(285.4)M | Improvement | | Adjusted EBITDA | $0.3M | $(21.2)M | Improvement | | Free Cash Flow | $2.8M | $13.8M (from reconciliation) | -79.7% | [Management Commentary](index=1&type=section&id=Management%20Commentary) Management noted restructuring and cost-saving initiatives achieved positive Adjusted EBITDA and Free Cash Flow in 2023, with more savings expected in 2024 - Restructuring and cost savings efforts led to **positive Adjusted EBITDA** and **Free Cash Flow** in 2023[6](index=6&type=chunk) - The company improved margins, increased its cash balance, and decreased inventory levels through aggressive working capital management[6](index=6&type=chunk) - Revenue base became more diverse through penetration into non-US/Canada geographies and non-cannabis CEA applications[6](index=6&type=chunk) - A second phase of the restructuring strategy is underway, focused on the durables business, with expectations of additional cost savings in 2024[6](index=6&type=chunk) [Detailed Financial Analysis](index=3&type=section&id=Detailed%20Financial%20Analysis) [Fourth Quarter 2023 Financial Results](index=3&type=section&id=Fourth%20Quarter%202023%20Financial%20Results) Q4 2023 net sales fell to $47.2 million due to volume decline and price/mix impact, but gross profit significantly improved, and net loss was reduced - Net sales decreased to **$47.2 million**, primarily due to an **18.7% decline** in sales volume related to oversupply in the cannabis industry and a **4.5% decrease** in price/mix[8](index=8&type=chunk) - Gross profit increased to **$8.4 million** (**17.9% margin**) due to lower restructuring charges, a higher proportion of proprietary brand sales, lower freight costs, and improved productivity[10](index=10&type=chunk) - SG&A expense decreased to **$19.9 million**, and Adjusted SG&A fell to **$12.0 million**, primarily due to reduced compensation costs, lower accounts receivable reserves, and decreased professional fees[10](index=10&type=chunk) - The company initiated a second phase of its restructuring plan, incurring **$1.3 million** in charges in Q4 2023, mainly for non-cash inventory write-downs related to facility consolidations[9](index=9&type=chunk) [Balance Sheet, Liquidity and Cash Flow](index=3&type=section&id=Balance%20Sheet%2C%20Liquidity%20and%20Cash%20Flow) As of December 31, 2023, Hydrofarm maintained a strong cash position and compliance with debt covenants, generating positive Free Cash Flow for the full year - As of December 31, 2023, the Company had **$30.3 million** in cash and approximately **$22 million** of available borrowing capacity on its Revolving Credit Facility[11](index=11&type=chunk) - The company was in compliance with debt covenants as of December 31, 2023, and maintained a zero balance on its Revolving Credit Facility throughout 2023[11](index=11&type=chunk) Cash Flow Summary | Metric | Q4 2023 | Full Year 2023 | | :--- | :--- | :--- | | Cash from Operating Activities | $(1.6)M | $7.0M | | Capital Expenditures | $(0.2)M | $(4.2)M | | Free Cash Flow | $(1.7)M | $2.8M | [Full Year 2024 Outlook](index=4&type=section&id=Full%20Year%202024%20Outlook) The company anticipates positive Adjusted EBITDA and Free Cash Flow in 2024, driven by continued cost savings and working capital management, despite projected net sales decline Full Year 2024 Guidance | Metric | Outlook | | :--- | :--- | | Net Sales | Decrease low to high teens % | | Adjusted EBITDA | Positive | | Free Cash Flow | Positive | | Capital Expenditures | Approx. $4.0M to $5.0M | - The 2024 outlook is based on several assumptions[13](index=13&type=chunk)[17](index=17&type=chunk) - **Improved Adjusted Gross Profit Margin:** Driven by cost savings from restructuring and an expectation of minimal non-restructuring inventory reserves[17](index=17&type=chunk) - **Reduced Adjusted SG&A:** Resulting from the full-year benefit of 2023 headcount reductions and lower professional, facilities, and insurance expenses[17](index=17&type=chunk) - **Positive Free Cash Flow Generation:** Aided by reductions in inventory and net working capital[17](index=17&type=chunk) [Financial Statements](index=7&type=section&id=Financial%20Statements) [Condensed Consolidated Statements of Operations](index=7&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) For FY2023, the company significantly reduced its net loss to $(64.8) million, driven by increased gross profit and reduced operating expenses, despite lower net sales Consolidated Statements of Operations (in thousands) | Metric | Twelve months ended Dec 31, 2023 | Twelve months ended Dec 31, 2022 | | :--- | :--- | :--- | | Net sales | $226,581 | $344,501 | | Gross profit | $37,612 | $29,336 | | Selling, general and administrative | $87,314 | $118,604 | | Impairments | $— | $192,328 | | Loss from operations | $(49,702) | $(281,596) | | Net loss | $(64,813) | $(285,415) | | Net loss per share, diluted | $(1.42) | $(6.35) | [Condensed Consolidated Balance Sheets](index=8&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) As of December 31, 2023, total assets decreased to $507.6 million, primarily due to reduced inventories, while cash and cash equivalents increased Consolidated Balance Sheets (in thousands) | Metric | December 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $30,312 | $21,291 | | Inventories | $75,354 | $111,398 | | Total current assets | $128,066 | $154,948 | | Total assets | $507,643 | $573,559 | | **Liabilities and Stockholders' Equity** | | | | Total current liabilities | $37,652 | $41,605 | | Long-term debt | $115,412 | $117,461 | | Total liabilities | $217,033 | $223,678 | | Total stockholders' equity | $290,610 | $349,881 | [Reconciliation of Non-GAAP Measures](index=9&type=section&id=RECONCILIATION%20OF%20NON-GAAP%20MEASURES) [Reconciliation of Adjusted Gross Profit](index=9&type=section&id=Reconciliation%20of%20Adjusted%20Gross%20Profit) Adjusted Gross Profit for FY2023 increased to $55.0 million (24.3% margin), driven by adjustments for depreciation and restructuring expenses Reconciliation of Adjusted Gross Profit (in thousands) | Metric | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | :--- | | Gross Profit (GAAP) | $8,449 | $(473) | $37,612 | $29,336 | | Restructuring expenses | $1,263 | $7,466 | $10,664 | $7,466 | | **Adjusted Gross Profit (Non-GAAP)** | **$11,468** | **$9,034** | **$55,015** | **$48,182** | | Adjusted Gross Profit Margin | 24.3% | 14.7% | 24.3% | 14.0% | [Reconciliation of Adjusted SG&A](index=9&type=section&id=Reconciliation%20of%20Adjusted%20SG%26A) Adjusted SG&A for FY2023 was reduced to $54.7 million, primarily due to adjustments for depreciation, stock-based compensation, and restructuring expenses Reconciliation of Adjusted SG&A (in thousands) | Metric | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | :--- | | SG&A (GAAP) | $19,872 | $26,197 | $87,314 | $118,604 | | Depreciation, depletion and amortization | $(6,233) | $(6,551) | $(25,491) | $(35,157) | | Stock-based compensation | $(1,057) | $(1,709) | $(5,114) | $(8,543) | | **Adjusted SG&A (Non-GAAP)** | **$12,018** | **$17,416** | **$54,749** | **$69,375** | | Adjusted SG&A as % of net sales | 25.5% | 28.3% | 24.2% | 20.1% | [Reconciliation of Adjusted EBITDA](index=10&type=section&id=Reconciliation%20of%20Adjusted%20EBITDA) The company achieved positive Adjusted EBITDA of $0.3 million for FY2023, a significant turnaround from a loss in the prior year Reconciliation of Adjusted EBITDA (in thousands) | Metric | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | :--- | | Net loss (GAAP) | $(15,215) | $(35,268) | $(64,813) | $(285,415) | | Depreciation, depletion and amortization | $7,910 | $8,312 | $32,075 | $41,527 | | Restructuring expenses | $1,467 | $7,687 | $11,269 | $7,687 | | Stock-based compensation | $1,057 | $1,709 | $5,114 | $8,543 | | Impairments | $— | $— | $— | $192,328 | | **Adjusted EBITDA (Non-GAAP)** | **$(550)** | **$(8,382)** | **$266** | **$(21,193)** | [Reconciliation of Free Cash Flow](index=10&type=section&id=Reconciliation%20of%20Free%20Cash%20Flow) For FY2023, the company generated positive Free Cash Flow of $2.8 million from operating activities less capital expenditures Reconciliation of Free Cash Flow (in thousands) | Metric | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | :--- | | Net cash from operating activities (GAAP) | $(1,585) | $6,499 | $7,044 | $21,989 | | Capital expenditures (GAAP) | $(159) | $(1,116) | $(4,215) | $(8,229) | | **Free Cash Flow (Non-GAAP)** | **$(1,744)** | **$5,383** | **$2,829** | **$13,760** | [Definitions of Non-GAAP Measures](index=11&type=section&id=Definitions%20of%20Non-GAAP%20Measures) The company defines non-GAAP measures to provide a clearer view of ongoing operational performance by excluding certain variable or non-recurring items - **Adjusted EBITDA:** Defined as net loss excluding interest expense, taxes, D&A, stock-based compensation, restructuring charges, and other non-cash or infrequent costs[35](index=35&type=chunk) - **Adjusted Gross Profit:** Defined as gross profit excluding D&A, restructuring charges, and other non-cash or infrequent costs[36](index=36&type=chunk) - **Adjusted SG&A:** Defined as SG&A excluding D&A, stock-based compensation, restructuring charges, and other non-cash or infrequent costs[38](index=38&type=chunk) - **Free Cash Flow:** Defined as Net cash from (used in) operating activities less capital expenditures for property, plant and equipment[41](index=41&type=chunk)

Financial Performance - Total consolidated net sales for the three months ended September 30, 2023, were $54.168 million, a decrease of 27% compared to $74.155 million for the same period in 2022[59]. - For the nine months ended September 30, 2023, total consolidated net sales were $179.397 million, down from $283.040 million in the same period of 2022, representing a decline of 37%[59]. - Net sales for Q3 2023 were $54.2 million, a decrease of $20.0 million, or 27.0% compared to Q3 2022[142]. - Net sales for the nine months ended September 30, 2023, were $179.4 million, a decrease of $103.6 million, or 36.6% compared to the same period in 2022[142]. - The 27.0% decrease in net sales for Q3 2023 was attributed to a 22% decline in volume of products sold and a 5% decrease in price and mix of products sold[143]. - Net loss for the nine months ended September 30, 2023, was $(49.6) million, a significant improvement of $200.5 million compared to $(250.1) million in the same period in 2022[141]. - Loss from operations for Q3 2023 was $(16.2) million, compared to $(20.3) million in Q3 2022, reflecting a 20.1% improvement[141]. Restructuring and Impairment - The company recorded a goodwill impairment charge of $189.572 million as of June 30, 2022, reducing the goodwill balance to zero due to a decline in market value and customer demand[70]. - The company recorded a net restructuring benefit of $0.2 million for Q3 2023, while net pre-tax charges for the nine months ended September 30, 2023, were $2.0 million[134]. - Total costs incurred relating to the first phase of the Restructuring Plan since its commencement were $6.4 million for inventory markdowns and $3.2 million for facility relocations[134]. - Estimated pre-tax charges for the second phase of the Restructuring Plan were $7.8 million, primarily related to non-cash raw material inventory write-downs[135]. - The company anticipates annualized cost savings of approximately $1.5 million from the restructuring efforts[135]. Cash Flow and Liquidity - Net cash from operating activities was $8.6 million for the nine months ended September 30, 2023, driven by a $11.7 million net cash inflow from a reduction in working capital[157]. - Net cash used in investing activities was $4.1 million for the nine months ended September 30, 2023, compared to $7.4 million for the same period in 2022[159]. - Net cash from financing activities was $6.6 million for the nine months ended September 30, 2023, primarily driven by $8.6 million of proceeds from a Sale-Leaseback Transaction[160]. - The company had cash and cash equivalents of $32.5 million as of September 30, 2023, compared to $21.3 million at December 31, 2022[175]. - Approximately $28 million was available to borrow under the Revolving Credit Facility as of September 30, 2023[173]. Assets and Liabilities - The company’s property, plant, and equipment, net, was $104.774 million as of September 30, 2023, compared to $116.400 million as of December 31, 2022[59]. - Total inventories decreased to $80,101 as of September 30, 2023, from $111,398 as of December 31, 2022, reflecting a 28% reduction[78]. - The total lease liabilities as of September 30, 2023, amounted to $68,278, slightly up from $67,302 as of December 31, 2022[82]. - As of September 30, 2023, total debt amounted to $118,464, a decrease from $118,768 as of December 31, 2022, reflecting a reduction of approximately 0.26%[86]. - The outstanding principal balance on the Term Loan was $122,813, a slight decrease from $123,750 as of December 31, 2022[91]. Stock-Based Compensation - The Company granted 1,091,726 Restricted Stock Units (RSUs) during the nine months ended September 30, 2023, with a weighted average grant date fair value of $1.19[113]. - The total unamortized stock-based compensation cost related to unvested RSUs was $3,022, with a weighted-average recognition period of 1.29 years as of September 30, 2023[113]. - The Company recognized $1,073 and $3,501 of total stock-based compensation expense for RSUs for the three and nine months ended September 30, 2023, respectively[113]. - The balance of Performance Stock Units (PSUs) as of September 30, 2023, was 928,070, with a weighted average grant date fair value of $1.77[115]. Taxation - The Company recorded an income tax expense of $89 for the three months ended September 30, 2023, representing an effective tax rate of (0.4)%[118]. - The Company recorded an income tax benefit of $82 for the nine months ended September 30, 2023, representing an effective income tax rate of 0.2%[118]. Compliance and Governance - The Company is in compliance with all covenants related to the Term Loan and Revolving Credit Facility as of September 30, 2023[92][97]. - There were no changes in internal control over financial reporting that materially affected the company's controls during the reporting period[186].

Hydrofarm Holdings Group, Inc (NASDAQ:HYFM) Q2 2023 Earnings Conference Call August 9, 2023 4:30 PM ET Company Participants Anna Kate Heller - Investor Relations Bill Toler - Chairman and Chief Executive Officer John Lindeman - Chief Financial Officer Conference Call Participants Andrew Carter - Stifel Peter Grom - UBS Bill Chappell - Truist Securities Jesse Redmond - Water Tower Research Operator Good day, ladies and gentlemen and thank you for standing by. Welcome to the Hydrofarm Holdings Group Second Qu ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) Commission File Number: 001-39773 Hydrofarm Holdings Group, Inc. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) Delaware 81-4895761 (I.R.S. Employer Identification Number) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTIO ...

Hydrofarm Holdings Group, Inc. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For transition period from to Commission File Number: 001-39773 (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorpo ...

Hydrofarm Holdings Group, Inc. (NASDAQ:HYFM) Q4 2022 Results Conference Call March 9, 2023 4:30 PM ET Company Participants Anna Kate Heller - Investor Relations, ICR Bill Toler - Chairman and Chief Executive Officer John Lindeman - Chief Financial Officer Conference Call Participants Andrew Carter - Stifel Andrea Teixeira - JPMorgan John Anderson - William Blair Chris Carey - Wells Fargo Securities Operator Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Hydrofarm Holdings Grou ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Commission File Number: 001-39773 Hydrofarm Holdings Group, Inc. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For transit ...

Hydrofarm Holdings Group, Inc. (NASDAQ:HYFM) Q3 2022 Results Conference Call November 9, 2022 4:30 PM ET Company Participants Fitzhugh Taylor - Managing Director of ICR John Lindeman - CFO William Toler - CEO & Chairman Conference Call Participants Andrew Carter - Stifel, Nicolaus & Company Stephen Lengel - Truist Securities Andrea Teixeira - JP Morgan Chris Carey - Wells Fargo Operator Good day, ladies and gentlemen and thank you for standing by. Welcome to the Hydrofarm Holdings Group's Third Quarter 2022 ...

Financial Performance - Net sales for Q3 2022 were $74.2 million, a decrease of $49.7 million, or 40.1% compared to Q3 2021[137]. - Net sales for the nine months ended September 30, 2022, were $283.0 million, a decrease of $86.0 million, or 23.3% compared to the same period in 2021[137]. - Gross profit for Q3 2022 was $5.9 million, a decrease of $24.1 million, or 80.4%, compared to Q3 2021[141]. - Gross profit for the nine months ended September 30, 2022, was $29.8 million, a decrease of $53.0 million, or 64.0%, compared to the same period in 2021[141]. - The decline in Q3 2022 net sales was attributed to a 42.6% decline in volume of products sold, primarily due to agricultural oversupply affecting cannabis growing activity[138]. - The nine-month decline in net sales was due to a 26.0% decline in volume of products sold, with a 42.7% decline in organic sales[139]. - Adjusted EBITDA for the three months ended September 30, 2022, was $(9.048) million, compared to $16.069 million in the same period in 2021[158]. - Net loss for the three months ended September 30, 2022, was $(23.539) million, compared to net income of $17.265 million in the same period in 2021[158]. Operating Expenses - Operating expenses for Q3 2022 were $26.2 million, a decrease of $6.2 million, or 19.2% compared to Q3 2021[136]. - SG&A expenses for the three months ended September 30, 2022, were $26.2 million, a decrease of $6.2 million compared to the same period in 2021[144]. - SG&A expenses for the nine months ended September 30, 2022, were $92.4 million, an increase of $15.9 million compared to the same period in 2021[146]. - The company experienced a $4.4 million charge for inventory obsolescence during Q3 2022, primarily related to certain lighting products[133]. Goodwill and Impairments - The company recorded a goodwill impairment charge of $189.6 million as of June 30, 2022, reducing the goodwill balance to zero[130]. - The company recorded goodwill impairment charges of $189.6 million for the nine months ended September 30, 2022, primarily due to a deterioration in customer demand in the U.S. and Canada[147]. - The company recorded an impairment of a note receivable of $2.6 million during the nine months ended September 30, 2022[160]. - The company recorded a goodwill impairment charge due to market softness in demand in the U.S. and Canada as of June 30, 2022[186]. Cash Flow and Liquidity - Net cash from operating activities was $15.5 million for the nine months ended September 30, 2022, compared to a net cash used of $17.5 million in the same period of 2021[166][167]. - The company experienced a net cash decrease of $11.9 million in cash, cash equivalents, and restricted cash for the nine months ended September 30, 2022, compared to a decrease of $62.5 million in 2021[165]. - Net cash used in investing activities was $7.4 million for the nine months ended September 30, 2022, significantly lower than $419.4 million in 2021, primarily due to fewer business acquisitions[168][169]. - Net cash used in financing activities was $19.5 million for the nine months ended September 30, 2022, compared to a net cash provided of $374.4 million in 2021, reflecting payments to settle contingent consideration[170][171]. - As of September 30, 2022, the company had $16.5 million in cash and cash equivalents, down from $26.6 million at December 31, 2021[183]. Debt and Interest Rates - The company has a borrowing limit of $100 million under its Senior Secured Revolving Credit Facility, with approximately $62 million available to borrow as of September 30, 2022[180][181]. - The company is exposed to interest rate risk with $124.1 million of Term Loan debt subject to variable interest rates, with a potential increase in interest expense of $1.1 million annually if rates rise by 100 basis points[191]. - The company recorded interest expense for the three months ended September 30, 2022, was $3.1 million, an increase of $2.9 million compared to the same period in the prior year[148]. - A 100 basis point increase in interest rates would result in an average annual increase of $1.1 million in interest expense on variable-rate debt[191]. Risk Factors and Controls - The results of operations and financial condition may be impacted by inflation in the future[194]. - The company does not currently hedge its interest rate risk but may consider doing so in the future[191]. - Management concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[196]. - There were no changes in internal control over financial reporting that materially affected the company's reporting[198]. - The company is not aware of any legal proceedings that would materially affect its business or financial condition[200]. - The company recognizes that controls and procedures can only provide reasonable assurance of achieving their objectives[197].