What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-11 compared with 2025-05-12 · 152 added, 53 removed, 153 unchanged (57% of the section changed)

33 unchanged sentences

• Digital Transformation:

We are in the process of completing the implementation of a modern ERP solution across all of our distribution centers.

This is expected to deliver enhanced operational efficiency and responsiveness, streamlined processes, and greater data driven decision-making.

We have completed the implementation of a modern ERP solution across all of our distribution centers.

The Company expects this solution to deliver enhanced operational efficiency and responsiveness, streamlined processes, and greater data driven decision-making.

• Facility Upgrades:

We will be reorganizing and upgrading our facilities and distribution centers to efficiently streamline costs, and to capitalize on cross-selling opportunities with both new and existing customers.

We are reorganizing and upgrading some of our facilities and distribution centers to efficiently streamline costs, and to capitalize on cross-selling opportunities with both new and existing customers.

Financial Overview

Three Months Ended March 31,

($ in thousands) 2025 2024 Change

Three Months Ended June 30, Six Months Ended June 30,

($ in thousands) 2025 2024 Change 2025 2024 Change

Net revenue $ 314,853 $ 302,342 $ 12,511 $ 613,281 $ 597,996 $ 15,285

Net loss $ (1,530) $ (559) $ (971)

Net income (loss)

$ 510 $ 235 $ 275 $ (1,020) $ (324) $ (696)

Adjusted EBITDA $ 13,845 $ 10,561 $ 3,284 $ 23,618 $ 19,263 $ 4,355

27 unchanged sentences

Results of Operations

Comparison of Three Months Ended March 31, 2025 to Three Months Ended March 31, 2024

The following table sets forth a summary of our consolidated results of operations for the three months ended March 31, 2025 and 2024 .

Comparison of Three Months Ended June 30, 2025 to Three Months Ended June 30, 2024

The following table sets forth a summary of our consolidated results of operations for the three months ended June 30, 2025 and 2024 .

The historical results presented below are not necessarily indicative of the results that may be expected for any future period.

Three Months Ended March 31,

Three Months Ended June 30,

($ in thousands) 2025 2024 Change

3 unchanged sentences

Distribution, selling and administrative expenses 51,013 49,840 1,173

Income (loss) from operations 1,154 (85) 1,239

Income from operations

4,119 2,625 1,494

Interest expense 2,817 3,119 (302)

Other income, net (177) (94) (83)

Other (income) expense, net

(414) 3,466 (3,880)

Change in fair value of interest rate swap contracts 685 (361) 1,046

Lease guarantee income — (5,433) 5,433

Loss before income taxes (2,462) (740) (1,722)

Income tax benefit (932) (181) (751)

Income before income taxes

1,031 1,834 (803)

Income tax expense

521 1,599 (1,078)

Net income and comprehensive income

net (loss) income attributable to noncontrolling interests

(706) 218 (924)

Net income and comprehensive income attributable to HF Foods Group Inc.

$ 1,216 $ 17 $ 1,199

The following table sets forth the components of our consolidated results of operations expressed as a percentage of net revenue for the periods indicated:

Three Months Ended June 30,

Net revenue 100.0 % 100.0 %

Cost of revenue 82.5 % 82.6 %

Gross profit 17.5 % 17.4 %

Distribution, selling and administrative expenses 16.2 % 16.5 %

Income from operations

Interest expense 0.9 % 1.0 %

Other expense (income), net (0.1) % 1.1 %

Change in fair value of interest rate swap contracts 0.2 % (0.1) %

Lease guarantee income — % (1.8) %

Income before income taxes

Income tax expense

Net income and comprehensive income

net (loss) income attributable to noncontrolling interests

(0.2) % 0.1 %

Net income and comprehensive income attributable to HF Foods Group Inc.

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.

The increase was primarily attributable to volume increases and improved pricing in Meat & Poultry and Seafood, offset by a slight decrease in volume within other categories.

Gross profit was $55.1 million for three months ended June 30, 2025 compared to $52.5 million in the same period in 2024 , an increase of $2.7 million, or 5.1%.

The increase was primarily attributable to an increase in volume and improved pricing in Meat & Poultry and Seafood during the quarter.

Gross profit margin for the three months ended June 30, 2025 of 17.5% remained consistent compared to 17.4% in the same period in 2024 .

Distribution, Selling and Administrative Expenses

Distribution, selling and administrative expenses increased by $1.2 million, or 2.4%, to $51.0 million, for the three months ended June 30, 2025.

Distribution, selling and administrative expenses as a percentage of net revenue decreased to 16.2% for the three months ended June 30, 2025 from 16.5% in the same period in 2024, primarily due to increased net revenue and lower professional fees, partially offset by increased payroll, rental and other expenses.

Interest Expense

Interest expense for the three months ended June 30, 2025 of $2.8 million decreased slightly compared to $3.1 million for the three months ended June 30, 2024.

Average floating interest rates on our floating-rate debt for the three months ended June 30, 2025 decreased by approximately 1.0% on our line of credit and 1.0% on the JPMorgan Chase mortgage-secured term loan, compared to the same period in 2024.

Our average daily line of credit balance increased by $2.8 million, or 4.9%, to $53.6 million for the three months ended June 30, 2025 from $56.4 million for the three months ended June 30, 2024, and our average daily JPMorgan Chase mortgage-secured term loan balance decreased by $5 million, or 4.9%, to $99.2 million for the three months ended June 30, 2025 from $104.2 million for the three months ended June 30, 2024.

Income Tax Expense

Income tax expense was $521 thousand for the three months ended June 30, 2025, compared to an income tax expense of $1.6 million for the three months ended June 30, 2024, primarily due to discrete tax expense items related to the SEC settlement and stock-based compensation shortfalls that impacted the tax provision for the period ended June 30, 2024.

Net Income Attributable to HF Foods Group, Inc.

Net income attributable to HF Foods Group, Inc.

was $1.2 million for the three months ended June 30, 2025 , compared to net income of $17.0 thousand for the three months ended June 30, 2024.

The improvement was primarily driven by an increase in income from operations of $1.5 million compared to the prior year period;

however, the prior year’s results included a one time gain from lease guarantee income offset by an SEC settlement, which did not recur in the current year, thereby partially offsetting the year-over-year improvement.

EBITDA and Adjusted EBITDA

The following table reconciles EBITDA and Adjusted EBITDA to the most directly comparable GAAP measure:

Three Months Ended June 30,

($ in thousands) 2025 2024 Change

$ 510 $ 235 $ 275

Interest expense, net

2,775 3,119 (344)

Income tax expense

521 1,599 (1,078)

Depreciation and amortization 7,261 6,590 671

EBITDA 11,067 11,543 (476)

Lease guarantee income — (5,433) 5,433

Change in fair value of interest rate swap contracts 685 (361) 1,046

Stock-based compensation expense 625 522 103

SEC settlement — 3,900 (3,900)

Business transformation costs (1)

Other non-routine expense (2)

Executive transition and organizational redesign (3)

Adjusted EBITDA $ 13,845 $ 10,561 $ 3,284

_________________

(1) Represents costs associated with the launch and continued implementation of strategic projects including supply chain management improvements and technology infrastructure initiatives.

(2) Includes contested proxy and related legal and consulting costs and facility closure costs.

(3) Includes severance and related expenses for the Company’s transition of executive officers and organizational redesign.

Results of Operations

Comparison of Six Months Ended June 30, 2025 to Six Months Ended June 30, 2024

The following table sets forth a summary of our consolidated results of operations for the six months ended June 30, 2025 and 2024.

The historical results presented below are not necessarily indicative of the results that may be expected for any future period.

Six Months Ended June 30,

($ in thousands) 2025 2024 Change

Net revenue $ 613,281 $ 597,996 $ 15,285

Cost of revenue 507,190 495,120 12,070

Gross profit 106,091 102,876 3,215

Distribution, selling and administrative expenses 100,818 100,336 482

Income from operations

5,273 2,540 2,733

Interest expense 5,426 5,953 (527)

Other expense (income), net (591) 3,372 (3,963)

Change in fair value of interest rate swap contracts 1,869 (2,331) 4,200

Lease guarantee income — (5,548) 5,548

Income (loss) before income taxes

(1,431) 1,094 (2,525)

Income tax expense (benefit)

(411) 1,418 (1,829)

Net loss and comprehensive loss (1,020) (324) (696)

net income attributable to noncontrolling interests 115 135 (20)

net income (loss) attributable to noncontrolling interests (591) 353 (944)

Net loss and comprehensive loss attributable to HF Foods Group Inc.

1 unchanged sentence

The following table sets forth the components of our consolidated results of operations expressed as a percentage of net revenue for the periods indicated:

Three Months Ended March 31,

Six Months Ended June 30,

Net revenue 100.0 % 100.0 %

2 unchanged sentences

Distribution, selling and administrative expenses 16.4 % 16.8 %

Income (loss) from operations 0.4 % — %

Income from operations

Interest expense 0.9 % 1.0 %

2 unchanged sentences

Lease guarantee income — % (0.9) %

Loss before income taxes (0.8) % (0.3) %

Income tax benefit (0.3) % (0.1) %

Income (loss) before income taxes

(0.2) % 0.1 %

Income tax expense (benefit)

(0.1) % 0.2 %

Net loss and comprehensive loss (0.1) % (0.1) %

net income attributable to noncontrolling interests — % — %

net income (loss) attributable to noncontrolling interests (0.1) % 0.1 %

Net loss and comprehensive loss attributable to HF Foods Group Inc.

(0.6) % (0.2) %

Net revenue for the three months ended March 31, 2025 increased by $2.8 million, or 0.9%, compared to the same period in 2024.

This growth was achieved despite one fewer day of operations compared to the prior year period.

The increase was primarily attributable to volume increases and improved pricing in Commodity, Meat & Poultry and Seafood, offset by a decrease in volume within other categories.

Gross profit was $51.0 million for three months ended March 31, 2025 compared to $50.4 million in the same period in 2024 , an increase of $0.5 million, or 1.1%.

The increase was primarily attributable to an increase in margins on Commodity and Seafood during the quarter.

Gross profit margin for the three months ended March 31, 2025 of 17.1% remained consistent compared to 17.1% in the same period in 2024 .

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.

This increase was primarily attributable to volume growth and improved pricing in Commodity, Meat & Poultry and Seafood, partially offset by decrease in volume within other categories.

Gross profit was $106.1 million for the six months ended June 30, 2025 compared to $102.9 million in the same period in 2024 , an increase of $3.2 million, or 3.1% .

The gross profit increase was primarily attributable to increased net revenue partially offset by increased costs.

Gross profit margin for the six months ended June 30, 2025 slightly increased to 17.3% compared to 17.2% in the same period in 2024.

Distribution, Selling and Administrative Expenses

Distribution, selling and administrative expenses decreased by $0.7 million, or 1.4%, to $49.8 million, for the three months ended March 31, 2025 primarily due to a decrease of $1.6 million in professional fees.

Distribution, selling and administrative expenses as a percentage of net revenue decreased to 16.7% for the three months ended March 31, 2025 from 17.1% in the same period in 2024, primarily due to increased net revenue and lower professional fees, partially offset by increased payroll, insurance, rental and other expenses.

Distribution, selling and administrative expenses of $100.8 million for the six months ended June 30, 2025 slightly increased compared to prior year expenses of $100.3 million primarily due to an increase in payroll and related labor costs, partially offset by a decrease in professional fees.

Distribution, selling and administrative expenses as a percentage of net revenue decreased to 16.4% for the six months ended June 30, 2025 from 16.8% in the same period in 2024, primarily due to lower professional fees and increased net revenue, partially offset by increased payroll and related labor costs and insurance costs.

Interest Expense

Interest expense for the three months ended March 31, 2025 of $2.6 million decreased slightly compared to $2.8 million for the three months ended March 31, 2024.

Average floating interest rates on our floating-rate debt for the three months ended March 31, 2025 decreased by approximately 1.0% on our line of credit and 1.0% on the JPMorgan Chase mortgage-secured term loan, compared to the same period in 2024.

Our average daily line of credit balance increased by $4.0 million, or 9.0%, to $48.7 million for the three months ended March 31, 2025 from $44.7 million for the three months ended March 31, 2024, and our average daily JPMorgan Chase mortgage-secured term loan balance decreased by $5 million, or 4.8%, to $100.4 million for the three months ended March 31, 2025 from $105.5 million for the three months ended March 31, 2024.

Income Tax Benefit

Income tax benefit was $932 thousand for the three months ended March 31, 2025, compared to an income tax benefit of $181 thousand for the three months ended March 31, 2024, primarily due to an increase in loss before income taxes.

Net loss was $1.5 million for the three months ended March 31, 2025 , compared to net loss of $0.6 million for the three months ended March 31, 2024.

The increased loss was primarily driven by the change related to the fair value of interest rate swap contracts of $3.2 million partially offset by the change in income from operations of $1.2 million.

Interest expense for the six months ended June 30, 2025 decreased by $0.5 million or 8.9% , compared to the six months ended June 30, 2024, primarily due to a decrease in our average daily JPMorgan Chase mortgage-secured term loan balance of $5.1 million, partially offset by an increase in our average daily line of credit balance of $0.6 million combined with a slightly lower interest-rate environment.

Average floating interest rates on our floating-rate debt for the six months ended June 30, 2025 decreased by approximately 1.0% on the line of credit and 1.0% on the JPMorgan Chase mortgage-secured term loan, compared to the same period in 2024.

Our average daily line of credit balance increased by $0.6 million, or 1.2%, to $51.2 million for the six months ended June 30, 2025 from $50.6 million for the six months ended June 30, 2024, and our average daily JPMorgan Chase mortgage-secured term loan balance decreased by $5.1 million, or 4.9%, to $99.8 million for the six months ended June 30, 2025 from $104.9 million for the six months ended June 30, 2024.

Income Tax Expense (Benefit)

Income tax benefit was $411 thousand for the six months ended June 30, 2025, compared to and income tax expense of $1.4 million for the six months ended June 30, 2024.

The change was primarily driven by an increase in loss before income taxes in the current period, as well as discrete items related to the SEC settlement and stock-based compensation shortfalls that impacted the tax provision for the period ended June 30, 2024.

Net Loss Attributable to HF Foods Group, Inc.

Net loss attributable to HF Foods Group Inc.

was $0.4 million for the six months ended June 30, 2025 , compared to net loss of $0.7 million for the six months ended June 30, 2024.

The improvement of $0.2 million was primarily driven by an increase in income from operations of $2.7 million compared to the prior year period;

EBITDA and Adjusted EBITDA

The following table reconciles EBITDA and Adjusted EBITDA to the most directly comparable GAAP measure:

Three Months Ended March 31,

Six Months Ended June 30,

($ in thousands) 2025 2024 Change

Net loss $ (1,020) $ (324) $ (696)

Interest expense 2,609 2,834 (225)

Income tax benefit (932) (181) (751)

Interest expense, net

5,384 5,953 (569)

Income tax expense (benefit)

(411) 1,418 (1,829)

Depreciation and amortization 14,019 13,266 753

3 unchanged sentences

Stock-based compensation expense 999 1,260 (261)

SEC settlement — 3,900 (3,900)

Business transformation costs (1)

3 unchanged sentences

Executive transition and organizational redesign (3)

1,802 — 1,802

Adjusted EBITDA $ 23,618 $ 19,263 $ 4,355

_________________

(1) Represents costs associated with the launch of strategic projects including supply chain management improvements and technology infrastructure initiatives.

(1) Represents costs associated with the launch and continued implementation of strategic projects including supply chain management improvements and technology infrastructure initiatives.

(2) Includes contested proxy and related legal and consulting costs and facility closure costs.

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Liquidity and Capital Resources

As of March 31, 2025, we had cash of approximately $16.1 million, checks issued not presented for payment of $5.0 million and access to approximately $60.0 million in additional funds through our $125.0 million line of credit, subject to a borrowing base calculation.

As of June 30, 2025, we had cash of approximately $15.7 million, checks issued not presented for payment of $7.0 million and access to approximately $57.8 million in additional funds through our $125.0 million line of credit, subject to a borrowing base calculation.

We have funded working capital and other capital requirements primarily by cash flow from operations and bank loans.

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However, our ability to repay our current obligations will depend on the future realization of our current assets.

Management has considered the historical experience, the economy, the trends in the foodservice distribution industry to determine the expected collectability of accounts receivable and the realization of inventories as of March 31, 2025.

We are party to an amortizing interest rate swap contract with JPMorgan Chase for an initial notional amount of $120.0 million, expiring in March 2028, as a means to partially hedge our existing floating rate loans exposure.

3 unchanged sentences

If the future cash flow from operations and other capital resources is insufficient to fund our liquidity needs, we may have to resort to reducing or delaying our expected capital investment plans, liquidating assets, obtaining additional debt or equity capital, or refinancing all or a portion of our debt.

As of March 31, 2025, we have no off-balance sheet arrangements that currently have or are reasonably likely to have a material effect on our consolidated financial position, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources.

The following table summarizes cash flow data for the three months ended March 31, 2025 and 2024:

Three Months Ended March 31,

As of June 30, 2025, we have no off-balance sheet arrangements that currently have or are reasonably likely to have a material effect on our consolidated financial position, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources.

The following table summarizes cash flow data for the three months ended June 30, 2025 and 2024:

Six Months Ended June 30,

(In thousands) 2025 2024 Change

1 unchanged sentence

Net cash used in investing activities (6,592) (6,331) (261)

Net cash used in financing activities (1,752) (5,656) 3,904

Net increase in cash and cash equivalents $ 1,632 $ 2,983 $ (1,351)

Net cash (used in) provided by financing activities (2,693) 3,126 (5,819)

Net increase (decrease) in cash and cash equivalents

$ 1,183 $ (1,264) $ 2,447

Operating Activities

Net cash provided by operating activities consists primarily of net income adjusted for non-cash items, including depreciation and amortization, asset impairment charges, changes in deferred income taxes and others, and includes the effect of working capital changes.

Net cash provided by operating activities decreased by $4.3 million primarily due to the timing of working capital outlays such as the increase of account receivable due to sales growth, inventory purchases to counter potential tariff increase partially offset by decreases in prepaid expenses.

Net cash provided by operating activities consists primarily of net income adjusted for non-cash items, including depreciation and amortization, changes in deferred income taxes and others, and includes the effect of working capital changes.

Net cash provided by operating activities increased by $8.5 million primarily due to an increase in non-cash expense add-backs, offset by the timing of working capital outlays mainly for inventory purchases to counter potential tariff increases.

Investing Activities

Net cash used in investing activities increased by $1.0 million primarily due to increased capital project spend in the three months ended March 31, 2025.

Net cash used in investing activities increased by $0.3 million primarily due to increased capital project spend in the six months ended June 30, 2025.

Financing Activities

Net cash used in financing activities decreased by $3.9 million to $1.8 million during the three months ended March 31, 2025 primarily due to the change in line of credit activity from net payments for the three months ended March 31, 2024 to net proceeds for the three months ended March 31, 2025.

Net cash used in financing activities decreased by $5.8 million to $2.7 million during the six months ended June 30, 2025 primarily due to the lower overall net proceeds from line of credit activity for the six months ended June 30, 2025 as compared the six months ended June 30, 2024.

Critical Accounting Policies and Estimates

4 unchanged sentences

Part II, Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2024 Annual Report on Form 10-K includes a summary of the critical accounting policies and estimates we believe are the most important to aid in understanding our financial results.

There have been no changes to those critical accounting policies and estimates that have had a material impact on our reported amounts of assets, liabilities, revenue, or expenses during the three months ended March 31, 2025.

As a result of continued declines in the level of stock price, the Company performed a quantitative goodwill impairment assessment as of December 31, 2024.

8 unchanged sentences

The Company’s common stock is fairly thinly traded, with a higher level of internal stockholders than its peers, and no major analyst coverage.

As a result, the implied value from the traded stock price is based on limited investment public interest.

As a result, the implied value from the traded stock price is

based on limited investment public interest.

Our market capitalization is calculated using the number of common shares outstanding and common stock publicly traded price.

8 unchanged sentences

If, in future periods, the financial performance of the reporting unit does not meet forecasted expectations, or a prolonged decline occurs in the market price of our common stock, it may cause a change in the results of the impairment assessment and, as such, could result in further impairment of goodwill.

The Company determined that there were no events or circumstances during the three months ended March 31, 2025 that would more likely than not reduce the fair value of the reporting unit below its carrying value.

The Company determined that there were no events or circumstances during the six months ended June 30, 2025 that would more likely than not reduce the fair value of the reporting unit below its carrying value.

Recent Accounting Pronouncements

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis