HF Foods Group Inc. — Form 10-Q Summary
Period: Quarter and six months ended June 30, 2022. The request metadata says 2021 Q2, but the filing itself covers 2022 Q2. The report was signed and filed January 31, 2023; the cover indicates the company had not filed all required reports during the preceding 12 months.
Business context and performance
HF Foods distributes Asian specialty foods, seafood, produce, and other products to restaurants and foodservice customers across the United States. Growth included the Great Wall acquisition completed in December 2021 and the Sealand asset acquisition completed April 29, 2022.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $299.6 million | $193.5 million | $577.9 million | $352.9 million |
| Gross profit | $52.6 million | $35.1 million | $103.3 million | $64.6 million |
| Operating income | $6.7 million | $5.3 million | $17.0 million | $6.7 million |
| Net income attributable to HF Foods | $4.6 million | $3.4 million | $7.7 million | $4.8 million |
| Diluted EPS | $0.08 | $0.07 | $0.14 | $0.09 |
| Adjusted EBITDA | $13.9 million | $10.5 million | $31.8 million | $17.0 million |
Q2 revenue rose 54.8%; management attributed $65.8 million of the increase to acquisitions and $40.3 million to organic growth. For the six months, revenue rose 63.7%, including $113.7 million from acquisitions and $111.2 million from organic growth. Acquisitions and inflation contributed to higher sales, with seafood representing a larger share of revenue.
Margins, cash flow, debt, and liquidity
- Gross margin was 17.5% in Q2 versus 18.2% a year earlier, and 17.9% for the six-month period versus 18.3%. Management cited lower-margin acquired seafood sales and commodity-price volatility.
- Operating margin was 2.2% in Q2 versus 2.8%; six-month operating margin improved to 3.0% from 1.9%, helped by lower selling, general and administrative expenses as a share of revenue.
- Adjusted EBITDA margin was 4.6% in Q2 versus 5.4%; six-month margin was 5.4% versus 4.8%. Adjusted EBITDA is a non-GAAP measure.
- Six-month operating cash flow was $13.7 million, compared with $14.2 million. Investing cash outflow was $48.7 million, mainly for Sealand and Great Wall inventory; financing cash inflow was $39.0 million. Cash increased to $18.8 million.
- At June 30, cash was $18.8 million, current assets $202.6 million, and current liabilities $164.4 million. The company reported $20.2 million of checks issued but not yet presented for payment.
- Debt included a $60.0 million revolver balance and $125.5 million of long-term debt principal. The revolver has a $100 million limit, subject to borrowing-base calculations; management reported approximately $40 million of additional availability. The revolver was extended to November 2027, and the mortgage-secured term loan was increased to $115 million. The company reported covenant compliance.
Material changes, outlook, and risks
- Management said easing pandemic restrictions and restaurant demand supported recovery, and stated that operating cash flow was expected to cover normal working-capital needs and debt obligations for at least 12 months. It warned that demand, economic conditions, competition, lender or supplier support, and other factors could create liquidity shortfalls. No specific earnings or revenue guidance was provided.
- Interest expense rose 66.9% in Q2, reflecting higher revolving-credit usage and interest rates. At period end, $174.3 million of debt was floating-rate; management estimated a 1 percentage-point rate increase would add approximately $1.7 million of annual interest expense.
- A $5.9 million lease-guarantee expense and liability was recorded in connection with AnHeart’s default on a Manhattan lease. The company’s guarantee exposure included remaining lease payments and related costs; the recorded liability was $5.9 million at June 30.
- The company disclosed an ongoing non-public SEC investigation and cooperation with the SEC. Potential fines or penalties had not been demanded and could not be estimated. A shareholder demand and related Delaware derivative action were also pending; the company had not determined whether to assert claims.
- Disclosure controls were deemed ineffective because of material weaknesses, which management said remained unresolved at June 30. The company was implementing remediation measures. The filing also identifies increased legal, acquisition, and compliance costs.
- During Q2, the company sold a warehouse to a related party for approximately $7.2 million, recognized a $1.5 million gain, and used part of the proceeds to repay a $4.5 million loan. The remaining $4.5 million related-party promissory note was also repaid.
Important facts for investors to verify
- Confirm the period and filing timeliness: this is a 2022 Q2 report, filed January 31, 2023, and the cover reports delinquent Exchange Act filings.
- Track remediation of material weaknesses and the status and potential financial impact of the SEC investigation and shareholder litigation.
- Verify actual revolver availability under the borrowing base, covenant compliance, debt costs, and sensitivity to further rate increases.
- Assess post-acquisition revenue and margins, particularly seafood mix, commodity and fuel costs, and whether organic growth and cash generation are sustainable.
- Monitor the AnHeart lease guarantee, payments, and potential sublease or recovery prospects; also review related-party transactions and the warehouse sale.