- Decreased Net Sales: Hydrofarm reported a decrease in net sales to $54.2 million in Q3 2023 from $74.2 million in the same period last year.
- Gross Profit and Margin Decline: Gross profit fell to $3.3 million with a gross profit margin of 6.1%, compared to $5.9 million and a 7.9% margin in the prior year.
- Adjusted Gross Profit Improvement: Despite declining gross profit, the adjusted gross profit increased to $12.5 million, with the margin rising to 23% of net sales.
- Net Loss Reduction: The net loss was reduced to $19.9 million from a net loss of $23.5 million in the prior year period.
- Positive Adjusted EBITDA and Cash Flow: Adjusted EBITDA turned positive at $0.5 million, and the company generated $7.7 million in cash from operating activities.
Financial Performance: Hydrofarm Holdings Group’s third-quarter results showed a mixed financial performance, with a significant decrease in net sales and gross profit but an improvement in adjusted gross profit and EBITDA. The net sales decline was attributed to a 22% drop in product volume sold and a 5% decrease in price/mix, primarily due to an oversupply in the cannabis industry and lower pricing in specific product categories.
Restructuring Efforts: Hydrofarm initiated a second phase of its restructuring plan to consolidate its U.S. manufacturing facilities to improve efficiency and generate cost savings. The estimated charges for this restructuring were $7.8 million, which is expected to yield annual cost savings of about $1.5 million.
Operational Highlights: The decrease in gross profit was primarily due to restructuring and inventory charges. However, adjusted gross profit increased due to decreased inventory reserves and related charges, a higher proportion of proprietary brand products sold, improved productivity, and lower freight costs.
Expense Management: Selling, general, and administrative expenses decreased due to headcount reductions, lower professional fees, and benefits from the restructuring plan. This contributed to the reduction in net loss and the positive adjusted EBITDA.
Liquidity and Cash Flow: Hydrofarm ended the quarter with a strong liquidity position, with $32.5 million in cash and significant available borrowing capacity. The company generated positive free cash flow, contributing to increased cash balance from the previous quarter.
Outlook for Full Year 2023: Hydrofarm Holdings Group reaffirmed its full-year outlook. It expects net sales at the lower end of the $230 million to $240 million range and a modestly positive adjusted EBITDA. The company also anticipates positive free cash flow for the entire year and has revised its capital expenditure expectations downward.
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