John SchroyerPennsylvania-based Hydrofarm Holdings Group Inc. (Nasdaq: HYFM) this week reported a $23.5 million loss for the second quarter of the year, bringing its losses for the year thus far to more than $36 million.
The hydroponics equipment manufacturer’s sales were also down year-over-year to $54.8 million from $63.1 million, though sales increased slightly sequentially from the first quarter’s $54.2 million. Hydrofarm attributed the revenue drop to a 10.3% decline in products sold, which it said was due to “an oversupply in the cannabis industry.”
Bottom-line losses were up year-over-year from $12.9 million a year prior, and sequentially from $12.6 million in the first quarter. Hydrofarm said the sizable increase in net losses was primarily due to an $11.5 million non-cash loss related to the sale of subsidiary Innovative Growers Equipment, a deal which closed in the second quarter.
On the flip side, that sale provides Hydrofarm with an exclusive supply contract for ongoing manufacturing, a new revenue stream, the company said.
The company did generate $3.4 million in free cash flow, it noted, and CEO Bill Toler said in a statement that Hydrofarm is still working toward restructuring to get the business into the black.
“During the quarter we further optimized our manufacturing footprint by streamlining and consolidating operations. We expect these actions to result in additional cost savings via increased utilization and productivity at our remaining facilities,” Toler said. “We are also excited about potential industry demand tailwinds, most notably the possible rescheduling of cannabis. While the industry remains soft today, we continue to operate profitably.”
Hydrofarm expects net sales to continue decreasing for the rest of 2024, in “low to high teens in percentage terms.” But the company’s forecast also predicts ongoing free cash flow, an improved gross profit margin, reduced expenses, a major slash in inventory, and a positive adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). The company said capital expenditures for the rest of the year will likely only hit $3.5 million to $4.5 million, instead of the previously forecast $4 million to $5 million.
As of June 30, Hydrofarm had $111.6 million in total assets, including $30.3 million in cash, against $208.3 million in total liabilities. Hydrofarm noted that the company is “in compliance with debt covenants” as of the quarter close, but it also disclosed that its accumulated deficit has reached $526.8 million.
