HF Foods Reports Second Quarter 2023 Financial Results

First Half Record Net Revenue

Focus is to Reduce Cost Structure and Transform Operations

LAS VEGAS, Aug. 09, 2023 (GLOBE NEWSWIRE) -- HF Foods Group Inc. (NASDAQ: HFFG), a leading food distributor to Asian restaurants across the United States (“HF Foods”, “HF Group” or the “Company”), reported financial results for the second quarter and six months ended June 30, 2023.

Second Quarter 2023 Financial Results

• Net revenue decreased 2.4% to $292.3 million compared to $299.6 million in the prior year.
• Gross profit decreased 3.6% to $50.7 million, or 17.3% gross profit margin compared to $52.6 million, or 17.5% gross profit margin in the prior year.
• Net (loss) income decreased to a net loss of $1.6 million compared to net income of $4.5 million in the prior year.
• Adjusted EBITDA decreased 50.1% to $6.9 million compared to $13.9 million in the prior year.

Six Months 2023 Financial Results

• Net revenue increased 1.4% to $586.2 million compared to $577.9 million in the prior year.
• Gross profit decreased 2.4% to $100.8 million, or 17.2% gross profit margin compared to $103.3 million, or 17.9% gross profit margin in the prior year.
• Net (loss) income decreased to a net loss of $7.4 million compared to net income of $7.6 million in the prior year.
• Adjusted EBITDA decreased 61.7% to $12.2 million compared to $31.8 million in the prior year.

Management Commentary

“As the only scaled, nationwide operator serving the Asian Foodservice market, we believe we have a strong value proposition for independent restaurant owners. Understanding their language and cultural background is important for creating a partnership with our customers, and we are uniquely differentiated because of the personalized experience we provide and the long-term relationships we develop with our customers,” said Peter Zhang, Chief Executive Officer of HF Foods. “Our team is focusing on reducing our cost structure and transforming our operations, and we believe the sizable legal and compliance fees that we have incurred for the past two years are largely behind us. These measures will have a significant impact as we work to drive profitability and growth as we continue on our mission of helping Asian restaurant owners in the U.S. achieve their business goals by offering the varied assortment of Asian specialty ingredients that our customers need.”

Revenue by Product Category

Second Quarter 2023 Results

Net revenue was $292.3 million for the second quarter of 2023 compared to $299.6 million in the prior year period, a decrease of $7.3 million, or 2.4%. This decrease was primarily attributable to a $7.0 million decrease in Meat and Poultry revenue compared to the same period in 2022 driven by deflationary pricing in poultry.

Gross profit was $50.7 million for the second quarter of 2023 compared to $52.6 million in the prior year period, a decrease of $1.9 million, or 3.6%. The decrease was primarily attributable to a decrease in Meat and Poultry revenue. Gross profit margin for the second quarter of 2023 decreased to 17.3% from 17.5% in the prior year period. The decrease was primarily attributable to the deflationary pressure in Meat and Poultry partially offset by improved Seafood margins.

Distribution, selling and administrative expenses increased by $6.4 million, or 14.0%, primarily due to an increase of $1.8 million in payroll and related labor costs and higher professional fees, which increased by $1.3 million to $8.1 million in the second quarter of 2023, compared to $6.8 million in the prior year period. In addition, the Company recognized an asset impairment of $1.2 million related to our exit of HF Foods Industrial, LLC (“HFFI”). Distribution, selling and administrative expenses as a percentage of net revenue increased to 17.9% in 2023 from 15.3% in 2022 primarily due to higher professional fees and increased headcount.

Net (loss) income decreased to a net loss of $1.6 million for the second quarter of 2023 compared to net income of $4.5 million for the second quarter of 2022. The decrease was primarily attributable to the increased distribution, selling and administrative costs and lower gross profit, as well as a $1.3 million increase in interest expense, partially offset by the $2.6 million change in the fair value of interest rate swaps.

Six Months 2023 Results

Net revenue was $586.2 million for the first half of 2023 compared to $577.9 million in the prior year period, an increase of $8.3 million, or 1.4%. This increase was attributable to the additional Seafood revenue generated due to the Sealand Food, Inc. acquisition (the “Sealand Acquisition”) and product cost inflation, partially offset by a $16.0 million decrease in Meat and Poultry revenue compared to the same period in 2022 driven by deflationary pricing in poultry.

Gross profit was $100.8 million for the first half of 2023 compared to $103.3 million in the prior year period, a decrease of $2.5 million, or 2.4%. The decrease was primarily attributable to a decrease in Meat and Poultry revenue, partially offset by the additional Seafood revenue generated due to the Sealand Acquisition. Gross profit margin for the first half of 2023 decreased to 17.2% from 17.9% in the prior year period. The decrease was primarily attributable to the shift in product mix to higher Seafood sales and the deflationary pressure in Meat and Poultry.

Distribution, selling and administrative expenses for the first half of 2023 increased by $18.9 million, or 21.9%, primarily due to an increase of $4.6 million in payroll and related labor costs, inclusive of the additional costs due to the Sealand Acquisition. Professional fees increased $5.5 million to $15.2 million for the first half of 2023, from $9.7 million in the prior year period. In addition, the Company recognized asset impairment of $1.2 million related to the exit of HFFI. Distribution, selling and administrative expenses as a percentage of net revenue increased to 17.9% in the first half of 2023 from 14.9% in the prior year period, primarily due to higher professional fees and increased headcount.

Net (loss) income decreased to a net loss of $7.4 million for the first half of 2023 compared to net income of $7.6 million for the first half of 2022. The decrease was primarily attributable to the increased distribution, selling and administrative costs and lower gross profit, as well as a $2.9 million increase in interest expense.

Cash Flow

Cash flow from operating activities decreased to $8.7 million for the first half of 2023, compared to $13.7 million in the prior year period. The decrease in cash flow from operating activities was largely driven by the net loss for the first half of 2023 and the timing of working capital outlays. As of June 30, 2023, the Company had a cash balance of $14.9 million.

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/Chinese 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

hffoodsgroup@icrinc.com

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 “believes,” “intends,” 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, statements of assumption underlying any of the foregoing, and other factors disclosed under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 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), 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) 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) 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) is a useful measure of operating performance because it excludes certain items not reflective of our core operating performance. Non-GAAP net income (loss) is defined as net income (loss) 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) 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) 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.

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