Hf Foods Group Inc (HFFG) 2025 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the HF Foods Group third-quarter 2025 earnings call.

(Operator Instructions) Please note that this event is being recorded.

I will now hand over to Madeleine Kettle of ICR. Please go ahead.

Welcome to HF Foods Group third-quarter 2025 earnings conference call.

Joining me today on today's call are Felix Lin, the company's President and Chief Executive Officer; and Paul McGarry, the company's Interim Chief Financial Officer.

Before we begin, let me remind everyone that today's discussion contains forward-looking statements based on management's current beliefs and expectations about future events, which are subject to several known and unknown risks and uncertainties.

If you refer to HF Foods earnings release, as well as the company's most recent SEC filings, you will see a discussion of factors that could cause the company's actual results to differ materially from those expressed or implied by these forward-looking statements.

The company undertakes no obligation to update or revise these forward-looking statements in the future.

In these remarks, the company will make several references to non-GAAP financial measures, including adjusted EBITDA and non-GAAP diluted earnings per share. We believe these measures provide investors with a useful perspective on the underlying growth trends of the business; and have included, in the earnings release, a full reconciliation of non-GAAP financial measures to the most comparable GAAP measures.

Now, I will turn the call over to Felix.

Hello, everyone. Welcome to HF Foods third-quarter 2025 earnings call.

I'll provide a business update. Paul will speak to our third-quarter financial results. Then, we'll open up the line for Q&A.

I am pleased to announce that we continued our momentum in the third quarter of 2025. Net revenue increased 2.9% year over year to $307 million. Gross profit increased 0.5% to $50.4 million. Also, notably, adjusted EBITDA increased 41.5% year over year to $11.7 million. Our results reflect our continued discipline, execution against our strategic initiatives; and showcase the resilience of our business model.

Despite ongoing macro challenges, including tariff pressures and shifts in consumer spending behaviors, our transformation initiatives are paving the way for continued growth and improvement throughout the business.

Our third-quarter performance demonstrates the strength of our operational focus and strategic positioning. We have been actively diversifying our supplier base and exploring alternative sourcing strategies to ensure continuity and cost effectiveness in our supply chain.

Our strategic inventory management and proactive pricing actions have allowed us to effectively navigate the changing environment, while delivering solid net revenue growth and significant adjusted EBITDA growth.

We are encouraged by our strong performance in the third quarter and the solid foundation we built. While we have seen some lower foot traffic consistent with broader industry trends, this was offset by strong volume in select markets and pricing actions we have taken.

Based on our current trends, we expect Q4 results to be similar to what we achieved in Q3.

We remain extremely confident in our long-term growth strategy and are committed to our capital investment in growing our capacity, as we continue building momentum for the rest of the year and into 2026.

Our digital transformation initiative continues to deliver on its promise. We've reached a major milestone on May 1, with the successful deployment of a new modern ERP application across our entire network. All of our locations are now offering on a single unified ERP platform that will help us to achieve breakthrough levels of efficiency, visibility, and control across our operations, unlocking the full potential of our centralized purchasing capabilities over time.

I am pleased to report that the ERP system is running smoothly, as planned.

The next phase of this program is focused on rationalizing our salesforce. With our operations unified on a single system, we now plan to restructure our sales operation, which will reduce costs over time and further strengthen our competitive positioning. We expect the initiatives to kick off in the second half of Q4 2025 and run through the first part of Q1 2026, providing efficiencies in our sales operations.

We're consolidating two sales operations into one, which we believe provides us better control over the overall sales process and provides improved customer service. This represents the final key piece to our business integration transformation.

Our strategic facility enhancement initiatives continue to advance across multiple regions, positioning us for sustained growth. Renovation at our Charlotte distribution center are largely complete, with the final permits imminent.

Our state-of-the-art Atlanta facility project, which we expect will create meaningful organic growth opportunities through expanded cross-selling capabilities, is on track for completion later this year. The cold storage capacity expansion in Atlanta is expected to double our capacity in the region and enable us to significantly increase frozen seafood sales to our existing customer base along the Eastern Seaboard, meaningfully expanding our Southeast presence.

In the quarter, we announced the acquisition of our Chicago warehouse. This strategic acquisition advances HF's ongoing transformation plan to improve operational efficiency, reduce facility cost, and strengthen organic growth through cross-selling opportunities. Acquiring the facility enable us to exit the lease agreement early, improve operating expenses, and invest in facility to grow additional capacity and drive consolidation opportunities.

These exciting infrastructure investments reflect our ongoing commitment to optimizing our distribution network and creating a stronger foundation for sustainable growth.

M&A remains a core pillar of our growth strategy. HF Foods is the only scaled food service provider in the Asian specialty market in the United States. We believe we are the strategic acquirer of choice within our space. We are focused on expanding our geographic footprint in high-potential markets, capturing operational synergies, broadening our customer base, and enhancing our product and service capabilities.

We remain disciplined but optimistic about M&A opportunities in 2025 and beyond. We're actively evaluating opportunities. We believe our proven ability to successfully navigate the tariff landscape positions us uniquely to identify and execute attractive tuck-in acquisitions that will benefit from the operational expertise and scale.

Before I turn the call over, I'd like to welcome Paul McGarry, who is joining us on the first earnings call as interim CFO of HF Foods.

Paul has been a key member of our finance team as our Vice President, Corporate Controller; and brings extensive finance experience and deep knowledge of HF Foods business operations. We're grateful for his seamless leadership during this executive transition.

Now, over to you, Paul.

Thanks, Felix.

I will now review our results for the third quarter ended September 30, 2025, versus the same period in 2024.

Net revenue for the third quarter increased 2.9% to $307 million from $298.4 million in the prior year quarter. The increase was primarily attributable to volume increases and improved pricing in our Meat & Poultry and Seafood categories.

Gross profit increased by 0.5% to $50.4 million for the quarter compared to $50.2 million in the prior year quarter. The increase was primarily attributable to an increase in volume and improved pricing during the quarter. Gross profit margin remained relatively consistent at 16.4% compared to 16.8% in the same period in 2024 due to an increased proportion of sales from lower-margin products, particularly Seafood.

Distribution, selling, and administrative, or DS&A, expenses decreased by $0.4 million to $49.3 million for the third quarter. DS&A expenses as a percentage of net revenue decreased to 16.1% from 16.6% in the prior year period, primarily due to increased net revenue and lower personal professional insurance costs, partially offset by increased rental occupancy and other expenses.

Income from operations for the third quarter of 2025 increased to $1.1 million compared to $0.5 million in the prior year quarter. The improvement was driven by the increase in net revenue, gross profit, and a decrease in DS&A costs.

Adjusted EBITDA increased 41.5% to $11.7 million for the third quarter 2025 compared to $8.3 million in the prior year quarter.

Total interest expense increased slightly to $2.9 million for the third quarter of 2025 compared to $2.6 million in the prior year quarter.

Net loss was $0.9 million for the third quarter of 2025 compared to a loss of $3.8 million in the third quarter of 2024. The improvement was primarily driven by an increase in net revenue, gross margin, and managing certain DS&A costs.

Adjusted net income increased to $4.3 million compared to $2.2 million in the prior year period.

Loss per share improved to a loss of $0.02 compared to a loss of $0.07 in the prior year period.

Adjusted earnings per share increased to $0.08 compared to $0.04 in the prior year period.

In summary, our third -quarter results demonstrate the effectiveness of our strategic transformation initiatives and operational discipline in driving meaningful progress across our business.

While we continue to navigate macro headwinds, including tariff pressures and shifting consumer patterns, our proactive approach to pricing, inventory management, and operational efficiency has enabled us to deliver growth and build momentum for the future.

These strong results reinforce our confidence in the strategic foundation we've established and position us well, as we continue to execute on our growth strategy.

I'll now hand it back over to Felix for closing remarks.

Thanks, Paul.

As we look ahead to the balance of 2025 and beyond, I want to emphasize our commitment to executing the comprehensive transformation initiatives that are reshaping HF Foods.

2025 is a year of strategic investment for HF. The investments we're making in our facilities, digital infrastructure, and operations will establish a strong foundation for our next phase of growth.

While short-term uncertainties persist, we remain focused on our long-term strategic objectives. Our investments in digital transformation and infrastructure are strategically designed to drive organic growth through cross-selling opportunities while positioning us to complement this expansion with target M&A initiatives.

Our key competitive advantages stem from the growing demand for [attended] Asian cuisine and our unmatched position as a leading nation-wide Asian specialty distributor. We're methodically building the infrastructure systems and capabilities needed to fully capitalize on these strategic advantages.

As we move forward, we'll continue to identify and implement additional efficiency measures, while maintaining our commitment to service, excellence, and sustainable growth.

Thank you for your continued support, as we execute our strategic transformation. We look forward to sharing our progress with you on our next call.

I will now hand it over to the operator for a live Q&A.

(Operator Instructions)

William Kirk, ROTH Capital Partners.

Felix, you talked about capacity increases for 2026 between the active projects, you laid out a couple and the possibility of M&A. How much do you think capacity increases in 2026?

Bill, yeah, that's a good question. Capacity-wise, right now, if we think about what we've been communicating, it's limited to the Southeast. Specifically, for Atlanta, we talked about cold storage. It's effectively going to double our capacity in the Atlanta market. So we're moving from a 100,000-square feet warehouse to roughly about 190,000-square feet warehouse in that market.

Okay. Thinking about restructuring of the salesforce, I know you said it goes from two to one, how much cost savings do you think you can generate through that initiative? Maybe, more importantly, how do you balance extracting those efficiencies, while not losing the uniqueness that your salesforce provides?

Yeah. I think part of the moat that we've been communicating is the fact that, again, we understand our customers, especially in the way to do business, the language and the product rationalization itself. So all of that, again, will remain the same. This is really more of an efficiency play. Over time, we'll have better control over pricing strategy, promotion, with our broader program here in the future.

Again, this is one of those things that we've been prepping here for the better part 2025. Really, we're just getting towards the end of execution itself.

While at the end of the day, again, there might be some level of disruption, it's going to be expected and planned, based on everything that we've been working on, internally. But I do expect going through the end of 2025 and, certainly, midpoint through the Q1 2026, everything should get normalized here for us.

Okay. If I can sneak one more in: Were there any standouts or, like, a differential in the monthly cadence in the quarter? And then, when you're looking at the quarter-to-date period, where does that shape up versus how you guided 4Q? Have you seen any potential impact from government shutdown?

Yeah. Q3 has largely followed the trend that we saw in Q2, right? There's still the impact from tariffs, in terms of inventory; pricing; and, certainly, foot traffic. Beginning of Q3, we saw it continue to be a little bit softer. But it rebounded nicely towards the end of Q3; as we get into Q4, as well.

Selected markets, I think there are going to be a little bit of impact from government shutdown. For example, Virginia, where we have a nice frozen Seafood business based out of Richmond, Virginia, certainly, the market they service have a large, call it, government employee population. So the shutdown have impacted volume and foot traffic in that selected market.

But, overall, going through the entirety of 2025, I think the team has done a really good job. Other markets would pick up volume. One specific market, for example, in Salt Lake City, where not just in 2025 but over the last couple of years, we've been very effective in rationalizing our product and our business mix to get rid of some of the lower-margin business and free up some capacity to drive better business performance.

So that's probably one of the biggest reasons why we're still able to deliver year-over-year growth for the quarter.

Daniel Harriman, Sidoti & Company.

Congratulations on the continued progress.

Felix, I've got two quick questions, one of which follows up on the previous questions. But with 2025 being a year of investment, looking out to '26 and '27, how should we think about maintenance CapEx on a sustained basis year over year?

And then, secondly, again, referencing 2025 as a year of investment, can you just talk a little bit more about the timing of the ramp-up and how we should think about organic growth, moving forward? Is it going to be -- are we going to see some of that in 2026? Or given the external pressures, is your assumption that we may be needing to look at a little bit further?

Daniel. Yeah. Addressing your first question regarding CapEx, I think, on an annual basis, our typical maintenance CapEx budget probably fluctuate between $10 million to $15 million a year. So on a go-forward basis, that's largely going to be around, again, driving efficiency improvements, cutting cost out within our DC operations.

In '26, I think CapEx might be a little bit higher, just given the fact that we announced the strategic acquisition of our Chicago warehouse. Certainly, as we make more progress trying to drive additional capacity in the Midwest market, there might be newer facility acquisition on the horizon.

So for the foreseeable future, I think it's going to be more than the $10 million to $15 million that we have previously communicated, in terms of normal maintenance.

Getting back to the organic growth, I think, previously, we talked about, it's likely going to take about three to 4 years, in terms of ramping up once the capacity is ready. So I do believe that '26 is going to be the first year there will be some incremental volume gains, specifically with respect to frozen Seafood in the Atlanta and Southeast market. It's going to take, again, probably a couple of years for us to get there and fully utilize the entire new capacity that's going to come along here at the end of the year.

But I think the larger cross-selling organic growth opportunity, it's always going to be, perhaps, in the Midwest market. So, certainly, the investment is going to go in as we plan to in 2026, which will pay dividends, potentially '27 and beyond.

Great. That's super helpful. Best of luck in the coming quarter.

Thank you.

(Operator Instructions)

With no further questions in the question queue, we have reached the end of the Q&A session.

I will now hand back to Felix Lin for closing remarks.

Again, I'd like to thank everyone for joining the call today.

We're pleased with the transformation and progress we've made to date and the results we have achieved this quarter.

We remain extremely confident in our long-term outlook and invite all of you to continue following the HF story.

Thank you. We look forward to updating you on our next earnings call.

Thank you. Ladies and gentlemen, that concludes this event.

Thank you for attending. You may now disconnect your lines.