HF Foods Group Q3 2026 Earnings Call Transcript

HF Foods Group (NASDAQ:HFFG) reported third-quarter financial results on Monday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

HF Foods Group reported a 4.1% year-over-year increase in net revenue to $319.6 million for Q3 2026, marking the seventh consecutive quarter of revenue growth.

Gross profit rose 5.9% to $53.4 million, with gross margin expanding to 16.7%, driven by seafood volume growth and pricing improvements.

Adjusted EBITDA decreased by 6.3% to $11 million, primarily due to elevated fuel costs and nonrecurring expenses from credit facility refinancing and the Sea Ray Foods acquisition.

The company completed the acquisition of Sea Ray Foods, contributing $4.2 million in net revenue and $0.6 million in adjusted EBITDA, with a focus on smooth integration and leveraging Sea Ray’s higher-margin business.

Strategic initiatives include optimizing operational efficiencies, pursuing cross-selling opportunities and furthering M&A activities, particularly in expanding the company’s footprint into Canada.

Management highlighted the impact of fuel price inflation on profitability but implemented a fuel surcharge to mitigate costs, with expectations for this to help offset future fuel expenses.

HF Foods Group is poised for future growth with a strong focus on integrating Sea Ray and exploring additional M&A opportunities, underpinned by a robust pipeline and expanded market reach.

Full Transcript

OPERATOR

Welcome to the HF Foods Group third quarter 2026 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star-0 on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Anna Kate Heller, ICR. Thank you, Anna Kate. You may begin.

Anna Kate Heller (Investor Relations)

Hello everyone. Welcome to HF Foods Group’s third quarter 2026 earnings conference call. Joining me on today’s call are Xi Lin, the Company’s President and Chief Executive Officer, and Paul E McGarry, the Company’s 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 a number of known and unknown risks and uncertainties, including statements regarding our recently completed acquisition of Sea Ray Foods Inc., the integration of that business, and the anticipated benefits of the transaction.

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 that 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 Xi.

Xi Lin (President and CEO)

Thank you, Anna Kate, and good afternoon, everyone. I’ll start with a business update and Paul will speak to our third quarter financial results. Then we’ll open up the line for Q&A. Our third quarter delivered solid top-line growth. Net revenue increased 4.1% year-over-year to 319.6 million, making our seventh consecutive quarter of year-over-year net revenue growth, driven primarily by volume growth in seafood along with pricing improvement in produce and commodities. Gross profit increased 5.9% to 53.4 million and gross margin expanded to 16.7% from 16.4%. Adjusted EBITDA was 11 million compared to 11.7 million in the prior year.

Our bottom line was held back this quarter primarily by fuel. Industry-wide fuel price inflation caused a significant year-over-year increase in our auto and truck expense. We partially offset that with operating efficiencies from our transformation work, and we have implemented fuel surcharges across our customer base to share a portion of this burden with our customers. The foundation of our transformation program is now largely built, with investments made in our sales, operations, digital infrastructure, and facilities. Now our focus has shifted from implementation to optimization, including route and warehouse efficiency, purchasing discipline, cross-selling across the South and Midwest remains an important opportunity, but it is one we’re building out over the next three to five years, paced by the capacity and capital we put behind it.

We remain confident these investments are building a stronger foundation for sustainable, profitable growth, even as we continue to navigate some near-term pressure from elevated fuel costs. Regarding facilities, our Charlotte location is largely ready, but we’re still awaiting final permitting from local authorities. That process has taken longer than we anticipated and is largely outside of our control. We anticipate resolution of this process by the end of this calendar year.

The biggest milestone of the quarter was closing our acquisition of Sea Ray Foods on August 31, a leading Canadian importer and distributor of ethnic and specialty frozen seafood based in Richmond, British Columbia. It’s our first acquisition outside the United States and extends our proven M&A playbook into a new geography. Sea Ray brings six proprietary brands including Sea Ray Foods, Thai Best, Pinoy’s Best, Smart Fish, Diamond Shrimp, and Gold Label into our seafood category, which already makes up about 35% of our net revenue.

It has been just over two months since we closed, and we’re approaching this integration deliberately. Our first priority was continuity and on that point the transition has been smooth. Sea Ray’s management team, led by Derek Nag, continues to run the business day to day. Customers and suppliers have stayed with us and Sea Ray’s results are now part of our reporting. We will share more specific milestones as we hit them. In its first month under our ownership, Sea Ray contributed 4.2 million of net revenue and 0.6 million of adjusted EBITDA. That is an adjusted EBITDA margin in the mid-teens, consistent with the profile we described in the announcement and well above our consolidated margin. The fourth quarter will be our first full quarter with Sea Ray.

With Sea Ray closed, M&A remains a core pillar of our growth strategy. You have heard us describe HF Foods as the only scale foodservice provider in the Asian specialty market in the United States and as an acquirer of choice in our space. Sea Ray is that strategy in action, a higher-margin business that chose to join our platform for the scale and operating expertise we would bring. Our criteria have not changed. We look to expand our footprint in high-potential markets, capture operational synergies, broaden our customer base, and enhance our product and service capabilities.

Just as important, our first priority now is integrating Sea Ray well. We will pursue additional opportunities only at the right price, with the right fit, and when we have the capacity to integrate them. Within that discipline, we continue to evaluate opportunities in 2027 and beyond. Sea Ray also changes the landscape of our opportunity. It gives us our first platform outside the United States in a Canadian market where Sea Ray has spent 25 years building its brand and relationships. It adds proprietary brands and a higher-margin business to our seafood category, and it brings retail and wholesale customers alongside our core restaurant base. At over $1.2 billion in annual net revenue, we’re now the largest and leading player in the Asian specialty space, and Sea Ray gives us new avenues to build on that position.

No one, whether larger or smaller competitors, is better positioned than HF Foods to capture this opportunity in the coming years. With that, I’ll turn the call over to Paul to walk you through our financial performance for the quarter in more detail.

Paul E McGarry (Chief Financial Officer)

Thanks, Felix. I will now review our results for the quarter ended September 30, 2026 versus the same period in 2025. Let me start with the bottom line because that is where the quarter fell short. We grew net revenue for the seventh consecutive quarter, expanded gross margin and generated strong cash flow from operations, but our profitability was not where we wanted it to be. Two things drove that: fuel and a concentration of nonrecurring costs tied to the refinancing of our credit facility and the Sea Ray acquisition.

I’ll walk through both along with what we are doing about them. Net revenue for the quarter increased 4.1%, or 12.6 million, to 319.6 million from 307 million in the prior-year quarter. The increase was primarily due to volume growth in seafood and pricing improvement in produce and commodity, partially offset by price deflation in meat and poultry, specifically chicken. Net revenue also included 4.2 million from Sea Ray, reflecting one month of contribution following the close of the acquisition on August 31.

Gross profit increased 3 million, or 5.9%, to 53.4 million for the quarter compared to 50.4 million in the prior-year quarter. Gross profit margin increased to 16.7% for the quarter compared to 16.4% in the prior-year quarter. The increase was primarily driven by volume growth in seafood and the higher-margin contribution from Sea Ray, both of which we expect to carry forward, as well as tariff refunds received during the quarter. Distribution, Selling and Administrative expenses, or DS&A, increased 5.9 million, or 11.9%, to 55.2 million for the quarter and were 17.3% of net revenue compared to 16.1% in the prior-year quarter. I’d split that increase into two pieces. More than half of it was professional fees tied to nonrecurring events: the amendment and upsizing of our revolving credit facility, the refinancing of our property portfolio, the Sea Ray acquisition and other legal matters.

Those costs are excluded from adjusted EBITDA, and the transaction-related portion is largely behind us. The rest was primarily due to auto and truck expense reflecting elevated fuel costs and higher truck lease expense, partially offset by lower repair and maintenance costs from the investments we made into newer fleet. Felix touched on our fuel surcharge program. Like much of the industry, we’ve responded to higher fuel costs with the surcharge across our customer base. It’s a partial recovery by design, and we’ll continue to manage it actively as diesel prices move so that it helps offset fuel costs over time while keeping our pricing competitive.

Adjusted EBITDA decreased 6.3% to $11 million for the quarter compared to $11.7 million in the prior-year quarter and included $0.6 million from one month of contribution from Sea Ray. Adjusted EBITDA margin was 3.4% compared to 3.8% in the prior-year quarter. For the first nine months, adjusted EBITDA was $34.7 million, down less than 2% from last year. Despite the fuel headwind. Fuel headwinds in the quarter and year to date were approximately 1.4 million and 3.2 million, respectively.

Total interest expense was 3.4 million for the quarter compared to 2.9 million in the prior-year quarter. The increase reflects the higher term loan balance following our July refinancing, partially offset by the mortgage debt we repaid as part of that transaction. Net loss attributable to HF Foods Group was 4.2 million for the quarter compared to 1.1 million in the prior-year quarter. The increase of 3.1 million was primarily driven by a 2.9 million decrease in income from operations and a 0.9 million unfavorable change in income taxes, partially offset by a 0.9 million favorable year-over-year change in the fair value of our interest rate swaps. Adjusted net income attributable to HF Foods Group was 2.1 million for the quarter compared to 4.3 million in the prior-year quarter.

Loss per share was $0.08 for the quarter compared to a loss of $0.02 per share in the prior-year quarter. Adjusted net income per share was $0.04 for the quarter compared to $0.08 in the prior-year quarter. Now on CapEx, we spent approximately 22.3 million for the nine months ended September 30, 2026. The largest item remains the purchase of our previously leased Chicago Distribution Center, which we discussed last quarter, along with investments in solar and capacity expansion. With the Chicago purchase behind us, spending slowed meaningfully in the third quarter. On the solar investment, we expect to benefit from a one-time investment tax credit that will reduce our overall solar investment by approximately 40%.

Separately, our fleet renewal is already paying off in lower repair and maintenance costs, and we expect this to continue. Turning to the balance sheet, as we discussed on last quarter’s earnings call, we refinanced and upsized our credit facility in July. That gave us liquidity to close the Sea Ray acquisition while continuing to invest in our facilities. Cash provided by operating activities was 23.6 million for the first nine months of 2026, more than five times the 4.5 million in the prior-year period, driven mainly by a smaller inventory build than last year when we purchased ahead of tariff increases, along with the timing of working capital.

As of September 30, 2026, after closing Sea Ray, we had cash of 16.4 million and access to approximately 49.1 million in additional funds through our $140 million line of credit, subject to a borrowing base calculation. Turning to Sea Ray, we owned it for one month of the quarter, so this is an early read, but it is an encouraging one. As Felix mentioned, Sea Ray’s first month came in at the mid-teens adjusted EBITDA margin, more than four times our consolidated margin this quarter, on a business we acquired at approximately five times its 2025 adjusted EBITDA. That makes Sea Ray accretive to a consolidated margin from its first month and a tailwind towards the 4.5% to 5% plus consolidated adjusted EBITDA margin target we have laid out.

The fourth quarter will be our first full quarter with Sea Ray in our results, and we like what we have seen so far. Let me close by putting the quarter into a broader context. The top line and cash flow were strong; profitability was not, and we understand why. A meaningful part of this quarter’s cost pressure came from one-time costs of transactions we chose to undertake, and both of those transactions leave us in a stronger position. Fuel is the piece we do not control, and we have acted on it. Underneath that, this is our seventh consecutive quarter of year-over-year net revenue growth, and for the first nine months of 2026, net revenue is up 3.8% to 955.4 million.

Sea Ray now adds a higher-margin growth engine on top of that base. We head into the fourth quarter with three things working for us. First, the fourth quarter will be our first full quarter with Sea Ray at a margin several times that of our total consolidated margins. Second, the fuel surcharge program is now in place, and third, the nonrecurring transaction costs that weighed on this quarter are largely behind us. We took on debt this year to buy our Chicago facility and Sea Ray; both add earnings capacity, and our refinancing facility gives us the runway, with maturities out to 2031 and 2036.

To grow into that leverage, we will stay disciplined on capital deployment and selective on the tuck-in opportunities that strengthen the platform. The balance sheet capacity we created is there to support that. And as noted before, Sea Ray is the first demonstration of what we intend to do with it. With that, I’ll turn the call back to Felix.

Xi Lin (President and CEO)

Thanks, Paul. Before we move to Q&A, I want to come back to why Sea Ray is such a significant milestone for us. We have talked for a long time about extending our platform beyond the United States, and Sea Ray is the first step in that long-term strategy. Sea Ray has spent 25 years building its business in Canada, and we’re proud to welcome the team to HF Foods Group. Just as Sea Ray gives us a platform to grow in Canada, we believe its recently established U.S. operations, including a planned direct import operation in Los Angeles, can be accelerated by our distribution network, sourcing scale and West Coast infrastructure. Sea Ray also brings a customer base that includes retail, wholesale and restaurants.

Now our focus is on executing well, completing a smooth integration with the Sea Ray team, and capturing the cross-selling and supply chain synergies between our two businesses. Alongside that, we’ll keep managing through fuel cost pressure, driving efficiencies across our network, and staying disciplined as we evaluate further opportunities that strengthen the platform. Thank you for your continued support. We look forward to updating you on our progress next quarter.

I’ll now turn it over to the operator for Q&A.

OPERATOR

Thank you. We will now be conducting a question-and-answer session. If you’d like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.

Our first question is from Aaron Gray with Alliance Global Partners. Please proceed with your question.

Aaron Gray (Analyst)

Hi, good evening, and thank you very much for the questions. First question for me, just want to get an update in terms of where you stand on some of your cross-selling initiatives. I think you mentioned last call some might be able to be starting the end of 2026, so any update there? And then how we should think about the timing of some of the cross-selling opportunities as part of the top-line synergies with the acquisition. Thanks.

Xi Lin (President and CEO)

Hi, Aaron. Yes, so if you look at Q3 specifically, most of the growth has been driven by seafood volume. I think that’s part of our cross-selling strategy, specifically in the East, in the Southeast, kind of kicking in. So I would say that is still very much on the front end of it. So I think we expect in 2027 there’s perhaps going to be a little bit larger cross-selling piece to the growth strategy, especially where investments are going in in Chicago as well, where we’re trying to get into non-frozen seafood business. So again, overall we’re still in the early stages of that. When we quantify the overall cross-selling opportunity, you know, several hundred million dollars of organic growth opportunity, that’s really over a three- to five-year period.

So we do expect that in the subsequent years that number is going to grow from here. And then from Sea Ray’s standpoint, I think we’re still in the very beginning phase of that. I think the focus right now is how do we integrate the business in fully from a systems and data and all that standpoint. So we expect over the next few months that’s going to be the priority before we get into kind of a full cross-selling or synergy exploration.

Aaron Gray (Analyst)

Okay, great. Thanks, Felix. Second question just on the Sea Ray acquisition. Right. So I can appreciate still early days of having closed it, just maybe initial indications in terms of how it’s been relative to your expectations. I know it’s been a while since you had a larger acquisition, so just the team’s ability to integrate it, how’s that been relative to your expectations and how that could impact how much more you could take on potentially with another acquisition as you continue to evaluate.

Thank you.

Xi Lin (President and CEO)

Yeah. From an integration readiness standpoint, you know, we’ve been spending the last 12, 18 months really a big part of our transformation planning. You know, the end result of that is not only trying to gain efficiency throughout our own core business, it’s also to make sure we have a ready-to-go M&A integration playbook. So I think what we’re seeing, especially through the first month, you know, a couple months of owning Sea Ray, we’re seeing that M&A playbook come into play here.

So things have been going fairly smooth and there haven’t been really any surprises in terms of the Sea Ray business. And again, I think we’re trying to do this as efficiently as we can, but also making sure that again, we’re taking the necessary steps to make sure there’s no issues that are coming out of it from a capacity standpoint. Again, we’re always going to be very optimistic. You know, 12, 18 months ago we talked about M&A wasn’t necessarily on the radar screen, but because we are the acquirer of choice, not only is it in the U.S. market, but now we’ve proven the fact that we’re in the Canadian market as well.

So the pipeline is still very much vibrant and we’re just going to be evaluating these as they come in. But we do expect that M&A will continue to be a core part of our growth strategy here on a go-forward basis.

OPERATOR

Our next question is from Daniel Harriman with Sidoti & Co. LLC. Please proceed with your question.

Daniel Harriman (Analyst)

Felix. Paul, good afternoon. Thanks for taking my questions. I just have two quick ones today. Obviously you understand that DS&A was up in the quarter with fuel, but trying to get a sense of how much of that was just one-time deal and financing cost and where you think it’ll settle in subsequent quarters. And then obviously the contribution from Sea Ray was strong for the one month that it was there. Do you think that that’s a decent run rate, what they did that one month to kind of use moving forward as we think about the end of 2026 and beyond.

Paul E McGarry (Chief Financial Officer)

Yeah. Hey Daniel, this is Paul. I think for the Sea Ray, one month that’s probably good to use going forward. I mean, it’s early, but that’s what we’re kind of looking at right now. The DS&A, the breakdown of those, I think you’re looking at more than half was related to one-time charges related to the acquisition and the upsizing of the ABL on the property portfolio. And then the rest was mainly fuel. I mean, there’s some uptick in our lease expense, but mainly fuel.

And obviously with the fuel as it is, you know, we’re not sure when that’s going to end, but we put some programs in place to try to offset that or mitigate some of those costs. But the one-time costs we see falling off here. There’s some drag for the quarter a little bit, but nothing major that we see going forward.

Daniel Harriman (Analyst)

Very helpful. Thanks, Paul.

OPERATOR

Our next question is from Bill Kirk with Roth Capital Partners. Please proceed with your question.

Bill Kirk (Analyst)

Hey everybody, thank you for taking the questions here. I guess understanding that there’s no explicit guidance, I was hoping you could help us think about in what ways 2027 might look different than 2026 and in what ways would it maybe look similar to what we’ve seen so far in 2026.

Xi Lin (President and CEO)

Hi Bill, thanks for the question. Look, I mean, you know, overall, you know there’s a lot of changes here in 2026, right? If we just think about isolated to Q3 for a second. Even within Q3, if you look at from a macro standpoint, fuel, the national average diesel price, how much that have changed for the month of July, I think the index was roughly about 31% higher year over year. August was 45% and then September was roughly about 64% higher. So that changes quite a bit of dynamic in terms of the things that we’re facing, which impacts both the input inventory cost, pricing, and certainly DS&A outbound delivery charges.

And now with Sea Ray acquisition coming into play. So I think overall next year the focus will be how do we manage some of these fuel challenges that continue to kind of drag down the overall industry. Is this going to be a short term where we will see a little bit of a retreat on the diesel price over the next three, six months? That will have a material implication in terms of how 2027 is going to go. And certainly, you know, for Sea Ray we’re going to try to fully integrate that in and then from there expand a high margin business here, try to grow that business significantly in 2027.

So I think it’s too early to tell, but we’re certainly going through that process now as part of our annual budgeting process here for ’27.

Bill Kirk (Analyst)

Okay, that’s great. And then Felix, you called out the M&A environment. I think you used the word vibrant. When you look out there, do you see other of these Sea Ray type deals, meaning like 5 times EBITDA for 15% EBITDA margins? Are there other things out there like that? Or when we think about your M&A strategy, is Sea Ray kind of unique in that regard of what’s available and out there.

Xi Lin (President and CEO)

I think going through the whole Sea Ray acquisition process, it certainly opened up a whole new kind of a market for us. If you look at the Canadian market, you know, granted it’s a much smaller market compared to us. You know, it’s 40 million people versus 300 plus million here stateside. But I think there are a lot of opportunities there. So we do see potential other targets that have similar financial profiles compared to Sea Ray. But again, you know, if you look at it from an M&A standpoint, there’s all these different criteria we look at.

Some of it could be in-market play where there’s margin expansion opportunity for our existing businesses. Some of it might be some of the synergies that we can leverage. So again, we have a pretty significant pipeline and all these different targets fit into different bills of it. So I think we just got to evaluate them as they come up and certainly we’re trying to be patient, exercise just with a little bit of caution. But again, I think 2027 we do expect ourselves to continue to be active here on the M&A front.

Bill Kirk (Analyst)

Thank you. I appreciate all that context, Felix.

OPERATOR

We’ve now reached the end of the question and answer session. I would like to turn the floor back over to Xi Lin for closing comments.

Xi Lin (President and CEO)

Again, want to thank everyone for paying attention and continuing to support HF Foods Group. You know, going through Q3, even though we have seen some pretty challenging macro factors that have impacted the overall industry and the business, again, I think the agility and the flexibility of HF, how we have conducted ourselves, our business over the last 25, 30 years, continue to set us apart versus some of our competition. So we expect again over the next several quarters some of these, hopefully, the factors that have been impacting us subside. But the future still remains very bright for the company and we look forward to continuing to execute on our plan. I look forward to updating you guys on our progress here in the next quarter. Thank you.

OPERATOR

This concludes today’s teleconference. Please disconnect your lines and have a good day.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.