Restructuring Efforts Yield Results For Cannabis-Focused Agriculture Equipment Maker Despite 27% YoY Revenue Drop In Q3

Zinger Key Points
  • Hydrofarm Holdings reported a nearly 27% year-over-year net sales drop to $54.2 million in the third quarter.
  • Adjusted EBITDA came in positive at $495, 000, compared to a $9 million loss in the prior year's period.

Hydrofarm Holdings Group, Inc. HYFM announced its financial results on Thursday for the third quarter ended Sept. 30, 2023, revealing a nearly 27% year-over-year net sales drop to $54.2 million.

Over the quarter, the company initiated a second phase of its restructuring plan, primarily to right-size its durable equipment manufacturing facilities to better serve current levels of demand, while maintaining its high standard of customer service.

“Given the ongoing industry softness, we are introducing the second phase of our restructuring strategy to enhance operational efficiency, reduce our manufacturing footprint in the U.S., and realize additional future cost savings,” Bill Toler, chairman and CEO of Hydrofarm said. “We are encouraged by the progress we have achieved so far this year and by recent US regulatory developments, and we are confident in the long-term fundamentals of our business going into 2024 and beyond.”

See also: Hydrofarm Holdings Q1 Net Sales Drop 45% YoY, What About Gross Profit?

Q3 2023 Financial Highlights

  • Gross profit decreased to $3.3 million, or 6.1% of net sales, compared to $5.9 million, or 7.9% of net sales in the prior year period. The decrease was primarily due to $7.4 million of restructuring charges and $1.2 million of non-restructuring inventory charges incurred in the third quarter of 2023.
  • Selling, general and administrative expense was $19.5 million, compared to $26.2 million in the prior year period and adjusted SG&A was $12 million, compared to $16.8 million in the prior year period.
  • Net loss was $19.9 million, or $0.44 per diluted share, compared to a net loss of $23.5 million, or $0.52 per diluted share, in the prior year period. The improvement was primarily due to lower SG&A expenses.
  • Adjusted EBITDA came in positive at $495, 000, compared to a $9 million loss in the prior year's period. The improvement is related to higher adjusted gross profit and lower adjusted SG&A.
  • Cash from operating activities of $7.7 million and free cash flow of $6.9 million.
  • As of September 30, 2023, the company had $32.5 million in cash and approximately $28 million of available borrowing capacity on its revolving credit facility.
  • The company finished the third quarter with $122.8 million in principal balance on its term loan outstanding, $9.9 million in finance leases, and $0.1 million in other debt outstanding.
  • The company had $522.4 million in total assets and $218.5 million in total liabilities, down from $573.5 million and $223.7 million, respectively on Dec. 31, 2022.

Full Year 2023 Outlook

The company reaffirmed its full-year 2023 outlook:

  • Net sales of roughly $230 million to $240 million, and expect results to be around the low end of the range.
  • Adjusted EBITDA that is modestly positive for the full year.
  • Free cash flow that is positive for the full year.

Reduction in inventory and net working capital helping to generate positive free cash flow for the full year.

The company revised its expectation of capital expenditures downward to approximately $4.5 million to $5.5 million from approximately $7 million to $9 million previously.

HYFM Price Action

Hydrofarm’s shares traded 4.86% higher at $0.8389 per share at the time of writing on Friday.

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