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, today announced financial results for its
second quarter ended June 30, 2023.
Second Quarter
2023 Highlights vs. Prior Year
Period:
- Net sales decreased to $63.1
million compared to $97.5 million.
- Gross Profit increased to
$14.5 million compared to $7.3 million. Gross Profit
Margin increased to 23.0% of net sales compared to 7.5%.
- Adjusted Gross Profit(1) increased
to $17.0 million compared to $9.1 million. Adjusted Gross
Profit Margin(1) increased to 27.0% of net sales compared to
9.3%.
- Net loss was $12.9 million
compared to net loss of $203.3 million.
- Adjusted EBITDA(1) increased to
$2.5 million compared to $(6.8) million.
- Cash from operating activities of
$9.9 million and Free Cash Flow(1) of $8.3 million.
Updated Full Year
2023 Outlook:
- Net sales of approximately $230
million to $240 million.
- Adjusted EBITDA(1) that is modestly
positive.
- Positive Free
Cash Flow(1).
(1) Adjusted Gross Profit, Adjusted Gross Profit
Margin, Adjusted SG&A, Adjusted SG&A as a percent of net
sales, Adjusted EBITDA, and Free Cash Flow are non-GAAP measures.
For reconciliations of GAAP to non-GAAP measures see the
“Reconciliation of Non-GAAP Measures” accompanying the release.
Bill Toler, Chairman and Chief Executive Officer
of Hydrofarm, said, “In the second quarter, we delivered positive
Adjusted EBITDA for the first time since Q1 of 2022, driven by
strong gross margin expansion and significant cost reduction
measures. Our Adjusted SG&A is now at its lowest quarterly
total since Q2 of 2021, before we made all of our 5 acquisitions.
Through the sound execution of our restructuring plan and related
cost saving efforts, we have achieved significant margin
improvement and are now in a much stronger position to navigate the
current volume softness in our industry. In addition, our
aggressive working capital management continued as we reduced our
inventory levels and created meaningfully positive free cash flow
of over $8 million in the quarter. We are pleased with our progress
and we remain confident in the long-term fundamentals of our
business.”
Second Quarter
2023 Financial Results
Net sales in the second quarter of 2023
decreased to $63.1 million compared to $97.5 million in the second
quarter of 2022, driven by a 32.5% decline in volume of products
sold, a 2.3% decrease in price/mix of products sold, and a 0.5%
decline from unfavorable foreign exchange rates. The decrease in
volume of products sold was primarily related to oversupply in the
cannabis industry. The reduction in price was mainly due to lower
prices on specific previously reserved lighting products, as well
as a higher mix of generally lower-priced consumables relative to
higher-priced durable products.
Gross profit increased to $14.5 million
during the second quarter of 2023, compared to $7.3 million in
the prior year period. The increase was primarily due to a $9.9
million reduction in inventory provisions compared to the prior
year period. Gross profit margin percentage increased to 23.0% from
7.5% in the prior year. Gross profit and gross profit margin
percentage also improved due to selling a higher proportion of
proprietary brand products and from improved productivity. Adjusted
Gross Profit(1) increased to $17.0 million compared to
$9.1 million in the prior year period. Adjusted Gross Profit
Margin(1) increased to 27.0% of net sales in the second quarter of
2023, compared to 9.3% of net sales in the prior year period.
Adjusted Gross Profit and Adjusted Gross Profit Margin increased
significantly primarily due to the aforementioned reduction in
inventory provisions, selling a higher proportion of proprietary
brand products, and improved productivity. This margin improvement
was aided by the Company's restructuring plan and related cost
saving initiatives.
Selling, general and administrative (“SG&A”)
expense was $23.5 million, compared to $26.0 million in
the prior year period. The decrease primarily relates to a decline
in compensation costs, professional fees, acquisition and
integration expenses, and distribution center exit costs. Partially
offsetting these cost reductions, the Company incurred incremental
severance expenses in 2023 compared to the prior year due to
headcount reductions. Adjusted SG&A(1) decreased to
$14.6 million, compared to $15.9 million in the prior
year period due primarily to reduced compensation costs and
professional fees as a result of the Company's restructuring plan
and related cost saving initiatives.
Net loss was $12.9 million, or $(0.28) per
diluted share, compared to a net loss of $203.3 million, or
$(4.53) per diluted share, in the prior year period. Net loss in
the prior year included non-cash goodwill impairment expense of
$189.6 million and a $10.2 million inventory reserve. The
improvement in net loss was also due to higher gross profit and
lower SG&A expenses, partially offset by a $6.9 million
income tax benefit recorded in 2022 and higher interest expense in
the current year period.
Adjusted EBITDA(1) was $2.5 million,
compared to $(6.8) million in the prior year period. The
improvement related to higher gross profit, as described above, and
lower SG&A expenses, partially offset by lower sales.
Balance Sheet, Liquidity and Cash
Flow
As of June 30, 2023, the Company had
$26.7 million in cash and approximately $34 million of
available borrowing capacity on its Revolving Credit Facility. The
Company finished the second quarter with $123.1 million in
principal balance on its Term Loan outstanding, $10.2 million in
finance leases, and $0.3 million in other debt outstanding. During
2023, the Company has maintained a zero balance on its Revolving
Credit Facility and is in compliance with debt covenants as of
June 30, 2023.
The Company generated net cash from operating
activities of $9.9 million and invested $1.7 million in capital
expenditures, yielding Free Cash Flow(1) of $8.3 million during the
three months ended June 30, 2023. As a result of the positive
cash flow generated during the second quarter, the Company's cash
level increased by approximately $8.0 million to the
$26.7 million noted earlier.
Full Year 2023 Outlook
The Company is updating its full year 2023
outlook:
- Net sales of
approximately $230 million to $240 million.
- Adjusted EBITDA(1)
that is modestly positive for the full year, consistent with
previous expectations.
- Free Cash Flow(1)
that is positive for the full year, consistent with previous
expectations.
The Company's 2023 outlook also reaffirms the
following assumptions, consistent with previous expectations:
- Improved year-over-year Adjusted
Gross Profit(1) and Adjusted Gross Profit margin(1) resulting
primarily from (i) cost savings associated with restructuring and
related productivity initiatives and (ii) an expectation of minimal
additional inventory and accounts receivable reserves or related
charges.
- Capital expenditures of
approximately $7 million to $9 million.
- Further reduction in inventory and
net working capital helping to generate positive Free Cash
Flow(1).
(1) Adjusted Gross Profit, Adjusted Gross Profit
Margin, Adjusted SG&A, Adjusted SG&A as a percent of net
sales, Adjusted EBITDA, and Free Cash Flow are non-GAAP measures.
For reconciliations of GAAP to non-GAAP measures see the
“Reconciliation of Non-GAAP Measures” accompanying the release.
Conference Call
The Company will host a conference call to
discuss financial results for the second quarter 2023 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 1-877-451-6152. The conference call will also be
webcast live and archived on the corporate website at
www.hydrofarm.com, under the “News & Events” section.
About Hydrofarm Holdings Group,
Inc.
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 the Company's end
customers sell, which, in turn, has materially adversely impacted
the Company's 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; We may be unable to meet the continued listing
standards of Nasdaq; Our restructuring activities may increase our
expenses and cash expenditures, and may not have the intended cost
saving effects; 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
ContactAnna Kate Heller / 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, |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Net sales |
|
$ |
63,051 |
|
|
$ |
97,508 |
|
|
$ |
125,229 |
|
|
$ |
208,885 |
|
Cost of goods sold |
|
|
48,578 |
|
|
|
90,169 |
|
|
|
99,375 |
|
|
|
184,940 |
|
Gross profit |
|
|
14,473 |
|
|
|
7,339 |
|
|
|
25,854 |
|
|
|
23,945 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
23,468 |
|
|
|
25,974 |
|
|
|
47,899 |
|
|
|
66,221 |
|
Impairments |
|
|
— |
|
|
|
189,572 |
|
|
|
— |
|
|
|
192,328 |
|
Loss from operations |
|
|
(8,995 |
) |
|
|
(208,207 |
) |
|
|
(22,045 |
) |
|
|
(234,604 |
) |
Interest expense |
|
|
(3,768 |
) |
|
|
(2,424 |
) |
|
|
(7,460 |
) |
|
|
(4,790 |
) |
Other (expense) income, net |
|
|
(420 |
) |
|
|
458 |
|
|
|
(380 |
) |
|
|
356 |
|
Loss before tax |
|
|
(13,183 |
) |
|
|
(210,173 |
) |
|
|
(29,885 |
) |
|
|
(239,038 |
) |
Income tax benefit |
|
|
318 |
|
|
|
6,861 |
|
|
|
171 |
|
|
|
12,430 |
|
Net loss |
|
$ |
(12,865 |
) |
|
$ |
(203,312 |
) |
|
$ |
(29,714 |
) |
|
$ |
(226,608 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.28 |
) |
|
$ |
(4.53 |
) |
|
$ |
(0.66 |
) |
|
$ |
(5.06 |
) |
Diluted |
|
$ |
(0.28 |
) |
|
$ |
(4.53 |
) |
|
$ |
(0.66 |
) |
|
$ |
(5.06 |
) |
Weighted-average shares of common stock outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
45,412,627 |
|
|
|
44,910,193 |
|
|
|
45,338,636 |
|
|
|
44,814,881 |
|
Diluted |
|
|
45,412,627 |
|
|
|
44,910,193 |
|
|
|
45,338,636 |
|
|
|
44,814,881 |
|
|
Hydrofarm Holdings Group, Inc.CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)(In
thousands, except share and per share amounts) |
|
|
|
June 30, |
|
December 31, |
|
|
|
2023 |
|
|
|
2022 |
|
Assets |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
26,682 |
|
|
$ |
21,291 |
|
Accounts receivable, net |
|
|
18,209 |
|
|
|
17,227 |
|
Inventories |
|
|
95,120 |
|
|
|
111,398 |
|
Prepaid expenses and other current assets |
|
|
5,952 |
|
|
|
5,032 |
|
Total current assets |
|
|
145,963 |
|
|
|
154,948 |
|
Property, plant and equipment, net |
|
|
50,403 |
|
|
|
51,135 |
|
Operating lease right-of-use assets |
|
|
59,407 |
|
|
|
65,265 |
|
Intangible assets, net |
|
|
288,606 |
|
|
|
300,366 |
|
Other assets |
|
|
1,852 |
|
|
|
1,845 |
|
Total assets |
|
$ |
546,231 |
|
|
$ |
573,559 |
|
Liabilities and stockholders’ equity |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
|
$ |
12,394 |
|
|
$ |
13,633 |
|
Accrued expenses and other current liabilities |
|
|
9,546 |
|
|
|
13,208 |
|
Deferred revenue |
|
|
2,370 |
|
|
|
3,654 |
|
Current portion of operating lease liabilities |
|
|
8,888 |
|
|
|
9,099 |
|
Current portion of finance lease liabilities |
|
|
993 |
|
|
|
704 |
|
Current portion of long-term debt |
|
|
1,450 |
|
|
|
1,307 |
|
Total current liabilities |
|
|
35,641 |
|
|
|
41,605 |
|
Long-term operating lease liabilities |
|
|
52,321 |
|
|
|
56,299 |
|
Long-term finance lease liabilities |
|
|
9,193 |
|
|
|
1,200 |
|
Long-term debt |
|
|
117,266 |
|
|
|
117,461 |
|
Deferred tax liabilities |
|
|
2,686 |
|
|
|
2,685 |
|
Other long-term liabilities |
|
|
4,566 |
|
|
|
4,428 |
|
Total liabilities |
|
|
221,673 |
|
|
|
223,678 |
|
Commitments and contingencies |
|
|
|
|
Stockholders’ equity |
|
|
|
|
Common stock ($0.0001 par value; 300,000,000 shares authorized;
45,540,217 and 45,197,249 shares issued and outstanding at
June 30, 2023, and December 31, 2022, respectively) |
|
|
5 |
|
|
|
5 |
|
Additional paid-in capital |
|
|
785,893 |
|
|
|
783,042 |
|
Accumulated other comprehensive loss |
|
|
(5,695 |
) |
|
|
(7,235 |
) |
Accumulated deficit |
|
|
(455,645 |
) |
|
|
(425,931 |
) |
Total stockholders’ equity |
|
|
324,558 |
|
|
|
349,881 |
|
Total liabilities and stockholders’ equity |
|
$ |
546,231 |
|
|
$ |
573,559 |
|
|
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, |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Reconciliation of Adjusted Gross Profit: |
|
|
|
|
|
|
|
|
Gross Profit (GAAP) |
|
$ |
14,473 |
|
|
$ |
7,339 |
|
|
$ |
25,854 |
|
|
$ |
23,945 |
|
Depreciation, depletion and amortization |
|
|
1,826 |
|
|
|
1,153 |
|
|
|
3,281 |
|
|
|
2,862 |
|
Restructuring expenses1 |
|
|
720 |
|
|
|
— |
|
|
|
1,957 |
|
|
|
— |
|
Acquisition and integration expenses5 |
|
|
— |
|
|
|
429 |
|
|
|
— |
|
|
|
4,367 |
|
Severance and other7 |
|
|
— |
|
|
|
169 |
|
|
|
— |
|
|
|
178 |
|
Adjusted Gross Profit (Non-GAAP) |
|
$ |
17,019 |
|
|
$ |
9,090 |
|
|
$ |
31,092 |
|
|
$ |
31,352 |
|
|
|
|
|
|
|
|
|
|
As a percent of net sales: |
|
|
|
|
|
|
|
|
Gross Profit Margin (GAAP) |
|
|
23.0 |
% |
|
|
7.5 |
% |
|
|
20.6 |
% |
|
|
11.5 |
% |
Adjusted Gross Profit Margin (Non-GAAP) |
|
|
27.0 |
% |
|
|
9.3 |
% |
|
|
24.8 |
% |
|
|
15.0 |
% |
|
|
Three months ended June 30, |
|
Six months ended June 30, |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Reconciliation of Adjusted SG&A: |
|
|
|
|
|
|
|
|
Selling, general and administrative (GAAP) |
|
$ |
23,468 |
|
|
$ |
25,974 |
|
|
$ |
47,899 |
|
|
$ |
66,221 |
|
Depreciation, depletion and amortization |
|
|
6,424 |
|
|
|
6,682 |
|
|
|
12,976 |
|
|
|
21,914 |
|
Restructuring expenses1 |
|
|
68 |
|
|
|
— |
|
|
|
242 |
|
|
|
— |
|
Stock-based compensation2 |
|
|
1,819 |
|
|
|
2,080 |
|
|
|
3,026 |
|
|
|
5,156 |
|
Acquisition and integration expenses5 |
|
|
— |
|
|
|
820 |
|
|
|
— |
|
|
|
1,868 |
|
Distribution center exit costs and other6 |
|
|
— |
|
|
|
289 |
|
|
|
— |
|
|
|
1,375 |
|
Severance and other7 |
|
|
589 |
|
|
|
165 |
|
|
|
884 |
|
|
|
793 |
|
Adjusted SG&A (Non-GAAP) |
|
$ |
14,568 |
|
|
$ |
15,938 |
|
|
$ |
30,771 |
|
|
$ |
35,115 |
|
|
|
|
|
|
|
|
|
|
As a percent of net sales: |
|
|
|
|
|
|
|
|
SG&A (GAAP) |
|
|
37.2 |
% |
|
|
26.6 |
% |
|
|
38.2 |
% |
|
|
31.7 |
% |
Adjusted SG&A (Non-GAAP) |
|
|
23.1 |
% |
|
|
16.3 |
% |
|
|
24.6 |
% |
|
|
16.8 |
% |
|
|
Three months ended June 30, |
|
Six months ended June 30, |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Reconciliation of Adjusted EBITDA: |
|
|
|
|
|
|
|
|
Net loss (GAAP) |
|
$ |
(12,865 |
) |
|
$ |
(203,312 |
) |
|
$ |
(29,714 |
) |
|
$ |
(226,608 |
) |
Interest expense |
|
|
3,768 |
|
|
|
2,424 |
|
|
|
7,460 |
|
|
|
4,790 |
|
Income tax benefit |
|
|
(318 |
) |
|
|
(6,861 |
) |
|
|
(171 |
) |
|
|
(12,430 |
) |
Depreciation, depletion and amortization |
|
|
8,250 |
|
|
|
7,835 |
|
|
|
16,257 |
|
|
|
24,776 |
|
Restructuring expenses1 |
|
|
788 |
|
|
|
— |
|
|
|
2,199 |
|
|
|
— |
|
Stock-based compensation2 |
|
|
1,819 |
|
|
|
2,080 |
|
|
|
3,026 |
|
|
|
5,156 |
|
Other expense (income), net3 |
|
|
420 |
|
|
|
(458 |
) |
|
|
380 |
|
|
|
(356 |
) |
Impairments4 |
|
|
— |
|
|
|
189,572 |
|
|
|
— |
|
|
|
192,328 |
|
Acquisition and integration expenses5 |
|
|
— |
|
|
|
1,249 |
|
|
|
— |
|
|
|
6,235 |
|
Distribution center exit costs and other6 |
|
|
— |
|
|
|
289 |
|
|
|
— |
|
|
|
1,375 |
|
Severance and other7 |
|
|
589 |
|
|
|
334 |
|
|
|
884 |
|
|
|
971 |
|
Adjusted EBITDA (Non-GAAP) |
|
$ |
2,451 |
|
|
$ |
(6,848 |
) |
|
$ |
321 |
|
|
$ |
(3,763 |
) |
|
|
|
|
|
|
|
|
|
As a percent of net sales: |
|
|
|
|
|
|
|
|
Net loss (GAAP) |
|
|
(20.4 |
)% |
|
|
(208.5 |
)% |
|
|
(23.7 |
)% |
|
|
(108.5 |
)% |
Adjusted EBITDA (Non-GAAP) |
|
|
3.9 |
% |
|
|
(7.0 |
)% |
|
|
0.3 |
% |
|
|
(1.8 |
)% |
|
|
Three months ended June 30, |
|
Six months ended June 30, |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Reconciliation of Free Cash
Flow8: |
|
|
|
|
|
|
|
|
Net cash from operating activities
(GAAP)8: |
|
$ |
9,911 |
|
|
$ |
17,423 |
|
|
$ |
961 |
|
|
$ |
7,268 |
|
Capital expenditures of Property, Plant and Equipment (GAAP) |
|
|
(1,653 |
) |
|
|
(2,052 |
) |
|
|
(3,306 |
) |
|
|
(4,522 |
) |
Free Cash Flow
(Non-GAAP)8: |
|
$ |
8,258 |
|
|
$ |
15,371 |
|
|
$ |
(2,345 |
) |
|
$ |
2,746 |
|
Notes to GAAP to Non-GAAP
reconciliations presented above (Adjusted Gross Profit, Adjusted
SG&A, Adjusted EBITDA, and Free Cash Flow):
- For the three and
six months ended June 30, 2023, restructuring expenses related
primarily to the relocation and termination of certain facilities
in Canada and the closure of the Company's supply chain management
office in China.
- Includes
stock-based compensation and related employer payroll taxes on
stock-based compensation for the periods presented.
- Other expense
(income), net related primarily to foreign currency exchange rate
gains and losses and other non-operating income and expenses. For
the three and six months ended June 30, 2023, Other expense
(income), net also included charges from Amendment No. 1 to the
Term Loan.
- For the three and
six months ended June 30, 2022, the Company recorded a
goodwill impairment charge of $189.6 million due to market softness
in demand in the U.S. and Canada. Additionally, during six months
ended June 30, 2022, the Company recorded a $2.6 million
impairment charge associated with a note receivable that originated
in 2019 associated with a third party independent processor.
- For the three and
six months ended June 30, 2022, this included charges related
to acquisitions completed in 2021, including non-cash purchase
accounting inventory adjustments, transaction services and legal
fees, as well as the impact of changes in fair value of contingent
consideration.
- For the three and
six months ended June 30, 2022, this related to costs incurred
to exit and relocate distribution centers in California and
Pennsylvania including lease exit costs, transportation, and labor
related costs.
- For the three and
six months ended June 30, 2023, Severance and other charges
primarily related to workforce reductions, and charges in
conjunction with a sale-leaseback transaction during the first
quarter of 2023. For the three and six months ended June 30,
2022, the charges included severance costs related to workforce
reductions.
- Gross proceeds of
$8.6 million received during the first quarter of 2023 from a
sale-leaseback of real estate located in Eugene, Oregon, was
classified as a financing activity and is not reflected in cash
flows from operating activities or Free Cash Flow.
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 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", "Free Cash Flow", "Net Debt", and "Liquidity" which are
non-GAAP financial measures. We also present certain of these
non-GAAP metrics as a percentage of net sales. 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.
We define Adjusted EBITDA
(non-GAAP) as net loss (GAAP) excluding interest expense, income
taxes, depreciation, depletion and amortization, stock-based
compensation including employer payroll taxes on stock-based
compensation, restructuring charges which represent fundamental
changes to our operations, and other non-cash, unusual and/or
infrequent costs (i.e., impairments, acquisition and integration
expenses, distribution center exit costs, and other income/expense,
net), which we do not consider in our evaluation of ongoing
operating performance.
We define Adjusted EBITDA
(non-GAAP) 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
(non-GAAP) as gross profit (GAAP) excluding depreciation,
depletion, and amortization, restructuring charges, and other
non-cash, unusual and/or infrequent costs (i.e., other expenses,
and acquisition and integration expenses), which we do not consider
in our evaluation of ongoing operating performance.
We define Adjusted Gross Profit
Margin (non-GAAP) as a percent of net
sales as Adjusted Gross Profit (as defined above) divided
by net sales realized in the respective period.
We define Adjusted SG&A
(non-GAAP) as SG&A (GAAP) excluding depreciation, depletion,
and amortization, stock-based compensation including employer
payroll taxes on stock-based compensation, restructuring charges,
and other non-cash, unusual and/or infrequent costs (i.e., other
expenses, acquisition and integration expenses, and distribution
center exit costs), which we do not consider in our evaluation of
ongoing operating performance.
We define Adjusted SG&A
(non-GAAP) as a percent of net sales as Adjusted
SG&A (as defined above) divided by net sales realized in the
respective period.
We define Free Cash Flow
(non-GAAP) as Net cash from (used in) operating activities less
capital expenditures for property, plant and equipment. We believe
this provides additional insight into the Company's ability to
generate cash and maintain liquidity. However, Free Cash Flow does
not represent funds available for investment or other discretionary
uses since it does not deduct cash used to service our debt or
other cash flows from financing activities.
We define Liquidity as total
cash, cash equivalents and restricted cash, plus available
borrowing capacity on our Revolving Credit Facility.
We define Net Debt as total
debt principal outstanding plus finance lease liabilities, less
cash, cash equivalents and restricted cash.
Hydrofarm (NASDAQ:HYFM)
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