HYFM

• Delivered 12th consecutive quarter of year-over-year adjusted SG&A savings with nearly 16% expense reduction vs. 2024, driving a small sequential improvement in adjusted EBITDA despite tariff environment.
• Achieved positive free cash flow for the quarter; initiated new restructuring plan to focus on higher-margin brands and optimize distribution/manufacturing network, estimating annual cost savings >$3M and working capital benefits.
• Second quarter sales and sales mix softer than anticipated due to industry headwinds, but proprietary consumable brands had solid Y/Y performance, SunBlaster lighting had strong results, and international sales performed well.
• Completed product portfolio review in Q2, rationalizing over 1/3 of SKUs and brands, aiming to simplify offering, optimize inventory, and improve focus on key proprietary brands.
• Plan to invest more in marketing behind new innovations, improve brand websites, and refine CRM capabilities in H2 2025 to drive higher-quality revenue streams.
• Managing tariff impact by carefully sourcing, sharing/passing on costs where possible, reviewing alternative sourcing, and focusing on proprietary consumable brands with lower tariff exposure.

• Expect to improve proprietary mix and adjusted gross profit margin for full year 2025.
• Restructuring benefits to start showing in H2 2025.
• Plan to invest in marketing in H2 2025 to drive higher-quality revenue streams.
• On pace to deliver positive free cash flow for the last 9 months of 2025.

Net sales for the second quarter were $39.2 million, down 28.4% year-over-year. Consumable products outperformed durable products, with consumables mix ticking up to approximately 80% of sales in Q2. Gross profit in Q2 was $2.8 million (7.1% of net sales) compared to $10.9 million (19.8%) in the year-ago period. Adjusted gross profit was $7.5 million (19.2% of net sales) vs. $13.3 million (24.4%) last year. Selling, general and administrative expense in Q2 was $16.1 million vs. $18.7 million last year; adjusted SG&A expenses were $9.8 million, a 16% reduction year-over-year. Adjusted EBITDA was a loss of $2.3 million in Q2.

• Uncertain tariff environment with potential impact on margins if not managed; primary exposure in durables business sourced from China.
• Industry oversupply leading to softer sales and sales mix, particularly in durable lighting/equipment products.
• Inconsistent demand, consolidation in retail customer base, and minimal progress on rescheduling/safer banking affecting business performance.
• Impact of restructuring and portfolio optimization on business operations if not executed smoothly.

Q: Revisiting tariff impact, with EU, U.K., Asian tariff deadline extensions, talk about current tariff situation and expectations going into H2.

A: Tariffs are hard to predict, but we've covered incremental costs in H1. Going forward, we'll manage by carefully sourcing, sharing/passing on costs, reviewing alternative sourcing, and focusing on proprietary consumable brands with lower tariff exposure.

Q: About product portfolio optimization and third-party distribution, impact on portfolio and one-stop shop for customers.

A: We have long-term relationships with distributed brand partners, but rationalized over 1/3 of SKUs and brands to reduce redundancies and underperforming products, expecting adjusted gross profit margin to improve, while continuing to offer a broad portfolio.

Q: Talk about noncannabis business growth, incremental efforts and H2 plans.

A: International sales performed well Y/Y, with efforts in food/floral, Garden Center, e-commerce; modified products like chillers, retainers, SunBlaster lighting, and nutrient categories to focus on diversification.

Q: President Trump's talk about reclassifying cannabis, what's been heard and chances of outcome.

A: Encouraged by reports of consideration, but waiting for actual outcome; sees potential positive impact on industry if rescheduling occurs.