Executive Summary

Q4 2024 was weak: net sales fell to $37.3M (–20.9% YoY), GAAP gross margin compressed to 4.9% and Adjusted EBITDA fell to $(7.3)M, driven by oversupply in cannabis, a lower proprietary brand mix, promotional activity, and ~$1.4M inventory reserves .
FY25 outlook guides net sales down 10–20% with negative but improved Adjusted EBITDA and Free Cash Flow versus 2024; management targets higher proprietary mix, additional SG&A cuts, and capex < $2M .
FY24 execution: significant Adjusted SG&A savings (~$9M) and double‑digit quarterly reductions; however, Q4 softness pushed FY24 Adjusted EBITDA to $(5.2)M and FCF to $(3.2)M .
Potential stock reaction catalysts: new FY25 guide down on revenue but margin/FCF improvement plan; strategic alternatives commentary; tariff pass-through and non-cannabis/e-commerce expansion; proprietary mix rebound initiatives .

What Went Well and What Went Wrong

What Went Well

Cost discipline: Adjusted SG&A declined ~10% YoY in Q4 to $10.8M, marking 10 straight quarters of YoY savings; FY24 Adjusted SG&A down ~17% .
E-commerce and diversification: U.S. e-commerce sales grew >25% in 2024; non‑cannabis and non‑U.S./Canada sales mix increased by ~200 bps, with further expansion planned for 2025 .
Strategic focus: Proprietary brands reached 56% of sales in 2024 (vs ~35% in 2020), with strong performances from Aurora Peat and Active Aqua; manufacturing footprint reduced ~60% since early 2023 .

What Went Wrong

Q4 profitability: Adjusted EBITDA fell to $(7.3)M; gross margin sharply compressed as proprietary mix slipped to ~52% and ~$1.4M inventory charges hit margins .
Revenue pressure: Net sales declined 20.9% YoY on 16.8% volume/mix decrease (cannabis oversupply) and 3.9% price decline (promotions) .
FY24 outcomes vs prior outlook: Management reiterated positive FY24 Adjusted EBITDA and FCF in Q2/Q3, but both ended negative due to Q4 weakness and working capital/driven FCF deterioration .

Financial Results

Metric	Q2 2024	Q3 2024	Q4 2024
Net Sales ($USD Millions)	$54.8	$44.0	$37.3
GAAP Gross Margin (%)	19.8%	19.4%	4.9%
Adjusted Gross Margin (%)	24.4%	24.3%	9.6%
Net Loss ($USD Millions)	$(23.5)	$(13.1)	$(17.5)
Diluted EPS ($)	$(0.51)	$(0.29)	$(3.80)
Adjusted EBITDA ($USD Millions)	$1.7	$0.02	$(7.3)
Cash from Operations ($USD Millions)	$3.8	$(4.5)	$2.7
Free Cash Flow ($USD Millions)	$3.4	$(5.3)	$2.4

Narrative comparisons:

YoY: Q4 net sales −20.9% YoY; gross margin fell to 4.9%; Adjusted EBITDA deteriorated to $(7.3)M .
Sequential: Revenue and margins declined from Q3 to Q4; proprietary mix slipped from 56% (Q3) to 52% (Q4), pressuring margins .
Estimates: S&P Global consensus estimates were unavailable in this session; beats/misses cannot be determined (S&P Global unavailable).

Liquidity and Balance Sheet (as of 12/31/24):

Cash $26.1M; Total debt $127.7M; Net debt ~$101.6M; Revolver undrawn with ~$13.0M availability; Term loan covenant‑light, matures Oct 2028 .

Segment breakdown

The company reorganized reporting into a single operating segment effective Q4 2024; no segment revenue breakdown provided .

KPIs (mix and margin trajectory)

KPI	Q1 2024	Q2 2024	Q3 2024	Q4 2024
Proprietary Brand Sales Mix (%)	57%	58%	56%	52%
Adjusted Gross Margin (%)	23.4%	24.4%	24.3%	9.6%

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Net Sales	FY 2024	Decrease low to high teens; tracking to middle of range	Actual: $190.3M; result consistent with decline	N/A (actuals)
Adjusted Gross Margin	FY 2024	Improved YoY (Q2)	Flat to slightly down vs prior year (Q3 update)	Lowered
Adjusted EBITDA	FY 2024	Positive (Q2 & Q3 reaffirmed)	Actual: $(5.2)M	Missed prior outlook
Free Cash Flow	FY 2024	Positive (Q2 & Q3 reaffirmed)	Actual: $(3.2)M	Missed prior outlook
Capex	FY 2024	$3.5–$4.5M (Q2)	$2.5–$3.5M (Q3 update)	Lowered
Net Sales	FY 2025	—	Down 10–20%	New
Adjusted EBITDA	FY 2025	—	Negative, but improved from 2024	New
Free Cash Flow	FY 2025	—	Negative, but improved from 2024	New
Adjusted Gross Margin	FY 2025	—	Improved YoY (assumes higher proprietary mix, productivity, minimal non‑restructuring reserves)	New
Adjusted SG&A	FY 2025	—	Reduced YoY; further cuts in services, facilities, insurance	New
Capex	FY 2025	—	< $2M	New

Earnings Call Themes & Trends

Topic	Previous Mentions (Q2 & Q3 2024)	Current Period (Q4 2024)	Trend
Proprietary brand mix and margins	Sequential AGPM improvement; focus on proprietary brands; positive Adj EBITDA in Q2; AGPM 24.3% in Q3	Mix slipped in Oct/Nov; proprietary ~52%; AGPM collapsed to 9.6% on lower sales, mix, and ~$1.4M inventory charges; corrective actions underway	Negative in Q4, targeted rebound in FY25
Cost restructuring and SG&A	Manufacturing/DC consolidation; 9th straight quarter of Adjusted SG&A savings in Q3	10th straight quarter; more savings targeted ($2–$3M), DC consolidation options (sublease/3PL, site consolidation)	Continuing improvement
Industry conditions (cannabis oversupply)	Persistent oversupply driving lower volume/mix; price declines	Expect double‑digit declines early FY25, moderating later; macro/regulatory uncertainty (rescheduling, Florida, SAFE Banking)	Still soft; cautious into FY25
Tariffs and sourcing	—	Passing through tariff costs; net importer from Canada; low‑mid teens of sales sourced from China; longer lead times and inventory carry considerations	Emerging headwind; pass-through strategy
Revenue diversification	—	Non‑cannabis and non‑U.S./Canada mix +~200 bps; expanding products outside U.S./Canada in 2025; e-commerce +25%	Positive strategic shift
Strategic alternatives	—	Exploring tuck‑ins/divestitures/strategic combinations to enhance shareholder value	Active evaluation

Management Commentary

“We delivered over $9 million of Adjusted SG&A expense savings… while fourth quarter industry headwinds affected our Adjusted EBITDA and Free Cash Flow… our strategic focus on proprietary brands has increased higher‑margin proprietary mix from ~35% in 2020 to 56% in 2024” .
“We saw our proprietary sales mix slip… which significantly pressured our profitability for the quarter… We have taken actions to reemphasize our proprietary brand focus… and expect improvement in 2025” .
“We reduced our manufacturing footprint by nearly 60% since early 2023… delivered 10 consecutive quarters of meaningful year‑on‑year adjusted SG&A savings… now operating below our pre‑IPO dollar cost” .
“Cash balance $26.1M… ~$13M revolver availability… $39M total liquidity; term loan matures Oct 2028 with no maintenance covenants” .
“FY25: net sales down 10–20%; Adjusted EBITDA and Free Cash Flow negative but improved; assumptions include higher proprietary mix, productivity benefits, minimal non‑restructuring inventory charges, reduced Adjusted SG&A, capex < $2M” .

Q&A Highlights

Industry outlook: Oversupply persists; management models double‑digit sales declines early FY25, moderating later; macro catalysts (rescheduling, border security) uncertain .
Cost savings runway: Additional $2–$3M SG&A reductions identified; further DC optimization (3PL/sublease, consolidation); productivity benefits from manufacturing consolidation expected if demand stabilizes .
Tariffs: Intend to pass through incremental costs; net importer from Canada; low‑mid teens sales sourced from China with longer lead times implying higher inventory carry; potential inter‑quarter sales shifts due to tariff timing .
Strategic alternatives: Considering tuck‑ins (diversification), asset sales, or strategic combinations to enhance shareholder value under right conditions .

Estimates Context

S&P Global consensus estimates for Q4 2024 (EPS, revenue, EBITDA) were unavailable in this session due to access limits; as a result, we cannot provide beat/miss comparisons to Street expectations at this time (S&P Global unavailable).
Given FY25 top‑line guide down and margin/FCF improvement plan, estimates may need to shift lower on revenue but potentially higher on margin trajectory if proprietary mix and productivity deliver as guided .

Key Takeaways for Investors

Q4 reset highlights sensitivity to proprietary mix: mix fell to ~52%, collapsing margins; management is prioritizing proprietary brand recovery in 2025—watch early‑year mix data points .
Cost actions are tangible and recurring: 10 consecutive quarters of Adjusted SG&A savings with more identified; DC consolidation could aid inventory and cash conversion—monitor SG&A run‑rate and inventory trends .
Liquidity is adequate near‑term: $39M total liquidity, no maintenance covenants, 2028 term loan maturity—focus on Free Cash Flow improvement and working capital execution to reduce net debt burden .
FY25 guide sets a lower revenue base but targets margin/FCF improvement; execution on proprietary mix, productivity, and minimized inventory charges is critical to credibility .
Tariff pass‑through strategy should mitigate gross margin impact, but timing may cause quarterly sales/price volatility—watch pricing actions and customer order cadence .
Strategic alternatives commentary adds optionality; any credible combination/tuck‑in/divestiture that diversifies exposure or accelerates margin recovery could be a positive catalyst .
Short term: stock likely reacts to negative topline guide and margin compression; medium term: thesis hinges on proprietary mix uplift, SG&A/capex discipline, and diversification (e‑commerce, non‑cannabis, international) .

Note on estimates: S&P Global consensus estimates were unavailable in this session; beats/misses vs Street cannot be assessed at this time.

References: All quantitative and qualitative claims above are sourced from Hydrofarm’s Q4/FY24 8-K and press release, the Q4 2024 earnings call transcript, and prior quarter press releases .

HYDROFARM HOLDINGS GROUP, INC. (HYFM)·Q4 2024 Earnings Summary