In One Week Hydrofarm Delivers Strong Quarter, Buys A Company, Supersizes Offering

Hydroponic company Hydrofarm Holdings Group, Inc. (Nasdaq: HYFM) has had a busy week including reporting its quarterly earnings and announcing a huge offering that intends to raise $269 million. First things first, the earnings for the quarter ending March 31, 2021. Hydrofarm said it expects to deliver net sales in the range of $109 million to $111 million versus $66.9 million for the same time period in 2020. The company attributed the 65% in growth to higher net sales across multiple geographies, product categories, and its brand segments (its proprietary, preferred, and distributed brands).

Hydrofarm also said that its net income for the quarter will be in the range of $4.1 million to $4.9 million versus a net loss of ($3.1) million for the three months ended March 31, 2020. The adjusted EBITDA will be in the range of $8.9 million to $9.9 million versus $1.6 million for the three months ended March 31, 2020, an increase of approximately 490% calculated using the midpoint of the range.

The company said that the expected increases in net income and Adjusted EBITDA are due in part to (i) anticipated higher sales driven in part by the Company’s proprietary brands which it believes grew faster than its preferred and distributed brands in the first quarter of 2021 versus the same period in the prior year, (ii) anticipated higher gross profit resulting from the higher sales referenced above and a higher gross profit margin in the first quarter of 2021 versus the same period in the prior year primarily as a result of more favorable sales mix, and (iii) anticipated leverage on the company’s selling, general and administrative expenses which it expects were lower as a percentage of net sales in the first quarter of 2021 versus the same period in the prior year. At the end of the quarter, the company estimates that it had cash, cash equivalents, and restricted cash of approximately $62.0 million and an aggregate principal amount of debt outstanding of $1.1 million.

Offering

At the beginning of the week, Hydrofarm had announced a four million share offering. Two days later, it supersized the offering to 4,805,967 shares of its common stock at a price of $59.00 per share. The net proceeds are expected to be approximately $269.3 million.

Heavy 16 Acquisition

Also this week, Hydrofarm said it was buying Field 16, LLC, also known as HEAVY 16 in a deal valued at $78.1 million, consisting of $63.1 million in cash and $15 million of its common stock. The purchase price includes a potential earn-out payment of up to $2.5 million based on the achievement of certain performance metrics. In connection with the Acquisition, Hydrofarm said it intends to keep certain key employees of HEAVY 16.

HEAVY 16 is a leading manufacturer and supplier of branded plant nutritional products, with nine core products that are currently sold to approximately 300 retail stores across the U.S. The HEAVY 16 products feature a full line of premium nutrients with nine core products used in all stages of plant growth, helping to increase the yield and quality of crops. The company believes that the strategic combination of its leading distribution capabilities and HEAVY 16’s branded nutrient capabilities will enable the HEAVY 16 brand to rapidly grow across the company’s existing customer base.

In addition, the company believes there will be an opportunity to use its distribution platform outside the U.S. to offer the HEAVY 16 products internationally. Moreover, by broadening the Company’s proprietary branded offerings into the plant nutrients category, the Company anticipates that the Acquisition will also enable it to further serve the needs of its retail partners and commercial growers as it continues to penetrate the market. Hydrofarm will get approximately 70 SKUs in the nutrient category and a new 25,000 square foot manufacturing facility in Paramount, California with cutting-edge blending, bottling, and filling equipment.

Market Outlook

The global hydroponics market is estimated to account for $ 716.25 million in terms of value by the end of 2027, witnessing CAGR of 10.8% during the forecast period (2020-2027). In addition to cannabis, hydroponics can be used for many vegetables and crops such as cucumbers, tomatoes, peppers, herbs, lettuce, etc. Among these, tomatoes are expected to witness significant growth in the near future, due to a faster cultivation rate and requirement of less amount of water as compared to regularly farmed tomatoes.

Debra Borchardt

Debra Borchardt is the CEO, Co-Founder, and Editor-In-Chief of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Masters degree in Business Journalism from New York University.


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