Latest / Hydroponics Daily / Hydrofarm: A Reality Check for the Hydroponics Industry

Transcript

Hydrofarm: A Reality Check for the Hydroponics Industry · Hydroponics Daily

• 0:00
  Hello, hello, hello. Welcome back to Hydroponics Daily, your go-to podcast for
• 0:06
  everything soilless cultivation.
• 0:08
  I'm your host, Dr. Russell Sharp, the founder of Utrema Limited.
• 0:12
  And I like to mix up the episodes, the daily episodes.
• 0:16
  So sometimes we have a scientific episode about the science behind growing crops.
• 0:22
  Sometimes we have a focus on a particular crop, like
• 0:25
  we've done lamb's letters recently and then
• 0:28
  on the science we did titanium yesterday and then
• 0:31
  sometimes i do a business one about the state of the
• 0:34
  industry and i had two choices today
• 0:37
  and was either the recent studies about growing
• 0:40
  adami peas the peas or the
• 0:43
  beans i don't know i've not done the research so i
• 0:45
  could have done that one or i could look at a state of the
• 0:48
  industry one and there's a really interesting story so i've decided to do
• 0:51
  that i'm gonna do adami tomorrow and so
• 0:55
  let's have a look at the story the story is about hydrofarm which
• 0:59
  i'd never really come across but loads of the
• 1:02
  common brands that are used in hydroponics are part of this company called hydrofarm
• 1:07
  and it's a new it's really interesting because it's one of the few hydroponic
• 1:13
  supply companies that is listed
• 1:15
  on the stock markets or one of the stock markets now this is different to.
• 1:21
  Vertical farm companies that are listed on the stock markets because their own
• 1:27
  stupidity and their own business case and the amount of debt they take hold
• 1:32
  can be the reason that their share price goes up or down.
• 1:36
  So lots of legal cannabis growers have tried and failed and they've raised lots
• 1:44
  of money through issuing shares.
• 1:47
  Publicly listed shares, but very few actually
• 1:50
  nuts and bolt companies are listed on the stock market
• 1:53
  even hawthorne horticulture which is owned by miracle grow
• 1:56
  is so it's owned by miracle grow so the vast
• 1:59
  majority of miracle grow and scott's miracle
• 2:02
  grow sales are actually lawn care and other things they're not
• 2:05
  actually hydroponic so it's very difficult to say you
• 2:08
  know the industry is like this because of the sales of miracle
• 2:12
  grow but hydrofarm is exclusively supplying
• 2:16
  hydroponic equipment so it's a good barometer
• 2:19
  of where the industry is and it's a shocking one
• 2:22
  really if you look at it you know you if you do it's like google trends of
• 2:26
  where hydroponics is searched for you can see it's down compared to covid levels
• 2:31
  but it's still not disastrous whereas if you look at the share price for hydropharm
• 2:36
  it was listed just after the madness of covid so the earliest google will tell you for its share
• 2:44
  price is december 2020 and then
• 2:47
  it reached a peak around february 2021 with a share price of 922 dollars which
• 2:55
  is cray cray and then it slowly decreased over 2021 to the end of 21 22 and
• 3:04
  then it sort of reached its nadir around.
• 3:08
  Mid-July 2022 and it's
• 3:12
  not really recovered but I will
• 3:15
  give it this it is still trading and it's not
• 3:18
  gone bust and it's not defaulted and
• 3:21
  things like this so Hydrofarm you know fair play
• 3:24
  to you you're still going you've still got strong brands and you've still got
• 3:27
  some great products there so yeah I'm
• 3:30
  not gonna I'm not gonna diss Hydrofarm like I've dissed
• 3:33
  certain other companies that have gone bust and let
• 3:36
  me just tell you what the latest news is so
• 3:39
  the third quarter results are in and they're
• 3:42
  not great reading but so let me just get these up net sales decreased to 30
• 3:50
  million compared to 44 million year on year so there's a reduction in overall
• 3:55
  sales revenue there was a reduction in gross profit margin from 19.4 to 11.6.
• 4:04
  And this all resulted in net loss increasing
• 4:09
  from 16.4 to 13.1 million
• 4:12
  so so that's not good
• 4:14
  is it you're making a net loss so that's due
• 4:17
  to operational costs and things like that so if you like me
• 4:20
  you've not heard of hydrofarm before you will
• 4:23
  have recognized many of the brands that they sell so perhaps
• 4:26
  the most well-known are is the grotech nutrient line sort
• 4:30
  of like silver gray bottles and grow it which
• 4:33
  do sort of plant plugs and propagators so they
• 4:36
  are very common they they
• 4:40
  have their own set of lights photo bio let's have
• 4:43
  a look at some of the other ones they've got they do commercial scale
• 4:46
  benches and and pots and things like that so they've got their own active aqua
• 4:53
  is that brand and they've got one called heavy 16 which i've never heard of
• 4:57
  it looks like another nutrient brand Gaia Green an organic fertilizer range
• 5:02
  another light called Phantom perhaps.
• 5:08
  Growing equipment a lot more trays things like
• 5:10
  that innovative grower equipment that's how they
• 5:13
  bought that grow trainers building custom unique
• 5:16
  custom grow trainers so they have so that's part
• 5:20
  of their brand the grow trainers i didn't know they were they own grow trainers
• 5:23
  they they can you can buy a whole shipping container jump
• 5:26
  start which appears to be a heating mat so i think i've seen those in some grow
• 5:31
  shops sun blaster a sort of home hydroponics setup which we've seen a few that
• 5:37
  sort of IKEA type and autopilot which is like controllers and sensors and heaters.
• 5:47
  Active Air, which is fans and filters. So I don't know if they're in the UK. I mentioned Grow It.
• 5:55
  Mad Farmer. What's Mad Farmer? Just looks like it is fertilizer,
• 6:02
  really, but with a funky, quirky label and bottle.
• 6:08
  And then Rootog, and then a number of different Grow Media suppliers,
• 6:12
  which I don't think we get in the UK because of the
• 6:15
  cost of moving growing media around the world and the
• 6:18
  globe so yeah interesting that they
• 6:21
  are hoping to stem their losses by rationalizing
• 6:25
  their portfolio and making savings but there
• 6:29
  are strong headwinds in the hydroponic sector still and
• 6:32
  so they may might need to take a
• 6:35
  bit more pain before we start to see companies like hydrofarm
• 6:39
  becoming profitable again in the future so
• 6:42
  a bit of more depressing news really in hydroponics but
• 6:46
  if you know if the likes of hydropharm can survive and
• 6:49
  other companies can survive and sort of sort
• 6:52
  of zombie companies go out of business then there's potentially
• 6:56
  more profit amongst to share around big
• 7:00
  problem in hydroponic sector and in agriculture and
• 7:02
  horticulture is in generally sort of zombie companies that
• 7:05
  stick around supply and get very very low margin and
• 7:08
  not competing often they're run
• 7:11
  by people who have full-time jobs and then just supply at zero margin as sort
• 7:16
  of like a hobby yeah you wouldn't believe it but there are people in the uk
• 7:21
  who live in a very small house a bungalow and they sell seaweed ton bags of
• 7:26
  seaweed and make five or ten pound.
• 7:30
  A bag on seaweed granular
• 7:33
  fertilizer things like that absolutely bonkers don't know
• 7:35
  why they do it but yeah they um they cut the price
• 7:38
  and you know busy idiot busy idiots as
• 7:41
  we say some other interesting facts about hydrofarm it
• 7:44
  is a very you know fairly large hydroponic
• 7:48
  company certainly larger than utriber in 2022
• 7:52
  that year where we saw the massive decline they wrote
• 7:55
  off 190 million pound off their
• 7:59
  books which is basically called a goodwill impairment
• 8:02
  so they wrote that 189 million
• 8:06
  dollars to zero citing deterioration in
• 8:10
  the usa in canada so that is basically the premium
• 8:13
  that's paid based on the companies they've acquired
• 8:16
  for their you know ip and trademarks and
• 8:19
  things like that they did some restructuring and debt
• 8:22
  amendments so they've they have
• 8:25
  tried to restructure in the past as they made losses and take on credit things
• 8:30
  like this in 2023 net net sales 226 million dollars which sounds a lot but then
• 8:37
  making a loss on that so that's not good and then going into 2024 last year.
• 8:44
  The net sales fell again so year on year
• 8:47
  they've been falling and so
• 8:50
  you know they're making 11.5 million
• 8:53
  loss massive disposition so and
• 8:57
  then again they talked about in the last as well as this year
• 9:00
  last year they talked about shift towards proprietary brands
• 9:03
  so they were obviously selling other people's brands and
• 9:07
  so overall we can say hydrofarm it's a
• 9:10
  big player in the hydroponics sector especially the legal cannabis sector
• 9:13
  the majority of their sales are in the legal
• 9:15
  cannabis sector so they are a good barometer of
• 9:18
  hydroponics and legal cannabis in
• 9:21
  general they've tried to diversify outside but
• 9:24
  they're still the vast majority of their sales you know so we're
• 9:27
  talking sales from 226 million
• 9:31
  dollars in 2023 down to 190 million 2024
• 9:34
  and then net losses 64 million
• 9:37
  2023 up to 66.7 million
• 9:41
  in 2024 so and then all those issues around goodwill impairment asset disposition
• 9:49
  write downs and things like this because of all that will be things like you
• 9:54
  know leds becoming out of date and things like this so want to watch in the
• 9:59
  future? Can they turn it around?
• 10:01
  Will the hydroponic sector give them a tailwind? And will they be able to service
• 10:06
  their debts, some of which are maturing in June 2026, that rate? So.
• 10:12
  Yeah, a really interesting one to look at and one I will keep an eye on because
• 10:17
  it's not like one where you just go and say what is company's house in the UK
• 10:21
  and read a glimpse of their, you know, parts of their accounts every year.
• 10:26
  This one, because it's a publicly listed company, they have to list everything.
• 10:29
  They have to list their profit and loss and they have to explain to shareholders
• 10:33
  what the hell's going on.
• 10:35
  So Hydrofarm is a really good one. I'm glad I found
• 10:38
  it and I will be keeping an eye on the share tracker
• 10:41
  see what goes on see what the q4 results
• 10:44
  are if you found that interesting then please do leave
• 10:47
  an apple podcast review not my best episode
• 10:50
  ever i'll admit but so maybe not a
• 10:53
  five-star one if you're not listening on apple podcast don't bother
• 10:56
  leaving a review because it doesn't help us share the podcast and
• 10:59
  get to a wider audience but if you could just follow the podcast that would
• 11:02
  be fantastic and just check out utreema.co.uk if you're looking for something
• 11:06
  that is not a bog-standard fertilizer or biostimulant or pesticide we've got
• 11:11
  you covered because we've got a whole range of unique technology in our portfolio we only do.
• 11:17
  Liquid products so if you're looking for heating mats and led lights and tables
• 11:25
  for your hydroponics setup,
• 11:27
  you might want to go speak to Hydrofarm. But for any liquids,
• 11:30
  come and speak to me first.
• 11:32
  And if we don't sell it, I'll always give you advice on who is the best person to get it from.
• 11:36
  So if you're looking for guano or something else, if you're an organic grower,
• 11:41
  if you're looking for, what else do I often tell people to go elsewhere for?
• 11:46
  Mycorrhizae, bacterial products, I'll tell you where to get them because there's no,
• 11:52
  well, there is money in me reselling them to you, but you know life's too
• 11:55
  short and i want to make sure people are profitable as possible
• 11:58
  and i don't like just being a middleman i like to make the products in my own
• 12:02
  company and not just resell because that's not what we are we're a manufacturer
• 12:06
  anyway that's enough waffling and babbling i'll see you again tomorrow when
• 12:10
  we talk about adami and how to grow them hydroponically so i'm looking forward
• 12:14
  to that one should be a good one all right till tomorrow goodbye.