HF Foods Reports First Quarter 2024 Financial Results
Highest Net Revenue Ever Recorded During First Quarter of $295.7 Million Pre-Recorded Earnings Call Webcast Available on Investor Relations Website LAS VEGAS, May 08, 2024 (GLOBE NEWSWIRE) -- HF Foods Group Inc. (NASDAQ: HFFG) (“HF Foods”, or the “Company”), a leading food distributor to Asian restaurants across the United States, reported unaudited financial results for the first quarter ended March 31, 2024. First Quarter 2024 Financial Results Net revenue increased 0.6% to $295.7 million compared to $293.9 million in the prior year.Gross profit increased 0.5% to $50.4 million compared to $50.2 million in the prior year. Gross profit margin was flat at 17.1%.Net loss improved to $0.6 million compared to $5.8 million in the prior year.Adjusted EBITDA increased 51.4% to $8.7 million compared to $5.7 million in the prior year. Management Commentary “We are pleased to report record first quarter revenue, showing progress in our core operations as we achieved growth despite exiting our chicken processing businesses in 2023,” said Peter Zhang, Chief Executive Officer of HF Foods. “We continue to make progress on all key areas of our operational transformation plan, including centralized purchasing which will allow us to maximize synergies from our acquisitions, fleet and transportation improvements to enhance efficiency and reduce fuel costs, digital transformation which will improve our operations and strengthen our ability to adapt quickly to market dynamics, and facility upgrades to allow our distribution centers to serve as full broadline facilities that supply the products that are strongest in demand in a given area. We are a trusted partner for thousands of restaurants across the United States, empowering them to serve customers high quality products at affordable prices. I remain confident that our operational transformation plan will drive sales and efficiencies and help us deliver on our growth targets.” First Quarter 2024 Results Net revenue was $295.7 million for the first quarter of 2024 compared to $293.9 million in the prior year period, an increase of $1.8 million, or 0.6%. This increase was primarily attributable to product cost inflation and improved pricing in certain categories, partially offset by the $2.7 million loss in revenue resulting from the exit of our chicken processing businesses. Gross profit was $50.4 million for the first quarter of 2024 compared to $50.2 million in the prior year period, an increase of $0.2 million, or 0.5%. Gross profit margin was flat at 17.1% compared to the prior year period. Distribution, selling and administrative expenses decreased by $2.4 million to $50.5 million, primarily due to a decrease of $2.8 million in professional fees, partially offset by higher payroll and related labor costs. Distribution, selling and administrative expenses as a percentage of net revenue decreased to 17.1% from 18.0% in the prior year period primarily attributable to lower professional fees and increased net revenue, partially offset by increased headcount. Net loss improved to $0.6 million for the first quarter of 2024 compared to $5.8 million in the prior year period. The improvement was primarily attributable to the decreased distribution, selling and administrative expenses and the impact from changes in the fair value of interest rate swap contracts. Adjusted EBITDA increased 51.4% to $8.7 million for the first quarter of 2024 compared to $5.7 million in the prior year. The increase was primarily attributable to the decreased distribution, selling and administrative expenses. Cash Flow and Liquidity Cash flow from operating activities decreased to $7.1 million for in the first quarter of 2024, compared to $12.6 million in the prior year. The decrease in cash flow from operating activities was primarily due to the timing of working capital outlays. As of March 31, 2024, the Company had a cash balance of $18.2 million and access to approximately $40.9 million in additional funds through its $100.0 million line of credit, subject to a borrowing base calculation. Earnings Call and Webcast A pre-recorded call and webcast with HF Foods’ management team discussing the results is now available on the Investor Relations section of the Company’s website at https://investors.hffoodsgroup.com/. About HF Foods Group Inc. HF Foods Group Inc. is a leading marketer and distributor of fresh produce, frozen and dry food, and non-food products to primarily Asian restaurants and other foodservice customers throughout the United States. HF Foods aims to supply the increasing demand for Asian American restaurant cuisine, leveraging its nationwide network of distribution centers and its strong relations with growers and suppliers of fresh, high-quality specialty restaurant food products and supplies in the US, South America, and China. Headquartered in Las Vegas, Nevada, HF Foods trades on Nasdaq under the symbol “HFFG”. For more information, please visit www.hffoodsgroup.com. Investor Relations Contact: HFFG Investor Relations [email protected] Forward-Looking Statements All statements in this news release other than statements of historical facts are forward-looking statements which contain our current expectations about our future results. We have attempted to identify any forward-looking statements by using words such as “aims,” “continues,” “expects,” “plans,” “will,” and other similar expressions. Although we believe that the expectations reflected in all of our forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Such statements are not guarantees of future performance or events and are subject to known and unknown risks and uncertainties that could cause the Company’s actual results, events or financial positions to differ materially from those included within or implied by such forward-looking statements. Such factors include, but are not limited to, risks relating to our ability to consummate our operational transformation plan as anticipated, risks relating to the impact of our operational plan on our sales and efficiencies, statements of assumption underlying any of the foregoing, and other factors including those disclosed under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 and other filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. Except as required by law, we undertake no obligation to disclose any revision to these forward-looking statements. Non-GAAP Financial Measures Discussion of our results includes certain non-GAAP financial measures, including EBITDA, adjusted EBITDA and non-GAAP net income (loss) attributable to HF Foods Group Inc., that we believe provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial performance with other companies in the same industry, many of which present similar non-GAAP financial measures to investors. The definitions of EBITDA, adjusted EBITDA and non-GAAP net income (loss) attributable to HF Foods Group Inc. may not be the same as similarly titled measures used by other companies in the industry. EBITDA, adjusted EBITDA and non-GAAP net income (loss) attributable to HF Foods Group Inc. are not defined under GAAP and are subject to important limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of our financial results as reported under GAAP. We use non-GAAP financial measures to supplement our GAAP financial results. Management uses EBITDA, defined as net income (loss) before interest expense, interest income, income taxes, and depreciation and amortization to measure operating performance. In addition, management uses Adjusted EBITDA, defined as net income (loss) before interest expense, interest income, income taxes, and depreciation and amortization, further adjusted to exclude certain unusual, non-cash, or non-recurring expenses. We believe that Adjusted EBITDA is less susceptible to variances in actual performance resulting from non-recurring expenses, and other non-cash charges, provides useful information for our investors and is more reflective of other factors that affect our operating performance. We believe non-GAAP net income (loss) attributable to HF Foods Group Inc. is a useful measure of operating performance because it excludes certain items not reflective of our core operating performance. Non-GAAP net income (loss) attributable to HF Foods Group Inc. is defined as net income (loss) attributable to HF Foods Group Inc. adjusted for amortization of intangibles, change in fair value of interest rate swaps, stock based compensation, transaction related costs, transformational project costs and certain unusual, non-cash, or non-recurring expenses. We believe that non-GAAP net income (loss) attributable to HF Foods Group Inc. facilitates period-over-period comparisons and provides additional clarity for investors to better evaluate our operating results. We present EBITDA, adjusted EBITDA, non-GAAP net income (loss) attributable to HF Foods Group Inc. in order to provide supplemental information that we consider relevant for the readers of our consolidated financial statements included elsewhere in its reports filed with the SEC, including its current Quarterly Report on Form 10Q, and such information is not meant to replace or supersede U.S. GAAP measures. Reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measures are included in the schedules attached to this press release. HF FOODS GROUP INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(In thousands)(Unaudited) March 31, 2024 December 31, 2023ASSETS CURRENT ASSETS: Cash$18,215 $15,232 Accounts receivable, net 50,000 47,832 Inventories 107,908 105,618 Other current assets 9,363 10,145 TOTAL CURRENT ASSETS 185,486 178,827 Property and equipment, net 137,989 133,136 Operating lease right-of-use assets 11,815 12,714 Long-term investments 2,389 2,388 Customer relationships, net 144,540 147,181 Trademarks, trade names and other intangibles, net 29,196 30,625 Goodwill 85,118 85,118 Other long-term assets 6,532 6,531 TOTAL ASSETS$603,065 $596,520 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Checks issued not presented for payment$8,663 $4,494 Line of credit 55,192 58,564 Accounts payable 57,834 52,014 Current portion of long-term debt, net 5,427 5,450 Current portion of obligations under finance leases 2,299 1,749 Current portion of obligations under operating leases 3,766 3,706 Accrued expenses and other liabilities 17,454 17,287 TOTAL CURRENT LIABILITIES 150,635 143,264 Long-term debt, net of current portion 107,331 108,711 Obligations under finance leases, non-current 14,689 11,229 Obligations under operating leases, non-current 8,493 9,414 Deferred tax liabilities 28,557 29,028 Other long-term liabilities 5,198 6,891 TOTAL LIABILITIES 314,903 308,537 Commitments and contingencies SHAREHOLDERS’ EQUITY: Preferred stock — — Common stock 5 5 Treasury stock (7,750) (7,750)Additional paid-in capital 603,832 603,094 Accumulated deficit (309,382) (308,688)TOTAL SHAREHOLDERS’ EQUITY ATTRIBUTABLE TO HF FOODS GROUP INC. 286,705 286,661 Noncontrolling interests 1,457 1,322 TOTAL SHAREHOLDERS’ EQUITY 288,162 287,983 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$603,065 $596,520 HF FOODS GROUP INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except share and per share data)(Unaudited) Three Months EndedMarch 31, 2024 2023 Net revenue$295,654 $293,855 Cost of revenue 245,243 243,683 Gross profit 50,411 50,172 Distribution, selling and administrative expenses 50,496 52,929 Loss from operations (85) (2,757) Other (income) expenses: Interest expense 2,834 2,868 Other income (94) (228)Change in fair value of interest rate swap contracts (1,970) 2,746 Lease guarantee income (115) (120)Total Other expenses, net 655 5,266 Loss before income taxes (740) (8,023) Income tax benefit (181) (2,226)Net loss (559) (5,797)Less: net loss attributable to noncontrolling interests 135 136 Net loss attributable to HF Foods Group Inc.$(694) $(5,933) Loss per common share - basic$(0.01) $(0.11)Loss per common share - diluted$(0.01) $(0.11) Weighted average shares - basic 52,155,968 53,822,794 Weighted average shares - diluted 52,155,968 53,822,794 HF FOODS GROUP INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)(Unaudited) Three Months Ended March 31, 2024 2023 Cash flows from operating activities: Net loss$(559) $(5,797)Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization expense 6,676 6,689 Provision for credit losses (40) 57 Deferred tax benefit (471) (1,324)Change in fair value of interest rate swap contracts (1,970) 2,746 Stock-based compensation 738 1,096 Non-cash lease expense 935 965 Lease guarantee income (115) (120)Other expense (income) 39 93 Changes in operating assets and liabilities: Accounts receivable (2,141) 1,034 Accounts receivable - related parties 13 (416)Inventories (2,290) 9,822 Prepaid expenses and other current assets 782 1,238 Other long-term assets 368 (829)Accounts payable 6,074 2,327 Accounts payable - related parties (254) (776)Operating lease liabilities (897) (961)Accrued expenses and other liabilities 167 (3,274)Net cash provided by operating activities 7,055 12,570 Cash flows from investing activities: Purchase of property and equipment (2,585) (629)Net cash used in investing activities (2,585) (629)Cash flows from financing activities: Checks issued not presented for payment 4,169 (7,852)Proceeds from line of credit 345,697 298,195 Repayment of line of credit (349,082) (306,808)Repayment of long-term debt (1,414) (1,642)Repayment of obligations under finance leases (857) (646)Net cash used in financing activities (1,487) (18,753)Net increase (decrease) in cash 2,983 (6,812)Cash at beginning of the period 15,232 24,289 Cash at end of the period$18,215 $17,477 HF FOODS GROUP INC. AND SUBSIDIARIESRECONCILIATION OF NET LOSS TO EBITDA AND ADJUSTED EBITDA(In thousands)(Unaudited) Three Months EndedMarch 31, 2024 2023 ChangeNet loss $(559) $(5,797) $5,238 Interest expense 2,834 2,868 (34)Income tax benefit (181) (2,226) 2,045 Depreciation and amortization 6,676 6,689 (13)EBITDA 8,770 1,534 7,236 Lease guarantee income (115) (120) 5 Change in fair value of interest rate swaps (1,970) 2,746 (4,716)Stock-based compensation expense 738 1,096 (358)Business transformation costs (1) 973 44 929 Other non-routine expense (2) 306 449 (143)Adjusted EBITDA $8,702 $5,749 $2,953 (1) Represents non-recurring expenses associated with the launch of strategic projects including supply chain strategy improvements and technology infrastructure initiatives.(2) Includes contested proxy and related legal and consulting costs and facility closure costs. HF FOODS GROUP INC. AND SUBSIDIARIESRECONCILIATION OF NET LOSS ATTRIBUTABLE TO HF FOODS GROUP INC.TO NON-GAAP NET INCOME ATTRIBUTABLE TO HF FOODS GROUP INC.(In thousands)(Unaudited) Three Months EndedMarch 31, 2024 2023 ChangeNet loss attributable to HF Foods Group Inc. $(694) $(5,933) $5,239 Amortization of intangibles 4,070 4,071 (1)Lease guarantee income (115) (120) 5 Change in fair value of interest rate swaps (1,970) 2,746 (4,716)Stock-based compensation expense 738 1,096 (358)Business transformation costs (1) 973 44 929 Other non-routine expense (2) 306 449 (143)Aggregate adjustment for income taxes (980) (2,312) 1,332 Non-GAAP net income attributable to HF Foods Group Inc. $2,328 $41 $2,287 (1) Represents non-recurring expenses associated with the launch of strategic projects including supply chain strategy improvements and technology infrastructure initiatives.(2) Includes contested proxy and related legal and consulting costs and facility closure costs.
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