Hydrofarm Holdings Group Announces First Quarter 2024 Results
Hydrofarm Holdings Group announced its first quarter 2024 results, highlighting a decrease in net sales to $54.2 million from $62.2 million year-over-year.
Gross profit margin increased to 20.2%, and adjusted gross profit margin rose to 23.4%. Net loss improved to $12.6 million, and adjusted EBITDA turned positive at $0.3 million.
Cash used in operating activities and free cash flow improved by $6.7 million and $6.9 million, respectively.
The company is selling assets related to certain durable equipment products for $8.7 million, expecting improved profitability for its IGE branded products. Hydrofarm reaffirms its 2024 guidance for positive adjusted EBITDA and free cash flow despite forecasted net sales decline.
- Gross profit margin increased to 20.2% from 18.3%.
- Adjusted EBITDA improved to $0.3 million from $(2.1) million.
- Net loss decreased to $12.6 million from $16.8 million.
- Cash used in operating activities improved by $6.7 million.
- Free cash flow improved by $6.9 million.
- SG&A expenses reduced to $19.6 million from $24.4 million.
- Adjusted SG&A decreased to $12.3 million from $16.2 million.
- The company maintains $24.2 million in cash and $25 million in borrowing capacity.
- Net sales decreased to $54.2 million from $62.2 million.
- Gross profit decreased to $10.9 million from $11.4 million.
- Adjusted gross profit decreased to $12.7 million from $14.1 million.
- The company expects to record a $12 million loss on the sale of certain durable equipment assets.
- Net cash used in operating activities was $2.3 million.
- Free cash flow was negative at $(3.7) million.
Insights
Hydrofarm's first quarter 2024 financial results present a mixed picture. While net sales decreased to
Despite the decrease in sales, attributed to an oversupply in the cannabis industry, Hydrofarm managed to improve its net loss to
Given these changes, investors might view Hydrofarm's current trajectory as cautiously optimistic. The reaffirmation of positive Adjusted EBITDA and Free Cash Flow for 2024 provides a stable outlook amidst industry challenges, although reduced net sales guidance could dampen enthusiasm.
Overall, the financial restructuring and strategic cost reductions position the company better for future growth, despite the temporary setbacks.
The hydroponics market is influenced significantly by regulatory developments, particularly in the cannabis industry. Hydrofarm mentions potential demand tailwinds from U.S. regulatory changes regarding cannabis rescheduling. This could open up new revenue opportunities, especially as the company focuses on higher-margin products.
The 13% decline in product volume/mix highlights the importance of market conditions and competitive pressures. Investors should note that while operational improvements are evident, the broader market risks and dependencies on regulatory frameworks are important considerations.
Hydrofarm's decision to sell assets related to durable equipment production and enter a supply agreement indicates a shift towards leaner operations and cost-effective manufacturing. This could lead to better-margin products and reduced operational risks associated with high fixed costs. Nevertheless, industry softness remains a concern and the company's ability to adapt to these dynamics will be essential for sustained growth.
The reaffirmation of positive Adjusted EBITDA and Free Cash Flow, amidst these market conditions, suggests a resilient business model. However, investors should remain cognizant of the industry's inherent volatility and the company's reliance on favorable regulatory changes for growth.
Significant Cost Savings Continue to Drive Improvement in Key Operating Metrics
SHOEMAKERSVILLE, Pa., May 14, 2024 (GLOBE NEWSWIRE) -- Hydrofarm Holdings Group, Inc. (“Hydrofarm” or the “Company”) (Nasdaq: HYFM), a leading independent manufacturer and distributor of branded hydroponics equipment and supplies for controlled environment agriculture, today announced financial results for its first quarter ended March 31, 2024.
First Quarter 2024 Highlights vs. Prior Year Period:
- Net sales decreased to
$54.2 million compared to$62.2 million . - Gross Profit Margin increased to
20.2% of net sales compared to18.3% . - Adjusted Gross Profit Margin(1) increased to
23.4% of net sales compared to22.6% . - Net loss improved to
$12.6 million compared to$16.8 million . - Adjusted EBITDA(1) increased to
$0.3 million compared to$(2.1) million . - Cash used in operating activities and Free Cash Flow(1) improved
$6.7 million and$6.9 million , respectively.
(1) Adjusted Gross Profit (Loss), Adjusted Gross Profit Margin, Adjusted SG&A, Adjusted SG&A as a percent of net sales, Adjusted EBITDA, and Free Cash Flow are non-GAAP measures. For reconciliations of non-GAAP to GAAP measures see the “Reconciliation of Non-GAAP Measures” accompanying the release.
Bill Toler, Chairman and Chief Executive Officer of Hydrofarm, said, “We are pleased with our first quarter results, as we delivered Adjusted Gross Profit Margin(1) expansion for the fifth consecutive quarter driven by elevated operational productivity. We also recognized year-over-year improvements in our Net Loss and Free Cash Flow(1) and we achieved positive Adjusted EBITDA(1) as we further benefited from our restructuring actions and related cost saving initiatives. As we have mentioned the last several quarters, many of our restructuring actions have focused on rightsizing the elements of our business associated with durable products. These efforts have led to our decision to sell assets related to the production of certain durable equipment products, which we expect to result in improved profitability on the sale of our IGE branded products. Our restructuring plan has been effective so far, and we still expect to realize further cost savings in 2024. As a result of our accomplishments, we are reiterating our 2024 guidance of positive Adjusted EBITDA(1) and positive Free Cash Flow(1). We are also encouraged by potential demand tailwinds, including recent U.S. regulatory developments surrounding the rescheduling of cannabis. Our focus remains on selling higher margin products, and despite industry softness, we are confident in the fundamentals of our business and are optimistic about our opportunity for growth.”
First Quarter 2024 Financial Results
Net sales in the first quarter of 2024 decreased to
Gross profit decreased to
Selling, general and administrative (“SG&A”) expense was
Net loss improved to
Adjusted EBITDA(1) increased to
Balance Sheet, Liquidity and Cash Flow
As of March 31, 2024, the Company had
The Company had net cash used in operating activities of
Recent Action to Improve Profitability of Proprietary Branded IGE Products
On May 10, 2024, in connection with the Company’s restructuring of its durable manufacturing operations, the Company entered into an agreement with CM Fabrication, LLC, (“Buyer”) to sell assets relating to the production of certain durable equipment products for approximately
The Company will continue to sell its proprietary branded IGE products, and as a result of the transaction, the Company expects improved profitability on future IGE branded product sales due to an anticipated decrease in fixed costs. The Company estimates it will record a loss on the disposition of the tangible and intangible assets of approximately
Reaffirms Full Year 2024 Outlook
The Company is reaffirming its full year 2024 outlook:
- Net sales to decrease low to high teens in percentage terms.
- Adjusted EBITDA(1) that is positive.
- Free Cash Flow(1) that is positive.
Hydrofarm’s 2024 outlook also reaffirms the following assumptions, consistent with previous expectations:
- Improved year-over-year Adjusted Gross Profit Margin(1) resulting primarily from (i) cost savings associated with restructuring actions and related productivity initiatives and (ii) an expectation of minimal non-restructuring inventory reserves or related charges.
- Reduced year-over-year Adjusted SG&A(1) expense resulting primarily from (i) full year benefit of headcount reductions completed in 2023 and (ii) reductions in professional fees, facilities and insurance expenses.
- Reduction in inventory and net working capital helping to generate positive Free Cash Flow(1) for the full year.
- Capital expenditures of approximately
$4.0 million to$5.0 million .
(1) Adjusted Gross Profit (Loss), Adjusted Gross Profit Margin, Adjusted SG&A, Adjusted SG&A as a percent of net sales, Adjusted EBITDA, and Free Cash Flow are non-GAAP measures. For reconciliations of non-GAAP to GAAP measures see the “Reconciliation of Non-GAAP Measures” accompanying the release.
Conference Call and Presentation
The Company will host a conference call to discuss financial results for the first quarter 2024 today at 8:30 a.m. Eastern Time. Bill Toler, Chairman and Chief Executive Officer, and John Lindeman, Chief Financial Officer, will host the call. An investor presentation is also available for reference on the Hydrofarm investor relations website.
The conference call can be accessed live over the phone by dialing 1-877-451-6152. The conference call will also be webcast live and archived on the Company's investor relations website at https://investors.hydrofarm.com/ under the “News & Events” section.
About Hydrofarm Holdings Group, Inc.
Hydrofarm is a leading independent manufacturer and distributor of branded hydroponics equipment and supplies for controlled environment agriculture, including grow lights, climate control solutions, growing media and nutrients, as well as a broad portfolio of innovative and proprietary branded products. For over 40 years, Hydrofarm has helped growers make growing easier and more productive. The Company’s mission is to empower growers, farmers and cultivators with products that enable greater quality, efficiency, consistency and speed in their grow projects.
Cautionary Note Regarding Forward-Looking Statements
Statements contained in this press release, other than statements of historical fact, which address activities, events and developments that the Company expects or anticipates will or may occur in the future, including, but not limited to, information regarding the future economic performance and financial condition of the Company, the plans and objectives of the Company’s management, and the Company’s assumptions regarding such performance and plans are “forward-looking statements” within the meaning of the U.S. federal securities laws that are subject to risks and uncertainties. These forward-looking statements generally can be identified as statements that include phrases such as “guidance,” “outlook,” “projected,” “believe,” “target,” “predict,” “estimate,” “forecast,” “strategy,” “may,” “goal,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “will,” “should” or other similar words or phrases. Actual results could differ materially from the forward-looking information in this release due to a variety of factors, including, but not limited to:
The market in which we operate has been substantially adversely impacted by industry conditions, including oversupply and decreasing prices of the products the Company's end customers sell, which, in turn, have materially adversely impacted the Company's sales and other results of operations and which may continue to do so in the future; If industry conditions worsen or are sustained for a lengthy period, we could be forced to take additional impairment charges and/or inventory and accounts receivable reserves, which could be substantial, and, ultimately, we may face liquidity challenges; Although equity financing may be available, the Company's current stock prices are at depressed levels and any such financing would be dilutive; Interruptions in the Company's supply chain could adversely impact expected sales growth and operations; We may be unable to meet the continued listing standards of Nasdaq; Our restructuring activities may increase our expenses and cash expenditures, and may not have the intended cost saving effects; The highly competitive nature of the Company’s markets could adversely affect its ability to maintain or grow revenues; Certain of the Company’s products may be purchased for use in new or emerging industries or segments, including the cannabis industry, and/or be subject to varying, inconsistent, and rapidly changing laws, regulations, administrative and enforcement approaches, and consumer perceptions and, among other things, such laws, regulations, approaches and perceptions may adversely impact the market for the Company’s products; The market for the Company’s products has been impacted by conditions impacting its customers, including related crop prices and other factors impacting growers; Compliance with environmental and other public health regulations or changes in such regulations or regulatory enforcement priorities could increase the Company’s costs of doing business or limit the Company’s ability to market all of its products; Damage to the Company’s reputation or the reputation of its products or products it markets on behalf of third parties could have an adverse effect on its business; If the Company is unable to effectively execute its e-commerce business, its reputation and operating results may be harmed; The Company’s operations may be impaired if its information technology systems fail to perform adequately or if it is the subject of a data breach or cyber-attack; The Company may not be able to adequately protect its intellectual property and other proprietary rights that are material to the Company’s business; Acquisitions, other strategic alliances and investments could result in operating and integration difficulties, dilution and other harmful consequences that may adversely impact the Company’s business and results of operations. Additional detailed information concerning a number of the important factors that could cause actual results to differ materially from the forward-looking information contained in this release is readily available in the Company’s annual, quarterly and other reports. The Company disclaims any obligation to update developments of these risk factors or to announce publicly any revision to any of the forward-looking statements contained in this release, or to make corrections to reflect future events or developments.
Contacts:
Investor Contact
Anna Kate Heller / ICR
ir@hydrofarm.com
| Hydrofarm Holdings Group, Inc. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands, except share and per share amounts) | ||||||||
| Three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Net sales | $ | 54,172 | $ | 62,178 | ||||
| Cost of goods sold | 43,247 | 50,797 | ||||||
| Gross profit | 10,925 | 11,381 | ||||||
| Operating expenses: | ||||||||
| Selling, general and administrative | 19,621 | 24,431 | ||||||
| Loss from operations | (8,696 | ) | (13,050 | ) | ||||
| Interest expense | (3,931 | ) | (3,692 | ) | ||||
| Other income, net | 215 | 40 | ||||||
| Loss before tax | (12,412 | ) | (16,702 | ) | ||||
| Income tax expense | (196 | ) | (147 | ) | ||||
| Net loss | $ | (12,608 | ) | $ | (16,849 | ) | ||
| Net loss per share: | ||||||||
| Basic | $ | (0.28 | ) | $ | (0.37 | ) | ||
| Diluted | $ | (0.28 | ) | $ | (0.37 | ) | ||
| Weighted-average shares of common stock outstanding: | ||||||||
| Basic | 45,813,729 | 45,263,822 | ||||||
| Diluted | 45,813,729 | 45,263,822 | ||||||
| Hydrofarm Holdings Group, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands, except share and per share amounts) | ||||||||
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Assets | ||||||||
| Current assets: | | |||||||
| Cash and cash equivalents | $ | 24,152 | $ | 30,312 | ||||
| Accounts receivable, net | 22,468 | 16,890 | ||||||
| Inventories | 72,315 | 75,354 | ||||||
| Prepaid expenses and other current assets | 5,039 | 5,510 | ||||||
| Total current assets | 123,974 | 128,066 | ||||||
| Property, plant and equipment, net | 46,612 | 47,360 | ||||||
| Operating lease right-of-use assets | 51,886 | 54,494 | ||||||
| Intangible assets, net | 269,794 | 275,881 | ||||||
| Other assets | 1,750 | 1,842 | ||||||
| Total assets | $ | 494,016 | $ | 507,643 | ||||
| Liabilities and stockholders’ equity | | | ||||||
| Current liabilities: | | |||||||
| Accounts payable | $ | 15,437 | $ | 12,613 | ||||
| Accrued expenses and other current liabilities | 10,477 | 9,529 | ||||||
| Deferred revenue | 2,841 | 3,231 | ||||||
| Current portion of operating lease liabilities | 8,362 | 8,336 | ||||||
| Current portion of finance lease liabilities | 929 | 954 | ||||||
| Current portion of long-term debt | 1,278 | 2,989 | ||||||
| Total current liabilities | 39,324 | 37,652 | ||||||
| Long-term operating lease liabilities | 45,161 | 47,506 | ||||||
| Long-term finance lease liabilities | 8,498 | 8,734 | ||||||
| Long-term debt | 115,390 | 115,412 | ||||||
| Deferred tax liabilities | 3,232 | 3,232 | ||||||
| Other long-term liabilities | 4,382 | 4,497 | ||||||
| Total liabilities | 215,987 | 217,033 | ||||||
| Commitments and contingencies | | | ||||||
| Stockholders’ equity | | | ||||||
| Common stock ( | 5 | 5 | ||||||
| Additional paid-in capital | 788,602 | 787,846 | ||||||
| Accumulated other comprehensive loss | (7,226 | ) | (6,497 | ) | ||||
| Accumulated deficit | (503,352 | ) | (490,744 | ) | ||||
| Total stockholders’ equity | 278,029 | 290,610 | ||||||
| Total liabilities and stockholders’ equity | $ | 494,016 | $ | 507,643 | ||||
| Hydrofarm Holdings Group, Inc. RECONCILIATION OF NON-GAAP MEASURES (In thousands, except share and per share amounts) (Unaudited) | ||||||||
| Three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Reconciliation of Adjusted Gross Profit: | ||||||||
| Gross Profit (GAAP) | $ | 10,925 | $ | 11,381 | ||||
| Depreciation, depletion and amortization | 1,649 | 1,455 | ||||||
| Restructuring expenses1 | 91 | 1,237 | ||||||
| Adjusted Gross Profit (Non-GAAP) | $ | 12,665 | $ | 14,073 | ||||
| As a percent of net sales: | ||||||||
| Gross Profit Margin (GAAP) | 20.2 | % | 18.3 | % | ||||
| Adjusted Gross Profit Margin (Non-GAAP) | 23.4 | % | 22.6 | % | ||||
| Three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Reconciliation of Adjusted SG&A: | ||||||||
| Selling, general and administrative (GAAP) | $ | 19,621 | $ | 24,431 | ||||
| Depreciation, depletion and amortization | 6,236 | 6,552 | ||||||
| Restructuring expenses1 | 47 | 174 | ||||||
| Stock-based compensation2 | 868 | 1,207 | ||||||
| Severance and other4 | 134 | 295 | ||||||
| Adjusted SG&A (Non-GAAP) | $ | 12,336 | $ | 16,203 | ||||
| As a percent of net sales: | ||||||||
| SG&A (GAAP) | 36.2 | % | 39.3 | % | ||||
| Adjusted SG&A (Non-GAAP) | 22.8 | % | 26.1 | % | ||||
| Three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Reconciliation of Adjusted EBITDA: | ||||||||
| Net loss (GAAP) | $ | (12,608 | ) | $ | (16,849 | ) | ||
| Interest expense | 3,931 | 3,692 | ||||||
| Income tax expense | 196 | 147 | ||||||
| Depreciation, depletion and amortization | 7,885 | 8,007 | ||||||
| Restructuring expenses1 | 138 | 1,411 | ||||||
| Stock-based compensation2 | 868 | 1,207 | ||||||
| Other income, net3 | (215 | ) | (40 | ) | ||||
| Severance and other4 | 134 | 295 | ||||||
| Adjusted EBITDA (Non-GAAP) | $ | 329 | $ | (2,130 | ) | |||
| As a percent of net sales: | ||||||||
| Net loss (GAAP) | (23.3 | )% | (27.1 | )% | ||||
| Adjusted EBITDA (Non-GAAP) | 0.6 | % | (3.4 | )% | ||||
| Three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Reconciliation of Free Cash Flow5: | ||||||||
| Net cash used in operating activities (GAAP)5: | $ | (2,297 | ) | $ | (8,950 | ) | ||
| Capital expenditures of Property, Plant and Equipment (GAAP) | (1,442 | ) | (1,653 | ) | ||||
| Free Cash Flow (Non-GAAP)5: | $ | (3,739 | ) | $ | (10,603 | ) | ||
Notes to GAAP to Non-GAAP reconciliations presented above (Adjusted Gross Profit, Adjusted SG&A, Adjusted EBITDA, and Free Cash Flow):
- For the three months ended March 31, 2024, restructuring expenses related primarily to manufacturing facility consolidations, and the charges incurred to relocate and terminate certain facilities. For the three months ended March 31, 2023, restructuring expenses related primarily to the relocation and termination of certain facilities in Canada and the closure of the Company's supply chain management office in China.
- Includes stock-based compensation and related employer payroll taxes on stock-based compensation for the periods presented.
- Other income, net related primarily to foreign currency exchange rate gains and losses and other non-operating income and expenses.
- For the three months ended March 31, 2024, Severance and other charges primarily related to estimated legal costs related to certain litigation. For the three months ended March 31, 2023, the charges included the sale-leaseback transaction.
- Gross proceeds of
$8.6 million received during the first quarter of 2023 from a sale-leaseback of real estate located in Eugene, Oregon, was classified as a financing activity and is not reflected in cash flows from operating activities or Free Cash Flow.
Non-GAAP Financial Measures
We report our financial results in accordance with generally accepted accounting principles in the U.S. (“GAAP”). Management believes that certain non-GAAP financial measures provide investors with additional useful information in evaluating our performance and that excluding certain items that may vary substantially in frequency and magnitude period-to-period from net loss provides useful supplemental measures that assist in evaluating our ability to generate earnings and to more readily compare these metrics between past and future periods. These non-GAAP financial measures may be different than similarly titled measures used by other companies.
To supplement our condensed consolidated financial statements which are prepared in accordance with GAAP, we use "Adjusted EBITDA", "Adjusted Gross Profit", "Adjusted SG&A", "Free Cash Flow", "Net Debt", and "Liquidity" which are non-GAAP financial measures. We also present certain of these non-GAAP metrics as a percentage of net sales. Our non-GAAP financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with GAAP. There are several limitations related to the use of our non-GAAP financial measures as compared to the closest comparable GAAP measures.
We define Adjusted EBITDA (non-GAAP) as net loss (GAAP) excluding interest expense, income taxes, depreciation, depletion and amortization, stock-based compensation including employer payroll taxes on stock-based compensation, restructuring charges which represent fundamental changes to our operations, and other non-cash, unusual and/or infrequent costs (i.e., impairments, severance, acquisition and integration expenses, distribution center exit costs, and other income/expense, net), which we do not consider in our evaluation of ongoing operating performance.
We define Adjusted EBITDA (non-GAAP) as a percent of net sales as adjusted EBITDA (as defined above) divided by net sales realized in the respective period.
We define Adjusted Gross Profit (non-GAAP) as gross profit (GAAP) excluding depreciation, depletion, and amortization, restructuring charges, and other non-cash, unusual and/or infrequent costs (i.e., severance and other expenses, and acquisition and integration expenses), which we do not consider in our evaluation of ongoing operating performance.
We define Adjusted Gross Profit Margin (non-GAAP) as a percent of net sales as Adjusted Gross Profit (as defined above) divided by net sales realized in the respective period.
We define Adjusted SG&A (non-GAAP) as SG&A (GAAP) excluding depreciation, depletion, and amortization, stock-based compensation including employer payroll taxes on stock-based compensation, restructuring charges, and other non-cash, unusual and/or infrequent costs (i.e., severance and other expenses, acquisition and integration expenses, and distribution center exit costs), which we do not consider in our evaluation of ongoing operating performance.
We define Adjusted SG&A (non-GAAP) as a percent of net sales as Adjusted SG&A (as defined above) divided by net sales realized in the respective period.
We define Free Cash Flow (non-GAAP) as Net cash from (used in) operating activities less capital expenditures for property, plant and equipment. We believe this provides additional insight into the Company's ability to generate cash and maintain liquidity. However, Free Cash Flow does not represent funds available for investment or other discretionary uses since it does not deduct cash used to service our debt or other cash flows from financing activities. The disclosed year over year improvement in Free Cash Flow represents the current period Free Cash Flow balance less the prior period Free Cash Flow balance.
We define Liquidity as total cash, cash equivalents and restricted cash, if applicable, plus available borrowing capacity on our Revolving Credit Facility.
We define Net Debt as total debt principal outstanding plus finance lease liabilities, less cash, cash equivalents and restricted cash, if applicable.
FAQ
What were Hydrofarm's first quarter 2024 net sales?
How did Hydrofarm's gross profit margin perform in Q1 2024?
What is Hydrofarm's Q1 2024 net loss?
Did Hydrofarm achieve positive adjusted EBITDA in Q1 2024?
What are Hydrofarm's expectations for 2024?
How much did Hydrofarm's SG&A expenses decrease in Q1 2024?
What is the impact of Hydrofarm's asset sale agreement?
How did Hydrofarm's cash flow metrics change in Q1 2024?
