The Conversation (0)
Hydration solutions company The Hydration Pharmaceuticals Company Limited (ASX: HPC) (“Hydralyte North America” or “the Company”) is pleased to announce that it has entered into an Intellectual Property Sales Agreement (the ‘Agreement’) with Prestige Consumer Healthcare Inc. and associated subsidiaries (together, ‘Prestige’). Pursuant to the Agreement and associated arrangements, the Company will assign and transfer the exclusive right to sell Hydralyte products, and associated intellectual property rights, to Prestige in all relevant jurisdictions other than the United States of America.1
HIGHLIGHTS
- Divestiture of Hydralyte’s non-US assets to Prestige Consumer Healthcare Inc and associated subsidiaries.
- Total proceeds of ~US$9.5m includes US$8.3m for all non-US territories plus US$1.2m for stock and inventory (subject to final adjustments).
- The sale price of ~A$13.7m represents a significant premium over HPC’s market capitalisation of A$2.7m at 30 September 2024.
- Company retains full ownership of US-based operations, which are achieving annualised revenue of US$3.8m (unaudited, based on Q2 FY24 annualised) – US assets have considerable scope to grow.
- Divesture allows for the full repayment of debt and provides new capital to drive sales and margin growth from continuing US operations.
- Near-term US market growth strategy will focus on scalable ecommerce channels and products – follows recent momentum on Amazon USA, which has generated five consecutive months of positive net contribution margin.
- Divesting the non-US territories greatly simplifies the business structure and allows for a significantly reduced cost base with a deleveraged balance sheet.
- Additional cost efficiencies will be implemented with a focus on achieving cashflow breakeven.
Under the terms of the Agreement (which is dated 1 October 2024), Hydralyte US will receive consideration of US$8.25m plus the value of stock and prepaid inventory in the relevant jurisdictions, valued at approximately US$1.2m (subject to post-completion adjustments). The final cash consideration, including stock and prepaid inventory, is expected to be approximately US$9.5m (A$13.7m).
All conditions precedent to completion of the Agreement have been satisfied and the Agreement will complete in the coming days.
The Company has also agreed a Transition Services Agreement with Prestige, which covers the period of operational transition, and certain other related agreements.
With the funds received from the sale, the Company will repay its existing A$8.2m debt facility owed to Pure Asset Management (refer ASX announcement: 27 March 2024), with the remaining cash at bank to be used towards closing and restructure costs and advancing operations in the US market. The Company is focussed on achieving scale and cashflow breakeven in the US, targeting profitability in the future.
Use of Funds:
*Unaudited management estimate. Final balance will be determined post-completion.
Rationale:
On 27 March 2024 the Company announced that it intended to seek a sale transaction. Since that time, the Board has considered a range of options to divest part or all of the Company’s business.
The Board considers that the Prestige transaction will effectively deleverage the Company’s balance sheet and provide Hydralyte US with an opportunity to pursue its growth strategy in the potentially lucrative US market for the benefit of shareholders. This US growth strategy will be underpinned by a significant increase in balance sheet strength, with no debt and a stronger cash position to flexibly pursue targeted opportunities for sales and margin growth.
Streamlined operations:
Hydralyte US will focus on driving growth and unlocking value from its US-based assets. At present, Hydralyte US’s operations are annualising net revenues of approximately US$3.8m on an unaudited basis based on Q2 FY24.
The Company will maintain a presence with American bricks and mortar retail outlets but its targeted growth strategy in the US market will focus on ecommerce channels, where it already has an established footprint.
Most recently, the Company has achieved considerable net margin growth since Q1 CY23. Further, Amazon USA has achieved five consecutive months of positive net contributions and margin growth.
Click here for the full ASX Release
This article includes content from The Hydration Pharmaceuticals Company Limited, licensed for the purpose of publishing on Investing News Australia. This article does not constitute financial product advice. It is your responsibility to perform proper due diligence before acting upon any information provided here. Please refer to our full disclaimer here.
HPC:AU
Hydralyte International
Overview
Hydralyte International (ASX:HPC) is an ASX-listed rapid hydration solutions business focused on the lucrative North American market. With an established supply chain in Canada and the United States, the company consolidated its market position in FY23 with a 10 percent increase in net sales to $10 million. The impressive increase in group sales was achieved with a disciplined cost focus which flowed through to a significant US$5.7 million in cash savings. And there was ongoing momentum in the first quarter of FY24, with consistent growth in net sales to US$2.17 million on strong gross margins of 56 percent.
Hydralyte’s multi-channel distribution strategy includes a targeted growth through ecommerce. Its rapid rehydration product has been the number one SKU in the hydration category on Amazon Prime Day in Canada, where it's the number two hydration brand overall with a 21 percent market share. Starting on Prime Day, Hydralyte delivered ~US$140,000 in gross sales over 48 hours.
It's also worth noting that all this revenue growth – alongside a partnership with Shay Mitchell – occurred with an ongoing reduction in marketing expenditure. In 2024, marketing costs as a percentage of net revenue decreased to 37 percent from 48 percent in Q1 2023. This is due in part to the company's solid leadership team, featuring professionals with decades of expertise in health and wellness, as well as heavy brand investments which have been made throughout 2022.
In Australia, New Zealand and parts of Southeast Asia, Prestige Consumer Healthcare (NYSE:PBH) holds the exclusive sales and distribution rights to Hydralyte products. PBH is an American over-the-counter healthcare marketing and distribution company, dating back more than 100 years.
Hydralyte International's robust supply chain, sales trajectory, manufacturing approach and product strategy are far from the only reasons it shows such promise as an investment. Current market trends also significantly favor the company's core value proposition. Valued at US$1.68 billion in 2023, the global electrolyte hydration drinks market is expected to reach US$2.78 billion by 2033 as consumers turn away from high-sugar, low-electrolyte drinks and towards more clinical hydration products.
Roughly 75 percent of Americans are dehydrated at any given time. The reasons are many and varied, ranging from travel and exercise to alcohol and illness. Its symptoms are something many of us have simply learned to live with – irritability, brain fog, dizziness, increased thirst, dry mouth and fatigue, to name just a few.
Hydralyte fits the bill perfectly for these consumers. Founded with the goal of making a difference through better hydration, Hydralyte is able to treat dehydration more effectively than the majority of sports drinks on the market. Thanks to its proprietary formula – which uses a precise ratio of water, electrolytes and glucose based on the World Health Organization's recommended formula for rapid rehydration.
Hydralyte is available in three forms: ready-to-drink, tablet and dissolvable powder stick. All three are widely accepted in the medical community. Hydralyte is also frequently used by professional athletes as an alternative to sports drinks.
In short, thanks to its market position, strong leadership and science-based formula, Hydralyte represents the perfect opportunity for investors to enter the lifestyle sports market.
Get access to more exclusive Biotech Investing Stock profiles here
Leveraging a Rapidly Expanding Hydration Market in North America
