[EXPLANATORY NOTE REGARDING REVERSE STOCK SPLIT](index=2&type=section&id=EXPLANATORY%20NOTE%20REGARDING%20REVERSE%20STOCK%20SPLIT) Hydrofarm Holdings Group, Inc. completed a 1-for-10 reverse stock split effective February 12, 2025, with all financial statements retroactively adjusted - Hydrofarm Holdings Group, Inc. completed a **1-for-10 reverse stock split** effective February 12, 2025, with trading on Nasdaq Capital Market beginning February 13, 2025, under symbol "HYFM"[7](index=7&type=chunk) - The reverse stock split was approved by stockholders on June 6, 2024, and the board of directors approved the **1-for-10 ratio** on February 6, 2025[8](index=8&type=chunk) - No fractional shares were issued; stockholders received cash payments in lieu of fractional shares. The number of authorized shares and par value remained unchanged[9](index=9&type=chunk) - All periods in the condensed consolidated financial statements, including net loss per share, have been retroactively adjusted to reflect the reverse stock split[10](index=10&type=chunk) [SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS](index=4&type=section&id=SPECIAL%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This report contains forward-looking statements subject to various risks, including industry oversupply, price decreases, and regulatory changes, with no obligation to update - The report contains forward-looking statements regarding business strategy, future operating results, and financial position, identifiable by terms like "believe," "may," "will," "estimate," "expect," etc[14](index=14&type=chunk)[15](index=15&type=chunk) - Key risks include industry oversupply, decreasing product prices, potential tariffs, asset impairment charges, liquidity concerns, ability to meet Nasdaq listing standards, and impacts of restructuring activities[15](index=15&type=chunk) - Other risks involve customer conditions, supply chain interruptions, regulatory changes (cannabis), public perception, lease obligations, reliance on key suppliers, technological advances, e-commerce execution, public company costs, acquisition success, marketing effectiveness, IT system breaches, indebtedness, third-party dependence, reputation, product price fluctuations, and competitive pressures[15](index=15&type=chunk)[20](index=20&type=chunk) - Forward-looking statements are based on current expectations and projections and are subject to risks and uncertainties detailed in the "Risk Factors" section of the 2024 Annual Report; the company disclaims any obligation to update them[16](index=16&type=chunk) [SPECIAL NOTE REGARDING USE OF TRADE NAMES AND TRADEMARKS](index=5&type=section&id=SPECIAL%20NOTE%20REGARDING%20USE%20OF%20TRADE%20NAMES%20AND%20TRADEMARKS) The report uses "Hydrofarm" and other company trademarks, with third-party names not implying endorsement or relationship - "Hydrofarm" and other trade names/trademarks in the report are the company's property[18](index=18&type=chunk) - Use of other companies' trade names/trademarks does not imply endorsement, sponsorship, or any relationship with those companies[18](index=18&type=chunk) [SPECIAL NOTE REGARDING CERTAIN TERMINOLOGY IN THIS ANNUAL REPORT ON FORM 10-Q](index=5&type=section&id=SPECIAL%20NOTE%20REGARDING%20CERTAIN%20TERMINOLOGY%20IN%20THIS%20ANNUAL%20REPORT%20ON%20FORM%2010-Q) The terms "Hydrofarm," "the Company," "we," "our," and "us" refer to Hydrofarm Holdings Group, Inc. and its subsidiaries - The terms "Hydrofarm," "the Company," "we," "our," and "us" refer to Hydrofarm Holdings Group, Inc. and its subsidiaries[19](index=19&type=chunk) [PART I - FINANCIAL INFORMATION](index=6&type=section&id=Part%20I%20-%20Financial%20Information) [Item 1. Financial Statements](index=6&type=section&id=Item%201.%20Financial%20Statements) This item includes the unaudited condensed consolidated financial statements, comprising the balance sheets, statements of operations, comprehensive loss, changes in stockholders' equity, and cash flows, along with their accompanying notes, providing a detailed financial overview for the reported periods [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section details the company's financial position, presenting assets, liabilities, and stockholders' equity as of June 30, 2025, and December 31, 2024 | Metric | June 30, 2025 ($ in thousands) | December 31, 2024 ($ in thousands) | Change (2025 vs 2024) ($ in thousands) | | :-------------------------------- | :-------------- | :---------------- | :-------------------- | | **Assets** | | | | | Cash and cash equivalents | $10,991 | $26,111 | $(15,120) | | Accounts receivable, net | $14,304 | $14,756 | $(452) | | Inventories | $44,164 | $50,633 | $(6,469) | | Total current assets | $73,040 | $95,212 | $(22,172) | | Total assets | $389,875 | $426,104 | $(36,229) | | **Liabilities** | | | | | Total current liabilities | $31,479 | $34,987 | $(3,508) | | Total liabilities | $194,866 | $202,382 | $(7,516) | | **Stockholders' Equity** | | | | | Total stockholders' equity | $195,009 | $223,722 | $(28,713) | [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's financial performance, including net sales, gross profit, operating expenses, and net loss for the three and six months ended June 30, 2025 and 2024 | Metric | 3 Months Ended June 30, 2025 ($ in thousands) | 3 Months Ended June 30, 2024 ($ in thousands) | Change (YoY) ($ in thousands) | 6 Months Ended June 30, 2025 ($ in thousands) | 6 Months Ended June 30, 2024 ($ in thousands) | Change (YoY) ($ in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | :----------- | :----------------------------- | :----------------------------- | :----------- | | Net sales | $39,245 | $54,793 | $(15,548) (-28.4%) | $79,779 | $108,965 | $(29,186) (-26.8%) | | Cost of goods sold | $36,451 | $43,942 | $(7,491) (-17.0%) | $70,108 | $87,189 | $(17,081) (-19.6%) | | Gross profit | $2,794 | $10,851 | $(8,057) (-74.3%) | $9,671 | $21,776 | $(12,105) (-55.6%) | | Selling, general and administrative | $16,140 | $18,659 | $(2,519) (-13.5%) | $34,003 | $38,280 | $(4,277) (-11.2%) | | Loss on asset disposition | $0 | $11,520 | $(11,520) (-100.0%) | $0 | $11,520 | $(11,520) (-100.0%) | | Loss from operations | $(13,346) | $(19,328) | $5,982 (30.9%) | $(24,332) | $(28,024) | $3,692 (13.2%) | | Net loss | $(16,861) | $(23,450) | $6,589 (28.1%) | $(31,246) | $(36,058) | $4,812 (13.3%) | | Basic net loss per share | $(3.63) | $(5.10) | $1.47 | $(6.75) | $(7.86) | $1.11 | | Diluted net loss per share | $(3.63) | $(5.10) | $1.47 | $(6.75) | $(7.86) | $1.11 | [Condensed Consolidated Statements of Comprehensive Loss](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) This section details the company's comprehensive loss, including net loss and other comprehensive income/loss components such as foreign currency translation adjustments | Metric | 3 Months Ended June 30, 2025 ($ in thousands) | 3 Months Ended June 30, 2024 ($ in thousands) | Change (YoY) ($ in thousands) | 6 Months Ended June 30, 2025 ($ in thousands) | 6 Months Ended June 30, 2024 ($ in thousands) | Change (YoY) ($ in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | :----------- | :----------------------------- | :----------------------------- | :----------- | | Net loss | $(16,861) | $(23,450) | $6,589 | $(31,246) | $(36,058) | $4,812 | | Foreign currency translation gain (loss) | $1,665 | $(341) | $2,006 | $1,802 | $(1,070) | $2,872 | | Total comprehensive loss | $(15,196) | $(23,791) | $8,595 | $(29,444) | $(37,128) | $7,684 | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) This section presents changes in stockholders' equity, reflecting movements in common stock, additional paid-in capital, accumulated other comprehensive loss, and accumulated deficit | Metric | Balance, Dec 31, 2024 ($ in thousands) | Issuance of stock awards ($ in thousands) | Shares repurchased ($ in thousands) | Stock-based comp. expense ($ in thousands) | Net loss ($ in thousands) | FX translation gain ($ in thousands) | Balance, June 30, 2025 ($ in thousands) | | :-------------------------- | :-------------------- | :----------------------- | :----------------------- | :------------------------ | :--------- | :-------------------- | :--------------------- | | Common Stock Shares | 4,614,279 (Shares) | 59,210 (Shares) | (14,469) (Shares) | — | — | — | 4,659,020 (Shares) | | Additional Paid-In Capital | $790,094 | — | $(27) | $758 | — | — | $790,825 | | Accumulated Other Comp. Loss | $(8,911) | — | — | — | — | $1,802 | $(7,109) | | Accumulated Deficit | $(557,461) | — | — | — | $(31,246) | — | $(588,707) | | Total Stockholders' Equity | $223,722 | — | $(27) | $758 | $(31,246) | $1,802 | $195,009 | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section details the company's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 | Metric | 6 Months Ended June 30, 2025 ($ in thousands) | 6 Months Ended June 30, 2024 ($ in thousands) | Change (YoY) ($ in thousands) | | :------------------------------------------ | :----------------------------- | :----------------------------- | :----------- | | Net cash (used in) from operating activities | $(10,047) | $1,487 | $(11,534) | | Net cash (used in) from investing activities | $(501) | $2,280 | $(2,781) | | Net cash used in financing activities | $(5,121) | $(3,576) | $(1,545) | | Effect of exchange rate changes on cash | $549 | $(189) | $738 | | Net (decrease) increase in cash | $(15,120) | $2 | $(15,122) | | Cash and cash equivalents at beginning of period | $26,111 | $30,312 | $(4,201) | | Cash and cash equivalents at end of period | $10,991 | $30,314 | $(19,323) | [Notes to the Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) This section provides supplementary information and detailed explanations for the figures presented in the condensed consolidated financial statements [1. DESCRIPTION OF THE BUSINESS](index=11&type=section&id=1.%20DESCRIPTION%20OF%20THE%20BUSINESS) The company is a leading manufacturer and distributor of hydroponics equipment and supplies for controlled environment agriculture in the U.S. and Canada - The Company, founded in 1977, is a leading independent manufacturer and distributor of branded hydroponics equipment and supplies for controlled environment agriculture (CEA)[35](index=35&type=chunk) - Products include grow lights, climate control solutions, grow media, nutrients, and proprietary branded products used for cultivating cannabis, flowers, fruits, plants, vegetables, grains, and herbs in controlled environments[35](index=35&type=chunk) [2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES](index=11&type=section&id=2.%20BASIS%20OF%20PRESENTATION%20AND%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section outlines the accounting principles and policies used in preparing financial statements, covering presentation, estimates, and segment information [Basis of presentation](index=11&type=section&id=Basis%20of%20presentation) Financial statements are prepared under U.S. GAAP and SEC requirements, with all periods retroactively adjusted for the 1-for-10 reverse stock split - Financial statements are prepared in accordance with U.S. GAAP and SEC requirements for interim reporting, including all normal and recurring adjustments[36](index=36&type=chunk) - A **1-for-10 reverse stock split** was effective February 12, 2025, with all periods retroactively adjusted, including net loss per share[38](index=38&type=chunk) [Use of estimates](index=11&type=section&id=Use%20of%20estimates) Management relies on significant estimates and assumptions for financial statement preparation, covering various valuations and liabilities, subject to ongoing review - Management relies on estimates and assumptions for financial statement preparation, including sales returns, accounts receivable, inventory realization, asset/liability valuation, useful lives, stock-based compensation, and deferred taxes[39](index=39&type=chunk) - Significant estimates also cover debt classification, commitments, contingencies, asset retirement obligations, and valuation allowances, with ongoing review to reflect business changes[39](index=39&type=chunk)[40](index=40&type=chunk) [Segment and entity-wide information](index=12&type=section&id=Segment%20and%20entity-wide%20information) The company operates as a single segment for CEA equipment and supplies, with the CEO reviewing consolidated metrics for performance and resource allocation - The Company operates as one operating and reportable segment: the manufacture and distribution of CEA equipment and supplies[41](index=41&type=chunk) - The CEO, as CODM, reviews consolidated metrics like net sales, gross profit, SG&A, net loss, total assets, and significant components for performance assessment and resource allocation[42](index=42&type=chunk) | Geography | 3 Months Ended June 30, 2025 ($ in thousands) | 3 Months Ended June 30, 2024 ($ in thousands) | 6 Months Ended June 30, 2025 ($ in thousands) | 6 Months Ended June 30, 2024 ($ in thousands) | | :---------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | United States | $31,316 | $44,096 | $63,593 | $84,551 | | Canada | $8,286 | $11,603 | $17,308 | $26,028 | | Eliminations | $(357) | $(906) | $(1,122) | $(1,614) | | **Total consolidated net sales** | **$39,245** | **$54,793** | **$79,779** | **$108,965** | | Geography | June 30, 2025 ($ in thousands) | December 31, 2024 ($ in thousands) | | :---------- | :-------------- | :---------------- | | United States | $46,270 | $50,928 | | Canada | $31,828 | $29,513 | | **Total** | **$78,098** | **$80,441** | [Fair value measurements](index=12&type=section&id=Fair%20value%20measurements) Fair value is defined as an orderly transaction price, with financial instruments classified into a three-level hierarchy based on input observability - Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between market participants[45](index=45&type=chunk) - Financial instruments are classified into a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (significant unobservable market inputs)[45](index=45&type=chunk)[46](index=46&type=chunk) - Non-financial assets and liabilities, including long-lived and intangible assets, are measured at fair value on a nonrecurring basis[47](index=47&type=chunk) [Inventories](index=13&type=section&id=Inventories) Inventories are valued at the lower of cost or net realizable value using FIFO, with an allowance for excess and obsolete items based on demand assumptions - Inventories (finished goods, work-in-process, raw materials) are stated at the lower of cost or net realizable value, primarily using the FIFO method[48](index=48&type=chunk) - An allowance for excess and obsolete inventory is maintained, based on assumptions about current and anticipated demand, customer preferences, business strategies, and market conditions[48](index=48&type=chunk) [Revenue recognition](index=13&type=section&id=Revenue%20recognition) Revenue is recognized when control of goods transfers to customers, net of variable consideration, from the single category of CEA equipment and supplies - Revenue is recognized when control of promised goods transfers to customers, generally upon receipt at their locations, and is reported net of variable consideration (rebates, discounts, returns)[50](index=50&type=chunk) - The company's revenue is generated from a single category: the manufacture and distribution of CEA equipment and supplies[49](index=49&type=chunk) | Period | 2025 ($ in thousands) | 2024 ($ in thousands) | | :-------------------------------- | :----- | :----- | | Three months ended June 30, | $1,179 | $2,270 | | Six months ended June 30, | $2,582 | $5,209 | - Contract liabilities (customer deposits/deferred revenue) totaled **$2,097 thousand** as of June 30, 2025, and **$2,611 thousand** as of December 31, 2024[51](index=51&type=chunk) [Income taxes](index=13&type=section&id=Income%20taxes) Interim income tax provision is calculated using an estimated annual effective tax rate, with discrete items recognized as they occur - Interim income tax provision is calculated by applying an estimated annual effective tax rate to year-to-date ordinary income/loss, with discrete items recognized as they occur[52](index=52&type=chunk)[53](index=53&type=chunk) [Recent accounting pronouncements](index=14&type=section&id=Recent%20accounting%20pronouncements) New FASB ASUs require greater disaggregation of effective tax rate reconciliation, income taxes paid by jurisdiction, and specific expense categories - FASB ASU No. 2023-09 (Income Taxes) requires greater disaggregation of effective tax rate reconciliation and income taxes paid by jurisdiction, effective for fiscal years beginning after December 15, 2024[54](index=54&type=chunk) - FASB ASU 2024-03 (Expense Disaggregation Disclosures) requires public entities to disclose additional information about specific expense categories annually and interim, effective for annual periods beginning after December 15, 2026[55](index=55&type=chunk) [3. RESTRUCTURING AND ASSET SALES](index=14&type=section&id=3.%20RESTRUCTURING%20AND%20ASSET%20SALES) This section details the 2023 and 2025 Restructuring Plans, including facility consolidations, product portfolio reductions, and the IGE asset sale [Restructuring](index=14&type=section&id=Restructuring) The company completed its 2023 Restructuring Plan in Q1 2025 and initiated a new 2025 plan to optimize its product portfolio, distribution, manufacturing, and headcount - The 2023 Restructuring Plan, completed in Q1 2025, involved U.S. manufacturing facility consolidations, resulting in **$9.7 million** in non-cash inventory markdowns and **$2.0 million** in cash charges[56](index=56&type=chunk)[57](index=57&type=chunk) - A new 2025 Restructuring Plan was initiated in Q2 2025 to reduce product portfolio (underperforming brands), distribution network, manufacturing footprint, and headcount[61](index=61&type=chunk) - The 2025 Restructuring Plan incurred estimated costs of **$3.3 million** in Q2 2025, primarily non-cash inventory write-downs, and is expected to result in additional charges of approximately **$2 million** and annual cost savings exceeding **$3 million**[61](index=61&type=chunk)[130](index=130&type=chunk) [Asset Sales](index=15&type=section&id=Asset%20Sales) The company completed the sale of Innovative Growers Equipment (IGE) durable equipment assets for **$8.66 million**, resulting in an **$11.52 million** loss on disposition in Q2 2024 - On May 10, 2024, the Company entered into an agreement to sell assets related to Innovative Growers Equipment (IGE) durable equipment products for **$8.66 million**, closing on May 31, 2024[63](index=63&type=chunk) - The IGE Asset Sale resulted in a loss on asset disposition of **$11.52 million** for the three and six months ended June 30, 2024, and included the derecognition of inventories, property, plant and equipment, and technology intangible assets[64](index=64&type=chunk) - The company retained the IGE brand and customer relationships and entered an exclusive supply agreement with the buyer for contract manufacturing, aiming for a more efficient cost model[63](index=63&type=chunk) - Net cash proceeds of approximately **$6.3 million** from the IGE Asset Sale were subject to reinvestment into certain investments or prepayment against the Term Loan principal[66](index=66&type=chunk) [4. INTANGIBLE ASSETS, NET](index=16&type=section&id=4.%20INTANGIBLE%20ASSETS%2C%20NET) This section breaks down the company's intangible assets, including software, customer relationships, technology, and trade names, along with their amortization | Category | June 30, 2025 Net Book Value ($ in thousands) | December 31, 2024 Net Book Value ($ in thousands) | Change ($ in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | :------- | | Computer software | $233 | $357 | $(124) | | Customer relationships | $56,902 | $60,576 | $(3,674) | | Technology, formulations and recipes | $72,327 | $76,980 | $(4,653) | | Trade names and trademarks | $104,714 | $108,060 | $(3,346) | | Other finite-lived | $152 | $228 | $(76) | | Total finite-lived intangible assets, net | $234,328 | $246,201 | $(11,873) | | Indefinite-lived intangible asset: Trade name | $2,801 | $2,801 | $0 | | **Total Intangible assets, net** | **$237,129** | **$249,002** | **$(11,873)** | | Period | 2025 ($ in thousands) | 2024 ($ in thousands) | | :-------------------------------- | :----- | :----- | | Three months ended June 30, | $5,931 | $6,036 | | Six months ended June 30, | $11,864 | $12,120 | | Period | Estimated Future Amortization Expense ($ in thousands) | | :------------------------------------ | :------------------------------------ | | For the period of July 1, 2025 to Dec 31, 2025 | $11,864 | | Year ending December 31, 2026 | $23,526 | | Year ending December 31, 2027 | $23,353 | | Year ending December 31, 2028 | $22,715 | | Year ending December 31, 2029 | $21,583 | | Year ending December 31, 2030 | $21,395 | | Thereafter | $109,892 | | **Total** | **$234,328** | [5. LOSS PER COMMON SHARE](index=17&type=section&id=5.%20LOSS%20PER%20COMMON%20SHARE) This section details the calculation of basic and diluted loss per common share, considering net loss and weighted-average shares outstanding | Metric | 3 Months Ended June 30, 2025 ($ in thousands) | 3 Months Ended June 30, 2024 ($ in thousands) | 6 Months Ended June 30, 2025 ($ in thousands) | 6 Months Ended June 30, 2024 ($ in thousands) | | :------------------------------------------ | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(16,861) | $(23,450) | $(31,246) | $(36,058) | | Weighted-average shares outstanding (Basic) | 4,646,096 (Shares) | 4,597,720 (Shares) | 4,630,390 (Shares) | 4,589,471 (Shares) | | Dilutive effect of share based compensation awards using the treasury stock method | — | — | — | — | | Diluted weighted-average shares outstanding | 4,646,096 (Shares) | 4,597,720 (Shares) | 4,630,390 (Shares) | 4,589,471 (Shares) | | Basic loss per common share | $(3.63) (per share) | $(5.10) (per share) | $(6.75) (per share) | $(7.86) (per share) | | Diluted loss per common share | $(3.63) (per share) | $(5.10) (per share) | $(6.75) (per share) | $(7.86) (per share) | - The computation of diluted loss per common share excludes **357,796** unvested/deferred RSUs/PSUs and **34,045** stock options as of June 30, 2025, due to their anti-dilutive effect[74](index=74&type=chunk) [6. ACCOUNTS RECEIVABLE, NET, AND INVENTORIES](index=18&type=section&id=6.%20ACCOUNTS%20RECEIVABLE%2C%20NET%2C%20AND%20INVENTORIES) This section details accounts receivable, net of doubtful accounts, and inventories, net of obsolescence allowances | Metric | June 30, 2025 ($ in thousands) | December 31, 2024 ($ in thousands) | Change ($ in thousands) | | :-------------------------- | :-------------- | :---------------- | :----- | | Trade accounts receivable | $13,720 | $14,112 | $(392) | | Allowance for doubtful accounts | $(629) | $(706) | $77 | | Other receivables | $1,213 | $1,350 | $(137) | | **Total accounts receivable, net** | **$14,304** | **$14,756** | **$(452)** | | Metric | June 30, 2025 ($ in thousands) | December 31, 2024 ($ in thousands) | Change ($ in thousands) | | :-------------------------- | :-------------- | :---------------- | :------- | | Finished goods | $36,677 | $44,372 | $(7,695) | | Work-in-process | $913 | $1,137 | $(224) | | Raw materials | $11,727 | $12,398 | $(671) | | Allowance for inventory obsolescence | $(5,153) | $(7,274) | $2,121 | | **Total inventories** | **$44,164** | **$50,633** | **$(6,469)** | [7. LEASES](index=18&type=section&id=7.%20LEASES) The company leases distribution centers, manufacturing facilities, and equipment under operating and finance leases, with associated costs and liabilities - The Company leases distribution centers and manufacturing facilities under non-cancelable operating leases expiring through 2038, and some property, plant, and equipment under finance leases[76](index=76&type=chunk) | Metric | 3 Months Ended June 30, 2025 ($ in thousands) | 3 Months Ended June 30, 2024 ($ in thousands) | 6 Months Ended June 30, 2025 ($ in thousands) | 6 Months Ended June 30, 2024 ($ in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Operating lease costs | $2,415 | $2,611 | $4,799 | $5,361 | | Sublease and logistics income | $1,110 | $785 | $2,298 | $1,523 | | Metric | June 30, 2025 ($ in thousands) | December 31, 2024 ($ in thousands) | | :-------------------------- | :-------------- | :---------------- | | Total lease assets | $48,777 | $50,148 | | Total lease liabilities | $52,450 | $53,573 | | Period | Operating Lease Payments ($ in thousands) | Finance Lease Payments ($ in thousands) | | :------------------------------------ | :----------------------- | :--------------------- | | For the period of July 1, 2025 to Dec 31, 2025 | $4,787 | $448 | | Year ending December 31, 2026 | $9,055 | $845 | | Year ending December 31, 2027 | $9,278 | $853 | | Year ending December 31, 2028 | $8,739 | $805 | | Year ending December 31, 2029 | $5,872 | $822 | | Year ending December 31, 2030 | $4,752 | $838 | | Thereafter | $7,869 | $6,379 | | **Total lease payments** | **$50,352** | **$10,990** | [8. PROPERTY, PLANT AND EQUIPMENT, NET](index=20&type=section&id=8.%20PROPERTY%2C%20PLANT%20AND%20EQUIPMENT%2C%20NET) This section details the company's property, plant, and equipment, including machinery, peat bogs, buildings, and land, net of accumulated depreciation | Metric | June 30, 2025 ($ in thousands) | December 31, 2024 ($ in thousands) | Change ($ in thousands) | | :-------------------------------- | :-------------- | :---------------- | :------- | | Machinery and equipment | $24,178 | $23,531 | $647 | | Peat bogs and related development | $12,634 | $11,895 | $739 | | Building and improvements | $10,370 | $10,313 | $57 | | Land | $5,659 | $5,630 | $29 | | Furniture and fixtures | $4,286 | $4,239 | $47 | | Computer equipment | $3,212 | $3,152 | $60 | | Leasehold improvements | $3,333 | $3,185 | $148 | | Gross property, plant and equipment | $63,672 | $61,945 | $1,727 | | Less: accumulated depreciation | $(27,426) | $(24,400) | $(3,026) | | **Total property, plant and equipment, net** | **$36,246** | **$37,545** | **$(1,299)** | | Period | 2025 ($ in thousands) | 2024 ($ in thousands) | | :-------------------------------- | :----- | :----- | | Three months ended June 30, | $1,481 | $1,740 | | Six months ended June 30, | $2,857 | $3,541 | - The Company operates peat bogs in Alberta, Canada, and is subject to Asset Retirement Obligations (AROs) for site remediation[81](index=81&type=chunk) - AROs totaled **$4,847 thousand** as of June 30, 2025, and **$4,516 thousand** as of December 31, 2024[82](index=82&type=chunk) [9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES](index=21&type=section&id=9.%20ACCRUED%20EXPENSES%20AND%20OTHER%20CURRENT%20LIABILITIES) This section breaks down accrued expenses and other current liabilities, including compensation, interest, freight, and asset retirement obligations | Metric | June 30, 2025 ($ in thousands) | December 31, 2024 ($ in thousands) | Change ($ in thousands) | | :-------------------------------- | :-------------- | :---------------- | :------- | | Accrued compensation and benefits | $1,703 | $1,987 | $(284) | | Interest accrual | $1,990 | $2,141 | $(151) | | Freight, custom and duty accrual | $753 | $1,130 | $(377) | | Goods in transit accrual | $485 | $574 | $(89) | | Income tax accrual | $215 | $127 | $88 | | Asset retirement obligations | $272 | $284 | $(12) | | Other accrued liabilities | $3,055 | $4,404 | $(1,349) | | **Total accrued expenses and other current liabilities** | **$8,473** | **$10,647** | **$(2,174)** | [10. DEBT](index=21&type=section&id=10.%20DEBT) This section details the company's debt obligations, including the Term Loan and Revolving Credit Facility, along with their terms and outstanding balances [Term Loan](index=21&type=section&id=Term%20Loan) The Term Loan, originally **$125 million**, matures in October 2028 with variable interest rates, and a **$4.5 million** prepayment was made in Q2 2025 - The Term Loan, originally **$125 million**, was entered into on October 25, 2021, and matures on October 25, 2028[85](index=85&type=chunk)[86](index=86&type=chunk) - Interest rates are variable, based on SOFR, with an effective interest rate of **10.89%** for Q2 2025 and **10.91%** for the six months ended June 30, 2025[85](index=85&type=chunk)[86](index=86&type=chunk) - A **$4.5 million** prepayment was made in Q2 2025 from IGE Asset Sale proceeds, which eliminated all remaining **0.25%** quarterly principal installments for the Term Loan's remaining term[88](index=88&type=chunk) - The outstanding principal balance on the Term Loan was **$114.5 million** as of June 30, 2025, and the company was in compliance with all debt covenants[160](index=160&type=chunk) [Revolving Credit Facility](index=22&type=section&id=Revolving%20Credit%20Facility) The Revolving Credit Facility's maximum commitment was reduced to **$22 million** and maturity extended to June 2027, with no amounts borrowed as of June 30, 2025 - The Seventh Amendment to the Revolving Credit Facility, effective May 9, 2025, extended the maturity to June 30, 2027, and reduced the maximum commitment from **$35 million** to **$22 million**[91](index=91&type=chunk)[92](index=92&type=chunk) - As of June 30, 2025, the company had zero borrowed under the facility and approximately **$9 million** was available before triggering the minimum fixed charge coverage ratio covenant of **1.1x**[97](index=97&type=chunk)[165](index=165&type=chunk) - The facility is asset-based, secured by a first priority lien on working capital assets and a second priority lien on non-working capital assets, and the company was in compliance with all covenants[94](index=94&type=chunk)[95](index=95&type=chunk) [Other Debt](index=23&type=section&id=Other%20Debt) Other debt of **$89 thousand** primarily consists of an immaterial revolving line of credit and a mortgage from a foreign subsidiary - Other debt of **$89 thousand** as of June 30, 2025, primarily comprises an immaterial revolving line of credit and mortgage from a foreign subsidiary[98](index=98&type=chunk) [Aggregate future principal payments](index=24&type=section&id=Aggregate%20future%20principal%20payments) This section outlines the aggregate future principal payments for the company's debt obligations, primarily the Term Loan | Period | Debt ($ in thousands) | | :------------------------------------ | :------- | | For the period of July 1, 2025 to Dec 31, 2025 | $19 | | Year ending December 31, 2026 | $21 | | Year ending December 31, 2027 | $21 | | Year ending December 31, 2028 and thereafter | $114,480 | | **Total** | **$114,541** | [11. STOCKHOLDERS' EQUITY](index=24&type=section&id=11.%20STOCKHOLDERS%27%20EQUITY) This section details the company's common stock, including shares outstanding, authorized shares, voting rights, and liquidation provisions - As of June 30, 2025, there were **4,659,020** shares of common stock outstanding and **300,000,000** shares authorized[101](index=101&type=chunk) - Each common stock share entitles the holder to one vote, with no pre-emptive, redemption, subscription, or conversion rights[101](index=101&type=chunk) - In liquidation, stockholders share pro rata in corporate assets after all liabilities and preferred stock provisions are met. Dividends are at the board's discretion[101](index=101&type=chunk) [12. STOCK-BASED COMPENSATION](index=24&type=section&id=12.%20STOCK-BASED%20COMPENSATION) This section describes the company's stock-based compensation plans, including Restricted Stock Units (RSUs), Performance Stock Units (PSUs), and stock options [Stock-based compensation plan overview](index=24&type=section&id=Stock-based%20compensation%20plan%20overview) The 2020 Equity Incentive Plan provides various stock-based awards, with **286,112** shares available for grant to employees, directors, and consultants as of June 30, 2025 - The 2020 Equity Incentive Plan is the successor to the 2018 and 2019 plans, providing for ISOs, nonqualified stock options, stock grants, and stock-based awards to employees, directors, and consultants[102](index=102&type=chunk) - As of June 30, 2025, **286,112** shares were available for grant under the 2020 Plan[102](index=102&type=chunk) - The number of shares available for issuance under the 2020 Plan may increase annually by the lesser of **4%** of outstanding common stock or a number determined by the Plan Administrator[104](index=104&type=chunk) [Restricted Stock Unit Activity](index=25&type=section&id=Restricted%20Stock%20Unit%20Activity) This section details the activity of Restricted Stock Units (RSUs), including grants, vesting, forfeitures, and unamortized compensation cost | Metric | Number of RSUs (Units) | Weighted average grant date fair value ($) | | :-------------------------- | :--------------- | :----------------------------- | | Balance, December 31, 2024 | 102,030 | $13.82 | | Granted | 211,618 | $4.68 | | Vested | (82,527) | $12.18 | | Forfeited | (34) | $157.40 | | **Balance, June 30, 2025** | **231,087** | **$6.01** | - As of June 30, 2025, total unamortized stock-based compensation cost for unvested RSUs was **$977 thousand**, with an expected recognition period of approximately one year[108](index=108&type=chunk) - The company recognized **$278 thousand** and **$636 thousand** in stock-based compensation expense for RSUs for the three and six months ended June 30, 2025, respectively[108](index=108&type=chunk) [Performance Stock Unit Activity](index=25&type=section&id=Performance%20Stock%20Unit%20Activity) This section outlines the activity of Performance Stock Units (PSUs), including vesting and forfeitures due to performance conditions or terminations | Metric | Number of PSUs (Units) | Weighted average grant date fair value ($) | | :-------------------------- | :--------------- | :----------------------------- | | Balance, December 31, 2024 | 125,783 | $9.89 | | Vested | (40,871) | $9.89 | | Forfeited | (84,912) | $9.89 | | **Balance, June 30, 2025** | **—** | **—** | - PSU forfeitures were due to employee terminations and performance conditions not being satisfied[110](index=110&type=chunk) - As of June 30, 2025, there was no unamortized stock-based compensation cost related to unvested PSUs[110](index=110&type=chunk) [Stock Options](index=26&type=section&id=Stock%20Options) This section provides details on stock option activity, including outstanding and exercisable options, with no grants or exercises during the six months ended June 30, 2025 - No stock options were granted or exercised during the six months ended June 30, 2025[111](index=111&type=chunk) | Metric | Number (Units) | Weighted average exercise price ($) | Weighted average grant date fair value ($) | Weighted average remaining contractual term (years) | | :------------------------------------------ | :------- | :------------------------------ | :------------------------------------- | :-------------------------------------------------- | | Outstanding and exercisable as of Dec 31, 2024 | 40,654 | $96.36 | $22.76 | 3.67 | | Cancelled | (6,609) | $95.86 | $13.78 | | | **Outstanding and exercisable as of June 30, 2025** | **34,045** | **$96.46** | **$24.50** | **3.71** | - As of June 30, 2025, there were no unvested stock awards and no unrecognized compensation cost related to options[111](index=111&type=chunk) [13. INCOME TAXES](index=26&type=section&id=13.%20INCOME%20TAXES) This section presents the company's income tax benefit/expense and effective tax rates, which differ from the statutory rate due to full valuation allowances | Period | Income Tax Benefit (Expense) ($ in thousands) | Effective Tax Rate | | :-------------------------------- | :--------------------------- | :----------------- | | 3 Months Ended June 30, 2025 | $98 | 0.6% | | 6 Months Ended June 30, 2025 | $16 | 0.1% | | 3 Months Ended June 30, 2024 | $(390) | (1.7)% | | 6 Months Ended June 30, 2024 | $(586) | (1.7)% | - The effective tax rates for 2025 and 2024 differ from the **21%** federal statutory rate primarily due to full valuation allowances in U.S. and foreign jurisdictions[112](index=112&type=chunk)[113](index=113&type=chunk) - The 2025 income tax benefit was mainly from Canadian jurisdictions, partially offset by foreign taxes in Spain and U.S. state taxes[112](index=112&type=chunk) - The company is evaluating the impact of the recently enacted One Big Beautiful Bill Act (OBBBA) but does not expect a material impact on its results of operations[114](index=114&type=chunk) [14. COMMITMENTS AND CONTINGENCIES](index=26&type=section&id=14.%20COMMITMENTS%20AND%20CONTINGENCIES) This section addresses the company's purchase commitments and ongoing legal proceedings, which are not expected to have a material adverse effect [Purchase commitments](index=26&type=section&id=Purchase%20commitments) The company enters into agreements with suppliers, committing to minimum inventory purchases in exchange for favorable pricing - The company enters into agreements with suppliers for favorable pricing in return for commitments to purchase minimum inventory amounts over defined periods[115](index=115&type=chunk) [Contingencies](index=26&type=section&id=Contingencies) The company is involved in routine legal proceedings, but management does not anticipate a material adverse effect on its financial position or results - The company is involved in various lawsuits and legal proceedings in the ordinary course of business[116](index=116&type=chunk) - Management does not expect the outcome of any current matters, individually or in aggregate, to have a material adverse effect on the company's financial position, results of operations, cash flows, or future earnings[117](index=117&type=chunk) [15. FAIR VALUE MEASUREMENTS](index=27&type=section&id=15.%20FAIR%20VALUE%20MEASUREMENTS) This section discusses the company's fair value measurements for assets and liabilities, including recurring and nonrecurring measurements and other disclosures [Recurring and Nonrecurring](index=27&type=section&id=Recurring%20and%20Nonrecurring) In 2024, the company sold excess land measured at Level 2 fair value, with no other assets or liabilities remeasured during the periods presented - In 2024, the company sold **20 acres** of excess land, measured at Level 2 fair value, with no gain or loss recorded as the sale price was consistent with carrying value[118](index=118&type=chunk) - No other assets or liabilities were remeasured to fair value on a recurring or nonrecurring basis during the periods presented[119](index=119&type=chunk) [Other Fair Value Measurements](index=27&type=section&id=Other%20Fair%20Value%20Measurements) This section provides estimated fair values for cash, finance leases, and the Term Loan, with methodologies based on market quotes and discounted cash flows | Metric | Fair Value Hierarchy Level | Carrying Amount (June 30, 2025) ($ in thousands) | Estimated Fair Value (June 30, 2025) ($ in thousands) | Carrying Amount (Dec 31, 2024) ($ in thousands) | Estimated Fair Value (Dec 31, 2024) ($ in thousands) | | :-------------------------- | :------------------------- | :------------------------------ | :----------------------------------- | :------------------------------ | :----------------------------------- | | Cash and cash equivalents | Level 1 | $10,991 | $10,991 | $26,111 | $26,111 | | Finance leases | Level 3 | $8,072 | $8,303 | $8,289 | $8,437 | | Term Loan | Level 2 | $114,452 | $93,851 | $119,303 | $95,442 | - Fair values of cash and cash equivalents, other current assets, and liabilities approximated carrying values due to short-term maturities[120](index=120&type=chunk) - Finance leases' fair values (Level 3) were calculated using the present value of future cash outflows discounted at an estimated borrowing rate. The Term Loan's fair value (Level 2) was based on bank quotes[121](index=121&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance and condition, discussing the adverse impact of market oversupply, restructuring initiatives, and detailed comparisons of operating results for the three and six months ended June 30, 2025 and 2024, along with liquidity and capital resources [Company Overview](index=28&type=section&id=Company%20Overview) 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 - 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[124](index=124&type=chunk) - The company's mission is to empower growers with products that enable greater quality, efficiency, consistency, and speed in their grow projects[124](index=124&type=chunk) - Products are used for cultivating various plants, including cannabis, flowers, fruits, and vegetables, in controlled settings, allowing for efficient use of space, water, and resources, and year-round growing[125](index=125&type=chunk) - The company reaches commercial farmers and consumers through over **2,000** wholesale customer accounts, including specialty hydroponic retailers, commercial resellers, garden centers, hardware stores, and e-commerce retailers[125](index=125&type=chunk) [Market Conditions](index=28&type=section&id=Market%20Conditions) Adverse financial results stem from agricultural oversupply, decreasing cultivation, and slow U.S. federal cannabis regulation, impacting product demand and leading to restructuring - Adverse financial results are primarily due to agricultural oversupply impacting the market and decreasing indoor and outdoor cultivation[126](index=126&type=chunk) - Demand for products has been negatively impacted by the slow enactment of U.S. federal cannabis regulations, leading operators to reduce investments, particularly in durable goods[126](index=126&type=chunk) - The 2023 Restructuring Plan, completed in Q1 2025, involved U.S. manufacturing facility consolidations, resulting in **$9.7 million** in non-cash inventory markdowns and **$2.0 million** in cash charges[128](index=128&type=chunk) - The 2025 Restructuring Plan, initiated in Q2 2025, aims to reduce the product portfolio (underperforming brands), distribution network, manufacturing footprint, and headcount, incurring **$3.3 million** in Q2 2025 for inventory write-downs[130](index=130&type=chunk) - The company continues to evaluate its product portfolio, supply chain, and opportunities to sell excess land or pursue outsourcing to improve efficiency and cash position[131](index=131&type=chunk) [Results of Operations—Comparison of three and six months ended June 30, 2025 and 2024](index=30&type=section&id=Results%20of%20Operations%E2%80%94Comparison%20of%20three%20and%20six%20months%20ended%20June%2030%2C%202025%20and%202024) This section compares the company's operating results for the three and six months ended June 30, 2025 and 2024, analyzing key financial metrics and their drivers [Net sales](index=30&type=section&id=Net%20sales) Net sales decreased significantly for both periods, primarily due to reduced volume, mix, and price, driven by industry oversupply | Period | 2025 ($ in thousands) | 2024 ($ in thousands) | Change (YoY) ($ in thousands) | | :-------------------------------- | :----- | :----- | :----------- | | Three months ended June 30, | $39,245 | $54,793 | $(15,548) (-28.4%) | | Six months ended June 30, | $79,779 | $108,965 | $(29,186) (-26.8%) | - The decrease in net sales was primarily due to a **27.9%** reduction in volume and mix of products sold and a **0.4%** decrease in price for the three months, and a **25.4%** reduction in volume/mix and **1.0%** decrease in price for the six months, largely driven by industry oversupply[135](index=135&type=chunk) [Gross profit](index=30&type=section&id=Gross%20profit) Gross profit and margin decreased substantially for both periods, attributed to lower net sales, a reduced proportion of proprietary brand products, and restructuring charges | Period | 2025 ($ in thousands) | 2024 ($ in thousands) | Change (YoY) ($ in thousands) | | :-------------------------------- | :----- | :----- | :----------- | | Three months ended June 30, | $2,794 | $10,851 | $(8,057) (-74.3%) | | Six months ended June 30, | $9,671 | $21,776 | $(12,105) (-55.6%) | | Period | 2025 (Gross Margin %) | 2024 (Gross Margin %) | Change (YoY) (pp) | | :-------------------------------- | :----- | :----- | :----------- | | Three months ended June 30, | 7.1% | 19.8% | (12.7 pp) | | Six months ended June 30, | 12.1% | 20.0% | (7.9 pp) | - Gross profit and margin decreased due to lower net sales, a lower proportion of proprietary brand products sold, and restructuring charges (primarily inventory markdowns) of **$3.3 million** for three months and **$3.7 million** for six months ended June 30, 2025[138](index=138&type=chunk) [Selling, general and administrative expenses](index=31&type=section&id=Selling%2C%20general%20and%20administrative%20expenses) Selling, general, and administrative expenses decreased for both periods, primarily due to reductions in employee compensation, facility costs, and insurance expenses | Period | 2025 ($ in thousands) | 2024 ($ in thousands) | Change (YoY) ($ in thousands) | | :-------------------------------- | :----- | :----- | :----------- | | Three months ended June 30, | $16,140 | $18,659 | $(2,519) (-13.5%) | | Six months ended June 30, | $34,003 | $38,280 | $(4,277) (-11.2%) | - The decrease in SG&A for the three months was driven by a **$1.8 million** reduction in employee compensation, **$0.3 million** in facility costs, and **$0.3 million** in insurance expenses[140](index=140&type=chunk) - For the six months, the decrease was primarily due to a **$3.1 million** reduction in employee compensation and a **$0.7 million** decrease in facility costs[140](index=140&type=chunk) [Loss on asset disposition](index=31&type=section&id=Loss%20on%20asset%20disposition) A **$11.5 million** loss on asset disposition was recorded for the three and six months ended June 30, 2024, due to the IGE Asset Sale, with no such loss in 2025 - A loss on asset disposition of **$11.5 million** was recorded for the three and six months ended June 30, 2024, due to the IGE Asset Sale[141](index=141&type=chunk) - No loss on asset disposition was recorded for the three and six months ended June 30, 2025[133](index=133&type=chunk) [Interest expense](index=31&type=section&id=Interest%20expense) Interest expense decreased for both periods, primarily due to lower outstanding debt from principal repayments and reduced variable interest rates on the Term Loan | Period | 2025 ($ in thousands) | 2024 ($ in thousands) | Change (YoY) ($ in thousands) | | :-------------------------------- | :----- | :----- | :----------- | | Three months ended June 30, | $3,391 | $3,811 | $(420) (-11.0%) | | Six months ended June 30, | $6,768 | $7,742 | $(974) (-12.6%) | - The decrease in interest expense was primarily due to lower debt outstanding from principal repayments and lower variable interest rates on the Term Loan[142](index=142&type=chunk) [Other (expense) income, net](index=31&type=section&id=Other%20(expense)%20income%2C%20net) The shift to other expense in 2025 was primarily due to a loss on debt extinguishment recorded in conjunction with the Term Loan prepayment | Period | 2025 ($ in thousands) | 2024 ($ in thousands) | Change (YoY) ($ in thousands) | | :-------------------------------- | :----- | :----- | :----------- | | Three months ended June 30, | $(222) | $79 | $(301) (-381.0%) | | Six months ended June 30, | $(162) | $294 | $(456) (-155.1%) | - The shift to other expense in 2025 was primarily due to a loss on debt extinguishment recorded in conjunction with the Term Loan prepayment[143](index=143&type=chunk) [Income taxes](index=31&type=section&id=Income%20taxes) The company reported an income tax benefit in 2025, differing from the federal statutory rate primarily due to full valuation allowances in U.S. and foreign jurisdictions | Period | Income Tax Benefit (Expense) ($ in thousands) | Effective Tax Rate | | :-------------------------------- | :--------------------------- | :----------------- | | 3 Months Ended June 30, 2025 | $0.1 | 0.6% | | 6 Months Ended June 30, 2025 | < $0.1 | 0.1% | | 3 Months Ended June 30, 2024 | $(0.4) | (1.7)% | | 6 Months Ended June 30, 2024 | $(0.6) | (1.7)% | - Effective tax rates differ from the **21%** federal statutory rate primarily due to full valuation allowances in U.S. and foreign jurisdictions[144](index=144&type=chunk)[145](index=145&type=chunk) - The 2025 income tax benefit was primarily due to benefits in Canadian jurisdictions, partially offset by foreign and U.S. state taxes[144](index=144&type=chunk) [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's ability to generate and manage cash, including cash flows from operating, investing, and financing activities, and its available capital resources [Cash Flow from Operating, Investing, and Financing Activities](index=32&type=section&id=Cash%20Flow%20from%20Operating%2C%20Investing%2C%20and%20Financing%20Activities) Net cash used in operating activities increased significantly in H1 2025, while investing activities shifted to a net use, and financing activities continued to use cash for debt repayments | Metric | 6 Months Ended June 30, 2025 ($ in thousands) | 6 Months Ended June 30, 2024 ($ in thousands) | Change (YoY) ($ in thousands) | | :------------------------------------------ | :----------------------------- | :----------------------------- | :----------- | | Net cash (used in) from operating activities | $(10,047) | $1,487 | $(11,534) | | Net cash (used in) from investing activities | $(501) | $2,280 | $(2,781) | | Net cash used in financing activities | $(5,121) | $(3,576) | $(1,545) | | Effect of exchange rate changes on cash | $549 | $(189) | $738 | | Net (decrease) increase in cash | $(15,120) | $2 | $(15,122) | | Cash and cash equivalents at beginning of period | $26,111 | $30,312 | $(4,201) | | Cash and cash equivalents at end of period | $10,991 | $30,314 | $(19,323) | - Net cash used in operating activities for H1 2025 was **$10.0 million**, primarily due to a **$31.2 million** net loss and a **$3.8 million** working capital outflow, partially offset by **$25.0 million** in non-cash items[147](index=147&type=chunk) - Net cash used in investing activities for H1 2025 was **$0.5 million**, mainly for capital expenditures, contrasting with a **$2.3 million** inflow in H1 2024 due to IGE Asset Sale proceeds[150](index=150&type=chunk) - Net cash used in financing activities for H1 2025 was **$5.1 million**, driven by **$4.9 million** in Term Loan repayments and **$0.2 million** in finance lease principal payments[151](index=151&type=chunk) [Availability and Use of Cash](index=33&type=section&id=Availability%20and%20Use%20of%20Cash) Management believes current cash, operating cash flows, and the Revolving Credit Facility will adequately support operations, debt service, and capital expenditures for the next twelve months - Management believes cash flows from operating activities, current cash levels, and Revolving Credit Facility availability will be adequate to support operations and fund debt service, capital expenditures, lease obligations, and working capital for the next twelve months[153](index=153&type=chunk) - A **$4.5 million** prepayment was made on the Term Loan in Q2 2025 using IGE Asset Sale proceeds, with **$0.8 million** in remaining contractual commitments[154](index=154&type=chunk) - The company is evaluating additional asset sales (e.g., excess land) or divestitures of brands/lines of business to supplement its cash position, which may be subject to debt provisions[155](index=155&type=chunk) [Term Loan](index=33&type=section&id=Term%20Loan) The Term Loan, with an outstanding principal balance of **$114.5 million** as of June 30, 2025, had a **$4.5 million** prepayment in Q2 2025, eliminating future quarterly installments - The Term Loan, originally **$125 million**, was entered into on October 25, 2021, and matures on October 25, 2028, with variable interest rates based on SOFR[156](index=156&type=chunk) - A **$4.5 million** prepayment was made in Q2 2025 from IGE Asset Sale proceeds, which reduced required quarterly installment amounts to zero for the remaining term[158](index=158&type=chunk)[159](index=159&type=chunk) - The outstanding principal balance was **$114.5 million** as of June 30, 2025, and the company was in compliance with all debt covenants[160](index=160&type=chunk) [Revolving Credit Facility](index=34&type=section&id=Revolving%20Credit%20Facility) The Revolving Credit Facility's maximum commitment was reduced to **$22 million** and maturity extended to June 2027, with **$9 million** available before triggering the fixed charge coverage ratio covenant - The Seventh Amendment, dated May 9, 2025, reduced the maximum commitment under the Revolving Credit Facility from **$35 million** to **$22 million** and extended the maturity date to June 30, 2027[161](index=161&type=chunk) - As of June 30, 2025, no amounts were borrowed, and approximately **$9 million** was available before triggering the minimum fixed charge coverage ratio covenant of **1.1x**[165](index=165&type=chunk) - The facility is secured by a first priority lien on working capital assets and a second priority lien on non-working capital assets, and the company was in compliance with all debt covenants[162](index=162&type=chunk)[164](index=164&type=chunk) [Cash and Cash Equivalents](index=35&type=section&id=Cash%20and%20Cash%20Equivalents) Total cash and cash equivalents decreased by **$15.1 million** to **$11.0 million** as of June 30, 2025, with **$6.6 million** held by foreign subsidiaries | Metric | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | Change ($ in millions) | | :-------------------------- | :-------------- | :---------------- | :------- | | Total cash and cash equivalents | $11.0 | $26.1 | $(15.1) | | Held by foreign subsidiaries | $6.6 | $11.9 | $(5.3) | [Material Cash Requirements](index=35&type=section&id=Material%20Cash%20Requirements) Material cash requirements include interest payments on long-term debt, lease payments, Term Loan reinvestment balances, and purchase obligations, exposing the company to interest rate risk - Material cash requirements include interest payments on long-term debt, finance lease payments, operating lease payments, Term Loan reinvestment provision balances, and purchase obligations[168](index=168&type=chunk) - Variable rates on the Term Loan are subject to change, exposing the company to interest rate risk[168](index=168&type=chunk) [Critical Accounting Policies and Estimates](index=35&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Critical accounting policies and estimates involve significant judgments, particularly for indefinite-lived intangible assets, long-lived assets, and inventory valuation, where actual results may differ - Critical accounting policies and estimates involve significant judgments and assumptions, particularly for indefinite-lived intangible assets, long-lived tangible and finite-lived intangible assets, and inventory valuation[169](index=169&type=chunk) - Actual results could differ materially from the amounts reported based on these estimates[169](index=169&type=chunk) [Recent Accounting Pronouncements](index=35&type=section&id=Recent%20Accounting%20Pronouncements) Information regarding recent accounting pronouncements is provided in Note 2 – Basis of Presentation and Significant Accounting Policies - Information on recent accounting pronouncements is detailed in Note 2 – Basis of Presentation and Significant Accounting Policies[170](index=170&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item discusses the company's exposure to market risks, primarily interest rate risk from variable-rate debt, foreign currency risk from operations in CAD and Euro, and inflation risk, noting that the company does not currently hedge these risks [Interest Rate Risk](index=36&type=section&id=Interest%20Rate%20Risk) The company is exposed to interest rate risk due to its **$114.5 million** variable-rate Term Loan, with a 100 basis point increase potentially raising annual interest expense by **$1.2 million** - The company is exposed to interest rate risk due to its **$114.5 million** variable-rate Term Loan as of June 30, 2025[173](index=173&type=chunk) - A **100 basis point** increase in interest rates would increase annual interest expense by an average of **$1.2 million**[173](index=173&type=chunk) - The company does not currently hedge its interest rate risks[173](index=173&type=chunk) [Foreign Currency Risk](index=36&type=section&id=Foreign%20Currency%20Risk) Operations in CAD and Euro expose the company to foreign currency risk, impacting sales, purchasing, and labor, though no hedging contracts are currently used - The functional currencies of foreign subsidiary operations are predominantly CAD and Euro, exposing the company to foreign currency risk[174](index=174&type=chunk) - Fluctuations in exchange rates impact sales, purchasing transactions, and labor, affecting results of operations and cash flows[174](index=174&type=chunk) - The company does not currently use foreign currency exchange contracts for trading or speculative purposes[174](index=174&type=chunk) [Inflation Risk](index=36&type=section&id=Inflation%20Risk) The company's financial results are based on historical costs, and future inflation could materially impact its operations and financial condition - The company's financial results are based on historical costs, and there is no assurance that future inflation will not materially impact its operations and financial condition[175](index=175&type=chunk) [Item 4. Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, with CEO and CFO participation, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2025, concluding they were effective. There were no material changes in internal controls over financial reporting during the period [Evaluation of Disclosure Controls and Procedures](index=37&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2025, ensuring timely and accurate information reporting - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective as of June 30, 2025[177](index=177&type=chunk) - Disclosure controls are designed to ensure timely recording, processing, summarizing, and reporting of information required under the Exchange Act[178](index=178&type=chunk) [Changes in Internal Controls over Financial Reporting](index=37&type=section&id=Changes%20in%20Internal%20Controls%20over%20Financial%20Reporting) No material changes in internal controls over financial reporting occurred during the period covered by this report - No material changes in internal controls over financial reporting occurred during the period covered by this report[179](index=179&type=chunk) [PART II - OTHER INFORMATION](index=38&type=section&id=Part%20II%20-%20Other%20Information) [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently aware of any material pending legal proceedings or claims beyond routine litigation incidental to its business - The company is not aware of any material pending legal proceedings or claims, other than routine litigation incidental to business[181](index=181&type=chunk) [Item 1A. Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) The risk factors discussed in the 2024 Annual Report remain relevant, with no material changes as of the date of this Quarterly Report - Risk factors from the 2024 Annual Report remain relevant, and no material changes have occurred as of the date of this Quarterly Report[182](index=182&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=38&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 - No unregistered sales of equity securities or use of proceeds to report[183](index=183&type=chunk) [Item 3. Defaults Upon Senior Securities](index=38&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities to report for the period - No defaults upon senior securities to report[184](index=184&type=chunk) [Item 4. Mine Safety Disclosures](index=38&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[185](index=185&type=chunk) [Item 5. Other Information](index=38&type=section&id=Item%205.%20Other%20Information) This item states that sections (a) and (b) are not applicable, and no director or officer adopted, modified, or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the quarter ended June 30, 2025 - Sections (a) and (b) are not applicable[186](index=186&type=chunk) - No director or officer adopted, modified, or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the quarter ended June 30, 2025[186](index=186&type=chunk) [Item 6. Exhibits](index=39&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance documents, credit agreement amendments, compensation policies, and CEO/CFO certifications - The section lists all exhibits filed with the Form 10-Q, including corporate governance documents, credit agreement amendments, compensation policies, and CEO/CFO certifications[192](index=192&type=chunk) [SIGNATURES](index=40&type=section&id=SIGNATURES) The Quarterly Report on Form 10-Q was signed by B. John Lindeman, CEO, and Kevin O'Brien, CFO, on August 12, 2025 - The Quarterly Report on Form 10-Q was signed by B. John Lindeman, Chief Executive Officer, and Kevin O'Brien, Chief Financial Officer, on August 12, 2025[196](index=196&type=chunk)

Financial Performance - Net sales decreased to $39245 thousand in Q2 2025 from $54793 thousand in Q2 2024 [23] - Adjusted Gross Profit decreased to $7531 thousand in Q2 2025 from $13349 thousand in Q2 2024 [23] - Adjusted Gross Profit Margin decreased to 192% of net sales in Q2 2025 from 244% in Q2 2024 [23] - Adjusted SG&A increased to 250% of net sales in Q2 2025 from 212% in Q2 2024, while the actual expense decreased to $9803 thousand from $11624 thousand [23] - Adjusted EBITDA decreased to $(2272) thousand in Q2 2025 from $1725 thousand in Q2 2024 [23] Strategic Initiatives and Restructuring - A new restructuring plan was initiated to optimize the product portfolio, distribution center, and manufacturing footprint [13, 16] - The company anticipates over $3 million in estimated annual cost savings from the restructuring plan, along with improvements in working capital [16] - The company is focused on higher-margin proprietary brands by eliminating underperforming brands [16] - The company expects improved Adjusted Gross Profit Margin and reduced year-over-year Adjusted SG&A expense for full year 2025 [20] Liquidity and Debt - Cash balance as of June 30, 2025, was $110 million [30] - Liquidity, defined as cash plus available borrowing capacity, was $200 million as of June 30, 2025 [30] - Free Cash Flow for the three months ended June 30, 2025, was $14 million [30] - Total debt outstanding as of June 30, 2025, was $1226 million, with net debt at $1116 million [30]

[Hydrofarm Holdings Group Q2 2025 Earnings Release](index=1&type=section&id=Hydrofarm%20Holdings%20Group%20Q2%202025%20Earnings%20Release) [Second Quarter 2025 Performance Highlights](index=1&type=section&id=Second%20Quarter%202025%20Performance%20Highlights) The company saw a significant revenue decline in Q2 2025 due to industry headwinds but continued cost reductions and generated positive free cash flow Q2 2025 Key Financial Metrics vs Prior Year | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $39.2 million | $54.8 million | -28.4% | | Gross Profit Margin | 7.1% | 19.8% | -12.7 p.p. | | Adjusted Gross Profit Margin | 19.2% | 24.4% | -5.2 p.p. | | Adjusted SG&A Expense | $9.8 million | $11.6 million | -15.7% | | Net Loss | $(16.9) million | $(23.5) million | Improved | | Adjusted EBITDA | $(2.3) million | $1.7 million | Decreased | | Free Cash Flow | $1.4 million | $3.4 million | Decreased | - The company initiated a new restructuring plan designed to further reduce costs by optimizing its product portfolio and right-sizing its manufacturing and distribution footprint[4](index=4&type=chunk) - Management highlighted the **12th consecutive quarter** of significant year-over-year Adjusted SG&A expense reductions, which helped generate positive Free Cash Flow of **$1.4 million**[4](index=4&type=chunk) [Detailed Financial Results (Q2 2025)](index=1&type=section&id=Detailed%20Financial%20Results%20(Q2%202025)) The company experienced a 28.4% decrease in net sales, a significant gross profit impact from restructuring costs, and reduced SG&A expenses [Net Sales](index=1&type=section&id=Net%20Sales) - Net sales decreased by **28.4% to $39.2 million** from $54.8 million in the prior year period[5](index=5&type=chunk) - The decline was driven by a **27.9% decrease in volume/mix** of products sold, mainly due to industry oversupply, and a 0.4% decrease in price[5](index=5&type=chunk) [Gross Profit](index=1&type=section&id=Gross%20Profit) Gross Profit Performance (Q2 2025 vs Q2 2024) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Gross Profit | $2.8 million | $10.9 million | | Gross Profit Margin | 7.1% | 19.8% | | Adjusted Gross Profit | $7.5 million | $13.3 million | | Adjusted Gross Profit Margin | 19.2% | 24.4% | - Gross profit was negatively impacted by **$3.3 million in non-cash restructuring costs** in Q2 2025, with the margin decline also driven by lower sales and an unfavorable product mix[6](index=6&type=chunk) [Selling, General and Administrative (SG&A) Expense](index=2&type=section&id=Selling%2C%20General%20and%20Administrative%20(SG%26A)%20Expense) SG&A Expense Reduction (Q2 2025 vs Q2 2024) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | SG&A Expense (GAAP) | $16.1 million | $18.7 million | | Adjusted SG&A (Non-GAAP) | $9.8 million | $11.6 million | - The reduction in SG&A was mainly driven by the company's restructuring actions and cost-saving initiatives, leading to lower compensation, insurance, and facility costs[8](index=8&type=chunk) [Net Loss and Adjusted EBITDA](index=2&type=section&id=Net%20Loss%20and%20Adjusted%20EBITDA) Profitability Metrics (Q2 2025 vs Q2 2024) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net Loss | $(16.9) million | $(23.5) million | | Diluted EPS | $(3.63) | $(5.10) | | Adjusted EBITDA | $(2.3) million | $1.7 million | - The net loss improved year-over-year, partially due to SG&A expense reductions and a prior-year loss on an asset sale; however, **Adjusted EBITDA decreased**, reflecting lower sales and gross profit[8](index=8&type=chunk)[9](index=9&type=chunk) [Strategic Initiatives and Outlook](index=2&type=section&id=Strategic%20Initiatives%20and%20Outlook) The company initiated a new restructuring plan to yield annual savings while reaffirming its full-year 2025 financial expectations [Restructuring Plan](index=2&type=section&id=Restructuring%20Plan) - A new restructuring plan was initiated in Q2 2025 to narrow the product portfolio, reduce the operational footprint, and improve efficiency[9](index=9&type=chunk) - The company incurred estimated restructuring costs of **$3.3 million** in Q2 2025, primarily from non-cash inventory write-downs[9](index=9&type=chunk) - The plan is expected to generate annual cost savings exceeding **$3 million**, plus additional working capital reductions[9](index=9&type=chunk) [Reaffirmed Full Year 2025 Expectations](index=2&type=section&id=Reaffirmed%20Full%20Year%202025%20Expectations) - The company reaffirmed its guidance for fiscal year 2025, which includes improved Adjusted Gross Profit Margin, reduced Adjusted SG&A, positive free cash flow for the final nine months, and capital expenditures under $2 million[11](index=11&type=chunk)[12](index=12&type=chunk) - Potential high tariffs on imported products from China or other countries are noted as a risk that could negatively impact 2025 financial performance[11](index=11&type=chunk) [Balance Sheet, Liquidity and Cash Flow](index=2&type=section&id=Balance%20Sheet%2C%20Liquidity%20and%20Cash%20Flow) The company maintained a stable liquidity position, generated positive free cash flow, and made a prepayment on its term loan Liquidity and Debt Position as of June 30, 2025 | Metric | Amount | | :--- | :--- | | Cash | $11.0 million | | Available Borrowing Capacity | ~$9 million | | Term Loan Principal Outstanding | $114.5 million | | Revolving Credit Facility Balance | $0 | - The company was in compliance with all debt covenants and extended the maturity of its Revolving Credit Facility to June 30, 2027[10](index=10&type=chunk) Q2 2025 Cash Flow Summary | Metric | Amount | | :--- | :--- | | Cash from Operating Activities | $1.7 million | | Capital Expenditures | $0.3 million | | Free Cash Flow | $1.4 million | [Financial Statements](index=6&type=section&id=Financial%20Statements) This section presents the unaudited condensed consolidated Statement of Operations and Balance Sheet as of June 30, 2025 [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Statement of Operations Highlights (Three Months Ended June 30) | (In thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Net sales | $39,245 | $54,793 | | Gross profit | $2,794 | $10,851 | | Selling, general and administrative | $16,140 | $18,659 | | Loss from operations | $(13,346) | $(19,328) | | Net loss | $(16,861) | $(23,450) | | Net loss per share, diluted | $(3.63) | $(5.10) | [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Balance Sheet Highlights (As of) | (In thousands) | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $10,991 | $26,111 | | Inventories | $44,164 | $50,633 | | Total current assets | $73,040 | $95,212 | | Total assets | $389,875 | $426,104 | | Total current liabilities | $31,479 | $34,987 | | Long-term debt | $111,559 | $114,693 | | Total liabilities | $194,866 | $202,382 | | Total stockholders' equity | $195,009 | $223,722 | [Non-GAAP Financial Measures](index=8&type=section&id=Non-GAAP%20Financial%20Measures) The company provides reconciliations from GAAP to non-GAAP measures to offer additional information for evaluating performance [Reconciliation of Non-GAAP Measures](index=8&type=section&id=Reconciliation%20of%20Non-GAAP%20Measures) Reconciliation of Net Loss to Adjusted EBITDA (Three Months Ended June 30) | (In thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Net loss (GAAP) | $(16,861) | $(23,450) | | Interest expense | $3,391 | $3,811 | | Income tax (benefit) expense | $(98) | $390 | | Depreciation, depletion and amortization | $7,412 | $7,776 | | Restructuring expenses | $3,321 | $927 | | Stock-based compensation | $289 | $769 | | Loss on asset disposition | $— | $11,520 | | **Adjusted EBITDA (Non-GAAP)** | **$(2,272)** | **$1,725** | Reconciliation of Free Cash Flow (Three Months Ended June 30) | (In thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Net cash from operating activities (GAAP) | $1,716 | $3,784 | | Capital expenditures | $(281) | $(368) | | **Free Cash Flow (Non-GAAP)** | **$1,435** | **$3,416** | [Definitions of Non-GAAP Measures](index=10&type=section&id=Definitions%20of%20Non-GAAP%20Measures) - Adjusted EBITDA is defined as net loss excluding interest expense, taxes, depreciation and amortization, stock-based compensation, restructuring expenses, and other non-cash or infrequent costs[30](index=30&type=chunk) - Free Cash Flow is defined as net cash from operating activities less capital expenditures for property, plant, and equipment[35](index=35&type=chunk)

Core Viewpoint - Hydrofarm Holdings Group, Inc. reported a significant decline in net sales and gross profit for the second quarter of 2025, prompting the initiation of a restructuring plan aimed at cost reduction and efficiency improvement while maintaining a focus on proprietary brands and international business growth [4][5][6]. Financial Performance - Net sales decreased by 28.4% to $39.2 million compared to $54.8 million in the prior year period, primarily due to a 27.9% decline in volume/mix of products sold and a 0.4% decrease in price [5][9]. - Gross profit fell to $2.8 million, representing 7.1% of net sales, down from $10.9 million or 19.8% of net sales in the prior year period, impacted by non-cash restructuring costs of $3.3 million [6][9]. - Adjusted gross profit decreased to $7.5 million, or 19.2% of net sales, compared to $13.3 million, or 24.4% of net sales in the prior year [6][9]. - Selling, general and administrative (SG&A) expenses improved to $16.1 million from $18.7 million in the prior year, with adjusted SG&A expenses decreasing to $9.8 million from $11.6 million [7][9]. - The net loss was $16.9 million, or $(3.63) per diluted share, compared to a net loss of $23.5 million, or $(5.10) per diluted share in the prior year [8][9]. Restructuring Plan - The company initiated a restructuring plan to optimize its product portfolio and reduce costs, expecting annual savings exceeding $3 million along with additional working capital improvements [4][11]. - Estimated restructuring costs of $3.3 million were incurred during the second quarter, primarily related to non-cash inventory write-downs [11]. Cash Flow and Liquidity - Cash from operating activities was $1.7 million, with free cash flow of $1.4 million during the three months ended June 30, 2025 [13][9]. - As of June 30, 2025, the company had $11.0 million in cash and approximately $9 million of available borrowing capacity on its Revolving Credit Facility [12]. Strategic Outlook - The company reaffirmed its commitment to strategic priorities for fiscal year 2025, focusing on driving diverse high-quality revenue streams, improving profit margins, and strengthening its financial position [14].

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].