Hydrofarm Holdings Group, Inc. (Nasdaq: HYFM), a leading manufacturer and distributor of hydroponics equipment and supplies for controlled environment agriculture, has released its financial results for the second quarter ending June 30, 2023.
Key Highlights from Q2 2023 vs. Q2 2022:
- Net sales declined, dropping to $63.1 million from $97.5 million.
- Gross Profit witnessed a surge, reaching $14.5 million from the previous $7.3 million. The Gross Profit Margin also increased to 23.0% from 7.5%.
- Adjusted Gross Profit rose to $17.0 million from $9.1 million, with the Adjusted Gross Profit Margin increasing to 27.0% from 9.3%.
- The company reported a net loss of $12.9 million, a significant improvement from the previous net loss of $203.3 million.
- Adjusted EBITDA increased to $2.5 million from a loss of $(6.8) million.
- The company generated cash from operating activities amounting to $9.9 million and Free Cash Flow of $8.3 million.
Bill Toler, Chairman, and Chief Executive Officer of Hydrofarm Holdings, commented on the results: “We achieved positive Adjusted EBITDA for the first time since Q1 of 2022, thanks to robust gross margin expansion and significant cost reduction measures. Our Adjusted SG&A is now at its lowest since Q2 of 2021, before our five acquisitions. Through our restructuring plan and cost-saving efforts, we’ve seen significant margin improvement, positioning us strongly despite the current volume softness in our industry. We generated over $8 million in free cash flow this quarter and remain confident in our business’s long-term fundamentals.”
Detailed Financial Results for Q2 2023:
- The decline in net sales to $63.1 million was attributed to a 32.5% decrease in product volume, a 2.3% reduction in price/mix of products, and a 0.5% decline due to unfavorable foreign exchange rates. The volume decrease was mainly linked to the cannabis industry’s oversupply.
- The increase in Gross Profit to $14.5 million was primarily due to a $9.9 million reduction in inventory provisions. The Gross Profit Margin percentage also improved due to selling a higher proportion of proprietary brand products and enhanced productivity.
- Selling, general, and administrative (SG&A) expenses were $23.5 million, a decrease from $26.0 million in the prior year. This reduction was mainly due to decreased compensation costs, professional fees, and acquisition and integration expenses.
- The net loss of $12.9 million improved from the prior year’s net loss of $203.3 million, which included a non-cash goodwill impairment expense of $189.6 million and a $10.2 million inventory reserve.
Balance Sheet and Cash Flow:
As of June 30, 2023, Hydrofarm had $26.7 million in cash and approximately $34 million of available borrowing capacity on its Revolving Credit Facility. The company generated net cash from operating activities of $9.9 million and invested $1.7 million in capital expenditures, resulting in a Free Cash Flow of $8.3 million.
Outlook for 2023:
- The company expects net sales to be between $230 million to $240 million.
- Adjusted EBITDA is projected to be modestly positive.
- Positive Free Cash Flow is anticipated for the entire year.
The company’s outlook also reaffirms improved year-over-year Adjusted Gross Profit and Adjusted Gross Profit margin, capital expenditures of approximately $7 million to $9 million, and a further reduction in inventory and net working capital to generate positive Free Cash Flow.