HYDROFARM HOLDINGS GROUP INC

Previous wording

In connection with our previously disclosed restructuring plan (the "Restructuring Plan") in 2022, we undertook the following major initiatives: (i) narrowing our product and brand portfolio, including removing approximately one-third of all products and one-fifth of all brands relating to our primary product portfolio, which excluded our garden center business in Canada, and (ii) relocating and consolidating certain manufacturing and distribution centers, including headcount reductions and reorganization to drive a solution based approach, focusing commercial sales on competencies and product assortment gained from our recent acquisitions. Total costs incurred relating to this first phase of the Restructuring Plan from its commencement in 2022 to its completion in 2023, were (i) $6.4 million relating primarily to inventory markdowns, and (ii) $3.4 million relating primarily to the relocation and termination of certain facilities in Canada.

Current wording

In 2022, we undertook the following major initiatives in connection the first phase of our previously disclosed restructuring plan (the "Restructuring Plan"): (i) narrowing our product and brand portfolio, including removing approximately one-third of all products and one-fifth of all brands relating to our primary product portfolio, which excluded our garden center business in Canada, and (ii) relocating and consolidating certain manufacturing and distribution centers, including headcount reductions and reorganization to drive a solution based approach, focusing commercial sales on competencies and product assortment gained from our recent acquisitions. Total costs incurred relating to this first phase of the Restructuring Plan from its commencement in 2022 to its completion in 2023, were (i) $6.4 million relating primarily to inventory markdowns, and (ii) $3.4 million relating primarily to the relocation and termination of certain facilities in Canada.

Previous wording

In 2024, we evaluated alternatives to maximize the recovery value of our assets and the cost structure associated with manufacturing our IGE branded durable equipment products. As previously disclosed as a subsequent event to our first quarter Form 10-Q, we entered into the Purchase Agreement with the Buyer to sell the inventories, and property, plant and equipment associated with our IGE branded products for approximately $8.7 million, while retaining our proprietary brand and customer relationships. In connection with the Asset Sale, we entered into an exclusive supply agreement with the Buyer, pursuant to which the Buyer provides contract manufacturing and we continue to sell our proprietary branded durable products, which include horticulture benches, racking and LED lighting systems. As a result of the Asset Sale and new contract manufacturing arrangement, we expect improved profitability on future IGE branded product sales from an anticipated decrease in fixed costs. The Asset Sale closed on May 31, 2024 and we sold or disposed of approximately $11.6 million of inventories, $3.7 million of property, plant and equipment, and technology intangible assets of $2.6 million. In connection with the Asset Sale, we terminated and paid-off the facility operating lease for $1.3 million and certain equipment finance leases for $0.7 million. Consistent with the subsequent event disclosure from our first quarter Form 10-Q, we recorded a loss on asset disposition of approximately $11.5 million on the condensed consolidated statements of operations for the three and six months ended June 30, 2024.

Current wording

In 2024, we evaluated alternatives to maximize the recovery value of our assets and the cost structure associated with manufacturing our IGE branded durable equipment products. In the second quarter of 2024, we entered into the Purchase Agreement with the Buyer to sell the inventories, and property, plant and equipment associated with our IGE branded products for approximately $8.7 million, while retaining our proprietary brand and customer relationships. In connection with the Asset Sale, we entered into an exclusive supply agreement with the Buyer, pursuant to which the Buyer provides contract manufacturing and we continue to sell our proprietary branded durable products, which include horticulture benches, racking and LED lighting systems. As a result of the Asset Sale and new contract manufacturing arrangement, we expect improved profitability on future IGE branded product sales from an anticipated decrease in fixed costs. The Asset Sale closed on May 31, 2024 and we sold or disposed of approximately $11.6 million of inventories, $3.7 million of property, plant and equipment, and technology intangible assets of $2.6 million. In connection with the Asset Sale, we terminated and paid-off the facility operating lease for $1.3 million and certain equipment finance leases for $0.7 million. We recorded a loss on asset disposition of approximately $11.5 million on the condensed consolidated statements of operations for the nine months ended September 30, 2024.

Previous wording

During the three and six months ended June 30, 2024, we also executed the consolidation of other U.S. manufacturing facilities as previously planned, and recorded restructuring charges of $0.9 million and $1.1 million, respectively. After completion of the Asset Sale and the aforementioned restructuring actions, we have now consolidated our manufacturing operations into two U.S. locations and our peat moss harvesting operation in Canada. We are evaluating other opportunities to sell excess owned land to supplement our cash position, and potential contract manufacturing or outsourcing arrangements to reduce costs and further consolidate our facility footprint, including certain distribution center locations. We estimate additional charges associated with the second phase of our Restructuring Plan or other alternative actions in the second half of 2024 may exceed $2.0 million and include estimated cash and non-cash impacts for these facility consolidations. We anticipate the second phase of our Restructuring Plan and related actions may result in annual cost savings of over $2.0 million. The amounts we will ultimately realize or disburse in connection with the Restructuring Plan could differ materially from our estimates, depending on our ability to execute various alternatives, and we may not be able to realize the full extent of our anticipated cost savings.

Current wording

During the three and nine months ended September 30, 2024, we continued to execute further restructuring actions, including consolidation of other U.S. manufacturing facilities, and outsourcing certain distribution center locations to reduce costs and further consolidate our facility footprint. These actions resulted in restructuring charges of $0.7 million and $1.7 million for the three and nine months ended September 30, 2024, respectively, including termination and disposal costs associated with inventory, facilities and headcount reductions. After completion of the Asset Sale and the aforementioned restructuring actions, we have now consolidated our manufacturing operations into two U.S. locations and our peat moss harvesting and processing operation in Canada. We are evaluating other opportunities to sell excess owned land to supplement our cash position and potential contract manufacturing or other outsourcing arrangements. We estimate additional charges associated with completing the second phase of our Restructuring Plan may approximate $1.0 million. We anticipate the second phase of our Restructuring Plan and the related actions described above may result in annual cost savings of over $2.0 million. The amounts we will ultimately realize or disburse in connection with the Restructuring Plan could differ materially from our estimates, and we may incur additional non-cash charges in future periods depending on our ability to execute asset sales or pursue other alternatives. We may not be able to realize the full extent of our anticipated cost savings if industry conditions persist and net sales volumes worsen.

Previous wording

Results of Operations—Comparison of three and six months ended June 30, 2024 and 2023

Current wording

Results of Operations—Comparison of three and nine months ended September 30, 2024 and 2023

Previous wording

The following table sets forth our unaudited interim condensed consolidated statements of operations for the three and six months ended June 30, 2024, and 2023, including amounts and percentages of net sales for each period and the period-to-period change in dollars and percent (amounts in thousands):

Current wording

The following table sets forth our unaudited interim condensed consolidated statements of operations for the three and nine months ended September 30, 2024, and 2023, including amounts and percentages of net sales for each period and the period-to-period change in dollars and percent (amounts in thousands):

Previous wording

Net sales for the three months ended June 30, 2024, were $54.8 million, a decrease of $8.3 million, or 13.1% compared to the same period in 2023. Net sales for the six months ended June 30, 2024, were $109.0 million, a decrease of $16.3 million, or 13.0% compared to the same period in 2023.

Current wording

Net sales for the three months ended September 30, 2024, were $44.0 million, a decrease of $10.2 million, or 18.8% compared to the same period in 2023. Net sales for the nine months ended September 30, 2024, were $153.0 million, a decrease of $26.4 million, or 14.7% compared to the same period in 2023.

Previous wording

The 13.1% decrease in net sales for the three months ended June 30, 2024, as compared to the same period in 2023, was primarily due to a 10.3% decline in volume/mix of products sold and a 2.6% decrease in price. The decrease in volume/mix of products sold was primarily related to the aforementioned oversupply in the cannabis industry. The 13.0% decrease in net sales for the six months ended June 30, 2024, as compared to the same period in 2023, was due to a 11.1% decline in volume/mix of products sold and a 1.9% decrease in price. The decrease in volume/mix of products sold was primarily related to the aforementioned oversupply in the cannabis industry.

Current wording

The 18.8% decrease in net sales for the three months ended September 30, 2024, as compared to the same period in 2023, was primarily due to a 13.7% decline in volume/mix of products sold and a 4.9% decrease in price. The decrease in volume/mix of products sold was primarily related to the aforementioned oversupply in the cannabis industry. The 14.7% decrease in net sales for the nine months ended September 30, 2024, as compared to the same period in 2023, was primarily due to a 11.3% decline in volume/mix of products sold and a 3.3% decrease in price. The decrease in volume/mix of products sold was primarily related to the aforementioned oversupply in the cannabis industry.

Previous wording

SG&A expenses for the three months ended June 30, 2024, were $18.7 million, a decrease of $4.8 million, or 20.5% compared to the same period in 2023. SG&A expenses for the six months ended June 30, 2024, were $38.3 million, a decrease of $9.6 million, or 20.1% compared to the same period in 2023.

Current wording

SG&A expenses for the three months ended September 30, 2024, were $17.6 million, a decrease of $2.0 million, or 10.2% compared to the same period in 2023. SG&A expenses for the nine months ended September 30, 2024, were $55.8 million, a decrease of $11.6 million, or 17.2% compared to the same period in 2023.

Previous wording

SG&A expenses decreased $4.8 million for the three months ended June 30, 2024, as compared to the same period in 2023. The decrease was due to lower expenses in several areas, including as a result of our cost saving and restructuring initiatives: (i) $1.4 million decrease in salaries and benefits, (ii) $1.3 million decrease in facility costs, and (iii) $1.0 million decrease in stock-based compensation, along with other expense reductions in multiple areas including professional fees and outside services and insurance costs.

Current wording

SG&A expenses decreased $2.0 million for the three months ended September 30, 2024, as compared to the same period in 2023. The decrease was due to lower expenses in several areas, including as a result of our cost saving and restructuring initiatives: (i) a $0.9 million decrease in facility costs, (ii) a $0.6 million decrease in employee compensation costs, including stock-based compensation and salaries and benefits, and (iii) a $0.4 million decrease in insurance, along with other expense reductions in multiple areas including professional fees and outside services.

Previous wording

The $9.6 million decrease in SG&A expenses for the six months ended June 30, 2024, as compared to the same period in 2023, was primarily due to lower expenses in several areas, including as a result of our cost saving and restructuring initiatives: (i) $2.7 million decrease in facility costs, (ii) $2.2 million decrease in salaries and benefits, (iii) $1.4 million decrease in professional fees and outside services, (iv) $1.4 million decrease in stock-based compensation, and (v) $1.1 million decrease in insurance costs, along with other expense reductions in multiple areas.

Current wording

The $11.6 million decrease in SG&A expenses for the nine months ended September 30, 2024, as compared to the same period in 2023, was primarily due to lower expenses in several areas, including as a result of our cost saving and restructuring initiatives: (i) a $3.6 million decrease in facility costs, (ii) a $2.5 million decrease in salaries and benefits, (iii) a $1.8 million decrease in stock-based compensation, (iv) a $1.5 million decrease in professional fees and outside services, and (v) a $1.5 million decrease in insurance costs, along with other expense reductions in multiple areas.

Previous wording

As previously described in the subsequent event disclosure from our first quarter Form 10-Q, we entered into a Purchase Agreement with CM Fabrication, LLC to sell assets relating to the production of durable equipment products for $8.7 million. The Asset Sale closed during the three months ended June 30, 2024 and we sold or disposed of inventories and other assets. We recorded a Loss on asset disposition of $11.5 million during the three and six months ended June 30, 2024. Refer to Note 3 –Restructuring and asset dispositions for a further description of the Asset Sale.

Current wording

As previously described, we entered into a Purchase Agreement with CM Fabrication, LLC to sell assets relating to the production of durable equipment products for $8.7 million. The Asset Sale closed during the second quarter of 2024, and we sold or disposed of inventories and other assets. We recorded a Loss on asset disposition of $11.5 million for the nine months ended September 30, 2024. Refer to Note 3 –Restructuring and asset dispositions for a further description of the Asset Sale.

Previous wording

Interest expense for the three months ended June 30, 2024, was $3.8 million, which is consistent with the same period in the prior year. Interest expense for the six months ended June 30, 2024, was $7.7 million, an increase of $0.3 million compared to the same period in the prior year. The increase was primarily due to higher variable interest rates on our Term Loan, partially offset by lower debt outstanding due to principal repayments.

Current wording

Interest expense for the three months ended September 30, 2024, was $3.9 million, which is a slight decrease from $4.0 million of interest expense recorded in the same period in the prior year. Interest expense for the nine months ended September 30, 2024, was $11.7 million, an increase of $0.2 million compared to the same period in the prior year. The decrease for the three months ended September 30, 2024 was due to lower debt outstanding due to principal repayments, partially offset by higher variable interest rates on our Term Loan. The increase during nine months ended September 30, 2024, was primarily due to higher variable interest rates on our Term Loan, partially offset by lower debt outstanding due to principal repayments.

Previous wording

Other income, net for the three months ended June 30, 2024, was $0.1 million, an increase of $0.5 million compared to Other expense, net of $0.4 million during the same period in the prior year. Other income, net for the six months ended June 30, 2024, was $0.3 million, an increase of $0.7 million compared to Other expense, net of $0.4 million during the same period in the prior year. Other income, net for the three and six months ended June 30, 2024, was primarily driven by interest income and foreign currency exchange gains.

Current wording

Other income, net for the three months ended September 30, 2024, was $0.1 million, a decrease of $0.3 million compared to $0.4 million during the same period in the prior year. Other income, net for the nine months ended September 30, 2024, was $0.4 million, an increase of $0.4 million compared to less than $0.1 million during the same period in the prior year. Other income, net for the three and nine months ended September 30, 2024, was primarily driven by interest income and foreign currency exchange gains.

Previous wording

We recorded income tax expense of $0.4 million and $0.6 million for the three and six months ended June 30, 2024, respectively, representing an effective tax rate of (1.7)% in both periods. Our effective tax rate for the six months ended June 30, 2024, differs from the federal statutory rate of 21% primarily due to US and foreign jurisdictions in full valuation allowance. The income tax expense for the three and six months ended June 30, 2024, was primarily due to foreign taxes in certain jurisdictions and U.S. state taxes.

Current wording

We recorded income tax expense of $0.3 million and $0.9 million for the three and nine months ended September 30, 2024, respectively, representing an effective tax rate of (2.2)% and (1.8)%, respectively. Our effective tax rate for the nine months ended September 30, 2024, 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 and nine months ended September 30, 2024, was primarily due to foreign taxes in certain jurisdictions and U.S. state taxes.

Previous wording

We recorded an income tax benefit of $0.3 million and $0.2 million for the three and six months ended June 30, 2023, representing an effective income tax rate of 2.4% and 0.6%, respectively. Our effective tax rate for the six months ended June 30, 2023, 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 tax benefit for the three and six months ended June 30, 2023, was primarily due to a net foreign tax benefit in certain jurisdictions.

Current wording

We recorded income tax expense of $0.1 million for the three months ended September 30, 2023, representing an effective tax rate of (0.4)%. We recorded an income tax benefit of $0.1 million for the nine months ended September 30, 2023, representing an effective income tax rate of 0.2%. Our effective tax rate for the nine months ended September 30, 2023, differs from the federal statutory rate of 21% primarily due to maintaining a full valuation allowance against our net deferred tax assets in the United States and most foreign jurisdictions. The income tax expense and benefit for the three and nine months ended September 30, 2023, respectively, was primarily due to minor foreign tax items in certain jurisdictions.

Previous wording

The following table summarizes our cash flows for the six months ended June 30, 2024, and 2023 (amounts in thousands):

Current wording

The following table summarizes our cash flows for the nine months ended September 30, 2024, and 2023 (amounts in thousands):

Previous wording

Net cash from operating activities was $1.5 million for the six months ended June 30, 2024. The net cash from operating activities was primarily due to a $3.4 million net cash inflow from a reduction in working capital, partially offset by a net loss of $36.1 million, less net non-cash items of $34.2 million. The $3.4 million net reduction in working capital was primarily comprised of a $8.6 million decrease of inventories and a $1.8 million decrease of prepaid expenses and other current assets, partially offset by a $5.3 million decrease of lease liabilities and a $2.0 million increase of accounts receivable. As described in Note 3 –Restructuring and asset dispositions, in connection with the Asset Sale, we estimated the amount of cash proceeds associated with the sale of inventories as $5.0 million and classified the amount within net cash from operating activities. In addition, the Company paid cash of $1.3 million to terminate the facility operating lease in connection with the Asset Sale.

Current wording

Net cash used in operating activities was $3.0 million for the nine months ended September 30, 2024. The net cash usage was primarily due to a $0.8 million net cash inflow from a reduction in working capital, offset by a net loss of $49.2 million, less net non-cash items of $45.4 million. The $0.8 million net reduction in working capital was primarily comprised of a $8.9 million decrease of inventories, a $0.8 million decrease in accounts receivable, and a $0.8 million decrease of prepaid expenses and other current assets, partially offset by a $7.1 million decrease of lease liabilities and a $2.3 million decrease in accounts payable. As described in Note 3 –Restructuring and asset dispositions, in connection with the Asset Sale, we estimated the amount of cash proceeds associated with the sale of inventories as $5.0 million and classified the amount within net cash from operating activities. In addition, the Company paid cash of $1.3 million to terminate the facility operating lease in connection with the Asset Sale.

Previous wording

Net cash from operating activities was $1.0 million for the six months ended June 30, 2023, driven by positive cash from operating activities in the second quarter. The net cash from operating activities was primarily due to a $3.6 million net cash inflow from a reduction in working capital, partially offset by a net loss of $29.7 million less net non-cash items of $27.1 million. The net reduction in working capital was primarily driven by a decrease of $15.4 million in inventories, partially offset by decreases of $4.5 million of lease liabilities, $3.3 million of accrued expenses and other current liabilities, $1.3 million in deferred revenue, and $1.2 million of accounts payable.

Current wording

Net cash from operating activities was $8.6 million for the nine months ended September 30, 2023, driven by positive cash from operating activities in the second and third quarters. The net cash from operating activities was primarily due to a $11.7 million net cash inflow from a reduction in working capital, partially offset by a reported net loss of $49.6 million less non-cash items of $46.6 million. The net reduction in working capital was primarily driven by decreases of inventories of $22.6 million and prepaid expenses and other current assets of $1.2 million, partially offset by decreases of $7.0 million of lease liabilities and $4.4 million of accrued expenses and other current liabilities.

Previous wording

Net cash from investing activities was $2.3 million for the six months ended June 30, 2024, and net cash used in investing activities was $3.3 million for the six months ended June 30, 2023. We received cash proceeds from the Asset Sale associated with the sale of property, plant and equipment of $3.7 million during the six months ended June 30, 2024, along with other cash from investing activities of $0.4 million. These cash proceeds were partially offset by $1.8 million of capital expenditures of property, plant and equipment. The net cash used in investing activities for the six months ended June 30, 2023 was primarily due to capital expenditures of property, plant and equipment.

Current wording

Net cash from investing activities was $1.5 million for the nine months ended September 30, 2024, and net cash used in investing activities was $4.1 million for the nine months ended September 30, 2023. We received cash proceeds from the Asset Sale associated with the sale of property, plant and equipment of $3.7 million during the second quarter of 2024, along with other cash from investing activities of $0.4 million. These cash proceeds were partially offset by $2.6 million of capital expenditures of property, plant and equipment. The net cash used in investing activities for the nine months ended September 30, 2023, was primarily due to capital expenditures of property, plant and equipment. The capital expenditures of property, plant and equipment in 2024 and 2023 primarily relate to investments in our peat moss harvesting operation in Canada.

Previous wording

Net cash used in financing activities was $3.6 million for the six months ended June 30, 2024, primarily driven by (i) $2.3 million of Term Loan repayments relating to required quarterly payments of principal and prepayments made in conjunction with the Sale-Leaseback Transaction, and (ii) finance lease principal payments of $1.2 million which included approximately $0.7 million relating to equipment finance lease payments made in connection with the Asset Sale.

Current wording

Net cash used in financing activities was $4.3 million for the nine months ended September 30, 2024, primarily driven by (i) $2.9 million of Term Loan repayments relating to required quarterly payments of principal and prepayments made in conjunction with the Sale-Leaseback Transaction, and (ii) finance lease principal payments of $1.3 million which included approximately $0.7 million relating to equipment finance lease payments made in connection with the Asset Sale.

Previous wording

Net cash from financing activities was $7.4 million for the six months ended June 30, 2023, primarily driven by $8.6 million of proceeds from the Sale-Leaseback Transaction. In addition, we paid $0.6 million on the Term Loan relating to required quarterly payments of principal.

Current wording

Net cash from financing activities was $6.6 million for the nine months ended September 30, 2023, primarily driven by $8.6 million of proceeds from the Sale-Leaseback Transaction. In addition, we paid $0.9 million on the Term Loan relating to required quarterly payments of principal.

Previous wording

As further described in Note 3 –Restructuring and asset dispositions, we closed on an Asset Sale and received gross proceeds of $8.7 million during the three months ended June 30, 2024. In accordance with the Company’s Term Loan, the net proceeds, currently estimated as $6.3 million, from the Asset Sale transaction are required to be reinvested into certain permitted investments, such as capital expenditures, or offered to prepay Term Loan principal. The Company intends to reinvest the net proceeds from the Asset Sale into certain permitted investments, such as capital expenditures, in accordance with provisions of the Term Loan.

Current wording

As further described in Note 3 –Restructuring and asset dispositions, we closed on an Asset Sale and received gross proceeds of $8.7 million during the three months ended June 30, 2024. In accordance with the Company’s Term Loan, the net proceeds, approximately $6.3 million, from the Asset Sale transaction are required to be reinvested into certain permitted investments, such as capital expenditures, or offered to prepay Term Loan principal. The Company intends to reinvest the net proceeds from the Asset Sale into certain permitted investments, such as capital expenditures, in accordance with provisions of the Term Loan.

Previous wording

If necessary, we believe that we could supplement our cash position through additional sale-leasebacks, asset sales and equity financing. During the three months ended June 30, 2024, we entered into an agreement to sell a portion of the excess owned land at our Goshen, New York location, and are evaluating other opportunities to sell excess owned land to supplement our cash position. We believe it is prudent to be prepared if required and, accordingly, continue to be engaged in the process of evaluating and preparing to implement one or more of the aforementioned activities. Any potential such event may be subject to provisions refer enced in our Term Loan and Revolving Credit Facility, such as subjecting the Company to make mandatory prepayments.

Current wording

If necessary, we believe that we could supplement our cash position through additional sale-leasebacks, asset sales and equity financing. During the second quarter of 2024, we entered into an agreement to sell a portion of the excess owned land at our Goshen, New York location, and are evaluating other opportunities to sell excess owned land to supplement our cash position. We believe it is prudent to be prepared if required and, accordingly, continue to be engaged in the process of evaluating and preparing to implement one or more of the aforementioned activities. Any potential such event may be subject to provisions refer enced in our Term Loan and Revolving Credit Facility, such as subjecting the Company to make mandatory prepayments.

Previous wording

We are 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 7 –Leases, we received net cash proceeds in January 2023 from the Sale-Leaseback Transaction and 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 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 which are not reinvested would require us to make an offer to prepay the corresponding amount on the Term Loan in 2024. In accordance with this provision, we classified $1.7 million as current debt on our consolidated balance sheet as of December 31, 2023, and prepaid the Term Loan in this amount during the three months ended March 31, 2024. As of June 30, 2024, the Company determined that $0.3 million of contractual commitments pursuant to this provision were not paid, and made an additional offer to prepay this amount. In accordance with this provision, the Company classified$0.3 millionas current debt as of June 30, 2024, which was paid in the third quarter of 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.

Current wording

We are 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 7 –Leases, we received net cash proceeds in January 2023 from the Sale-Leaseback Transaction and 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 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 which are not reinvested would require us to make an offer to prepay the corresponding amount on the Term Loan in 2024. In accordance with this provision, we classified $1.7 million as current debt on our consolidated balance sheet as of December 31, 2023, and prepaid the Term Loan in this amount during the three months ended March 31, 2024. As of September 30, 2024, we have satisfied this provision through a combination of payments made pursuant to the contractual commitments and an additional $0.3 million repayment of the Term Loan. 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.

Previous wording

As of June 30, 2024, and December 31, 2023, the outstanding principal balance on the Term Loan was $120.2 million and $122.5 million, respectively.

Current wording

As of September 30, 2024, and December 31, 2023, the outstanding principal balance on the Term Loan was $119.6 million and $122.5 million, respectively.

Previous wording

On March 29, 2021, we and certain of our subsidiaries entered into the Revolving Credit Facility (the "Revolving Credit Facility") with JPMorgan Chase Bank, N.A., as administrative agent, issuing bank and swingline lender for a revolving line of credit up to $50 million. The Revolving Credit Facility was amended by the First Amendment dated August 31, 2021, which increased the revolving line of credit by an additional $50 million for an aggregate borrowing limit of $100 million. The Revolving Credit Facility was further amended by the Second Amendment dated October 25, 2021 which, among other things, permitted the incurrence of the Term Loan and made certain other changes including subordinating its liens on non-working capital assets to the obligations under the Term Loan. The Revolving Credit Facility was further amended by the Third Amendment and Joinder dated August 23, 2022, pursuant to which several previously acquired subsidiaries became parties to the Revolving Credit Facility and granted liens on their assets. On December 22, 2022, we entered into 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 million to $75 million and transitioning the LIBOR based rates to SOFR based rates. On March 31, 2023, we and certain of our subsidiaries entered into 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 million, and the interest rate on borrowings was revised to various spreads, based on our fixed charge coverage ratio.

Current wording

On March 29, 2021, we and certain of our subsidiaries entered into the Revolving Credit Facility (the "Revolving Credit Facility") with JPMorgan Chase Bank, N.A., as administrative agent, issuing bank and swingline lender for a revolving line of credit up to $50 million. The Revolving Credit Facility was amended by the First Amendment dated August 31, 2021, which increased the revolving line of credit by an additional $50 million for an aggregate borrowing limit of $100 million. The Revolving Credit Facility was further amended by the Second Amendment dated October 25, 2021 which, among other things, permitted the incurrence of the Term Loan and made certain other changes including subordinating its liens on non-working capital assets to the obligations under the Term Loan. The Revolving Credit Facility was further amended by the Third Amendment and Joinder dated August 23, 2022, pursuant to which several previously acquired subsidiaries became parties to the Revolving Credit Facility and granted liens on their assets. On December 22, 2022, we entered into 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 million to $75 million and transitioning the LIBOR based rates to SOFR based rates. On March 31, 2023, we and certain of our subsidiaries entered into 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 million, and the interest rate on borrowings was revised to various spreads, based on our fixed charge coverage ratio. On November 1, 2024, the Company and certain of its subsidiaries entered into the Sixth Amendment to the Revolving Credit Facility pursuant to which the maximum commitment amount was reduced to $35 million.

Previous wording

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, the CBFR, the Canadian Prime Rate, or the CDOR Rate. 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. Our obligations under the Revolving Credit Facility are secured by a first priority lien (subject to certain permitted liens) in substantially all of our and our subsidiaries' respective personal property assets pursuant to the terms of a U.S. and Canadian Pledge and Security Agreement dated March 29, 2021 and other security documents, as amended to include additional subsidiaries.

Current wording

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. Our obligations under the Revolving Credit Facility are secured by a first priority lien (subject to certain permitted liens) in substantially all of our and our subsidiaries' respective personal property assets pursuant to the terms of a U.S. and Canadian Pledge and Security Agreement dated March 29, 2021 and other security documents, as amended to include additional subsidiaries.

Previous wording

The Revolving Credit Facility maintains certain reporting requirements, affirmative covenants, negative covenants and financial covenants. A certain financial covenant becomes applicable in the event that our excess availability under the Revolving Credit Facility is less than an amount equal to 10% of the Aggregate Revolving Commitment (currently $55 million) and would require us to maintain a minimum fixed charge coverage ratio of 1.1x on a rolling twelve-month basis.

Current wording

The Revolving Credit Facility maintains certain reporting requirements, affirmative covenants, negative covenants and financial covenants. A certain financial covenant becomes applicable in the event that our excess availability under the Revolving Credit Facility is less than an amount equal to 10% of the Aggregate Revolving Commitment ($55 million as of September 30, 2024) and would require us to maintain a minimum fixed charge coverage ratio of 1.1x on a rolling twelve-month basis.

Previous wording

We were in compliance with all debt covenants as of June 30, 2024. As of June 30, 2024, approximately $20 million was available to borrow under the Revolving Credit Facility, before we would be required to comply with the minimum fixed charge coverage ratio of 1.1x. The reduction in borrowing availability during the second quarter of 2024 was primarily due to the sale of inventory as part of the Asset Sale.

Current wording

We were in compliance with all debt covenants as of September 30, 2024. As of September 30, 2024, approximately $17 million was available to borrow under the Revolving Credit Facility, before we would be required to comply with the minimum fixed charge coverage ratio of 1.1x.

Previous wording

The cash and cash equivalents balances of $30.3 million and $30.3 million at June 30, 2024, and December 31, 2023, respectively, included $11.0 million and $8.5 million, respectively, held by foreign subsidiaries.

Current wording

The cash and cash equivalents balances of $24.4 million and $30.3 million at September 30, 2024, and December 31, 2023, respectively, included $11.2 million and $8.5 million, respectively, held by foreign subsidiaries.