Executive Summary

Q1 2025 revenue was $40.53M, down 25.2% YoY vs $54.17M, and up sequentially from $37.31M; results missed S&P Global consensus revenue of $52.58M* and EPS of -$2.10*, with actual EPS at -$3.12 .
Profitability improved sequentially: gross margin rebounded to 17.0% from 4.9% in Q4 2024; Adjusted Gross Profit Margin rose to 21.0% from 9.6% as proprietary brand mix improved to 55% from 52% in Q4 .
Hydrofarm withdrew FY25 guidance for net sales, Adjusted EBITDA, and Free Cash Flow due to evolving tariff uncertainty and prolonged cannabis industry headwinds, but reiterated KPIs: improved adjusted gross margin, lower adjusted SG&A, positive free cash flow for the remainder of 2025, and capex < $2M .
Liquidity stood at ~$31M (cash $13.7M + ~$17M revolver availability); the company amended its revolver on May 9, 2025, extending maturity to June 30, 2027 and reducing the commitment to $22M, while term loan principal remained ~$119M .

What Went Well and What Went Wrong

What Went Well

Sequential margin recovery on mix: “Our proprietary brand sales mix increased to 55%… driving substantial improvement in our Adjusted Gross Profit margin sequentially,” lifting AGPM% from 9.6% in Q4 to 21.0% in Q1 .
Cost discipline sustained: Q1 marked the 11th consecutive quarter of YoY Adjusted SG&A reductions (Q1 Adjusted SG&A $11.0M vs $12.3M prior-year), underpinned by headcount and facility cost actions .
Clear focus on high-margin consumables: management highlighted strength in proprietary nutrients (Grotek, House & Garden) and U.S.-made grow media (Roots Organics) as drivers of sequential mix gains .

What Went Wrong

Demand headwinds and pricing: Net sales fell 25.2% YoY on a 22.6% decline in volume/mix and a 1.8% price decrease tied to promotional activity; oversupply in the cannabis industry pressured results .
Miss versus Street: Q1 revenue ($40.53M) and EPS (-$3.12) fell below S&P Global consensus ($52.58M* and -$2.10*), as industry softness and tariffs uncertainty weighed on outlook and orders .
Cash flow seasonality amplified: Operating cash flow -$11.8M and Free Cash Flow -$12.0M in Q1 (seasonally negative), with lawn and garden seasonality in Canada cited as a factor .

Financial Results

Core metrics vs prior periods and consensus

Note: Columns are ordered oldest → newest.

Metric	Q1 2024	Q4 2024	Q1 2025 (Actual)	Q1 2025 Consensus*
Revenue ($M)	$54.17	$37.31	$40.53	$52.58*
Gross Profit Margin (%)	20.2%	4.9%	17.0%	—
Adjusted Gross Profit Margin (%) (Non-GAAP)	23.4%	9.6%	21.0%	—
Diluted EPS ($)	-$2.75	-$3.80	-$3.12	-$2.10*
Adjusted EBITDA ($M) (Non-GAAP)	$0.33	-$7.25	-$2.45	—

S&P Global consensus values marked with an asterisk (*) are retrieved from S&P Global.
Management also disclosed Q1 YoY revenue decline of 25.2% (mix -22.6%, price -1.8%) .

Product-mix and cost KPIs

KPI	Q3 2024	Q4 2024	Q1 2025
Proprietary Brand Sales Mix (%)	56%	52%	55%
Adjusted SG&A ($M)	$10.7	$10.85	$10.98

Consumables comprised “over 3/4” of sales in Q1; durables (incl. lighting/equipment) carry more tariff exposure .

Guidance Changes

Metric	Period	Previous Guidance (3/5/25)	Current Guidance (5/13/25)	Change
Net Sales	FY 2025	Decrease 10–20% vs 2024	Withdrawn	Lowered/Withdrawn
Adjusted EBITDA	FY 2025	Negative, but improved vs 2024	Withdrawn	Lowered/Withdrawn
Free Cash Flow	FY 2025	Negative, but improved vs 2024	Withdrawn	Lowered/Withdrawn
Adjusted Gross Profit Margin (KPI)	FY 2025	Improve YoY (assumption)	Maintain expectation to improve	Maintained KPI
Adjusted SG&A (KPI)	FY 2025	Reduce YoY (assumption)	Maintain expectation to reduce	Maintained KPI
Inventory/FCF (KPI)	FY 2025	Reduce inventory; improve FCF	Inventory reduction; positive FCF for remainder of 2025	Clarified timing
Capex	FY 2025	< $2M	< $2M	Maintained

Rationale: Withdrawal driven by evolving tariff policy (notably on China-sourced durables) and continued cannabis oversupply; company will update when tariff impacts and reciprocal actions are clearer .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 2024, Q4 2024)	Current Period (Q1 2025)	Trend
Proprietary brand focus/mix	Emphasis on proprietary brands; mix 56% in Q3; slip to ~52% in Q4 pressured margins	Mix improved to 55%; nutrients (Grotek, H&G) and grow media (Roots Organics) cited	Improving sequentially
Consumables vs durables	Consumables ~3/4 of sales; durables weaker; inventory/ERP timing affected FCF in Q3	Consumables >3/4 of sales; durables face tariff risk; renegotiating vendors, exploring alternate sourcing	Mixed: consumables resilient; durables at risk
Tariffs/macro	Tariff exposure flagged; distribution optimization underway	Withdrew FY25 guide due to tariff uncertainty; 90-day China tariff pause noted	Elevated uncertainty
Distribution/footprint	Manufacturing/DC consolidation; ERP integrations; cost saves	Portfolio and distribution review to streamline SKUs and footprint; more SG&A savings targeted	Ongoing optimization
Regulatory (rescheduling/SAFE)	DEA hearing and optimism for regulatory progress	Noted polling momentum; new DEA nominee prioritizing rescheduling; potential SAFE Banking push	Cautious optimism
Strategic alternatives	Dialogue on M&A/outsourcing/combination possibilities	“Actively pursuing strategic alternatives” (acquisition, divestiture, strategic combination)	More explicit exploration
Revenue diversification (intl/non-cannabis)	Progress in non-U.S./non-cannabis; e-commerce growth	Non-U.S./non-cannabis >25% of sales; peat tariff clarification resolved; int’l partners added	Continuing

Management Commentary

Strategic focus: “We are committed to growing our proprietary brand sales mix, further optimizing our distribution network, and implementing additional cost-saving measures…” .
On tariffs and guidance: “It has become challenging to make any accurate forecast on the impact of tariffs… we believe it is best to withdraw our full year 2025 guidance for net sales, adjusted EBITDA and free cash flow at this time.” .
On mix drivers: “Our largest proprietary nutrient brands… performed better than… expectations… grow media… Roots Organics… incentive programs, enhanced sales force capabilities, and marketing efforts underpin further gains.” .
On liquidity and actions: “We had $31 million of total liquidity… entered into a seventh amendment to our revolving credit facility… to June 30, 2027… reduced the maximum commitment to $22 million.” .

Q&A Highlights

Proprietary mix trajectory: Management expects continued improvement in proprietary brands through refined incentives, sales enablement, and marketing; highlighted Grotek, House & Garden, and Roots Organics performance .
Tariff exposure and mitigation: Tariff risk concentrated in durables (lighting/equipment) sourced from China (low-to mid-teens of sales); company renegotiating with vendors and exploring alternative sourcing; highlighted a 90-day tariff pause and landed inventory cushion .
Regulatory outlook: Noted rising public support for rescheduling and a DEA nominee prioritizing the process; potential SAFE Banking push could aid industry cash flows .
2025 framing after guidance withdrawal: Maintains expectations to improve adjusted gross margin and reduce adjusted SG&A; acknowledges uncertainty in customer ordering patterns due to tariff dynamics .

Estimates Context

S&P Global consensus for Q1 2025: Revenue $52.58M* (2 estimates) and EPS -$2.10* (2 estimates). Actuals: Revenue $40.53M and EPS -$3.12, implying misses on both metrics .
Given the guidance withdrawal and tariff uncertainty, Street models likely reassess near-term revenue and margin assumptions despite sequential improvements in mix and AGPM% .

Consensus values marked with an asterisk (*) are retrieved from S&P Global.

Key Takeaways for Investors

Sequential improvement is real: AGPM% rebounded to 21.0% (from 9.6% in Q4) on better proprietary mix; this is the primary lever for eventual EBITDA recovery when demand normalizes .
Near-term visibility is low: Guidance withdrawal centers on tariffs’ impact to durables and customer ordering behavior; expect elevated volatility in quarter-to-quarter sales until policy clarity emerges .
Cost actions continue to cushion downside: 11 straight quarters of Adjusted SG&A reductions with incremental opportunities via distribution consolidation and portfolio streamlining .
Liquidity runway is intact: ~$31M liquidity with an extended revolver; term loan has no maintenance covenants and matures in Oct 2028, but leverage remains high (total debt ~$127M) .
Watch proprietary mix and consumables resiliency: Sustaining 55%+ proprietary mix and >75% consumables should support margins, partially offsetting industry oversupply .
Potential catalysts: Tariff policy updates; regulatory movement (rescheduling/SAFE banking); strategic alternatives update; new proprietary product launches in 2H .
Trading setup: Despite operational improvements, estimate resets and macro-policy headlines are likely to be the dominant near-term stock drivers (guidance withdrawal is the key narrative pivot) .

Notes:
- EPS and share figures reflect the 1-for-10 reverse stock split effective Feb 12, 2025 (company adjusted historical per-share figures accordingly) **[1695295_18a6b75e7cb64312908ba451ae20e594_0]** **[1695295_0001628280-25-024892_hyfm-ex991x20250331.htm:5]**.
- Non-GAAP metrics are as defined by the company; see reconciliations in the Q1 press release/8-K **[1695295_0001628280-25-024892_hyfm-ex991x20250331.htm:6]** **[1695295_bde67b2c344d40c4bdcce0e30f72f7c8_10]**.

HYDROFARM HOLDINGS GROUP, INC. (HYFM)·Q1 2025 Earnings Summary