HYDROFARM HOLDINGS GROUP, INC. Q3 FY2023 earnings call

• Achieved adjusted EBITDA profitability for the second quarter in a row due to restructuring and cost-saving initiatives, along with emphasis on proprietary brands. • Quarter-end cash balance is the highest since Q2 2021. • Proprietary nutrient business had strong performance with sales growth over 20%. • Diversified revenue streams with growing sales outside US and Canada, and uptick in non-cannabis CEA applications. • Initiated second phase of restructuring focused on durables business, expected to yield annual cost savings of ~$1.5M.

Net sales for the third quarter were $54.2 million, down 27% year-over-year, driven by a 22% decrease in sales volume. Consumables represented approximately 75% of total sales in the quarter, up from 67% in Q3 last year. Proprietary nutrient brand sales grew over 20% versus the third quarter of last year. Adjusted gross profit was $12.5 million or 23% of net sales in the third quarter compared to $7.8 million or 10.5% of net sales in the year-ago period.

• Reaffirmed net sales range of $230 million to $240 million, expecting the lower end of the range. • Modestly positive adjusted EBITDA for the full year. • Positive free cash flow expected for the full year. • Lowered CapEx to $4.5 million to $5.5 million for the full year, with expectation of CapEx picking up in Q4 2023 and into 2024.

• Forward-looking statements subject to risks and uncertainties from SEC filings. • Non-GAAP measures need to be considered with GAAP reconciliations. • Industry slowdown impacting durable products sales. • Competitive pricing pressures, particularly in grow media category. • Isolated inventory charges in Q3 that could affect margins if recurring.

Q: Peter Grom asked about confidence in industry returning to growth and margin potential.

A: Bill Toler said it's a fair rate to start 2024 but signs point to growth in back half of 2024; John Lindeman mentioned adjusted gross profit margin could be in 23%-25% range with adjusted SG&A around $12M-$13M.

Q: Jesse Redmond inquired about proprietary nutrient brands and market trends.

A: Bill Toler discussed strength of proprietary nutrient brands like House & Garden, HEAVY 16, Grotek, and mentioned offering value-oriented products like House & Garden dry product to address different market needs