Pennsylvania-based hydroponic company Hydrofarm Holdings Group, Inc. (Nasdaq: HYFM) announced financial results for its first quarter ending March 31, 2024. Hydrofarm reported that its net sales dropped to $54.2 million versus last year’s $62.2 million in the same period. The company attributed the drop to a 13% decline in the volume and mix of products sold due to an oversupply in the cannabis industry.

On a positive note, the company trimmed its net losses to $12.6 million, or $(0.28) per diluted share versus last year’s net loss of $16.8 million, or $(0.37) per diluted share. The company managed to improve the net losses by cutting expenses. At the end of the quarter, the company had $24.2 million in cash.

CEO Bill Toler said, “We are pleased with our first quarter results, as we delivered Adjusted Gross Profit Margin expansion for the fifth consecutive quarter driven by elevated operational productivity. We also recognized year-over-year improvements in our Net Loss and Free Cash Flow and we achieved positive Adjusted EBITDA as we further benefited from our restructuring actions and related cost saving initiatives.”

Asset sale

Hydrofarm has been on a mission to get its company into a healthier financial state. As a part of that restructuring effort, the company announced that it was selling assets related to the production of certain durable equipment products for approximately $8.7 million to CM Fabrication. The company said the deal is expected to close in the second quarter of 2024. In addition to that, Hydrofarm is also entering into an exclusive supply agreement with CM Fabrication to provide for contract manufacturing going forward for its proprietary branded Innovative Growers Equipment, Inc. (IGE) products.

Toler added, “The company will continue to sell its proprietary branded IGE products, and as a result of the transaction, the company expects improved profitability on future IGE branded product sales due to an anticipated decrease in fixed costs. The company estimates it will record a loss on the disposition of the tangible and intangible assets of approximately $12 million in the second quarter of 2024, upon closing of the Asset Sale.”

The company said it plans to reinvest the money from the sale into certain permitted investments, and/or make an offer to prepay the corresponding amount of the Term Loan principal.

Hydrofarm reported that it ended the first quarter with $120.5 million in principal balance on its Term Loan outstanding, $9.4 million in finance leases, and $0.1 million in other debt outstanding.

Looking ahead

Hydrofarm told investors that it is reaffirming its full-year 2024 outlook. The company said it expects net sales to decrease to low to high teens in percentage terms. The company believes it will have positive adjusted EBITDA and positive free cash flow.

“We are also encouraged by potential demand tailwinds, including recent U.S. regulatory developments surrounding the rescheduling of cannabis. Our focus remains on selling higher margin products, and despite industry softness, we are confident in the fundamentals of our business and are optimistic about our opportunity for growth,” concluded Toler.

 [[{“value”:”Hydrofarm managed to sell some equipment to generate $8.7 million.
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