Hydrofarm(HYFM) - 2024 Q4 - Annual Report

Financial Performance - Net sales for 2024 decreased to $190,288 thousand from$ 226,581 thousand in 2023, representing a decline of approximately 16%[359]. - Gross profit for 2024 was $32,133 thousand, down from$ 37,612 thousand in 2023, indicating a decrease of about 14.5%[359]. - The net loss for 2024 increased to $66,717 thousand compared to a net loss of$ 64,813 thousand in 2023, reflecting a rise of approximately 2.9%[361]. - The total comprehensive loss for 2024 was $69,131 thousand, up from$ 64,075 thousand in 2023, marking an increase of about 7.9%[361]. - Operating expenses in 2024 were $72,794 thousand, down from$ 87,314 thousand in 2023, showing a reduction of approximately 16.6%[359]. - The company reported a loss from operations of $52,181 thousand in 2024, compared to a loss of$ 49,702 thousand in 2023, indicating a worsening of about 5.9%[359]. - Cash and cash equivalents at the end of 2024 were $26,111 thousand, down from$ 30,312 thousand at the end of 2023, representing a decrease of approximately 13.5%[367]. - The accumulated deficit increased from $490.7 million in 2023 to$ 557.5 million in 2024, an increase of approximately 13.6%[357]. - Total stockholders' equity decreased from $290.6 million in 2023 to$ 223.7 million in 2024, a decline of about 23%[357]. - Total assets decreased from $507.6 million in 2023 to$ 426.1 million in 2024, a decline of approximately 16%[357]. Inventory and Assets - The company has $249.0 million in intangible assets,$ 50.6 million in inventories, and $37.5 million in property, plant, and equipment as of December 31, 2024[115]. - Inventories decreased significantly from$ 75.4 million in 2023 to $50.6 million in 2024, representing a reduction of about 32.9%[357]. - Total property, plant and equipment, net and operating lease right-of-use assets decreased to$ 80,441 million in 2024 from $101,854 million in 2023, a reduction of about 21%[379]. - The company reported a decrease in total property, plant and equipment in the United States to$ 50,928 million in 2024 from $68,270 million in 2023, a decline of approximately 25%[379]. - In Canada, total property, plant and equipment decreased to$ 29,513 million in 2024 from $33,584 million in 2023, representing a decline of about 12%[379]. Risks and Challenges - The company faces risks related to manufacturing processes, including equipment malfunctions and raw material shortages, which could lead to product defects and recalls[120]. - The company’s peat moss harvesting operation is vulnerable to climate change impacts, which could adversely affect harvest yields[121]. - Increased prices and inflation for raw materials and labor could negatively impact the company's margin performance and financial results[125]. - The company occupies many facilities under long-term non-cancellable leases, which may pose financial risks if unable to renew or sublease[126]. - The company is exposed to regulatory approval delays for new products, which could hinder product launches and market innovations[113]. - Restructuring activities may increase expenses and cash expenditures, potentially affecting financial results[110]. - The company’s ability to develop and market new products is uncertain, which could impact market share and financial performance[112]. - Tariffs and trade restrictions could increase product costs, adversely affecting competitiveness and financial results[124]. - Disruption in freight carrier operations could negatively impact net revenues and gross margin due to higher shipping costs and delays[128]. - Approximately 14% of the company's peat bog sites are currently deemed non-compliant by environmental authorities, affecting operational capabilities[135]. - The company faces potential increased costs and risks associated with international operations, including compliance with local regulations and currency fluctuations[129]. - Regulatory compliance failures could lead to fines or product recalls, adversely affecting financial condition and results of operations[130]. - Climate change may lead to increased operational costs and disruptions due to extreme weather events, impacting financial results[141]. - The company is subject to evolving ESG scrutiny, which may impose additional costs and affect reputation and access to capital[140]. - Internal control weaknesses could result in material errors in financial reporting, adversely impacting investor confidence and stock price[143]. - Supply chain optimization failures could adversely affect production capabilities and financial results[137]. - The company relies on information technology systems for operations, and failures or breaches could significantly impair business functions[151]. - The company faces risks related to acquisitions, including integration difficulties and potential liabilities from acquired companies, which could adversely impact financial results[161]. - The existing Credit Facilities impose restrictions that limit the company's operational flexibility, including limitations on incurring additional debt and paying dividends[169]. - The company is subject to ongoing tax audits, which may result in additional tax liabilities if tax authorities disagree with its determinations[157]. - The company may incur significant costs related to investigating and mitigating cyber threats, which could adversely affect its financial condition[153]. - The company is prohibited from selling products directly to cannabis growers in jurisdictions where such sales are illegal, which may limit market opportunities[171]. - The company may face increased capital needs and may not be able to obtain sufficient capital to fund future operations[165]. - Substantially all of the company's assets are pledged to secure obligations under the Credit Facilities, which may materially harm its ability to conduct business if defaults occur[173]. - Disruptions in the availability or increases in the prices of raw materials sourced by suppliers could adversely affect the company's results of operations[174]. - A significant interruption in the operation of the company's or its suppliers' facilities could impact its capacity to produce products and service customers, adversely affecting revenues and earnings[178]. - The company is subject to risks related to the cannabis industry, including the illegality of cannabis under U.S. federal law, which could negatively impact revenues and profits[182]. - The company's growth is highly dependent on the U.S. cannabis market, and future regulations may create limitations that decrease the demand for its products[198]. - If suppliers are unable to source raw materials in sufficient quantities and at acceptable costs, the company's ability to sell products may be harmed[179]. - The company faces risks from potential disruptions in its global supply chain, which could adversely impact its financial condition and results of operations[177]. - The company's proprietary technologies may limit its ability to locate or utilize alternative inputs for certain products, potentially increasing costs and delays[175]. - The company may experience difficulties in manufacturing products on a timely basis, leading to increased delivery lead-times and costs[179]. - The company's ability to maintain supplier arrangements is critical, as disruptions could have a material adverse effect on its financial condition and cash flows[177]. - The cannabis industry remains illegal under U.S. federal law, with cannabis classified as a Schedule I substance, impacting all related activities[199]. - The legalization of cannabis in various states has positively influenced the industry, although changes in regulations could adversely affect demand for products[200]. - Evolving federal and state laws regarding cannabis cultivation and use may indirectly reduce demand for products and impact future operations[201]. - The demand for products is uncertain and dependent on the growth of emerging industries, including cannabis cultivation[202]. - Compliance with changing laws and regulations may impose substantial costs and disrupt business operations[204]. - Scientific research on cannabis benefits is in early stages, and negative findings could impact product demand[205]. - Public perception of cannabis significantly affects the industry's success, with potential adverse effects from negative publicity or scientific research[206]. - The company faces reputational risks due to its indirect involvement in the cannabis industry, which could affect business relationships[208]. - Compliance with data privacy laws is increasingly complex, with potential penalties for violations that could adversely affect the company's financial condition[214]. - Environmental regulations regarding pesticide use could result in significant costs and impact the company's reputation and operations[218]. Intellectual Property and Compliance - The company may face significant risks related to the protection and enforcement of its intellectual property rights, which are crucial for its competitive position[220]. - There is a possibility of substantial costs and resource diversion due to litigation necessary to enforce intellectual property rights against third-party claims[223]. - The company must comply with various procedural and fee requirements to maintain patent protection, and noncompliance could lead to loss of patent rights[224]. - The company may need to rely on licenses for proprietary technologies, which could be difficult or expensive to obtain, potentially harming its competitive position[225]. - If the company fails to maintain its patents, competitors could enter the market, adversely affecting its business[224]. Stock and Corporate Governance - The company has the authority to issue up to 50 million shares of preferred stock, which could dilute common stockholders' ownership interests[232]. - Provisions in the company's corporate charter and Delaware law could make it difficult for stockholders to effect a change in control or management[233]. - The company currently intends to retain future earnings for business operations and expansion, with no expected dividends in the foreseeable future[237]. - Legal and contractual restrictions may limit the company's ability to obtain cash from subsidiaries, affecting its financial obligations[235]. - The company received a notification from Nasdaq on March 14, 2024, indicating non-compliance with the minimum bid price requirement of$ 1.00 per share for 30 consecutive business days[238]. - On August 9, 2024, the company requested a 180-day extension to regain compliance, indicating it met all other listing requirements except the minimum bid price[239]. - Nasdaq approved the transfer of the company's listing from the Global Select Market to the Capital Market tier on September 12, 2024, along with an additional 180-day extension to regain compliance[240]. - The board approved a 1-for-10 reverse stock split on February 6, 2025, which became effective on February 12, 2025, allowing the company to regain compliance with Nasdaq listing requirements[241]. - Delisting from Nasdaq could adversely affect the company's ability to raise capital and negatively impact the liquidity and value of its common stock[242]. - The market price of the company's common stock has been volatile, influenced by factors such as operating performance, sales by stockholders, and general economic conditions[245]. - The company may issue additional equity securities in the future, which could dilute existing stockholders' ownership and negatively impact the market price of its common stock[256]. - The company faces potential litigation that could materially affect its financial condition and operating results[253]. Cash Flow and Debt - The estimated material cash requirements for 2025 include principal repayments, interest payments on long-term debt, and operating lease payments[329]. - The company had $119.3 million of Term Loan debt subject to variable interest rates as of December 31, 2024[338]. - If interest rates increase by 100 basis points, interest expense on variable rate debt would rise by an average of$ 1.1 million annually[338]. - The company incurred interest expenses of $15,237 thousand in 2024, slightly down from$ 15,442 thousand in 2023, a decrease of about 1.3%[359].