HF Foods Returns to Profitability with Net Income Attributable to the Company of $1.5 Million and a 104% Increase in Adjusted EBITDA to $8.9 Million
CITY OF INDUSTRY, Calif., May 10, 2021 (GLOBE NEWSWIRE) -- HF Foods Group Inc. (NASDAQ: HFFG), a leading food distributor to Asian restaurants across the Southeast, Pacific and Mountain West regions of the United States, reported strong financial results for the first quarter ended March 31, 2021, highlighted by a return to profitability one year after the outbreak of the COVID-19 pandemic in the U.S.
First Quarter 2021 Financial Summary
Net revenue was $159.4 million, compared to $175.8 million in the first quarter of 2020.
Gross profit increased to $29.4 million, or 18.5% of total revenue, from $29.0 million, or 16.5% of total revenue in the first quarter of 2020.
Net income attributable to the Company was $1.5 million, or $0.03 per diluted share, compared to net loss of $339.9 million, or $(6.52) per diluted share, in the first quarter of 2020.
Adjusted EBITDA increased 104% to $8.9 million from $4.3 million in the first quarter of 2020.
“One year after the COVID-19 pandemic completely upended the daily operations of the food service industry, we find ourselves sustainably operating with a robust core customer base and well positioned to return to our growth path thanks to the decisive actions we took last year and improving market conditions,” said Peter Zhang, CEO of HF Foods. “With sales volumes recovering month-to-month and at approximately 90% of pre-COVID-19 levels in March of 2021, we increased our gross profit to $29.4 million, generated positive net income of $1.5 million, and increased adjusted EBITDA 104% year-over-year, as well as 48% sequentially from the fourth quarter of 2020, to $8.9 million. These improvements are particularly encouraging considering that the pandemic had only materially impacted the very last month of the first quarter of last year.
“Within our primary markets, a return to normalcy appears to be on the horizon for our customers and their clientele. Our improving financial position coupled with our unique competitive advantages, including our extensive footprint, strong vendor and customer relationships, value-added service offerings, and position as a market leader in a fragmented Asian foodservice industry, give us confidence that we are well positioned to continue building on the first quarter’s positive results throughout the rest of the year.”
Liquidity & Sales Volumes
As of March 31, 2021, HF Foods had $11.3 million in cash and access to approximately $83.4 million in additional funds through its $100 million line of credit, subject to a borrowing base calculation. The strategic cost management actions undertaken in late March and April 2020 resulted in an overall increase of the available line of credit, enabled the Company to confidently navigate through an unconventional operating environment, and positioned the company to expand operating margins as the impacts of COVID-19 on the food services industry diminish.
Beginning in April 2020, the Company began to experience a steady recovery of business volume as fear among customers began to subside and pent-up demand for restaurant dining began to build. In the second half of 2020, weekly sales recovered to approximately 70% of pre-COVID-19 levels. As of March 31, 2021, sales have recovered to approximately 90% of pre-COVID-19 levels. With current sales volumes and its adjusted cost structure, the Company is generating healthy operating cash flows on a weekly basis and does not have immediate liquidity concerns, especially if sales volumes continue to remain stable or further improve.
First Quarter 2021 Results
Revenue for the first quarter of 2021 decreased to $159.4 million compared to $175.8 million in the first quarter of 2020, due to a decline in sales to independent restaurants as many experienced forced closures or conversion to a take-out only model in March 2020 in response to the COVID-19 pandemic.
Gross profit increased to $29.4 million (18.5% of total revenue) from $29.0 million (16.5% of total revenue) in the first quarter of 2020. The improvement in gross profit was primarily attributable to the Company’s ability to better manage its purchases as well as an improved customer mix as lower margin sales to buffet restaurants continue to be impacted by COVID-19.
Distribution, selling and administrative expenses in the first quarter of 2021 decreased 4% to $28.1 million from $29.4 million in the first quarter of 2020. The decrease was mainly attributed to a $4.4 million overall reduction in distribution, selling, and administrative costs, which were partially offset by a $3.1 million increase in non-recurring legal expense.
As a result, net income attributable to the Company improved to $1.5 million, or $0.03 per diluted share, compared to net loss of $339.9 million, or $(6.52) per diluted share, in the first quarter of 2020. During the first quarter of fiscal 2020, as a result of significant declines in its business due to the COVID-19 pandemic, HF Foods reassessed the fair value of the B&R reporting unit using the discounted cash flow method. Based on this analysis, the Company determined that $338.2 million should be recorded as a goodwill impairment charge during the first quarter of fiscal 2020. Excluding the one-off goodwill impairment charge, net income attributable to the Company increased from a net loss attributable to the Company for the first quarter of 2020 of $1.7 million, or $(0.03) per diluted share.
Adjusted EBITDA for the first quarter of 2021 increased 104% to $8.9 million from $4.3 million in the first quarter of 2020. The improvement in adjusted EBITDA was primarily due to improvements in net income, excluding the goodwill impairment charged discussed above, as well as an add back of non-recurring legal expenses.
About HF Foods Group Inc.
HF Foods Group Inc., headquartered in City of Industry, California, 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 Southeast, Pacific and Mountain West regions of the United States. With 14 distribution centers along the U.S. eastern and western seaboards, HF Foods aims to supply the increasing demand for Asian American restaurant cuisine. With an in-house proprietary ordering and inventory control network, more than 10,000 established customers in 21 states, and strong relations with growers and suppliers of food products in the US and China, HF Foods Group is able to offer fresh, high-quality specialty restaurant foods and supplies at economical prices to its large and growing base of customers. For more information, please visit hffoodsgroup.com.
Non-GAAP Financial Measures
Adjusted EBITDA: The Company believes that adjusted EBITDA is a useful performance measure and can be used to facilitate a comparison of the Company’s operating performance on a consistent basis from period to period and to provide for a more complete understanding of factors and trends affecting the business than GAAP measures alone can provide. Management believes that adjusted EBITDA is less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that directly affect our operating performance. Management believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the Company’s financial performance with that of other companies in the same industry, many of which present similar non-GAAP financial measures to investors. The Company presents adjusted EBITDA in order to provide supplemental information that the Company considers 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.
The following table sets forth of the calculation of adjusted EBITDA and reconciliation to net income (loss), the closest U.S. GAAP measure:
For the Three months ended March 31,
Net income (loss)
Income tax provision (benefit)
Depreciation & Amortization
Goodwill impairment loss
Change in fair value of interest rate swap contracts
COVID-19 bad debt reserve recovery
Percentage of revenue
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 “anticipates,” “believes,” “could,” “expects,” “intends,” “may,” “should” 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, unfavorable macroeconomic conditions in the United States, competition in the food service distribution industry, particularly the entry of new competitors into the Chinese/Asian restaurant market niche, increases in fuel costs or commodity prices, disruption of relationships with vendors and increases in product prices, U.S. government tariffs on products imported into the United States, particularly from China, changes in consumer eating and dining out habits, disruption of relationships with or loss of customers, our ability to execute our acquisition strategy, availability of financing to execute our acquisition strategy, control of the Company by our Chief Executive Officer and principal stockholder, failure to retain our senior management and other key personnel, our ability to attract, train and retain employees, changes in and enforcement of immigration laws, failure to comply with various federal, state and local rules and regulations regarding food safety, sanitation, transportation, minimum wage, overtime and other health and safety laws, product recalls, voluntary recalls or withdrawals if any of the products we distribute are alleged to have caused illness, been mislabeled, misbranded or adulterated or to otherwise have violated applicable government regulations, failure to protect our intellectual property rights, any cyber security incident, other technology disruption, or delay in implementing our information technology systems, statements of assumption underlying any of the foregoing, the continuing impact of the Covid-19 pandemic, and other factors disclosed under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 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.
Investor Relations Contact:
Gateway Investor Relations
HF Foods Group Inc. and Subsidiaries
Accounts receivable, net
Accounts receivable - related parties, net
Advances to suppliers - related parties, net
Other current assets
TOTAL CURRENT ASSETS
Property and equipment, net
Operating lease right-of-use assets
Intangible assets, net
Deferred tax assets
Other long-term assets
Line of credit
Accounts payable - related parties
Current portion of long-term debt, net
Current portion of obligations under finance leases
Current portion of obligations under operating leases
Accrued expenses and other liabilities
Obligations under interest rate swap contracts
TOTAL CURRENT LIABILITIES
Long-term debt, net
Promissory note payable - related party
Obligations under finance leases, non-current
Obligations under operating leases, non-current
Deferred tax liabilities
Preferred Stock, $0.0001 par value, 1,000,000 shares authorized, no shares issued and outstanding as of March 31,
Common Stock, $0.0001 par value, 100,000,000 shares authorized, 51,913,411 shares issued, and 51,913,411
Additional paid-in capital
TOTAL SHAREHOLDER'S EQUITY ATTRIBUTABLE TO HF FOODS GROUP INC.
TOTAL SHAREHOLDERS’ EQUITY
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
HF Foods Group Inc. and Subsidiaries
For the three months ended March 31
Net revenue - third parties
Net revenue - related parties
TOTAL NET REVENUE
Cost of revenue - third parties
Cost of revenue - related parties
TOTAL COST OF REVENUE
DISTRIBUTION, SELLING AND ADMINISTRATIVE EXPENSES
INCOME (LOSS) FROM OPERATIONS
Other Income (Expenses)
Goodwill impairment loss
Change in fair value of interest rate swap contracts
Total Other Income (Expenses), net
INCOME (LOSS) BEFORE INCOME TAX PROVISION (BENEFIT)
PROVISION (BENEFIT) FOR INCOME TAXES
NET INCOME (LOSS)
Less: net income attributable to noncontrolling interests
NET INCOME (LOSS) ATTRIBUTABLE TO HF FOODS GROUP INC.
Earnings (loss) per common share - basic and diluted
Weighted average shares - basic and diluted