Hydrofarm(US:HYFM)2022-11-09 21:34Financial Performance - Net sales for Q3 2022 were $74.2 million, a decrease of $49.7 million, or 40.1% compared to Q3 2021[137]. - Net sales for the nine months ended September 30, 2022, were $283.0 million, a decrease of $86.0 million, or 23.3% compared to the same period in 2021[137]. - Gross profit for Q3 2022 was $5.9 million, a decrease of $24.1 million, or 80.4%, compared to Q3 2021[141]. - Gross profit for the nine months ended September 30, 2022, was $29.8 million, a decrease of $53.0 million, or 64.0%, compared to the same period in 2021[141]. - The decline in Q3 2022 net sales was attributed to a 42.6% decline in volume of products sold, primarily due to agricultural oversupply affecting cannabis growing activity[138]. - The nine-month decline in net sales was due to a 26.0% decline in volume of products sold, with a 42.7% decline in organic sales[139]. - Adjusted EBITDA for the three months ended September 30, 2022, was $(9.048) million, compared to $16.069 million in the same period in 2021[158]. - Net loss for the three months ended September 30, 2022, was $(23.539) million, compared to net income of $17.265 million in the same period in 2021[158]. Operating Expenses - Operating expenses for Q3 2022 were $26.2 million, a decrease of $6.2 million, or 19.2% compared to Q3 2021[136]. - SG&A expenses for the three months ended September 30, 2022, were $26.2 million, a decrease of $6.2 million compared to the same period in 2021[144]. - SG&A expenses for the nine months ended September 30, 2022, were $92.4 million, an increase of $15.9 million compared to the same period in 2021[146]. - The company experienced a $4.4 million charge for inventory obsolescence during Q3 2022, primarily related to certain lighting products[133]. Goodwill and Impairments - The company recorded a goodwill impairment charge of $189.6 million as of June 30, 2022, reducing the goodwill balance to zero[130]. - The company recorded goodwill impairment charges of $189.6 million for the nine months ended September 30, 2022, primarily due to a deterioration in customer demand in the U.S. and Canada[147]. - The company recorded an impairment of a note receivable of $2.6 million during the nine months ended September 30, 2022[160]. - The company recorded a goodwill impairment charge due to market softness in demand in the U.S. and Canada as of June 30, 2022[186]. Cash Flow and Liquidity - Net cash from operating activities was $15.5 million for the nine months ended September 30, 2022, compared to a net cash used of $17.5 million in the same period of 2021[166][167]. - The company experienced a net cash decrease of $11.9 million in cash, cash equivalents, and restricted cash for the nine months ended September 30, 2022, compared to a decrease of $62.5 million in 2021[165]. - Net cash used in investing activities was $7.4 million for the nine months ended September 30, 2022, significantly lower than $419.4 million in 2021, primarily due to fewer business acquisitions[168][169]. - Net cash used in financing activities was $19.5 million for the nine months ended September 30, 2022, compared to a net cash provided of $374.4 million in 2021, reflecting payments to settle contingent consideration[170][171]. - As of September 30, 2022, the company had $16.5 million in cash and cash equivalents, down from $26.6 million at December 31, 2021[183]. Debt and Interest Rates - The company has a borrowing limit of $100 million under its Senior Secured Revolving Credit Facility, with approximately $62 million available to borrow as of September 30, 2022[180][181]. - The company is exposed to interest rate risk with $124.1 million of Term Loan debt subject to variable interest rates, with a potential increase in interest expense of $1.1 million annually if rates rise by 100 basis points[191]. - The company recorded interest expense for the three months ended September 30, 2022, was $3.1 million, an increase of $2.9 million compared to the same period in the prior year[148]. - A 100 basis point increase in interest rates would result in an average annual increase of $1.1 million in interest expense on variable-rate debt[191]. Risk Factors and Controls - The results of operations and financial condition may be impacted by inflation in the future[194]. - The company does not currently hedge its interest rate risk but may consider doing so in the future[191]. - Management concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[196]. - There were no changes in internal control over financial reporting that materially affected the company's reporting[198]. - The company is not aware of any legal proceedings that would materially affect its business or financial condition[200]. - The company recognizes that controls and procedures can only provide reasonable assurance of achieving their objectives[197].