Hydrofarm(HYFM) - 2025 Q1 - Quarterly Report

Explanatory Note Regarding Reverse Stock Split 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] - 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] - 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] Part I - Financial Information Presents the company's unaudited condensed consolidated financial statements and management's discussion for the period ended March 31, 2025 Item 1. Financial Statements 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 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 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 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 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 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 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 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] - The company's products include grow lights, climate control solutions, grow media, and nutrients, used for cultivating various plants in controlled environment settings[37] Note 2. Basis of Presentation and Significant Accounting Policies 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] - 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] | 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 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] | 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] Note 4. Intangible Assets, Net 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] Note 5. Loss Per Common Share 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] Note 6. Accounts Receivable, Net, and Inventories 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 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] Note 8. Property, Plant and Equipment, Net 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] - 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][83] Note 9. Accrued Expenses and Other Current Liabilities 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 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] - 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] - 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][97] - 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] Note 11. Stockholders' Equity 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] Note 12. Stock-Based Compensation 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] | 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] Note 13. Income Taxes 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][113] Note 14. Commitments and Contingencies 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] - 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] Note 15. Fair Value Measurements 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] | 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 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 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] - The company's mission is to empower growers with products that enable greater quality, efficiency, consistency, and speed in their grow projects[122] - 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] Market Conditions 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] - 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] - 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] - 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] Results of Operations—Comparison of three months ended March 31, 2025 and 2024 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 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] Gross profit 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] Selling, general and administrative expenses 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] Interest expense 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] Other income, net 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 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][138] Liquidity and Capital Resources 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 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 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] - 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] Investing Activities 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] Financing Activities 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] Availability and Use of Cash 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] - 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][152] - The company is evaluating other opportunities to sell excess owned land to supplement its cash position[149] Term Loan 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] - 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] - A probable $4.6 million prepayment offer on the Term Loan is expected in 2025 from asset sale proceeds not reinvested[152] Revolving Credit Facility 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][159] - 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] - 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] Subsequent event - Revolving Credit Facility Seventh Amendment 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] - 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] Cash and Cash Equivalents 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 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] Critical Accounting Policies and Estimates 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] Recent Accounting Pronouncements 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][57][164] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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 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] - A 100 basis point increase in variable rates would increase annual interest expense by an average of $1.1 million[167] - The company does not currently hedge its interest rate risks[167] Foreign Currency Risk 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] - The company has not entered into any foreign currency exchange contracts for trading or speculative purposes[168] Inflation Risk 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] Item 4. Controls and Procedures 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 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] Changes in Internal Controls over Financial Reporting 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] Part II - Other Information Contains legal proceedings, risk factors, equity sales, defaults, mine safety disclosures, other information, exhibits, and signatures Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report for the period - There were no defaults upon senior securities[178] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the company[179] Item 5. Other Information 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] - 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] - No Rule 10b5-1 trading arrangements were adopted, modified, or terminated by any director or officer during the quarter ended March 31, 2025[180] Item 6. Exhibits 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] - 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] 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]