Q3 2025 HF Foods Group Inc Earnings Call
Speaker #1: Good afternoon, ladies and gentlemen, and welcome to the HF Foods Group's third quarter 2025 earnings call. All participants will be in listen-only mode. A question and answer session will follow the formal presentation.
Speaker #1: If anyone should require operator assistance during the conference, please key in star and then zero, and your telephone keypad. Please note that this event is being recorded.
Speaker #1: I will now hand over to Madeleine Kettle of HF Foods Group Inc.
Speaker #1: ICR. Please go
Speaker #2: 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.
Speaker #2: 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.
Speaker #2: 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.
Speaker #2: 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.
Speaker #2: 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.
Speaker #2: Now I will turn the call over to Felix.
Speaker #3: Hello, everyone. Welcome to HF Foods' third quarter 2025 earnings call. I'll provide a business update, and Paul will speak to our third quarter financial results.
Speaker #3: Then we'll open up the line for Q&A. I am pleased to announce that we continue our momentum in the third quarter of 2025. Net revenue increased 2.9% year over year to $307 million, and gross profit increased 0.5% to $50.4 million.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: We are encouraged by our strong performance in the third quarter and a solid foundation we've 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.
Speaker #3: Based on our current trend, we expect Q4 results to be similar to what we achieve 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.
Speaker #3: Our digital transformation initiative continues to deliver on its promise. We reached a major milestone on May 1st, with a successful deployment of a new modern ERP application across our entire network.
Speaker #3: All of our locations are now operating on a single unified ERP platform that will help us to achieve breakthrough levels of efficiency visibility and control across our operations.
Speaker #3: 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.
Speaker #3: The next phase of this program is focused on rationalizing our sales force. 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.
Speaker #3: We expect the initiative 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 were consolidating two sales operations into one, which we believe provides us better control over the overall sales process and provides improved customer service.
Speaker #3: 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.
Speaker #3: Renovation at our Charlotte distribution center, our largely complete, with a final permit 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.
Speaker #3: 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.
Speaker #3: 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 costs, and strengthen organic growth through cross-selling opportunities.
Speaker #3: Acquiring the facility enables us to exit the lease agreement early. Improved operating expenses and invest in the facility to grow additional capacity and drive consolidation opportunities.
Speaker #3: 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.
Speaker #3: HS Foods is the only scale food service provider in the Asian specialty market in the United States. And we believe we are the strategic acquirer of choice within our space.
Speaker #3: We are focused on expanding our geographic footprint and high potential markets, capturing operational synergies broadening our customer base and enhancing our product and service capabilities.
Speaker #3: We remain disciplined, but optimistic about M&A opportunities in 2025 and beyond. We're actively evaluating opportunities and we believe our proven ability to successfully navigate the tariff landscape positions us uniquely to identify and execute attractive tuck-in acquisitions.
Speaker #3: That will benefit from an 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.
Speaker #3: 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.
Speaker #3: We're grateful for his seamless leadership during this executive transition. Now over to you, Paul.
Speaker #2: 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's quarter.
Speaker #2: 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.
Speaker #2: 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.
Speaker #2: 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.
Okay. Um and thinking about restructuring of the Salesforce, I know you kind of said it goes from 2 to 1 how much cost savings do you think you can generate through that initiative and and maybe more importantly, how do you how do you balance extracting those efficiencies while not losing you? The uniqueness that your sales force provides?
Yeah, I think part of the, the moat that we've been communicating is the fact that again, we understand our customers, especially in the way they do business the language and, and the product, uh, rationalization itself. So, all of that again, will remain the same, um, you know, is this is really more of a efficiency place. So, over time, we'll have better control over pricing strategy promotion, um, with our broader program here in the future. So, again, this is 1 of those things that we've been prepping here for the better part 2025. So really, we're just getting toward in toward the end of execution itself. While at the end of the day again, there might be some level of disruption, but it's going to be expected and plan, uh, based on everything that we've been working on internally. But I do expect going through the end of 2025 and certainly,
You know, midpoint through the q1 2026, everything you should get normalized here for us.
Frozen seafood isn't based out of Richmond. Virginia certainly that they market a service. Have a large.
Called a government employee population. Uh, so the shutdown have impacted uh, 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. You know, other markets would pick up volume, um, you know, 1 specific market for example, in Salt Lake City, where you know, 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 kind of get rid of the, some of the lower margin business and for you have some capacity to drive better business performance.
So that's probably 1 of the biggest reasons why we're still able to deliver year-over-year growth for the quarter.
Thank you, Felix, and good luck.
Thank you.
On next question comes from Daniel Harman of the dirty and Company. Please go ahead.
Hey guys, good afternoon, and congratulations on the continued progress.
Um, Felix, I've got uh, 2 quick questions 1 of which kind of follows up on the previous questions but um with 2025 being a year of investment looking out to 26 and 27. Um, you know, how should we think about um, maintenance capex on a sustained basis, um, year-over-year and then
And secondly, again referencing 2025 as a year, as of investment um can you just talk a little bit more about the timing of the ramp up and and what 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 or is your um, your assumption that we may be needing to look out a little bit further? Thanks so much guys.
Hey Daniel. Uh yeah, so addressing your first question, regarding capex. I think, you know, on a annual basis or typical maintenance capex budgets public function between 10 to 15 million dollars a year. So on the goal for basis, that's largely going to be around again, driving efficiency, uh, improvements cutting costs out within our DC operations.
And in 2026, I think, um, you know, CapEx might be a little bit higher, just given the fact that we announced.
The Strategic acquisition of our Chicago warehouse. And certainly, as we make more progress, trying to drive additional capacity in the midwest Market.
You know, there might be newer facility acquisition on the horizon. So for the foreseeable future, I think it's going to be more than, um, the 10 to 15 million dollar that we we have previously communicated in terms of a normal maintenance.
um,
getting back to the organic growth. I think, you know, previously we talked about, it's likely going to take about 3 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 gain specifically with respect to Frozen Seafood in Atlanta and Southeast Market and it's going to take again. Probably a couple years for us to get there and fully utilize the entire, uh, new capacity. That's going to come along here at the end of the year. But I think the larger
Uh 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 as we plan to in 2026.
which will pay dividends here potentially 20 207 and Beyond
Great. That's super helpful. Best of luck in the coming quarter.
Thank you.
Well, ladies and gentlemen, just a final reminder: if you have to ask a question, you're welcome to press star and then 1 on your telephone keypad.
With the death further questions in the question queue, we have reached the end of the Q&A session. I will now hand back to Felix Lynn for closing remarks.
So again, I'd like to thank everyone for joining the call today. We're pleased with the transformational progress. We've made today and the results we've achieved this quarter.
We remain extremely confident in our long-term Outlook and invite all of these continue following the HF story. Thank you. And we look forward to updating you on our next earnings call.