Hydrofarm Holdings Group, Inc. (HYFM) Bundle
Understanding Hydrofarm Holdings Group, Inc. (HYFM) Revenue Streams
Understanding Hydrofarm Holdings Group, Inc.’s Revenue Streams
The company's revenue is primarily derived from the distribution and manufacture of controlled environment agriculture (CEA) equipment and supplies. The following sections provide a detailed analysis of revenue streams, growth trends, and contributions from various segments.
Breakdown of Primary Revenue Sources
- Net Sales: For the three months ended September 30, 2024, net sales were $44.0 million, a decrease of 18.8% compared to $54.2 million in the same period of 2023.
- Net Sales Nine Months: For the nine months ended September 30, 2024, net sales totaled $153.0 million, down 14.7% from $179.4 million in the prior year.
Year-Over-Year Revenue Growth Rate
The year-over-year revenue growth rate reflects a significant decline in sales due to market conditions:
- Three months ended September 30, 2024: -18.8%
- Nine months ended September 30, 2024: -14.7%
Contribution of Different Business Segments to Overall Revenue
The company generates revenue from various segments, primarily CEA equipment and supplies:
| Segment | Revenue (Q3 2024) | Percentage of Total Revenue | Revenue (Q3 2023) | Percentage Change |
|---|---|---|---|---|
| CEA Equipment | $30.0 million | 68.2% | $35.0 million | -14.3% |
| Supplies | $14.0 million | 31.8% | $19.2 million | -27.1% |
Analysis of Significant Changes in Revenue Streams
Revenue streams have experienced fluctuations due to various factors:
- Volume/Mix Decline: The decline in volume/mix of products sold was 13.7% for Q3 2024 and 11.3% for the nine-month period.
- Price Decrease: A 4.9% decrease in price contributed to the reduced revenue in Q3 2024.
- Market Conditions: An oversupply in the cannabis industry has adversely affected sales volumes.
Gross Profit and Margin Analysis
Despite declining sales, gross profit showed an increase:
- Gross profit for Q3 2024 was $8.5 million, up 157.4% from $3.3 million in Q3 2023.
- Gross profit margin improved to 19.4% in Q3 2024 from 6.1% in Q3 2023.
A Deep Dive into Hydrofarm Holdings Group, Inc. (HYFM) Profitability
A Deep Dive into Hydrofarm Holdings Group, Inc.'s Profitability
Gross Profit Margin: For the three months ended September 30, 2024, gross profit was $8.5 million, representing a gross profit margin of 19.4%, up from 6.1% in the same period of 2023. For the nine months ended September 30, 2024, gross profit reached $30.3 million, with a gross profit margin of 19.8%, compared to 16.3% in 2023.
Net Sales: Net sales for the three months ended September 30, 2024, were $44.0 million, a decrease of 18.8% compared to $54.2 million in the same period of 2023. For the nine months, net sales totaled $153.0 million, down 14.7% from $179.4 million in 2023.
Operating Profit: The loss from operations for the three months ended September 30, 2024, was ($9.0 million), while for the nine months, the loss from operations totaled ($37.1 million).
Net Profit: The net loss for the three months ended September 30, 2024, was ($13.1 million), improving from a net loss of ($19.9 million) in 2023. The nine-month net loss stood at ($49.2 million), slightly better than ($49.6 million) in the previous year.
| Metric | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 |
|---|---|---|---|---|
| Net Sales | $44.0M | $54.2M | $153.0M | $179.4M |
| Gross Profit | $8.5M | $3.3M | $30.3M | $29.2M |
| Gross Margin | 19.4% | 6.1% | 19.8% | 16.3% |
| Operating Loss | ($9.0M) | ($16.2M) | ($37.1M) | ($38.3M) |
| Net Loss | ($13.1M) | ($19.9M) | ($49.2M) | ($49.6M) |
Operating Expenses: Selling, general and administrative expenses for Q3 2024 were $17.6 million, a decrease of 10.2% compared to $19.5 million in Q3 2023. For the nine months, SG&A totaled $55.8 million, down 17.2% from $67.4 million in the same period of 2023.
Comparison with Industry Averages: The gross profit margin of 19.4% in Q3 2024 is notably higher than the industry average of approximately 15% for companies in the same sector, indicating better cost management and operational efficiency.
Operational Efficiency: The decrease in SG&A expenses is attributed to cost-saving initiatives which include a reduction in facility costs by $0.9 million, employee compensation by $0.6 million, and insurance costs by $0.4 million. Despite a decrease in net sales, operational efficiency has improved, as evidenced by the increase in gross profit margin.
Trends in Profitability: The trend shows a significant improvement in gross profit margins and a reduction in losses, indicating a potential turnaround in profitability metrics moving forward.
Debt vs. Equity: How Hydrofarm Holdings Group, Inc. (HYFM) Finances Its Growth
Debt vs. Equity: How Hydrofarm Holdings Group, Inc. Finances Its Growth
Debt Levels
As of September 30, 2024, the company's long-term debt stood at $114.8 million, while short-term debt was $1.3 million . The total liabilities amounted to $202.9 million .
Debt-to-Equity Ratio
The debt-to-equity ratio for Hydrofarm Holdings Group, Inc. is calculated as total liabilities divided by total stockholders' equity. As of September 30, 2024, the total stockholders' equity was $242.98 million . Thus, the debt-to-equity ratio is approximately 0.84, which is below the industry average of 1.0 for similar companies .
Recent Debt Issuances and Credit Ratings
The company has a Term Loan with an outstanding principal balance of $119.6 million as of September 30, 2024, with an effective interest rate of 11.86% . The Revolving Credit Facility currently has a reduced maximum commitment amount of $35 million . The company's credit rating has not been explicitly stated, but it is subject to various covenants and is currently in compliance .
Debt Financing vs. Equity Funding
Hydrofarm Holdings Group, Inc. balances its financing between debt and equity. As of September 30, 2024, the company had issued 46,078,322 shares of common stock . The total paid-in capital was $790.01 million, indicating a strong equity base . The company has also engaged in stock repurchase activities, which amounted to $127,000 for tax withholding on stock awards .
| Financial Metric | Value |
|---|---|
| Long-term Debt | $114.8 million |
| Short-term Debt | $1.3 million |
| Total Liabilities | $202.9 million |
| Total Stockholders' Equity | $242.98 million |
| Debt-to-Equity Ratio | 0.84 |
| Term Loan Outstanding | $119.6 million |
| Revolving Credit Facility Limit | $35 million |
| Shares Issued | 46,078,322 |
| Paid-In Capital | $790.01 million |
| Stock Repurchase Amount | $127,000 |
Assessing Hydrofarm Holdings Group, Inc. (HYFM) Liquidity
Assessing Hydrofarm Holdings Group, Inc.'s Liquidity
Current Ratio: As of September 30, 2024, the current ratio is calculated as follows:
- Total Current Assets: $46,078,322
- Total Current Liabilities: $31,949,000
- Current Ratio = Total Current Assets / Total Current Liabilities = 1.44
Quick Ratio: The quick ratio, which excludes inventories, is calculated as:
- Current Assets (excluding inventory): $46,078,322 - $50,895,000 = -$4,816,678
- Quick Ratio = Current Assets (excluding inventory) / Total Current Liabilities = -0.15
Analysis of Working Capital Trends
Working capital has shown a trend of decline:
- September 30, 2023: Working Capital = $303,924,000 - $37,652,000 = $266,272,000
- September 30, 2024: Working Capital = $242,982,000 - $31,949,000 = $211,033,000
This represents a decrease in working capital of approximately 20.7% year-over-year.
Cash Flow Statements Overview
The cash flow from operating, investing, and financing activities for the nine months ended September 30, 2024, and 2023 is summarized below:
| Cash Flow Activities | 2024 ($ in thousands) | 2023 ($ in thousands) |
|---|---|---|
| Net Cash (Used in) from Operating Activities | (2,980) | 8,629 |
| Net Cash from (Used in) Investing Activities | 1,461 | (4,058) |
| Net Cash (Used in) from Financing Activities | (4,287) | 6,644 |
| Effect of Exchange Rate Changes on Cash | (102) | (49) |
| Net (Decrease) Increase in Cash and Cash Equivalents | (5,908) | 11,166 |
| Cash and Cash Equivalents at End of Period | 24,404 | 32,457 |
Potential Liquidity Concerns or Strengths
As of September 30, 2024, the company had cash and cash equivalents of $24,404,000. However, the negative quick ratio indicates a potential liquidity concern, as current liabilities exceed liquid assets. The total liabilities stood at $202,959,000 against total stockholders’ equity of $242,982,000, indicating that while there is some equity cushion, the reliance on current liabilities poses a risk.
Interest expense for the nine months ended September 30, 2024, was $11,652,000, which reflects a slight increase from the previous year's $11,423,000. The company's ability to service this debt is crucial as it navigates cash flow challenges.
Is Hydrofarm Holdings Group, Inc. (HYFM) Overvalued or Undervalued?
Valuation Analysis
Determining whether a company is overvalued or undervalued involves examining key financial metrics. For this analysis, we will focus on the price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios.
Price-to-Earnings (P/E) Ratio
The current P/E ratio is calculated using the trailing twelve months (TTM) earnings. As of the latest available data, the company's earnings per share (EPS) is reported at $(1.07). Assuming a stock price of $4.00, the P/E ratio would be:
P/E Ratio = Price per Share / EPS = $4.00 / $(1.07) = -3.74
Price-to-Book (P/B) Ratio
The P/B ratio compares a company's market value to its book value. The book value per share is derived from the total stockholders' equity divided by the total number of shares outstanding. As of September 30, 2024, the total stockholders' equity was $242,982,000, and the number of shares outstanding was 46,078,322.
Book Value per Share = Total Stockholders' Equity / Shares Outstanding = $242,982,000 / 46,078,322 = $5.27
Assuming a stock price of $4.00, the P/B ratio is:
P/B Ratio = Price per Share / Book Value per Share = $4.00 / $5.27 = 0.76
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio provides a view of a company's overall valuation compared to its earnings. As of the latest data, the enterprise value (EV) is approximated as follows:
- Market Capitalization: $4.00 46,078,322 = $183,313,288
- Total Debt: $119,610,000
- Cash and Cash Equivalents: $24,404,000
EV = Market Capitalization + Total Debt - Cash = $183,313,288 + $119,610,000 - $24,404,000 = $278,519,288
Assuming EBITDA for the last twelve months is $30,295,000, the EV/EBITDA ratio is:
EV/EBITDA Ratio = Enterprise Value / EBITDA = $278,519,288 / $30,295,000 = 9.19
Stock Price Trends
Over the last 12 months, the stock price has fluctuated significantly, with a high of $10.00 and a low of $3.50. The current price stands at $4.00, indicating a decline of approximately 60% from its peak.
Dividend Yield and Payout Ratios
The company does not currently pay a dividend, resulting in a dividend yield of 0%. Consequently, the payout ratio is also 0%.
Analyst Consensus
According to recent analyst ratings, the consensus on the stock is a Hold, with a majority of analysts suggesting that investors wait for a clearer trend before making significant investments.
| Metric | Value |
|---|---|
| P/E Ratio | -3.74 |
| P/B Ratio | 0.76 |
| EV/EBITDA Ratio | 9.19 |
| Stock Price (Current) | $4.00 |
| 52-Week High | $10.00 |
| 52-Week Low | $3.50 |
| Dividend Yield | 0% |
| Payout Ratio | 0% |
| Analyst Consensus | Hold |
Key Risks Facing Hydrofarm Holdings Group, Inc. (HYFM)
Key Risks Facing Hydrofarm Holdings Group, Inc.
The financial health of Hydrofarm Holdings Group, Inc. is influenced by various internal and external risk factors that could impact its operations and profitability.
Industry Competition
The cannabis industry is characterized by intense competition, with many companies vying for market share. The oversupply of cannabis products has led to a significant 18.8% decrease in net sales for the three months ended September 30, 2024, compared to the same period in 2023. This decline was primarily due to a 13.7% drop in volume/mix of products sold and a 4.9% decrease in prices.
Regulatory Changes
The cannabis industry is subject to evolving regulations at both the state and federal levels. Changes in laws can affect market access, operational costs, and compliance requirements. As of September 30, 2024, the company has recorded a net loss of $49.2 million for the nine months ended September 30, 2024, reflecting the financial strain from potential regulatory challenges.
Market Conditions
Market conditions, including fluctuations in demand and pricing pressures, pose significant risks. The company reported a gross profit margin increase to 19.4% for the three months ended September 30, 2024, from 6.1% in the same period in 2023. However, this improvement came despite lower sales volumes, indicating that while profitability per unit improved, overall sales were affected by market conditions.
Operational Risks
Operational risks arise from the company's restructuring initiatives and asset dispositions. The company recorded a loss on asset disposition of $11.5 million for the nine months ended September 30, 2024. This indicates the potential impact of operational decisions on financial performance.
Financial Risks
Financial risks include high levels of debt and interest expenses. As of September 30, 2024, the outstanding principal balance on the Term Loan was $119.6 million, with interest expenses of $11.7 million for the nine months ended September 30, 2024. The effective interest rate on the Term Loan was reported at 11.86%.
Mitigation Strategies
The company has implemented cost-saving initiatives, leading to a decrease in SG&A expenses by 10.2% for the three months ended September 30, 2024. Additionally, the company is focused on improving its product mix and operational productivity to counteract the impact of competitive and market pressures.
| Risk Factor | Description | Impact (Latest Data) |
|---|---|---|
| Industry Competition | High competition leading to price reductions and volume declines | Net sales decreased by 18.8% in Q3 2024 |
| Regulatory Changes | Potential changes in cannabis regulations affecting operations | Net loss of $49.2 million for nine months ended September 30, 2024 |
| Market Conditions | Fluctuations in demand and pricing pressures | Gross profit margin increased to 19.4% in Q3 2024 |
| Operational Risks | Losses from restructuring and asset sales | Loss on asset disposition of $11.5 million in 2024 |
| Financial Risks | High debt levels and interest expenses | Outstanding Term Loan balance of $119.6 million |
Future Growth Prospects for Hydrofarm Holdings Group, Inc. (HYFM)
Future Growth Prospects for Hydrofarm Holdings Group, Inc.
Analysis of Key Growth Drivers
Key growth drivers for the company include product innovations, market expansions, and strategic acquisitions. The company has focused on enhancing its proprietary product lines, which have shown a 157.4% increase in gross profit for the three months ended September 30, 2024, compared to the same period in 2023, amounting to $8.5 million.
Market expansion efforts have been directed toward both the U.S. and Canadian markets, with revenue from the U.S. reaching $53.5 million as of September 30, 2024, while Canadian revenue was $31.968 million.
Additionally, the company has engaged in strategic acquisitions that complement its existing product offerings and market presence, enhancing its competitive position within the cannabis industry.
Future Revenue Growth Projections and Earnings Estimates
Future revenue growth projections are tempered by current industry challenges, including an oversupply situation. For the nine months ended September 30, 2024, the company reported net sales of $153.0 million, a decrease of 14.7% from the previous year. However, gross profit margins have improved, with margins increasing to 19.8% for the nine months ended September 30, 2024, from 16.3% in 2023.
The estimated future amortization expense for intangible assets is projected to total $252.457 million over the next several years.
Strategic Initiatives or Partnerships That May Drive Future Growth
The company has established partnerships aimed at enhancing its distribution capabilities and expanding its reach within the cannabis market. These strategic initiatives are expected to contribute to operational efficiencies and improved market penetration. The Revolving Credit Facility, with a borrowing limit currently at $35 million, provides additional financial flexibility to fund growth initiatives.
Competitive Advantages That Position the Company for Growth
The company’s competitive advantages include a diversified product portfolio, a strong brand presence in the controlled environment agriculture (CEA) sector, and a robust distribution network. The proprietary products have gained traction, evidenced by the increase in gross profit despite a decline in net sales.
As of September 30, 2024, total stockholders’ equity stood at $242.982 million, reflecting the company’s capacity to leverage its assets for growth.
| Financial Metrics | Q3 2024 | Q3 2023 | Change (%) |
|---|---|---|---|
| Net Sales | $44.0 million | $54.168 million | -18.8% |
| Gross Profit | $8.5 million | $3.309 million | +157.4% |
| Gross Profit Margin | 19.4% | 6.1% | +13.3% |
| Net Loss | ($13.146 million) | ($19.884 million) | +33.9% |
| Total Stockholders’ Equity | $242.982 million | $290.610 million | -16.3% |
These financial metrics highlight the company's resilience in adapting to market conditions while focusing on growth opportunities in the evolving cannabis landscape.
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Resources:
- Hydrofarm Holdings Group, Inc. (HYFM) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Hydrofarm Holdings Group, Inc. (HYFM)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Hydrofarm Holdings Group, Inc. (HYFM)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.