HF Foods (US:HFFG)2025-08-11 20:24Financial Performance - Net revenue for the three months ended June 30, 2025, increased by $12.5 million, or 4.1%, compared to the same period in 2024, primarily due to volume increases and improved pricing in Meat & Poultry and Seafood [125]. - Gross profit was $55.1 million for the three months ended June 30, 2025, an increase of $2.7 million, or 5.1%, with a gross profit margin of 17.5% compared to 17.4% in the same period in 2024 [126]. - Net revenue for the six months ended June 30, 2025 increased by $15.3 million, or 2.6%, compared to the same period in 2024, driven by volume growth and improved pricing in key categories [136]. - Gross profit for the six months ended June 30, 2025 was $106.1 million, an increase of $3.2 million, or 3.1%, with a gross profit margin slightly rising to 17.3% [137]. - Adjusted EBITDA for the six months ended June 30, 2025 was $23.6 million, an increase of $4.4 million, or 22.6%, compared to $19.3 million in the same period in 2024 [142]. - EBITDA for the six months ended June 30, 2025 was $18.0 million, a decrease of $2.3 million compared to $20.3 million in the same period in 2024 [142]. - Net income attributable to HF Foods Group, Inc. was $1.2 million for the three months ended June 30, 2025, compared to $17.0 thousand for the same period in 2024, driven by an increase in income from operations [131]. - Net loss attributable to HF Foods Group Inc. improved to $0.4 million for the six months ended June 30, 2025, compared to a net loss of $0.7 million in the same period in 2024 [141]. Expenses and Costs - Distribution, selling and administrative expenses increased by $1.2 million, or 2.4%, to $51.0 million, while as a percentage of net revenue, it decreased to 16.2% from 16.5% in the same period in 2024 [127]. - Distribution, selling and administrative expenses slightly increased to $100.8 million for the six months ended June 30, 2025, but as a percentage of net revenue decreased to 16.4% [138]. - Interest expense for the three months ended June 30, 2025, was $2.8 million, a slight decrease from $3.1 million in the same period in 2024, with average floating interest rates decreasing by approximately 1.0% [128]. - Interest expense for the six months ended June 30, 2025 decreased by $0.5 million, or 8.9%, due to a reduction in the average daily mortgage-secured term loan balance [139]. - Income tax expense was $521 thousand for the three months ended June 30, 2025, compared to $1.6 million for the same period in 2024, primarily due to discrete tax expense items impacting the prior year's provision [129]. Operational Initiatives - The company has initiated a comprehensive operational transformation plan focused on centralized purchasing, fleet and transportation improvements, digital transformation, and facility upgrades to drive growth and cost savings [111]. - The implementation of a modern ERP solution across all distribution centers is expected to enhance operational efficiency and data-driven decision-making [111]. - The company aims to capitalize on the increasing demand for Asian American restaurant cuisine by leveraging its nationwide distribution network and strong supplier relationships [110]. - The company acquired two frozen seafood suppliers in 2022, expanding its distribution network across multiple states including Illinois, Texas, and along the eastern seaboard [109]. Cash and Debt Management - Net cash provided by operating activities increased by $8.5 million to $10.5 million for the six months ended June 30, 2025, primarily due to an increase in non-cash expense add-backs [152]. - As of June 30, 2025, the company had cash of approximately $15.7 million and access to $57.8 million in additional funds through its line of credit [144]. - As of June 30, 2025, the company's aggregate floating rate debt's outstanding principal balance was $62.9 million, representing 37.7% of total debt [165]. - The company is party to an amortizing interest rate swap contract with JPMorgan Chase for an initial notional amount of $120.0 million, expiring in March 2028 [146]. - The company manages its debt portfolio to maintain a desired proportion of fixed and floating rate debts, utilizing interest rate swaps as necessary [164]. Fair Value and Impairment - The company categorized its fair value determination as Level 3 in the fair value hierarchy due to reliance on internal projections and unobservable inputs [158]. - Sensitivity analyses indicated that a 100 basis point increase in the discount rate could decrease the fair value of the reporting unit by approximately $11.6 million [160]. - The company assessed that there were no events during the six months ended June 30, 2025, that would likely reduce the fair value of the reporting unit below its carrying value [162]. - The assumptions used in impairment testing are subject to change based on market conditions and are interdependent, requiring significant judgment [159]. - The company recorded a goodwill impairment charge of $46.3 million during Q4 2024 due to a decline in stock price, indicating impairment as of December 31, 2024 [156]. Market Conditions - Average diesel fuel prices decreased by 7.8% in Q2 2025 compared to the same period in 2024, although future prices remain unpredictable [166]. - The company does not actively hedge diesel fuel price fluctuations but aims to minimize risk through delivery route optimization and fleet utilization improvements [168]. - A hypothetical 1% change in the applicable rate would result in an approximate $0.6 million change in annual interest expense on floating rate debt [165].