What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2025-03-05 compared with 2024-02-29 · 272 added, 338 removed, 752 unchanged (45% of the section changed)

49 unchanged sentences

Minneapolis, Minnesota

February 28, 2024

March 4, 2025

We have served as the Company's auditor since 2020.

32 unchanged sentences

300,000,000 shares authorized;

45,789,890 and 45,197,249 shares issued and outstanding at December 31, 2023, and December 31, 2022, respectively)

4,614,279 and 4,578,841 shares issued and outstanding at December 31, 2024, and December 31, 2023, respectively, giving retroactive effect to the 1-10 reverse split effected on February 12, 2025)

Additional paid-in capital 790,094 787,851

13 unchanged sentences

Selling, general and administrative 72,794 87,314

Impairments — 192,328

Loss on asset disposition 11,520 —

Loss from operations ( 52,181 ) ( 49,702 )

2 unchanged sentences

Loss before tax ( 65,848 ) ( 65,026 )

Income tax benefit 213 6,443

Income tax (expense) benefit ( 869 ) 213

Net loss $ ( 66,717 ) $ ( 64,813 )

5 unchanged sentences

Diluted 4,598,640 4,550,836

(1) Net loss per share and Weighted-average shares of common stock outstanding amounts have been adjusted to give retroactive effect to the 1-for-10 reverse stock split effected on February 12, 2025.

The accompanying notes are an integral part of the consolidated financial statements.

5 unchanged sentences

Other comprehensive income (loss):

Foreign currency translation gain (loss) 738 ( 5,853 )

Foreign currency translation (loss) gain ( 2,414 ) 738

Total comprehensive loss $ ( 69,131 ) $ ( 64,075 )

8 unchanged sentences

Stockholders’

Shares Amount

Balance, January 1, 2022 44,618,357 $ 4 $ 777,074 $ ( 1,382 ) $ ( 140,516 ) $ 635,180

Common stock issued upon exercise of options 8,283 — 75 — — 75

Balance, December 31, 2022 4,519,578 $ — $ 783,047 $ ( 7,235 ) $ ( 425,931 ) $ 349,881

Issuance of common stock for vesting of stock awards 80,530 — — — — —

Shares repurchased for withholding tax on stock awards ( 21,267 ) — ( 271 ) — — ( 271 )

Issuance of common stock under cashless warrant exercise 99 — — — — —

Stock-based compensation expense — — 5,075 — — 5,075

Net loss — — — — ( 64,813 ) ( 64,813 )

Foreign currency translation loss — — — ( 5,853 ) — ( 5,853 )

Foreign currency translation gain — — — 738 — 738

Balance, December 31, 2023

4 unchanged sentences

Net loss — — — — ( 66,717 ) ( 66,717 )

Foreign currency translation gain — — — 738 — 738

Foreign currency translation (loss) — — — ( 2,414 ) — ( 2,414 )

Balance, December 31, 2024

4,614,279 $ — $ 790,094 $ ( 8,911 ) $ ( 557,461 ) $ 223,722

(1) Common share and par value amounts have been adjusted to give retroactive effect to the 1-for-10 reverse stock split effected on February 12, 2025.

The accompanying notes are an integral part of the consolidated financial statements.

7 unchanged sentences

Depreciation, depletion and amortization 30,691 32,075

(Benefit from) provision for doubtful accounts ( 386 ) 2,998

Provision for (benefit from) doubtful accounts 314 ( 386 )

Provision for inventory obsolescence 2,002 1,587

2 unchanged sentences

Non-cash operating lease expense 8,248 9,942

Impairment charges — 192,328

Change in fair value of contingent consideration — ( 1,560 )

Deferred income tax expense (benefit) 2 ( 9,310 )

Non-cash loss from asset disposition 11,103 —

Other 1,118 1,502

9 unchanged sentences

Other long-term liabilities 11 ( 55 )

Net cash from operating activities 7,044 21,989

Net cash (used in) from operating activities ( 324 ) 7,044

Investing activities

Business combinations, net of cash and cash equivalents — 190

Capital expenditures of property, plant and equipment ( 2,892 ) ( 4,215 )

Proceeds from sale of property, plant and equipment 861 96

Proceeds from Asset Sale for property, plant and equipment 3,700 —

Other — ( 51 )

Net cash used in investing activities ( 4,170 ) ( 8,487 )

Net cash from (used in) investing activities 1,669 ( 4,170 )

Financing activities

4 unchanged sentences

Repayments of Term Loan ( 3,197 ) ( 1,250 )

Payments to settle contingent consideration — ( 15,474 )

Finance lease principal payments ( 1,362 ) ( 1,007 )

Net cash from (used in) financing activities 6,065 ( 20,200 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash 82 ( 395 )

Net increase (decrease) in cash, cash equivalents and restricted cash 9,021 ( 7,093 )

Cash, cash equivalents and restricted cash at beginning of year 21,291 28,384

Net cash (used in) from financing activities ( 4,776 ) 6,065

Effect of exchange rate changes on cash and cash equivalents ( 770 ) 82

Net (decrease) increase in cash and cash equivalents ( 4,201 ) 9,021

Cash and cash equivalents at beginning of year 30,312 21,291

Cash and cash equivalents at end of year $ 26,111 $ 30,312

Non-cash investing and financing activities

Right-of-use assets (relinquished) acquired under operating lease obligation $ ( 1,067 ) $ 28,972

Right-of-use assets relinquished under operating lease obligation $ ( 1,924 ) $ ( 1,067 )

Assets acquired under finance lease obligation — 185

3 unchanged sentences

Cash paid for interest 13,289 13,101

Cash (refunds) paid for income taxes ( 1,000 ) 3,906

Cash paid (refunds) for income taxes 201 ( 1,000 )

The accompanying notes are an integral part of the consolidated financial statements.

6 unchanged sentences

(collectively with its subsidiaries, the "Company") was formed in May 2017 under the laws of the state of Delaware to acquire and continue the business originally founded in 1977.

The Company is a leading independent manufacturer and distributor of branded hydroponics equipment and supplies for controlled environment agriculture ("CEA"), including grow lights, climate control solutions, growing media and nutrients, as well as a broad portfolio of innovative and proprietary branded products.

The Company is a leading independent manufacturer and distributor of branded hydroponics equipment and supplies for controlled environment agriculture ("CEA"), including grow lights, climate control solutions, grow media and nutrients, as well as a broad portfolio of innovative, proprietary branded products.

Products offered include agricultural lighting devices, indoor climate control equipment, nutrients, and plant additives used to grow, farm and cultivate cannabis, flowers, fruits, plants, vegetables, grains and herbs in controlled environment settings that allow end users to control key farming variables including temperature, humidity, CO 2 , light intensity and color, nutrient concentration and pH.

4 unchanged sentences

Securities and Exchange Commission ("SEC") for year-end financial reporting.

The Company reclassified balances of $ 704 and $ 1,200 as of December 31, 2022, previously reported in "Current portion of long-term debt" and "Long-term debt", respectively, into "Current portion of finance lease liabilities" and "Long-term finance lease liabilities", respectively, on the consolidated balance sheet as of December 31, 2022, to conform to the current period presentation.

The Company reclassified the balance of $ 145 as of December 31, 2022, previously reported in "Loss on debt extinguishment or modification" into "Other income, net", on the consolidated statement of operations for the year ended December 31, 2022, to conform to the current period presentation.

All intercompany balances and transactions have been eliminated in consolidation.

Subsequent Event - Reverse Stock Split

On February 12, 2025, the Company effected a one-for-ten reverse stock split of its common stock, whereby each lot of ten shares of common stock issued and outstanding immediately prior to the reverse stock split was converted into and became one share of common stock (the "Reverse Stock Split").

In lieu of issuing any fractional shares, any stockholder entitled to receive less than one share of common stock received cash for such stockholder’s fractional share.

There is no change to the par value of $ 0.0001 .

Accordingly, the presentation of all periods covered by the consolidated financial statements, and notes to the consolidated financial statements, contained herein have been adjusted to give retroactive effect to the Reverse Stock Split.

Use of estimates

2 unchanged sentences

Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.

Significant estimates include provisions for sales returns, rebates and claims from customers, realization of accounts receivable and inventories, fair value of assets acquired and liabilities assumed for business combinations, valuation of intangible assets, estimated useful lives of long-lived assets, incremental borrowing rate applied in lease accounting, valuation of stock-based compensation, recognition of deferred income taxes, classification of debt pursuant to certain terms in our credit agreements, recognition of liabilities related to commitments and contingencies, asset retirement obligations, and valuation allowances.

Significant estimates include provisions for sales returns, rebates and claims from customers, realization of accounts receivable and inventories, fair value of assets acquired and liabilities assumed for business combinations, valuation of intangible assets, estimated useful lives of long-lived assets, incremental borrowing rate applied in lease accounting, valuation of stock-based compensation, recognition of deferred income taxes, classification of debt pursuant to certain terms in the Company's credit agreements, recognition of liabilities related to commitments and contingencies, asset retirement obligations, and valuation allowances.

Actual results may differ from these estimates.

On an ongoing basis, the Company reviews its estimates to ensure that these estimates appropriately reflect changes in its business or new information available.

Business combinations

Acquisitions of businesses are accounted for using the acquisition method.

The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition date fair values of the assets transferred, liabilities incurred to the former owners of the acquiree, and the equity interests issued in exchange for control of the acquiree.

Acquisition related costs are recognized in net loss as incurred.

When the consideration transferred in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition date fair value and included as part of the consideration transferred in a business combination.

Contingent consideration is established for business acquisitions where the Company has the obligation to transfer additional assets or equity interests to the former owners if specified future events occur or conditions are met.

Contingent consideration is classified as a liability when the obligation requires settlement in cash or other assets and is classified as equity when the obligation requires settlement in the Company's own equity instruments.

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with a corresponding adjustment to goodwill.

Measurement period adjustments are adjustments that arise from additional information obtained during the measurement period (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

All other subsequent changes in the fair value of contingent consideration classified as a liability are included in net loss in the period.

Changes in the fair value of contingent consideration classified as equity are not recognized.

For a given acquisition, the Company may identify certain pre-acquisition contingencies as of the acquisition date and may extend its review and evaluation of these pre-acquisition contingencies throughout the measurement period to obtain sufficient information to assess these contingencies as part of acquisition accounting, as applicable.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non‑controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition‑date fair value amounts of the identifiable assets acquired, and the liabilities assumed.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Company reports provisional amounts for the items for which the accounting is incomplete.

Those provisional amounts are adjusted during the measurement period, or additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognized at that time.

Upon conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to net loss.

During 2022, the Company finalized the determination of its allocation of the purchase price relating to certain acquisitions, and obtained third-party valuation reports of certain tangible and identifiable intangible assets to support its evaluation.

Goodwill arose on the acquisitions because the consideration paid effectively included amounts in relation to the benefit of expected synergies, revenue growth, future market development and the assembled workforce.

These benefits are not recognized separately from goodwill and they do not meet the recognition criteria for identifiable intangible assets.

During 2022, the Company evaluated and adjusted the useful lives of certain intangible assets associated with entities that were acquired during 2021.

In addition, the Company determined that the preliminary allocation of assets acquired related to indefinite lived trade names have a finite useful life because the expected usefulness of the trade names is limited.

As a result of these adjustments to the provisional amounts, the Company recorded $ 5,894 of additional amortization expense during 2022, which related to amortization expense that would have been recorded in the previous reporting period from the acquisition date through December 31, 2021.

The intangible assets were assigned estimated useful lives as follows:

(i) customer relationships:

7 to 12 years, (ii) technology, formulations and recipes:

8 to 12 years, (iii) computer software:

3 years, and (iv) trade names and trademarks:

15 to 20 years.

Pursuant to the Heavy 16 purchase agreement, the Company was required to pay up to an additional $ 2,500 of contingent consideration based on $ 200 for each $ 1,000 above a $ 21,000 threshold for net sales in calendar year 2021.

As a result, the Company recorded a liability for contingent consideration at its estimated fair value of $ 344 as of the acquisition date in the consolidated balance sheets.

The contingent consideration was estimated using a Black-Scholes valuation model, which utilized Level 3 inputs as defined in the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 820 - Fair Value Measurements.

The key assumptions in applying the valuation model were as follows:

a 10 % required revenue metric risk premium and 0.33 % discount periods .

The contingent consideration was divided into thirteen standalone option calculations and utilized the same expected value of revenue which was calculated by discounting forecasted sales, by the revenue return metric, and adding year-to-date net sales.

The contingent consideration was remeasured to fair value at each reporting date until the contingency was resolved with changes in fair value being recognized within "Selling, general and administrative expenses" ("SG&A") in the consolidated statements of operations.

As of December 31, 2021, contingent consideration of $ 200 was calculated utilizing actual net sales for the full year ended December 31, 2021.

The change in the fair value of the contingent consideration of $ 144 during the year ended December 31, 2021, was recognized as a benefit in SG&A on the consolidated statement of operations during the period.

There were no changes to the fair value of contingent consideration in 2022, and the balance was paid in April 2022.

Pursuant to the Aurora purchase agreement, the Company was required to pay a maximum contingent consideration equal to $ 70,997 .

To the extent 2021 earnings before interest, taxes, depreciation, and amortization ("EBITDA") of Aurora

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

exceeded $ 15,556 , the excess was multiplied by eleven to determine contingent consideration.

As a result, the Company recorded a liability for contingent consideration at its estimated fair value of $ 19,300 as of the acquisition date in the consolidated balance sheets.

The contingent consideration was estimated using the discounted cash flow method, which estimated the incremental EBITDA based on the Company's forecasted 2021 EBITDA of Aurora as of the acquisition date, discounted to a present value as of the acquisition date using a discount rate of 15 %.

That measure was based on significant inputs that are not observable in the market, which utilized Level 3 inputs as defined in ASC 820 - Fair Value Measurements .

The contingent consideration was remeasured to fair value at each reporting date until resolution with changes in fair value recognized within SG&A in the consolidated statements of operations.

As of December 31, 2021, the contingent consideration of $ 16,834 was calculated utilizing actual 2021 EBITDA for the full year ended December 31, 2021.

The change in the fair value of the contingent consideration of $ 2,466 during the year ended December 31, 2021, was recognized as a benefit in SG&A on the consolidated statement of operations during the period.

During 2022, the Company recognized an additional $ 1,560 benefit to SG&A as the contingent consideration was revalued to $ 15,274 , and paid in July 2022 using available cash on hand.

Restructuring

The Company began a restructuring plan (the "Restructuring Plan") during the three months ended December 31, 2022, and undertook significant actions to streamline operations, reduce costs and improve efficiencies.

The major initiatives of the first phase of the Restructuring Plan included (i) narrowing the Company's product and brand portfolio and (ii) the relocation and consolidation of certain manufacturing and distribution centers, including headcount reductions and reorganization to drive a solution based approach.

The Company's strategic product consolidation entailed removing approximately one-third of all products and one-fifth of all brands relating to the Company's primary product portfolio, which excludes the garden center business in Canada.

During the year ended December 31, 2022 , the Company recorded pre-tax charges of $ 6,790 relating to the inventory markdowns of products and brands being removed from our portfolio, which is primarily non-cash, and $ 897 relating primarily to the relocation and termination of certain facilities in Canada, which are primarily cash charges.

During the year ended December 31, 2023, we recorded a pre-tax restructuring charges of $ 2,084 for the first phase of the Restructuring Plan, which were primarily costs related to the relocation and termination of certain facilities in Canada.

The restructuring charges are primarily recorded within Cost of goods sold on the consolidated statements of operations.

Total costs incurred relating to this first phase of the Restructuring Plan since it commenced in the fourth quarter of 2022, are (i) $ 6,398 relating primarily to inventory markdowns, and (ii) $ 3,373 relating primarily to the relocation and termination of certain facilities in Canada.

As a result of the continued adverse market conditions, the Company implemented a second phase of the Restructuring Plan beginning in the third quarter of 2023, including U.S.

manufacturing facility consolidations, in particular with respect to production of certain durable equipment products.

The Company is reducing facility space and consolidating manufacturing operations to improve efficiency and reduce costs.

During the year ended December 31, 2023, the Company recorded pre-tax restructuring charges of $ 9,185 for the second phase, relating primarily to non-cash raw material inventory write-downs as Company liquidates these assets and reduces storage space within certain manufacturing facilities.

These restructuring charges are recorded primarily within Cost of goods sold on the consolidated statements of operations, and are subject to significant estimate.

Including both phases of the Restructuring Plan, the Company recorded $ 10,664 of total restructuring charges within Cost of goods sold on the consolidated statements of operations for the year ended December 31, 2023.

The Company recorded total charges for both phases of the Restructuring Plan of $ 605 within SG&A expenses on the consolidated statements of operations for the year ended December 31, 2023.

Of the $ 11,269 of total restructuring charges recorded for the year ended December 31, 2023, $ 9,703 were non-cash charges primarily related to inventory write-downs and asset dispositions.

Segment and entity-wide information

Segment information

The Company's chief operating decision maker ("CODM") is the Chief Executive Officer (the "CEO") who reviews financial information for the purposes of making operating decisions, assessing financial performance and allocating resources.

The Company no longer aggregates its operating segments as it has reorganized and integrated its business activities into one operating segment effective for the period ended December 31, 2024.

The business is organized as one operating segment

Hydrofarm Holdings Group, Inc.

1 unchanged sentence

(In thousands, except share and per share amounts)

The following table presents the activity in accrued expenses and other current liabilities for restructuring costs related to the first and second phases of the Restructuring Plan for the year ended December 31, 2023:

Year Ended December 31, 2023

Phase 1 Phase 2

Restructuring Accruals as of January 1, 2023 $ 696 $ —

Expense 1,247 272

Cash Payments ( 1,943 ) ( 85 )

Restructuring Accruals as of December 31, 2023

Refer to Item 7.

Management’s Discussion And Analysis Of Financial Condition And Results of Operations – Market Conditions for further explanation of the Restructuring Plan and estimates of additional costs that may be incurred.

The amounts the Company will ultimately realize or disburse could differ from these estimates.

Segment and entity-wide information

Segment information

The Company's chief operating decision maker is the chief executive officer ("CEO") who reviews financial information for the purposes of making operating decisions, assessing financial performance and allocating resources.

The business is organized as two operating segments, the United States and Canada, which meet the criteria for aggregation, and the Company has elected to present them as one reportable segment, which is the distribution and manufacture of CEA equipment and supplies.

Aggregation is based on similarities which include the nature of its products, production or acquisition of inventory, customer base, fulfillment and distribution and economic characteristics.

Since the Company operates as one reportable segment, all required segment financial information is found in the consolidated financial statements and footnotes with entity-wide disclosures presented below.

managed on a consolidated basis, and one reportable segment, which is the distribution and manufacture of CEA equipment and supplies.

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires additional disclosures, including an enhanced disclosure of significant segment expenses on an annual and interim basis.

The Company adopted this guidance effective in the period ended December 31, 2024, and included the relevant disclosures herein.

For the purposes of making operating decisions, assessing financial performance and allocating resources, the CODM reviews financial statement metrics on a consolidated basis, including net sales, gross profit, SG&A, and net income (loss) as presented in the consolidated statements of operations.

Net income (loss) is the primary measure of profit or loss reviewed by the CODM.

In addition, the CODM reviews consolidated total assets and significant components such as inventories, cash and other assets for the purposes of evaluating financial performance.

Significant expense categories regularly reviewed by the CODM are comprised of cost of goods sold and SG&A.

The other components of net income (loss) as disclosed in the statements of operations that are not significant segment expenses are loss on asset disposition, interest expense, other income, net, and income tax expense.

Therefore, the Company is cross referencing to the U.S.

GAAP financial statement measures as presented in the consolidated statement of operations, in connection with adoption of ASU 2023-07.

Since the Company operates as one reportable segment, all required segment financial information is found in the consolidated financial statements and footnotes, and within the entity-wide disclosures presented below.

Entity-wide information

Net sales and property, plant and equipment, net and operating lease right-of-use assets, in the United States and Canada, determined by the location of the subsidiaries, are shown below.

Net sales and property, plant and equipment, net and operating lease right-of-use assets, in the United States and Canada, as determined by the location of the subsidiaries, are shown below.

Other foreign locations, which are immaterial, individually and in the aggregate, are included in the United States below.

2 unchanged sentences

Canada 41,633 49,668

Intersegment eliminations ( 2,931 ) ( 4,116 )

Eliminations ( 3,005 ) ( 2,931 )

Total consolidated net sales $ 190,288 $ 226,581

4 unchanged sentences

All of the products sold by the Company are similar and classified as CEA equipment and supplies.

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Concentrations of business and credit risk

The Company maintains cash balances at certain financial institutions that can, at times, exceed amounts insured by the Federal Deposit Insurance Corporation ("FDIC").

The Company maintains cash balances at certain financial institutions that can, at times, exceed amounts insured by the Federal Deposit Insurance Corporation.

The Company has not experienced any losses in these accounts and believes it is not exposed to any significant credit risk in this area.

4 unchanged sentences

No customer accounted for more than 10% of revenues in 2024 or 2023.

No customer accounted for more than 10% of accounts receivable as of December 31, 2023, or December 31, 2022.

No customer accounted for more than 10% of accounts

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

receivable as of December 31, 2024, or December 31, 2023.

One supplier accounted for more than 10 % of purchases in 2024 and 2023.

9 unchanged sentences

Level 3 — Valuation techniques with significant unobservable market inputs.

The Company measures certain non-financial assets and liabilities, including long-lived assets, intangible assets and goodwill, at fair value on a nonrecurring basis.

The fair value of contingent consideration was classified within level 3 of the fair value hierarchy.

Refer to Note 14 – Fair Value Measurements , for further discussion of the contingent consideration.

The Company measures certain non-financial assets and liabilities, including long-lived assets and intangible assets at fair value on a nonrecurring basis.

Foreign currency matters

7 unchanged sentences

Translation gains and losses are included in accumulated other comprehensive loss within stockholders’ equity.

The effect of currency translation adjustments on cash, cash equivalents and restricted cash is presented separately in the consolidated statements of cash flows.

Cash, cash equivalents and restricted cash

The effect of currency translation adjustments on cash and cash equivalents is presented separately in the consolidated statements of cash flows.

Cash and cash equivalents

Cash includes funds deposited in banks.

Cash equivalents include highly liquid investments such as term deposits and money market instruments with original maturities of three months or less.

As of December 31, 2023, and 2022, there were no amounts classified as restricted cash, as all previous restrictions lapsed during the year ended December 31, 2022.

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Accounts receivable, net

6 unchanged sentences

Subsequent collections are recorded in SG&A on the consolidated statement of operations when they are received.

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Inventories consist of finished goods, work-in-process, and raw materials used in manufacturing products.

7 unchanged sentences

During the years ended December 31, 2024, and 2023, the Company estimated inventory markdowns relating to restructuring charges based upon current and anticipated demand, customer preferences, business strategies, and market conditions including management's actions with respect to inventory raw materials and products and brands being removed from the Company's portfolio.

Leases are accounted for under ASC 842 - Leases .

Leases are accounted for under Accounting Standard Codification ("ASC") 842 - Leases .

At inception of a contract, the Company determines whether that contract is or contains a lease.

12 unchanged sentences

Property, plant and equipment

Property, plant and equipment ("PP&E") is recorded at cost less accumulated depreciation, depletion and amortization.

PP&E assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable.

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Property, plant and equipment is recorded at cost less accumulated depreciation, depletion and amortization.

Property, plant and equipment assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable.

Property, plant and equipment, excluding peat bogs and related development, are depreciated using the straight-line method.

6 unchanged sentences

The useful lives of property, plant and equipment recorded under finance leases are further limited to the term of lease.

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Peat bogs and related development costs are depleted using the units of production method over the total expected volume of the peat bogs.

3 unchanged sentences

Where the Company concludes that it is probable that a liability has been incurred, a provision is made for management's estimate of the liability.

As of December 31, 2023, and 2022, the Company has AROs of $ 759 and $ 262 , respectively, recorded in Accrued expenses and other current liabilities on the consolidated balance sheet.

As of December 31, 2023, and 2022, the Company has AROs of $ 4,457 and $ 4,370 , respectively, recorded in Other long-term liabilities on the consolidated balance sheet.

The ARO changes related to the various components of accretion, and additional obligations incurred during 2023 and 2022 were not significant.

Intangible assets and goodwill

As of December 31, 2024, and 2023, the Company had AROs of $ 284 and $ 759 , respectively, recorded in accrued expenses and other current liabilities on the consolidated balance sheets.

As of December 31, 2024, and 2023, the Company had AROs of $ 4,232 and $ 4,457 , respectively, recorded in other long-term liabilities on the consolidated balance sheets.

Intangible assets

Definite-lived intangible assets are amortized using the straight-line method over their estimated useful lives.

1 unchanged sentence

Intangible assets are also tested for impairment at least annually and when events or changes in circumstances indicate that, more-likely-than-not, the carrying amount may not be recoverable.

Significant judgment is required in estimating fair values and performing goodwill and intangible asset impairment tests.

Goodwill represents the excess of the acquisition price of an acquired business over the fair value of the identifiable assets acquired and liabilities assumed in a business combination less any subsequent write-downs for impairment.

Goodwill is tested for impairment on an annual basis in the fourth quarter and more frequently if indicators of potential impairment exist.

Impairment testing is conducted at the reporting unit level, which is generally defined as an operating segment or one level below an operating segment (also known as a component), for which discrete financial information is available and segment management regularly reviews the operating results.

The Company has determined that its reporting units for the purpose of goodwill impairment testing are the U.S.

Goodwill impairment reviews include performing either an initial qualitative or quantitative evaluation for each of the reporting units.

Several methods may be used to estimate a reporting unit’s fair value, including market quotations, asset and liability fair values and other valuation techniques.

If the carrying amount of a reporting unit, including goodwill, exceeds the estimated fair value, then the excess is charged to earnings as an impairment loss.

Note Receivable and Investment

In 2019, the Company executed a note receivable secured by equipment to a third-party, the terms of which were amended and restated during the first quarter of 2021.

The note receivable provided for interest and installment payments to the Company, and full maturity of the note in 2024.

During the first quarter of 2022 the third-party defaulted on interest payments, and the Company measured an impairment on the note receivable based on the estimated fair value of the collateral.

The Company recorded an impairment loss of $ 2,636 during the year ended December 31, 2022, in Impairments on the consolidated statements of operations.

As of December 31, 2022, the note receivable carrying value was $ 475 and it was classified in Other assets on the condensed consolidated balance sheet.

During the first quarter of 2023, the Company agreed to forgive the note

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

receivable in exchange for interest in a third-party equity investment.

The investment is recorded at an estimated cost basis of $ 531 , inclusive of capitalized transaction costs, which is reported within Other assets on the consolidated balance sheet.

Significant judgment is required in estimating fair values and performing intangible asset impairment tests.

Revenue recognition

17 unchanged sentences

The Company accounts for forfeitures when they occur and any compensation expense previously recognized on unvested shares will be reversed when forfeited.

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Service-based awards

1 unchanged sentence

The fair value of grants of restricted stock is based on the fair value of the common stock underlying the award.

The fair value of the underlying common stock for RSUs prior to the Company’s IPO in December 2020, was determined by considering a number of objective, subjective, and highly complex factors including independent third-party valuations of the Company’s common stock, operating and financial performance, the lack of liquidity of capital stock and general and industry specific economic outlook among other factors.

The fair value of the underlying common stock for RSUs prior to the Company’s initial public offering ("IPO") in December 2020, was determined by considering a number of objective, subjective, and highly complex factors including independent third-party valuations of the Company’s common stock, operating and financial performance, the lack of liquidity of capital stock and general and industry specific economic outlook among other factors.

For awards granted after the Company's IPO, the fair value of the underlying common stock for RSUs is the closing date price of the Company's common stock at the grant-date.

4 unchanged sentences

Treasury implied yield at the date of grant.

The Company has elected to use the "simplified method" to determine the expected term which is the midpoint between the vesting date and the end of the

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

contractual term because it has insufficient history upon which to base an assumption about the term.

The Company has elected to use the "simplified method" to determine the expected term which is the midpoint between the vesting date and the end of the contractual term because it has insufficient history upon which to base an assumption about the term.

The expected dividend yield is 0.0 % as the Company has not paid and does not anticipate paying dividends on its common stock.

4 unchanged sentences

The Company records stock-based compensation expense for performance-based equity awards on a straight-line basis over the requisite service period and only if performance-based conditions are considered probable to be satisfied.

Market-based awards

The Company has granted RSUs that vest only upon the satisfaction of both performance-based and market-based conditions.

The performance-based conditions are satisfied upon achieving specified performance targets, such as the occurrence of a qualifying event, as described above for performance-based awards.

The market-based condition is satisfied upon the Company’s achievement of a qualifying traded share price within the specified time frame.

The Company records stock-based compensation expense once the performance condition is satisfied regardless of whether the market condition is eventually met.

For one award granted in 2020, the market condition was factored into its fair value and the Company used a "Monte Carlo Simulation Method" ("MCSM") to estimate the fair value of the award.

The MCSM assessed the likelihood of vesting of the RSU grants based on the probability of both a triggering event and qualifying traded share price within the specified time frame.

For the years ended December 31, 2023, and 2022, there were no performance awards with market-based conditions granted.

Employee benefit plan

11 unchanged sentences

In the event we change our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.

The Company will establish a liability for tax return positions when there is uncertainty as to whether the position will ultimately be sustained.

Amounts for uncertain tax positions will be adjusted when new information becomes available or when positions are effectively settled.

The Company will recognize interest expense and penalties related to these unrecognized tax benefits within income tax expense.

GAAP provides that a tax benefit from an uncertain tax position may be recognized when it is more-likely-than-not that the position will be sustained upon examination, including resolutions of any related

Hydrofarm Holdings Group, Inc.

1 unchanged sentence

(In thousands, except share and per share amounts)

appeals or litigation processes, based on the technical merits of the position.

The Company will establish a liability for tax return positions when there is uncertainty as to whether the position will ultimately be sustained.

Amounts for uncertain tax positions will be adjusted when new information becomes available or when positions are effectively settled.

The Company will recognize interest expense and penalties related to these unrecognized tax benefits within income tax expense.

The amount recognized is measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the related tax authority.

Recently issued accounting pronouncements

In November 2023, the FASB issued Accounting Standards Update (“ASU”) No.

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280):

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This ASU will be effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

The Company is currently evaluating the impact of this ASU on its consolidated financial statements.

The Company has adopted the aforementioned guidance, and enhanced segment reporting is presented for the years ended December 31, 2024, and 2023.

In December 2023, the FASB issued ASU No.

4 unchanged sentences

The Company is currently evaluating the impact of this ASU on its consolidated financial statements.

GOODWILL AND INTANGIBLE ASSETS, NET

Primarily due to a sustained decline in the Company's market value of common stock and market conditions, the Company identified a triggering event requiring a test for impairment as of June 30, 2022.

The Company completed its goodwill impairment testing and recorded an impairment charge of $ 189,572 as the test determined that the carrying value of the United States and Canada reporting units was in excess of the fair value.

The recognized impairment reduced the goodwill balance to zero as of June 30, 2022.

The impairment was primarily due to a deterioration in customer demand in the United States and Canada caused by macroeconomic and industry conditions.

The Company determined the fair value of the U.S.

and Canada reporting units based on an income approach, using the present value of future discounted cash flows, and based on a market approach.

The fair values were reconciled to the market value of common stock of Hydrofarm to corroborate the estimates used in the interim test for impairment.

Significant estimates used to determine fair value included the weighted average cost of capital, financial forecasts, and pricing multiples derived from publicly-traded companies that are comparable to the reporting units.

Refer to Note 15 - Fair Value Measurements , for further discussion of valuation inputs.

The changes in goodwill are as follows:

Balance at December 31, 2021 $ 204,868

Acquisition - Innovative Growers Equipment - measurement period adjustments ( 21,304 )

Acquisition - Greenstar Plant Products - measurement period adjustments 7,000

Acquisition - all others - remeasurement adjustments and foreign currency translation adjustments, net ( 992 )

Impairments ( 189,572 )

Balance at December 31, 2022 $ —

In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses,” which requires a public entity to disclose additional information about specific expense categories in the notes to financial statements on an annual and interim basis.

The amendments are effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted.

A public entity should apply the amendments either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the financial statements.

The Company is currently evaluating the impact that adoption of this accounting standard will have on its financial disclosures.

RESTRUCTURING AND ASSET SALES

Restructuring

The Company began a restructuring plan (the "Restructuring Plan") in 2022, and undertook significant actions to streamline operations, reduce costs and improve efficiencies.

During the year ended December 31, 2023 , the Company recorded net pre-tax charges of $ 2,084 for the first phase of the Restructuring Plan, which w ere primarily costs related to the relocation and termination of certain facilities in Canada.

The restructuring charges were primarily recorded within cost of goods sold on the consolidated statements of operations.

Total costs incurred relating to this first phase of the Restructuring Plan were (i) $ 6,398 relating primarily to inventory markdowns, and (ii) $ 3,373 relating primarily to the relocation and termination of certain facilities in Canada.

As a result of the continued adverse market conditions, the Company implemented a second phase of the Restructuring Plan beginning in the third quarter of 2023, including U.S.

manufacturing facility consolidations, in particular with respect to production of certain durable equipment products.

The Company is reducing facility space and consolidating manufacturing operations to improve efficiency and reduce costs.

During the year ended December 31, 2023, the Company recorded pre-tax restructuring charges of $ 9,185 for the second phase, relating primarily to non-cash raw material inventory write-downs as the Company liquidated these assets and reduced storage space within certain manufacturing facilities.

These restructuring charges

Hydrofarm Holdings Group, Inc.

1 unchanged sentence

(In thousands, except share and per share amounts)

were recorded primarily within cost of goods sold on the consolidated statements of operations, and were subject to significant estimate.

During the year ended December 31, 2024, the Company recorded pre-tax restructuring charges of $ 2,223 for the second phase, relating primarily to cash charges associated with the consolidation and closure of U.S.

manufacturing facilities including termination and disposal costs associated with inventory, facilities, and headcount reductions.

The non-cash charges consist of fixed asset and inventory write-downs.

Total costs incurred relating to this second phase of the Restructuring Plan, from its commencement in 2023 through December 31, 2024, were (i) $ 9,672 of non-cash charges relating primarily to inventory markdowns of durable equipment products, and (ii) $ 1,736 of cash charges relating primarily to the consolidation of U.S.

manufacturing facilities including termination and disposal costs associated with inventory, facilities, and headcount reductions.

Including both phases of the Restructuring Plan, the Company recorded $ 1,946 and $ 10,664 of total restructuring charges within cost of goods sold on the consolidated statements of operations for the years ended December 31, 2024, and 2023, respectively.

The Company recorded total charges for both phases of the Restructuring Plan of $ 277 and $ 605 within SG&A expenses on the consolidated statements of operations for the years ended December 31, 2024, and 2023, respectively.

Of the $ 2,223 and $ 11,269 of total restructuring charges recorded for the years ended December 31, 2024, and 2023, respectively, $ 806 and $ 9,703 were non-cash charges primarily related to inventory write-downs and asset dispositions.

The second phase of our Restructuring Plan is substantially complete as of December 31, 2024.

The following tables presents the activity in accrued expenses and other current liabilities for restructuring costs related to the first and second phases of the Restructuring Plan for the years ended December 31, 2023, and 2024:

Phase 1 Phase 2

Restructuring Accruals as of December 31, 2022 $ 696 $ —

Expense 1,247 272

Cash Payments ( 1,943 ) ( 85 )

Restructuring Accruals as of December 31, 2023 — 187

Expense — 1,416

Cash Payments — ( 1,500 )

Restructuring Accruals as of December 31, 2024 $ — $ 103

On May 10, 2024, in connection with the Company's restructuring of its durable manufacturing operations, the Company entered into an agreement (the “Purchase Agreement”) with CM Fabrication, LLC (the “Buyer”) to sell assets relating to the production of Innovative Growers Equipment ("IGE") durable equipment products for $ 8,660 (the “Asset Sale”) and retain the proprietary brand and customer relationships.

The Asset Sale closed on May 31, 2024, and the Company continues to sell its IGE branded durable products, including horticulture benches, racking and LED lighting systems.

In connection with the transaction, the Company entered into an exclusive supply agreement with the Buyer to provide for contract manufacturing, which is expected to yield a more efficient cost model.

Assets and liabilities that were sold, disposed or terminated in connection with the Asset Sale included $ 11,616 of inventories, $ 3,721 of property, plant and equipment, $ 2,573 of technology intangible assets, and $ 90 of other net liabilities.

The Company paid cash to terminate the facility operating lease for $ 1,275 and certain equipment finance leases for $ 668 .

The Company incurred an estimated $ 417 of transaction costs, including legal fees and other transaction-related expenses.

The Company recorded a loss on asset disposition of $ 11,520 on the consolidated statements of operations for the year ended December 31, 2024, which included the aforementioned assets and liabilities derecognized, and operating and finance lease termination payments.

The Company estimated the amount of cash proceeds associated with the sale of inventories as $ 4,960 and property, plant and equipment as $ 3,700 , and classified the amounts within net cash from operating activities and investing activities, respectively, on the consolidated statements of cash flows for the year ended December 31, 2024.

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Pursuant to requirements in the Company's Revolving Credit Facility, consent was obtained from JPMorgan Chase Bank, N.A., as administrative agent to permit the Asset Sale.

The Company intends to reinvest the net proceeds from the Asset Sale into certain permitted investments, such as capital expenditures or other permitted acquisitions/ investments, in accordance with provisions of the Term Loan.

The foregoing description of the Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the Purchase Agreement, included as Exhibit 10.23 to this Annual Report on Form 10-K.

During the year ended December 31, 2024, the Company sold approximately 20 acres of the 140 acres of excess owned land at the Goshen, New York location.

The sale price less costs to sell were consistent with the carrying value of the land, and therefore no gain or loss was recorded in the year ended December 31, 2024.

INTANGIBLE ASSETS, NET

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Total Intangible assets, net $ 358,178 $ ( 109,176 ) $ 249,002 $ 362,407 $ ( 86,526 ) $ 275,881

The Company also reviewed intangible assets with finite lives and indefinite lives for impairment as of June 30, 2022, however no impairment was noted.

We did not identify a triggering event requiring a test for impairment during the remainder of 2022, or the year ended December 31, 2023.

The Company did not record any impairment during the years ended December 31, 2024, or 2023.

Amortization expense related to intangible assets was $ 23,998 and $ 24,355 for the years ended December 31, 2024, and 2023, respectively.

In conjunction with the Asset Sale, the Company disposed of technology intangible assets with a net book value of $ 2,573 .

Refer to Note 3 – Restructuring and Asset Sales for further details.

The following are the estimated useful lives and the weighted-average amortization period remaining as of December 31, 2024, for the major classes of finite-lived intangible assets:

4 unchanged sentences

Trade names and trademarks 15 to 20 years

The estimated aggregate future amortization expense for intangible assets subject to amortization as December 31, 2023, is summarized below:

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The estimated aggregate future amortization expense for intangible assets subject to amortization as of December 31, 2024, is summarized below:

Estimated Future Amortization Expense

3 unchanged sentences

Total $ 246,201

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

LOSS PER COMMON SHARE

Basic loss per common share is computed using net loss divided by the weighted-average number of common shares outstanding during each period, excluding unvested restricted stock units ("RSUs") and performance stock units ("PSUs").

Basic loss per common share is computed using net loss divided by the weighted-average number of common shares outstanding during each period, excluding unvested RSUs and PSUs.

Diluted loss per common share represents net loss divided by the weighted-average number of common shares outstanding during the period, including common stock equivalents.

10 unchanged sentences

Diluted loss per common share $ ( 14.51 ) $ ( 14.24 )

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The computation of the weighted-average shares of common stock outstanding for diluted loss per common share excludes the following potential shares of common stock as their inclusion would have an anti-dilutive effect on diluted loss per common share:

Years ended December 31,

Shares subject to warrants outstanding — 17,669

Shares subject to unvested performance and restricted stock units 2,163,392 1,088,879

Shares subject to unvested or deferred performance and restricted stock units 290,334 217,037

Shares subject to stock options outstanding 40,654 57,207

5 unchanged sentences

Total accounts receivable, net $ 14,756 $ 16,890

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The change in the allowance for doubtful accounts consisted of the following:

13 unchanged sentences

The allowance for excess and obsolete inventory is subject to change from period to period based on a number of factors including sales of products, changes in estimates, and disposals.

In conjunction with the Asset Sale, the Company sold $ 11,616 of inventories.

Refer to Note 3 – Restructuring and Asset Sales for further details.

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The Company leases its distribution centers and manufacturing facilities from third parties under various non-cancelable lease agreements expiring at various dates through 2038.

3 unchanged sentences

The Company recognizes operating lease costs over the respective lease periods, including short-term and month-to-month leases.

The Company incurred operating lease costs of $ 10,195 and $ 12,371 during the years ended December 31, 2024, and 2023, respectively.

These costs are included primarily within SG&A in the consolidated statements of operations and do not include lease termination costs associated with the Asset Sale.

Refer to Note 3 – Restructuring and Asset Sales for further details.

The Company has operating subleases which have been accounted for by reference to the underlying asset subject to the lease, primarily as an offset to rent expense within SG&A.

1 unchanged sentence

The new lease has a term of 15 years with annual rent starting at $ 731 and fixed increases to the final year when annual rent is $ 964 .

The Company is accounting for the transaction as a failed sale-leaseback which requires retaining the assets associated with the property and recognizing a corresponding financial liability for the cash received.

The Company accounted for the transaction as a failed sale-leaseback which requires retaining the asset associated with the property and recognizing a corresponding financial liability for the cash received.

The Eugene Property serves as the manufacturing and processing site for certain of the Company’s grow media and nutrient brands.

Refer to Note 10 – Debt for further discussion.

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Total right-of-use ("ROU") assets, finance lease assets, and lease liabilities were as follows:

Total ROU assets, finance lease assets, and lease liabilities were as follows:

Balance Sheet Classification 2024 2023

8 unchanged sentences

Total lease liabilities $ 53,573 $ 65,530

Total lease costs and sublease income were as follows:

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Total lease costs and sublease and logistics income were as follows:

Years ended December 31,

6 unchanged sentences

Interest on lease liabilities Interest expense 459 519

Sublease income Selling, general and administrative ( 1,722 ) ( 1,533 )

Sublease and logistics income Selling, general and administrative ( 3,851 ) ( 1,722 )

(1) Operating lease costs are primarily recorded in SG&A.

1 unchanged sentence

These costs were included primarily within SG&A in the consolidated statements of operations.

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The aggregate future minimum lease payments under long-term non-cancelable operating and finance leases with remaining terms greater than one year as of December 31, 2024, are as follows:

18 unchanged sentences

Finance leases 5.39 % 5.25 %

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Cash paid for amounts included in lease liabilities for the years ended December 31, 2024, and 2023, were:

4 unchanged sentences

Financing cash flows from finance leases ( 680 ) ( 1,007 )

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

PROPERTY, PLANT AND EQUIPMENT, NET

13 unchanged sentences

As of December 31, 2024, Land, Building and improvements, Computer equipment and Machinery and equipment contain finance leases assets, recorded at cost of $ 9,823 , less accumulated depreciation of $ 2,544 .

As of December 31, 2022, Computer equipment and Machinery and equipment contains finance leases assets, recorded at cost of $ 3,128 , less accumulated depreciation of $ 1,123 .

The increase in finance lease assets in 2023 primarily relates to the Sale-Leaseback Transaction.

As of December 31, 2023, Land, Building and improvements, Computer equipment and Machinery and equipment contain finance leases assets, recorded at cost of $ 12,783 , less accumulated depreciation of $ 3,468 .

In conjunction with the Asset Sale, the Company sold $ 3,721 of property, plant and equipment, net.

Refer to Note 3 – Restructuring and Asset Sales for further details.

The Company operates peat bogs in Alberta, Canada.

Under current provincial laws the Company is subject to certain AROs and the remediation of the peat bog sites are under provincial oversight.

The Company periodically evaluates expected remediation costs associated with the peat bog sites that it operates.

When the Company concludes that it is probable that a liability has been incurred, a provision is made for management's estimate of the liability.

As of December 31, 2024, and 2023, the Company had AROs of $ 284 and $ 759 , respectively, recorded in Accrued expenses and other current liabilities on the consolidated balance sheets.

As of December 31, 2024, and 2023, the Company had AROs of $ 4,232 and $ 4,457 , respectively, recorded in Other long-term liabilities on the consolidated balance sheets.

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The following table presents changes in asset retirement obligations for the following periods:

Years ended December 31,

Balance, beginning of the period $ 5,216 $ 4,632

Liabilities incurred in the period — 349

Liabilities settled in the period ( 474 ) ( 17 )

Accretion expense 165 147

Other ( 391 ) 105

Balance, end of the period $ 4,516 $ 5,216

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

5 unchanged sentences

Income tax accrual 127 —

Asset retirement obligations 284 759

Other accrued liabilities 4,404 4,060

Total accrued expenses and other current liabilities $ 10,647 $ 9,529

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Debt is comprised of the following:

Term Loan - net of unamortized discount and deferred financing costs of $ 4,259 and $ 5,142 as of December 31, 2023, and December 31, 2022, respectively

Term loan - Principal $ 119,303 $ 122,500

Term loan - unamortized discount and deferred financing costs ( 3,443 ) ( 4,259 )

Term Loan - net of unamortized discount and deferred financing costs

115,860 118,241

Other 160 160

Total debt $ 115,953 $ 118,401

3 unchanged sentences

Total debt $ 115,953 $ 118,401

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

On October 25, 2021, the Company and certain of its direct and indirect subsidiaries (the "Obligors") entered into a Credit and Guaranty Agreement with JPMorgan Chase Bank, N.A., as administrative agent for the lenders, pursuant to which the Company borrowed a $ 125,000 senior secured term loan ("Term Loan").

The Term Loan was amended by Amendment No.

1 to Credit and Guaranty Agreement (“Amendment No.

1 to the Credit and Guaranty Agreement (“Amendment No.

1”) effective on June 27, 2023, to replace the LIBOR referenced rates with SOFR referenced rates.

17 unchanged sentences

For the year ended December 31, 2023, the effective interest rate was 11.55 % and interest expense was $ 14,245 , which included amortization of deferred financing costs and discount of $ 883 .

The principal amounts of the Term Loan are required to be repaid in consecutive quarterly installments in amounts equal to 0.25 % of the original principal amount of the Term Loan, on the last day of each fiscal quarter commencing March 31, 2022, with the balance of the Term Loan payable on the Maturity Date.

The Company is also required to make mandatory prepayments in the event of (i) achieving certain excess cash flow criteria, including the achievement and maintenance of a specific leverage ratio, (ii) selling assets that are collateral, or (iii) upon the issuance, offering, or placement of new debt obligations.

As described in Note 6 – Leases , the Company received net cash proceeds in January 2023 from the Sale-Leaseback Transaction and is subject to a provision whereby such net cash proceeds can be reinvested into certain investments, such as capital expenditures.

This provision of the Term Loan includes (i) cash investments made within a one-year period from the Sale Leaseback Transaction, and (ii) investments which are contractually committed within one-year of the Sale Leaseback Transaction and paid within 180 days after entering into such contractual commitment.

The amount of any net cash proceeds

The principal amounts of the Term Loan are required to be repaid in consecutive quarterly installments in amounts equal to 0.25 % of the original principal amount of the Term Loan, reduced pro rata by any additional payments made, on the last day of each fiscal quarter commencing March 31, 2022, with the balance of the Term Loan payable on the Maturity Date.

The Company is also required to make mandatory prepayments in the event of (i) achieving certain excess cash flow criteria, including the achievement and maintenance of a specific leverage ratio, (ii) certain asset sales that are collateral, or (iii) upon the issuance, offering, or placement of new debt obligations.

As described in Note 3 – Restructuring and Asset Sales and Note 7 – Leases , the Company received net cash proceeds in May 2024 from the Asset Sale and January 2023 from the Sale-Leaseback Transaction and is subject to a provision of the Term Loan whereby such net cash proceeds can be reinvested into certain investments, such as capital expenditures.

This provision of the Term Loan includes (i) cash investments made within a one-year period from the transaction date, and (ii) investments which are contractually committed within one-year of the transaction date and paid within 180 days after entering into such contractual commitment.

The amount of any net cash proceeds which are not reinvested would require the Company to make an offer to prepay the corresponding amount on the Term Loan.

In accordance with this provision in relation to the Sale-Leaseback, described further in Note 7 – Leases , the Company classified $ 1,665 as current debt as of December 31, 2023, and prepaid the Term Loan in this amount.

In addition, the Company had $ 2,187 of contractual commitments pursuant to this provision as of December 31, 2023.

As of December 31, 2024, the Company has satisfied this provision through a combination of payments made pursuant to the contractual commitments and an additional $ 300 repayment of the Term Loan.

As described in Note 3 – Restructuring and Asset Sales , the Company sold assets for $ 8,660 in May 2024.

The net cash proceeds from the Asset Sale are subject to the same Term Loan reinvestment provision described above, including (i) cash investments made within a one-year period, and (ii) investments which are contractually committed within one-year of the Asset Sale and paid within 180 days after entering into such contractual commitment, however the Company intends to reinvest the net cash proceeds from the Asset Sale into certain permitted investments, such as capital expenditures, and no amounts were classified as current debt as of December 31, 2024, related to this provision.

The foregoing description of the reinvestment provision does not purport to be complete and is qualified in its entirety by reference to the provisions of the Term Loan.

Hydrofarm Holdings Group, Inc.

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(In thousands, except share and per share amounts)

which are not reinvested would require the Company to make an offer to prepay the corresponding amount on the Term Loan in 2024.

In accordance with this provision, the Company classified $ 1,665 as current debt as of December 31, 2023, and offer to prepay the Term Loan in this amount.

In addition, the Company has $ 2,187 of contractual commitments pursuant to this provision.

Should any of the $ 2,187 balance not be paid within 180 days of the contractual commitment dates, the Company will be required to make an additional offer to prepay the corresponding amount in 2024.

The foregoing description of the reinvestment provision does not purport to be complete and is qualified in its entirety by reference to the provisions of the Term Loan.

As of December 31, 2023, and 2022, the outstanding principal balance on the Term Loan was $ 122,500 and $ 123,750 , respectively.

The Term Loan requires the Company to maintain certain reporting requirements, affirmative covenants, and negative covenants, and the Company was in compliance with all requirements as of December 31, 2024.

4 unchanged sentences

The Revolving Credit Facility originally had a borrowing limit of $ 50,000 .

On August 31, 2021, the Obligors entered into an amendment (the "First Amendment") to increase their original borrowing limit to $ 100,000 .

On August 31, 2021, the Obligors entered into an amendment to the Revolving Credit Facility (the "First Amendment") to increase their original borrowing limit to $ 100,000 .

In connection with the First Amendment, the Company's previously acquired subsidiaries became party to the Revolving Credit Facility as either borrowers or as guarantors.

On October 25, 2021, the Company and its subsidiaries entered into a second amendment (the "Second Amendment"), with JPMorgan Chase Bank, N.A., pursuant to which the parties consented to the Term Loan described above, and made certain conforming changes to comport with the Term Loan provisions.

The Revolving Credit Facility was further amended by a third amendment and joinder dated August 23, 2022 (the "Third Amendment"), pursuant to which several previously acquired subsidiaries became parties to the Revolving Credit Facility and granted liens on their assets.

On December 22, 2022, the Company entered into a fourth amendment (the "Fourth Amendment") pursuant to which a sale-leaseback transaction was permitted, and certain other changes were made, including a reduction of the maximum commitment amount under the Revolving Credit Facility from $ 100,000 to $ 75,000 and transitioning the LIBOR based rates to SOFR based rates.

On March 31, 2023, the Company and certain of its subsidiaries entered into an amendment (the “Fifth Amendment”) pursuant to which the maturity date was extended to June 30, 2026, the maximum commitment amount under the Revolving Credit Facility was reduced to $ 55,000 , and the interest rate on borrowings was revised to various spreads, based on the Company's fixed charge coverage ratio.

On October 25, 2021, the Company and its subsidiaries entered into a second amendment to the Revolving Credit Facility (the "Second Amendment"), with JPMorgan Chase Bank, N.A., pursuant to which the parties consented to the Term Loan described above, and made certain conforming changes to comport with the Term Loan provisions.

The Revolving Credit Facility was further amended by a third amendment and joinder to the Revolving Credit Facility dated August 23, 2022 (the "Third Amendment"), pursuant to which several previously acquired subsidiaries became parties to the Revolving Credit Facility and granted liens on their assets.

On December 22, 2022, the Company entered into a fourth amendment to the Revolving Credit Facility (the "Fourth Amendment") pursuant to which a sale-leaseback transaction was permitted, and certain other changes were made, including a reduction of the maximum commitment amount under the Revolving Credit Facility from $ 100,000 to $ 75,000 and transitioning the LIBOR based rates to SOFR based rates.

On March 31, 2023, the Company and certain of its subsidiaries entered into a fifth amendment to the Revolving Credit Facility (the “Fifth Amendment”) pursuant to which the maturity date was extended to June 30, 2026, the maximum commitment amount under the Revolving Credit Facility was reduced to $ 55,000 , and the interest rate on borrowings was revised to various spreads, based on the Company's fixed charge coverage ratio.

On November 1, 2024, the Company and certain of its subsidiaries entered into a sixth amendment to the Revolving Credit Facility (the “Sixth Amendment”) which reduced the maximum commitment amount under the Revolving Credit Facility to $ 35,000 .

The unamortized debt discount and deferred financing costs were $ 237 and $ 538 as of December 31, 2024, and 2023, respectively, and are included in other assets in the consolidated balance sheet.

3 unchanged sentences

The Company is required to maintain certain reporting requirements, affirmative covenants and negative covenants, pursuant to terms outlined in the agreement.

Additionally, if the Company’s Excess Availability (as defined in the Revolving Credit Facility documents) is less than an amount equal to 10 % of the Aggregate Revolving Commitment (currently $ 55,000 ), the Company will be required to maintain a minimum fixed charge coverage ratio of 1.1 x on a rolling twelve-month basis until

Additionally, if the Company’s Excess Availability (as defined in the Revolving Credit Facility documents) is less than an amount equal to 10 % of the Aggregate Revolving Commitment (currently $ 35,000 ), the Company will be required to maintain a minimum fixed charge coverage ratio of 1.1 x on a rolling twelve-month basis until the Excess Availability is more than 10 % of the Aggregate Revolving Commitment for thirty consecutive days.

In order to consummate permitted acquisitions or to make restricted payments, the Company would be required to comply with a higher fixed charge coverage ratio of 1.15 x, but no such acquisitions or payments are currently contemplated.

As of December 31, 2024, the Company is in compliance with the covenants contained in the Revolving Credit Facility.

The Revolving Credit Facility provides for various interest rate options including the Adjusted Term SOFR Rate, the Adjusted REVSOFR30 Rate, the CB Floating Rate, the Adjusted Daily Simple SOFR, or the CBFR.

The rates that use SOFR as the reference rate (Adjusted Term SOFR Rate, the Adjusted REVSOFR30 Rate, the Adjusted Daily Simple SOFR and the

Hydrofarm Holdings Group, Inc.

1 unchanged sentence

(In thousands, except share and per share amounts)

the Excess Availability is more than 10 % of the Aggregate Revolving Commitment for thirty consecutive days.

As of December 31, 2023, the Company is in compliance with the covenants contained in the Revolving Credit Facility.

The rates that use SOFR as the reference rate (Adjusted Term SOFR Rate, the Adjusted REVSOFR30 Rate, the Adjusted Daily Simple SOFR and the CBFR rate) use the Term SOFR Rate plus 1.95 %.

CBFR rate) use the Term SOFR Rate plus 1.95 %.

Each rate has a 0.0 % floor.

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As of December 31, 2024, the Company would be able to borrow approximately $ 13 million under the Revolving Credit Facility, before the Company would be required to comply with the minimum fixed charge coverage ratio of 1.1 x.

Other debt of $ 160 and $ 160 as of December 31, 2023, and December 31, 2022, respectively, was primarily comprised of foreign subsidiary's other debt which constitutes an immaterial revolving line of credit and mortgage.

Other debt of $ 93 and $ 160 as of December 31, 2024, and 2023, respectively, was primarily comprised of a foreign subsidiary's other debt which constitutes an immaterial revolving line of credit and mortgage.

Loss on debt modification

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Year ending December 31,

2028 and thereafter 115,639

Total $ 119,396

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Subject to corporate regulations and preferences to preferred stock, if any, dividends are at the discretion of the board of directors.

As of December 31, 2023, there were 45,789,890 shares outstanding and 300,000,000 shares authorized.

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

As of December 31, 2024, there were 4,614,279 shares outstanding and 300,000,000 shares authorized, after giving retroactive effect to the February 12, 2025, reverse stock split.

On July 19, 2021, the Company completed the redemption ("Redemption") of certain of its outstanding warrants (the "Investor Warrants") that were issued in connection with a private placement of units (the "private placement"), each consisting of a share of common stock and a warrant to purchase an additional one-half (1/2) shares of common stock.

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The Company agreed to pay a warrant solicitation fee to the Placement Agent equal to five percent of the amount of net cash proceeds solicited by the Placement Agent upon the exercise of certain Investor Warrants following such call for Redemption.

For the years ended December 31, 2023 and 2022, respectively, there were no Investor Warrants outstanding.

As of December 31, 2024, and 2023, respectively, there were no Investor Warrants outstanding.

In connection with the private placement, the Placement Agent was issued warrants (the “placement agent warrants”) which expired on December 14, 2023.

As of December 31, 2023, there were no outstanding placement agent warrants.

As of December 31, 2022, the following table summarizes the outstanding warrants:

Number of Warrants Exercise Price

Placement agent warrants 11,662 $ 8.43

Placement agent warrants 6,007 $ 16.86

Total 17,669 $ 11.30

As of December 31, 2024, and 2023,

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

there were no outstanding placement agent warrants.

STOCK-BASED COMPENSATION

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The 2020 Plan provides for the grant of ISOs, nonqualified stock options, stock grants, and stock-based awards that are based in whole or in part by reference to the Company’s common stock.

• The Plan Administrator may grant options designated as incentive stock options or nonqualified stock options.

• The Plan Administrator may grant options designated as ISOs or nonqualified stock options.

Options shall be granted with an exercise price per share not less than 100 % of the fair market value of the common stock on the grant date, subject to certain limitations and exceptions as described in the plan agreements.

Generally, the maximum term of an option shall be 10 years from the grant date.

The Plan Administrator shall establish and set forth

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

in each instrument that evidences an option the time at which, or the installments in which, the option shall vest and become exercisable.

The Plan Administrator shall establish and set forth in each instrument that evidences an option the time at which, or the installments in which, the option shall vest and become exercisable.

• The Plan Administrator may grant stock grants and stock-based awards, including securities convertible into shares, stock appreciation rights, phantom stock awards or stock units on such terms and conditions which may be based on continuous service with the Company or related company or the achievement of any performance goals, as the Plan Administrator shall determine in its sole discretion, which terms, conditions and restrictions shall be set forth in the instrument evidencing the award.

The tax benefits recognized in the consolidated statements of operations for stock-based compensation arrangements for the years ended December 31, 2024, and 2023, were not material to the financial statements.

Restricted Stock Unit ("RSU") Activity

Restricted Stock Unit Activity

RSUs granted to certain executives, employees and members of the board of directors expire 10 years after the grant date.

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The stock-based compensation expense related to service-based awards is recorded over the requisite service period.

During the first quarter of 2023, the Company granted RSU awards that are expected to vest with two equal vesting tranches;

one tranche vested on October 31, 2023, and the second one is scheduled to vest on October 31, 2024.

During the first quarter of 2023, the Company granted RSU awards that vested in two equal vesting tranches;

one tranche vested on October 31, 2023, and the second one on October 31, 2024.

During the second quarter of 2023, the Company granted RSU awards to members of the board of directors that are expected to vest on the one year anniversary of the grant date.

During the third quarter of 2023, the Company granted RSU awards that are expected to vest with three equal vesting tranches, annually on the anniversary of the grant date.

The award granted to a former member of the Board (the "former Board member") in July 2020, and modified in November 2020, contained a market-based vesting condition based on the traded value of shares of the Company’s common stock following the Company's initial public offering ("IPO") over a specific time frame.

For this award, the market condition was factored into its fair value.

The fair value of the award, at the modification date, was $ 3,180 , all of which was recorded as stock-based compensation expense upon the IPO.

In July 2021, the market-based vesting condition for this award was satisfied and 148,315 RSUs of the former Board member vested.

The remaining 111,236 unvested RSUs met the time-based vesting conditions during the year ended December 31, 2022, and vested at that time.

No additional awards with market-based conditions have been granted.

During the second quarter of 2024, the Company granted RSU awards to members of the board of directors that are expected to vest on the one year anniversary of the grant date.

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The following table summarizes the activity related to the Company's RSUs for the year ended December 31, 2024.

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The total vest date fair value of RSUs vested for the years ended December 31, 2024, and 2023, was $ 729 , and $ 948 , respectively.

As of December 31, 2023, total unamortized stock-based compensation cost related to unvested RSUs was $ 2,021 and the weighted-average period over which the compensation is expected to be recognized is 1.09 years.

As of December 31, 2023, there were 6,357 RSUs which had vested, but were not yet issued due to the recipients' elections to defer the awards.

The Company recognized $ 1,927 , and $ 4,502 , of total stock-based compensation expense for RSUs for the years ended December 31, 2024, and 2023, respectively.

As of December 31, 2024, total unamortized stock-based compensation cost related to unvested RSUs was $ 629 and the weighted-average period over which the compensation is expected to be recognized is less than one year .

During the year ended December 31, 2024, 61,885 RSUs that vested were not issued due to the recipients' elections to defer the conversion into common stock.

As of December 31, 2024, there were 62,521 RSUs which had vested, but were not yet issued due to the recipients' elections.

For the year ended December 31, 2024, the Company withheld 11,705 , of the 35,434 , of common stock issued upon vesting of RSUs to meet employees' payroll tax withholding requirements.

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

withholding payments of $ 256 were made in 2023.

Performance Stock Unit ("PSU") Activity

During the year ended December 31, 2023, the Company granted PSU awards that are subject to a one-year vesting requirement (based on continuous employment) and contain performance conditions based on certain performance metrics.

The tax withholding payments of $ 83 were made in 2024.

Subsequent Event - January 1, 2025 Grant

On January 1, 2025, the Company granted 85,000 RSU awards to certain executives that are expected to vest with either two or three equal vesting tranches, annually on the anniversary of the grant date.

Refer to the Current Report on Form 8-K filed with the SEC on October 17, 2024, for additional details.

Performance Stock Unit Activity

During the years ended December 31, 2024, and 2023, the Company granted PSU awards that are subject to a one-year vesting requirement (based on continuous employment) and contain performance conditions based on certain performance metrics.

The following table summarizes the activity related to the Company's PSUs for the year ended December 31, 2024:

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The Company anticipates that a majority of the PSUs outstanding as of December 31, 2024 will forfeit in 2025 as a result of not meeting certain performance conditions.

The total vest date fair value of PSUs vested for the years ended December 31, 2024, and 2023, was $ 167 and $ 44 ,

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

respectively.

The Company recognized $ 357 , and $ 300 , of total stock-based compensation expense for PSUs the years ended December 31, 2024, and 2023, respectively.

As of December 31, 2024, total unamortized stock-based compensation cost related to unvested PSUs was $ 128 and the weighted-average period over which the compensation is expected to be recognized is less than one year .

The total vest date fair value of PSUs vested for the year ended December 31, 2023, was $ 44 .

For the years ended December 31, 2023, and 2022, respectively, the Company recognized $ 300 , and $ 355 , of total stock-based compensation expense for PSUs.

For the year ended December 31, 2024, the Company withheld 6,321 , of the 18,030 , of common stock issued upon vesting of PSUs to meet employees' payroll tax withholding requirements.

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Stock Options

The vesting of stock options is subject to certain change in control provisions as provided in the incentive plan agreements and options may be exercised up to 10 years from the date of issuance.

There were no stock options granted or exercised during the year ended December 31, 2023.

The vesting of stock options is subject to certain change in control provisions as provided in the incentive plan agreements and stock options may be exercised up to 10 years from the date of issuance.

There were no stock options granted or exercised during the years ended December 31, 2024, or 2023.

The following table summarizes the stock option activity for the year ended December 31, 2024:

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Vested and expected to vest as of December 31, 2024 40,654 $ 96.36 $ 22.76 3.67

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The following table summarizes the unvested stock option activity for the year ended December 31, 2024:

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Unvested as of December 31, 2024 — $ —

There were no stock options granted for the year ended December 31, 2023.

The weighted average grant date fair value of stock options granted was $ 12.95 for the year ended December 31, 2022.

Since stock options represent equity awards of the Company, such awards are fair valued as of the grant date for the purposes of measurement and recognition under U.S.

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The expected dividend yield is 0.0 % as the Company has not paid and does not anticipate paying dividends on its common stock.

Inputs to the model were as follows for the period indicated:

Year ended December 31, 2022

Weighted average exercise price of common stock underlying the options $ 13.12

Volatility 200 %

Risk-free rate 2.8 %

Dividend yield Nil

Expected term in years 6.0

As of December 31, 2023, the total compensation cost related to unvested options not yet recognized was $ 113 and the weighted-average period over which the compensation is expected to be recognized is less than one-year .

For the years ended December 31, 2024, and 2023, respectively, the Company recognized $ 101 and $ 273 , of total stock-based compensation expense for stock options.

The total intrinsic value of options exercised was $ 82 for the year ended December 31, 2022.

As of December 31, 2024, there was no unvested options or unrecognized compensation expense.

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Loss before tax was as follows:

3 unchanged sentences

Loss before tax $ ( 65,848 ) $ ( 65,026 )

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Significant components of income tax benefit consist of the following:

Years ended December 31,

( 382 ) 2,767

Total current expense

( 215 ) 2,867

111 ( 8,689 )

( 109 ) 2,359

Total deferred expense (benefit)

Total income tax benefit

Total current expense (benefit)

Total deferred expense

Total income tax expense (benefit)

$ 869 $ ( 213 )

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Permanent items

Goodwill impairment — 23,170

Foreign rate differential

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14,222 16,767

Total income tax benefit $ ( 213 ) $ ( 6,443 )

Total income tax expense (benefit) $ 869 $ ( 213 )

Hydrofarm Holdings Group, Inc.

22 unchanged sentences

( 10,624 ) ( 14,063 )

( 81 ) ( 37 )

Total deferred tax liabilities ( 16,184 ) ( 22,718 )

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Net deferred tax liability $ ( 3,047 ) $ ( 3,018 )

As of December 31, 2023, the Company had federal and state net operating loss ("NOL") carryforwards of approximately $ 153,300 and $ 113,100 , respectively.

As of December 31, 2024, the Company had federal and state NOL carryforwards of approximately $ 183,800 and $ 136,400 , respectively.

The federal and state NOL carryforwards, if not utilized, will begin to expire in 2037 and 2027, respectively, and $ 170,100 of the federal losses are indefinite.

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The Company’s major filing jurisdictions are the United States and Canada.

Due to the Company’s net operating loss carryforwards, the Company’s income tax returns remain subject to examination by federal, foreign and most state taxing authorities for all tax years.

Due to the Company’s NOL carryforwards, the Company’s income tax returns remain subject to examination by federal, foreign and most state taxing authorities for all tax years.

COMMITMENTS AND CONTINGENCIES

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FAIR VALUE MEASUREMENTS

Contingent consideration, as described under the heading Business combinations in Note 2 – Basis of Presentation and Significant Accounting Policies , was measured at estimated fair value on a recurring basis and based on Level 3 fair value measurements.

The fair value of the contingent consideration for the Heavy 16 and Aurora Innovations acquisitions was $ 200 and $ 16,834 , respectively, as of December 31, 2021.

There was no change in the fair value of the contingent consideration for the Heavy 16 acquisition during fiscal year 2022, and it was paid in April 2022.

The change in the fair value of contingent consideration for the Aurora Innovations acquisition was a benefit of $ 1,560 , during the six months ended June 30, 2022, and was recognized in SG&A on the consolidated statements of operations during that period.

The value of the contingent consideration was $ 15,274 as of June 30, 2022, and was subsequently paid in July 2022.

As of December 31, 2023, and 2022, the Company had no remaining unsettled contingent consideration relating to the Company's five acquisitions from 2021.

Nonrecurring fair value measurements include the Company’s goodwill impairment recognized during the year ended December 31, 2022, as determined based on unobservable Level 3 inputs.

Refer to Note 3 – Goodwill and Intangible Assets, Net , for further discussion.

The Company's note receivable, as described in Note 2 – Basis of Presentation and Significant Accounting Policies , was measured at fair value on a nonrecurring basis.

During the year ended December 31, 2022, the Company measured an impairment on the note receivable based on the estimated fair value of the collateral, which was considered a Level 3 fair value measurement.

The carrying value of the note receivable was $ 3,111 as of December 31, 2021.

The Company recorded an impairment loss of $ 2,636 during the year ended December 31, 2022, recognized in Impairments on the consolidated statements of operations.

The carrying value of the note receivable was $ 475 as of December 31, 2022, and was included in other assets on the consolidated balance sheet.

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

Recurring and Nonrecurring

As described in Note 3 – Restructuring and Asset Sales, during the second quarter of 2024, the Company entered into an agreement to sell approximately 20 acres of the 140 acres of owned land at its Goshen, New York location.

The Company measured the held-for-sale land asset at estimated fair value based on the agreement, which was considered a Level 2 fair value measurement.

The land had a carrying value of $ 470 , which was consistent with the estimated sale price less costs to sell, and therefore no estimated gain or loss was recorded in the year ended December 31, 2024.

The $ 470 carrying value of the land has been reclassified from property, plant and equipment, net, to assets held for sale on the Company's condensed consolidated balance sheets at June 30, 2024 and September 30, 2024.

The transaction closed in the fourth quarter of 2024, and the Company has no assets held for sale as of December 31, 2024.

Other Fair Value Measurements

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The fair values of other current assets and liabilities including accounts receivable, accounts payable, accrued expenses and other current liabilities approximated their carrying value due to their short-term maturities.

The estimated fair value of finance leases approximated their carrying value given the applicable interest rates and the nature of the security interest in the Company’s assets, which were considered Level 3 fair value measurements.

Hydrofarm Holdings Group, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

The estimated fair value of finance leases, which were considered Level 3 fair value measurements were calculated as the present value of the required future cash outflows discounted at an estimated borrowing rate.

Finance leases primarily relate to the Sale-Leaseback transaction that was entered into in the first quarter of 2023.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data