UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): January 7, 2022
(Exact name of registrant as specified in its charter)
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(Address of Principal Executive
Offices) (Zip Code)
Registrant’s telephone number, including area code: (707 ) 765-9990
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions:
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Item 2.02 Results of Operations and Financial Condition.
On January 7, 2022, the Hydrofarm Holdings Group, Inc. (the “Company”) issued a press release reaffirming its full-year 2021 outlook. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and incorporated herein by reference.
The information in this Item 2.02 of this Current Report on Form 8-K and Exhibit 99.1 attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). The information contained in this Item 2.02 and in the press release attached as Exhibit 99.1 to this Current Report on Form 8-K shall not be incorporated by reference into any filing with the Securities and Exchange Commission (“SEC”) made by the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Item 7.01 Regulation FD Disclosure.
The information set forth in Item 2.02 above is incorporated herein by reference.
Executives of the Company will present at the 2022 Annual ICR Conference using the materials (the “Investor Presentation”) provided in Exhibit 99.2 of this Current Report on Form 8-K and incorporated herein by reference. The Investor Presentation will also be available under the “Investors” tab in the “Events & Presentations” section of the Company’s website located at www.hydrofarm.com.
The information in this Item 7.01 of this Current Report on Form 8-K and Exhibit 99.2 attached hereto shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act. The information contained in this Item 7.01 and in the press release attached as Exhibit 99.2 to this Current Report on Form 8-K shall not be incorporated by reference into any filing with the SEC made by the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
With respect to the projected fiscal year 2021 Adjusted EBITDA financial information included in Exhibits 99.1 and 99.2, a quantitative reconciliation is not available without unreasonable effort due to the variability, complexity and low visibility with respect to certain items, including, but not limited to, stock-based compensation and employer payroll taxes, uncertainties caused by the global COVID-19 pandemic, changes to the regulatory landscape, and certain potential future transaction expenses, which are excluded from Adjusted EBITDA. The Company expects the variability of these items to have a potentially unpredictable, and potentially significant, impact on its future GAAP financial results.
Forward-Looking Statements
Certain statements in this Current Report on Form 8-K (including the exhibits hereto) constitute “forward-looking” statements. These statements are based on management’s current opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results. These forward-looking statements are only predictions, not historical fact, and involve certain risks and uncertainties, as well as assumptions. Actual results, levels of activity, performance, achievements and events could differ materially from those stated, anticipated or implied by such forward-looking statements. While the Company believes that its assumptions are reasonable, it is very difficult to predict the impact of known factors, and, of course, it is impossible to anticipate all factors that could affect actual results. There are a number of risks and uncertainties that could cause actual results to differ materially from forward-looking statements made herein including, most prominently, the risks discussed under the heading “Risk Factors” in each of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 and Quarterly Report on Form 10-Q for the period ended September 30, 2021, as well as its consolidated financial statements, related notes, and other financial information appearing therein, and its other filings with the SEC.
Additionally, Exhibits 99.1 and 99.2 include certain preliminary financial estimates as of and for the periods ended December 31, 2021, for which financial statements are not yet available and for which the audit has not been completed. Such estimates are “forward-looking” statements. Our actual results remain subject to the completion of our quarter-end and year-end closing process, which includes review by management and our board of directors, including our audit committee. While carrying out such procedures, we may identify items that require us to make adjustments to such preliminary estimates. Our independent registered public accounting firm has also not audited, reviewed, compiled or performed any procedures on this preliminary financial information, and, accordingly, does not express an opinion or other form of assurance with respect thereto. Such estimated ranges are preliminary and may change. There can be no assurance that our final audited results of operations for such periods will not differ from these estimates, and any such changes could be material. Therefore, you should not place undue reliance on these preliminary estimates of our results.
Such forward-looking statements are made only as of the date of this Current Report on Form 8-K. The Company expressly disclaims any obligation or undertaking to release any updates or revisions to any forward-looking statements
contained herein to reflect any change in its expectations with regard thereto or changes in events, conditions, or circumstances on which any such statement is based.
Item 9.01 Financial Statements and Exhibits.
| Exhibit No. | Description | |||||||
| 99.1 | ||||||||
| 99.2 | ||||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | |||||||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Hydrofarm Holdings Group, Inc. | |||||||||||
| Date: January 11, 2022 | By: | /s/ William Toler | |||||||||
| Name: | William Toler | ||||||||||
| Title: | Chief Executive Officer | ||||||||||
Hydrofarm Holdings Group Reaffirms Fiscal 2021 Outlook January 7, 2022 Management will Participate at the 2022 Virtual ICR Conference on January 11, 2022 FAIRLESS HILLS, Pa., Jan. 07, 2022 (GLOBE NEWSWIRE) -- Hydrofarm Holdings Group, Inc. (“Hydrofarm”) (Nasdaq: HYFM), a leading independent distributor and manufacturer of hydroponics equipment and supplies for controlled environment agriculture, today reaffirmed its net sales and adjusted EBITDA outlook for the full fiscal year 2021. As previously stated, the Company reaffirmed the following: Net sales of approximately $470.0 million to $490.0 million, representing growth of 37% to 43% compared to fiscal 2020. Adjusted EBITDA of $47.0 million to $53.0 million. Full-year organic growth of approximately 18% to 23% and M&A growth of approximately 19% to 20%. The Company’s 2021 outlook includes the following assumptions: Partial period contributions from the following acquisitions: Heavy 16 – net sales and EBITDA contribution for May through December 2021 House & Garden – net sales and EBITDA contribution for June through December 2021 Aurora Innovations – net sales and EBITDA contribution for July through December 2021 Greenstar – net sales and EBITDA contributions for August through December 2021 IGE – net sales and EBITDA contributions for November through December 2021 The Company’s full year 2021 outlook implies fourth quarter 2021 net sales growth comprised of M&A growth, partially offset by a decline in organic sales. The Company estimates that the organic sales decline experienced in the fourth quarter was in the low-to-mid teens, driven by a sales mix that is primarily consumable products as opposed to durable products. The Company will provide a detailed financial outlook for 2022 as part of its fourth quarter earnings report. However, at this time, management continues to expect 8% to 10% organic top line growth for the full calendar year of 2022, which will likely be weighted toward the back half of 2022 as the industry laps strong comps in the first half of this year and several states that have recently enacted pro-cannabis legislation build momentum through 2022. In addition, management expects to benefit from the full year of ownership in 2022 of the five businesses acquired during 2021. This update remains subject to the completion of normal year-end accounting procedures and adjustments and are subject to change. The Company expects to release final financial and operating results for its fiscal fourth quarter and fiscal year ended December 31, 2021 during March of 2022. ICR Conference Participation Hydrofarm management will present at the 2022 Virtual ICR Conference on Tuesday, January 11, 2022. Hydrofarm’s presentation will begin at 2:00 PM ET and will be webcast live and archived on the Hydrofarm website. To access the webcast, please visit www.hydrofarm.com under the “Investors” section. About Hydrofarm Holdings Group, Inc. Hydrofarm is a leading independent distributor and manufacturer of hydroponics equipment and supplies for controlled environment agriculture, including high-intensity grow lights, climate control solutions, and growing media, as well as a broad portfolio of innovative and proprietary branded products. For over 40 years, Hydrofarm has helped growers make growing easier and more productive. The Company’s mission is to empower growers, farmers and cultivators with products that enable greater quality, efficiency, consistency and speed in their grow projects. Cautionary Note Regarding Forward-Looking Statements Statements contained in this press release, other than statements of historical fact, which address activities, events and developments that the Company expects or anticipates will or may occur in the future, including, but not limited to, information regarding the future economic performance and financial condition of the Company, the plans and objectives of the Company’s management, and the Company’s assumptions regarding such performance and plans are “forward-looking statements” within the meaning of the U.S. federal securities laws that are subject to risks and uncertainties. These forward-looking statements generally can be identified as statements that include phrases such as “guidance,” “outlook,” “projected,” “believe,” “target,” “predict,” “estimate,” “forecast,” “strategy,” “may,” “goal,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “will,” “should” or other similar words or phrases. Actual results could differ materially from the forward-looking information in this release due to a variety of factors, including, but not limited to: The ongoing COVID-19 pandemic could have a material adverse effect on the Company’s business, results of operation, financial condition and/or cash flows; Interruptions in the Company's supply chain, whether due to COVID-19 or otherwise could adversely impact expected sales growth and operations; The highly competitive nature of the Company’s markets could adversely affect its ability to maintain or grow revenues; Certain of the Company’s products may be purchased for use in new or emerging industries or segments, including the cannabis industry, and/or be subject to varying, inconsistent, and rapidly changing laws, regulations, administrative and enforcement approaches, and consumer perceptions and, among
other things, such laws, regulations, approaches and perceptions may adversely impact the market for the Company’s products; the market for the Company’s products may be impacted by conditions impacting its customers, including related crop prices and other factors impacting growers; Compliance with environmental and other public health regulations or changes in such regulations or regulatory enforcement priorities could increase the Company’s costs of doing business or limit the Company’s ability to market all of its products; Damage to the Company’s reputation or the reputation of its products or products it markets on behalf of third parties could have an adverse effect on its business; If the Company is unable to effectively execute its e-commerce business, its reputation and operating results may be harmed; The Company’s operations may be impaired if its information technology systems fail to perform adequately or if it is the subject of a data breach or cyber-attack; The Company may not be able to adequately protect its intellectual property and other proprietary rights that are material to the Company’s business; Acquisitions, other strategic alliances and investments could result in operating and integration difficulties, dilution and other harmful consequences that may adversely impact the Company’s business and results of operations. Additional detailed information concerning a number of the important factors that could cause actual results to differ materially from the forward-looking information contained in this release is readily available in the Company’s annual, quarterly and other reports. The Company disclaims any obligation to update developments of these risk factors or to announce publicly any revision to any of the forward-looking statements contained in this release, or to make corrections to reflect future events or developments. Investor Contact: Fitzhugh Taylor / ICR ir@hydrofarm.com
Investor presentation J a n u a r y 2 0 2 2
1 Disclaimer Forward-Looking Statements This presentation contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different from the statements made herein. All statements other than statements of historical fact included in this presentation are forward-looking statements, including, but not limited to, the Company’s financial results, future financial position, expected growth of cash flows, business strategy, budgets, projected costs, projected capital expenditures, taxes, plans, objectives, potential synergies, industry trends and growth opportunities. Forward-looking statements discuss the Company’s current expectations and projections relating to its financial operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “aim,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “future,” “intend,” “outlook,” “potential,” “project,” “projection,” “plan,” “seek,” “may,” “could,” “would,” “will,” “should,” “can,” “can have,” “likely,” the negatives thereof and other similar expressions. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. These forward-looking statements are only predictions, not historical fact, and involve certain risks and uncertainties, as well as assumptions. While Hydrofarm believes that its assumptions are reasonable, it is very difficult to predict the impact of known factors, and, of course, it is impossible to anticipate all factors that could affect actual results. There are many risks and uncertainties that could cause actual results to differ materially from forward-looking statements made herein including, most prominently, the risks discussed under the heading “Risk Factors” in the Company’s latest annual report on Form 10-K and quarterly reports on Form 10-Q filed with the U.S. Securities and Exchange Commission (“SEC”). Such forward-looking statements are made only as of the date of this presentation. All of the Company’s SEC filings are available online at www.sec.gov. Hydrofarm undertakes no obligation to publicly update or revise any forward-looking statement because of new information, future events or otherwise, except as otherwise required by law. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements. This presentation also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. In addition, projections, assumptions, and estimates of our future performance and the future performance of the markets in which we operate are necessarily subject to a high degree of uncertainty and risk. In addition, the preliminary financial results set forth in this presentation are preliminary and unaudited, and these estimates are based on information currently available to the Company. While the Company believes these estimates are meaningful, they could differ from the actual results that the Company ultimately reports in its annual report on Form 10-K for the fiscal year ended December 31, 2021. The Company assumes no obligation and does not intend to update these estimates prior to filing its annual report on Form 10-K for the fiscal year ended December 31, 2021. Non-GAAP Measures This presentation contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Management uses these “non- GAAP” measures in its analysis of the Company’s performance. Management believes these non-GAAP financial measures allow for better comparability of period to period operating performance. Additionally, the Company believes this information is utilized by regulators and market analysts to evaluate a company’s financial condition and therefore, such information is useful to investors. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. A reconciliation of the non- GAAP measures used in this presentation to the most directly comparable GAAP measures is provided in the Appendix to this presentation.
2 Reaffirming Fiscal 2021 Outlook 2021 Fiscal Outlook Net sales of approximately $470.0 million to $490.0 million, representing growth of 37% to 43% compared to fiscal 2020. Adjusted EBITDA1 of $47.0 million to $53.0 million. Full-year organic growth of approximately 18% to 23% and M&A growth of approximately 19% to 20%. The Company’s 2021 outlook includes partial period contributions from the following acquisitions: Heavy 16 – net sales and EBITDA contribution for May through December 2021 House & Garden – net sales and EBITDA contribution for June through December 2021 Aurora Innovations – net sales and EBITDA contribution for July through December 2021 Greenstar – net sales and EBITDA contributions for August through December 2021 IGE – net sales and EBITDA contributions for November through December 2021 Q4 2021 Net sales growth comprised of M&A growth, partially offset by a decline in organic sales Organic sales decline estimated in the low-to-mid teens driven by a sales mix that is primarily consumable products as opposed to durable products Note: 1With respect to projected fiscal year 2021 Adjusted EBITDA, a quantitative reconciliation is not available without unreasonable effort due to the variability, complexity and low visibility with respect to certain items, including, but not limited to, stock-based compensation and employer payroll taxes, uncertainties caused by the global COVID-19 pandemic, changes to the regulatory landscape, and certain potential future transaction expenses, which are excluded from Adjusted EBITDA. We expect the variability of these items to have a potentially unpredictable, and potentially significant, impact on our future GAAP financial results.
3 Enabling growers, farmers and cultivators to achieve higher yields and greater quality, consistency, efficiency and sustainability at their farms Bringing innovative solutions, preferred brands and gold standard service to the rapidly expanding and complex controlled environment agriculture industry Hydrofarm is a leading branded hydroponics company with a manufacturing and distribution platform serving the Controlled Environment Agriculture (“CEA”) market Mission Vision ~76% YTD sales from margin- advantaged proprietary and preferred brands1 ~68% Sales from consumables with recurring revenue streams1 ~90% Delivery coverage of U.S. population within 24-48 hours 19% Net sales CAGR for 15+ years 8 Distribution centers3 across North America with opportunity to scale 40+ Years of operating experience +45% YTD Sep-21 net sales YoY growth +19% ‘20 – ‘25 CAGR Global CEA Market Source: Company information, industry reports Note: All financials shown are as reported and exclude pro forma impact from recently completed acquisitions unless otherwise stated; 1 on pro forma basis for the 5 acquisitions completed in 2021; 2 Adj. EBITDA is a non-GAAP measure, see reconciliation to the nearest GAAP measure at the end of this presentation; 3 Distribution center footprint excludes 5 manufacturing facilities added via recent acquisitions. 11% YTD Sep-21 Adj. EBITDA margin2 13% Q3’21 Adj. EBITDA margin2 ~400 Supplier relationships globally 2,000+ Wholesale customer accounts
4 Hydrofarm is well-positioned for the future – key investor highlights IMPRESSIVE GROWTH ALGORITHM +15-year track record of 19% revenue CAGR with a goal to achieve mid-teens+ organic topline growth WINNING PLATFORM Supply chain excellence with just-in-time coverage of North America and disruptive DMI1 technology MASSIVE MARKET OPPORTUNITY – “SELLING PICKS AND SHOVELS” Unprecedented tailwinds for our large and rapidly-growing end-markets as cannabis legalization and CEA expands HIGH PROPORTION OF CONSUMABLES Approximately 68% of sales come from consumables, creating a large source of recurring revenue DIFFERENTIATED BRANDED PRODUCT OFFERING Majority of sales are from products that are only or primarily sold by Hydrofarm at advantaged margins2 CONSOLIDATOR OF CHOICE – ACQUIRED 5 BUSINESSES IN FIRST YEAR AS A PUBLIC COMPANY Differentiated positioning expands opportunity set to broaden industry footprint and strengthen portfolio 8 DRIVING PROFITABILITY Significant adj. EBITDA and margin growth in 2021, with potential for material and sustainable margin upside 1 5 4 7 6 3 Source: Company information, industry reports; Note: 1 Distributor managed inventory. EXPERIENCED MANAGEMENT TEAM AND STRONG BOARD Proven management team with public company CEO/CFO and deep experience base paired with strong board
5 Distribution centers New Hudson, MI Fairless Hills, PA Portland, OR Petaluma, CA Denver, CO Fontana, CA Langley, BC Cambridge, ON Distribution footprint can reach ~90% of U.S population in <48 hours Serve >2k wholesale customers across multiple channels in North America Long-term relationships with network of ~400 suppliers Commercial sales and DMI3 programs enhance customer value proposition ~1 million sq. ft. of distribution space in our North American distribution centers2 Our robust infrastructure positions us to capitalize on rapidly growing markets Now manufacturing in-house approximately1 36% of our revenue base Manufacturing sites Arcata, CA Goshen, NY Eugene, OR Edmonton, AB Paramount, CA Source: Company information Note: 1 As of 9/30/21 pro forma for five acquisitions; 2Includes space from recent expansion of U.S. distribution centers, but excludes additional space expected from Canada distribution center expansions slated for Q4 2022 and manufacturing footprint from acquired companies; 3 Distributor managed inventory. Sycamore, IL
6 Strong leadership team with relevant public company experience Bill Toler Chairman & Chief Executive Officer Joined in 2019 Prior experience Renah Persofsky Vice Chair & Lead Director, Tilray Joined in 2020 Terence Fitch President Joined in 2019 Susan Peters Former SVP HR, General Electric Joined in 2020 John Lindeman Chief Financial Officer Joined in 2020 Prior experience Rick Moss Former CFO, Hanesbrands Joined in 2020 Mark Parker SVP, Business Development Joined in 2019 Prior experience Patrick Chung VP Finance, Serruya Private Equity Joined in 2020 Eric Ceresnie SVP, Corporate Development & Finance Joined in 2018 Prior experience Melisa Denis Retired Lead Partner, KPMG Joined in 2020 Prior experience Prior experience Prior experience Prior experience Prior experience Proven management team with public company CEO/CFO and deep experience base Strong board with diverse, relevant experience Rob Marlow Chief Information Officer Joined in 2019 Prior experiencePrior experience Tais Martinez Vice President Human Resources Joined in 2021 Prior experience
7 ~$10bn ~$18bn 2020 2026E Hydrofarm services a large and rapidly growing market Source: Industry reports Our total addressable market ~$1tn Commercial agriculture, food & related industries ~$48bn Consumer gardening & growing ~$65B Global CEA Market (includes cannabis) ~$75bn Global CEA market (incl. cannabis) Our customers’ key end markets ~$9.5bn Global CEA wholesale Represent Hydrofarm’s current categories $3bn $7bn 2019 2023 Global vertical farming market $75bn $150bn 2020 2025 Global CEA market $14bn $37bn $12b n $31b n$2bn $6bn 2019 2024 North American cannabis market United States Canada 22% CAGR 19% CAGR 24% CAGR
8 Progress since our initial public offering in Q4 2020 Source: Company information Note: All financials shown are as reported and exclude pro forma impact from recently completed acquisitions unless otherwise stated; 1 Adj. EBITDA is a non-GAAP measure, see reconciliation to the nearest GAAP measure at the end of this presentation Significant legislative momentum with NY, NM, CT, VA legalizing recreational adult-use cannabis Shifting attitudes towards cannabis with over 70% of Americans believing cannabis should be legal Improved momentum in recently legalized states, increased commercial penetration Strong continued revenue growth across product lines, geographies and brand categories Expanding warehouse capacity in several key markets and building inventory to serve the expected surge in demand from cannabis legalization in new states Put in place new credit agreement with larger limit and more favorable terms Expanded/relocated three DCs to add capacity and better serve our customer base Integration of recent acquisitions +45% YoY net sales growth as of 2021 Q3 YTD Gross margin of 22.4% as of 2021 Q3 YTD, (~375bps improvement from YTD 2020) Adj. EBITDA1 margin of 11.4% as of 2021 Q3 YTD (>500bps improvement from YTD 2020)1 Rapidly growing market remains strong Executing on our strategic initiatives Robust financial performance
9 Innovation via R&D Increase brand coverage Marketing initiatives Relationship model National network Access to key end markets Supply chain excellence Build commercial DMI program Securing customer success Acquire leading brands Add tech & capabilities Expand industry footprint We have seen success across all growth strategies year to date Our industry premise Productivity enhancements and operating synergies are beginning Our growth strategies Expand proprietary brand offering Adding strategic distribution relationships and preferred brands Enabling wholesale network to effectively serve commercial growers Acquire value enhancing businesses Leveraging the Hydrofarm platform to capture greater share of the cannabis and CEA end markets Our value proposition Branded provider of all CEA needs Gold standard in distribution & service
10 Five recent acquisitions highlight Hydrofarm’s accretive brand acquisition strategy. Invested $505 million on five acquisitions at average multiple of ~7x Adj. EBITDA Overview & rationale Select products Nutrient products for professional growers Significant distribution opportunity Heavy Fire Heavy Roots House & Garden is a leading producer of plant nutrients and fertilizer Mad Farmer is a producer of premium plant enhancements formulated for use with any growing medium Roots Excelurator Gold House & Garden Manufacturer of premium organic grow media and nutrients Proprietary innovation at in-house R&D facility Mother of all Blooms Manufacturer of premium horticultural products and solutions Broaden geographic footprint and strengthen product portfolio Soul Grow Closing date 2021E revenue1 ~$23mm May 3, 2021 ~$55mm June 1, 2021 ~$60mm July 1, 2021 ~$26mm August 3, 2021 Power Bloom Vitamax Pro Source: Company information, press releases Note: Adj. EBITDA s a non-GAAP measure, see reconciliation to the nearest GAAP measure at the end of this presentation; 1 Estimate as of the date of acquisition announcement, does not include sales eliminations Manufacturer of rolling benches, multi-layer racks and LED lights Strong engineering and commercial sales capabilities ~$52mm November 1, 2021 Roots Organics Original Rolling BenchesMulti-Layer Racks
11 Pr ef er re d Pr op rie ta ry End-to-end category coverage through innovative, well-recognized proprietary and preferred brands D is tri bu te d Pr ef er re d Pr op rie ta ry Pr op rie ta ry & S el f- m an uf ac tu re d Significant margin benefit Lighting Equipment Durables (~30% of sales) Supplies Grow media Nutrients Consumables (~70% of sales) Source: Company information Our margin advantaged proprietary & preferred brand portfolio delivers comprehensive hydroponic & CEA solutions with meaningful room to grow Recent M&A #1 #2 #3 #4 #5
HYFM Long Term Growth Drivers These materials are not to be printed, downloaded or distributed.
13 Several momentum builders carrying into 2022 IGE Acquisition: Acquisition closed in November 2021. Carrying +$25mm backlog into 2022 driven by new state build outs and vertical rack retrofits Commercial Channel: 2021 was the largest ever for our commercial channel. Seeing strength in the commercial segment across the US. Combined sales efforts from acquired brands bringing many new opportunities Peat Products: Peat moss segment of Aurora Innovations coming off record harvest in 2021. Recently secured additional bog leases, expanding acreage by over 35% New States: Recent and upcoming legalizations in Ohio, New York, Missouri, Arizona and Louisiana are showing real traction Productivity: Productivity performance improvement program deployed across the manufacturing and distribution network in 2021; expected to moderate cost pressures in 2022
14 CEA for food and ornamental crops along with international expansion remain attractive long-term growth opportunities Sources: Research & Markets CEA for North America Food and Ornamental Crops Vertical farming market projected to grow at 23% CAGR over the next 4 years per Research & Markets Improving lighting efficiencies and hydroponic methods driving expansion of CEA food production Hybrid-CEA business models expected to expand the opportunity set for fresh food applications International (non-US/Canada) Growth Opportunity International expansion expected to contribute to be a 2022 growth driver 2021 acquisitions drove increase of international sales by 3x Europe earlier in the legalization cycle compared to North America Evaluating European acquisition opportunities
15 We expect continued acceleration in cannabis market growth resulting from state legislative changes and increasing popular support Notes: 1 Adult-Use States: CA, MI, CO, OR, ME, MA, WA, IL, AZ, NV, VT, AK, DC 2 Medicinal-Use States: ND, LA, MS, IA, DE, AR, MN, HI, UT, WV, MD, NH, GA, NM, MO, TX, RI, FL, OH, PA, OK 3 New Adult-Use States: CT, MT, VA, NJ, NY 4 None: All other States 5 Based on FY2021 estimated sales, pro forma for acquisitions 6 9/30/21 YTD HYFM organic sales Sources: Census data, news media Adult-use1 Legal None4 U.S. Cannabis Market Status TX MT CA ID NV AZ OR IL NM CO WY MN SD IA ND UT KS NE WA WI OK MI MO NY PA FL IN AL GA AR LA NC VA TN KY OH MS ME SC MI WV VT NH MA CT NJ MD DE RI HI New Adult-use3 Legalizations Medicinal-use2 Legal +15% CAGR for years to come Sales Per Capita5 % of US Population % of HYFM US Sales5 %HYFM Sales Growth6 ~$3.00 to $3.75+ 30% ~75% 20% ~$0.60 41% ~20% 60% ~$0.40 13% ~3% 50% ~$0.15 16% ~2% 32%
16 U.S. Cannabis market continues to grow following 2020/21 Pandemic Boost Sources: Headset U.S. Cannabis Retail Sales $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 Q1 Q2 Q3 Q4 Bi lli on s 2018 2019 2020 2021 Headset dispensary retail sales Growth in Q4’21 remains positive despite pandemic boost from Q2’20 to Q2’21 Early signals of improved pricing in late Q4’21
17 Legalization supports long-term increased consumption trend Legalization removes stigma, increases awareness, increases accessibility and as result increased consumption Cannabis Prevalence significantly higher in states with Adult-Use and Medical legalization Like other consumer products…as category matures, brand proliferation, sub-segments and alternative product delivery methods can drive additional growth U.S. Cannabis Usage – Steadily increasing since 2008 US Cannabis Usage – By Legalization Status 25.3% 18.5% 16.8% 15.3% Adult New Adult Medical None U.S. Cannabis %Use for ages 18+ Average %Use in the past year for ages 18+ 10.0% 15.0% 20.0% 25.0% 30.0% TX SD VA SC UT NE MS GA WV WY LA IA AR AL ND NJ HI KY TN WI IN NC ID KS FL MO MN MD PA DE OH NY AZ NM OK IL CT CA NH NV MI MT ME MA AK RI CO WA OR VT DC Adult Medical None U.S. Cannabis Usage – By State %Use in the past year for ages 18+ Notes: 1 Adult-Use States: CA, MI, CO, OR, ME, MA, WA, IL, AZ, NV, VT, AK, DC 2 New Adult-Use States: CT, MT, VA, NJ, NY 3 Medicinal-Use States: ND, LA, MS, IA, DE, AR, MN, HI, UT, WV, MD, NH, GA, NM, MO, TX, RI, FL, OH, PA, OK 4 None: All other States Sources: SAMSHA, news media 1 2 3 4
18 ESG – Recently published our first sustainability report Initiated ESG reporting in 2020 in conjunction with an internal ESG Committee, the Board’s Nominations and Governance Committee, and a third-party expert. Key areas of focus: Sustainable Products • Product Strategy – Targeting products which make efficient use of land, water, power, fertilizers and pesticides • Product Safety – Assuring products we sell are safe and compliant with proper standards. • Lifecycle Management - Minimize packaging, use sustainable materials, regular SKU review and end-of-lifecycle planning. Green Operations • Energy & Climate – Minimize GHG emissions through energy efficient facilities, equipment, vehicles, and logistics strategies • Waste & Recycling – Reduce, reuse & recycle water, energy and materials across all company operations. Focus on People • Develop diverse, inclusive and welcoming workplace; BOD is 50/50 male-female. • Focus on safe workplace practices for operational & COVID-related health risks utilizing training, workspace realignment & communications.
19 Category growth opportunity with accelerating legislative support and increasing consumer demand Opportunity to leverage our unique position in the value chain Unique pure-play “picks and shovels” supplier to the industry without “touching the plant” Executing on consolidation strategy in a highly fragmented industry – completed acquisitions of Heavy 16, Aurora Innovations, House & Garden, Greenstar Plant Products, and Innovative Growers Equipment Proven management team with public company CEO/CFO and deep experience base Hydrofarm is uniquely positioned to capitalize on the rapid growth in the cannabis and CEA industries
Appendix
21 Adjusted EBITDA reconciliation Notes: All figures rounded to the nearest $0.1 million, total lines may not foot due to rounding. 1Reflects the elimination of the impairment, restructuring and other for the periods presented; 2Reflects the elimination of acquisition and integration investment banking, consulting, transaction services and legal fees incurred for the completed Heavy 16, House & Garden, Aurora, Greenstar, and Innovative Growers Equipment acquisitions and certain potential acquisitions, including the contingent consideration of Heavy 16 ($0.1 million) and the inventory step up amounts of Heavy 16 and House and Garden ($2.0 million) for the nine months ended September 30, 2021; 3Reflects the elimination of the stock-based compensation and related employer payroll taxes on stock-based compensation for the periods presented; 4Reflects the elimination of one-time charges for loss on debt extinguishment for 2021; 5Reflects the elimination of one-time investor warrant solicitation fees. $mm Three Months Ended 9/30/21 Nine Months Ended 9/30/21 Net income $17.3 $24.5 Interest expense 0.1 0.3 Income taxes (19.8) (19.0) Distribution center exit costs and other 0.3 0.3 Depreciation and amortization 4.9 8.6 Impairment, restructuring, and other1 0.2 0.2 Acquisition and integration expenses2 10.6 20.8 Other expense (income), net 0.0 (0.1) Stock-based compensation expense3 1.3 3.9 Loss on debt extinguishment4 - 0.7 Investor warrant solicitation fees5 1.1 1.9 Adj. EBITDA $16.1 $42.2 Adj. EBITDA as a percent of Net Sales 13.0% 11.4%