Pre-Recorded Earnings Call Webcast Available on Investor Relations Website
Announces Comprehensive, Operational Transformation Plan to Drive Growth and Cost Savings
Third Quarter 2023 Financial Results
- Net revenue decreased 6.4% to
$281.5 million compared to$300.7 million in the prior year. - Gross profit decreased 1.1% to
$50.9 million , or 18.1% gross profit margin compared to$51.5 million , or 17.1% gross profit margin in the prior year. - Net income (loss) increased to net income of
$2.0 million compared to net loss of$3.9 million in the prior year. - Adjusted EBITDA increased 151.0% to
$10.0 million compared to$4.0 million in the prior year.
Nine Months 2023 Financial Results
- Net revenue decreased 1.2% to
$867.6 million compared to$878.6 million in the prior year. - Gross profit decreased 2.0% to
$151.8 million , or 17.5% gross profit margin compared to$154.8 million , or 17.6% gross profit margin in the prior year. - Net (loss) income decreased to a net loss of
$5.4 million compared to net income of$3.7 million in the prior year. - Adjusted EBITDA decreased 32.9% to
$24.0 million compared to$35.8 million in the prior year.
Management Commentary
“In the third quarter we made significant progress in enhancing our profitability, as our investments in people and processes began to bear fruit. Building on that momentum, we are very pleased to announce our comprehensive operational transformation plan, which began earlier this year, that we believe will have a significant, positive impact on both our growth and profitability for years to come,” said
Revenue by Product Category
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
($ in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Seafood | $ | 87,475 | 31 | % | $ | 94,077 | 32 | % | $ | 271,748 | 32 | % | $ | 262,280 | 30 | % | ||||||||
Asian Specialty | 74,384 | 26 | % | 73,380 | 24 | % | 228,545 | 26 | % | 223,393 | 25 | % | ||||||||||||
Meat and Poultry | 54,787 | 19 | % | 63,647 | 21 | % | 162,848 | 19 | % | 187,671 | 22 | % | ||||||||||||
29,578 | 11 | % | 31,260 | 10 | % | 93,425 | 11 | % | 92,215 | 10 | % | |||||||||||||
Packaging and Other | 17,342 | 6 | % | 20,867 | 7 | % | 54,775 | 6 | % | 64,176 | 7 | % | ||||||||||||
Commodity | 17,887 | 7 | % | 17,480 | 6 | % | 56,279 | 6 | % | 48,833 | 6 | % | ||||||||||||
Total | $ | 281,453 | 100 | % | $ | 300,711 | 100 | % | $ | 867,620 | 100 | % | $ | 878,568 | 100 | % |
Third Quarter 2023 Results
Net revenue was
Gross profit was
Distribution, selling and administrative expenses decreased by
Net income (loss) increased to net income of
Adjusted EBITDA increased 151.0% to
Nine Months 2023 Results
Net revenue was
Gross profit was
Distribution, selling and administrative expenses increased by
Net (loss) income decreased to a net loss of
Adjusted EBITDA decreased 32.9% to
Cash Flow and Liquidity
Cash flow from operating activities increased to
Transformation Plan
To position the business for long-term success,
- Centralized Purchasing: The Company will formalize its national category purchases and welcome new vendors into its ecosystem. This will allow the Company to unlock synergies from its prior acquisitions, and deliver savings in its largest categories.
- Fleet and Transportation:
HF Foods will be establishing a national fleet maintenance program. Within this, the Company plans to define new truck specifications, initiate a replacement program for 50% of the current fleet, implement a national fuel savings program to maximize efficiency, and outsource domestic inbound freight logistics to a third-party partner to adopt a cohesive national approach to its supply chain. This is expected to deliver substantial improvements to the Company’s transportation system. - Digital Transformation:
HF Foods will be implementing a modern ERP solution across all of its distribution centers. This is expected to deliver enhanced operational efficiency and responsiveness, streamlined processes, and greater data driven decision-making. - Facility Upgrades: The Company will be reorganizing and upgrading its facilities and distribution centers to efficiently streamline costs, and to capitalize on cross-selling opportunities with both new and existing customers.
Earnings Conference Call and Webcast
A pre-recorded conference 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
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
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
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
CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) | |||||||
ASSETS | |||||||
CURRENT ASSETS: | |||||||
Cash | $ | 14,300 | $ | 24,289 | |||
Accounts receivable, net | 43,461 | 44,399 | |||||
Inventories | 115,942 | 120,291 | |||||
Other current assets | 23,611 | 8,937 | |||||
TOTAL CURRENT ASSETS | 197,314 | 197,916 | |||||
Property and equipment, net | 135,350 | 140,330 | |||||
Operating lease right-of-use assets | 12,520 | 14,164 | |||||
Long-term investments | 2,401 | 2,679 | |||||
Customer relationships, net | 149,823 | 157,748 | |||||
Trademarks and other intangibles, net | 32,055 | 36,343 | |||||
85,118 | 85,118 | ||||||
Other long-term assets | 8,203 | 3,231 | |||||
TOTAL ASSETS | $ | 622,784 | $ | 637,529 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
CURRENT LIABILITIES: | |||||||
Checks issued not presented for payment | $ | 6,888 | $ | 21,946 | |||
Line of credit | 47,648 | 53,056 | |||||
Accounts payable | 78,623 | 57,044 | |||||
Current portion of long-term debt, net | 5,868 | 6,266 | |||||
Current portion of obligations under finance leases | 1,832 | 2,254 | |||||
Current portion of obligations under operating leases | 3,609 | 3,676 | |||||
Accrued expenses and other liabilities | 17,157 | 19,648 | |||||
TOTAL CURRENT LIABILITIES | 161,625 | 163,890 | |||||
Long-term debt, net of current portion | 111,220 | 115,443 | |||||
Obligations under finance leases, non-current | 11,174 | 11,441 | |||||
Obligations under operating leases, non-current | 9,171 | 10,591 | |||||
Deferred tax liabilities | 31,976 | 34,443 | |||||
Other long-term liabilities | 5,262 | 5,472 | |||||
TOTAL LIABILITIES | 330,428 | 341,280 | |||||
Commitments and contingencies | |||||||
SHAREHOLDERS’ EQUITY: | |||||||
Preferred Stock | — | — | |||||
Common Stock | 5 | 5 | |||||
Additional paid-in capital | 600,696 | 598,322 | |||||
Accumulated deficit | (311,413 | ) | (306,514 | ) | |||
TOTAL SHAREHOLDERS’ EQUITY ATTRIBUTABLE TO HF FOODS GROUP INC. | 289,288 | 291,813 | |||||
Noncontrolling interests | 3,068 | 4,436 | |||||
TOTAL SHAREHOLDERS’ EQUITY | 292,356 | 296,249 | |||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 622,784 | $ | 637,529 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data) (Unaudited) | |||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||
Net revenue | $ | 281,453 | $ | 300,711 | $ | 867,620 | $ | 878,568 | |||||||
Cost of revenue | 230,528 | 249,218 | 715,857 | 723,778 | |||||||||||
Gross profit | 50,925 | 51,493 | 151,763 | 154,790 | |||||||||||
Distribution, selling and administrative expenses | 48,841 | 54,589 | 154,013 | 140,840 | |||||||||||
Income (loss) from operations | 2,084 | (3,096 | ) | (2,250 | ) | 13,950 | |||||||||
Other (income) expenses: | |||||||||||||||
Interest expense | 2,715 | 2,274 | 8,430 | 5,101 | |||||||||||
Other income | (490 | ) | (462 | ) | (845 | ) | (1,401 | ) | |||||||
Change in fair value of interest rate swap contracts | (1,984 | ) | (284 | ) | (2,094 | ) | (850 | ) | |||||||
Lease guarantee expense | (95 | ) | (58 | ) | (305 | ) | 5,831 | ||||||||
Total Other expenses, net | 146 | 1,470 | 5,186 | 8,681 | |||||||||||
Income (loss) before income taxes | 1,938 | (4,566 | ) | (7,436 | ) | 5,269 | |||||||||
Income tax (benefit) expense | (36 | ) | (672 | ) | (2,053 | ) | 1,529 | ||||||||
Net income (loss) | 1,974 | (3,894 | ) | (5,383 | ) | 3,740 | |||||||||
Less: net income (loss) attributable to noncontrolling interests | 90 | (30 | ) | (484 | ) | (74 | ) | ||||||||
Net income (loss) attributable to | $ | 1,884 | $ | (3,864 | ) | $ | (4,899 | ) | $ | 3,814 | |||||
Earnings (loss) per common share - basic | $ | 0.03 | $ | (0.07 | ) | $ | (0.09 | ) | $ | 0.07 | |||||
Earnings (loss) per common share - diluted | $ | 0.03 | $ | (0.07 | ) | $ | (0.09 | ) | $ | 0.07 | |||||
Weighted average shares - basic | 54,142,396 | 53,798,131 | 54,005,010 | 53,716,464 | |||||||||||
Weighted average shares - diluted | 54,513,314 | 53,798,131 | 54,005,010 | 53,981,687 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands), (Unaudited) | |||||||
Nine Months Ended | |||||||
2023 | 2022 | ||||||
Cash flows from operating activities: | |||||||
Net (loss) income | $ | (5,383 | ) | $ | 3,740 | ||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |||||||
Depreciation and amortization expense | 19,551 | 18,245 | |||||
Asset impairment charges | 1,200 | 422 | |||||
Gain from disposal of property and equipment | (278 | ) | (1,327 | ) | |||
Provision for credit losses | 56 | 226 | |||||
Deferred tax benefit | (2,467 | ) | (3,391 | ) | |||
Change in fair value of interest rate swap contracts | (2,094 | ) | (849 | ) | |||
Stock-based compensation | 2,605 | 673 | |||||
Non-cash lease expense | 2,668 | 2,562 | |||||
Lease guarantee expense | (305 | ) | 5,831 | ||||
Other expense (income) | 446 | 54 | |||||
Changes in operating assets and liabilities (excluding effects of acquisitions): | |||||||
Accounts receivable | 997 | (8,221 | ) | ||||
Accounts receivable - related parties | (115 | ) | (178 | ) | |||
Inventories | 4,349 | (15,988 | ) | ||||
Prepaid expenses and other current assets | (14,074 | ) | (3,769 | ) | |||
Other long-term assets | (2,878 | ) | (593 | ) | |||
Accounts payable | 22,618 | 8,953 | |||||
Accounts payable - related parties | (1,039 | ) | (443 | ) | |||
Operating lease liabilities | (2,511 | ) | (2,530 | ) | |||
Accrued expenses and other liabilities | (2,722 | ) | 3,515 | ||||
Net cash provided by operating activities | 20,624 | 6,932 | |||||
Cash flows from investing activities: | |||||||
Purchase of property and equipment | (3,495 | ) | (5,745 | ) | |||
Proceeds from sale of property and equipment | 900 | 7,805 | |||||
Payment made for acquisition of Sealand | — | (34,849 | ) | ||||
Payment made for acquisition of | — | (17,445 | ) | ||||
Net cash used in investing activities | (2,595 | ) | (50,234 | ) | |||
Cash flows from financing activities: | |||||||
Checks issued not presented for payment | (15,058 | ) | 682 | ||||
Proceeds from line of credit | 891,510 | 938,251 | |||||
Repayment of line of credit | (896,959 | ) | (922,080 | ) | |||
Proceeds from long-term debt | — | 45,956 | |||||
Repayment of long-term debt | (4,653 | ) | (9,614 | ) | |||
Payment of debt financing costs | — | (556 | ) | ||||
Repayment of obligations under finance leases | (1,974 | ) | (1,876 | ) | |||
Repayment of promissory note payable - related party | — | (4,500 | ) | ||||
Proceeds from noncontrolling interests shareholders | — | 240 | |||||
Cash distribution to shareholders | (884 | ) | (187 | ) | |||
Net cash (used in) provided by financing activities | (28,018 | ) | 46,316 | ||||
Net (decrease) increase in cash | (9,989 | ) | 3,014 | ||||
Cash at beginning of the period | 24,289 | 14,792 | |||||
Cash at end of the period | $ | 14,300 | $ | 17,806 |
RECONCILIATION OF NET (LOSS) INCOME TO EBITDA AND ADJUSTED EBITDA (In thousands) (Unaudited) | ||||||||||||||
Three Months Ended | Change | |||||||||||||
2023 | 2022 | Amount | % | |||||||||||
Net income (loss) | $ | 1,974 | $ | (3,894 | ) | $ | 5,868 | NM | ||||||
Interest expense | 2,715 | 2,274 | 441 | 19.4% | ||||||||||
Income tax expense | (36 | ) | (672 | ) | 636 | (94.6)% | ||||||||
Depreciation and amortization | 6,422 | 6,386 | 36 | 0.6% | ||||||||||
EBITDA | 11,075 | 4,094 | 6,981 | 170.5% | ||||||||||
Lease guarantee expense | (95 | ) | (58 | ) | (37 | ) | 63.8% | |||||||
Change in fair value of interest rate swaps | (1,984 | ) | (284 | ) | (1,700 | ) | NM | |||||||
Stock-based compensation expense | 757 | 162 | 595 | NM | ||||||||||
Business transformation costs(1) | 105 | — | 105 | NM | ||||||||||
Acquisition, integration and other costs (2) | 146 | 71 | 75 | 105.6% | ||||||||||
Adjusted EBITDA | $ | 10,004 | $ | 3,985 | $ | 6,019 | 151.0% |
Nine Months Ended | Change | ||||||||||||
2023 | 2022 | Amount | % | ||||||||||
Net (loss) income | $ | (5,383 | ) | $ | 3,740 | $ | (9,123 | ) | NM | ||||
Interest expense | 8,430 | 5,101 | 3,329 | 65.3% | |||||||||
Income tax (benefit) expense | (2,053 | ) | 1,529 | (3,582 | ) | NM | |||||||
Depreciation and amortization | 19,551 | 18,245 | 1,306 | 7.2% | |||||||||
EBITDA | 20,545 | 28,615 | (8,070 | ) | (28.2)% | ||||||||
Lease guarantee expense | (305 | ) | 5,831 | (6,136 | ) | NM | |||||||
Change in fair value of interest rate swaps | (2,094 | ) | (849 | ) | (1,245 | ) | 146.6% | ||||||
Stock-based compensation expense | 2,605 | 673 | 1,932 | NM | |||||||||
Business transformation costs (1) | 223 | — | 223 | NM | |||||||||
Acquisition, integration and other costs (2) | 1,850 | 1,130 | 720 | 63.7% | |||||||||
Asset impairment charges | 1,200 | 422 | 778 | 184.4% | |||||||||
Adjusted EBITDA | $ | 24,024 | $ | 35,822 | $ | (11,798 | ) | (32.9)% |
____________
NM - Not meaningful | |
(1) | Represents non-recurring expenses prior to the launch of strategic projects including supply chain strategy improvements and technology infrastructure initiatives. |
(2) | Includes contested proxy and related legal and consulting costs for the nine months ended |
RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO HF FOODS GROUP INC. TO NON-GAAP NET INCOME ATTRIBUTABLE TO HF FOODS GROUP INC. (In thousands) (Unaudited) | ||||||||||||||
Three Months Ended | Change | |||||||||||||
2023 | 2022 | Amount | % | |||||||||||
Net income (loss) attributable to | $ | 1,884 | $ | (3,864 | ) | $ | 5,748 | NM | ||||||
Amortization of intangibles | 4,071 | 4,071 | — | NM | ||||||||||
Lease guarantee income | (95 | ) | (58 | ) | (37 | ) | 63.8% | |||||||
Change in fair value of interest rate swaps | (1,984 | ) | (284 | ) | (1,700 | ) | NM | |||||||
Stock-based compensation expense | 757 | 162 | 595 | NM | ||||||||||
Business transformation costs (1) | 105 | — | 105 | NM | ||||||||||
Acquisition, integration and other costs (2) | 146 | 71 | 75 | 105.6% | ||||||||||
Aggregate adjustment for income taxes | 137 | (582 | ) | 719 | NM | |||||||||
Non-GAAP net income (loss) attributable to | $ | 5,021 | $ | (484 | ) | $ | 5,505 | NM |
Nine Months Ended | Change | |||||||||||||
2023 | 2022 | Amount | % | |||||||||||
Net (loss) income attributable to | $ | (4,899 | ) | $ | 3,814 | $ | (8,713 | ) | NM | |||||
Amortization of intangibles | 12,213 | 11,673 | 540 | 4.6% | ||||||||||
Lease guarantee (income) expense | (305 | ) | 5,831 | (6,136 | ) | NM | ||||||||
Change in fair value of interest rate swaps | (2,094 | ) | (849 | ) | (1,245 | ) | NM | |||||||
Stock-based compensation expense | 2,605 | 673 | 1,932 | NM | ||||||||||
Business transformation costs (1) | 223 | — | 223 | NM | ||||||||||
Acquisition, integration costs and other (2) | 1,850 | 1,130 | 720 | 63.7% | ||||||||||
Asset impairment charges | 1,200 | 422 | 778 | 184.4% | ||||||||||
Aggregate adjustment for income taxes | (4,704 | ) | (5,475 | ) | 771 | (14.1)% | ||||||||
Non-GAAP net income attributable to | $ | 6,089 | $ | 17,219 | $ | (11,130 | ) | (64.6)% |
____________
NM - Not meaningful | |
(1) | Represents non-recurring expenses prior to the launch of strategic projects including supply chain strategy improvements and technology infrastructure initiatives. |
(2) | Includes contested proxy and related legal and consulting costs for the nine months ended |
Source:
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