Q3 FY24 Quarterly Report and Appendix 4C: First Positive Operating Cash Flow Quarter Underpinned by Strong Financial and Operational Performance

US-focused Hydration solutions company, The Hydration Pharmaceuticals Company Limited (ASX: HPC) (“Hydralyte USA” or “the Company”) is pleased to provide the following update on its operational and financial performance for the three-month period ended 30 September 2024 (the “quarter”).

KEY HIGHLIGHTS

• Positive net operating cash flows of US$0.6m – marks maiden positive operating cashflow quarter and validation of Company’s push to profitability
• Revenue for the period of US$2.4m – underpinned by US$1.21m in ecommerce sales, aligned with the Company’s revised strategy of driving online sales
• 54% reduction in adjusted EBITDA loss on PCP to -$0.6m (Q3 FY23: -$1.3m) – second consecutive record low since IPO
• Gross margin up 7% on last quarter to 61% and +3% on PCP
• Marketing costs as a percentage of net revenue were 24%, down 30% in the PCP
• Divesture of non-US assets to Prestige Consumer Healthcare Inc and associated subsidiaries completed post quarter end
• Total proceeds of ~US$9.5m (A$13.7m) included US$8.3m for all non-US territories plus US$1.2m for stock and inventory (subject to final adjustments).
• Company retains full ownership of US-based operations, which are achieving annualised revenue of US$3.5m (unaudited, based on Q3 FY24 annualised)
• US assets have considerable scope to grow with recently introduced cost efficiencies – Ongoing focus on achieving cashflow breakeven
• Divesture allows for repayment of debt with objective to fund the Company on a reduced size and expense base for a minimum of twelve months
• Near-term growth strategy will focus on scaling ecommerce channels and products - follows recent momentum on Amazon USA, which has generated five consecutive months of positive net contribution margin

Financial overview:

During the quarter, the Company continued to deliver on its stated strategy of maintaining sales, while delivering a material reduction in operating expenses.

The focus on profitability and cash preservation resulted in HPC’s maiden quarter of positive net cash from operating activities of $0.6m, compared to a loss of US$0.8m in the previous quarter, and a loss of US$1.5m in Q3 FY23. The significant improvement was a result of the continued reduction in expenses, as well as more favourable payment terms negotiated with suppliers.

Revenue for the quarter remained relatively consistent at US$2.4m underpinned by sales across North America and a reduction in marketing and advertising expenses and unprofitable SKUs in order to prioritise cash preservation and profitability. This led to improvements to net margin, cash flow, and EBITDA.

EBITDA loss decreased 54% on PCP (Q3 FY23: US$1.3m) to a record low of US$0.6m. A result of the continued strong gross profit combined with reduced expenses.

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