Part I - Financial Information This section details the company's financial performance, condition, and cash flows, along with management's analysis, market risk exposures, and internal control effectiveness Financial Statements Q1 2024 saw an improved net loss, decreased total assets, and significantly improved, though still negative, operating cash flow Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $24,152 | $30,312 | | Inventories | $72,315 | $75,354 | | Total current assets | $123,974 | $128,066 | | Total assets | $494,016 | $507,643 | | Liabilities & Equity | | | | Total current liabilities | $39,324 | $37,652 | | Long-term debt | $115,390 | $115,412 | | Total liabilities | $215,987 | $217,033 | | Total stockholders' equity | $278,029 | $290,610 | Condensed Consolidated Statements of Operations Statement of Operations Summary (in thousands, except per share data) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net sales | $54,172 | $62,178 | | Gross profit | $10,925 | $11,381 | | Loss from operations | $(8,696) | $(13,050) | | Net loss | $(12,608) | $(16,849) | | Net loss per share (Basic & Diluted) | $(0.28) | $(0.37) | Condensed Consolidated Statements of Cash Flows Cash Flow Summary (in thousands) | Activity | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(2,297) | $(8,950) | | Net cash used in investing activities | $(1,408) | $(1,602) | | Net cash (used in) from financing activities | $(2,358) | $7,959 | | Net decrease in cash | $(6,160) | $(2,588) | Notes to the Condensed Consolidated Financial Statements - The company operates as a single reportable segment, focusing on the distribution and manufacture of Controlled Environment Agriculture (CEA) equipment and supplies across the United States and Canada39 - A second phase of the Restructuring Plan, focusing on U.S. manufacturing facility consolidations, resulted in $138 thousand in pre-tax restructuring charges in Q1 202437 - As of March 31, 2024, the Term Loan's outstanding principal balance was $120.5 million, with zero borrowed under the $55 million Revolving Credit Facility7482 - Post-quarter, on May 10, 2024, the company agreed to sell assets for durable equipment production for approximately $8.7 million, expecting a $12.0 million loss on disposition in Q2 2024106 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes adverse results to agricultural oversupply, initiating a restructuring plan that improved gross margin and narrowed operating loss Results of Operations Comparison (in thousands) | | Q1 2024 | Q1 2023 | Period Change ($) | Period Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $54,172 | $62,178 | $(8,006) | -12.9% | | Gross profit | $10,925 | $11,381 | $(456) | -4.0% | | Loss from operations | $(8,696) | $(13,050) | $4,354 | 33.4% | | Net loss | $(12,608) | $(16,849) | $4,241 | 25.2% | - The 12.9% decrease in net sales was primarily driven by a 12.6% decline in product volume/mix, attributed to oversupply in the cannabis industry120 - Gross profit margin improved to 20.2% from 18.3% year-over-year, mainly due to enhanced manufacturing productivity from restructuring and cost-saving initiatives121122 - Selling, general and administrative (SG&A) expenses decreased by $4.8 million, or 19.7%, due to cost-saving measures reducing facility, professional services, insurance, and salary costs123 - The second phase of the Restructuring Plan, focusing on U.S. manufacturing consolidation, may incur additional charges exceeding $2.0 million and is expected to yield annualized cost savings of approximately $1.5 million116 Quantitative and Qualitative Disclosures About Market Risk Primary market risks include interest rate exposure from the variable-rate Term Loan and foreign currency fluctuations from Canadian and European operations - The company is exposed to interest rate risk on its $120.5 million variable-rate Term Loan debt, where a hypothetical 100 basis point (1%) increase would raise annual interest expense by an average of $1.1 million154 - Foreign currency risk arises from operations with functional currencies in Canadian dollars (CAD) and Euros, impacting sales, purchases, and cash flows due to exchange rate fluctuations155 Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2024158 - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting160 Part II - Other Information This section covers legal proceedings, updated risk factors including potential Nasdaq delisting, and other significant corporate developments Legal Proceedings The company is not aware of any legal proceedings or claims expected to materially affect its business or financial condition - The company reports no material legal proceedings162 Risk Factors A material risk factor change is the Nasdaq notice of non-compliance for minimum bid price, with a compliance period until September 10, 2024 - On March 14, 2024, the company received a notice from Nasdaq for failing to meet the minimum bid price requirement of $1.00 per share for 30 consecutive business days165 - The company has a 180-day compliance period, until September 10, 2024, to regain compliance by having its stock close at or above $1.00 for at least 10 consecutive business days165 Other Information The company agreed to sell certain durable equipment production assets for $8.7 million in Q2 2024, including an exclusive five-year supply agreement - The company agreed to sell certain assets related to durable equipment production for approximately $8.7 million in a transaction expected to close in Q2 2024171 - As part of the deal, the company will enter into an exclusive supply agreement with the buyer for an initial term of five years to ensure continued availability of the products173 Exhibits This section lists exhibits filed with the Form 10-Q, including equity incentive plan grant notices and required CEO/CFO certifications
Hydrofarm(HYFM) - 2024 Q1 - Quarterly Report