Company Overview - Hydrofarm Holdings Group, Inc. is a leading independent manufacturer and distributor of branded hydroponics equipment and supplies for controlled environment agriculture (CEA) [3] - The company offers a range of products including grow lights, climate control solutions, grow media, and nutrients, along with a portfolio of innovative proprietary branded products [3] - With over 40 years of experience, Hydrofarm aims to empower growers, farmers, and cultivators by providing products that enhance quality, efficiency, consistency, and speed in their growing projects [3] Upcoming Events - Hydrofarm will host a conference call to review its second quarter 2025 results on August 12, 2025, at 8:30 AM ET [1] - A press release with the second quarter 2025 results will be issued before the market opens on the same day [1] - The conference call can be accessed live by dialing 1-800-445-7795 and entering the conference ID: HYFMQ2, and it will also be available as a webcast on the corporate website [2]

Industry Overview - The Zacks Agriculture - Products industry is facing challenges due to lower commodity prices, high input costs, and labor shortages, but increasing consumer awareness regarding food ingredients and healthier alternatives is expected to support growth [1][4] - The industry includes companies involved in storing agricultural commodities, distributing ingredients, and farming crops, livestock, and poultry products [3] Current Trends - Agricultural commodity prices are under pressure from ample supply, while rising labor, packaging, and distribution costs are impacting profitability [4] - Global food demand is projected to increase by 50% by 2050 due to population growth, with the global population expected to reach 9.6 billion [5] - Hydroponics and vertical farming are emerging as key agricultural technologies, with hydroponic equipment sales projected to reach $67 billion by 2033, growing at a CAGR of 16.2% [6] Company Insights - **Bunge Global S.A.** is focusing on strategic mergers, including a $34 billion merger with Viterra Ltd, to enhance its position in grain exports and oilseed processing [18][19] - **CalMaine Foods** is expanding its cage-free operations and product portfolio, with a projected earnings growth of 299.5% for fiscal 2025 [22][23] - **Hydrofarm** is streamlining operations and focusing on proprietary brands, with a significant increase in the sales mix of proprietary brands to 55% in Q1 2025 [26][27] Market Performance - The Zacks Agriculture - Products industry has underperformed compared to the Basic Materials sector and the S&P 500, with a 12.9% decline over the past 12 months [9] - The industry is currently trading at an EV/EBITDA ratio of 5.98X, significantly lower than the S&P 500's 17.51X [12][17]

Financial Data and Key Metrics Changes - Net sales for Q1 2025 were $40.5 million, down 25.2% year-over-year, primarily due to a 22.6% decrease in volume mix and a 1.8% decline in pricing [17] - Gross profit was $6.9 million, or 17% of net sales, compared to $10.9 million, or 20.2% of net sales in the prior year [18] - Adjusted EBITDA was a loss of $2.4 million in Q1, although it improved by $4.8 million compared to Q4 2024 [22] Business Line Data and Key Metrics Changes - Proprietary brands accounted for 55% of net sales, an improvement from 52% in the previous quarter but down from 56%-58% in the first three quarters of the prior year [17][29] - Consumable products represented over 75% of total sales, showing a small increase over 2024 [18] - Adjusted SG&A expenses were $11 million, an 11% reduction compared to $12.3 million last year, marking the eleventh consecutive quarter of significant year-over-year savings [21] Market Data and Key Metrics Changes - The company experienced prolonged industry oversupply challenges and a lack of government progress on regulatory issues, impacting year-over-year results [12] - The U.S. government clarified that Canadian peat would be tariff-free, which is expected to positively impact the peat moss business moving forward [11] Company Strategy and Development Direction - The company is focusing on higher-margin proprietary brands to drive revenue and improve profitability, with a strategic initiative to enhance sales in these areas [5][6] - A thorough review of the product portfolio and distribution network is underway to align with estimated sales demand and improve gross profit margins [15] - The company is actively pursuing strategic alternatives to enhance shareholder value, including potential acquisitions or divestitures [16] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about potential regulatory changes regarding cannabis, citing public support for rescheduling and ongoing discussions in Washington [39] - The company has withdrawn its full-year 2025 guidance due to tariff uncertainties and prolonged industry challenges but maintains expectations for improved adjusted gross profit margins and lower SG&A expenses [14][42] Other Important Information - The company ended Q1 with a cash balance of $13.7 million and total debt of approximately $127.3 million [23] - Cash used in operating activities was negative $11.8 million, with negative free cash flow of $12 million for the quarter [25] Q&A Session Summary Question: Follow-up on proprietary brand sales and growth outlook - Management noted that proprietary nutrient brands performed better than expected and emphasized continued investment in sales capabilities and marketing efforts to drive growth [29][30] Question: Impact of tariffs on product costs and demand - Management explained that while consumable products are largely insulated from tariffs, durable products sourced from China face challenges, and they are renegotiating with vendors to manage costs [31][34] Question: Regulatory environment and optimism for cannabis market - Management highlighted positive momentum in Washington regarding cannabis rescheduling and safer banking, which could benefit the industry [37][39] Question: Granularity on positive developments in the quarter - Management pointed to strong performance in proprietary consumables and ongoing product launches in the U.S. and international markets as positive signs [40][41] Question: Outlook for 2025 amidst uncertainties - Management reiterated that while Q1 performance was in line with previous expectations, the uncertainty surrounding tariffs and industry conditions led to the decision to pause guidance for the year [42][43]

Financial Data and Key Metrics Changes - Net sales for Q1 2025 were $40.5 million, down 25.2% year over year, primarily due to a 22.6% decrease in volume mix and a 1.8% decline in pricing [18] - Gross profit in Q1 was $6.9 million, or 17% of net sales, compared to $10.9 million, or 20.2% of net sales in the prior year [19] - Adjusted EBITDA was a loss of $2.4 million in Q1, although it improved by $4.8 million compared to Q4 2024 [23] Business Line Data and Key Metrics Changes - Proprietary brands accounted for 55% of net sales in Q1, an improvement from 52% in Q4 2024, but still below the 56% to 58% range seen in the first three quarters of the previous year [18][30] - Consumable products represented over three-quarters of total sales, showing a small increase over 2024 [19] - Adjusted SG&A expenses were $11 million, an 11% reduction compared to $12.3 million last year, marking the eleventh consecutive quarter of significant year-over-year adjusted SG&A savings [22] Market Data and Key Metrics Changes - The company noted prolonged industry oversupply challenges and a lack of government progress on regulatory issues, which impacted year-over-year results [12] - The U.S. government clarified that Canadian peat would be tariff-free, which is expected to positively impact the peat moss business moving forward [11] Company Strategy and Development Direction - The company is focusing on higher-margin proprietary brands to drive revenue and improve profitability, with a strategic initiative to enhance sales in these areas [5][6] - A thorough review of the product portfolio and distribution network is underway to align better with estimated sales demand and support margin expansion [15] - The company is actively pursuing strategic alternatives to enhance shareholder value, including potential acquisitions or divestitures [16] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the potential for regulatory changes in the cannabis market, citing recent polling data showing increased public support for rescheduling [40] - The company has withdrawn its full-year 2025 guidance for net sales, adjusted EBITDA, and free cash flow due to ongoing tariff uncertainties and prolonged industry challenges [14][43] - Despite the challenges, management remains committed to improving adjusted gross profit margins and reducing adjusted SG&A expenses for the full year [44] Other Important Information - The company ended Q1 with a cash balance of $13.7 million and total debt of approximately $127.3 million [24] - Cash used in operating activities was negative $11.8 million, yielding negative free cash flow of $12 million for the quarter [25] Q&A Session Summary Question: Follow-up on proprietary brand sales and growth outlook - Management highlighted strong performance from proprietary nutrient brands and emphasized ongoing investments in sales capabilities and marketing efforts to drive growth [31][32] Question: Impact of tariffs on product costs and demand - Management indicated that while consumable products are largely insulated from tariffs, the durable side faces challenges due to sourcing from China, and they are actively renegotiating with vendors [34][35] Question: Regulatory environment and potential changes in the cannabis market - Management expressed optimism about potential regulatory changes, noting recent momentum in rescheduling discussions and efforts to push for safer banking legislation [40][41] Question: Overall outlook for 2025 - Management stated that while Q1 performance was generally in line with previous expectations, the uncertainty surrounding tariffs and industry conditions led to a prudent decision to pause guidance for the year [43][44]

[Explanatory Note Regarding Reverse Stock Split](index=2&type=section&id=EXPLANATORY%20NOTE%20REGARDING%20REVERSE%20STOCK%20SPLIT) Details a 1-for-10 reverse stock split effective February 12, 2025, and its retroactive financial statement adjustments - Hydrofarm Holdings Group, Inc. effected a **1-for-10 reverse stock split** on February 12, 2025, with shares trading on a split-adjusted basis on The Nasdaq Capital Market starting February 13, 2025[7](index=7&type=chunk) - The number of authorized shares and par value of common stock remained unchanged; no fractional shares were issued, with stockholders receiving cash payments in lieu thereof[9](index=9&type=chunk) - All periods covered by the condensed consolidated financial statements, including net loss per share and other per share amounts, have been retroactively adjusted to give effect to the Reverse Stock Split[10](index=10&type=chunk) [Part I - Financial Information](index=7&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) Presents the company's unaudited condensed consolidated financial statements and management's discussion for the period ended March 31, 2025 [Item 1. Financial Statements](index=7&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, changes in stockholders' equity, and cash flows, along with detailed notes explaining the company's business, accounting policies, restructuring, asset sales, and other financial details for the period ended March 31, 2025 [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows a decrease in total assets from $426.1 million at December 31, 2024, to $410.6 million at March 31, 2025, primarily driven by a reduction in cash and cash equivalents and intangible assets. Total liabilities also slightly decreased, while total stockholders' equity declined from $223.7 million to $209.9 million | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | | Cash and cash equivalents | $13,728 | $26,111 | $(12,383) | | Accounts receivable, net | $20,919 | $14,756 | $6,163 | | Inventories | $49,902 | $50,633 | $(731) | | Total current assets | $88,686 | $95,212 | $(6,526) | | Intangible assets, net | $243,079 | $249,002 | $(5,923) | | Total assets | $410,557 | $426,104 | $(15,547) | | Total current liabilities | $39,941 | $34,987 | $4,954 | | Long-term debt | $109,968 | $114,693 | $(4,725) | | Total liabilities | $200,612 | $202,382 | $(1,770) | | Total stockholders' equity | $209,945 | $223,722 | $(13,777) | [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the three months ended March 31, 2025, the company reported a net loss of $14.4 million, an increase from $12.6 million in the prior year, primarily due to a significant decrease in net sales and gross profit, partially offset by reduced operating expenses and interest expense | Metric | Three months ended March 31, 2025 (in thousands) | Three months ended March 31, 2024 (in thousands) | Change (in thousands) | Change (%) | | :-------------------------------- | :----------------------------------- | :----------------------------------- | :-------------------- | :--------- | | Net sales | $40,534 | $54,172 | $(13,638) | -25.2% | | Cost of goods sold | $33,657 | $43,247 | $(9,590) | -22.2% | | Gross profit | $6,877 | $10,925 | $(4,048) | -37.1% | | Gross profit margin | 17.0% | 20.2% | -3.2 pp | | | Selling, general and administrative | $17,863 | $19,621 | $(1,758) | -9.0% | | Loss from operations | $(10,986) | $(8,696) | $(2,290) | -26.3% | | Interest expense | $(3,377) | $(3,931) | $554 | -14.1% | | Net loss | $(14,385) | $(12,608) | $(1,777) | -14.1% | | Basic net loss per share | $(3.12) | $(2.75) | $(0.37) | -13.5% | | Diluted net loss per share | $(3.12) | $(2.75) | $(0.37) | -13.5% | [Condensed Consolidated Statements of Comprehensive Loss](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) The total comprehensive loss for the three months ended March 31, 2025, was $14.2 million, an increase from $13.3 million in the prior year, primarily driven by the net loss, partially offset by a foreign currency translation gain in 2025 compared to a loss in 2024 | Metric | Three months ended March 31, 2025 (in thousands) | Three months ended March 31, 2024 (in thousands) | Change (in thousands) | | :-------------------------------- | :----------------------------------- | :----------------------------------- | :-------------------- | | Net loss | $(14,385) | $(12,608) | $(1,777) | | Foreign currency translation gain (loss) | $137 | $(729) | $866 | | Total comprehensive loss | $(14,248) | $(13,337) | $(911) | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Stockholders' equity decreased from $223.7 million at December 31, 2024, to $209.9 million at March 31, 2025, primarily due to the net loss of $14.4 million, partially offset by stock-based compensation expense and a foreign currency translation gain | Metric | December 31, 2024 (in thousands) | March 31, 2025 (in thousands) | Change (in thousands) | | :-------------------------------- | :----------------------------- | :---------------------------- | :-------------------- | | Total Stockholders' Equity | $223,722 | $209,945 | $(13,777) | | Net loss | N/A | $(14,385) | $(14,385) | | Stock-based compensation expense | N/A | $474 | $474 | | Foreign currency translation gain | N/A | $137 | $137 | [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The company experienced a net decrease in cash and cash equivalents of $12.4 million for the three months ended March 31, 2025, primarily driven by cash used in operating activities ($11.8 million), investing activities ($0.2 million), and financing activities ($0.4 million) | Metric | Three months ended March 31, 2025 (in thousands) | Three months ended March 31, 2024 (in thousands) | Change (in thousands) | | :-------------------------------- | :----------------------------------- | :----------------------------------- | :-------------------- | | Net cash used in operating activities | $(11,763) | $(2,297) | $(9,466) | | Net cash used in investing activities | $(248) | $(1,408) | $1,160 | | Net cash used in financing activities | $(413) | $(2,358) | $1,945 | | Net decrease in cash and cash equivalents | $(12,383) | $(6,160) | $(6,223) | | Cash and cash equivalents at end of period | $13,728 | $24,152 | $(10,424) | [Notes to the Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed information supporting the condensed consolidated financial statements, covering the company's business description, accounting policies, restructuring activities, asset sales, intangible assets, loss per share, accounts receivable, inventories, leases, property, plant and equipment, accrued liabilities, debt, stockholders' equity, stock-based compensation, income taxes, commitments, contingencies, and fair value measurements. Key updates include the completion of the second phase of the restructuring plan and details on debt amendments [Note 1. Description of the Business](index=12&type=section&id=Note%201.%20Description%20of%20the%20Business) Describes Hydrofarm Holdings Group, Inc. as a leading manufacturer and distributor of hydroponics equipment and supplies for controlled environment agriculture - Hydrofarm Holdings Group, Inc. is a leading independent manufacturer and distributor of branded hydroponics equipment and supplies for controlled environment agriculture (CEA)[37](index=37&type=chunk) - The company's products include grow lights, climate control solutions, grow media, and nutrients, used for cultivating various plants in controlled environment settings[37](index=37&type=chunk) [Note 2. Basis of Presentation and Significant Accounting Policies](index=12&type=section&id=Note%202.%20Basis%20of%20Presentation%20and%20Significant%20Accounting%20Policies) Outlines the preparation of financial statements under U.S. GAAP and SEC requirements, including the retroactive adjustment for the reverse stock split - The condensed consolidated financial statements are prepared in accordance with U.S. GAAP and SEC requirements for interim financial reporting[38](index=38&type=chunk) - All periods covered by the condensed consolidated financial statements have been retroactively adjusted to give effect to a **1-for-10 reverse stock split**, effective February 12, 2025[40](index=40&type=chunk) | Geographic Segment | Net Sales (3 months ended March 31, 2025, in thousands) | Net Sales (3 months ended March 31, 2024, in thousands) | | :----------------- | :------------------------------------------------------ | :------------------------------------------------------ | | United States | $32,277 | $40,455 | | Canada | $9,022 | $14,425 | | Eliminations | $(765) | $(708) | | Total consolidated net sales | $40,534 | $54,172 | [Note 3. Restructuring and Asset Sales](index=16&type=section&id=Note%203.%20Restructuring%20and%20Asset%20Sales) Details the completion of the second phase of the restructuring plan and the sale of Innovative Growers Equipment assets - The second phase of the Restructuring Plan, initiated in Q3 2023, was completed as of March 31, 2025, involving U.S. manufacturing facility consolidations[62](index=62&type=chunk) | Restructuring Costs (Second Phase, 2023-March 31, 2025) | Amount (in thousands) | | :---------------------------------------------------- | :-------------------- | | Non-cash charges (primarily inventory markdowns) | $9,737 | | Cash charges (primarily manufacturing facility consolidation) | $2,034 | - The company sold assets related to Innovative Growers Equipment (IGE) durable equipment products for **$8.66 million** in May 2024, retaining the proprietary brand and entering an exclusive supply agreement for contract manufacturing[65](index=65&type=chunk) [Note 4. Intangible Assets, Net](index=18&type=section&id=Note%204.%20Intangible%20Assets,%20Net) Provides a breakdown of intangible assets and related amortization expense for the period | Intangible Asset Category | March 31, 2025 Net Book Value (in thousands) | December 31, 2024 Net Book Value (in thousands) | | :------------------------ | :------------------------------------------- | :------------------------------------------- | | Computer software | $307 | $357 | | Customer relationships | $58,740 | $60,576 | | Technology, formulations and recipes | $74,654 | $76,980 | | Trade names and trademarks | $106,386 | $108,060 | | Other finite-lived | $191 | $228 | | Indefinite-lived trade name | $2,801 | $2,801 | | Total Intangible assets, net | $243,079 | $249,002 | - Amortization expense related to intangible assets was **$5.9 million** for the three months ended March 31, 2025[70](index=70&type=chunk) [Note 5. Loss Per Common Share](index=19&type=section&id=Note%205.%20Loss%20Per%20Common%20Share) Presents the calculation of basic and diluted net loss per common share, excluding anti-dilutive potential shares | Metric | Three months ended March 31, 2025 | Three months ended March 31, 2024 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(14,385) | $(12,608) | | Weighted-average shares outstanding (Basic & Diluted) | 4,614,510 | 4,581,221 | | Basic loss per common share | $(3.12) | $(2.75) | | Diluted loss per common share | $(3.12) | $(2.75) | - The computation of diluted loss per common share excludes potential shares from unvested restricted stock units, performance stock units, and stock options as their inclusion would have an anti-dilutive effect[74](index=74&type=chunk) [Note 6. Accounts Receivable, Net, and Inventories](index=19&type=section&id=Note%206.%20Accounts%20Receivable,%20Net,%20and%20Inventories) Details the composition and allowances for accounts receivable and inventories | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Trade accounts receivable | $20,309 | $14,112 | | Allowance for doubtful accounts | $(621) | $(706) | | Total accounts receivable, net | $20,919 | $14,756 | | Finished goods | $43,745 | $44,372 | | Raw materials | $11,863 | $12,398 | | Allowance for inventory obsolescence | $(6,668) | $(7,274) | | Total inventories | $49,902 | $50,633 | [Note 7. Leases](index=20&type=section&id=Note%207.%20Leases) Summarizes the company's operating and finance lease assets and liabilities, including a recent lease renewal | Lease Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Operating lease right-of-use assets | $40,863 | $42,869 | | Finance lease assets | $7,091 | $7,279 | | Total lease assets | $47,954 | $50,148 | | Total lease liabilities | $51,592 | $53,573 | - In April 2025, Hydrofarm renewed the lease for its Edmonton, Canada peat moss harvesting facility for a **seven-year term through April 2033**, with annual rent starting at **$347,000**[79](index=79&type=chunk) [Note 8. Property, Plant and Equipment, Net](index=22&type=section&id=Note%208.%20Property,%20Plant%20and%20Equipment,%20Net) Provides a breakdown of property, plant, and equipment, along with depreciation and asset retirement obligations | Asset Category | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Machinery and equipment | $23,606 | $23,531 | | Peat bogs and related development | $11,936 | $11,895 | | Building and improvements | $10,327 | $10,313 | | Total property, plant and equipment, net | $36,456 | $37,545 | - Depreciation, depletion, and amortization expense related to property, plant and equipment, net was **$1.4 million** for the three months ended March 31, 2025[80](index=80&type=chunk) - Asset retirement obligations (AROs) related to peat bog sites totaled **$4.5 million** at March 31, 2025, recorded in current and long-term liabilities[82](index=82&type=chunk)[83](index=83&type=chunk) [Note 9. Accrued Expenses and Other Current Liabilities](index=23&type=section&id=Note%209.%20Accrued%20Expenses%20and%20Other%20Current%20Liabilities) Details the components of accrued expenses and other current liabilities | Accrued Liability Category | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Accrued compensation and benefits | $2,448 | $1,987 | | Interest accrual | $73 | $2,141 | | Freight, custom and duty accrual | $1,007 | $1,130 | | Other accrued liabilities | $2,672 | $4,404 | | Total accrued expenses and other current liabilities | $7,414 | $10,647 | [Note 10. Debt](index=23&type=section&id=Note%2010.%20Debt) Outlines the company's Term Loan and Revolving Credit Facility, including interest rates, principal balances, and potential prepayments | Debt Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Term Loan - Principal | $118,995 | $119,303 | | Total debt | $115,844 | $115,953 | | Current portion of long-term debt | $5,876 | $1,260 | - The Term Loan had an effective interest rate of **10.93%** for the three months ended March 31, 2025, including amortization of deferred financing costs and discount[87](index=87&type=chunk) - The company estimates a probable **$4.6 million prepayment offer** on the Term Loan in 2025, related to net cash proceeds from an asset sale that were not reinvested[89](index=89&type=chunk) - The Revolving Credit Facility had a maximum commitment of **$35.0 million** as of March 31, 2025, with zero borrowings and approximately **$17.0 million available** before triggering a minimum fixed charge coverage ratio[92](index=92&type=chunk)[97](index=97&type=chunk) - Subsequent to quarter-end, on May 9, 2025, the Revolving Credit Facility was amended to extend its maturity to June 30, 2027, and reduce the maximum commitment to **$22.0 million**[100](index=100&type=chunk) [Note 11. Stockholders' Equity](index=26&type=section&id=Note%2011.%20Stockholders'%20Equity) Provides information on the number of authorized and outstanding common stock shares - As of March 31, 2025, the company had **4,615,725 shares of common stock outstanding**, with **300,000,000 shares authorized**[101](index=101&type=chunk) [Note 12. Stock-Based Compensation](index=26&type=section&id=Note%2012.%20Stock-Based%20Compensation) Details stock-based compensation expense for RSUs and PSUs, and shares available for grant - As of March 31, 2025, a total of **309,377 shares** were available for grant under the 2020 Equity Incentive Plan[102](index=102&type=chunk) | Stock-Based Compensation (3 months ended March 31, 2025) | Amount (in thousands) | | :------------------------------------------------------- | :-------------------- | | Total stock-based compensation expense for RSUs | $358 | | Total stock-based compensation expense for PSUs | $116 | - The majority of Performance Stock Units (PSUs) outstanding as of March 31, 2025, are expected to be forfeited during the second quarter of 2025 due to not meeting certain performance conditions[109](index=109&type=chunk) [Note 13. Income Taxes](index=29&type=section&id=Note%2013.%20Income%20Taxes) Presents income tax expense and the effective tax rate, noting the impact of valuation allowances | Income Tax Metric | Three months ended March 31, 2025 (in thousands) | Three months ended March 31, 2024 (in thousands) | | :---------------- | :----------------------------------------------- | :----------------------------------------------- | | Income tax expense | $82 | $196 | | Effective tax rate | (0.6)% | (1.6)% | - The effective tax rate differs from the federal statutory rate of **21%** primarily due to a full valuation allowance against net deferred tax assets in U.S. and most foreign jurisdictions[112](index=112&type=chunk)[113](index=113&type=chunk) [Note 14. Commitments and Contingencies](index=29&type=section&id=Note%2014.%20Commitments%20and%20Contingencies) Discusses purchase commitments and management's assessment of legal proceedings - The company enters into agreements with suppliers for purchase commitments to secure favorable pricing[114](index=114&type=chunk) - Management does not expect any current legal proceedings or claims to have a material adverse effect on the company's financial position, results of operations, cash flows, or future earnings[115](index=115&type=chunk) [Note 15. Fair Value Measurements](index=30&type=section&id=Note%2015.%20Fair%20Value%20Measurements) Describes the fair value measurement of financial instruments and held-for-sale assets - The company measured held-for-sale land at estimated fair value (Level 2), which was consistent with its carrying value, resulting in no gain or loss[116](index=116&type=chunk) | Financial Instrument | Fair Value Hierarchy Level | March 31, 2025 Estimated Fair Value (in thousands) | December 31, 2024 Estimated Fair Value (in thousands) | | :------------------- | :------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Finance leases | Level 3 | $8,418 | $8,437 | | Term Loan | Level 2 | $95,196 | $95,442 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on the company's financial performance and condition, highlighting the impact of adverse market conditions, the completion of restructuring efforts, and a detailed comparison of operational results for Q1 2025 versus Q1 2024, alongside an analysis of liquidity and capital resources [Company Overview](index=31&type=section&id=Company%20Overview) Describes Hydrofarm as a leading manufacturer and distributor of hydroponics equipment for controlled environment agriculture in North America - Hydrofarm is a leading independent manufacturer and distributor of branded hydroponics equipment and supplies for controlled environment agriculture (CEA) in the U.S. and Canadian markets[122](index=122&type=chunk) - The company's mission is to empower growers with products that enable greater quality, efficiency, consistency, and speed in their grow projects[122](index=122&type=chunk) - Products are distributed through a diversified network of over **2,000 wholesale customer accounts**, including specialty hydroponic retailers, commercial resellers, and e-commerce retailers[123](index=123&type=chunk) [Market Conditions](index=31&type=section&id=Market%20Conditions) Explains how agricultural oversupply, cannabis industry challenges, and regulatory delays negatively impact product demand and financial results - Adverse financial results are primarily due to an agricultural oversupply impacting the market and decreasing indoor and outdoor cultivation, particularly in the cannabis industry[124](index=124&type=chunk) - Demand for products has been negatively impacted by the extended period to enact reform of U.S. federal regulations, including cannabis rescheduling, and hydroponic retail store closings[124](index=124&type=chunk) - The second phase of the Restructuring Plan, completed as of March 31, 2025, included U.S. manufacturing facility consolidations, resulting in **$9.7 million of non-cash charges** and **$2.0 million of cash charges**[127](index=127&type=chunk) - The company sold assets related to its IGE branded products for approximately **$8.7 million**, retaining the brand and entering an exclusive supply agreement for contract manufacturing to achieve a more efficient cost model[128](index=128&type=chunk) [Results of Operations—Comparison of three months ended March 31, 2025 and 2024](index=32&type=section&id=Results%20of%20Operations%E2%80%94Comparison%20of%20three%20months%20ended%20March%2031,%202025%20and%202024) The company experienced a significant decline in net sales and gross profit for Q1 2025 compared to Q1 2024, leading to an increased net loss, despite reductions in selling, general, and administrative expenses and interest expense [Net sales](index=33&type=section&id=Net%20sales) Details the 25.2% decrease in net sales, primarily attributed to reduced volume, mix, and pricing due to cannabis industry oversupply | Metric | Three months ended March 31, 2025 (in thousands) | Three months ended March 31, 2024 (in thousands) | Change (in thousands) | Change (%) | | :------- | :----------------------------------- | :----------------------------------- | :-------------------- | :--------- | | Net sales | $40,534 | $54,172 | $(13,638) | -25.2% | - The **25.2% decrease in net sales** was primarily due to a **22.6% reduction in volume and mix** of products sold and a **1.8% decrease in price**, largely driven by oversupply in the cannabis industry[132](index=132&type=chunk) [Gross profit](index=33&type=section&id=Gross%20profit) Explains the 37.1% decrease in gross profit and margin, driven by lower net sales and a reduced proportion of proprietary brand products | Metric | Three months ended March 31, 2025 (in thousands) | Three months ended March 31, 2024 (in thousands) | Change (in thousands) | Change (%) | | :--------- | :----------------------------------- | :----------------------------------- | :-------------------- | :--------- | | Gross profit | $6,877 | $10,925 | $(4,048) | -37.1% | | Gross profit margin | 17.0% | 20.2% | -3.2 pp | | - The decrease in gross profit and gross profit margin was a result of lower net sales and selling a lower proportion of proprietary brand products[133](index=133&type=chunk) [Selling, general and administrative expenses](index=33&type=section&id=Selling,%20general%20and%20administrative%20expenses) Highlights a 9.0% decrease in SG&A expenses due to lower employee compensation and facility costs from restructuring efforts | Metric | Three months ended March 31, 2025 (in thousands) | Three months ended March 31, 2024 (in thousands) | Change (in thousands) | Change (%) | | :-------------------------------- | :----------------------------------- | :----------------------------------- | :-------------------- | :--------- | | Selling, general and administrative | $17,863 | $19,621 | $(1,758) | -9.0% | - The decrease in SG&A expenses was due to lower employee compensation costs (**$1.3 million**) and facility costs (**$0.5 million**), resulting from cost-saving and restructuring initiatives[134](index=134&type=chunk) [Interest expense](index=33&type=section&id=Interest%20expense) Notes a 14.1% decrease in interest expense, resulting from lower outstanding debt and reduced variable interest rates on the Term Loan | Metric | Three months ended March 31, 2025 (in thousands) | Three months ended March 31, 2024 (in thousands) | Change (in thousands) | Change (%) | | :------------- | :----------------------------------- | :----------------------------------- | :-------------------- | :--------- | | Interest expense | $3,377 | $3,931 | $(554) | -14.1% | - The decrease in interest expense was primarily due to lower debt outstanding from principal repayments and lower variable interest rates on the Term Loan[135](index=135&type=chunk) [Other income, net](index=33&type=section&id=Other%20income,%20net) Reports a 72.1% decrease in other income, net, for the three months ended March 31, 2025 | Metric | Three months ended March 31, 2025 (in thousands) | Three months ended March 31, 2024 (in thousands) | Change (in thousands) | Change (%) | | :--------------- | :----------------------------------- | :----------------------------------- | :-------------------- | :--------- | | Other income, net | $60 | $215 | $(155) | -72.1% | [Income taxes](index=33&type=section&id=Income%20taxes) Explains the income tax expense and effective tax rate, primarily influenced by a full valuation allowance against deferred tax assets | Metric | Three months ended March 31, 2025 (in thousands) | Three months ended March 31, 2024 (in thousands) | Change (in thousands) | Change (%) | | :---------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :--------- | | Income tax expense | $82 | $196 | $(114) | -58.2% | | Effective tax rate | (0.6)% | (1.6)% | -1.0 pp | | - The effective tax rate differs from the federal statutory rate of **21%** primarily due to U.S. and foreign jurisdictions being in full valuation allowance[137](index=137&type=chunk)[138](index=138&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) The company experienced a net decrease in cash and cash equivalents of $12.4 million in Q1 2025, primarily from operating activities. Management believes current cash, operating cash flows, and Revolving Credit Facility availability will be sufficient for the next twelve months, but is also evaluating additional asset sales. The Term Loan requires potential prepayment of $4.6 million from asset sale proceeds, and the Revolving Credit Facility was recently amended to reduce commitment and extend maturity [Cash Flow from Operating, Investing, and Financing Activities](index=34&type=section&id=Cash%20Flow%20from%20Operating,%20Investing,%20and%20Financing%20Activities) Summarizes the net decrease in cash and cash equivalents from operating, investing, and financing activities | Cash Flow Activity | Three months ended March 31, 2025 (in thousands) | Three months ended March 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------------- | :----------------------------------- | | Net cash used in operating activities | $(11,763) | $(2,297) | | Net cash used in investing activities | $(248) | $(1,408) | | Net cash used in financing activities | $(413) | $(2,358) | | Net decrease in cash and cash equivalents | $(12,383) | $(6,160) | [Operating Activities](index=34&type=section&id=Operating%20Activities) Details the $11.8 million net cash used in operating activities, driven by net loss and an increase in working capital - Net cash used in operating activities was **$11.8 million** for the three months ended March 31, 2025, primarily due to a **$14.4 million net loss** and an **$8.3 million net cash outflow** from an increase in working capital[140](index=140&type=chunk) - The **$8.3 million net increase in working capital** was primarily comprised of a **$6.8 million increase in accounts receivable** and a **$3.2 million decrease in accrued expenses** and other current liabilities[140](index=140&type=chunk) [Investing Activities](index=34&type=section&id=Investing%20Activities) Reports $0.2 million net cash used in investing activities, primarily for capital expenditures on property, plant, and equipment - Net cash used in investing activities was **$0.2 million** for the three months ended March 31, 2025, primarily due to capital expenditures of property, plant and equipment[142](index=142&type=chunk) [Financing Activities](index=34&type=section&id=Financing%20Activities) Explains the $0.4 million net cash used in financing activities, mainly for Term Loan repayments and finance lease principal payments - Net cash used in financing activities was **$0.4 million** for the three months ended March 31, 2025, primarily driven by **$0.3 million of Term Loan repayments** and **$0.1 million of finance lease principal payments**[143](index=143&type=chunk) [Availability and Use of Cash](index=34&type=section&id=Availability%20and%20Use%20of%20Cash) Assesses the adequacy of cash flows, current cash, and Revolving Credit Facility for future operations and debt service, while exploring asset sales - Management believes that cash flows from operating activities, current cash levels, and borrowing availability under the Revolving Credit Facility will be adequate to support ongoing operations and fund debt service for the next twelve months[145](index=145&type=chunk) - The company has estimated a probable **$4.6 million prepayment offer** on the Term Loan in 2025, related to net proceeds from the May 2024 asset sale that were not reinvested[148](index=148&type=chunk)[152](index=152&type=chunk) - The company is evaluating other opportunities to sell excess owned land to supplement its cash position[149](index=149&type=chunk) [Term Loan](index=36&type=section&id=Term%20Loan) Describes the $125 million senior secured Term Loan, its maturity, outstanding balance, and anticipated prepayment from asset sale proceeds - The **$125 million senior secured Term Loan**, amended in June 2023 to replace LIBOR with SOFR rates, matures on October 25, 2028[150](index=150&type=chunk) - As of March 31, 2025, the outstanding principal balance on the Term Loan was **$119.0 million**, and the company was in compliance with all debt covenants[153](index=153&type=chunk) - A probable **$4.6 million prepayment offer** on the Term Loan is expected in 2025 from asset sale proceeds not reinvested[152](index=152&type=chunk) [Revolving Credit Facility](index=37&type=section&id=Revolving%20Credit%20Facility) Details the Revolving Credit Facility's maximum commitment, available borrowing, and subsequent amendment to extend maturity and reduce commitment - The Revolving Credit Facility's maximum commitment was reduced to **$35.0 million** by November 2024, with zero borrowings as of March 31, 2025[154](index=154&type=chunk)[159](index=159&type=chunk) - As of March 31, 2025, approximately **$17.0 million** was available to borrow under the Revolving Credit Facility before triggering the minimum fixed charge coverage ratio[158](index=158&type=chunk) - On May 9, 2025, the facility was amended to extend maturity to June 30, 2027, and reduce the maximum commitment to **$22.0 million**, while also adjusting availability triggers[160](index=160&type=chunk) [Subsequent event - Revolving Credit Facility Seventh Amendment](index=37&type=section&id=Subsequent%20event%20-%20Revolving%20Credit%20Facility%20Seventh%20Amendment) Describes the May 9, 2025 amendment to the Revolving Credit Facility, extending maturity and adjusting commitment and availability triggers - On May 9, 2025, the Revolving Credit Facility was amended (Seventh Amendment) to extend its maturity date from June 30, 2026, to **June 30, 2027**, and reduce the maximum commitment amount from **$35.0 million to $22.0 million**[160](index=160&type=chunk) - The Seventh Amendment also increased the cash dominion trigger from less than **10% to less than 50% of availability** and the fixed charge ratio trigger from less than **10% to less than 20% of excess availability**[160](index=160&type=chunk) [Cash and Cash Equivalents](index=38&type=section&id=Cash%20and%20Cash%20Equivalents) Provides a breakdown of cash and cash equivalents, including amounts held by foreign subsidiaries | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------------ | :----------------------------- | :----------------------------- | | Cash and cash equivalents | $13,728 | $26,111 | | Held by foreign subsidiaries | $8,300 | $11,900 | [Material Cash Requirements](index=38&type=section&id=Material%20Cash%20Requirements) Identifies key future cash obligations, including debt repayments, lease payments, and purchase obligations - Material cash requirements include principal repayments and anticipated interest payments on long-term debt, finance lease payments, operating lease payments, and balances subject to the Term Loan reinvestment provision, as well as other purchase obligations[162](index=162&type=chunk) [Critical Accounting Policies and Estimates](index=38&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) States that critical accounting policies and estimates involve significant judgments, particularly for intangible assets and inventory valuation - The company's critical accounting policies and estimates, detailed in the 2024 Annual Report, involve significant judgments and assumptions, particularly concerning indefinite-lived intangible assets, long-lived tangible and finite-lived intangible assets, and inventory valuation[163](index=163&type=chunk) [Recent Accounting Pronouncements](index=38&type=section&id=Recent%20Accounting%20Pronouncements) Mentions the ongoing evaluation of ASU No. 2023-09 and ASU 2024-03 impacts on financial statements - The company is currently evaluating the impact of ASU No. 2023-09 (Income Taxes) and ASU 2024-03 (Expense Disaggregation Disclosures) on its consolidated financial statements[56](index=56&type=chunk)[57](index=57&type=chunk)[164](index=164&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company is exposed to market risks primarily from interest rate fluctuations on its variable-rate debt, foreign currency exchange rate changes, and inflation. It does not currently hedge interest rate risks or foreign currency risks [Interest Rate Risk](index=39&type=section&id=Interest%20Rate%20Risk) Explains the company's exposure to interest rate risk from variable-rate debt and its decision not to hedge - The company is exposed to interest rate risk through its **$119.0 million variable-rate Term Loan debt**[167](index=167&type=chunk) - A **100 basis point increase** in variable rates would increase annual interest expense by an average of **$1.1 million**[167](index=167&type=chunk) - The company does not currently hedge its interest rate risks[167](index=167&type=chunk) [Foreign Currency Risk](index=39&type=section&id=Foreign%20Currency%20Risk) Describes exposure to foreign currency exchange rate risk, primarily from the Canadian dollar and Euro, without hedging activities - The company is exposed to foreign currency exchange rate risk, principally from the Canadian dollar and the Euro, affecting sales, purchasing transactions, and labor[168](index=168&type=chunk) - The company has not entered into any foreign currency exchange contracts for trading or speculative purposes[168](index=168&type=chunk) [Inflation Risk](index=39&type=section&id=Inflation%20Risk) States that the company cannot guarantee its future financial results will not be materially impacted by inflation - The company cannot provide assurances that its results of operations and financial condition will not be materially impacted by inflation in the future[169](index=169&type=chunk) [Item 4. Controls and Procedures](index=40&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, and reported no material changes in internal controls over financial reporting during the period [Evaluation of Disclosure Controls and Procedures](index=40&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Concludes that the company's disclosure controls and procedures were effective as of March 31, 2025 - Management, with the participation of the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025[171](index=171&type=chunk) [Changes in Internal Controls over Financial Reporting](index=40&type=section&id=Changes%20in%20Internal%20Controls%20over%20Financial%20Reporting) Reports no material changes in internal controls over financial reporting during the quarter - There were no changes in internal controls over financial reporting during the three months ended March 31, 2025, that materially affected, or are reasonably likely to materially affect, them[173](index=173&type=chunk) [Part II - Other Information](index=41&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) Contains legal proceedings, risk factors, equity sales, defaults, mine safety disclosures, other information, exhibits, and signatures [Item 1. Legal Proceedings](index=41&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is not currently aware of any legal proceedings or claims that are expected to have a material adverse effect on its business, financial condition, or operating results - The company is not aware of any legal proceedings or claims that are expected to have a material adverse effect on its business, financial condition, or operating results[175](index=175&type=chunk) [Item 1A. Risk Factors](index=41&type=section&id=ITEM%201A.%20RISK%20FACTORS) The risk factors discussed in the 2024 Annual Report remain relevant, and no material changes have occurred as of the date of this Quarterly Report on Form 10-Q - No material changes from the risk factors reported in the 2024 Annual Report have occurred as of the date of this Quarterly Report on Form 10-Q[176](index=176&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=41&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) There were no unregistered sales of equity securities or use of proceeds to report for the period - There were no unregistered sales of equity securities and no use of proceeds to report[177](index=177&type=chunk) [Item 3. Defaults Upon Senior Securities](index=41&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) There were no defaults upon senior securities to report for the period - There were no defaults upon senior securities[178](index=178&type=chunk) [Item 4. Mine Safety Disclosures](index=41&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company - Mine Safety Disclosures are not applicable to the company[179](index=179&type=chunk) [Item 5. Other Information](index=41&type=section&id=ITEM%205.%20OTHER%20INFORMATION) This section primarily details the Seventh Amendment to the Revolving Credit Facility, which extended its maturity to June 30, 2027, reduced the maximum commitment to $22.0 million, and adjusted availability triggers. No Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors or officers - On May 9, 2025, the Revolving Credit Facility was amended (Seventh Amendment) to extend its maturity date to **June 30, 2027**, and reduce the maximum commitment amount from **$35.0 million to $22.0 million**[180](index=180&type=chunk) - The Seventh Amendment also increased the cash dominion trigger from less than **10% to less than 50% of availability** and the fixed charge ratio trigger from less than **10% to less than 20% of excess availability**[180](index=180&type=chunk) - No Rule 10b5-1 trading arrangements were adopted, modified, or terminated by any director or officer during the quarter ended March 31, 2025[180](index=180&type=chunk) [Item 6. Exhibits](index=42&type=section&id=ITEM%206.%20EXHIBITS) This section lists all exhibits filed with the Form 10-Q, including amendments to the Certificate of Incorporation, offer letters, and the Seventh Amendment to the Credit Agreement, along with certifications required by the Sarbanes-Oxley Act - Exhibits include corporate governance documents (e.g., Certificate of Amendment for Reverse Stock Split), employment offer letters, and the Seventh Amendment to the Credit Agreement[185](index=185&type=chunk) - Certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed as exhibits[185](index=185&type=chunk) [Signatures](index=44&type=section&id=Signatures) The Quarterly Report on Form 10-Q was duly signed on May 13, 2025, by B. John Lindeman, Chief Executive Officer, and Kevin O'Brien, Chief Financial Officer, on behalf of Hydrofarm Holdings Group, Inc - The Quarterly Report on Form 10-Q was signed by B. John Lindeman, Chief Executive Officer, and Kevin O'Brien, Chief Financial Officer, on May 13, 2025[190](index=190&type=chunk)

Financial Performance - Net sales decreased by 25.2% to $40.5 million compared to $54.2 million in the prior year period, primarily due to a 22.6% decline in volume/mix of products sold and a 1.8% decrease in price [5]. - Gross profit decreased to $6.9 million, representing 17.0% of net sales, down from $10.9 million or 20.2% of net sales in the prior year [6]. - Adjusted gross profit decreased to $8.5 million, or 21.0% of net sales, compared to $12.7 million, or 23.4% of net sales in the prior year [6]. - Net loss increased to $14.4 million, or $(3.12) per diluted share, compared to a net loss of $12.6 million, or $(2.75) per diluted share in the prior year [9]. - Adjusted EBITDA decreased to $(2.4) million compared to $0.3 million in the prior year period [10]. Cash Flow and Operating Activities - Cash used in operating activities was $(11.8) million, with free cash flow of $(12.0) million during the first quarter [11]. - Free Cash Flow (Non-GAAP) for Q1 2025 was $(12,007) million, compared to $(3,739) million in Q1 2024, indicating a worsening cash flow situation [26]. Expenses - Selling, general and administrative (SG&A) expense decreased by 9.0% to $17.9 million, while adjusted SG&A expense decreased by 11.0% to $11.0 million [7]. - Selling, general and administrative expenses (GAAP) for Q1 2025 were $17,863 million, down from $19,621 million in Q1 2024, a decrease of 9.0% [25]. - Adjusted SG&A (Non-GAAP) for Q1 2025 was $10,980 million, compared to $12,336 million in Q1 2024, a decline of 10.9% [25]. Strategic Outlook - The company is withdrawing its full year 2025 outlook for net sales, adjusted EBITDA, and free cash flow due to macroeconomic uncertainty and prolonged industry headwinds [11]. - The company remains committed to strategic priorities including driving diverse high-quality revenue streams and improving profit margins [12]. Asset and Liability Changes - Total assets decreased from $426,104 million as of December 31, 2024, to $410,557 million as of March 31, 2025, a decline of approximately 3.9% [23]. - Total current liabilities increased from $34,987 million in December 2024 to $39,941 million in March 2025, an increase of approximately 14.0% [23]. Profit Margin - The proprietary brand sales mix increased to 55% compared to 52% in the fourth quarter of 2024, contributing to improvements in gross profit margin [4]. - Gross Profit (GAAP) for Q1 2025 was $6,877 million, down 37.3% from $10,925 million in Q1 2024 [25]. - Adjusted Gross Profit (Non-GAAP) decreased to $8,532 million in Q1 2025, compared to $12,665 million in Q1 2024, reflecting a decline of 32.4% [25]. - Net loss (GAAP) for Q1 2025 was $(14,385) million, compared to $(12,608) million in Q1 2024, representing an increase in loss of 14.1% [26]. - Adjusted EBITDA (Non-GAAP) for Q1 2025 was $(2,448) million, a significant decrease from $329 million in Q1 2024 [26]. - The company reported a Gross Profit Margin (GAAP) of 17.0% for Q1 2025, down from 20.2% in Q1 2024 [25].

Core Insights - The company reported a significant decline in net sales and gross profit for the first quarter of 2025, primarily due to an oversupply in the cannabis industry, with net sales decreasing by 25.2% to $40.5 million compared to $54.2 million in the prior year period [5][8][9] - Despite the challenges, the company achieved improvements in its proprietary brand sales mix and continued to implement cost-saving measures, resulting in a reduction of SG&A expenses for the 11th consecutive quarter [4][7][9] - The company has withdrawn its full-year 2025 outlook due to macroeconomic uncertainties and ongoing industry headwinds, while reaffirming its commitment to strategic priorities aimed at improving profit margins and financial position [13][17] Financial Performance - Gross profit decreased to $6.9 million, representing 17.0% of net sales, down from 20.2% in the prior year period, while adjusted gross profit was $8.5 million, or 21.0% of net sales, compared to 23.4% previously [6][9][21] - SG&A expenses were reduced to $17.9 million from $19.6 million year-over-year, with adjusted SG&A expenses decreasing to $11.0 million from $12.3 million [7][9][21] - The net loss for the first quarter was $14.4 million, or $(3.12) per diluted share, compared to a net loss of $12.6 million, or $(2.75) per diluted share, in the prior year [8][21] Cash Flow and Liquidity - Cash used in operating activities was $(11.8) million, with free cash flow also negative at $(12.0) million for the quarter [12][9] - As of March 31, 2025, the company had $13.7 million in cash and approximately $17.0 million of available borrowing capacity on its revolving credit facility [11][9] - The company maintained compliance with debt covenants and entered into an amendment to extend the maturity date of its revolving credit facility [11][9] Strategic Initiatives - The company is focused on enhancing its proprietary brand sales mix, optimizing its distribution network, and implementing additional cost-saving measures to build long-term shareholder value [4][9] - The management emphasized the importance of controlling internal factors despite external industry challenges, aiming to improve profit margins and strengthen the financial position [4][13]

Company Overview - Hydrofarm Holdings Group, Inc. is a leading independent manufacturer and distributor of branded hydroponics equipment and supplies for controlled environment agriculture (CEA) [3] - The company offers a range of products including grow lights, climate control solutions, growing media, and nutrients, along with a portfolio of innovative and proprietary branded products [3] - Hydrofarm has over 40 years of experience in helping growers enhance productivity and efficiency in their growing projects [3] Upcoming Events - The company will host a conference call to review first quarter 2025 results on May 13, 2025, at 8:30 AM ET [1] - A press release with the first quarter 2025 results will be issued before market open on the same day [1] - The conference call can be accessed live by phone or via a webcast on the corporate website [2]

Financial Data and Key Metrics Changes - Net sales for Q4 2024 were $37.3 million, down 20.9% year-over-year, primarily due to a 16.8% decrease in volume mix and a 3.9% decline in pricing [23] - Adjusted EBITDA was a loss of $7.3 million in Q4, attributed to lower sales and adjusted gross profit, partially offset by adjusted SG&A savings [31] - Cash balance as of December 31, 2024, was $26.1 million, up from $24.4 million at the end of Q3 [32] Business Line Data and Key Metrics Changes - Proprietary brands represented approximately 52% of total net sales in Q4, a decrease compared to the prior year [24] - Consumable products accounted for approximately three-quarters of total sales, consistent with 2023 [26] - Adjusted gross profit in Q4 was $1.8 million or 4.9% of net sales, down from $8.4 million or 17.9% in the prior year [26] Market Data and Key Metrics Changes - The cannabis industry faced persistent oversupply challenges, leading to lower sales across the supply chain [8] - E-commerce sales increased over 25% in 2024, indicating a strong channel for home-growing solutions [16] - Sales to non-cannabis and non-U.S. Canadian customers increased by nearly 200 basis points in 2024 [17] Company Strategy and Development Direction - The strategic priority is to drive sales of higher-margin proprietary brands, with a focus on improving the proprietary brand sales mix [11] - Plans for 2025 include targeted marketing investments, enhanced salesforce capabilities, and refined incentive structures to improve profitability [19] - The company is exploring strategic alternatives, including potential acquisitions or divestitures to enhance shareholder value [21] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a challenging second half of 2024, with expectations of continued sales declines early in 2025, moderating as the year progresses [44] - There is optimism about long-term industry prospects, with plans to invest in higher-margin proprietary brands and diversify revenue streams [37] - Management is focused on improving operational efficiencies and reducing costs, with expectations of further SG&A reductions in 2025 [36] Other Important Information - The company completed significant reductions to its manufacturing and distribution center footprint as part of its restructuring plan [27] - The integration of Canadian entities into the main ERP system is expected to improve operating efficiencies and drive synergies [28] Q&A Session Summary Question: Can you talk about the dynamics of the broader environment in your categories as you look forward to 2025? - Management noted that early 2024 saw optimism in the cannabis category, but expectations were reset due to political changes and market conditions [42] Question: What can we look forward to in terms of incremental benefits from cost-cutting initiatives in 2025? - Management indicated opportunities for additional savings through optimizing the distribution center network and further reducing SG&A costs [49] Question: How might tariffs and regulatory changes impact the company? - Management acknowledged the fluid situation regarding tariffs and indicated plans to pass along costs to customers while monitoring the impact on sales [56] Question: Can you elaborate on potential M&A activities? - Management expressed interest in monitoring opportunities for acquisitions that could enhance shareholder value and diversify the company's portfolio [70]

Financial Data and Key Metrics Changes - Net sales for Q4 2024 were $37.3 million, down 20.9% year-over-year, primarily due to a 16.8% decrease in volume mix and a 3.9% decline in pricing [23] - Adjusted EBITDA was a loss of $7.3 million in Q4, attributed to lower sales and adjusted gross profit, partially offset by adjusted SG&A savings [31] - Cash balance as of December 31, 2024, was $26.1 million, up from $24.4 million at the end of Q3 [32] Business Line Data and Key Metrics Changes - Proprietary brands represented approximately 52% of total net sales in Q4, a decrease compared to the prior year [24] - Consumable products accounted for approximately three-quarters of total sales, consistent with 2023 [26] - Adjusted gross profit in Q4 was $1.8 million or 4.9% of net sales, down from $8.4 million or 17.9% in the prior year [26] Market Data and Key Metrics Changes - The cannabis industry faced persistent oversupply challenges, leading to lower sales across the supply chain [8] - E-commerce sales increased over 25% in 2024, indicating a strong channel for home-growing solutions [16] - Sales to non-cannabis and non-U.S. Canadian customers increased by nearly 200 basis points in 2024 [17] Company Strategy and Development Direction - The strategic priority is to drive sales of higher-margin proprietary brands, with a focus on improving the proprietary brand sales mix [11] - Plans for 2025 include targeted marketing investments, enhanced salesforce capabilities, and refined incentive structures to improve profitability [19] - The company is exploring strategic alternatives, including potential acquisitions or divestitures to enhance shareholder value [21] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a challenging second half of 2024, with expectations of continued sales declines early in 2025, moderating as the year progresses [44] - There is optimism about long-term industry prospects, with plans to invest in higher-margin proprietary brands and diversify revenue streams [37] - Management is focused on improving operational efficiencies and reducing costs, with expectations of further SG&A reductions in 2025 [36] Other Important Information - The company completed significant reductions to its manufacturing and distribution center footprint as part of its restructuring plan [27] - Adjusted SG&A expenses were $10.8 million in Q4, a 10% reduction compared to the previous year [29] - The company achieved a 17% reduction in adjusted SG&A for the full year due to lower expenses in several areas [29] Q&A Session Summary Question: Can you talk about the dynamics of the broader environment in your categories as you look forward to 2025? - Management noted that optimism in early 2024 was reset due to political changes and industry conditions, expecting double-digit sales declines early in the year [42][44] Question: What can we look forward to in terms of incremental benefits from cost-cutting initiatives in 2025? - Management indicated opportunities for further savings through optimizing the distribution center network and reducing SG&A costs, with potential savings of $2 million to $3 million identified [49][51] Question: How might tariffs and regulatory changes impact the company? - Management acknowledged the fluid situation regarding tariffs and indicated plans to pass along costs to customers, with no significant volume impact expected currently [56][58] Question: Can you elaborate on the company's M&A strategy? - Management is monitoring opportunities for acquisitions that could enhance shareholder value, including potential tuck-in acquisitions and strategic combinations [70][71]