Hydralyte

Q1 FY24 Quarterly Report and Appendix 4C: 43% Reduction in YoY Net Operating Cash Use to Record Low

Hydration solutions company The Hydration Pharmaceuticals Company Limited (ASX: HPC) (Hydralyte North America or the Company) is pleased to provide the following update on its operational and financial performance for the three-month period ended 31 March 2024 (the “quarter”).


KEY HIGHLIGHTS

  • Net cash used in operating activities reduced to US$0.83m, a 43% decrease on PCP (Q1 FY23: US$1.45m) and down 27% on previous quarter (Q4 FY23: US$1.14m) – marking the seventh consecutive quarter of reductions
  • Net sales of US$2.17m – up 2% on the previous quarter (Q4 FY23: US$2.13m)
  • Unfilled orders from out of stock inventory for the quarter resulted in a net sales reduction of US$0.45m
  • After accounting for US$0.45m in unshipped orders due to out of stock inventory, underlying sales growth for Q1 FY24 increases to 23% on the prior quarter to US$2.62.
  • Gross margin increased 3ppt on PCP (Q1 FY23: 47%) to 50%, increasing to 56% when adjusted for once-off inventory writedowns
  • Gross margin negatively impacted by inventory write-off of $0.13m in the shift towards the high profitability SKUs, reducing margin by 6ppt from 56% to 50%
  • Marketing costs as a percentage of net revenue decreased to 37% - down from 48% in Q1 FY23
  • Amended funding agreement signed with Pure Asset Management providing additional funds to the Company
  • New funds will be used in order to seek to implement a sale of the Company for the benefit of stakeholders
  • Continued execution of stated strategy to reduce cash expenditure and extend cash reserves
Financial overview:

During the quarter, the Company continued to deliver on its stated strategy to maintain sales growth with a material reduction in net operating expenditure. This focus on cash preservation resulted in net cash used in operating activities decreasing to US$0.83m, highlighting a 43% reduction on the previous corresponding period (PCP) (Q1 FY23: US$1.45m) and a 27% reduction on the previous quarter (Q4 FY23: US$1.147m).

Revenue for the quarter increased by 2% on the previous quarter (Q4 FY23: US$2.13m) to US$2.17m. Quarterly revenue was impacted by inventory issues during January, which accounted for approximately US$0.45m in unshipped orders. Adjusted net sales after accounting for these unshipped orders resulted in a 23% increase on the previous quarter.

The Company has rectified these inventory issues and has been back in stock on key products since mid-quarter. The Company expects only a minor impact from out-of-stocks during Q2 FY2024.

Canadian operations continue to show strong growth and underpinned the Company’s growth trajectory in the March quarter. Sales in the territory for the quarter increased 7% on PCP (Q1 FY2023: US$1.33m) to US$1.43m. Canada ecommerce sales increased to 52% on PCP to US$0.49m.

With the strategy of prioritising profitability, the Company increased focus on ecommerce and Canadian retail growth. With less focus on US retail, US sales for quarter decreased 38% on PCP (Q1 FY2023: US$1.20m) to US$0.74m.

In the shift to profitable Amazon growth, US ecommerce revenue decreased 5% on PCP (Q1 FY2023: US$0.67m) to US$0.64m. Subsequent to quarter end, US ecommerce has shifted to profitable year-on-year growth.

US bricks and mortar revenue decreased 82% on PCP (Q1 FY2023: US$0.54m) to US$0.10m. This was largely due to large US retailer, Rite Aid decreasing orders due to restructuring following its bankruptcy in late 2023. The reduction in Rite Aid revenue resulted in a US$0.25m decrease on PCP. Rite Aid bankruptcy plus trailing net sales deductions caused a one-time negative net sales impact of US$(0.08m).


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
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