Hydrofarm Holdings Group, Inc. (“Hydrofarm” or the “Company”)
(Nasdaq: HYFM), a leading manufacturer and distributor of
hydroponics equipment and supplies for controlled environment
agriculture (“CEA”), announced preliminary unaudited financial
results for its second quarter ended June 30, 2022.
Bill Toler, Chairman and CEO, stated, “We took
positive steps during the second quarter to lower our cost
structure and maintained a solid liquidity position; however, the
hydroponics industry recession in the US and Canada continued to
alter normal seasonal patterns and impacted our results. While we
experienced encouraging results in March and April, sales trends
weakened in the second half of the second quarter, disrupting our
expected sales mix and resulting in net sales, net loss and
Adjusted EBITDA below our internal expectations for the full
quarter.“
Toler continued, “Through our team’s net working
capital management, we increased our cash position, lowered our net
debt and maintained a solid liquidity position during the second
quarter. Our team has also enacted additional expense-cutting
measures, to further reduce our costs. When coupled with our prior
cost savings actions, we estimate that we have reduced our costs by
approximately $14.0 million on an annualized basis.”
Preliminary Second Quarter 2022
Financial Results
Preliminary unaudited financial results for our
second quarter ended June 30, 2022 include the following:
- Net sales estimated between $96.0
million to $97.5 million, as compared to $133.8 million for the
three months ended June 30, 2021, a decrease of approximately 28%
calculated using the midpoint of the range.
- Declining valuation trends within
the industry and in the broader market adversely impacted the
Company’s market valuation since its last quarterly report and
triggered a full evaluation of the goodwill arising from prior
acquisitions. As a result, the Company’s preliminary results for
the second quarter include an estimated impairment of goodwill of
approximately $189.6 million.
- Net loss expected to range between
($210.4) million and ($200.4) million, as compared to net income of
$2.3 million for the three months ended June 30, 2021. The net loss
range includes estimated non-cash expenses of $189.6 million in
goodwill impairment and $10.2 million in inventory reserve recorded
at the end of the second quarter.
- Adjusted EBITDA(1), which was
impacted by the $10.2 million inventory reserve, estimated to be
between ($8.4) million to ($6.9) million, as compared to $16.2
million for the three months ended June 30, 2021.
- As of June 30, 2022, the Company
had $27.4 million in cash, cash equivalents and restricted cash, an
aggregate principal amount of debt outstanding of $126.7 million
(including $0 drawn on the Company’s revolving credit facility,
approximately $124.4 million in principal balance on its Term Loan
and approximately $2.4 million in finance leases and other debt),
$15.3 million in contingent payments (composed of an earn-out on
the 2021 Aurora acquisition which was subsequently paid out in July
2022) and approximately $71 million of available borrowing capacity
under its revolving credit agreement. The Company
decreased its net debt by approximately $14.1 million during the
second quarter by improving its working capital position and
controlling costs. The Company was in compliance with all debt
covenants as of June 30, 2022.
On a year-over-year basis, the expected decrease
in Adjusted EBITDA(1) is due primarily to (i) lower net sales, and
(ii) lower gross profit margin which was negatively impacted by an
inventory reserve consisting primarily of a write-down of certain
lighting products (for which we did not adjust EBITDA) of
approximately $10.2 million, as well as higher labor and freight
costs.
On a sequential basis, relative to the
previously reported fiscal first quarter, the expected decrease in
Adjusted EBITDA(1) is due primarily to (i) lower net sales, and
(ii) lower gross profit margin which was negatively impacted by our
sales mix, as we realized a higher proportion of lower margin
distributed and preferred branded products relative to our
proprietary branded products, and the aforementioned inventory
reserve, which was over $7 million higher than in the previous
quarter. Those decreases were partially offset by lower selling,
general and administrative expenses as the Company’s recent cost
cutting actions lowered expenses.
Preliminary results remain subject to the
completion of normal quarter-end accounting procedures and
adjustments and are subject to change. In particular, certain items
impacting net loss, particularly those arising from the estimated
impairment of goodwill and income taxes (which would not impact net
sales or Adjusted EBITDA(1)) and inventory reserve (which would not
impact net sales but would impact Adjusted EBITDA), remain open and
therefore these amounts could vary materially from current
estimates.
Updated Full Year 2022
Guidance
Mr. Toler concluded, “Sales trends in July
suggest that the overall industry continues to face headwinds and
that typical seasonal patterns may not apply for the duration of
this year. For these reasons, we are revising downward
our estimates for the remainder of the year. While we expect the
industry to return to growth in the future, as highly populated
states in the Eastern U.S. actively implement adult-use cannabis
legislation and more mature states in the Western U.S. normalize,
predicting the exact timing of a return to historical growth
remains a challenge for the industry. As a result, we
will continue to focus on further cost-saving opportunities and
liquidity actions to ensure that our leadership position in the
hydroponics industry strengthens during this industry
downturn.”
In light of the Company’s recent performance and
developments in the industry, the Company is providing the
following updated outlook for the full fiscal year 2022:
- Net sales of
approximately $330.0 million to $347.0 million, which assumes
similar sales levels to those experienced from late second quarter
through July 2022 continue over the remaining months in the fiscal
year, combined with some further reduction to account for holiday
shortened months in the fourth quarter.
- Adjusted
EBITDA(1),
which is impacted by $13.4 million of inventory reserves in the
year-to-date period, of negative ($25) million to ($16) million,
which assumes no material increase in the amount of inventory or
accounts receivable reserves.
With respect to projected fiscal year 2022
Adjusted EBITDA(1), 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, impairment, certain potential future acquisition
expenses, and the potential income tax implications of these
estimated expenses, all of which are excluded from Adjusted
EBITDA(1). We expect the variability of these items to have a
potentially unpredictable, and potentially significant, impact on
our future GAAP financial results.
(1) Adjusted EBITDA is a Non-GAAP measure. For
reconciliations of GAAP to Non-GAAP measures see the “Non-GAAP
Financial Presentation” section of this release.
Second Quarter 2022 Results
Full second quarter results will be discussed
during the upcoming Hydrofarm earnings conference call, scheduled
for Tuesday, August 9, 2022 after market close at 4:30 p.m. ET.
Investors interested in participating in the
live call can dial 412-317-6026 or listen to a simultaneous, live
webcast available on the Investors section of the Company’s website
at www.hydrofarm.com under the “Investors” section.
Non-GAAP Financial
Presentation
The Company reports its financial results in
accordance with U.S. GAAP. However, management believes that
certain Non-GAAP financial measures provide investors with
additional useful information in evaluating the Company’s
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 its 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.
The Company defines 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., impairments, severance and other expenses,
acquisition-related expenses, loss on debt extinguishment,
distribution center exit costs and other income, net), which the
Company does not consider in its evaluation of ongoing operating
performance.
The Company defines net debt as total debt
principal outstanding less cash, cash equivalents and restricted
cash.
The reconciliation below is to preliminary net
loss and management has not completed its review of all items which
are components of net loss; therefore, actual results could differ
significantly. The following table reconciles the preliminary
Non-GAAP Adjusted EBITDA range of ($8.4) million to ($6.9) million
to the preliminary net loss range of ($210.4) million to ($200.4)
million for the three months ended June 30, 2022.
|
Range |
|
Three Months Ended |
|
June 30, 2022 |
|
(in millions) |
Net
Loss Range |
($210.4) |
|
($200.4) |
|
Interest expense |
|
2.4 |
|
|
2.4 |
|
Income taxes |
|
(1.3) |
|
|
(9.8) |
|
Depreciation, depletion and amortization |
|
7.8 |
|
|
7.8 |
|
Distribution center exit costs and other1 |
|
0.3 |
|
|
0.3 |
|
Impairments2 |
|
189.6 |
|
|
189.6 |
|
Severance and other3 |
|
0.3 |
|
|
0.3 |
|
Acquisition expenses4 |
|
1.2 |
|
|
1.2 |
|
Other income, net |
|
(0.4) |
|
|
(0.4) |
|
Stock-based compensation5 |
|
2.1 |
|
|
2.1 |
|
Adjusted EBITDA Range |
($8.4) |
|
($6.9) |
|
|
|
|
The following table reconciles Non-GAAP Adjusted
EBITDA to the net income of $2.3 million for the three months ended
June 30, 2021.
|
|
|
Three Months Ended |
|
June 30, 2021 |
|
(in millions) |
Net
Income |
$2.3 |
|
Interest expense |
|
0.0 |
|
Income taxes |
|
0.1 |
|
Depreciation, depletion and amortization |
|
2.2 |
|
Acquisition expenses4 |
|
9.6 |
|
Other income, net |
|
0.0 |
|
Stock-based compensation5 |
|
1.3 |
|
Loss on debt extinguishment |
|
0.0 |
|
Investor warrant solicitation fees6 |
|
0.8 |
|
Adjusted EBITDA |
$16.2 |
|
|
|
Notes to reconciliation of Non-GAAP Adjusted EBITDA Range to the
Preliminary Net Loss Range / Non-GAAP Adjusted EBITDA to GAAP Net
Income:
- Relates to costs incurred to exit and relocate distribution
centers in California and Pennsylvania including lease exit costs,
transportation, and labor related costs.
- The Company completed its goodwill impairment testing and
recorded an impairment charge of $189.6 million in the three months
ended June 30, 2022, due to a deterioration in customer demand in
the U.S. and Canada caused by macroeconomic and industry
conditions.
- Severance costs incurred during the three months ended June 30,
2022, related to workforce reductions to optimize our cost
structure.
- For the three months ended June 30, 2022, this includes
non-cash purchase accounting inventory adjustments for House and
Garden and Greenstar of $0.4 million, and the elimination of
acquisition and integration consulting, transaction services and
legal fees incurred for the completed Heavy 16, House and Garden,
Aurora, Greenstar, and Innovative Growers Equipment acquisitions
and certain potential acquisitions of $0.8 million. For the three
months ended June 30, 2021, this includes non-cash purchase
accounting inventory adjustments for Heavy 16 of $0.4 million, the
elimination of acquisition and integration consulting, transaction
services and legal fees incurred for the completed Heavy 16, House
and Garden and the subsequently completed Aurora, Greenstar, and
Innovative Growers Equipment acquisitions and certain potential
acquisitions of $9.2 million.
- Includes stock-based compensation and related employer payroll
taxes on stock-based compensation.
- Reflects the elimination of one-time investor warrant
solicitation fees.
About Hydrofarm Holdings Group,
Inc.Hydrofarm is a leading distributor and manufacturer of
controlled environment agriculture equipment and supplies,
including high-intensity grow lights, climate control solutions,
and growing media, as well as a broad portfolio of innovative and
proprietary branded products. For more than 40 years, Hydrofarm has
helped growers in the U.S. and Canadian markets 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. For additional information, please visit:
www.hydrofarm.com
Cautionary Note Regarding
Forward-Looking StatementsStatements 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 our end customers
sell, which, in turn, has materially adversely impacted our 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; 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.
Investor Relations:ICRFitzhugh Taylor
ir@hydrofarm.com
Hydrofarm (NASDAQ:HYFM)
Historical Stock Chart
From Aug 2024 to Sep 2024
Hydrofarm (NASDAQ:HYFM)
Historical Stock Chart
From Sep 2023 to Sep 2024