HYFM - Earnings call transcript Q1 2024 | Hydrofarm Holdings Group, Inc.

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Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Hydrofarm Holdings Group First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded today, May 14, 2024.

I would now like to turn the call over to Anna Kate Heller of ICR to begin. Please go ahead.

Anna Heller

morning. good and you, Thank With me Chairman the Bill Hydrofarm's today Chief the Chief Executive call and Lindeman, Officer. is Officer; Financial Toler, on and company's John

XXXX access By of should well Hydrofarm's Investors documents as available www.hydrofarm.com. issued to are earnings presentation as release investor website reference. our this now, at morning and have section first for everyone an available X-K Form the quarter These on

statements. of discussion begin forward-looking our please today to and undue put cause formal impact SEC not materially results These recent will financial our subject detailed you filings of uncertainties statements These our for differ a all operating are of future risks them. statements guarantees to condition. therefore, forward-looking could to we are Before you and actual that could note the risks more our current that include reliance remarks, and performance, on from results numerous discussion our refer also expectations. that not future should We

or results we today's with comparable should evaluating in a and we which can believe presentation during non-GAAP measures in measures, GAAP for accordance available reconciliations will useful Lastly, performance. considered isolation be earnings are this substitute release. additional be The not prepared of information our in our discuss to as GAAP, call, in

turn to Bill to over would Toler. call I the that, like With

William Toler

pleased results and in adjusted to margin, including Thank you, cash in EBITDA gross metrics, that Anna profitability delivered good adjusted margin Kate, key adjusted report and EBITDA, am first I flow. many quarter, everyone. our morning, we free better profit

for That's IPO we seen of of longest XXXX sequential the March marked our consecutive sequential addition, the monthly net sales XXXX. since month growth Hydrofarm. In growth in have string fifth

on we to our past X achieved operate now continue gross adjusted quarters, profitably X during last our quarters, -- consecutive have downturn. demonstrating margin ability the adjusted X year-over-year in of and profit the we increased across industry a basis positive the adjusted Second, EBITDA to

of far over XX positive to are our we million reported larger impact when that a the our begin months, volume EBITDA increase, are $X.X cost even clear savings last will this actions adjusted While it make bottom And is sales difference. that we on from have satisfied restructuring and making an line. with the

drive Our growers' to that, address biggest are find opportunity expanding is To to and and profitable accomplish to ways new unique innovating growth. brands continue our we to needs.

offers For PHOTOBIO price growing we lower of commercial and the example, the specifically light at all output, fixture new XX% weight less a for applications QX, XX% launched that end models. XX% at increased light a more designed improved LED comparable efficacy, and than in

this While in PHOTOBIO still of we innovation, on we in innings QX. are product growth brand year-on-year the the see did early

our to stream sales, our diversify non-North continue QX, we the from sources in Second, year. of sales approximately increase by XX% American markets our noncannabis and and driving prior geographic noncannabis increased broadening our an revenue XXX-basis-point estimated In to a representing revenue reach.

we state in November Florida. legalize industry. marijuana will the on to the voters to allow cannabis U.S. significant to the learned or U.S. Court Supreme reclassification the state's the to in will is industry help marijuana for whether sales process to the cannabis the drug, finally DEA and drive diversification a April, the read of are Recently, regulatory all in future. step Schedule from in addition Schedule propose for good the signs of the These better It's not growers. In environment strategies, we our improved a III I Florida legalize our that Separately, ballot the getting will in in adult-use a decide

I U.S. to sales core business. the the but in believe share reported of financial a also want turn sequential of what consecutive earnings call, just That's X we're we broader I to are to I beginning stabilization in industry. a While the recent our growth. be months encouraging, mentioned this metrics central of view the a seeing

this innovation, supply LED of previously across is like the it simply country. are some and of demand PHOTOBIO mentioned and driven Some the by that rebalancing lights,

versus Proprietary Gaia on Grotek, with improvement coupled in SG&A well QX costs, being in profitability we positioned Organic, adjusted the our slight Roots for including last, volume improvement compared with tight prior XX% grew in PHOTOBIO are this Green lower brands, control to including QX and demand in year, continued returns. as year and our

free revenue for and and reducing cash We are flow in improved full year our net remain guidance brands, adjusted costs. we on controlling mix sales, as EBITDA focused reaffirming our of diversification and

John With that, and turn of discuss outlook John? for further over to our to QX details it the I'll XXXX.

B. John Lindeman

and good Bill, morning, Thanks, everyone.

cannabis Net volume/mix. decrease in oversupply the decrease million, industry. for $XX.X were primarily quarter XX.X% sales The year-over-year, volume/mix XX.X% driven the by first down was mainly to a related in in

price Additionally, as made in of lapped XXXX. in QX quarter concessions pricing first flat relatively we was the

In XXXX. mix increase quarter approximately a higher the the year-over-year in Media own Grow of our products products proprietary sales Green Gaia brands. of This XX% first to was and XX% consumables quarter, first in sales Roots of Organics consumable including represented by our compared led

year. our at consistent strong of we brands to last maintained quarter, of the During a same approximately period net mix total relatively XX% the sales, proprietary

$XX.X in opportunity in $XX.X of metric XX.X% to quarter XXXX. to progress, XX.X% $XX.X fifth year-over-year remainder feel are net plants. manufacturing XX-basis-point some there's sales year as million sales. further improve million of million compared improved And Adjusted upon pleased margin our the was profit we Gross while or of million to we or the productivity quarter with this of This was primarily consecutive across profit track inside do compared our gross gross the adjusted increase ago is expansion. first our net $XX.X the period. we marked This of result

quick our Now update on a plan. restructuring

announced on of signing largely million in products an equipment approximately manufacturing rightsizing related inventory restructuring the for our equipment to manufacturing As cash. particularly we was products. second IGE-branded the focused phase agreement mentioned, are footprint, respect $X.X selling which to with our on-site previously our today We we in and of durable

products. the As we be or our Instead, our exclusive aluminum our new costs no will on product transaction, investment IGE cost build overhead for post manufacturing us costly our co-manufacturer margin heavy necessary part the and to set. labor produce and helping longer our high-quality steel improve will this the profile transaction, variabilize in to products, ultimately IGE responsible carrying of structure profit

excited enjoy going relationship a prospects We and expect our the to whom both forward. Hydrofarm we are exclusive close about with for co-manufacturer new

second We expect the quarter. transaction to close the in

our reduction This of to general in and the the expense, million. reduction restructuring was of took year prior costs our SG&A to nearly expense a in the costs It which out on were In noting quarter, due to $XX.X headcount. compared Now that million and primarily facility quarter XXXX. to as fees, reduced is from much $XX.X of professional Adjusted we administrative SG&A first period. in dramatically first half $XX.X actions move to 'XX. part insurance our due we this expenses, selling, is let million, worth million a me first of $XX.X reduction the expenses XX% when the was compared

the of margins million to first driven a margin our Adjusted XXX-basis-point profit the expenses. The in by compared gross EBITDA SG&A loss our reduced prior was was in EBITDA million $X.X quarter expansion $X.X in improvement adjusted adjusted improved period. $X.X year the adjusted and and million

focus We demonstrate proprietary along continue effectiveness brand initiatives is which ability to positive cost-saving the generate on to and testament EBITDA, our with of our restructuring mix. to adjusted sales a our

Moving on to our and overall sheet balance position. liquidity

inclusive finance XXXX, XX, the was million ended Our debt, liabilities. first million of debt of $XX.X total cash approximately balance $XXX term million. with March lease $XXX.X quarter as We and of of

of at end the approximately the net was million. debt quarter Our $XXX

our XXXX. does mature facility maintenance term has no reminder, a covenant financial As October loan until not and

our point, have We revolving zero X not facility. our straight borrowed maintain credit continue a at And to for this we on revolver against quarters. balance

period, the cash that cash quarter negative the seasonally $X.X $X.X million. reported of for with million, period a expenditures first flow, $X.X nearly adjusted I improvement levels. positive full prior capital of and to remain In reduction will is operating free year. quarter, first activities we our the capital positive used inventories of track cash $X guidance achieved working through year We accomplished million, you we on yielding remind disciplined our a significant in and deliver and of million flow for free free flow which EBITDA low the we from cash

full me that, With year turn XXXX let to outlook. our

of million teens sales year, decline expenditures. the continued to guidance, are high EBITDA to a adjusted which XXXX $X our low to free million positive the expectation for cash the reaffirming that flow includes of percentage positive is lastly, for and, full basis, on We $X year which full includes net XXXX capital

can. To control we continue wrap and on remain path, we up, we'll to right the what

are profitably levels. lower despite operating We sales

cost-saving restructuring Bill plan on the as before, there we Our our demand look initiatives industry of and reasons discussed as proven and ahead. have are for effective, side optimism

future We improvement year. are this the and throughout business, the continuing look about excited we to forward of

now open for the your please We're joining lines. all you Operator, us. Thank answer to happy questions.

Operator

[Operator the with UBS. is question of Instructions] from Our first line Grom Peter

Peter Grom

just Maybe ones from of me. quick couple a

from some can have IPO. you've might you since revenue talked the you, first of Maybe just misheard some best monthly you perspective. remind guidance the -- the the improvements, I on us about first -- Just but seen maybe

that So maybe just can repeat you us? just for

you've had looking and the some of the improvement trends in at picture here, bigger over a taking sequential or then X numbers kind last reported And so. quarters sales

top kind sequential You you seeing just a end help Can from this the a could you from what that or continued expect step top top double-digit started us we your we the expect decline progression low line what reason better understand should Is here? improvement? line Or at of you're back maybe it of potentially range. from a saw? from of year line progression kind there guidance

of to of within we're early range in are year? given kind still keeping simply And just I cautious this the be very guess that, you kind

William Toler

and Thanks, Peter, No. question. good

clarification. seen for So one the first sequential from revenue last improvements really through March. We've October in

a string XXXX, it's that's back X which, in months month, there, IPO up consecutive remember. of course, and you of since those longest each just end through bit. March, our October that's of So the stepped the

So on that.

one. the question Why of also think, It to move better end it think that there the quarter kind what here. with guidance, expect large We had around you're looking can pretty sort we of early are is not I good. But conservative a headed being things Now other range is see, and year. are at are -- The last of in QX. where now. the very is we and we up the we

lapping we're some big against up numbers So there.

other just ahead heard kind the get want a to as we of go we July spring, early to from few certainly an and overall ahead We're that but giddy you up, firming the start and here more really, in, We've ourselves are that going QX late some too not probably of recent finished and And for want things, And up encouraged or of ourselves. We just months the really we're outdoor we encouraging do want June, that don't things in period sales of as forward. traction are trends to quickly. trends. core and stuff. think optimistic we to yet, even numbers but some us got that QX, season overly on We are others. then seeing important such by for up and get summer we the see try don't take May, going

ahead year. We get But much like the want don't it you in ourselves. to suggested, early of is

Peter Grom

result Okay. you needle your That's you improvement? this maybe a mix? this share is morning, just you anything And move there is announced magnitude the of really just as big Just when I terms talk improvement trying understand the this margin the could helpful. how on IGE of of in us of sale can can to as of transaction, the how kind remind of kind of revenue much kind And asset then about here. part guess

B. John Lindeman

closer can to Yes, IGE XX% magnitude, as total less products jump X% mean our our today, on than that terms in even sure, are XX%. sales, almost Peter. in than sits, a just of of it I somewhere one. I

particular dramatic, because The think this but products. can did is step a that do continue we to those it's the not that improve profit on it's magnitude we margin

think those getting some the outside of made you we manufacturing facility, from even the half roughly will like last feet in business. and took But rightsized we're that to of XXX,XXX facility down staff at other year, the still not We square recall, square feet. the Chicago. reduce profitability business. changes, XXX,XXX restructure did of in second still that As volumes on spite have the it improvements today. not and we should of getting we the we We're kind in We

of that. the And step back really should in show through year. this half the benefit rectifies So this

Operator

question Carter next Andrew is of line Our Stifel. from with the

W. Andrew Carter

I wanted of of to there profitability message, last is grow. or I of guess that I changed to signal has the guess know partner IGE sale BFG? kind following you that Does ask to I have first world picked exactly? firm thing with your the kind a within landscaping was IGE, either a path? quarter, the of thinking announcement the kind about or Hawthorne's And shrink

William Toler

not really. No,

I that, think or area from time a where piece. us IGE have was that the lot in as durable spend the positions is business, manufacturer really really piece us more of of kind had. lot an profitability cleanly on. It's brands synergy we a more a durable of only a now of consumable and step of not mentioned, we out John IGE smaller gets that better assures as space

So we recognize, him. previous We good think assets sold there don't didn't And business. sell own back still being back we business it's also, we fit. brand. the have who the still the and owner -- didn't we a important the to to We to was -- the

this and have through to little our effect IGE, should no improve margin. on profit our So revenue we'll

to this we're terms or not and clean direction consumables, XX% of kind our where on does really to now total question, the business sort This focused the cast this doing So back of either in tactical so. in of smaller a up step is of getting getting or make our your portfolio more just bigger. larger

for yet. we're and to what which looking to to are still kind get would not call we our options So Hydrofarm expand footprint of I X.X, there that

there kinds different of out kinds ideas So of combinations, different include ideas.

like to industry, And that, starting us a an the to So which that it's ready for for on important feel bit. know working we're still step is that. strengthen be does

W. Andrew Carter

is at Got looked what it. kind then And Hawthorne I implied. the decent, pricing second then and guess reported to question compared pretty GrowGen the of least

would where of profitable that there. but And was kind there decline, In more is any within trading of there, out that volume/mix was know that, there lower? XX.X% would you terms Are of say in foregoing now? proprietary versus you portion I'll activity right business? outperform, was that purposeful that I minus the promotional you volume out I a stop guess just say --

B. John Lindeman

a was declines think good in months. it's don't the I calendar No, I marching intentional. news there of continued the lot sort been I been it Yes. conditions think those obviously, last mean -- we in XX.X%, just of improving as the that here see we've have The the XX is, across industry.

there. good So news

during the time. bit year as really which then older second concessions that price little we products, And our of called period in pricing out, were made and which a relates you sell-through first relatively being on technology to we pushing Andrew, flat, some the last quarter the year last lighting into really quarter the well of

that for you. hopefully, fits all So

Operator

Jesse with Tower is Water the Our of Research. next question line Redmond from

Jesse Redmond

quarter. that question the the on environment you about had a referenced. macro Congratulations improving I

big is potentially things progress. the some seeing of going One finally on political

not by they can you're get some you strings cash talk your how expect do as more explicitly to may removal, MSOs about flow? see And bigger impacted Schedule Although at start benefit III the you the of business? loosening to purse X(ee)

William Toler

Yes.

that. numbers we out of for billion be our there be there taxes that's be can even right? dollars out obviously, back everybody, are and could for there I in can fight that to to share And that in paid couple all good go of up now industry. of think And news the to used kind reinvested say that

we impact is the which expect, terrific. that's that So

around things solve right is today. It's government a our going road, the the for recommended. company we're government will and be to not Then solution to the going process, fix there's still that. there's business. finding time. that happen is we all be going is going All it's been now believe. today to there's But long sitting this or waiting on And But the reality we're those be still and to problems to the right? our to I hearings, our and important that to this, down solution We're operating stuff focused think making recognize for next, this And we're things it, X, these out as profitably Hydrofarm and long-term get XX XX, let's call figuring for operating that the implemented sure the months. over right XX, take

Jesse Redmond

of a out, which good state some us ahead potentially second have we my looks potentially level, most a is rolling quickly for like question Ohio and the be with Florida talk opportunities summer, is represents But bit what have that and at should maybe And this you good happening it little Pennsylvania. more in we manner about obviously that a for you? market Ohio Can pretty operators. and market

William Toler

started Yes. on Ohio, other just are in we're show nicely Florida and Missouri states some and the to vibrance, base Ohio of places. as like other has in growing very rollout some and we a small

seeing encouraging. are which start into really the pick to that we is So industry,

The all other we've business passing We we in product had are rolled in you number with friendly, that well if with of thing the brands a we're all of positioned Spain million out. years. Germany pond, people Europe will, our a for are that over seeing consumed of is there XX very that's Germany, a and across positioned highly across it's cannabis

people Germany and that. So we into to moving are of to advantage ready be and assets resources take

is importantly, at and going driven and by ours people like home driven to for terrific a MSOs that or be more use can large it's entities, a brands not be a Germany which can market. the the that trust. or be much LPs going very and know at-home way work, to favorable home company And laws grower, by thing It's

are us another to some XXX for that call right going that here friendly that be we that while we in think and U.S. you states so the are a some million culture showing there's nice vibrance, opportunity opens to think And we that people Germany us the popping will, if up also consumers, of is really to, it, in. think cannabis grow very are that

Operator

Ladies conference hand his questions, Bill no for over as now to further Bill? are the and there closing I comments. Toler gentlemen,

William Toler

much. doing everyone, everyone and We to and Hydrofarm. forward you, through for Thanks Thank well. thank so look supporting you, is summer and further updates Ryan, the following hope

Operator

participation. Thank you. you The conference of for your Thank Hydrofarm has concluded. Group now Holdings

You your may lines. disconnect now

Hydrofarm (HYFM) 14 May 242024 Q1 Earnings call transcript