HYDROFARM HOLDINGS GROUP, INC.HYFM
HYDROFARM HOLDINGS GROUP, INC. Income Taxes Disclosure
INCOME TAXES
Loss before tax was as follows:
| Years ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| United States | $ | (283,228) | $ | (64,011) | |||||||
| Foreign | (7,302) | (1,837) | |||||||||
| Loss before tax | $ | (290,530) | $ | (65,848) | |||||||
Significant components of income tax (benefit) expense consist of the following:
| Years ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
Current: | |||||||||||
Federal | $ | — | $ | — | |||||||
State | 87 | 90 | |||||||||
Foreign | 90 | 706 | |||||||||
Total current expense (benefit) | 177 | 796 | |||||||||
Deferred: | |||||||||||
Federal | (641) | — | |||||||||
State | (24) | — | |||||||||
Foreign | (252) | 73 | |||||||||
Total deferred (benefit) expense | (917) | 73 | |||||||||
Total income tax (benefit) expense | $ | (740) | $ | 869 | |||||||
The reconciliation of income tax computed at the U.S. federal statutory tax rates of 21% to income tax benefit consists of the following:
Year ended December 31, | |||||||||||
| 2025 | |||||||||||
Effective rate reconciliation | |||||||||||
| U.S. federal tax benefit at statutory rate | $ | (61,011) | 21.0 | % | |||||||
| State income taxes, net | 68 | — | % | ||||||||
Permanent items | (261) | 0.1 | % | ||||||||
| Impact of foreign operations | |||||||||||
| Canada | |||||||||||
| Foreign rate differential | (424) | 0.1 | % | ||||||||
| Valuation allowance | 2,393 | (0.8) | % | ||||||||
| Other | (634) | 0.2 | % | ||||||||
| Spain | |||||||||||
| Other | 36 | — | % | ||||||||
| Other, net | (1,251) | 0.4 | % | ||||||||
| Valuation allowance | 60,344 | (20.8) | % | ||||||||
| Total income tax benefit | $ | (740) | 0.3 | % | |||||||
Year ended December 31, | |||||
| 2024 | |||||
Effective rate reconciliation | |||||
U.S. federal tax benefit at statutory rate | $ | (13,828) | |||
State income taxes, net | 71 | ||||
Permanent items | 688 | ||||
Foreign rate differential | 112 | ||||
Share-based compensation | 417 | ||||
Deferred adjustments | (827) | ||||
Other, net | 14 | ||||
Valuation allowance | 14,222 | ||||
| Total income tax expense | $ | 869 | |||
State income taxes, net is primarily attributable to Oregon, which represents more than 50% of total state income tax expense for the years ended December 31, 2025, and 2024.
Deferred income tax assets and liabilities consist of the following:
December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
Deferred tax assets | |||||||||||
Lease liabilities | $ | 12,901 | $ | 12,959 | |||||||
Accrued expenses | 591 | 1,671 | |||||||||
Share-based compensation | 726 | 674 | |||||||||
Intangible assets | 58,690 | 1,449 | |||||||||
Net operating loss | 65,844 | 49,690 | |||||||||
Inventories | 4,697 | 7,832 | |||||||||
Interest expense | 15,580 | 12,658 | |||||||||
Other | 2,076 | 1,540 | |||||||||
Deferred tax assets | 161,105 | 88,473 | |||||||||
Valuation allowance | (149,124) | (75,336) | |||||||||
Total deferred tax assets | 11,981 | 13,137 | |||||||||
Deferred tax liabilities | |||||||||||
Property, plant and equipment | (3,626) | (5,479) | |||||||||
Operating lease right-of-use assets | (10,302) | (10,624) | |||||||||
Other | (183) | (81) | |||||||||
| Total deferred tax liabilities | (14,111) | (16,184) | |||||||||
Net deferred tax liability | $ | (2,130) | $ | (3,047) | |||||||
| Other long-term assets - deferred tax assets | $ | — | $ | — | |||||||
| Long-term deferred tax liabilities | (2,130) | (3,047) | |||||||||
| Net deferred tax liability | $ | (2,130) | $ | (3,047) | |||||||
Income taxes paid (refunded), net exceeding 5 percent of total income taxes paid in the following jurisdictions for 2025 were as follows:
| Year ended December 31, 2025 | |||||
| States | $ | 20 | |||
| Canada | (171) | ||||
| Spain | 195 | ||||
| Total taxes paid | $ | 44 | |||
As of December 31, 2025, the Company had federal and state NOL carryforwards of approximately $238,106 and $208,702, respectively. The federal and state NOL carryforwards, if not utilized, will begin to expire in 2037 and 2027, respectively, and $224,463 of the federal losses are indefinite. As of December 31, 2024, the Company had federal and state NOL carryforwards of approximately $183,800 and $136,400, respectively. Foreign NOL carryforwards were approximately $17,154 at December 31, 2025. The foreign NOLs, if not utilized, will begin to expire in 2041.
The Company determined the amount of its valuation allowance based on estimates regarding the timing and amount of the reversal of taxable temporary differences, expected future taxable income by jurisdiction, and the impact of tax planning strategies. As of December 31, 2025, and 2024, the Company believes it is more-likely-than-not that it will not be able to realize its U.S. deferred tax assets and therefore has maintained a full valuation allowance against its U.S. deferred tax assets. The Company has also provided valuation allowances against certain foreign deferred tax assets.
Carryforwards of NOLs are subject to possible limitation should a change in ownership occur, as defined by Internal Revenue Code Section 382. An ownership change is generally defined as a greater than 50% increase in equity ownership by 5% stockholders in any three-year period. The Company experienced an aggregate ownership change which exceeded the 50% threshold in connection with the Company's initial public offering ("IPO"), and future changes in stock ownership may occur. To the extent that the Company earns net taxable income, the Company's ability to use NOLs to offset such taxable income may be subject to limitations. The annual limitation resulting from the IPO ownership change is not expected to result in the expiration of the NOL carry forwards before utilization.
In 2025 and 2024, the Company did not record any liabilities related to uncertain tax positions. The Company does not have any tax positions for which it is reasonably possible that the total amount of gross unrecognized tax benefits will significantly change within 12 months of December 31, 2025. The Company recognizes interest and penalties relating to unrecognized tax benefits as part of its income tax expense. The Company’s major filing jurisdictions are the United States and Canada. Due to the Company’s NOL carryforwards, the Company’s income tax returns remain subject to examination by federal, foreign and most state taxing authorities for all tax years.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 27, 2026 | Showing above |
| 2024 | Mar 5, 2025 | |
| 2023 | Feb 29, 2024 | |
| 2022 | Mar 9, 2023 | |
| 2021 | Mar 1, 2022 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.