Hydralyte North America reports strong quarterly sales fuelled by Canadian heatwave

A net sales revenue of US$2.44 million has delivered another quarter of strong growth for The Hydration Pharmaceuticals Company (ASX: HPC), trading as Hydralyte North America.

Revenue figures for the three months to the end of September represent a 17% increase on the US$2.08 million reported for the previous corresponding period.

The result was fuelled by a prolonged heatwave during Canada’s 2021 summer which led to a “beyond seasonable” spike in sales.

An additional US$800,000 secured in October (after the close of the reporting period) represented an 85% increase on sales achieved in October 2021 and has provided a strong start to the December quarter.

E-commerce and retail sales

Hydralyte’s record September revenue has been attributed to strong growth through e-commerce channels including Amazon US as well as increased sales through its North American retail outlets.

Amazon quarterly sales rose by 62% on the previous corresponding period, underpinned by customer subscriptions which increased from 5% to 12% per month during the 2022 financial year.

Total subscription numbers currently sit at 4,076, which is a 166% increase on the same period last year.

Hydralyte also experienced strong product uptake through traditional brick and mortar retailers in the US and Canada, including Walmart and Shoppers Drug Mart, with year-to-date retail sales up 92% and 47% respectively.

Marketing activities

During the September quarter, Hydralyte continued investing in marketing activities, with a total US$1.59 million spend for the period.

Funds were used to advance a China distribution partnership; an e-commerce website re-launch; networking events with celebrity ambassador Shay Mitchell; and multiple initiatives to drive online sales growth.

Gross margins as a percentage of net sales increased 4% from 47% recorded in the previous corresponding period, but decreased on the June quarter from 57% to 51% due to a standard variance caused by increased air freight.

The continued marketing investment, product development initiatives and ongoing product manufacturing and operating costs resulted in an EBITDA (earnings before interest, taxation, depreciation and amortisation) loss of US$2.3 million.

Operating expenses

Net cash used in operating activities for the September quarter totalled US$2.8 million, or US$0.5 million higher than the previous quarter.

Hydralyte said a main driver of the increase was a build in inventory of US$0.5 million to US$3.3 million, while product manufacturing and operating costs declined from the previous quarter by US$0.1 million to US$1.8 million.

The company also reported a US$0.5 million rise in marketing spend for the period, comprised mostly of one-off expenses geared towards brand and sales growth such as the Shay Mitchell partnership.

Corporate costs rose by US$0.3 million, which includes US$0.1 million in retailer administrative pass-through charges related to new item and display setup, as well as a US$0.1 million increase in fulfillment and broker fees.

Quarter-over-quarter increases in cash used in marketing and administration were partially offset by a rise in customer receipts and a decrease in product manufacturing and operating costs, having a combined positive impact of US$0.3 million.

Cash balance

At the end of the September quarter, Hydralyte had a cash and cash equivalents balance of US$3.5 million.

In October, the company secured a $12 million loan facility to fund its growth plans across the US and Canada and invest in new product development and manufacturing.

Hydralyte confirmed the funds would also be used on additional business opportunities as they arise.