Hydrofarm Holdings Group, Inc. (“Hydrofarm” or the “Company”)
(Nasdaq: HYFM), a leading independent manufacturer and distributor
of branded hydroponics equipment and supplies for controlled
environment agriculture (“CEA”), today announced financial results
for its second quarter ended June 30, 2022.
Second Quarter 2022 Highlights vs. Prior
Year Period:
- Net sales decreased to $97.5
million compared to $133.8 million.
- Gross Profit decreased to
$7.3 million compared to $29.6 million. Adjusted Gross
Profit(1)(2) was $9.1 million compared to $30.2 million.
- Net loss was $(203.3) million,
or $(4.53) per diluted share, compared to net income of
$2.3 million, or $0.05 per diluted share. Net loss in the
second quarter of 2022 included a non-cash charge of
$189.6 million in goodwill impairment and a $10.2 million
inventory reserve. Adjusted Net Loss(1)(2) was $(8.4)
million, or $(0.19) per diluted share, compared to Adjusted Net
Income(1)(2) of $12.9 million, or $0.31 per diluted share.
- The Company recorded a $10.2
million inventory reserve during the quarter, which was not treated
as an adjustment. Adjusted EBITDA(1)(2) decreased to $(6.8) million
compared to $16.2 million.
Full Year 2022
Outlook:
- Net sales of approximately $330
million to $347 million.
- Adjusted EBITDA(1)(2) of $(25)
million to $(16) million.
(1) Adjusted Gross Profit, Adjusted Gross Profit
Margin, Adjusted Net (Loss) Income, Adjusted EPS, Adjusted
SG&A, Adjusted SG&A as a percent of net sales, and Adjusted
EBITDA are non-GAAP measures. For reconciliations of GAAP to
non-GAAP measures see the “Reconciliation of Non-GAAP Measures”
accompanying the release.
(2) As a result of the $10.2 million
inventory reserve, Adjusted Gross Profit, Adjusted Net (Loss)
Income, Adjusted EPS, and Adjusted EBITDA were negatively
impacted.
Bill Toler, Chairman and Chief Executive Officer
of Hydrofarm, said, “Our second quarter results reflect the ongoing
impact of the hydroponic industry recession in the U.S. and Canada.
Nonetheless, we took positive steps to lower our cost structure and
maintain a solid liquidity position."
Toler added, "Despite the external challenges,
the strength of Hydrofarm continues to be driven by the quality of
our people and our brands. Additionally, we believe our strong
consumable sales mix gives us insulation against further weakness
in the category. We remain confident that the industry will
eventually return to normalized growth, and the actions we are
taking to refine our organization will leave our business leaner
and stronger, and as a result, better positioned to take advantage
of future growth opportunities."
Second Quarter 2022 Financial
Results
Net sales in the second quarter of 2022
decreased to $97.5 million compared to the second quarter of 2021,
driven by an approximate 29.9% decrease in volume of products sold,
offset by an approximate 3.1% increase in price and mix of products
sold, and an approximate 0.3% decline from unfavorable foreign
exchange rates. The decrease in product volumes was primarily
related to an agricultural oversupply, partially offset by a 13.5%
benefit from recently acquired proprietary brands.
Gross profit decreased to $7.3 million, or 7.5%
of sales, during the second quarter of 2022 was primarily due to
the aforementioned decrease in net sales and a $10.2 million
inventory reserve. Adjusted Gross Profit(1)(2) was $9.1 million or
9.3% of net sales, compared to $30.2 million or 22.5% in the second
quarter of 2021. Adjusted gross profit margin(1)(2) was negatively
impacted by a $10.2 million increase in inventory reserves
primarily related to lighting products. During the second quarter
of 2022, we experienced higher freight and labor costs, partially
offset by pricing actions and a favorable sales mix of the
Company’s proprietary brand products compared to the prior year
period.
Selling, general and administrative (“SG&A”)
expense was $26.0 million in the second quarter of 2022, or 26.6%
of net sales, compared to $27.3 million in the second quarter of
2021, or 20.4% of net sales. The decrease in SG&A expense was
primarily related to a reduction in acquisition expenses of $8.4
million, partially offset by higher depreciation, depletion and
amortization expenses of $4.7 million. Adjusted SG&A(1)(2)
increased to $15.9 million or 16.3% of net sales in the second
quarter of 2022, compared to $14.0 million or 10.5% of net sales in
the prior year period. The increase in Adjusted SG&A(1)(2)
primarily relates to increases in compensation costs, facility
costs, and insurance expenses. The added costs were largely the
result of our distribution center expansions and the five
acquisitions completed in 2021.
Net loss was $(203.3) million, or $(4.53) per
diluted share, in the second quarter of 2022, compared to a net
income of $2.3 million, or $0.05 per diluted share in the second
quarter of 2021. Net loss for the second quarter of 2022 included a
non-cash expense of $189.6 million in goodwill impairment and $10.2
million in inventory reserve. Excluding impairment and certain
other adjustments, but not adjusting for the inventory reserve,
Adjusted Net Loss(1)(2) was $(8.4) million, or $(0.19) per diluted
share, in the second quarter of 2022, compared to Adjusted Net
Income(1)(2) of $12.9 million, or $0.31 per diluted share, in the
second quarter of 2021.
Adjusted EBITDA(1)(2) was $(6.8) million, or
(7.0)% of net sales, for the second quarter of 2022, compared to
$16.2 million, or 12.1% of net sales, in the second quarter of
2021. The decrease in Adjusted EBITDA(1)(2) was primarily related
to lower gross profit due to a decline in net sales and an
additional inventory reserve of $10.2 million.
Balance Sheet and Liquidity
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 $70 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.
Full Year 2022 Outlook
The Company is reiterating its full year 2022
outlook, which was updated on August 2, 2022:
- Net sales of
approximately $330 million to $347 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)(2), which is impacted by $13.4 million of
inventory reserves in the year-to-date period, of $(25) million to
$(16) million, which assumes no further material increase in the
amount of inventory or accounts receivable reserves.
The Company’s 2022 outlook includes the
following updated assumptions:
- Capital expenditures of
approximately $7.5 million to $9.0 million; and
- An estimated tax expense between $0
and $2 million for the full year, excluding the large discrete tax
benefit of approximately $12 million recognized in the first half
of 2022.
With respect to projected fiscal year 2022
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, impairment, certain potential future acquisition
expenses, and the potential tax implications of these estimated
expenses, all of which are excluded from Adjusted EBITDA. The
Company expects the variability of these items to have a
potentially unpredictable, and potentially significant, impact on
its future GAAP financial results.
(1) Adjusted Gross Profit, Adjusted Gross Profit
Margin, Adjusted Net (Loss) Income, Adjusted SG&A, Adjusted
SG&A as a percent of net sales, and Adjusted EBITDA are
non-GAAP measures. For reconciliations of GAAP to non-GAAP measures
see the “Reconciliation of Non-GAAP Measures” accompanying the
release.
(2) Adjusted Gross Profit, Adjusted Net Income
and Adjusted EBITDA were negatively impacted, as a result of the
inventory reserves of $10.2 million and $13.4 million, in the three
and six months periods, respectively, ended June 30, 2022.
Conference Call
The Company will host a conference call to
discuss financial results for the second quarter 2022 today at 4:30
p.m. Eastern 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 412-317-6026. A replay will be available after
the call until Tuesday, August 16, 2022 and can be accessed by
dialing 412-317-6671. The passcode is 10168842. 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 manufacturer
and distributor of branded 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 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.
Contacts:Investor
ContactFitzhugh Taylor / ICRir@hydrofarm.com
|
Hydrofarm Holdings Group, Inc.CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)(In thousands, except share and per
share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Net sales |
|
$ |
97,508 |
|
|
$ |
133,800 |
|
|
$ |
208,885 |
|
|
$ |
245,189 |
|
Cost of goods sold |
|
|
90,169 |
|
|
|
104,210 |
|
|
|
184,940 |
|
|
|
192,376 |
|
Gross profit |
|
|
7,339 |
|
|
|
29,590 |
|
|
|
23,945 |
|
|
|
52,813 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
25,974 |
|
|
|
27,259 |
|
|
|
66,221 |
|
|
|
44,100 |
|
Impairments |
|
|
189,572 |
|
|
|
— |
|
|
|
192,328 |
|
|
|
— |
|
(Loss) income from operations |
|
|
(208,207 |
) |
|
|
2,331 |
|
|
|
(234,604 |
) |
|
|
8,713 |
|
Interest expense |
|
|
(2,424 |
) |
|
|
(54 |
) |
|
|
(4,790 |
) |
|
|
(144 |
) |
Loss on debt extinguishment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(680 |
) |
Other income, net |
|
|
458 |
|
|
|
43 |
|
|
|
356 |
|
|
|
127 |
|
(Loss) income before tax |
|
|
(210,173 |
) |
|
|
2,320 |
|
|
|
(239,038 |
) |
|
|
8,016 |
|
Income tax benefit (expense) |
|
|
6,861 |
|
|
|
(63 |
) |
|
|
12,430 |
|
|
|
(819 |
) |
Net (loss) income |
|
$ |
(203,312 |
) |
|
$ |
2,257 |
|
|
$ |
(226,608 |
) |
|
$ |
7,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(4.53 |
) |
|
$ |
0.06 |
|
|
$ |
(5.06 |
) |
|
$ |
0.20 |
|
Diluted |
|
$ |
(4.53 |
) |
|
$ |
0.05 |
|
|
$ |
(5.06 |
) |
|
$ |
0.18 |
|
Weighted-average shares of common stock outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
44,910,193 |
|
|
|
37,862,417 |
|
|
|
44,814,881 |
|
|
|
35,792,374 |
|
Diluted |
|
|
44,910,193 |
|
|
|
42,044,929 |
|
|
|
44,814,881 |
|
|
|
40,523,686 |
|
|
Hydrofarm Holdings Group, Inc.CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)(In
thousands, except share and per share amounts) |
|
|
|
June 30, |
|
December 31, |
|
|
|
2022 |
|
|
|
2021 |
|
Assets |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
26,447 |
|
|
$ |
26,607 |
|
Restricted cash |
|
|
998 |
|
|
|
1,777 |
|
Accounts receivable, net |
|
|
32,046 |
|
|
|
41,484 |
|
Inventories |
|
|
157,348 |
|
|
|
189,134 |
|
Notes receivable |
|
|
475 |
|
|
|
622 |
|
Prepaid expenses and other current assets |
|
|
9,757 |
|
|
|
9,760 |
|
Total current assets |
|
|
227,071 |
|
|
|
269,384 |
|
Property, plant and equipment, net |
|
|
52,622 |
|
|
|
50,473 |
|
Operating lease right-of-use assets |
|
|
51,923 |
|
|
|
45,245 |
|
Goodwill |
|
|
— |
|
|
|
204,868 |
|
Intangible assets, net |
|
|
313,464 |
|
|
|
314,819 |
|
Other assets |
|
|
4,169 |
|
|
|
6,453 |
|
Total assets |
|
$ |
649,249 |
|
|
$ |
891,242 |
|
Liabilities and stockholders’ equity |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
|
$ |
23,687 |
|
|
$ |
26,685 |
|
Accrued expenses and other current liabilities |
|
|
26,130 |
|
|
|
33,996 |
|
Deferred revenue |
|
|
11,333 |
|
|
|
18,273 |
|
Current portion of lease liabilities |
|
|
8,130 |
|
|
|
7,198 |
|
Current portion of long-term debt |
|
|
2,125 |
|
|
|
2,263 |
|
Total current liabilities |
|
|
71,405 |
|
|
|
88,415 |
|
Long-term lease liabilities |
|
|
44,705 |
|
|
|
38,595 |
|
Long-term debt |
|
|
119,019 |
|
|
|
119,517 |
|
Deferred tax liabilities |
|
|
— |
|
|
|
5,631 |
|
Other long-term liabilities |
|
|
4,882 |
|
|
|
3,904 |
|
Total liabilities |
|
|
240,011 |
|
|
|
256,062 |
|
Commitments and contingencies (Note 13) |
|
|
|
|
Stockholders’ equity |
|
|
|
|
Common stock ($0.0001 par value; 300,000,000 shares authorized;
45,011,652 and 44,618,357 shares issued and outstanding at
June 30, 2022 and December 31, 2021, respectively) |
|
|
4 |
|
|
|
4 |
|
Additional paid-in capital |
|
|
779,911 |
|
|
|
777,074 |
|
Accumulated other comprehensive loss |
|
|
(3,553 |
) |
|
|
(1,382 |
) |
Accumulated deficit |
|
|
(367,124 |
) |
|
|
(140,516 |
) |
Total stockholders’ equity |
|
|
409,238 |
|
|
|
635,180 |
|
Total liabilities and stockholders’ equity |
|
$ |
649,249 |
|
|
$ |
891,242 |
|
|
Hydrofarm Holdings Group,
Inc.RECONCILIATION OF NON-GAAP
MEASURES(In thousands, except share and per share
amounts) (Unaudited) |
|
|
Three months ended June 30, |
|
Six months ended June 30, |
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Reconciliation of Adjusted Gross Profit: |
|
|
|
|
|
|
|
Gross Profit (GAAP) |
$ |
7,339 |
|
|
$ |
29,590 |
|
|
$ |
23,945 |
|
|
$ |
52,813 |
|
Depreciation, depletion and amortization |
|
1,153 |
|
|
|
231 |
|
|
|
2,862 |
|
|
|
445 |
|
Severance and other3 |
|
169 |
|
|
|
— |
|
|
|
178 |
|
|
|
— |
|
Acquisition expenses4 |
|
429 |
|
|
|
350 |
|
|
|
4,367 |
|
|
|
350 |
|
Adjusted Gross Profit (Non-GAAP) |
$ |
9,090 |
|
|
$ |
30,171 |
|
|
$ |
31,352 |
|
|
$ |
53,608 |
|
|
|
|
|
|
|
|
|
As a percent of net sales: |
|
|
|
|
|
|
|
Gross Profit Margin |
|
7.5 |
% |
|
|
22.1 |
% |
|
|
11.5 |
% |
|
|
21.5 |
% |
Adjusted Gross Profit Margin |
|
9.3 |
% |
|
|
22.5 |
% |
|
|
15.0 |
% |
|
|
21.9 |
% |
|
Three months ended June 30, |
|
Six months ended June 30, |
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Reconciliation of Adjusted SG&A: |
|
|
|
|
|
|
|
Selling, general and administrative (GAAP) |
$ |
25,974 |
|
|
$ |
27,259 |
|
|
$ |
66,221 |
|
|
$ |
44,100 |
|
Distribution center exit costs and other1 |
|
289 |
|
|
|
— |
|
|
|
1,375 |
|
|
|
— |
|
Depreciation, depletion and amortization |
|
6,682 |
|
|
|
1,956 |
|
|
|
21,914 |
|
|
|
3,333 |
|
Severance and other3 |
|
165 |
|
|
|
1 |
|
|
|
793 |
|
|
|
16 |
|
Acquisition expenses4 |
|
820 |
|
|
|
9,216 |
|
|
|
1,868 |
|
|
|
9,875 |
|
Stock-based compensation5 |
|
2,080 |
|
|
|
1,258 |
|
|
|
5,156 |
|
|
|
2,516 |
|
Investor warrant solicitation fees6 |
|
— |
|
|
|
844 |
|
|
|
— |
|
|
|
844 |
|
Adjusted SG&A (Non-GAAP) |
$ |
15,938 |
|
|
$ |
13,984 |
|
|
$ |
35,115 |
|
|
$ |
27,516 |
|
|
|
|
|
|
|
|
|
As a percent of net sales: |
|
|
|
|
|
|
|
SG&A |
|
26.6 |
% |
|
|
20.4 |
% |
|
|
31.7 |
% |
|
|
18.0 |
% |
Adjusted SG&A |
|
16.3 |
% |
|
|
10.5 |
% |
|
|
16.8 |
% |
|
|
11.2 |
% |
|
|
Three months ended June 30, |
|
Six months ended June 30, |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Reconciliation of Adjusted EBITDA: |
|
|
|
|
|
|
|
|
Net (loss) income (GAAP) |
|
$ |
(203,312 |
) |
|
$ |
2,257 |
|
|
$ |
(226,608 |
) |
|
$ |
7,197 |
|
Interest expense |
|
|
2,424 |
|
|
|
54 |
|
|
|
4,790 |
|
|
|
144 |
|
Income tax (benefit) expense |
|
|
(6,861 |
) |
|
|
63 |
|
|
|
(12,430 |
) |
|
|
819 |
|
Distribution center exit costs and other1 |
|
|
289 |
|
|
|
— |
|
|
|
1,375 |
|
|
|
— |
|
Depreciation, depletion and amortization |
|
|
7,835 |
|
|
|
2,187 |
|
|
|
24,776 |
|
|
|
3,778 |
|
Impairments2 |
|
|
189,572 |
|
|
|
— |
|
|
|
192,328 |
|
|
|
— |
|
Severance and other3 |
|
|
334 |
|
|
|
1 |
|
|
|
971 |
|
|
|
16 |
|
Acquisition expenses4 |
|
|
1,249 |
|
|
|
9,566 |
|
|
|
6,235 |
|
|
|
10,225 |
|
Stock-based compensation5 |
|
|
2,080 |
|
|
|
1,258 |
|
|
|
5,156 |
|
|
|
2,516 |
|
Investor warrant solicitation fees6 |
|
|
— |
|
|
|
844 |
|
|
|
— |
|
|
|
844 |
|
Other income, net |
|
|
(458 |
) |
|
|
(43 |
) |
|
|
(356 |
) |
|
|
(127 |
) |
Loss on debt extinguishment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
680 |
|
Adjusted EBITDA (Non-GAAP) |
|
$ |
(6,848 |
) |
|
$ |
16,187 |
|
|
$ |
(3,763 |
) |
|
$ |
26,092 |
|
|
|
|
|
|
|
|
|
|
As a percent of net sales: |
|
|
|
|
|
|
|
|
Net (loss) income |
|
(208.5)% |
|
|
1.7 |
% |
|
(108.5)% |
|
|
2.9 |
% |
Adjusted EBITDA |
|
(7.0)% |
|
|
12.1 |
% |
|
(1.8)% |
|
|
10.6 |
% |
|
|
Three months ended June 30, |
|
Six months ended June 30, |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Reconciliation of Adjusted Net (loss) income: |
|
|
|
|
|
|
|
|
Net (loss) income (GAAP) |
|
$ |
(203,312 |
) |
|
$ |
2,257 |
|
|
$ |
(226,608 |
) |
|
$ |
7,197 |
|
Distribution center exit costs and other1 |
|
|
289 |
|
|
|
— |
|
|
|
1,375 |
|
|
|
— |
|
Impairments2 |
|
|
189,572 |
|
|
|
— |
|
|
|
192,328 |
|
|
|
— |
|
Severance and other3 |
|
|
334 |
|
|
|
1 |
|
|
|
971 |
|
|
|
16 |
|
Acquisition expenses4 |
|
|
1,249 |
|
|
|
9,566 |
|
|
|
6,235 |
|
|
|
10,225 |
|
Stock-based compensation5 |
|
|
2,080 |
|
|
|
1,258 |
|
|
|
5,156 |
|
|
|
2,516 |
|
Investor warrant solicitation fees6 |
|
|
— |
|
|
|
844 |
|
|
|
— |
|
|
|
844 |
|
Loss on debt extinguishment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
680 |
|
Depreciation, depletion and amortization7 |
|
|
6,231 |
|
|
|
615 |
|
|
|
21,377 |
|
|
|
615 |
|
Income tax effect of adjustments8 and discrete tax benefits9 |
|
|
(4,839 |
) |
|
|
(1,596 |
) |
|
|
(16,623 |
) |
|
|
(1,936 |
) |
Adjusted Net (loss) income (Non-GAAP) |
|
$ |
(8,396 |
) |
|
$ |
12,945 |
|
|
$ |
(15,789 |
) |
|
$ |
20,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Reconciliation of Adjusted EPS: |
|
|
|
|
|
|
|
|
Net (loss) income per share ("EPS") - Diluted
(GAAP): |
|
$ |
(4.53 |
) |
|
$ |
0.05 |
|
|
$ |
(5.06 |
) |
|
$ |
0.18 |
|
Impact of adjustments to Net (loss) income (above) |
|
|
4.34 |
|
|
|
0.26 |
|
|
|
4.71 |
|
|
|
0.32 |
|
Adjusted EPS or Net (loss) income per share - Diluted
(Non-GAAP): |
|
$ |
(0.19 |
) |
|
$ |
0.31 |
|
|
$ |
(0.35 |
) |
|
$ |
0.50 |
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average shares outstanding: |
|
|
44,910,193 |
|
|
|
42,044,929 |
|
|
|
44,814,881 |
|
|
|
40,523,686 |
|
Notes to reconciliations presented above
(Adjusted EBITDA, Adjusted Gross Profit, Adjusted SG&A,
Adjusted Net (loss) income, and Adjusted Net (loss) income per
share - Diluted):
- 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 market
softness in demand in the U.S. and Canada. During the quarter ended
March 31, 2022, impairment primarily related to a $2.6 million
charge associated with a note receivable that originated in 2019
associated with a third party independent processor serving the CBD
market.
- Severance costs incurred during the
three and six 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 $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 six months ended June 30, 2022 this
includes non-cash purchase accounting inventory adjustments for
House and Garden, Aurora, Greenstar and Innovative Growers
Equipment $4.4 million, 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 $3.4 million, partially offset by
the change in fair value of contingent consideration for Aurora of
($1.6 million).
- Includes stock-based compensation
and related employer payroll taxes on stock-based compensation for
the periods presented.
- Reflects the elimination of
one-time investor warrant solicitation fees.
- Depreciation, depletion and
amortization increased significantly over the prior year due
primarily to several acquisition related purchase-accounting
adjustments impacting the three and six months ended June 30, 2022.
For purposes of computing adjusted net (loss) income for the
quarter ended June 30, 2022, the Company is including the impacts
from 2021 acquisitions for comparability to the prior year,
including the significant amortization and depreciation expense
relating to these acquisitions.
- Reflects the income tax effect
related to adjustments to net (loss) income at the normalized tax
rate of 13%, which reflects an estimated tax rate based on the
nature of these adjustments. The impairments recorded
during the six months ended June 30, 2022 are excluded from these
income tax effects as income tax benefits are presented
discretely.
- For the three and six months ended
June 30, 2022, the Company recorded discrete income tax benefits of
approximately $3.5 million and $12.1 million, respectively,
relating to measurement period adjustments associated with 2021
acquisitions, which were primarily recorded in the first quarter,
and certain tax benefits related to goodwill impairment in the
second quarter.
Non-GAAP Financial Measures
We report our financial results in accordance
with generally accepted accounting principles in the U.S. (“GAAP”).
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
(loss) income 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 consolidated
financial statements which are prepared in accordance with GAAP, we
use "Adjusted EBITDA", "Adjusted Gross Profit", "Adjusted
SG&A", "Adjusted Net (loss) income", and "Adjusted Net (loss)
income per diluted share" or "Adjusted EPS" 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 (loss) income excluding interest expense, income taxes,
depreciation, depletion, and amortization, share-based
compensation, employer payroll taxes on share-based compensation
and other non-cash, unusual and/or infrequent costs (i.e.,
impairment, restructuring and other expenses, acquisition-related
expenses, distribution center exit costs, 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 Adjusted Gross Profit
as gross profit excluding depreciation, depletion, and
amortization, and other non-cash, unusual and/or infrequent costs
(i.e., impairment, restructuring and other expenses, and
acquisition-related expenses), which we do not consider in our
evaluation of ongoing operating performance.
We define Adjusted SG&A as
SG&A excluding depreciation, depletion, and amortization, and
other non-cash, unusual and/or infrequent costs (i.e., impairment,
restructuring and other expenses, acquisition-related expenses,
share-based compensation, employer payroll taxes on share-based
compensation, and distribution center exit costs), which we do not
consider in our evaluation of ongoing operating performance.
We define Adjusted Net (loss)
income as net (loss) income excluding adjustments to
stock-based compensation and employer payroll taxes on stock-based
compensation, and certain other non-cash, unusual and/or infrequent
costs including those relating to our five acquisitions in 2021
(i.e., Depreciation, depletion and amortization related to
acquisitions, impairment, restructuring and other expenses,
acquisition-related expenses, loss on debt extinguishment, and
distribution center exit costs), which we do not consider in our
evaluation of ongoing operating performance, and the income tax
impact resulting from the above adjustments to net (loss)
income.
We define Adjusted Net (loss) income per
share - Diluted or Adjusted EPS as
adjusted net (loss) income as defined above divided by the weighted
average diluted shares outstanding.
The Company defines net debt as total debt
principal outstanding less cash, cash equivalents and restricted
cash.
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