HF Foods Reports Record Third Quarter 2021 Financial Results

Rhea-AI Summary

HF Foods Group (NASDAQ: HFFG) reported a robust financial performance for Q3 2021, with net revenue surging 54% to $215.5 million from $139.9 million in Q3 2020. The company achieved a 191% increase in Adjusted EBITDA to $17.4 million and net income of $7.9 million, compared to a net loss in the same quarter last year. Gross profit also rose 66.6% to $41.9 million, driven by strong market recovery and effective cost management. Despite potential government restrictions, management remains optimistic about sustained sales momentum.

Positive

• Net revenue increased 54% to $215.5 million.
• Net income rose to $7.9 million from a loss of $0.6 million.
• Adjusted EBITDA surged 191% to $17.4 million.
• Gross profit increased 66.6% to $41.9 million.
• Strong sales momentum expected to continue despite government restrictions.

Negative

• Distribution, selling and administrative expenses grew, rising to $31 million.

Net Revenue up 54% to $215.5 Million With Net Income Attributable to the Company of $7.9 Million and a 191% Increase in Adjusted EBITDA to $17.4 Million

CITY OF INDUSTRY, Calif., Nov. 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 (the “Company” or “HF Foods”), reported record financial results for the third quarter ended September 30, 2021.  

Third Quarter 2021 Financial Summary

• Net revenue increased 54.0% to $215.5 million compared to $139.9 million in the third quarter of 2020.
• Gross profit increased 66.6% to $41.9 million, or 19.4% of net revenue, from $25.2 million, or 18.0% of net revenue, in the third quarter of 2020.
• Net income attributable to the Company increased significantly to $7.9 million, or $0.15 per diluted share, compared to a net loss of $0.6 million, or $(0.01) per diluted share, in the third quarter of 2020.
• Adjusted EBITDA increased 190.9% to $17.4 million compared to $6.0 million in the third quarter of 2020.

Management Commentary

“The strong momentum of our business in the first half of 2021 strengthened in the third quarter,” said Peter Zhang, CEO of HF Foods. “We had remarkable growth across most financial metrics both on a year-over-year and sequential basis due to improving market conditions, and we are reaping the benefits of the proactive actions we took last year to right-size our business during the pandemic. In fact, our net revenue in the third quarter has already surpassed pre-COVID levels to approximately 105% in the month of September and has continued to remain strong into the fourth quarter, and our adjusted EBITDA for the third quarter is more than double the comparable quarter in 2019.

“We remain optimistic about the long-term prospects of our business despite the setback in 2020. Although we will likely continue to face intermittent government restrictions on our restaurant customers' operations, we believe that our sales volume will maintain its strong momentum as consumers continue to adapt to living with COVID-19.”

Mr. Zhang concluded, “As the market leader in servicing the Asian/Chinese restaurant sector, we believe we are differentiated from our competitors given our extensive footprint, strong vendor and customer relationships, and value-added service offerings, all of which have allowed and will continue to allow us to better serve our customers in these unprecedented conditions. We believe the fragmented nature of the Asian/Chinese food service industry and the current environment create opportunities for a company like HF Foods, which possesses the necessary industry expertise and deep understanding of our unique customer base to further consolidate our market leadership position.”

Third Quarter 2021 Results

Revenue for the third quarter of 2021 increased 54.0% to $215.5 million compared to $139.9 million in the third quarter of 2020 due to a strong market recovery, particularly since the third quarter last year when the country was still at the height of pandemic-related business restrictions.

Gross profit in the third quarter of 2021 was $41.9 million (19.4% of net revenue), a 66.6% increase from $25.2 million (18.0% of net revenue) in the same year-ago quarter. The increase was due to the increase in revenue and better gross margin.

Distribution, selling and administrative (DSA) expenses in the third quarter of 2021 increased to $31.0 million from $25.1 million in the third quarter of 2020. The increase was primarily attributable to salary, wage and fuel cost increases which were necessary to match the increasing sales demand. However, the increase was well below the 54% revenue growth.

As a result, net income attributable to the company in the third quarter of 2021 improved significantly to $7.9 million, or $0.15 per diluted share, compared to a net loss of $0.6 million, or $(0.01) per diluted share, in the third quarter of 2020.

Adjusted EBITDA for the third quarter of 2021 increased 190.9% to $17.4 million compared to $6.0 million in the third quarter of 2020. The increase was due to the strong revenue growth, higher gross margin and prudent cost management.

Liquidity

As of September 30, 2021, HF Foods had $15.5 million in cash and access to over $77 million in additional funds through its $100 million line of credit, subject to a borrowing base calculation.

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 13 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:

	Three Months Ended September 30,										Changes
	2021					2020					Amount					%
Net income (loss)	$	8,209,112				$	(396,939		)		$	8,606,051				2,168.1	%
Interest expense	703,845					840,851					(137,006			)		16.3	%
Income tax provision (benefit)	2,637,444					(80,910			)		2,718,354					3,359.7	%
Depreciation & Amortization	4,249,496					4,474,892					(225,396			)		5.0	%
EBITDA	15,799,897					4,837,894					10,962,003					226.6	%
Unrealized change in fair value of interest rate swap contracts	(52,314			)		20,022					(72,336			)		361.3	%
COVID-19 bad debt reserve (recovery)	—					(750,945			)		750,945					100.0	%
Non-recurring expenses	1,628,098					1,866,415					(238,317			)		12.8	%
Adjusted EBITDA	$	17,375,681				$	5,973,386				$	11,402,295				190.9	%
Percentage of revenue	8.1		%			4.3		%			3.8		%			88.8	%

Quarterly Report

The Company is filing a notification of late filing of its Quarterly Report on Form 10-Q for the third quarter of 2021. The Quarterly Report will be filed within five days of its due date. The filing is delayed because the Company requires additional time to evaluate the status of its previously disclosed, independent investigation and to consider the related impact on the sufficiency of its disclosures. The Company anticipates that its Quarterly Report will present changes in the characterization of certain items shown in previous periodic filings that will result in both total assets and total liabilities on the Company’s balance sheet being reduced by slightly more than $6 million, but that otherwise no material changes in the Company’s statement of financial position, results of operation or cash flows are anticipated.

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 “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, 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, supply chain disruption, 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
Cody Slach
Tel 1-949-574-3860
HFFG@gatewayir.com

HF Foods Group Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)

	As of
		September 30, 2021				December 31, 2020
ASSETS
CURRENT ASSETS
Cash		$	15,543,177			$	9,580,853
Accounts receivable, net		34,103,832				24,857,322
Accounts receivable - related parties		954,230				1,261,463
Inventories, net		77,239,478				58,535,040
Advances to suppliers - related parties		—				196,803
Other current assets		2,640,233				4,614,164
TOTAL CURRENT ASSETS		130,480,950				99,045,645
Property and equipment, net		141,740,117				136,869,085
Operating lease right-of-use assets		2,551,286				931,630
Long-term investments		2,443,885				2,377,164
Intangible assets, net		167,629,925				175,797,650
Goodwill		68,511,941				68,511,941
Other long-term assets		1,145,167				694,490
TOTAL ASSETS		$	514,503,271			$	484,227,605
CURRENT LIABILITIES
Bank overdraft		$	19,422,811			$	14,839,747
Line of credit		23,020,114				18,279,062
Accounts payable		42,044,350				28,602,570
Accounts payable - related parties		2,499,872				1,572,427
Current portion of long-term debt, net		5,677,453				5,641,259
Current portion of obligations under finance leases		270,160				286,903
Current portion of obligations under operating leases		687,040				308,148
Accrued expenses and other liabilities		3,841,327				6,178,144
Obligations under interest rate swap contracts		341,165				993,516
TOTAL CURRENT LIABILITIES		97,804,292				76,701,776
Long-term debt, net of current portion		83,708,244				88,008,803
Promissory note payable - related party		5,000,000				7,000,000
Obligations under finance leases, non-current		8,448,619				766,885
Obligations under operating leases, non-current		2,010,664				623,482
Deferred tax liabilities		44,199,536				46,325,226
TOTAL LIABILITIES		241,171,355				219,426,172
SHAREHOLDERS’ EQUITY
Preferred Stock, $0.0001 par value, 1,000,000 shares authorized, no shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		—				—
Common Stock, $0.0001 par value, 100,000,000 shares authorized, 51,913,411 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		5,191				5,191
Additional paid-in capital		583,928,639				587,579,093
Accumulated deficit		(314,179,103		)		(327,150,398			)
TOTAL SHAREHOLDERS' EQUITY ATTRIBUTABLE TO HF FOODS GROUP INC.		269,754,727				260,433,886
Non-controlling interests		3,577,189				4,367,547
TOTAL SHAREHOLDERS’ EQUITY		273,331,916				264,801,433
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	514,503,271			$	484,227,605

HF Foods Group Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)

		For the Three Months Ended September 30,										For the Nine Months Ended  September 30,
		2021				2020						2021				2020
Net revenue - third parties		$	213,178,708			$	137,631,565					$	560,630,604			$	409,446,496
Net revenue - related parties		2,363,341				2,287,377						7,839,509				10,835,878
TOTAL NET REVENUE		215,542,049				139,918,942						568,470,113				420,282,374
Cost of revenue - third parties		171,431,310				112,535,923						453,990,363				335,202,455
Cost of revenue - related parties		2,198,771				2,220,161						8,003,887				10,329,232
TOTAL COST OF REVENUE		173,630,081				114,756,084						461,994,250				345,531,687
GROSS PROFIT		41,911,968				25,162,858						106,475,863				74,750,687
Distribution, selling and administrative expenses		30,972,019				25,050,419						89,003,273				79,549,580
Goodwill impairment loss		—				—						—				338,191,407
TOTAL OPERATING EXPENSES		30,972,019				25,050,419						89,003,273				417,740,987
INCOME (LOSS) FROM OPERATIONS		10,939,949				112,439						17,472,590				(342,990,300		)
Other Income (Expenses)
Interest income		—				133						—				396
Interest expense		(703,845		)		(840,851				)		(2,155,328		)		(3,116,739		)
Other income		558,138				270,452						1,470,887				940,832
Change in fair value of interest rate swap contracts		52,314				(20,022				)		1,370,950				(1,284,276		)
Total Other Income (Expenses), net		(93,393		)		(590,288				)		686,509				(3,459,787		)
INCOME (LOSS) BEFORE INCOME TAX PROVISION (BENEFIT)		10,846,556				(477,849				)		18,159,099				(346,450,087		)
PROVISION (BENEFIT) FOR INCOME TAXES		2,637,444				(80,910				)		4,621,749				(2,052,426		)
NET INCOME (LOSS)		8,209,112				(396,939				)		13,537,350				(344,397,661		)
Less: net income attributable to non-controlling interests		357,345				226,865						566,055				168,988
NET INCOME (LOSS) ATTRIBUTABLE TO HF FOODS GROUP INC.		$	7,851,767			$	(623,804			)		$	12,971,295			$	(344,566,649	)
Earnings (loss) per common share - basic and diluted		$	0.15			$	(0.01			)		$	0.25			$	(6.61	)
Weighted average shares - basic		51,913,411				52,145,096						51,913,411				52,145,096
Weighted average shares - diluted		51,932,712				52,145,096						51,919,932				52,145,096

 

FAQ

What was HF Foods Group's net revenue for Q3 2021?

HF Foods Group reported net revenue of $215.5 million for Q3 2021.

How much did HF Foods Group's net income increase in Q3 2021?

The net income attributable to HF Foods Group increased to $7.9 million in Q3 2021.

What was the percentage increase in Adjusted EBITDA for HF Foods Group in Q3 2021?

HF Foods Group's Adjusted EBITDA increased by 191% to $17.4 million in Q3 2021.

What factors contributed to the growth in HF Foods Group's gross profit in Q3 2021?

The growth in gross profit was driven by increased revenue and better gross margin.

What is the outlook for HF Foods Group amid potential government restrictions?

Management remains optimistic about sustaining sales momentum despite potential government restrictions.