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DATE

Monday, Aug. 10, 2026 at 4:30 p.m. ET

CALL PARTICIPANTS

  • President and Chief Executive Officer - Xi Lin
  • Chief Financial Officer - Paul E. McGarry

TAKEAWAYS

  • Net Revenue -- $323.8 million, growing 2.8% year over year driven by organic volume growth and improved pricing in seafood and commodity segments.
  • Adjusted EBITDA -- $13.6 million, representing a 2% decrease year over year and a 4.2% margin for the quarter.
  • Sea Ray Foods Purchase Price -- CAD 47.9 million or approximately $35 million, representing a multiple of approximately five times the target's 2025 adjusted EBITDA.
  • Sea Ray Revenue Growth -- 15% annually since 2019, with the business maintaining adjusted EBITDA margins in the mid-teens.
  • Gross Profit Margin -- 17% compared to 17.5% in the prior year quarter, reflecting the impact of incremental tariffs that took effect starting in the third quarter of 2025.
  • DS&A Expenses -- $52.2 million, an increase of $1.2 million year over year due to higher auto, truck, insurance, and professional service expenses.
  • Incremental Fuel Costs -- $1.4 million year over year, which management attributed to elevated diesel prices affecting the distribution fleet.
  • GAAP Net Income -- $2.6 million, an improvement from $1.2 million in the prior year period primarily due to non-operating income items.
  • Employee Retention Credit -- $1.8 million including interest, which supported the year-over-year improvement in net income.
  • IEEPA Tariff Refund -- $1.1 million received during the quarter, partially offsetting the impact of increased tariff costs on gross profit.
  • Non-GAAP Diluted EPS -- $0.12, which remained flat compared to the results reported for the second quarter of 2025.
  • Capital Expenditures -- $20.3 million for the first six months of 2026, including $12.4 million for the purchase of a previously leased Chicago distribution center.
  • Solar Investment -- $2.8 million for the first half of the year, which management expects will qualify for a 40% investment tax credit refund.
  • Asset-Based Revolving Credit -- Increased from $125 million to $140 million following a July 29 credit facility amendment and refinancing.
  • Term Loan Refinancing -- Outstanding balance of approximately $95 million was refinanced into new term loans totaling $125 million maturing in 2036.
  • Seafood Revenue Mix -- 36% of total net revenue, with volume gains in the category helping to offset pricing pressure in other segments.
  • Sea Ray Baseline EBITDA -- Roughly CAD 9.6 million or approximately $7 million, expected to be accretive to consolidated margins upon closing.
  • Six-Month Net Revenue -- $635.8 million, an increase of 3.7% compared to the $613.3 million reported in the first half of 2025.
  • Utah Building Sale Gain -- $1.4 million recognized in the first six months of 2026 as part of the company's real estate management activities.
  • Interest Rate Swap Fair Value -- $1.4 million favorable year-over-year change for the quarter, contributing to total other income.

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RISKS

  • CFO McGarry stated, "The increase was driven primarily by higher auto and truck expense reflecting elevated incremental fuel costs of approximately $1.4 million year over year," noting the persistent headwind from energy pricing.
  • CEO Lin reported that "tariff pressure softer foot traffic, and rising fuel costs continue to weigh on the industry," identifying these as ongoing macroeconomic challenges to the food service sector.
  • CEO Lin indicated that while takeout remains strong, management has observed "continued foot traffic noise that we are seeing on the buffet and dine in restaurants," noting inconsistent recovery in certain restaurant segments.

SUMMARY

Management reported that HF Foods Group Inc. (HFFG -0.54%) achieved its highest quarterly revenue to date while initiating an international expansion strategy through the acquisition of Sea Ray Foods. The company stated that it has completed the implementation phase of its business transformation program and is shifting focus toward operational optimization and cross-selling. Financial results for the period were supported by tariff refunds and employee retention credits, which offset margin pressure from rising fuel costs and increased tariffs. Management indicated that a refinanced and upsized credit facility provides the liquidity needed to pursue further selective M&A opportunities as the company targets a consolidated adjusted EBITDA margin of 4.5% to 5% plus over the next three to five years.

  • CEO Lin identified the Sea Ray acquisition as a platform for Canadian growth, stating, "Sea Ray's business carries a margin profile well above our current company, and it becomes a meaningful part of our growth story in the market for years to come."
  • The company expects to close the Sea Ray transaction no later than Aug. 31, 2026, marking its first geographic expansion outside the United States.
  • CEO Lin attributed sales growth in the seafood category to a "heavy push" in the Southeast market, where the company is focusing on capturing new market share through increased freezer capacity.
  • CFO McGarry noted that the company's transformation program is now "largely built rather than under construction," allowing for a focus on route efficiency and tighter cost controls.
  • The Sea Ray acquisition provides entry into retail and wholesale channels, which CEO Lin described as "a great platform to potentially open up new channels" beyond the company's traditional focus on independent restaurants.
  • The company is awaiting final inspections for a renovated distribution center in Charlotte, which CEO Lin indicated could be operational within two weeks to improve distribution efficiency for the Great Wall Virginia business.
  • Management confirmed that HF Foods remains the largest player in the Asian specialty food service space, with CEO Lin stating, "No 1, whether larger or smaller competitors, is better positioned than HF Foods to capture this opportunity in the coming years."

INDUSTRY GLOSSARY

  • IEEPA: International Emergency Economic Powers Act, under which certain tariff refunds may be granted.
  • DS&A: Distribution, selling, and administrative expenses, representing the overhead costs of operating the business.
  • Adjusted EBITDA: A non-GAAP financial measure representing earnings before interest, taxes, depreciation, and amortization, excluding certain non-recurring or non-cash items.
  • Sea Ray Foods: A Richmond, British Columbia-based importer and distributor of specialty seafood and the company's first international acquisition target.
  • ATM sale: An at-the-market equity offering that allows a company to sell shares into the public market over time.

Full Conference Call Transcript

Operator: Greetings, and welcome to the HF Foods Group's Second Quarter 26 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I would now like to turn the conference over to your moderator today, Jonathan DeDomenico of ICR. Please proceed.

Jonathan DeDomenico: Hello, everyone. Welcome to HF Foods Group Second Quarter 26 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 previously announced agreement to acquire Sea Ray Foods and the timing terms, and anticipated benefits of that transaction.

If you refer to HF Foods earnings release, the Sea Ray acquisition press 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 I have included in the earnings release a full reconciliation of non GAAP financial measures to the most comparable GAAP measures.

Operator: Now will turn the call over to Xi Lin.

Xi Lin: Hello, everyone. Welcome to HF Foods second quarter 26 earnings call. I will provide a business update, and Paul will speak to our second quarter financial results. Then we will open up the line for Q&A. We continue to build momentum in the second quarter even as tariff pressure softer foot traffic, and rising fuel costs continue to weigh on the industry. Net revenue increased 2.8% year over year to $323.8 million our highest ever quarterly revenue. Gross profit was essentially flat at $55 million for the quarter. Adjusted EBITDA was $13.6 million, down 2% year over year representing a 4.2% margin compared to 4.4% in the prior year quarter.

These results are especially impressive on a year over year basis given that last year's second quarter benefited from low cost inventory positions and better pricing. Which lifted margins in the second quarter of 25. We continue to make progress on our long term transformation plan this quarter, including our sales operations digital infrastructure, and facilities upgrades. We remain confident these investments are building a stronger foundation for sustainable growth. Even as we continue to navigate some near term pressure from rising fuel costs. Which we are actively managing.

The clearest proof point of our strategy came on July 17, when we enter into a definitive agreement to acquire Sea Ray Foods a leading Canadian importer and distributor of ethnic and specialty frozen seafood, based in Richmond, British Columbia. it is our first transaction outside The United States. and extends our M&A playbook into a new geography. Sea Ray brings 6 proprietary brands including Sea Ray Foods, High Best, Cindy's Best, SmartFish, Diamond Shrimp, and Go Label. Into our seafood category. Which already makes up about 36% of our net revenue. Sea Ray has grown revenue at roughly 15% a year since 2019.

With EBITDA margins in the mid teens and approximately 5x Sea Ray's 2025 adjusted EBITDA we expect the transaction to be accretive to both margins and EPS from close. Supporting the consolidated adjusted EBITDA margin target of 4.5 to 5% plus we have laid out for the next 3 to 5 years. We expect to close in the third quarter subject to customary conditions and regulatory approval. And Sea Ray's existing management team led by incoming CEO, Derek Ng, will continue running the business day to day. Consideration is a mix of cash and HF Foods stock, and we will disclose the final split at closing. Once closed, Sea Ray gives us a platform to grow in Canada.

Sea Ray's business carries a margin profile well above our current company, and it becomes a meaningful part of our growth story in the market for years to come. Beyond Sea Ray, M&A remains a core pillar of our growth strategy. HF 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. 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 additional M&A opportunities in 2026 and beyond.

And are actively evaluating opportunities from potential sellers who understand our unique position. We believe our proven ability to successfully navigate the tariff landscape positions us uniquely to identify and execute attractive tuck in acquisition that will benefit from our operational expertise and scale. I want to emphasize the significant runway ahead of us. The $50 billion addressable market we have talked about historically reflects the US alone, and with Sea right now giving us a foothold in Canada our total opportunity is even larger. At just over $1 billion in net revenue, we are the largest player in the Asian specialty space.

No 1, whether larger or smaller competitors, is better positioned than HF Foods to capture this opportunity in the coming years. Now Paul, our CFO, will walk you through more details of our financial performance for the quarter.

Paul E. McGarry: Thanks, Xi. I will now review our results for the quarter ended June 30, 2026. Versus the same period in 2025. Net revenue for the quarter increased 2.8% or $8.9 million to $323.8 million from $314.9 million in the prior year quarter. The increase was primarily due to volume growth and improved pricing in seafood, followed by volume growth in commodity, partially offset by price decrease in meat and poultry. Gross profit was $55 million for the quarter, essentially flat compared to $55.1 million in the prior year quarter. Gross profit margin decreased to 17% for the quarter compared to 17.5% in the prior year quarter.

Margin was impacted by incremental tariffs that took effect beginning Q3 of 25 partially offset by some IEEPA tariff refunds received during the quarter. Distribution, selling and administrative expense, or DS&A, increased $1.2 million or 2.4% to $52.2 million for the quarter. The increase was driven primarily by higher auto and truck expense reflecting elevated incremental fuel costs of approximately $1.4 million year over year. Together with higher insurance and professional service expense, partially offset by lower personnel expense as a result of our transformation initiatives. DS&A as a percentage of net revenue was 16.1% for the quarter compared to 16.2% in the prior year quarter.

Adjusted EBITDA decreased 2% to $13.6 million for the quarter compared to $13.8 million in the prior year quarter. Adjusted EBITDA margin was 4.2% compared to 4.4% in the prior year quarter. Total interest expense was $2.9 million for the quarter compared to $2.8 million in the prior year quarter. The increase reflects a higher average daily line of credit balance, of $12.1 million to $65.7 million partially offset by lower average term loan balance and modestly lower floating rates. Net income attributable to HF Foods was $2.6 million for the quarter compared to $1.2 million in the prior year quarter. The improvement was primarily driven by an employee retention credit of $1.8 million which includes interest.

IEEPA tariff refund of approximately $1.1 million, and a $1.4 million favorable year over year change in the fair value of our interest rate swap contracts. These items were partially offset by a $1.3 million decrease in income from operations and a $700 thousand year-over-year change in net income attributable to noncontrolling interests. Adjusted net income attributable to HF Foods was $6.4 million for the quarter and essentially flat compared to the prior year quarter. Earnings per share improved to $0.05 compared to $0.02 in the prior year quarter. Adjusted earnings per share was $0.12 for the quarter and flat compared to the prior year quarter.

Now on CapEx, We spent approximately $20.3 million for the first 6 months ended June 30, 2026. And I want to give a little color on that. The spend is driven principally by the $12.4 million purchase of our previously leased Chicago distribution center, along with $2.8 million of solar investment, which is expected to lower operating costs, $2.1 million of capacity expansion, and $1.4 million of fleet upgrades. Recurring maintenance expenditures were approximately $1.7 million. On the solar investment, we will benefit from an investment tax credit refund that will reduce our overall investment by 40%. Turning to the balance sheet. After quarter end on July 29, we closed an amendment that refinanced and upsized our credit facility.

Our bank group is JPMorgan Chase as administrative agent and the lender together with Fifth Third, and TD Bank, which joined the facility in connection with this transaction. We increased our asset based revolving commitments from $125 million to $140 million. And refinance our existing term loans, which had an outstanding balance approximately $95 million into term loans totaling $125 million. The revolving facility now matures in July 2031, the term loan in July 2036. The transaction gives us meaningful incremental liquidity to fund our growth initiatives for both the Sea Ray acquisition and our ongoing facilities investments. Because the refinancing closed after quarter end, it is not reflected in this quarter's financials.

Full terms are available on the Form 8 k we filed on July 31, and I want to thank our banking partners for their commitment in helping us drive the growth of HF Foods. Now to the transaction we announced on July 23. On July 17, we signed a definitive agreement to acquire Sea Ray Foods, This is the first acquisition outside the United States in HF Foods' history. It is the clearest evidence yet of what we mean when we say we are the acquirer of choice in this category. The transaction is expected to close in August 2026 and is the most consequential thing we have done this year.

The aggregate based purchase price is CAD 47.9 million, or approximately $35 million with the sellers also eligible for contingent earn out payments tied to specific EBITDA targets over a 2- to 3-year period following the closing. Consideration is a mix of cash and HF Foods common stock which can be reviewed in the Form 8 k we filed announcing the transaction. We expect to close no later than August 31 subject to customary closing conditions and receipt of any required regulatory approvals. Now the economics, which are what makes this acquisition compelling. The base purchase price represents approximately 5 times Sea Ray's baseline adjusted EBITDA of roughly CAD 9.6 million or approximately $7 million US.

Sea Ray runs adjusted EBITDA margins in the mid teens against our consolidated adjusted EBITDA margin of 4.2% this quarter So this is a business that is margin-accretive to the platform from day 1. And moves us towards the 4.5 to 5% plus consolidated target we have laid out. We are earning a higher margin business at a mid single digit and that is exactly the discipline we told you we would bring to M&A. Let me close by putting the quarter in a broader context. This is our sixth consecutive quarter of year over year net revenue growth. And at $323.8 million, it is the highest quarterly net revenue in the company's history.

On a trailing 12-month basis, we are now at approximately $1.25 billion, and all of that growth has been driven by organic volume increase and better pricing. So we entered the second half with 3 things in place that we did not have a year ago. First, a refinance and upsize credit facility with revolving commitments of $140 million, term loans termed out to 2036, and materially more liquidity to deploy. Second, a signed definitive agreement for our first acquisition outside the United States at an attractive multiple with a margin profile well above our own. And third, a transformation program that is now largely built rather than under construction which lets us shift from implementation to optimization.

Purchasing discipline, route warehouse efficiency, cross selling opportunities, and tighter cost control as fuel and other input costs remain elevated. We will stay disciplined on capital deployment and selective on the tuck in opportunities that strengthen the platform. The balance sheet capacity we just created is there to support that and Sea Ray is the first demonstration of what we intend to do with it. With that, I will turn it back to Xi.

Xi Lin: Thanks, Paul. Before we move to Q&A, I want to spend a moment on why Sea Ray is such a significant milestone for us. Sea Ray has spent 25 years building its business in Canada, and we are proud to have them join HF Foods. Just as Sea Ray gives us a platform to grow in Canada, Sea Ray has recently established its own operations in the US. Including a planned direct import operation in Los Angeles. And we believe our distribution network, sourcing scale, and West Coast infrastructure can help accelerate that. Sea Ray also brings a customer base that includes retail wholesale, and restaurants. We talk for a long time about expanding our platform beyond the United States.

And Sea Ray is the first step in that long-stated strategy. Now our focus turns to executing well. Working closely with the Sea Ray team on a smooth transition, and beginning to act on the cross selling and supply chain opportunities as the deal moves toward closing in the third quarter. Alongside that, we will keep advancing the facilities and system work already underway and we will stay 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 will now turn it over to the operator for Q&A.

Operator: Thank you. We will now conduct a Q&A session. Once again, that is *1 at this time. 1 moment while we poll for the first question. The first question comes from Aaron Grey with Alliance Global Partners. Please proceed.

Aaron Grey: Hi, good evening. Thank you very much for the question and congrats on the quarter here. I guess first question for me, just in terms of the Sea Ray acquisition, obviously, adding the geography with Canada, but would love to hear more in terms of some of the depth or scale specifically within seafood category and what opportunities the acquisition will bring for you guys. Thank you.

Xi Lin: Yes. Hi, Aaron. it is Xi. Yeah. You were specifically from a customer mix standpoint, we see Sea Ray as a great platform to potentially open up new channels here for us. Historically, for the US market, HF, our business has been focused on independent restaurants. For Sea Ray, independent restaurants in the Vancouver, in the western part of the Canadian market, it is actually a smaller part of their mix. They have a pretty healthy mix of retail and also wholesale business channels that goes into Asian specialty grocery stores. And with the margin that we are seeing, we see that as a huge opportunity for us for the future.

So that is 1 thing that, you know, addition to the margin profile, that is very exciting to us.

Aaron Grey: Okay. Great. Thanks. Appreciate that. Second question for me, on the gross margin profile, came above our estimates even when we strip out some of the tariff refund benefit that you got. So just as we think about the gross margin going forward, particularly as we layer in Sea Ray, where do you see the gross margin profile evolution as you guys look to offset some of these tariff headwinds and otherwise? Thanks.

Xi Lin: Yeah. You know, 1 of the things that we have talked about for the last couple earnings call is we are focusing on how do we expand our gross profit dollar, especially, coming in 2026 the focus has been trying to conquer new market shares through our expansion in the Southeast with newer and higher amount of seafood mix that is coming into the business. So I think, obviously, 1 thing that was not expected in 2026 with the pricing fuel cost. So we expect volume is going to continue to tick up to offset some of the margin and conquest accounts related margin concession that we will be giving.

But with Sea Ray, their gross profit margin is north of 20%. So I think, over time, especially in Q4, that is gonna be a nice mix of business coming in. For the fourth quarter of the year for us.

Aaron Grey: Okay. Great. Thank you very much for the detail. I will go ahead and jump back in the queue.

Operator: The next question comes from Daniel Harriman with Sidoti and Company. Please proceed.

Daniel Scott Harriman: Congrats on a great quarter. Just a couple of quick ones for me, kind of following up on the last 1 there. Just curious if you can update us on some of the cross selling initiatives across the Southeast and the Midwest and where you are in that ramp and how we should think about the pace from here. And then regarding operating income, just looking to see when we can expect maybe Charlotte and Atlanta to start showing up in some of the numbers. Thanks so much.

Xi Lin: Hi, Daniel. So let's address Southeast first. Right? And, again, you know, Southeast yes, we have enjoyed a little bit of additional capacity here in the first half of the year. 1 thing to note is that our additional freezer capacity likely will not be ready until later in the year or even into 2027. But we have seen a meaningful volume increase with respect to seafood so volume has grown in that category. Charlotte is still going through inspection at the moment. So all the renovation is 100% completed. So, hopefully, within the next week or 2, Charlotte can be operational.

And Charlotte itself, specifically, it is more of an efficiency play with us being able to cut our distribution routes for our Great Wall Virginia business that is currently based out of Richmond, Virginia. So probably gonna be in Q4 or so. We just see some DSNA improvement coming from Charlotte. With the Midwest, we are doing some minor capacity improvement. So, again, likely, it is going to be toward the end of 2026 and then 2027 before we see some meaningful capacity expansion opportunity there.

Daniel Scott Harriman: that is really helpful. Thanks so much.

Operator: The next question comes from William Kirk with Roth Capital. Please proceed.

William Joseph Kirk: Hey. This is William Joseph Kirk on for Bill, Thanks for taking the questions. First for me, on traffic. You mentioned previously that takeout strength has offset dine in. Has that trend held, and were there any notable changes in traffic related to the World Cup? In any of your regions or any other drivers of incremental traffic on the quarter? Any color there would be helpful. Thank you.

Xi Lin: Yeah. I mean, not specifically to World Cup. Now there is a seasonality to our business, right? I mean, Q2 generally is 1 of our higher kind of foot-traffic volume quarter. And then as you get into Q3, you know, with kids going out of school and summer vacation happening, then the foot traffic typically kind of slowed down a little bit. But we have seen a pretty meaningful kind of improvement on takeout that we have seen, historically in Q2. Offsetting by some continued foot traffic noise that we are seeing on the buffet and dine in restaurants. So nothing too different versus the prior year. it is kind of normal seasonality that we are seeing.

In 2026 so far.

William Joseph Kirk: And I appreciate that. Second for me, on the EBITDA beat, you mentioned recently being more aggressive pricing wise in some categories to take share, but margins were up sequentially and EBITDA came in higher. Just help us unpack that a little more and where specifically that came from? Thank you.

Xi Lin: Yeah. You know, we have been actively going on the offense. right? And historically, we have really benefited from business coming to us just over nearly 3 decades in business. So for the first time, we have been running a lot of promotional campaigns with our West Coast business, working with some key vendors to partner, kind of expand their brand and their awareness in the market. Then specifically in the Southeast, it is a heavy push on seafood. So I think, specifically in Q2, we have seen some meaningful volume gains on the seafood side.

Which drove some of the gross profit dollar improvement that is offsetting some of the pricing pressure that we are seeing both because of the rising diesel cost and from a conquest standpoint, So I expect for the rest of the year in 2026, we are still going to be in this kind of conquest mode. Before margin and everything else gets normalized. Probably in 2027 and beyond.

William Joseph Kirk: Great. that is it for me. Congrats again on the quarter. Thank you.

Operator: At this time, I would like to turn the floor back over to Xi Lin for closing comments.

Xi Lin: Again, I want to thank everyone for your continued support of HF Foods. it is an exciting time for us. We continue to execute on our strategy. We look forward to closing the Sea Ray acquisition in the coming weeks. It will be a significant milestone for us. We will update you all on the progress of integration on our next earnings call. Thank you for your time. Thank you.

Operator: This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.