Key Takeaways:
- Hydrofarm Holdings reported net sales decreased by 18.8% to $44.0 million, affected by a drop in demand due to oversupply in the cannabis market.
- Gross profit margin rose significantly to 19.4%, from 6.1% in the previous year.
- Hydrofarm reduced SG&A expenses by over 10%, maintaining positive adjusted EBITDA despite challenging market conditions.
- The company reaffirmed its full-year 2024 outlook, forecasting positive adjusted EBITDA and Free Cash Flow.
Hydrofarm Holdings Group, Inc. (Nasdaq: HYFM), a key player in hydroponics equipment for controlled environment agriculture, announced its Q3 2024 results. Despite lower net sales, Hydrofarm reported a marked improvement in gross profit margin and operational cost savings, underlining its focus on efficiency and profitability in a challenging market.
Financial Performance and Key Metrics
Hydrofarm’s Q3 2024 net sales declined by 18.8%, reaching $44.0 million compared to $54.2 million in Q3 2023. The sales decline was attributed to a 13.7% drop in product volume/mix and a 4.9% reduction in pricing, largely due to oversupply in the cannabis market.
However, gross profit increased to $8.5 million, or 19.4% of net sales, compared to $3.3 million, or 6.1%, in Q3 2023. The improvement resulted from lower restructuring costs and a strategic focus on high-margin proprietary brands. Adjusted gross profit margin also rose to 24.3%, with the shift toward Hydrofarm’s own brands and productivity gains contributing to the increase.
“We achieved significant expansion in our adjusted gross profit margin for the fifth time in six quarters,” said Bill Toler, Hydrofarm’s Chairman and CEO. “Our focus on proprietary brands and ongoing cost-saving measures have allowed us to navigate industry headwinds effectively. We remain confident in Hydrofarm’s long-term growth potential despite current market softness.”
Adjusted SG&A expenses decreased by over 10% to $10.7 million, primarily driven by reduced facility, insurance, and personnel costs following the company’s restructuring efforts. The net loss improved to $13.1 million compared to $19.9 million in Q3 2023, underscoring Hydrofarm’s success in streamlining operations.
Adjusted EBITDA, though slightly lower at just under $0.1 million, remained positive, reflecting Hydrofarm’s disciplined approach to managing costs amid declining sales.
Liquidity and Cash Flow
As of September 30, 2024, Hydrofarm held $24.4 million in cash, with $17 million available under its Revolving Credit Facility. During Q3, net cash used in operating activities was $(4.5) million, and Free Cash Flow stood at $(5.3) million, a decrease from the prior year due to working capital changes.
The company recently amended its Revolving Credit Facility, reducing the maximum commitment to $35 million to lower fees on unused credit. Hydrofarm remains in compliance with debt covenants and continues to maintain a zero balance on its credit facility.
Full-Year 2024 Outlook
Hydrofarm reiterated its 2024 outlook, projecting:
- A low-to-high-teen percentage decline in net sales, with expectations of tracking toward the middle of this range.
- Positive adjusted EBITDA and Free Cash Flow.
- Continued reduction in SG&A expenses, driven by headcount reductions and lower professional fees, facility, and insurance costs.
The company adjusted its expectations for adjusted gross profit margin to be flat to slightly down year-over-year, revising previous guidance of a year-over-year improvement.
Hydrofarm also scaled back its capital expenditure forecast to between $2.5 million and $3.5 million for the year, from an earlier range of $3.5 million to $4.5 million.
Toler expressed optimism about the company’s long-term prospects despite the near-term challenges, noting, “Moving forward, we will prioritize higher-margin proprietary brands and continue cost-optimization initiatives to maintain profitability. We are confident in Hydrofarm’s future growth as industry dynamics evolve.”
Read the entire results here.
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