Okay, we'll go ahead and get started. Good afternoon, everyone. Welcome back to Sidoti's May Microc ap Conference. My name is Daniel Harriman, and I'm an analyst here at Sidoti. Today we're lucky enough to get to hear from HF Foods Group, ticker HFFG. This afternoon we have the company's President and Chief Operating Officer Felix Lin, as well as the company's Chief Financial Officer Cindy Yao, and VP of Financial Reporting Daniel Marinon. We're going to give them about 20 minutes to go through their presentation, after which time I'm going to open it up for Q&A. If you do have any questions during the presentation, please feel free to type those questions into the Q&A box, and I'll get to as many as I can time permitting. Please join me in welcoming HF Foods Group, and with that, Felix, I'll hand it over to you. Thanks, Daniel. Appreciate the opportunity to be presenting at the Sidoti Conference. So excited to talk a little bit about HF, specifically. So I'll start with just a very high-level overview, and then we'll get into some details about the company. So HF Foods, we're the only scale and national, nationwide operator that service specifically the Asian food service market. We're a true one-stop shop that focuses on independent restaurant operators within our space. You know, if you look at the space we play in, specifically, it's extremely robust, and the fact that, you know, there's extremely low barriers to entry for our customers from a restaurant standpoint. But on the flip side of it, given the niche of the market we're in, it's quite a high barrier to entry for food service providers. So what really sets us apart, it is our cultural connection and our language connection with our customers, which makes it really, really tough for larger national players to participate in. So in the following slides, I'll go through some of the avenues of growth and our margin expansion strategy that we have kind of put forth over the next several years. And most importantly, just want to communicate that, again, this is a company that's being led by a very seasoned management team that's been in the business for a very, very long time. Specifically, our CEO and founder, Peter Zhang, had been in the business for over 30 years, and has a very, very good track record, you know, both in terms of driving growth and delivering the results. Okay? So, you know, 2023 fiscal year, we ended the year roughly a little bit over $1.1 billion top-line revenue, with over $200 million of gross profit in dollars and adjusted EBITDA just shy of $45 million. From a business standpoint, as I mentioned earlier, we're a true one-stop shop. So even though we're in the Asian specialty space, over 20,000 SKUs with 50% of the SKUs in the Asian specialty categories, we also carry quite a significant amount of SKUs in the frozen seafood, meat, poultry, fresh produce, packaging, and other commodities category. So we effectively are able to provide all products that a typical restaurant, in our cases, Asian restaurants, would need for operations. Today, through our 14 distribution centers, throughout the country and four cross-dock operations, we have a geographic coverage of roughly 95% of continental U.S., with over 45 states that we deliver to. Part of the differentiations for HF as well is that our local brands are extremely, you know, valuable to us. So most of the customers that we have within each of our markets have been doing business with us for quite a bit of time. I think average tenure for customers is well over five years, you know, for each one of our markets. Talking a little bit about the Asian restaurant market itself. And again, you know, based on, you know, data from Euromonitor, I think there's a general consensus in the broader food distribution and food service market that the Asian restaurant segment is perhaps going to be one of the largest and fastest-growing segments. So today, there's roughly about 94,000 Asian restaurants in the U.S., and they're largely independently operated restaurants. So roughly about 97% of the 94,000 are independent. The national chain and franchise restaurants actually make up a fairly small percentage of that, at roughly about 3%. And HF Foods serves roughly about 15,000 out of the 94,000 Asian restaurants in the U.S. and again, you know, we like the business that we're in because, one, you know, our focus has always been independent restaurants. And historically, these independent Asian restaurants have been underserved by some of the larger players, you know, within the space. And then, too, typically there's a higher margin opportunity with independents. Some of the larger broadline businesses have now shifted their strategy as well to kind of have a bigger focus on independents. So certainly, you know, our business it's a little bit different, you know, from that perspective. And if you look at our sales force, you know, one of the biggest differences that what we do is we have a multilingual sales force that actually, you know, interacts and builds relationships with our customers. Being able to speak with them in their native tongue, you know, is a significant competitive advantage for us. Most of the operators that we deal with and do business with are mostly first-generation, you know, again, independent mom-and-pop restaurants. So this customer stickiness, this cultural connection that we have with them, it's a major competitive advantage that we have. So if you look at competition-wise, just kind of given the points I just outlined here, you know, we don't necessarily compete with the larger national public companies, for a number of reasons, right? Because again, they don't have the customer stickiness or they don't have the relationship and the connection with the community that we service, even though they are significant in size and have a national reach. And certainly from a product offering and SKU standpoint, I mentioned that nearly 50% of our product SKUs are in the Asian specialty category alone. And being able to source those specialty ingredients, the products for our customers, also adds a pretty significant competitive advantage, you know, that we have. So our competition is really at the local and regional level. So in selective markets, you're dealing with smaller players that, again, perhaps are first-generation operators that play in the same place we're in. But what they lack is actually the national reach, the scale, that we have. So today we're a little bit over a $1.1 billion top-line business, and most of the local competitors that we're dealing with probably ranges from, you know, anywhere in the $20 million-$50 million range, or even as big as $70-$80 million businesses. So from a scale and competitiveness standpoint, we have the advantage in the local markets as well. Talking a little bit about our supplier base. Again, given the number of SKUs, you know, it's not surprising that we have quite an extensive vendor network, over 1,100 vendors, you know, average tenures over 6 years. A lot of them have actually been with us since the inception of HF Foods. We rely on these key relationships to make sure that we get, you know, again, have access to the specialty ingredients that our customers desire and require for their business. So the biggest question, you know, for most businesses is going to be, where is the growth going to come from, right? How do you improve your bottom line? So for us, I think there's four key areas, you know, a significant amount of it ties to potential organic growth opportunity, and then certainly I'll touch a little bit on the M&A portion of it too. You know, first, in terms of expansion in the core market, we see that there is still a significant amount of white space, you know, geographic expansion opportunity that we can get into. So today, HF, we have a very strong presence in the Southeast, West Coast, Mountain region of the country. Through our recent acquisition with the seafood businesses in 2022, we now have presence in the Midwest and also in the greater Virginia territory. But certainly there are other areas that we can get into. So from that standpoint, you know, perhaps, you know, Northeast or even further penetration in the Midwest are all geographic expansion opportunities for us. Margin expansion. And again, you know, leveraging on our success integration of the recent acquisition, especially on the seafood side, you know, we've launched a couple of purchasing pilots in 2023 and now have expanded those programs in 2024. We're working both on the purchasing side and also on the operation efficiency side to make sure that we get to a better cost structure. So that's going to enable us to, you know, be more price competitive as well, even more than what we have today in the local markets. But certainly, you know, take seafood, for example, you know, we've seen pretty remarkable margin expansion within our seafood categories, you know, in the last year or so. And certainly the results have continued in the Q1 of 2024. So the goal is in the rest of 2024 and beyond, we're going to be looking to expand that into other select categories, and make some positive impact there on the margin side. I think cross-selling is probably one of the largest organic growth opportunities for us. Going back to the seafood acquisition that we had in 2022, when we acquired those businesses, they're 100% seafood, frozen seafood business. That means, you know, there's a significant amount of opportunity as we transition them into full broadline businesses. And historically, you know, seafood is probably, you know, 10%-15%, you know, from a mixed standpoint for a normal broadliner. So as you guys can imagine, if we can transition them to full broadline, you know, with the accounts that we acquired, in the last couple of years, there's a lot of growth there. On the flip side of it, you know, we have certain businesses that historically have not sell a lot of seafood. So and the goal there is to transition those businesses and expand them into carrying frozen seafood product as well. Okay? Now getting back into M&A, you know, so the first three that, you know, areas of growth that I kind of mentioned in terms of geographic expansion, margin expansion plan that will ultimately help us with increased share of the wallet with existing customers and acquisition new customers, and the cross-selling, all of that, you know, falls into the organic growth category. But I think on the M&A side, you know, there's no doubt that HF is now an acquirer of choice within our space. Just given, you know, as I mentioned, the space is still very fragmented. There's a lot of consolidation opportunity. A lot of the local and regional players that we're dealing with, again, they're first-generation operators that perhaps are looking to exit the business. Given our track record of acquiring businesses, HF is naturally now the acquirer of choice for a couple of reasons. One, we understand their business, you know, probably better than any other potential buyers. And two, just given the size of their business, it makes sense for us to also take a look at them. We have a really, really healthy pipeline, you know, over the next few years as we continue to work on our internal transformation plan and build off of our integration track record here recently. You know, we aim to have a very standard kind of M&A playbook and integration platform as we continue to look for bringing businesses in. And that will also serve two purposes. One, it could be a quicker way from a geographic expansion standpoint. And certainly as we add more businesses in, it's also going to help from a consolidated purchasing and margin expansion standpoint. Okay? So with that, again, this is just a very, very high level of just overview of HF Foods as a business and certainly the industry that we play in. And we're extremely excited about, you know, our future growth plan, and look forward to continue to deliver positive results here in the quarters and years to come. Okay? Perfect. Felix, thank you so much. Again, we have quite a bit of time left. So if you do have questions, please feel free to type it into the box, and I'll get to as many as I can. Felix, one thing I wanted to talk about, and you mentioned this several times throughout the presentation, was the competitive advantages that HF Foods have, has, whether it be, you know, Peter's longevity in, in the sector, the cultural connection you have with the customers, the multilingual sales force. Could you maybe expand a little bit upon those advantages advantages and what makes you stand out, you know, compared to your competitors? Yeah. So that, that's a really good question, Daniel. I think just kind of maybe go back a little bit. I'll just kind of briefly touch on the connection between companies like HF and the overall Asian restaurant industry, right? I think historically, you know, given where the concentration of the population, most of the restaurants in, you know, prior to, you know, two or three decades ago, is probably concentrated in more the metropolitan areas. And as, again, you know, there's more immigrants coming to the U.S., they really have taken kind of the Americanized Asian food or Chinese food culture, expanded that to all corners of the country. So, you know, Peter himself, again, is a 30-year veteran of the industry, and he started out as a restaurant operator himself, right? The story that he told about, you know, opening up restaurants in Iowa and not having a mature food service partner that can provide supply to him and having to drive to New York, once a month to pick up inventory, that's kind of what really started this business. So the growth of Asian restaurants now in every corner of the country really ties into our willingness and our ability to service them, especially the ones in very, very remote areas. And given the fact that you're dealing with, again, largely first-generation immigrants, there's naturally a language barrier. So the fact that our sales force, it's all 100%, you know, multilingual, speaks their language, understand what their requirements are, from an ingredient standpoint, makes a huge difference. And I can draw a little bit of parallel, you know, with another player within our space, right? You know, take Chefs' Warehouse, for example. One of the things that they talk about is their salespeople, you know, have a very good relationship with the chefs at all these high-end restaurants because they understand the quality of the meat sent, you know, they understand the quality of their product, and they can effectively speak to it. I think there's a little bit of a parallel here in terms of our business model, our salespeople with our customers as well. Perfect. And then going back to, you know, your earnings you reported recently. Can you talk a little bit to us about what positive trends you see that are setting you up for success, you know, the balance of the year and maybe going into 2025? Right. Yeah, no, I mean, the core business is definitely trending in the right direction, you know. And again, there's been a lot of volatility in our space over the last couple of years, just you know, being in the pandemic, getting out of the pandemic, with high inflationary you know, in 2022 and then significant deflation in 2023. You know, and last year, we've actually divested a couple of our non-core business on the chicken processing side. That was kind of dragging down performance. And at the end of the day, we just recognized that that's not you know, our core competency and what we want to be focused on. So we got back to our core business on the distribution and servicing side of it. And even Q1 this year, we just announced our earnings for Q1 2024 this morning. We've actually had a record Q1 you know, from a historic comparison standpoint. In fact, every single financial metric, we've seen some pretty decent improvements, right? So I think it was a 0.6% growth on top-line revenue year-over-year. But that's despite the fact that we have shuttered two chicken processing businesses in 2023. That's despite the fact that, you know, at the beginning of 2023, we were still in a very, very high inflationary environment because the deflationary, on the cost side didn't happen until kind of throughout the year. So there's some, you know, inherent, volume growth that drove and pricing that drove the performance in Q1 2024. And then obviously from a, you know, net income standpoint, you know, we're definitely on the right path to return to positive net income. You know, there's been a lot of noises, you know, in the past couple of years that's been dragging down performance, you know, in terms of increased level of professional service fee that was spent. But those issues, you know, as it related to some of the matters are now largely behind us. I believe net loss for Q1 2023 was in the $5.8 million range, and we've improved that to $600,000 in Q1 2024. Perfect. A question came oh, actually, I'm going to go back to what you just said, if that's okay, regarding exiting the chicken processing business. I know you touched upon this a little bit, but, as you look forward, are you looking to exit any other parts of your business? And if so, why is that besides focusing on core competency? No, I mean, again, those were, and I think the reason why we got into the chicken processing business is really we evaluated potential vertical integration opportunities, right? And especially in 2022, when you saw, you know, meat and poultry specifically, everyone experienced a highly inflationary environment. So we thought there might be an opportunity there to capture that momentum. But then certainly with how volatile, you know, that business was, and it's fairly complicated as well. And we just decided, again, it just doesn't make sense for us to be in. So certainly going forward in 2024 and beyond, our focus is going to be, what we've been doing, you know, really well and for the past, you know, nearly 30 years in business, which is providing, you know, best-in-class service and quality food to the Asian restaurant community. Perfect. And then I think we all know the answer to this, but what do you think investors are missing most about your story? And is there some misperception about macro risk here when in essence, you know, at times, this can be a countercyclical business that you can benefit from a poor macro environment? That's a good question. I mean, first of all, I mean, just from an overall industry standpoint, and again, you know, I think through our conversations with investors, it's obvious to us that there's not enough of exposure and understanding of the Asian specialty food service space in general. And then certainly the space that we're in, in terms of how niche it is, right, how difficult it is to replicate what we do and get into the space. But, you know, if you look at our customers, for example, you know, most of them are, again, there's a lot of Chinese takeout, Chinese buffet restaurants, and other Asian ethnic group, you know, restaurants. For the most part, again, it is such a big part of American culture today, you know. Yeah. And when I talk to people, you know, you guys can see Chinese takeout boxes in every single movie, you know, television shows, right? Again, it's part of our culture at this point. And to some degree, it's somewhat recession-proof as well, you know. Yeah. Because if the macro environment's not very favorable, then again, perhaps there's going to be a little bit more takeout businesses. Or even when foot traffics are down, we're seeing it pick up on some of the buffet-style restaurant, you know, customers that we service. But at the end of the day, when it comes to Asian restaurant, Asian food, Chinese in particular, it's known for its affordability and value that it delivers. Yeah. Yeah. So going through the pandemic, especially, you know, I'll say even though everyone's business have been impacted, you know, not only did we weather the storm, we didn't take a single penny of any sort of government assistance or funding through that entire period of time. And we managed to acquire, you know, a couple of businesses at the same time as well. And because, you know, given Peter's background as an entrepreneur and restaurant operator himself and our customers, right, they're very good at adapting, you know. Yeah. So when the restaurants were closed, you know, some of the dining restaurants and buffet restaurants transitioned themselves to takeouts, you know. and then now things have recovered, and we're seeing certainly the business picking back up again for sure. Perfect. The questions keep coming in. We just got a few minutes left. So I'm going to combine a couple if that's okay, Felix. Sure. Sure. Can you talk a little bit about pricing and unit volumes and what your, you know, long-term expectations may be there? And then similarly, a question came in just asking how do you manage the complexity of so many SKUs? Sure. Well, let me address the complexity for a second, right? And it somewhat ties into probably future pricing, you know, a unit. So as I mentioned, we're actively working on quite a few transformation initiatives. So, the initiative working on is certainly on the margin expansion side of it, right? We're actively looking at, you know, reducing the amount of capacity without, at the same time, losing our competitive advantage, right? So in our ecosystem today, we deal with a lot of different brokers that have access to these specialty products. But again, we've been in business long enough, you know, for nearly 30 years. We know where all these products are coming from. We know our vendors extremely well. So there's going to be some level of consolidation that's going to happen, you know, as part of this initiative going forward. And it ties into how we want to leverage our scale and our volume to continue to deliver on the margin expansion side of it. So that is certainly going to have an impact on pricing itself as we get a lot more cost competitive, even more than what we have today versus the smaller players. And ultimately, it's going to drive volume as well. One thing I also want to touch on is also private labeling, right? So today, effectively, we don't do any private labeling. We buy and sell other people's product. But, you know, for the ones that are familiar with the broader food service industry, you know, the larger companies, they all have their own label. And typically, those are also higher-margin products as well. So our goal is, again, short-term, medium-term, longer-term, as we transition, looking at our 20,000 SKUs, how can we get to maybe 50% of the products; it's going to be HF label, you know, from that standpoint. Perfect. Shifting gears a little bit, Felix, to M&A. A question came in about acquisition multiples. And it's, what do you typically pay for deals? And has there been a change recently in terms of the valuation multiples you're having to pay? Right. I think overall, we've seen that perhaps the multiples have gone a little bit healthier in the broader market. But again, we have a little bit of advantage because, as I mentioned, most of our targets are first-generation operators. That's, you know, smaller business as well, right? The way their business is set up and the size of the business, they're really not in a position to be able to sell it to a much larger broadliner. One, they lack the understanding. And two, it's just not big enough for them. So as I mentioned, HF now is effectively an acquirer of choice within our space. And based on even our recent history of acquiring businesses, I think we're able to kind of get them at a pretty significant discount, you know, versus what market typically pays for them, right? So for example, if market is, you know, maybe between 7-8 range, you know, I think, you know, our acquisition, you know, price might be in the 4 or 5 range, you know. And that's pre-synergy, extracting the synergy, you know. So that's why M&A is such a big part of our plan here in the future in addition to organic growth plans. Perfect. We're coming up on the time. So I'll just hand it back to you, Felix, if there's anything you want to close it out with. Yeah. No, again, I appreciate the opportunity to be presenting today. As I mentioned throughout the call, you know, we offer an extremely strong value proposition as a business. We play in a very, very niche, you know, space in the Asian food service and distribution market. And there's a lot of exciting, you know, growth and transformation plan that we're working on here, from a company standpoint. And we look forward to delivering these results here in the coming quarters and in the coming years and, you know, invite everyone to continue to follow us and monitor our progress. Yeah. Perfect. Well, Felix, Cindy, Daniel, on behalf of Sidoti, thank you so much for taking the time today to share your story and go through this presentation. For those of you who joined the call this afternoon, thank you for your questions. And again, on behalf of Sidoti, thank you to HF Foods for taking the time to share the story. And we hope everybody has a wonderful rest of the afternoon. Okay. Thanks, everyone. We shall. We shall.