Hydrofarm(HYFM) - 2025 Q2 - Quarterly Results

Hydrofarm Holdings Group Q2 2025 Earnings Release Second Quarter 2025 Performance Highlights 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] - 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] Detailed Financial Results (Q2 2025) 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 - Net sales decreased by 28.4% to $39.2 million from $54.8 million in the prior year period[5] - 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] Gross Profit 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] Selling, General and Administrative (SG&A) Expense 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] Net Loss and Adjusted EBITDA 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][9] Strategic Initiatives and Outlook The company initiated a new restructuring plan to yield annual savings while reaffirming its full-year 2025 financial expectations Restructuring Plan - A new restructuring plan was initiated in Q2 2025 to narrow the product portfolio, reduce the operational footprint, and improve efficiency[9] - The company incurred estimated restructuring costs of $3.3 million in Q2 2025, primarily from non-cash inventory write-downs[9] - The plan is expected to generate annual cost savings exceeding $3 million, plus additional working capital reductions[9] Reaffirmed Full Year 2025 Expectations - 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][12] - Potential high tariffs on imported products from China or other countries are noted as a risk that could negatively impact 2025 financial performance[11] Balance Sheet, Liquidity and Cash Flow 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] 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 This section presents the unaudited condensed consolidated Statement of Operations and Balance Sheet as of June 30, 2025 Condensed Consolidated Statements of Operations 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 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 The company provides reconciliations from GAAP to non-GAAP measures to offer additional information for evaluating performance Reconciliation of Non-GAAP Measures 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 - 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] - Free Cash Flow is defined as net cash from operating activities less capital expenditures for property, plant, and equipment[35]