HYDROFARM HOLDINGS GROUP, INC. Q1 FY2025 earnings call

• Reemphasized focus on higher margin proprietary brands, with proprietary brand sales mix improving to 55% from 52% sequentially. - Achieved 11th consecutive quarter of significant adjusted SG&A expense savings, with roughly 11% savings vs last year. - Non-cannabis and non-U.S. Canadian sales mix accounted for over a quarter of total sales in Q1. - Peat moss business affected by tariff uncertainty but expected to pick up post-clarity. - Actively pursuing strategic alternatives to enhance shareholder value, though no specific updates yet.

Net sales for the first quarter were $40.5 million, down 25.2% year-over-year. Proprietary brands accounted for 55% of net sales, an improvement from 52% in the fourth quarter of 2024. Consumable products accounted for over three quarters of total sales. Gross profit in the first quarter was $6.9 million (17% of net sales) compared to $10.9 million (20.2% of net sales) in the year-ago period. Adjusted gross profit was $8.5 million (21% of net sales) compared to $12.7 million (23.4% of net sales) last year.

• Withdrew full year 2025 guidance for net sales, adjusted EBITDA, and free cash flow due to tariff uncertainty and industry challenges. - Expect to improve adjusted gross profit margin and lower adjusted SG&A expense for the full year, driven by ongoing initiatives like product portfolio review and cost-saving actions.

• Prolonged industry oversupply challenges. - Lack of government progress on rescheduling cannabis and safer banking. - Continued consolidation in the retail customer base. - Tariff uncertainties, particularly with China-sourced durable products, affecting order patterns and costs.

Q: Follow-up on proprietary brand sales and growth outlook A: Nutrient brands (Grotek, House & Garden) and U.S.-manufactured grow media brands (Roots Organics) performed well. Continued investment in incentives, sales team capabilities, and marketing to drive further growth in proprietary brand mix.

Q: Impact of tariffs A: Consumables business insulated from tariffs; durables sourced from China with inventory, renegotiating with vendors and evaluating alternative sourcing. 90-day tariff pause helps but uncertainty remains.

Q: Cannabis market regulation outlook A: Positive momentum on rescheduling with over 70% of Americans in favor, new DEA nominee prioritizing rescheduling, and Trump administration efforts on safer banking.

Q: 2025 outlook A: Guidance paused due to tariff uncertainty, but expect to improve adjusted gross profit margin and lower adjusted SG&A expense as ongoing initiatives take effect.