Hydrofarm Holdings Group Announces Second Quarter 2023 Results
- Hydrofarm's net sales in Q2 2023 decreased to $63.1 million, a 35.3% decline from the previous year.
- Gross profit increased to $14.5 million in Q2 2023, compared to $7.3 million in the prior year period.
- Adjusted gross profit margin increased to 27.0% of net sales in Q2 2023, compared to 9.3% in the prior year period.
- Net loss improved to $12.9 million in Q2 2023, compared to a net loss of $203.3 million in the prior year period.
- Adjusted EBITDA improved to $2.5 million in Q2 2023, compared to $(6.8) million in the prior year period.
- The company generated cash from operating activities of $9.9 million and free cash flow of $8.3 million in Q2 2023.
- Hydrofarm expects net sales of approximately $230-240 million for full year 2023.
- The company anticipates positive adjusted EBITDA and positive free cash flow for full year 2023.
- Hydrofarm aims to achieve improved adjusted gross profit margin and adjusted gross profit for full year 2023.
- Capital expenditures of $7-9 million are expected for full year 2023.
- None.
SHOEMAKERSVILLE, Pa., Aug. 09, 2023 (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 second quarter ended June 30, 2023.
Second Quarter 2023 Highlights vs. Prior Year Period:
- Net sales decreased to
$63.1 million compared to$97.5 million . - Gross Profit increased to
$14.5 million compared to$7.3 million . Gross Profit Margin increased to23.0% of net sales compared to7.5% . - Adjusted Gross Profit(1) increased to
$17.0 million compared to$9.1 million . Adjusted Gross Profit Margin(1) increased to27.0% of net sales compared to9.3% . - Net loss was
$12.9 million compared to net loss of$203.3 million . - Adjusted EBITDA(1) increased to
$2.5 million compared to$(6.8) million . - Cash from operating activities of
$9.9 million and Free Cash Flow(1) of$8.3 million .
Updated Full Year 2023 Outlook:
- Net sales of approximately
$230 million to$240 million . - Adjusted EBITDA(1) that is modestly positive.
- Positive Free Cash Flow(1).
(1) Adjusted Gross Profit, 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 GAAP to non-GAAP measures see the “Reconciliation of Non-GAAP Measures” accompanying the release.
Bill Toler, Chairman and Chief Executive Officer of Hydrofarm, said, “In the second quarter, we delivered positive Adjusted EBITDA for the first time since Q1 of 2022, driven by strong gross margin expansion and significant cost reduction measures. Our Adjusted SG&A is now at its lowest quarterly total since Q2 of 2021, before we made all of our 5 acquisitions. Through the sound execution of our restructuring plan and related cost saving efforts, we have achieved significant margin improvement and are now in a much stronger position to navigate the current volume softness in our industry. In addition, our aggressive working capital management continued as we reduced our inventory levels and created meaningfully positive free cash flow of over
Second Quarter 2023 Financial Results
Net sales in the second quarter of 2023 decreased to
Gross profit increased to
Selling, general and administrative (“SG&A”) expense was
Net loss was
Adjusted EBITDA(1) was
Balance Sheet, Liquidity and Cash Flow
As of June 30, 2023, the Company had
The Company generated net cash from operating activities of
Full Year 2023 Outlook
The Company is updating its full year 2023 outlook:
- Net sales of approximately
$230 million to$240 million . - Adjusted EBITDA(1) that is modestly positive for the full year, consistent with previous expectations.
- Free Cash Flow(1) that is positive for the full year, consistent with previous expectations.
The Company's 2023 outlook also reaffirms the following assumptions, consistent with previous expectations:
- Improved year-over-year Adjusted Gross Profit(1) and Adjusted Gross Profit margin(1) resulting primarily from (i) cost savings associated with restructuring and related productivity initiatives and (ii) an expectation of minimal additional inventory and accounts receivable reserves or related charges.
- Capital expenditures of approximately
$7 million to$9 million . - Further reduction in inventory and net working capital helping to generate positive Free Cash Flow(1).
(1) Adjusted Gross Profit, 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 GAAP to non-GAAP measures see the “Reconciliation of Non-GAAP Measures” accompanying the release.
Conference Call
The Company will host a conference call to discuss financial results for the second quarter 2023 today at 4:30 p.m. Eastern Time. Bill Toler, Chairman and Chief Executive Officer, and John Lindeman, Chief Financial Officer, will host the call.
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 corporate website at www.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, has 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 current stock prices are at depressed levels and any such financing would be dilutive. The ongoing COVID-19 pandemic could have a material adverse effect on the Company’s business, results of operation, financial condition and/or cash flows; Interruptions in the Company's supply chain, whether due to COVID-19 or otherwise 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 June 30, | Six months ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Net sales | $ | 63,051 | $ | 97,508 | $ | 125,229 | $ | 208,885 | ||||||||
Cost of goods sold | 48,578 | 90,169 | 99,375 | 184,940 | ||||||||||||
Gross profit | 14,473 | 7,339 | 25,854 | 23,945 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling, general and administrative | 23,468 | 25,974 | 47,899 | 66,221 | ||||||||||||
Impairments | — | 189,572 | — | 192,328 | ||||||||||||
Loss from operations | (8,995 | ) | (208,207 | ) | (22,045 | ) | (234,604 | ) | ||||||||
Interest expense | (3,768 | ) | (2,424 | ) | (7,460 | ) | (4,790 | ) | ||||||||
Other (expense) income, net | (420 | ) | 458 | (380 | ) | 356 | ||||||||||
Loss before tax | (13,183 | ) | (210,173 | ) | (29,885 | ) | (239,038 | ) | ||||||||
Income tax benefit | 318 | 6,861 | 171 | 12,430 | ||||||||||||
Net loss | $ | (12,865 | ) | $ | (203,312 | ) | $ | (29,714 | ) | $ | (226,608 | ) | ||||
Net loss per share: | ||||||||||||||||
Basic | $ | (0.28 | ) | $ | (4.53 | ) | $ | (0.66 | ) | $ | (5.06 | ) | ||||
Diluted | $ | (0.28 | ) | $ | (4.53 | ) | $ | (0.66 | ) | $ | (5.06 | ) | ||||
Weighted-average shares of common stock outstanding: | ||||||||||||||||
Basic | 45,412,627 | 44,910,193 | 45,338,636 | 44,814,881 | ||||||||||||
Diluted | 45,412,627 | 44,910,193 | 45,338,636 | 44,814,881 |
Hydrofarm Holdings Group, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands, except share and per share amounts) | ||||||||
June 30, | December 31, | |||||||
2023 | 2022 | |||||||
Assets | ||||||||
Current assets: | | |||||||
Cash and cash equivalents | $ | 26,682 | $ | 21,291 | ||||
Accounts receivable, net | 18,209 | 17,227 | ||||||
Inventories | 95,120 | 111,398 | ||||||
Prepaid expenses and other current assets | 5,952 | 5,032 | ||||||
Total current assets | 145,963 | 154,948 | ||||||
Property, plant and equipment, net | 50,403 | 51,135 | ||||||
Operating lease right-of-use assets | 59,407 | 65,265 | ||||||
Intangible assets, net | 288,606 | 300,366 | ||||||
Other assets | 1,852 | 1,845 | ||||||
Total assets | $ | 546,231 | $ | 573,559 | ||||
Liabilities and stockholders’ equity | | | ||||||
Current liabilities: | | |||||||
Accounts payable | $ | 12,394 | $ | 13,633 | ||||
Accrued expenses and other current liabilities | 9,546 | 13,208 | ||||||
Deferred revenue | 2,370 | 3,654 | ||||||
Current portion of operating lease liabilities | 8,888 | 9,099 | ||||||
Current portion of finance lease liabilities | 993 | 704 | ||||||
Current portion of long-term debt | 1,450 | 1,307 | ||||||
Total current liabilities | 35,641 | 41,605 | ||||||
Long-term operating lease liabilities | 52,321 | 56,299 | ||||||
Long-term finance lease liabilities | 9,193 | 1,200 | ||||||
Long-term debt | 117,266 | 117,461 | ||||||
Deferred tax liabilities | 2,686 | 2,685 | ||||||
Other long-term liabilities | 4,566 | 4,428 | ||||||
Total liabilities | 221,673 | 223,678 | ||||||
Commitments and contingencies | | | ||||||
Stockholders’ equity | | | ||||||
Common stock ( | 5 | 5 | ||||||
Additional paid-in capital | 785,893 | 783,042 | ||||||
Accumulated other comprehensive loss | (5,695 | ) | (7,235 | ) | ||||
Accumulated deficit | (455,645 | ) | (425,931 | ) | ||||
Total stockholders’ equity | 324,558 | 349,881 | ||||||
Total liabilities and stockholders’ equity | $ | 546,231 | $ | 573,559 |
Hydrofarm Holdings Group, Inc. RECONCILIATION OF NON-GAAP MEASURES (In thousands, except share and per share amounts) (Unaudited) | ||||||||||||||||
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Reconciliation of Adjusted Gross Profit: | ||||||||||||||||
Gross Profit (GAAP) | $ | 14,473 | $ | 7,339 | $ | 25,854 | $ | 23,945 | ||||||||
Depreciation, depletion and amortization | 1,826 | 1,153 | 3,281 | 2,862 | ||||||||||||
Restructuring expenses1 | 720 | — | 1,957 | — | ||||||||||||
Acquisition and integration expenses5 | — | 429 | — | 4,367 | ||||||||||||
Severance and other7 | — | 169 | — | 178 | ||||||||||||
Adjusted Gross Profit (Non-GAAP) | $ | 17,019 | $ | 9,090 | $ | 31,092 | $ | 31,352 | ||||||||
As a percent of net sales: | ||||||||||||||||
Gross Profit Margin (GAAP) | 23.0 | % | 7.5 | % | 20.6 | % | 11.5 | % | ||||||||
Adjusted Gross Profit Margin (Non-GAAP) | 27.0 | % | 9.3 | % | 24.8 | % | 15.0 | % |
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Reconciliation of Adjusted SG&A: | ||||||||||||||||
Selling, general and administrative (GAAP) | $ | 23,468 | $ | 25,974 | $ | 47,899 | $ | 66,221 | ||||||||
Depreciation, depletion and amortization | 6,424 | 6,682 | 12,976 | 21,914 | ||||||||||||
Restructuring expenses1 | 68 | — | 242 | — | ||||||||||||
Stock-based compensation2 | 1,819 | 2,080 | 3,026 | 5,156 | ||||||||||||
Acquisition and integration expenses5 | — | 820 | — | 1,868 | ||||||||||||
Distribution center exit costs and other6 | — | 289 | — | 1,375 | ||||||||||||
Severance and other7 | 589 | 165 | 884 | 793 | ||||||||||||
Adjusted SG&A (Non-GAAP) | $ | 14,568 | $ | 15,938 | $ | 30,771 | $ | 35,115 | ||||||||
As a percent of net sales: | ||||||||||||||||
SG&A (GAAP) | 37.2 | % | 26.6 | % | 38.2 | % | 31.7 | % | ||||||||
Adjusted SG&A (Non-GAAP) | 23.1 | % | 16.3 | % | 24.6 | % | 16.8 | % |
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Reconciliation of Adjusted EBITDA: | ||||||||||||||||
Net loss (GAAP) | $ | (12,865 | ) | $ | (203,312 | ) | $ | (29,714 | ) | $ | (226,608 | ) | ||||
Interest expense | 3,768 | 2,424 | 7,460 | 4,790 | ||||||||||||
Income tax benefit | (318 | ) | (6,861 | ) | (171 | ) | (12,430 | ) | ||||||||
Depreciation, depletion and amortization | 8,250 | 7,835 | 16,257 | 24,776 | ||||||||||||
Restructuring expenses1 | 788 | — | 2,199 | — | ||||||||||||
Stock-based compensation2 | 1,819 | 2,080 | 3,026 | 5,156 | ||||||||||||
Other expense (income), net3 | 420 | (458 | ) | 380 | (356 | ) | ||||||||||
Impairments4 | — | 189,572 | — | 192,328 | ||||||||||||
Acquisition and integration expenses5 | — | 1,249 | — | 6,235 | ||||||||||||
Distribution center exit costs and other6 | — | 289 | — | 1,375 | ||||||||||||
Severance and other7 | 589 | 334 | 884 | 971 | ||||||||||||
Adjusted EBITDA (Non-GAAP) | $ | 2,451 | $ | (6,848 | ) | $ | 321 | $ | (3,763 | ) | ||||||
As a percent of net sales: | ||||||||||||||||
Net loss (GAAP) | (20.4 | )% | (208.5 | )% | (23.7 | )% | (108.5 | )% | ||||||||
Adjusted EBITDA (Non-GAAP) | 3.9 | % | (7.0 | )% | 0.3 | % | (1.8 | )% |
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Reconciliation of Free Cash Flow8: | ||||||||||||||||
Net cash from operating activities (GAAP)8: | $ | 9,911 | $ | 17,423 | $ | 961 | $ | 7,268 | ||||||||
Capital expenditures of Property, Plant and Equipment (GAAP) | (1,653 | ) | (2,052 | ) | (3,306 | ) | (4,522 | ) | ||||||||
Free Cash Flow (Non-GAAP)8: | $ | 8,258 | $ | 15,371 | $ | (2,345 | ) | $ | 2,746 |
Notes to GAAP to Non-GAAP reconciliations presented above (Adjusted Gross Profit, Adjusted SG&A, Adjusted EBITDA, and Free Cash Flow):
- For the three and six months ended June 30, 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 expense (income), net related primarily to foreign currency exchange rate gains and losses and other non-operating income and expenses. For the three and six months ended June 30, 2023, Other expense (income), net also included charges from Amendment No. 1 to the Term Loan.
- For the three and six months ended June 30, 2022, the Company recorded a goodwill impairment charge of
$189.6 million due to market softness in demand in the U.S. and Canada. Additionally, during six months ended June 30, 2022, the Company recorded a$2.6 million impairment charge associated with a note receivable that originated in 2019 associated with a third party independent processor. - For the three and six months ended June 30, 2022, this included charges related to acquisitions completed in 2021, including non-cash purchase accounting inventory adjustments, transaction services and legal fees, as well as the impact of changes in fair value of contingent consideration.
- For the three and six months ended June 30, 2022, this related to costs incurred to exit and relocate distribution centers in California and Pennsylvania including lease exit costs, transportation, and labor related costs.
- For the three and six months ended June 30, 2023, Severance and other charges primarily related to workforce reductions, and charges in conjunction with a sale-leaseback transaction during the first quarter of 2023. For the three and six months ended June 30, 2022, the charges included severance costs related to workforce reductions.
- 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, 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., 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., 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.
We define Liquidity as total cash, cash equivalents and restricted cash, 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.
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