HF Foods Reports First Quarter 2023 Financial Results

First Quarter Net Revenue up 6% to $293.9 Million

Plan in Place to Reduce Cost Structure and Continue Focus on Improving Operations

LAS VEGAS, May 10, 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 first quarter ended March 31, 2023.

First Quarter 2023 Financial Results

• Net revenue increased 6% to $293.9 million compared to $278.2 million in the prior year.
• Gross profit decreased 1% to $50.2 million, or 17.1% gross profit margin compared to $50.7 million, or 18.2% gross profit margin in the prior year.
• Net (loss) income decreased 285% to a net loss of $5.8 million compared to net income of $3.1 million in the prior year.
• Adjusted EBITDA decreased 71% to $5.3 million compared to $17.9 million in the prior year.

Management Commentary

“While I am pleased with our sales increase in the first quarter, it was a challenging quarter for costs,” said Peter Zhang, Chief Executive Officer of HF Foods. “Distribution, selling, and administrative costs grew, while gross profit declined slightly. First quarter margins were incrementally impacted as higher priced inventory was sold at lower competitive prices as product cost inflation began to subside. We expect this impact to diminish as the Company consumes and replaces higher cost commodity inventories. We have developed a plan to reduce our cost structure to address these issues in the near term, while continuing to focus on improving operations, supply chain and distribution channels, and driving efficiencies across the Company,” continued Mr. Zhang.

“HF Foods liquidity position remains strong, with operating cash flows, cash on hand and availability under our line of credit,” said Carlos Rodriguez, Chief Financial Officer of HF Foods. “In addition, we are now fully compliant with NASDAQ financial statement filing requirements, and when we hold our combined 2022 and 2023 annual meeting next month, we will have resolved all outstanding issues with NASDAQ. The resolution of these legacy issues has also enabled the Company to reduce related professional fees and expenses,” said Mr. Rodriguez.

First Quarter 2023 Results

Net revenue was $293.9 million for the first quarter of 2023 compared to $278.2 million in the prior year, an increase of $15.6 million, or 6%. 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 decrease in Meat and Poultry revenue compared to the first quarter of 2022.

Gross profit was $50.2 million for the first quarter of 2023 compared to $50.7 million in the prior year, a decrease of $0.6 million, or 1%. 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 quarter of 2023 decreased from 18.2% in the first quarter of 2022 to 17.1% in the first quarter of 2023. The decrease was primarily attributable to the shift in product mix to higher Seafood sales, timing of inventory purchases, higher fluctuations in key commodity pricing and a higher than normal gross profit margin in the prior year due to our sales recovery to above pre-COVID-19 pandemic levels in the first quarter of 2022.

Distribution, selling and administrative expenses increased by $12.5 million, or 31%, primarily due to an increase of $2.8 million in payroll and related labor costs, inclusive of the additional costs due to the Sealand Acquisition, and higher professional fees due to legal costs and increased compliance costs as a result of the SEC and Special Investigation Committee investigations. Professional fees increased $4.2 million, from $2.9 million in the first quarter of 2022 to $7.1 million in the first quarter of 2023, and we expect to incur additional legal and compliance costs in the second quarter of 2023. Distribution, selling and administrative expenses as a percentage of net revenue increased to 18.0% in 2022 from 14.5% in 2021 primarily due to higher professional fees and increased headcount.

Net (loss) income decreased to a net loss of $5.8 million for the first quarter of 2023 compared to net income of $3.1 million in the first quarter of 2022. The decrease was primarily attributable to the increased costs described above as well as an increase of $3.1 million related to the change in fair value of interest rate swaps and a $1.6 million increase in interest expense.

Adjusted EBITDA was $5.3 million for the first quarter of 2023, a decrease of $12.7 million, or 71%, compared to $17.9 million for 2022, primarily attributable to the decreased gross profit and increased distribution, selling and administrative costs described above.

Cash Flow

Cash flow from operating activities increased to $12.6 million in the first quarter of 2023, compared to $10.1 million in the prior year. The increase in cash flow from operating activities was largely driven by improvements in working capital. As of March 31, 2023, we had a cash balance of $17.5 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

(404) 836-0852

[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 “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, risks that the Company may not regain compliance with Nasdaq continued listing requirements relating to the Company’s annual meeting of stockholders within any applicable grace period, 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 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.

HF FOODS GROUP INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(In thousands, except share data)(Unaudited)

HF FOODS GROUP INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except share and per share data)(Unaudited)

HF FOODS GROUP INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)

HF FOODS GROUP INC. AND SUBSIDIARIESRECONCILIATION OF NET (LOSS) INCOME TO EBITDA AND ADJUSTED EBITDA(In thousands)(Unaudited)

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HF FOODS GROUP INC. AND SUBSIDIARIESRECONCILIATION OF NET (LOSS) INCOME ATTRIBUTABLE TO HF FOODS GROUP INC. TO NON-GAAP NET INCOME ATTRIBUTABLE TO HF FOODS GROUP INC. (In thousands)(Unaudited)

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