HYDROFARM HOLDINGS GROUP, INC. 10-Q

ITEM 1. FINANCIAL STATEMENTS Hydrofarm Holdings Group, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands, except share and per share amounts) March 31, December 31, 2025 2024 Assets Current assets: Cash and cash equivalents $ 13,728 $ 26,111 Accounts receivable, net 20,919 14,756 Inventories 49,902 50,633 Prepaid expenses and other current assets 4,137 3,712 Total current assets 88,686 95,212 Property, plant and equipment, net 36,456 37,545 Operating lease right-of-use assets 40,863 42,869 Intangible assets, net 243,079 249,002 Other assets 1,473 1,476 Total assets $ 410,557 $ 426,104 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 16,092 $ 12,279 Accrued expenses and other current liabilities 7,414 10,647 Deferred revenue 2,307 2,611 Current portion of operating lease liabilities 7,785 7,731 Current portion of finance lease liabilities 467 459 Current portion of long-term debt 5,876 1,260 Total current liabilities 39,941 34,987 Long-term operating lease liabilities 35,629 37,553 Long-term finance lease liabilities 7,711 7,830 Long-term debt 109,968 114,693 Deferred tax liabilities 3,047 3,047 Other long-term liabilities 4,316 4,272 Total liabilities 200,612 202,382 Commitments and contingencies (Note 14) Stockholders’ equity Common stock ($ 0.0001 par value; 300,000,000 shares authorized; 4,615,725 and 4,614,279 shares issued and outstanding at March 31, 2025, and December 31, 2024, respectively) — — Additional paid-in capital 790,565 790,094 Accumulated other comprehensive loss ( 8,774 ) ( 8,911 ) Accumulated deficit ( 571,846 ) ( 557,461 ) Total stockholders’ equity 209,945 223,722 Total liabilities and stockholders’ equity $ 410,557 $ 426,104 The accompanying notes are an integral part of the condensed consolidated financial statements. 1 Hydrofarm Holdings Group, Inc. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands, except share and per share amounts) Three months ended March 31, 2025 2024 Net sales $ 40,534 $ 54,172 Cost of goods sold 33,657 43,247 Gross profit 6,877 10,925 Operating expenses: Selling, general and administrative 17,863 19,621 Loss from operations ( 10,986 ) ( 8,696 ) Interest expense ( 3,377 ) ( 3,931 ) Other income, net 60 215 Loss before tax ( 14,303 ) ( 12,412 ) Income tax expense ( 82 ) ( 196 ) Net loss $ ( 14,385 ) $ ( 12,608 ) Net loss per share: Basic $ ( 3.12 ) $ ( 2.75 ) Diluted $ ( 3.12 ) $ ( 2.75 ) Weighted-average shares of common stock outstanding: Basic 4,614,510 4,581,221 Diluted 4,614,510 4,581,221 The accompanying notes are an integral part of the condensed consolidated financial statements. 2 Hydrofarm Holdings Group, Inc. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED) (In thousands) Three months ended March 31, 2025 2024 Net loss $ ( 14,385 ) $ ( 12,608 ) Other comprehensive loss: Foreign currency translation gain (loss) 137 ( 729 ) Total comprehensive loss $ ( 14,248 ) $ ( 13,337 ) The accompanying notes are an integral part of the condensed consolidated financial statements. 3 Hydrofarm Holdings Group, Inc. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED) (In thousands, except for share amounts) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance, December 31, 2023 4,578,841 $ — $ 787,851 $ ( 6,497 ) $ ( 490,744 ) $ 290,610 Issuance of common stock for vesting of stock awards 29,301 — — — — — Shares repurchased for withholding tax on stock awards ( 104,973 ) — ( 97 ) — — ( 97 ) Stock-based compensation expense — — 853 — — 853 Net loss — — — — ( 12,608 ) ( 12,608 ) Foreign currency translation loss — — — ( 729 ) — ( 729 ) Balance, March 31, 2024 4,503,169 $ — $ 788,607 $ ( 7,226 ) $ ( 503,352 ) $ 278,029 Balance, December 31, 2024 4,614,279 $ — $ 790,094 $ ( 8,911 ) $ ( 557,461 ) $ 223,722 Issuance of common stock for vesting of stock awards 2,267 — — — — — Shares repurchased for withholding tax on stock awards ( 821 ) — ( 3 ) — — ( 3 ) Stock-based compensation expense — — 474 — — 474 Net loss — — — — ( 14,385 ) ( 14,385 ) Foreign currency translation gain — — — 137 — 137 Balance, March 31, 2025 4,615,725 $ — $ 790,565 $ ( 8,774 ) $ ( 571,846 ) $ 209,945 The accompanying notes are an integral part of the condensed consolidated financial statements. 4 Hydrofarm Holdings Group, Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) Three months ended March 31, 2025 2024 Operating activities Net loss $ ( 14,385 ) $ ( 12,608 ) Adjustments to reconcile net loss to net cash from operating activities: Depreciation, depletion and amortization 7,309 7,885 Provision for inventory obsolescence 312 568 Stock-based compensation expense 474 853 Non-cash operating lease expense 1,941 2,244 Other 905 43 Changes in assets and liabilities: Accounts receivable ( 6,768 ) ( 5,715 ) Inventories 413 2,156 Prepaid expenses and other current assets ( 421 ) 442 Other assets ( 37 ) 100 Accounts payable 3,831 2,892 Accrued expenses and other current liabilities ( 3,221 ) 1,282 Deferred revenue ( 304 ) ( 370 ) Lease liabilities ( 1,812 ) ( 1,976 ) Other long-term liabilities — ( 93 ) Net cash used in operating activities ( 11,763 ) ( 2,297 ) Investing activities Capital expenditures of property, plant and equipment ( 244 ) ( 1,442 ) Other ( 4 ) 34 Net cash used in investing activities ( 248 ) ( 1,408 ) Financing activities Borrowings under foreign revolving credit facilities 95 158 Repayments of foreign revolving credit facilities ( 86 ) ( 190 ) Repayments of Term Loan ( 307 ) ( 1,974 ) Payment of withholding tax related to stock awards ( 3 ) ( 97 ) Finance lease principal payments ( 112 ) ( 255 ) Net cash used in financing activities ( 413 ) ( 2,358 ) Effect of exchange rate changes on cash and cash equivalents 41 ( 97 ) Net decrease in cash and cash equivalents ( 12,383 ) ( 6,160 ) Cash and cash equivalents at beginning of period 26,111 30,312 Cash and cash equivalents at end of period $ 13,728 $ 24,152 Non-cash investing and financing activities Right-of-use assets relinquished under operating lease obligations, net $ ( 81 ) $ — Capital expenditures included in accounts payable and accrued liabilities 28 155 Supplemental information Cash paid for interest 5,212 4,708 Cash paid for income taxes 110 5 The accompanying notes are an integral part of the condensed consolidated financial statements. 5 TABLE OF CONTENTS Hydrofarm Holdings Group, Inc. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (dollars in thousands, except share and per share amounts) 1. DESCRIPTION OF THE BUSINESS Description of the business Hydrofarm Holdings Group, Inc. (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, 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. 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the requirements of the SEC for interim financial reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These condensed consolidated financial statements have been prepared on the same basis as the Company's annual consolidated financial statements and, in the opinion of management, reflect all normal and recurring adjustments which are necessary for the fair statement of the Company’s financial information. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2025, or for any other interim period or for any other future year. All intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated balance sheet as of December 31, 2024, has been derived from the audited consolidated financial statements of the Company, which is included in the 2024 Annual Report. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the 2024 Annual Report. On February 12, 2025, the Company filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation, as amended, with the Secretary of State of the State of Delaware to effect a 1-for-10 reverse stock split of the Company's common stock, effective February 12, 2025 at 5:00 p.m., Eastern Time and the Company's shares of common stock began trading on a split-adjusted basis on The Nasdaq Capital Market at the commencement of trading on February 13, 2025, under the Company's existing trading symbol “HYFM”. There was no adjustment to the number of authorized shares or the par value. The Company has adjusted the presentation of all periods covered by the condensed consolidated financial statements contained herein to give retroactive effect to the Reverse Stock Split, including adjustments to net loss per share and other per share of Common Stock amounts. Use of estimates The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. 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 the Company's credit agreements, recognition of liabilities related to commitments and contingencies, asset retirement obligations ("AROs"), and valuation allowances. Actual results may differ from these estimates. 6 TABLE OF CONTENTS Hydrofarm Holdings Group, Inc. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (dollars in thousands, except share and per share amounts) On an ongoing basis, the Company reviews its estimates to ensure that these estimates appropriately reflect changes in its business or new information available. Segment and entity-wide information Segment information The Company's chief operating decision maker ("CODM") is the Chief Executive Officer who reviews financial information for the purposes of making operating decisions, assessing financial performance and allocating resources. The business is organized as one operating segment managed on a consolidated basis, and one reportable segment, which is the distribution and manufacture of CEA equipment and supplies. 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, selling. general and administrative expenses ("SG&A"), and net income (loss) as presented in the condensed 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 condensed 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 condensed 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, 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. Three months ended March 31, 2025 2024 United States $ 32,277 $ 40,455 Canada 9,022 14,425 Eliminations ( 765 ) ( 708 ) Total consolidated net sales $ 40,534 $ 54,172 March 31, 2025 December 31, 2024 United States $ 48,558 $ 50,928 Canada 28,761 29,513 Total property, plant and equipment, net and operating lease right-of-use assets $ 77,319 $ 80,441 All of the products sold by the Company are similar and classified as CEA equipment and supplies. Fair value measurements Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company has applied the framework for measuring fair value which requires a fair value hierarchy to be applied to all fair value measurements. All financial instruments recognized at fair value are classified into one of three levels in the fair value hierarchy as follows: Level 1 — Valuation based on quoted prices (unadjusted) observed in active markets for identical assets or liabilities. 7 TABLE OF CONTENTS Hydrofarm Holdings Group, Inc. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (dollars in thousands, except share and per share amounts) Level 2 — Valuation techniques based on inputs that are quoted prices of similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not in active markets; inputs other than quoted prices used in a valuation model that are observable for that instrument; and inputs that are derived from or, corroborated by, observable market data by correlation or other means. Level 3 — Valuation techniques with significant unobservable market inputs. The Company measures certain non-financial assets and liabilities, including long-lived assets and intangible assets at fair value on a nonrecurring basis. Inventories Inventories consist of finished goods, work-in-process, and raw materials used in manufacturing products. Inventories are stated at the lower of cost or net realizable value, principally determined by the first in, first out method of accounting. The Company maintains an allowance for excess and obsolete inventory. The estimate for excess and obsolete inventory is based upon assumptions about current and anticipated demand, customer preferences, business strategies, and market conditions. Management reviews these assumptions periodically to determine if any adjustments are needed to the allowance for excess and obsolete inventory. The establishment of an allowance for excess and obsolete inventory establishes a new cost basis in the inventory. Such allowance is not reduced until the product is sold or otherwise disposed. If inventory is sold, any related reserves would be reversed in the period of sale. During the year ended December 31, 2024, 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. Revenue recognition The Company follows ASC 606 - Revenue from Contracts with Customers which requires that revenue recognized from contracts with customers be disaggregated into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The Company has determined that revenue is generated from one category, which is the distribution and manufacture of CEA equipment and supplies. Revenue is recognized as control of promised goods is transferred to customers, which generally occurs upon receipt at customers’ locations determined by the specific terms of the contract. Arrangements generally have a single performance obligation and revenue is reported net of variable consideration which includes applicable volume rebates, cash discounts and sales returns and allowances. Variable consideration is estimated and recorded at the time of sale. The amount billed to customers for shipping and handling costs included in net sales was $ 1,403 and $ 2,939 during the three months ended March 31, 2025 and 2024, respectively. Shipping and handling costs that occur before the customer obtains control of the goods are deemed to be fulfillment activities and are accounted for as fulfillment costs included in cost of goods sold. The Company does not receive noncash consideration for the sale of goods. Contract consideration received from a customer prior to revenue recognition is recorded as a contract liability and is recognized as revenue when the Company satisfies the related performance obligation under the terms of the contract. The Company's contract liabilities, which consist primarily of customer deposits reported within deferred revenue in the condensed consolidated balance sheets, totaled $ 2,307 and $ 2,611 as of March 31, 2025, and December 31, 2024, respectively. During the three months ended March 31, 2025, the Company recognized $ 657 of previously deferred revenue, recorded customer deposits of $ 589 and noted $ 236 of additional decreases primarily due to customer refunds. There are no significant financing components and the majority of revenue is recognized within one year. Excluded from revenue are any taxes assessed by governmental authorities, including value-added and other sales-related taxes that are imposed on and concurrent with revenue-generating activities. Income taxes The income tax provision is calculated for an interim period by distinguishing between elements recognized in the income tax provision through applying an estimated annual effective tax rate to a measure of year-to-date operating results referred to as “ordinary income (or loss),” and discretely recognizing specific events referred to as “discrete items” as they occur. The income tax provision or benefit for each interim period is the difference between the year-to-date amount for the current period and the year-to-date amount for the prior period. 8 TABLE OF CONTENTS Hydrofarm Holdings Group, Inc. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (dollars in thousands, except share and per share amounts) Recent accounting pronouncements In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which requires greater disaggregation of information in the effective tax rate reconciliation, income taxes paid disaggregated by jurisdiction, and certain other amendments related to income tax disclosures. This guidance will be effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements. 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. 3. 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. 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 completed the first phase of the Restructuring Plan during the year ended December 31, 2023. 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. Restructuring activities included termination and disposal costs associated with inventory, facilities, and headcount reductions, and non-cash charges consisting of fixed asset and inventory write-downs. During the three months ended March 31, 2024, the Company recorded pre-tax restructuring charges of $ 138 for the second phase, relating primarily to cash charges associated with the consolidation of U.S. manufacturing facilities. Of the $ 138 recorded charges, $ 91 was recorded within Cost of goods sold on the condensed consolidated statements of operations, while $ 47 was recorded within SG&A expenses on the condensed consolidated statements of operations. During the three months ended March 31, 2025, the Company incurred approximately $ 362 of additional restructuring charges for the second phase, which were primarily cash charges and recorded in Cost of goods sold on the condensed consolidated statements of operations. Additionally, the remaining accrual balance of $ 103 as of December 31, 2024, was settled during the three months ended March 31, 2025, and there is no remaining accrual balance. The second phase of the Restructuring Plan is complete as of March 31, 2025. Total costs incurred relating to this second phase of the Restructuring Plan, from its commencement in 2023 through completion, were (i) $ 9,737 of non-cash charges relating primarily to inventory markdowns, and (ii) $ 2,034 of cash charges relating primarily to the consolidation of U.S. manufacturing facilities. The following tables present the activity in accrued expenses and other current liabilities for restructuring costs related to the second phase of the Restructuring Plan for the three months ended March 31, 2024: 9 TABLE OF CONTENTS Hydrofarm Holdings Group, Inc. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (dollars in thousands, except share and per share amounts) Three Months Ended March 31, 2024 Restructuring Accruals as of December 31, 2023 $ 187 Expense 130 Cash Payments ( 180 ) Restructuring Accruals as of March 31, 2024 $ 137 Refer to Item 2. Management’s Discussion And Analysis Of Financial Condition And Results of Operations – Market Conditions for further explanation of the Restructuring Plan. The amounts the Company will ultimately realize could differ from these estimates. Asset Sales 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 condensed 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 condensed consolidated statements of cash flows for the year ended December 31, 2024. Pursuant to requirements in the Company's Revolving Credit Facility (as defined below) consent was obtained from JPMorgan Chase Bank, N.A., as administrative agent to permit the Asset Sale. The net cash proceeds of approximately $ 6,300 from this transaction are subject to a provision whereby such net cash proceeds can be reinvested into certain investments, such as capital expenditures. Refer to Note 10 – Debt for further details. 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, which was filed as Exhibit 10.23 to the 2024 Annual Report. 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. 10 TABLE OF CONTENTS Hydrofarm Holdings Group, Inc. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (dollars in thousands, except share and per share amounts) 4. INTANGIBLE ASSETS, NET Intangible assets, net comprised the following: March 31, 2025 December 31, 2024 Gross Carrying Amount Accumulated Amortization Net Book Value Gross Carrying Amount Accumulated Amortization Net Book Value Finite-lived intangible assets: Computer software $ 8,995 $ ( 8,688 ) $ 307 $ 8,982 $ ( 8,625 ) $ 357 Customer relationships 99,806 ( 41,066 ) 58,740 99,806 ( 39,230 ) 60,576 Technology, formulations and recipes 110,381 ( 35,727 ) 74,654 110,381 ( 33,401 ) 76,980 Trade names and trademarks 131,492 ( 25,106 ) 106,386 131,492 ( 23,432 ) 108,060 Other 4,717 ( 4,526 ) 191 4,716 ( 4,488 ) 228 Total finite-lived intangible assets, net 355,391 ( 115,113 ) 240,278 355,377 ( 109,176 ) 246,201 Indefinite-lived intangible asset: Trade name 2,801 — 2,801 2,801 — 2,801 Total Intangible assets, net $ 358,192 $ ( 115,113 ) $ 243,079 $ 358,178 $ ( 109,176 ) $ 249,002 Amortization expense related to intangible assets was $ 5,933 and $ 6,084 for the three months ended March 31, 2025 and 2024, respectively. The following are the estimated useful lives and the weighted-average amortization period remaining as of March 31, 2025, for the major classes of finite-lived intangible assets: Useful lives Weighted-average amortization period remaining Computer software 3 to 5 years 1 year Customer relationships 7 to 18 years 9 years Technology, formulations and recipes 8 to 12 years 8 years Trade names and trademarks 15 to 20 years 16 years The estimated aggregate future amortization expense for intangible assets subject to amortization as of March 31, 2025, is summarized below: Estimated Future Amortization Expense For the period of April 1, 2025 to December 31, 2025 $ 17,801 Year ending December 31, 2026 23,532 2027 23,359 2028 22,713 2029 21,582 2030 21,394 Thereafter 109,897 Total $ 240,278 11 TABLE OF CONTENTS Hydrofarm Holdings Group, Inc. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (dollars in thousands, except share and per share amounts) 5. 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"). 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. Common stock equivalents consist of shares subject to share-based awards with exercise prices less than the average market price of the Company’s common stock for the period, to the extent their inclusion would be dilutive. The following table presents basic and diluted loss per common share for the three months ended March 31, 2025 and 2024: Three months ended March 31, 2025 2024 Net loss $ ( 14,385 ) $ ( 12,608 ) Weighted-average shares of common stock outstanding 4,614,510 4,581,221 Dilutive effect of share based compensation awards using the treasury stock method — — Diluted weighted-average shares of common stock outstanding 4,614,510 4,581,221 Basic loss per common share $ ( 3.12 ) $ ( 2.75 ) Diluted loss per common share $ ( 3.12 ) $ ( 2.75 ) 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: Three months ended March 31, 2025 2024 Shares subject to unvested or deferred performance and restricted stock units 377,812 112,949 Shares subject to stock options outstanding 35,975 44,374 6. ACCOUNTS RECEIVABLE, NET, AND INVENTORIES Accounts receivable, net comprised the following: March 31, 2025 December 31, 2024 Trade accounts receivable $ 20,309 $ 14,112 Allowance for doubtful accounts ( 621 ) ( 706 ) Other receivables 1,231 1,350 Total accounts receivable, net $ 20,919 $ 14,756 12 TABLE OF CONTENTS Hydrofarm Holdings Group, Inc. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (dollars in thousands, except share and per share amounts) The change in the allowance for doubtful accounts consisted of the following: Three months ended March 31, 2025 2024 Beginning balance $ ( 706 ) $ ( 920 ) Changes in estimates ( 585 ) ( 124 ) Write-offs 712 229 Collections/Other ( 42 ) 31 Ending balance $ ( 621 ) $ ( 784 ) Inventories comprised the following: March 31, 2025 December 31, 2024 Finished goods $ 43,745 $ 44,372 Work-in-process 962 1,137 Raw materials 11,863 12,398 Allowance for inventory obsolescence ( 6,668 ) ( 7,274 ) Total inventories $ 49,902 $ 50,633 Inventories are stated at the lower of cost or net realizable value, and the Company maintains an allowance for excess and obsolete inventory that is based upon assumptions about future demand and market conditions. 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. 7. LEASES The Company leases its distribution centers and manufacturing facilities from third parties under various non-cancelable lease agreements expiring at various dates through 2038. Also, the Company leases some property, plant and equipment under finance leases. Certain leases contain escalation provisions and/or renewal options, giving the Company the right to extend the leases by up to 20 years. However, these options are generally not reflected in the calculation of the right-of-use assets and lease liabilities due to uncertainty surrounding the likelihood of renewal. 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 $ 2,384 and $ 2,750 during the three months ended March 31, 2025 and 2024, respectively. These costs are included primarily within SG&A in the condensed 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 and logistics agreements which have been accounted for by reference to the underlying asset subject to the lease, primarily as an offset to rent expense, primarily within SG&A. For the three months ended March 31, 2025 and 2024, the Company recorded sublease and logistics income of $ 1,188 and $ 738 , respectively. 13 TABLE OF CONTENTS Hydrofarm Holdings Group, Inc. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (dollars in thousands, except share and per share amounts) Total right-of-use ("ROU") assets, finance lease assets, and lease liabilities were as follows: Balance Sheet Classification March 31, 2025 December 31, 2024 Lease assets Operating lease assets Operating lease right-of-use assets $ 40,863 $ 42,869 Finance lease assets Property, plant and equipment, net 7,091 7,279 Total lease assets $ 47,954 $ 50,148 Lease liabilities Current: Operating leases Current portion of operating lease liabilities $ 7,785 $ 7,731 Finance leases Current portion of finance lease liabilities 467 459 Noncurrent: Operating leases Long-term operating lease liabilities 35,629 37,553 Finance leases Long-term finance lease liabilities 7,711 7,830 Total lease liabilities $ 51,592 $ 53,573 The aggregate future minimum lease payments under long-term non-cancelable operating and finance leases with remaining terms greater than one year as of March 31, 2025 are as follows: Operating Finance For the period of April 1, 2025 to December 31, 2025 $ 7,137 $ 661 Year ending December 31, 2026 8,693 847 2027 8,781 850 2028 8,243 805 2029 5,374 822 2030 4,240 838 Thereafter 6,643 6,379 Total lease payments 49,111 11,202 Less portion representing interest ( 5,697 ) ( 3,024 ) Total principal 43,414 8,178 Less current portion ( 7,785 ) ( 467 ) Long-term portion $ 35,629 $ 7,711 Subsequent event - Lease Renewal In April 2025, Hydrofarm renewed the lease at its Edmonton, Canada peat moss harvesting facility. The lease has been extended by a term of seven years , through April 2033, with annual rent of $ 347 at the beginning of the renewal period, with annual fixed increases until the final year when annual rent is $ 419 . The Company accounts for the lease as an operating lease. 14 TABLE OF CONTENTS Hydrofarm Holdings Group, Inc. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (dollars in thousands, except share and per share amounts) 8. PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment, net comprised the following: March 31, 2025 December 31, 2024 Machinery and equipment $ 23,606 $ 23,531 Peat bogs and related development 11,936 11,895 Building and improvements 10,327 10,313 Land 5,640 5,630 Furniture and fixtures 4,267 4,239 Computer equipment 3,160 3,152 Leasehold improvements 3,247 3,185 Gross property, plant and equipment 62,183 61,945 Less: accumulated depreciation ( 25,727 ) ( 24,400 ) Total property, plant and equipment, net $ 36,456 $ 37,545 Depreciation, depletion and amortization expense related to property, plant and equipment, net was $ 1,376 and $ 1,801 for the three months ended March 31, 2025 and 2024, respectively. As of March 31, 2025, Land, Building and improvements, Computer equipment, and Machinery and equipment contain finance leases assets, recorded at cost of $ 9,801 , less accumulated depreciation of $ 2,710 . 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 . 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 March 31, 2025, and December 31, 2024, the Company had AROs of $ 274 and $ 284 , respectively, recorded in Accrued expenses and other current liabilities on the condensed consolidated balance sheets. As of March 31, 2025, and December 31, 2024, the Company had AROs of $ 4,275 and $ 4,232 , respectively, recorded in Other long-term liabilities on the condensed consolidated balance sheets. The following table presents changes in asset retirement obligations for the following periods: Three months ended March 31, 2025 2024 Balance, beginning of the period $ 4,516 $ 5,216 Liabilities incurred in the period — — Liabilities settled in the period ( 10 ) ( 224 ) Accretion expense 37 46 Other 6 ( 110 ) Balance, end of the period $ 4,549 $ 4,928 15 TABLE OF CONTENTS Hydrofarm Holdings Group, Inc. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (dollars in thousands, except share and per share amounts) 9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities comprised the following: March 31, 2025 December 31, 2024 Accrued compensation and benefits $ 2,448 $ 1,987 Interest accrual 73 2,141 Freight, custom and duty accrual 1,007 1,130 Goods in transit accrual 711 574 Income tax accrual 229 127 Asset retirement obligations 274 284 Other accrued liabilities 2,672 4,404 Total accrued expenses and other current liabilities $ 7,414 $ 10,647 10. DEBT Debt is comprised of the following: March 31, 2025 December 31, 2024 Term Loan - Principal $ 118,995 $ 119,303 Term Loan - unamortized discount and deferred financing costs ( 3,258 ) ( 3,443 ) Term Loan - net of unamortized discount and deferred financing costs 115,737 115,860 Other 107 93 Total debt $ 115,844 $ 115,953 Current portion of long-term debt $ 5,876 $ 1,260 Long-term debt - net of unamortized discount and deferred financing costs of $ 3,258 and $ 3,443 as of March 31, 2025, and December 31, 2024, respectively 109,968 114,693 Total debt $ 115,844 $ 115,953 Term Loan 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 the Credit and Guaranty Agreement (“Amendment No. 1”) effective on June 27, 2023, to replace the London Interbank Offered Rate ("LIBOR") referenced rates with Secured Overnight Financing Rate ("SOFR") referenced rates. Pursuant to Amendment No. 1, any Term Loan that constitutes a Eurodollar Rate Loan that is outstanding as of the Amendment No. 1 closing date shall continue until the end of the applicable interest period for such Eurodollar Rate Loan and the provisions of the Term Loan applicable thereto shall continue and remain in effect (notwithstanding the occurrence of the Amendment No. 1 closing date) until the end of the applicable interest period for such Eurodollar Rate Loan, after which such provisions shall have no further force or effect. Such Eurodollar Rate Loan shall subsequently either be an ABR Loan or a Term Benchmark Loan. The ABR Loans shall bear interest at the Alternate Base Rate (with a 2.0 % floor) plus 4.50 %, and Term Benchmark Loans shall bear interest at the Adjusted Term SOFR Rate (with a 1.0 % floor), plus 5.50 %. The ABR Loan and Term Benchmark Loan credit spreads of 4.50 % and 5.50 %, respectively, within the Amendment No. 1 have not changed from the credit spreads in the original Term Loan. The foregoing description of Amendment No. 1 does not purport to be complete and is qualified in its entirety by reference to the provisions of Amendment No. 1, included as Exhibit 10.9 to the 2024 Annual Report. Capitalized terms referenced above are defined in the Term Loan. 16 TABLE OF CONTENTS Hydrofarm Holdings Group, Inc. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (dollars in thousands, except share and per share amounts) The Term Loan was subject to a call premium of 1 % if called prior to October 25, 2023, and 0 % thereafter, and matures on October 25, 2028 ("Maturity Date"). Deferred financing costs are being amortized to interest expense over the term of the loan. For the three months ended March 31, 2025, the effective interest rate was 10.93 % and interest expense was $ 3,214 , which includes amortization of deferred financing costs and discount of $ 185 . 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 , the Company completed the Asset Sale for gross proceeds of $ 8,660 in May 2024. The net cash proceeds of approximately $ 6,300 from this transaction are 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 Asset Sale, 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. 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 2025. As of March 31, 2025, in accordance with this provision, the Company has estimated the total reinvestments and believe it is probable that an offer to prepay may be made in an estimated amount of $ 4,600 . The amount the Company may offer to prepay is uncertain and based on future activity. The estimated amount has been classified as current debt on the condensed consolidated balance sheet. The foreg oing 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. 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 March 31, 2025. The Term Loan is secured by a first lien on the non-working capital assets of the Company and a second lien on the working capital assets of the Company. Revolving Credit Facility On March 29, 2021, the Obligors entered into a Senior Secured Revolving Credit Facility (the "Revolving Credit Facility") with JPMorgan Chase Bank, N.A., as administrative agent, issuing bank and swingline lender, and the lenders from time to time party thereto. The Revolving Credit Facility is due on June 30, 2026, or any earlier date on which the revolving commitments are reduced to zero. The Revolving Credit Facility originally had a borrowing limit of $ 50,000 . 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 to the Revolving Credit Facility (the “Second Amendment”), 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 . 17 TABLE OF CONTENTS Hydrofarm Holdings Group, Inc. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (dollars in thousands, except share and per share amounts) The unamortized debt discount and deferred financing costs were $ 203 and $ 237 as of March 31, 2025, and December 31, 2024, respectively, and are included in other assets in the condensed consolidated balance sheets. Debt discount and deferred financing costs are being amortized to interest expense over the term of the Revolving Credit Facility. The Revolving Credit Facility is an asset-based facility that is secured by a first priority lien on the working capital assets of the Company and a second priority lien on the non-working capital assets of the Company (including most of the Company’s subsidiaries). The borrowing base is based on a detailed monthly calculation of the sum of (a) a percentage of the Eligible Accounts at such time, plus (b) the lesser of (i) a percentage of the Eligible Inventory, at such time, valued at the lower of cost or market value, determined on a first-in-first-out basis, and (ii) the product of a percentage multiplied by the Net Orderly Liquidation Value percentage identified in the most recent inventory appraisal ordered by the Administrative Agent multiplied by the Eligible Inventory, valued at the lower of cost or market value, determined on a first-in-first-out basis, minus (c) Reserves (each of the defined terms above, as defined in the Revolving Credit Facility documents). 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 is less than an amount equal to 10 % of the Aggregate Revolving Commitment ($ 35,000 as of March 31, 2025), 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 (each of the defined terms above, as defined in the Revolving Credit Facility documents). 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. The Company received a consent from JPMorgan Chase Bank, N.A., as administrative agent, to permit the cash settlement of fractional shares in connection with the Reverse Stock Split, which is described further in Note 2 – Basis of Presentation and Significant Accounting Policies . As of March 31, 2025, 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 CBFR rate) use the Term SOFR Rate plus 1.95 %. Each rate has a 0.0 % floor. A fee of 0.40 % per annum is charged for available but unused borrowings. As of March 31, 2025, and December 31, 2024, the Company had zero borrowed under the facility. As of March 31, 2025, the Company would be able to borrow approximately $ 17 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 Other debt of $ 107 and $ 93 as of March 31, 2025, and December 31, 2024, respectively, was primarily comprised of a foreign subsidiary's other debt which constitutes an immaterial revolving line of credit and mortgage. Aggregate future principal payments As of March 31, 2025, the aggregate future principal payments under long-term debt are as follows: Debt For the period of April 1, 2025 to December 31, 2025 $ 5,563 Year ending December 31, 2026 1,249 2027 1,250 2028 and thereafter 111,040 Total $ 119,102 18 TABLE OF CONTENTS Hydrofarm Holdings Group, Inc. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (dollars in thousands, except share and per share amounts) Subsequent event - Revolving Credit Facility 7th Amendment On May 9, 2025, the Company and certain of its subsidiaries entered into a seventh amendment to the Revolving Credit Facility (the “Seventh Amendment”), pursuant to which the maturity date of the Revolving Credit Facility was extended from June 30, 2026 to June 30, 2027, the maximum commitment amount under the Revolving Credit Facility was reduced from $ 35,000 to $ 22,000 , and certain other changes were made, including the addition of a $ 2,000 availability block, an increase of the cash dominion trigger from less than 10 % of availability to less than 50 % of availability and an increase of the fixed charge ratio trigger from less than 10 % excess availability to less than 20 % of excess availability. The foregoing description of the Seventh Amendment does not purport to be complete and is qualified in its entirety by reference to the Seventh Amendment, filed as Exhibit 10.3 to this Quarterly Report on Form 10-Q. 11. STOCKHOLDERS’ EQUITY Common stock Each holder of common stock is entitled to one vote for each share of common stock. Common stockholders have no pre-emptive rights to acquire additional shares of common stock or other securities. The common stock is not subject to redemption rights and carries no subscription or conversion rights. In the event of liquidation, the stockholders are entitled to share in corporate assets on a pro rata basis after the Company satisfies all liabilities and after provision is made for any class of capital stock having preference over the common stock. Subject to corporate regulations and preferences to preferred stock, if any, dividends are at the discretion of the board of directors. As of March 31, 2025, there were 4,615,725 shares outstanding and 300,000,000 shares authorized. 12. STOCK-BASED COMPENSATION Stock-based compensation plan overview The Company maintains three equity incentive plans: the 2018 Equity Incentive Plan (“2018 Plan”), the 2019 Employee, Director and Consultant Equity Incentive Plan (“2019 Plan”) and the 2020 Employee, Director, and Consultant Equity Incentive Plan (“2020 Plan” and collectively, “Incentive Plans”). The 2020 Plan serves as the successor to the 2019 Plan and 2018 Plan and provides for the issuance of incentive stock options ("ISOs"), nonqualified stock options, stock grants and stock-based awards to employees, directors, and consultants of the Company. No further awards will be issued under the 2018 Plan and 2019 Plan. As of March 31, 2025, a total of 309,377 shares were available for grant under the 2020 Plan. The Incentive Plans are administered by the Company's board of directors. Notwithstanding the foregoing, the board of directors may delegate concurrent responsibility for administering each plan, including with respect to designated classes of persons eligible to receive an award under each plan, to a committee or committees (which term shall include subcommittees) consisting of one or more members of the board of directors (collectively, the “Plan Administrator”), subject to such limitations as the board of directors deem appropriate. In November 2020, the board of directors and stockholders approved the 2020 Plan and reserved an aggregate of 2,284,053 shares of common stock for issuance under the 2020 Plan. Pursuant to the 2020 Plan, the number of shares available for issuance under the 2020 Plan may be increased on January 1 of each year, beginning on January 1, 2021, and ending on January 2, 2030, in an amount equal to the lesser of (i) 4 % of the outstanding shares of the Company’s common stock on such date or (ii) such number of shares determined by the Plan Administrator. 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 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 19 TABLE OF CONTENTS Hydrofarm Holdings Group, Inc. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (dollars in thousands, except share and per share amounts) option shall be 10 years from the grant date. 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 a 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 condensed consolidated statements of operations for stock-based compensation arrangements for the three months ended March 31, 2025, and 2024, were not material to the financial statements. Restricted Stock Unit Activity RSUs granted to certain executives, employees and members of the board of directors expire 10 years after the grant date. The awards generally have a time-based vesting requirement (based on continuous employment). Upon vesting, the RSUs convert into shares of the Company's common stock. The stock-based compensation expense related to service-based awards is recorded over the requisite service period. During the three months ended March 31, 2025, the Company granted 91,618 RSU awards to certain executives and employees that are expected to vest with either one , two or three equal vesting tranches, annually on the anniversary of the grant date. The following table summarizes the activity related to the Company's RSUs for the three months ended March 31, 2025. For purposes of this table, vested RSUs represent the shares for which the service condition had been fulfilled during the three months ended March 31, 2025: Number of RSUs Weighted average grant date fair value Balance, December 31, 2024 102,030 $ 13.82 Granted 91,618 $ 5.84 Vested ( 2,267 ) $ 167.01 Forfeited ( 34 ) $ 157.40 Balance, March 31, 2025 191,347 $ 8.16 As of March 31, 2025, total unamortized stock-based compensation cost related to unvested RSUs was $ 800 and the weighted-average period over which the compensation is expected to be recognized is approximately one-year . For the three months ended March 31, 2025, the Company recognized $ 358 of total stock-based compensation expense for RSUs. As of March 31, 2025, there were 62,521 RSUs which had vested, but were not yet issued due to the recipients' elections. Performance Stock Unit Activity The Company granted 137,254 PSUs during the second quarter of 2024 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 three months ended March 31, 2025: Number of PSUs Weighted average grant date fair value Balance, December 31, 2024 125,783 $ 9.89 Forfeited ( 1,839 ) $ 9.89 Balance, March 31, 2025 123,944 $ 9.89 During the three months ended March 31, 2025, the PSU forfeitures were due to employee terminations. The majority of the PSUs outstanding as of March 31, 2025, will be forfeited during the second quarter of 2025, as a result of not meeting 20 TABLE OF CONTENTS Hydrofarm Holdings Group, Inc. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (dollars in thousands, except share and per share amounts) certain performance conditions. As of March 31, 2025, total unamortized stock-based compensation cost related to unvested PSUs was $ 6 and the weighted-average period over which the compensation is expected to be recognized is less than one-year . For the three months ended March 31, 2025, the Company recognized $ 116 of total stock-based compensation expense for PSUs. Stock Options 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 three months ended March 31, 2025. The following table summarizes the stock option activity for the three months ended March 31, 2025: Number Weighted average exercise price Weighted average grant date fair value Weighted average remaining contractual term (years) Outstanding and exercisable as of December 31, 2024 40,654 $ 96.36 $ 22.76 3.67 Cancelled ( 4,679 ) $ 100.56 $ 16.30 Outstanding and exercisable as of March 31, 2025 35,975 $ 95.81 $ 23.60 3.89 As of March 31, 2025, and December 31, 2024, there were no unvested stock awards, and no compensation cost related to options not yet recognized. 13. INCOME TAXES The Company recorded income tax expense of $ 82 for the three months ended March 31, 2025, representing an effective tax rate of ( 0.6 )%. The Company’s effective tax rate for the three months ended March 31, 2025, differs from the federal statutory rate of 21% primarily due to U.S. and foreign jurisdictions in full valuation allowance. The income tax expense for the three months ended March 31, 2025, was primarily due to foreign taxes in certain jurisdictions and U.S. state taxes. The Company recorded income tax expense of $ 196 for the three months ended March 31, 2024, representing an effective tax rate of ( 1.6 )%. The Company’s effective tax rate for the three months ended March 31, 2024, differs from the federal statutory rate of 21% primarily due to the Company maintaining a full valuation allowance against its net deferred tax assets in the U.S. and most foreign jurisdictions. The income tax expense for the three months ended March 31, 2024, was primarily due to U.S. state taxes and foreign taxes in certain jurisdictions . 14. COMMITMENTS AND CONTINGENCIES Purchase commitments From time to time in the normal course of business, the Company will enter into agreements with suppliers which provide favorable pricing in return for a commitment to purchase minimum amounts of inventory over a defined time period. Contingencies In the normal course of business, certain claims have been brought against the Company and, where applicable, its suppliers. While there is inherent difficulty in predicting the outcome of such matters, management has vigorously contested the validity of these claims. Based on available information, management does not expect that the outcome of any matters, individually or in the aggregate, would have a material adverse effect on the condensed consolidated financial position, results of operations, cash flows or future earnings of the Company. 21 TABLE OF CONTENTS Hydrofarm Holdings Group, Inc. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (dollars in thousands, except share and per share amounts) 15. FAIR VALUE MEASUREMENTS Recurring and Nonrecurring As described in Note 3 – Restructuring and Asset Sales, during 2024, the Company sold approximately 20 acres of the 140 acres of excess 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 during 2024. The transaction closed in the fourth quarter of 2024. The Company did not have any other assets or liabilities that were remeasured to fair value on a recurring or nonrecurring basis during the periods presented. Other Fair Value Measurements The following table summarizes the fair value of the Company’s assets and liabilities which are provided for disclosure purposes: March 31, 2025 December 31, 2024 Fair Value Hierarchy Level Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value Assets Cash and cash equivalents Level 1 13,728 13,728 26,111 26,111 Liabilities Finance leases Level 3 8,178 8,418 8,289 8,437 Term Loan Level 2 118,995 95,196 119,303 95,442 Cash and cash equivalents included funds deposited in banks, and the fair values approximated carrying values due to their short-term maturities. 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, 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. The fair value of the Term Loan was estimated based on Level 2 fair value measurements and was based on bank quotes. The carrying amount of the Term Loan reported above excludes unamortized debt discount and deferred financing costs. Refer to Note 7 – Leases and Note 10 – Debt , for further details of the Company's finance leases and Term Loan, respectively. The Company did not have any transfers between Levels within the fair value hierarchy during the periods presented. 22 TABLE OF CONTENTS