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.

Company Highlights

• Hydralyte International is a rapid hydration drink business with a focus on North America and established supply chains in both the United States and Canada.
• The company’s latest financials show a consistent upward trajectory with respect to its key growth targets:
  • 10 percent increase in FY2023 net sales to US$10 million
  • 2ppt increase in gross margin to 54 percent resulting in a 15 percent increase in gross profit from US$4.7 million to $5.4 million
  • Net sales of US$2.17 million in Q1 2024, up 2 percent on in Q4 2023 with an uplift in gross margins to 56% (adjusted for one-off items)
  • Strong momentum in FY24 with underlying sales growth for Q1 2024 of US$2.62 million, an increase of 23 percent from the previous quarter.
• Appointment of leading health and wellness products broker LeBeau Excel as new national sales broker for Canada, giving Hydralyte the ability to significantly expand its footprint in the Canadian market.
• Ongoing product development with a focus on high-margin growth channels, including Hydralyte Rapid Rehydration, a unique formula to take advantage of the lucrative ready-to-drink category for hydration products
• In addition to a solid manufacturing base and supply chain, Hydralyte is supported by leaders with decades of experience in health and wellness.
• Hydralyte products are widely accepted in both the medical and athletic communities. As a result, the company is well-positioned to leverage the fast-growing electrolyte hydration drinks market.

Core Product Offering

Hydralyte Rapid Rehydration

Hydralyte is based on the World Health Organization's recommended formula for rapid rehydration. Made from all-natural ingredients, it contains the precise ratio of glucose and electrolytes necessary to rehydrate. Its innovative formula contains up to 75 percent less sugar and four times more electrolytes than the majority of sports drinks.

Highlights:

• Multiple SKUs: Available as a tablet, powder and premade drink, Hydralyte comes in a range of different flavors and formulations, including:
  • Liver Support: 7 key electrolytes, six antioxidants, ginger, turmeric, milk thistle and prickly pear.
  • Apple Cider Vinegar: 4 key electrolytes, apple cider vinegar, vitamins B12, B6 and C.
  • Collagen: 5 key electrolytes, Verisol collagen, vitamin C and zinc.
  • Immunity with Elderberry: 7 key electrolytes, vitamin C, magnesium and zinc.
  • SPORT: Launched in 2022, these tablets are designed with the needs of athletes in mind.
  • Under development: Hydralyte Rapid Rehydration, a unique formula with inherent advantages in comparison to competitor products in the lucrative ready-to-drink product category
• Promising Partnerships: In December 2022, Hydralyte launched a brand partnership with Shay Mitchell, a Canadian actress and entrepreneur with over 36 million Instagram followers. The two parties launched a co-branded product through HPC eCommerce channels and Amazon USA to leverage Ms Mitchell’s high profile in the North American wellness market.
• Strategic Agreements: Recently appointed LeBeau Excel as its new sales broker to significantly expand Hydralyte’s footprint in the Canadian market. Along with a strong sales team and in-store support, the Lebeau Excel appointment is expected to generate additional margin growth through more streamlined distribution.

Management Team 

Oliver Baker – CEO

Oliver Baker is the former general manager of Swisse Wellness USA, a vitamin, supplement and skincare brand that in 2015 sold for US$1.7 billion. During his tenure at Swisse, Baker employed a dedicated eCommerce strategy that enabled a successful US launch. He also led the integration team in Guangzhou, migrating ~US$73 million in sales and building a local team in the Chinese market.

Prior to his position at Swisse, Baker worked in multiple global and national sales and marketing roles with a focus on sports sponsorships.

Adem Karafili – Independent, Non-executive Chairman

A registered CPA and business professional with more than 15 years of experience, Adem Karafili has operated in leadership positions across a range of different sectors and industries. Most recently, he spent several years at Swisse Wellness, beginning as chief financial officer before becoming chief operating officer and managing director. While there, he helped to establish Swisse as a leading global health and wellness brand. Karafili holds a Bachelor of Business Administration in accounting and is chairman of multiple health and wellness corporations.

Chris Kavanaugh – CFO

Chris Kavanaugh has over 20 years of experience running finance and operations for growing startups from inception to US$30M+ in revenue. He has worked with Hydralyte for over five years, starting as a controller before being promoted to chief financial officer in 2021. Prior to his position at Hydralyte, he served as a director of finance for companies including Fullbridge, Education Incorporated and OneVision Resources. Kavanaugh has a bachelor's degree in accounting and management with a double major in information systems from Indiana University of Pennsylvania.

Nick Berry – Non-executive Director

Nick Berry brings over 19 years of experience in the Australian finance industry, specialising in equity and debt capital markets, mergers and acquisitions and strategic planning. With a proven track record in raising capital and structuring and negotiating complex financial transactions, Nick has demonstrated extensive expertise and leadership in the field. He previously served as an Executive Director at Nomura Australia and is currently a Director of PURE Asset Management Pty Ltd.

Margaret Hardin – Independent, Non-executive Director

Margaret Hardin has served as CEO and CFO for numerous major product companies in the United States including Baby Super Brands, ERGObaby Carrier Incorporated and Munchkin. With over two decades of experience, Hardin has a well-established reputation for driving growth through innovation, strategic acquisitions and geographic expansion. She holds a BBA from New Mexico State and an MBA from the Booth Graduate School of Business at the University of Chicago.

Brandon Fishman – US Advisor

Brandon Fishman is the Founder and CEO of VitaCup, a vitamin-infused functional coffee and tea brand that surpassed US$20 million in sales in five years. Fishman has worked with multiple Fortune 500 brands in a range of different capacities, in the process building up considerable entrepreneurial wisdom. Other companies founded by Fishman include NewCondosOnline and Internet Marketing Incorporated. Fishman holds a Bachelor of Business Administration and Finance from Emory University and a Master's in Real Estate & Business from the University of San Diego.