Hydrofarm Holdings Group, Inc. (“Hydrofarm” or the “Company”)
(Nasdaq: HYFM), a leading independent distributor and manufacturer
of hydroponics equipment and supplies for controlled environment
agriculture (“CEA”), today announced financial results for its
first quarter ended March 31, 2021.
First Quarter 2021 Highlights vs. Prior
Year Period:
- Net sales increased 66.5% to $111.4
million compared to $66.9 million.
- Gross profit increased 100.8% to
$23.2 million, or 20.8% of net sales, compared to $11.6 million, or
17.3% of net sales.
- Net income attributable to common
stockholders was $4.9 million or $0.13 per diluted share compared
to a net loss of ($3.7) million or ($0.18) per diluted share. Pro
forma adjusted net income(1) was $7.3 million or $0.19 per pro
forma diluted share compared to a loss of $(1.6) million or $(0.05)
per pro forma diluted share.
- Adjusted EBITDA(1) increased to
$9.9 million compared to $1.6 million.
Recent Developments:
- Completed follow-on equity offering
raising approximately $309.8 million in net proceeds.
- Completed the acquisition of
branded nutrient manufacturer, HEAVY 16.
Revised Full Year 2021 Outlook vs. Prior
Year:
- Net sales growth of 30% to
40%.
- Adjusted
EBITDA(1) of $36.0 million to $42.0 million.
(1) |
Adjusted EBITDA and Pro Forma Adjusted Net Income (Loss) are
non-GAAP measures. For reconciliations of GAAP to non-GAAP measures
see the ”Reconciliation of Non-GAAP Measures” accompanying this
release. |
Bill Toler, Chairman and Chief Executive Officer
of Hydrofarm, said, “We’re pleased to report strong results to
start 2021, which included our third straight quarter of organic
sales growth of approximately 60% or more and a new record quarter
of Adjusted EBITDA at $9.9 million, as we continue to benefit from
broad growth across our product lines, geographies, and brand
categories. Our impressive results continue to be driven by demand
for our differentiated branded product offerings aided by strong
tailwinds from a large and rapidly growing controlled environmental
agriculture end market.”
Mr. Toler added, “With the recent successful
completion of our follow-on offering of common stock, and the
increased borrowing capacity we have from our new credit facility,
we have further strengthened our balance sheet since becoming
public and are well positioned to continue to invest in our organic
growth, as well as execute our acquisition strategy going forward.
Coupled with our innovative, high performance products, and strong
service offerings, we believe we are uniquely positioned to
capitalize on the unprecedented growth in CEA and we are convinced
that we have only scratched the surface of the opportunity in front
of us.”
Recent Developments
Acquisition of HEAVY 16
As previously announced, on May 3, 2021, the
Company completed the acquisition of Field 16, LLC, the
manufacturer and distributor of HEAVY 16, a line of premium plant
nutrients (collectively “HEAVY 16”). The strategic combination of
Hydrofarm’s leading distribution capabilities and HEAVY 16’s
branded nutrient manufacturing capabilities is expected to enable
the HEAVY 16 brand to grow more rapidly across the combined
company’s customer base. The acquisition also fits squarely with
Hydrofarm’s strategy to acquire branded manufacturers in key CEA
product categories, such as plant nutrients.
Follow-on Offering of Common Stock
Additionally, on May 3, 2021, the Company
completed a public offering of its common stock. A total of
5,526,861 shares were sold in the offering at a price of $59.00 per
share, including 720,894 shares sold pursuant to the full exercise
of the underwriters’ option. All of the shares in the offering were
offered by Hydrofarm. The net proceeds to the Company from this
offering, after deducting the underwriting discounts and
commissions and offering expenses payable by the Company, were
approximately $309.8 million.
First Quarter 2021 Financial
Results
Net sales in the first quarter of 2021 were
$111.4 million, an increase of $44.5 million or 66.5% compared to
the first quarter of 2020, driven by an approximate 59.6% increase
in volume of products sold and an approximate 6.9% increase in
price/mix of products sold. The growth in volume of products sold
was related to increased demand from multiple end-markets,
including, but not limited to, California, Oklahoma, Michigan and
Canada, and higher demand across each of our Proprietary, Preferred
and Distributed brand categories. The increase in price was
primarily related to list price increases and more effective sales
incentives.
Gross profit increased $11.7 million or 100.8%
to $23.2 million compared to the first quarter of 2020, driven by
the increase in net sales and an approximate 350 basis point
improvement in gross margin to 20.8% compared to 17.3% in the first
quarter of 2020. The year-over-year improvement in gross margin
resulted primarily from a more favorable sales mix of proprietary
products which typically carry a higher gross margin than our
preferred and distributed branded products.
Selling, general and administrative (“SG&A”)
expense was $16.8 million in the first quarter of 2021 compared to
$11.7 million in the first quarter of 2020. As a percentage of net
sales, SG&A expense improved to 15.1% from 17.5%. The increase
in SG&A expense was primarily related to higher management
salaries, professional fees, insurance costs, and share-based
compensation as a result of the Company’s growth and transition to
a public company. SG&A expense, excluding share-based
compensation and depreciation/amortization expenses, decreased to
12.7% of net sales from 15.1% of net sales in the prior year
period.
Net income attributable to common stockholders
was $4.9 million or $0.13 per diluted share in the first quarter of
2021 compared to a net loss of ($3.7) million or ($0.18) per
diluted share in the first quarter of 2020. Pro Forma Adjusted Net
Income(1) was $7.3 million or $0.19 per pro forma diluted share in
the first quarter of 2021 compared to a loss of ($1.6) million or
($0.05) per pro forma diluted share in the first quarter of
2020.
Adjusted EBITDA(1) increased over 500% to $9.9
million, or 8.9% of net sales, for the first quarter of 2021 from
$1.6 million, or 2.4% of net sales, in the first quarter of 2020.
The improvement in Adjusted EBITDA was driven by an increase in net
sales, the improvement in gross profit margin and leverage realized
on SG&A expense, excluding stock-based compensation and
depreciation/amortization expenses.
Balance Sheet and Liquidity
As of March 31, 2021, the Company had cash of
approximately $62.0 million and an aggregate principal amount of
debt outstanding of $1.1 million, as well as $50.0 million of
available borrowing capacity under its revolving credit facility.
The Company received approximately $309.8 million in net proceeds
from the aforementioned follow-on equity offering completed on May
3, 2021 and anticipates receiving approximately $56.8 million
available in additional equity capital from the future exercise of
Investor Warrants by the Investor Warrant holders. The Company
expects the net proceeds from the recent equity offering and the
future exercise of the Investor Warrants to be used to accelerate
its growth plans, including potential future acquisitions.
Full Year 2021 Outlook
In light of recent performance and completion of
the HEAVY 16 acquisition, the Company is providing the following
updated guidance for the full year 2021:
- Net sales growth between
30% and 40% with stronger growth in the first half and
moderating growth in the second half.
- Adjusted EBITDA(1)
of $36.0 million to $42.0 million representing
full year margin expansion to approximately 8.1% to 8.9%.
(1) |
Adjusted EBITDA is a non-GAAP measure. For reconciliations of GAAP
to non-GAAP measures see the ”Reconciliation of Non-GAAP Measures”
accompanying this release. |
The Company’s 2021 outlook includes the
following assumptions, which largely remain unchanged:
- Additional annual facility expenses
of approximately $2.0 to $3.0 million, of which approximately half
will impact fiscal 2021, as we expand our distribution center
footprint by over 25% over the course of the year;
- Capital expenditures of
approximately $4.0 to $5.0 million (up from $3.5 to $4.0 million);
and
- An effective tax
rate of 12% to 16% of pre-tax book income.
With respect to projected fiscal year 2021
Adjusted EBITDA, a quantitative reconciliation is not available
without unreasonable effort due to the variability, complexity and
low visibility with respect to certain items, including, but not
limited to, stock-based compensation and employer payroll taxes,
uncertainties caused by the global COVID-19 pandemic, changes to
the regulatory landscape, and certain potential future transaction
expenses, which are excluded from Adjusted EBITDA. We expect
the variability of these items to have a potentially unpredictable,
and potentially significant, impact on our future GAAP financial
results.
Conference Call
The Company will host a conference call to
discuss financial results for the first quarter of 2021 today at
5:00 p.m. Eastern Standard 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 1-201-389-0879. A replay will be available
after the call until Thursday, May 20, 2021 and can be accessed by
dialing 1-412-317-6671. The passcode is 13718921. The conference
call will also be webcast live and archived on the corporate
website at www.hydrofarm.com, under the “Investors” section.
About Hydrofarm
Hydrofarm is a leading independent distributor
and manufacturer of 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 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; 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; 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
ContactFitzhugh Taylor / ICRir@hydrofarm.com
Media ContactThe LAKPR
GroupHannah Arnold, 202-559-9171, harnold@lakpr.comLynn Trono,
323-672-8226, ltrono@lakpr.com-or-HydrofarmLisa Gallagher,
513-505-2334, lgallagher@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, |
|
2021 |
|
2020 |
Net sales |
$ |
111,389 |
|
|
|
$ |
66,897 |
|
|
Cost of goods sold |
88,166 |
|
|
|
55,333 |
|
|
Gross profit |
23,223 |
|
|
|
11,564 |
|
|
Operating expenses: |
|
|
|
Selling, general and administrative |
16,826 |
|
|
|
11,722 |
|
|
Impairment, restructuring and other |
15 |
|
|
|
9 |
|
|
Income (loss) from operations |
6,382 |
|
|
|
(167 |
) |
|
Interest expense |
(90 |
) |
|
|
(2,803 |
) |
|
Loss on debt extinguishment |
(680 |
) |
|
|
— |
|
|
Other income, net |
84 |
|
|
|
21 |
|
|
Income (loss) before tax |
5,696 |
|
|
|
(2,949 |
) |
|
Income tax expense |
(756 |
) |
|
|
(144 |
) |
|
Net income (loss) |
4,940 |
|
|
|
(3,093 |
) |
|
Cumulative dividends allocated to Series A Convertible
Preferred Stock |
— |
|
|
|
(634 |
) |
|
Net income (loss) attributable to common
stockholders |
$ |
4,940 |
|
|
|
$ |
(3,727 |
) |
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to common
stockholders: |
|
|
|
Basic |
$ |
0.15 |
|
|
|
$ |
(0.18 |
) |
|
Diluted |
$ |
0.13 |
|
|
|
$ |
(0.18 |
) |
|
Weighted-average shares of common stock outstanding: |
|
|
|
Basic |
33,717,103 |
|
|
|
20,688,439 |
|
|
Diluted |
38,997,031 |
|
|
|
20,688,439 |
|
|
|
|
|
|
|
|
|
|
Hydrofarm Holdings Group,
Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except share and per share
amounts)
|
March 31, |
|
December 31, |
|
2021 |
|
2020 |
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
60,264 |
|
|
|
$ |
75,178 |
|
|
Restricted cash |
1,777 |
|
|
|
1,777 |
|
|
Accounts receivable, net |
33,520 |
|
|
|
21,626 |
|
|
Inventories |
96,277 |
|
|
|
88,618 |
|
|
Notes receivable |
— |
|
|
|
3,151 |
|
|
Prepaid expenses and other current assets |
13,825 |
|
|
|
9,567 |
|
|
Total current assets |
205,663 |
|
|
|
199,917 |
|
|
Property and equipment,
net |
3,771 |
|
|
|
3,988 |
|
|
Operating lease right-of-use
assets |
17,360 |
|
|
|
18,289 |
|
|
Intangible assets, net |
51,267 |
|
|
|
52,421 |
|
|
Other assets |
4,616 |
|
|
|
1,180 |
|
|
Total assets |
$ |
282,677 |
|
|
|
$ |
275,795 |
|
|
Liabilities,
convertible preferred stock and stockholders’ equity |
|
|
|
Current liabilities: |
|
|
|
Accounts payable |
$ |
36,807 |
|
|
|
$ |
22,638 |
|
|
Accrued expenses and other current liabilities |
14,177 |
|
|
|
21,615 |
|
|
Current portion of lease liabilities |
3,836 |
|
|
|
3,701 |
|
|
Current portion of long-term debt |
822 |
|
|
|
746 |
|
|
Total current liabilities |
55,642 |
|
|
|
48,700 |
|
|
Long-term lease
liabilities |
14,385 |
|
|
|
15,320 |
|
|
Long-term debt |
238 |
|
|
|
290 |
|
|
Other long-term
liabilities |
564 |
|
|
|
567 |
|
|
Total liabilities |
70,829 |
|
|
|
64,877 |
|
|
Convertible preferred stock ($0.0001 par value;
50,000,000 shares authorized; 0 shares issued and outstanding at
March 31, 2021 and December 31, 2020) |
— |
|
|
|
— |
|
|
Stockholders’
equity |
|
|
|
Common stock ($0.0001 par value; 300,000,000 shares authorized;
33,970,364 and 33,499,953 shares issued and outstanding at
March 31, 2021 and December 31, 2020, respectively) |
3 |
|
|
|
3 |
|
|
Additional paid-in capital |
360,015 |
|
|
|
364,248 |
|
|
Accumulated other comprehensive income |
822 |
|
|
|
599 |
|
|
Accumulated deficit |
(148,992 |
) |
|
|
(153,932 |
) |
|
Total stockholders’ equity |
211,848 |
|
|
|
210,918 |
|
|
Total liabilities, convertible preferred stock and
stockholders’ equity |
$ |
282,677 |
|
|
|
$ |
275,795 |
|
|
|
|
|
|
|
|
|
|
|
|
Hydrofarm Holdings Group,
Inc.RECONCILIATION OF NON-GAAP
MEASURES(In thousands, except share and per share
amounts)
Adjusted
EBITDA |
Three months ended March 31, |
|
2021 |
|
2020 |
Net Income (Loss) |
$ |
4,940 |
|
|
|
$ |
(3,093 |
) |
|
Interest expense (1) |
90 |
|
|
|
2,803 |
|
|
Income taxes |
756 |
|
|
|
144 |
|
|
Depreciation and amortization |
1,591 |
|
|
|
1,715 |
|
|
Impairment, restructuring and other (2) |
15 |
|
|
|
9 |
|
|
Acquisition expenses (3) |
659 |
|
|
|
— |
|
|
Other income, net |
(84 |
) |
|
|
(21 |
) |
|
Stock-based compensation (4) |
1,258 |
|
|
|
34 |
|
|
Loss on debt extinguishment (5) |
680 |
|
|
|
— |
|
|
Adjusted EBITDA |
$ |
9,905 |
|
|
|
$ |
1,591 |
|
|
Adjusted EBITDA as a percent
of net sales |
8.9 |
|
% |
|
2.4 |
|
% |
|
|
|
|
|
|
|
|
Pro Forma Adjusted Net
Income (Loss) |
Three months ended March 31, |
|
2021 |
|
2020 |
Net Income (Loss) |
$ |
4,940 |
|
|
|
$ |
(3,093 |
) |
|
Interest expense (1) |
90 |
|
|
|
2,803 |
|
|
Impairment, restructuring and other (2) |
15 |
|
|
|
9 |
|
|
Acquisition expenses (3) |
659 |
|
|
|
— |
|
|
Stock-based compensation (4) |
1,258 |
|
|
|
34 |
|
|
Loss on debt extinguishment (5) |
680 |
|
|
|
— |
|
|
Incremental public costs (6) |
— |
|
|
|
(1,088 |
) |
|
Income tax expense on adjustments (7) |
(351 |
) |
|
|
(229 |
) |
|
Pro forma adjusted net income
(loss) |
$ |
7,291 |
|
|
|
$ |
(1,564 |
) |
|
|
|
|
|
|
|
|
|
Net income (loss) per share - pro forma: |
|
|
|
Basic |
$ |
0.22 |
|
|
|
$ |
(0.05 |
) |
|
Diluted |
$ |
0.19 |
|
|
|
$ |
(0.05 |
) |
|
Weighted-average shares outstanding - pro forma: |
|
|
|
Basic (8) |
33,717,103 |
|
|
|
33,499,953 |
|
|
Diluted |
38,997,031 |
|
|
|
33,499,953 |
|
|
1. Reflects the adjustment to eliminate the historical interest
expense for all periods presented that were based upon actual
outstanding balances before the application of the net proceeds
from our IPO.
2. Reflects the elimination of the impairment, restructuring and
other for the periods presented.
3. Reflects the elimination of consulting, transaction services
and legal fees incurred for the completed HEAVY16 acquisition and
certain potential acquisitions.
4. Reflects the elimination of the stock-based compensation and
related employer payroll taxes on stock-based compensation for the
periods presented.
5. Reflects the elimination of one-time charges for loss on debt
extinguishment for 2021.
6. Reflects an estimate of recurring incremental legal,
accounting/SOX, D&O insurance, public company director fees and
expenses and other compliance costs we expect to incur as a public
company.
7. Reflects the tax expense related with adjustments in 1
through 6 above at the normalized tax rate of 13%, which reflects
our estimated long-term effective tax rate.
8. Reflects (i) 9,966,667 additional shares of common stock
issued in the IPO, (ii) all RSUs converted to common stock as of
December 31, 2020, and (iii) the conversion of all of our
outstanding Series A Convertible Preferred Stock into common stock,
as if all of these transactions occurred at the beginning of fiscal
year 2020.
Non-GAAP Financial MeasuresWe
report our financial results in accordance with generally accepted
accounting principles in the U.S. (“GAAP”). However, 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 income (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 unaudited
consolidated financial statements which are prepared in accordance
with GAAP, we use “Adjusted EBITDA”, “Adjusted EBITDA as a percent
of net sales”, “Pro Forma Adjusted Net Income” and “Pro Forma
Adjusted Net Income per Diluted Share” which are non-GAAP financial
measures. 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. Some of these limitations
include:
We define Adjusted EBITDA as
net income (loss) excluding interest expense, income taxes,
depreciation and amortization, share-based compensation, employer
payroll taxes on share-based compensation and other unusual and/or
infrequent costs (i.e., impairment, restructuring and other
expenses, acquisition-related expenses, loss on debt extinguishment
and other income, net), which we do not consider in our evaluation
of ongoing operating performance.
We define Adjusted EBITDA
as a percent of net sales as adjusted EBITDA as
defined above divided by net sales realized in the respective
period.
We define Pro Forma Adjusted Net
Income as net income (loss) excluding (i) pro forma
adjustments to interest expense for all periods presented as if our
IPO and the resulting paydown of all outstanding debt had occurred
at the beginning of each period presented, (ii) share-based
compensation and employer payroll taxes on share-based compensation
which have disproportionately impacted select periods presented as
certain awards had catch-up vesting conditions triggered by the
IPO, (iii) certain other unusual and/or infrequent costs (i.e.,
impairment, restructuring and other expenses, acquisition-related
expenses, loss on debt extinguishment), which we do not consider in
our evaluation of ongoing operating performance but including (iv)
incremental costs of being a public company estimated for the
periods presented during which the Company was not yet public and
(v) the pro forma income tax expense resulting from the above
adjustments to net income.
We define Pro Forma Adjusted Net Income
per Diluted Share as pro forma adjusted net income as
defined above divided by the weighted average shares that would
have been outstanding if our IPO had occurred at the beginning of
each period presented.
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