HF Foods Group, Inc. Aktie

Greetings, and welcome to HF Foods Group First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host to turn the call over to Mr. John DeDomenico. Thank you, and over to you, Mr. DeDomenico. You may begin.

Hello, everyone. Welcome to HF Foods Group's First Quarter 2026 Earnings Conference Call. Joining me on today's call are Felix Lin, the company's President and Chief Executive Officer; and Paul 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 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 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 Felix.

Hello, everyone. Welcome to HF Foods First Quarter 2026 Earnings Call. I'll provide a business update, and Paul will speak to our first quarter financial results. Then we'll open the line for Q&A.

As we mentioned on our last call, 2025 brought headwinds for the broader foodservice industry in terms of tariff pressure and lower foot traffic. We saw many of these pressures continue, particularly with the added pressure from rising fuel prices. But against this backdrop, we drove meaningful continuous momentum for our business. Net revenue increased 4.5% year-over-year to $312 million due to higher volume and gross profit decreased slightly to $50.5 million, driven by higher mix of seafood during the quarter. Also notably, adjusted EBITDA increased 3.8% year-over-year to $10.1 million.

We made meaningful progress on our long-term transformation plan with respect to sales operations, digital infrastructure and facilities upgrades. We consolidated 2 sales call center operations into one unified team as of late December 2025. This consolidation provides us better control over the overall sales process and improved customer service while maintaining the distinct connection we have with our customers through our understanding of their business, language and product needs.

Importantly, this unified approach enables us to maintain consistent pricing strategies across our network, while the efficiency gains are already evident with lower DS&A spend on sales commissions as the new team continues to adapt. With the ERP implementation completed, we're now actively working on driving operational efficiencies through system and data optimization. The new system positions us to achieve higher level of purchasing efficiency by consolidating buying across our distribution centers and enables operational improvements through enhanced route optimization capabilities.

We recategorized a significant number of SKUs as part of the system implementation. The next phase of our digital transformation focuses on improving overall customer experience. We're actively developing a customized customer portal that will enable transactional visibility and improve efficiency. On facilities, we successfully completed the acquisition of our previously leased facility in Chicago and are actively expanding cooler and ambient capacity. This move is part of our broader cross-selling strategy, driving organic growth.

The Charlotte facility is largely ready and still pending final permits from local government. We expect Charlotte to be fully operational in late second quarter or early third quarter of 2026, which will shorten our seafood distribution routes in the Southeast. We're also kicking off Phase 2 of Atlanta's freezer expansion plan, which will nearly double our cold storage capacity in the Atlanta market from 10,000 to 20,000 square feet, where we've historically been limited by cold storage capacity. This will likely be operational ready by the end of 2026. We see all 3 facilities upgrades as a cornerstone of our cross-sell strategy in the Southeast and Midwest in the future.

Between the Southeast and Midwest, there's several hundred million dollars worth of organic growth opportunity as we continue to invest and expand capacity. These exciting infrastructure investments reflect our ongoing commitment to optimizing our distribution network and creating a stronger foundation for sustainable growth. Based on current trends, we do expect some short-term pressure due to increased cost of goods sold and outbound distribution costs related to rising fuel costs, which we're taking actions to mitigate this impact.

We remain extremely confident in our long-term growth strategy and are committed to our capital investment plans as we continue our growth momentum in 2026 and beyond. 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're 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 2026 and beyond, and we're 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 acquisitions that will benefit from our operational expertise and scale. I want to emphasize the significant runway ahead of us. We operate in a $50 billion addressable market and at just over $1 billion in net revenue. We are the largest player in the Asian specialty space. No one, whether larger or smaller competitors is better positioned than HF Foods to capture this opportunity in the coming years.

Now over to Paul, our CFO, to walk you through more details of the financial performance for the quarter.

Thanks, Felix. I will now review our results for the quarter ended March 31, 2026, versus the same period in 2025. Net revenue for the quarter increased 4.5% to $312 million from $298.4 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 volume decreases within other categories. Gross profit slightly decreased by 0.8% to $50.5 million for the quarter compared to $51 million in the prior year quarter. The decrease was primarily due to increased sales in lower-margin products like seafood and an uptick in landed costs. Gross profit margin decreased to 16.2% for the quarter compared to 17.1% in the prior year quarter.

Distribution, selling and administrative or DS&A expenses decreased by $0.3 million to $49.5 million for the quarter, primarily due to decreases in professional fees and bad debt expense, partially offset by an increase in auto and truck expenses and depreciation. DS&A expenses decreased as a percentage of net revenue to 15.9% for the quarter compared to 16.7% in the prior year quarter. Adjusted EBITDA increased 3.8% to $10.1 million for the quarter compared to $9.8 million in the prior year quarter. Total interest expense increased slightly to $2.8 million for the quarter compared to $2.6 million in the prior year quarter.

Net income attributable to HF Foods was $1.2 million for the quarter compared to a net loss of $1.6 million in the prior year quarter. The quarter-over-quarter improvement was primarily due to strong revenue growth along with controlled cost oversight and the gain on sale of an asset. Adjusted net income attributable to HF Foods decreased $0.1 million to $3.4 million compared to $3.5 million in the prior year quarter. Earnings per share improved to $0.02 compared to a loss per share of $0.03 in the prior year quarter.

Adjusted earnings per share decreased to $0.06 compared to $0.07 in the prior year quarter. Stepping back from the details, the quarter reinforces the business is progressing in a challenging cost environment. Our focus is now on execution, converting the transformation work we've completed into measurable operational gains, including purchasing discipline, route and warehouse efficiency and tighter cost control as fuel and other input costs remain elevated. As the systems foundation is now in place, we're moving from implementation to optimization while continuing to support organic growth through cross-selling and network capacity investments. We'll stay disciplined on capital deployment and remain selective on strategic tuck-in opportunities that strengthen the platform.

With that, I'll now turn it back over to Felix. Thanks, Paul.

As we look ahead to the remainder of 2026 and beyond, I want to emphasize our commitment to executing the comprehensive transformation initiatives that are reshaping HF Foods. 2025 was a year of strategic investment for HF and 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 targeted M&A initiatives.

Our key competitive advantages stem from the growing demand for our Asian cuisine and our unmatched position as a leading nationwide agent 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'll now hand over to the operator for live Q&A.

[Operator Instructions] The first question comes from the line of Aaron Grey with Alliance Global Partners.

Just first question for me. I just want to think about the gross margin, talk a bit more on it. Obviously, you guys have some headwinds right now given the macro backdrop and rising fuel prices. So how do we think about the near to medium impact of that as we also think about potential offsets in terms of your own efficiency gains, particularly with the implementation of your ERP program?

Yes. So I think in the short term, the elevated costs, as Paul had mentioned, is probably continue to persist here for a little bit. If we look at our business specifically, we talked about in the past, we operate very much in the spot market where we buy and sell everything from a spot standpoint versus contracts. So at least on the year-over-year comparisons, as we get into the second quarter, we benefited last year from lower cost inventory as the tariffs were implemented.

So going forward, we saw some of that higher cost coming through in the second half of 2025 that had continued on to Q1 of '26, which, again, we think that's going to be here for a little while in Q2 and maybe even Q3 of '26 here. But internally, again, we're doing a lot of things trying to mitigate from an overall cost structure standpoint. So a lot of the programs that we have implemented in place. One of the things we mentioned is the transaction to convert a lease to -- of a facility to something that we own today, which has cut down on our occupancy expense. Professional fees have gone lower and then also the sales operation, these are the things that we're actively working on trying to improve operational efficiency to make sure that overall, there's still going to be this bottom line improvement that we've seen year-over-year.

Appreciate the color there, Felix. Second question for me. As we think about some of the headwinds with fuel prices obviously have an impact on you guys, often, we'll see these types of headwinds have an even bigger impact for smaller operators. So wondering if that's the case that you're seeing here and what impact that might have maybe positively on potential M&A targets who are more inclined to want to partner with a larger operator with you. So just any impact on the broader competitive environment and if that's helping you in terms of potential M&A targets?

Yes. We're definitely seeing the amount of inbound M&A costs tick up over the last several months or so. As we talk about a lot of smaller players, they are really being squeezed, whether it's from the elevated inventory costs or now from an operating cost standpoint with the added few costs. So over time, we do see that as an advantage. Similar to what we saw back in the pandemic days where the operating environment becomes a lot tougher for the smaller players, and you have these family-owned businesses that generally because of the pressure, looking for an exit. So that is a positive for us, and we're actively evaluating an increased level of activities and opportunity behind the scenes for sure.

Next question comes from the line of Daniel Harriman with Sidoti & Company LLC.

Congrats on the great quarter. Guys, I just kind of wanted to follow up on that prior question about gross margin and give you an opportunity to talk a little bit about Charlotte and what your expectations are longer term for gross margins and also DS&A just as Charlotte comes online and some of your distribution routes shorten, maybe even within seafood. I know the mix there was a cause of the gross margin contraction in the quarter. And then now that you've got Atlanta up and running and kind of like a cornerstone of your cross-selling strategy in the Southeast. I'm curious if you have any proof points you could share with us in terms of new accounts or expanded wallet share or even more SKUs to really help us understand what the long-term impact could be of that facility?

Yes. Yes. Look, both the Charlotte facility and the Atlanta expansion facility toward the end of last year from a strategic investment standpoint have very much been a center point of our cross-selling strategy. And I talked about this previously in that in the Southeast, historically, we have not done a whole lot of frozen seafood business. And given our scale, I think today, frozen seafood as a product category is the largest of our mix at just over $400 million of top line revenue on an annual basis. And with shortened routes with improved distribution efficiency, we do see that as significant leverage where we have over the smaller competitors where we can be a lot more efficient, and that's going to enable us to have better pricing power over those guys as well.

So now we're just a few months into the year with Atlanta specifically, we have opened up a couple of dedicated seafood routes servicing our existing customers. So with Charlotte, again, the construction and the renovation of that facility have largely been complete. We've been just waiting on the permitting from the local government for months now. So the latest on that is we're expecting, again, towards the end of Q2 or beginning of Q3 for the permit to be finally approved and get that up and running, and that should benefit us in the second half of the year.

Next question comes from the line of Bill William Kirk with ROTH Capital Partners.

Felix, on that higher fuel price conversation that you were doing earlier, have you seen any changes in foot traffic as a result, meaning maybe people leaving restaurants in favor of grocery or maybe switching into buffet style customers within restaurants? Are you seeing any foot traffic changes in kind of behavior because of higher fuel prices?

Not in a material way. I think the foot traffic that we're seeing in Q1 of 2026 has been pretty consistent with what we've been seeing in the second half of 2025, largely the lower foot traffic is still limited to some of the larger buffet restaurants that we service throughout the country. But again, with elevated fuel price, there are a number of things that we're doing.

Every single market is different, where in markets where we have a significant market share, for example, our Salt Lake business where we have 80%, 90% of the market share, and it's a lot more rural routes that we're running. We're able to pass along a fairly good bit of the fuel increase. In other locations where there's high competitive pressure, again, over foot traffic play a role in that, and it's very limited opportunity where we can pass on the cost.

Okay. Is it fair to say then that for your customers, April foot traffic would be similar to 1Q?

Yes. I think April, there's a lot of noises, right? April, at least on the year-over-year comparison, I talked about earlier with the tariff impact. Again, we were sitting on a lot of low-cost inventory last April. So we had a significant margin uptick because we're able to sell through that at a higher price.

I think there's a lot of noise from a perspective of both increased fuel price this April and inventory cost at an elevated level. So I think it's still a little bit too early for us to tell specifically through the entire month of April and for the rest of Q2, how much of the impact is going to be due to tariff and how much of it is due to the elevated cost from a fuel perspective.

Got it. And then my second question is on the refining of the sales force. Where are we in terms of that process? And when we're on -- fully on the other side of that refinement, how does the new sales force help HF and drive better customer acquisition or account penetration? What's on the other side of the sales force refinement?

Yes. I think from a business stabilization standpoint, that has been largely complete going through the Q1 of 2026. I think the rest of the year is really about additional training around new product SKUs that we're trying to introduce to the market. Specifically, when we talk about cross-selling of the seafood product in the Southeast. This is where, again, at the end of the day, we have over 20,000 SKUs, right?

And specifically, for the Southeast, there haven't been a significant amount of frozen seafood sales in the past. So that's a bit of a learning curve for the new sales force. But I do expect them getting there in the second half of the year. And a lot of this volume offset is going to come from pushing out seafood here.

Ladies and gentlemen, we have reached the end of question-and-answer session. I would now like to turn the floor over to Felix Lin for closing comments.

First of all, thank you guys for, again, the continued support and paying attention to HF Foods. We are fully committed to what our long-term strategic plan is here, and we're executing on that plan quarter after quarter, and I look forward to updating you guys on the progress here in the coming quarters ahead. Thank you.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Greetings, and welcome to the HF Foods Group Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jon DeDomenico with ICR.

Hello, everyone. Welcome to HF Food Group's 2025 Earnings Conference Call. Joining me on today's call are Felix Lin, the company's President and Chief Executive Officer; and Paul 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 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 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 Felix.

Hello, everyone. Welcome to HF Food's 2025 earnings call. I'll provide a business update and Paul will speak to our 2025 financial results. Then we'll open up the line for Q&A.

It's no secret that 2025 brought headwinds for the broader food service industry in terms of tariff pressure and lower foot traffic. But against this backdrop, we drove meaningful continuous momentum for our business. Net revenue increased 2.2% year-over-year to $1.23 billion, and gross profit increased 1.2% to $207.6 million. Also notably, adjusted EBITDA increased 6.9% year-over-year.

We made meaningful progress on our long-term transformation plan with respect to sales operations, digital infrastructure and facilities upgrades. On sales operation, we have consolidated 2 sales call center operations into 1 as of late December 2025.

The consolidation provides us better control over the overall sales process and improve customer service while maintaining the distinct connection we have with our customers through our understanding of their business, language and private needs.

This will reduce costs while further strengthening our competitive positioning. On digital transformation, we completed the full ERP implementation across all of our distribution centers. The new system will enable us to achieve higher levels of purchasing and operational efficiencies over time.

I would like to note that as part of this implementation, we recategorized many of our SKUs which drive some variability in our year-over-year sales by category. You will see clean comparisons once we lap the implementation in second half of 2026. I'm also happy to announce that with the implementation of a new ERP system, we have fully remediated IT general controls related efficiencies as of year-end 2025. This is a significant milestone.

On facilities, the renovation of our Charlotte location is largely complete with final permits imminent. We expect Charlotte to be operational in Q2 of 2026, which will shorten our seafood distribution routes in the Southeast. Phase 1 construction of our new state of the art Atlanta DC has been complete, becoming operational in January 2026.

We plan to kick off Phase II cold storage capacity expansion in Atlanta to launch in the second half of 2026. Once complete, our co-source capacity in Atlanta market will have almost doubled, expanding from 10,000 square feet to 20,000 square feet. We see cross-selling as a major organic growth playbook and expect the Atlanta facility to be a cornerstone of our cross-selling strategy in the Southeast in the future.

Between Southeast and Midwest, there are several hundred million dollars worth of organic growth opportunity as we continue to invest and expand capacity. In September, we announced the acquisition of our Chicago warehouse. This strategic acquisition advances HFF's ongoing transformation plan to improve operational efficiency reduce costs and strengthen organic growth through cross-selling opportunities.

Acquiring the facility enables us to exit the lease agreement early, improve operating expense and invest 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.

Based on current trends, we expect 2026 to be like 2025 with low single-digit growth on the top line as well as the bottom line for both adjusted EBITDA and gross profit. This also reflects our strategy to ramp up cross-selling opportunities over time, focusing on increasing our share of customers' wallet size and combat competitive pricing pressure in the short term. While we continue to navigate macro headwinds and including tariff pressures and shift in consumer spending behaviors. Our transformation initiatives are paving the way for continued growth and improvement.

We remain extremely confident in our long-term growth strategy and are committed to our capital investment plans as we continue our growth momentum in 2026 and beyond. M&A remains a core pillar of our growth strategy. HFF is the only scaled food service provider in Asian specialty market in the United States, and we believe we are the strategic acquirer of choice within our space.

We're focused on expanding our geographic footprint in high potential markets. capturing operational synergy, broadening our customer base, enhancing our product and service capabilities.

We remain disciplined but optimistic about M&A opportunities in 2026 and beyond. And are actively evaluating opportunities for potential sellers who understand our unique position. We believe our proven ability to successfully navigate the terra landscape positions us uniquely to identify and execute attractive tuck-in acquisitions that will benefit from our operational expertise and scale. I want to emphasize the significant runway ahead of us.

We operate in a $50 billion addressable market. and at just over $1 billion in net revenue. We're the largest player in the Asian specialty space. No one, whether larger or smaller competitors is better positioned at HF Foods to capture this opportunity in the coming years. Now over to you, Paul, our CFO, to walk you through more detail of the financial performance for the year.

Thanks, Felix. I will now review our results for the year ended December 31, 2025, versus 2024. Net revenue for the year increased 2.2% to $1.23 billion from $1.2 billion in the prior year. The increase was primarily attributable to volume growth and pricing improvement in seafood and meat, poultry and volume growth in commodity, partially offset by volume decreases within other categories. Gross profit increased by 1.2% to $207.6 million for the year compared to $205.2 million in 2024. The increase was attributable to increase in net revenue, partially offset by increased costs. Gross profit margin decreased slightly to 16.9% compared to 17.1% in 2024. Distribution, selling and administrative or DS&A expenses increased by $3.7 million to $21.8 million for the year, primarily due to increases in depreciation, occupancy and nonrecurring transformation expenses partially offset by a decrease in professional fees.

DS&A expenses as a percentage of net revenue remained relatively consistent at 16.4% in 2025 compared to 16.5% in the prior year. Adjusted EBITDA increased 6.9% to $45 million for the year compared to $42 million in 2024. Total interest expense increased slightly to $11.5 million in 2025 compared to $11.4 million in the prior year.

Net loss attributable to HF Foods was $38.8 million compared to a net loss of $48.5 million in 2024. The year-over-year improvement was primarily driven by a lower goodwill impairment charge and improved operating results.

These favorable items were partially offset by the absence of the prior year gain on lease guarantee liability termination and by the year-over-year change in fair value of interest rate swaps. Importantly, following the 2025 impairment, we have no remaining goodwill so this item will not affect results going forward. Adjusted net income attributable to HF Foods increased $2.9 million or 20.9% to $16.9 million compared to $14 million in the prior year period.

Loss per share improved to $0.73 compared to a loss of $0.92 in the prior year period. Adjusted earnings per share increased to $0.32 compared to $0.26 in the prior year period. To summarize, 2025 was a year of steady progress in a challenging operating environment.

We delivered year-over-year growth in net revenue, expanded EBITDA and continue to invest in the infrastructure and systems that support more scalable, efficient execution going forward.

Importantly, we finished the year having completed our ERP rollout across the network and remediate our IT general control deficiencies while also advancing key facility initiatives like Atlanta and Charlotte and positioning the business for improved operating leverage.

As we move into 2026, we remain focused on disciplined execution, driving operational efficiency supporting organic growth through cross-selling and network optimization and maintaining prudent capital deployment.

With the transformation foundation now largely in place, we believe we're well positioned to sustain momentum while remaining selective and strategic in pursuing tuck-in M&A that strengthens our footprint and capabilities. I'll now hand it back to Felix for closing remarks.

Thanks, Paul. As we look ahead to 2026 and beyond, I want to emphasize our commitment to executing the comprehensive transformation initiatives that are reshaping HF Foods. 2025 was a year of strategic investment for HF and the investments we are 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 authentication cuisine and our unmatched position as a leading nationwide Asian specialty distributor. We're methodically building 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 over to the operator for live Q&A.

[Operator Instructions] Our first question comes from the line of Daniel Harriman with Sidoti & Company.

Paul, congratulations on the official title. Felix, congrats on great execution for the year despite the noticeable headwinds. But I'm just curious to start off, moving beyond 2025.

Can you talk a little bit about the biggest opportunities you see to drive incremental organic growth, particularly around cross-selling and expanding product availability across the customer base. And then secondly, just curious to hear a little bit more about how the operational initiatives implemented in 2025 are beginning to impact the day-to-day execution across the business.

Daniel, I appreciate the question. Yes, I think the biggest opportunity is going to be around cross-selling with respect in the Southeast, right? We just moved into our new facility that's effectively twice as big as the older facility in Atlanta, and we start to acquire some new accounts within the region but I think we're still going through a ramp-up phase here.

As I noted earlier, it's going to take a little bit of time to completely ramp up the volume and utilize the space and second phase of our freezer construction is going to start here in the Q2 of 2026. So likely it's going to be second half before we see some meaningful incremental frozen seafood volume come into play for the Southeast market for us.

And then fast forward, we also announced the acquisition of our Chicago facility. So the investments in the going in 2026 as well. prepping us for meaningful cross-selling organic growth in the Midwest region in 2027 and beyond.

Our next question comes from the line of Bill Kirk with ROTH Capital Partners.

This is Nick on for Bill. First, from me, on February traffic, it was weaker last year. Just wondering if you could comment on the year-over-year change you saw this year, just lapping that softer comp. And whether you've seen more or less traffic year-to-date would also be helpful.

Yes, sure. So with respect to February and Q1, obviously, we're seeing in the middle of it. But I do see that -- again, there's been a lot of good initiatives put in place, specifically even starting in late Q3 and Q4 of 2025, we've been working with a handful of strategic vendors to run promotional campaigns where the vendors are the one that's kind of providing initiatives on the table for our customers and our sales team to go out and drive new product growth or push out additional volume.

So that's been very impactful for us in the second half of 2025, and we're seeing that in the first quarter of the year as well. So I do see perhaps there's going to be some meaningful uptick from a volume standpoint so far in Q1 versus 2025.

Understood. I appreciate that. Second for me on the IEPA tariffs. Do you have an estimate as to what you paid? Are you taking any action to get that money back? And what would you do with that capital if you did manage to get any capital back there?

Yes. I think it's still too early to exactly how much refund is going to be available. As you guys might recall, not all 100% of the tariffs were part to IEPA. There were some other terror measures that the administration has put in place last year. And is also a reflection of the industry that we're in, largely the supplier network in itself is made up of brokers.

And in the past year, even prior to liberation, we had really effectively negotiated with a large number of our overseas miners for them to absorb quite a bit of the tariff impact. So again, we're still assessing the situation and keeping it very, very close. I think in the coming months here, perhaps in the next quarterly earnings call, there might be a little bit more information for us to offer.

There are no further questions at this time. I'd like to turn the call back over to Felix for any closing remarks.

Overall, I think in 2025, it was a great year of strategic investment for the company, and we made some pretty good strides here in terms of overall 3-, 5-year transformation plan. So we look forward to 2026. 2020 is going to be a continuation of the momentum that we have built on 2025 results.

And again, M&A is going to be a huge part of our business. So that's where we're going to spend a lot of our time on is thoroughly evaluating all the inbound calls that we've been getting on M&A and making some impact there. And then at the same time, continue to improve our operational efficiency. So we appreciate everyone's continued to follow the HF story and support and look forward to updating everyone here in the coming quarters.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Good afternoon, ladies and gentlemen, and 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 2021 Earnings Call. I'll provide a business update, and 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 and 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 a 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 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. 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. 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 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 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 tower 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 and 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 nationwide 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] Our first question comes from William Kirk of ROTH Capital Partners.

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

Bill, yes, that's a good question. I mean capacity-wise, right now, if we think about what we've been communicating, it's limited to the Southeast. So specifically for Atlanta, we talk 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. And thinking about restructuring of the sales force, 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 maybe more importantly, how do you balance extracting those efficiencies while not losing the uniqueness that your sales force provides.

Yes. 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. So over time, we'll have better control over pricing strategy, promotion with our broader program here in the future.

So again, this is one of those things that we've been prepping here for the better part 2025. So 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, but 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. And 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 kind of how you guided 4Q? And have you seen any impact from -- potential impact from government shutdown?

Yes. I mean, Q3 has largely kind of 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. And as we kind of 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 that 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 kind of 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.

Our next question comes from Daniel Harriman of Sidoti & Company.

Congratulations on the continued progress. Felix, I've got 2 quick questions, one of which kind of 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 or is your assumption that we may be needing to look at a little bit further?

Daniel. Yes, so 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 D.C. operations. And 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. And 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 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 gains, specifically with respect to frozen seafood in the Atlanta and Southeast market. And 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.

[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.

So 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 these continue following the HF story. Thank you, and we look forward to updating you on our next earnings call.

Thank you. Ladies and gentlemen, that concludes this event. Thank you for attending, and you may now disconnect your lines.

Everybody, welcome. Thank you for tuning in for our next presentation.. I have the pleasure of welcoming HF Foods. With us today, we have President and CEO, Felix Lin as well as CFO, Cindy Yao. Felix, Cindy, thanks so much for joining me today.

Thanks for having us.

Absolutely. So to start off, would love to have you give us an overview of the HF Foods' story as some of the listeners here today may be new to the name.

Yes. So HF, we've been in business for almost 3 decades. We are the market leader, specifically in the Asian specialty food surface space, which is projected to be the fastest-growing segment of the broader space itself. Again, about -- roughly about a $15 billion top line business. And today, HF had roughly a 16% market share within the space. It's a space that is extremely tough to get into. So over 3 decades of great business performance, we're kind of able to get at this point. So certainly, if you could evolve where we're at today and there's a lot of growth opportunity ahead of us that we're excited about as well.

Okay. Fantastic. Thank you for that, Felix. So I'd love to start off maybe talk about where you just left off in terms of the broader Asian specialty cuisine category. You mentioned how you're a leader within that. Maybe talk about -- tell us more about the size and growth of the category. How fragmented is it today? How has it evolved over the years just to help give us a better sense of the broader category?

Yes. Great question. I mean I think if you look at the broader food industry, it's roughly about 780,000 restaurants and Asian specifically, it's about 12%, 13% of the entire segment, so 94,000 restaurants or so. And over the years, if you look at from a macro standpoint, especially with the introduction of social media, people are more open to trying new cuisines. So everyone having consensus that, again, Asian specialty itself is probably the fastest growing within the space. And certainly, we've seen it with our customer retention. It's in the high -- in the 90% versus industry, probably 65% or so.

But again, it's a $50 billion addressable market. And today, HF is at roughly about $1.2 billion. So we're still at the tip the iceberg, but we're the one that's in the best position to further capitalize on the space itself just given our scale within Asian specialty.

Okay. No, I appreciate that. And let's talk a bit about how your model might be a bit differentiated from mainstream distribution companies such as Sysco or US Foods? Why do you see yourself as having a competitive advantage when it comes to sourcing and customer relationships there?

Yes. There's a couple of things, right. One, again, going back to the industry, the space itself for a second, 94,000 restaurants, 98%, 99% of our customers are all independently run business. So there are not these large chain restaurants that perhaps Sysco or US Foods are used doing business with. So brands like Panda Express or P. F. Chang's, which a lot of the general consumers are pretty aware of make up a very, very small portion of the Asian restaurant industry itself.

So our ability to historically service what I consider underserved customers in the specialty space is what help us win. Certainly, there's a language side of it as well, a connection we have with our customers. And then from a pure product SKU offering, from that standpoint as well. We offer over 20,000 SKUs and 50%, over 10,000 is specifically in agent specialty. So our ability to source these highly specialized product globally for our customers, it's one of the advantages that we have. And the reason why, again, companies like Sysco and US Foods, while they find this space very attractive, historically have a very tough time competing with us in our space.

Okay. No, that's helpful there. When you talk about some of the more independent versus changes that make it more difficult to get the economies of scale? And is that why some of them shy away from that. So can you maybe just talk about some of those dynamics maybe increase a manpower that you need to kind of service all the independent changes that might not be needed for some of the larger distributors that are servicing the larger chains?

Yes. Look, I mean there's obviously pros and cons with every model, right? But I think broader industry-wise, people, businesses generally see that there's a higher opportunity from a margin standpoint if you deal with independent restaurants. That's why again, going back to some of the larger companies like Sysco and US Foods, especially in e last few years, they tried to pivot themselves and start servicing more independent restaurants versus these national or regional accounts that they have because if you're the customer, you have a larger scale, especially if you're willing to give commitment as well, and they're pushing margin down for food service companies like ours, right, trying to get a a better deal.

So our advantage is that, again, 99% of our customers are independently run businesses. We're able to have very strong relationship with them. and our ability to buy and sell at spot market as well with our commitment, give us the advantage to react to the market, especially when things are going through higher levels of uncertainty or very rapid macro changes that we're seeing today in 2025.

That's helpful. Felix, you became permanent CEO in January of this year, but he's been with the company for a number of years. First, as Board of Directors since 2019 and then as COO. HF Foods recently, you went through a transformation. So can you speak to the evolution of the company since you've been there and maybe what you see as the next steps now as CEO.

Yes. Look, I mean, I -- from day one in terms of joining the company, being a Board member, I've seen a tremendous amount of opportunity here with HF, not just in terms of how much the business has grown over the last 2 to 3 decades, but where the business could go, right? As I mentioned earlier, even though we're at $1.2 billion business today with decent size, but the growth trajectory is tremendous ahead of us because, again, it's a $50 billion adjustable market and yet we're the largest within the space. It's great to kind of see the transition in terms of being privately family-owned to public and now doing things very differently. So in the last few years, we focus on, again, system upgrade, facility upgrades, fleet and even from a purchasing standpoint.

But I will say we're still in the very early beginning phase of that, probably the first and second inning. So there's still a lot of runway for us to go. And despite all of this, we're still able to deliver quarter-over-quarter, year-over-year growth here recently. So I think, again, the story is still to be written about HF. Now longer term here, even looking at 2026 and beyond, it's all about deploying the capital in the right place, addressing our capacity constraint, upgrading our capability so that we can go out there and execute and tackle this highly attractive market that we got here. And again, we're in the best position to do it because no one can do it better than we can within our space.

All right. So yes, let's dive a little bit into that in terms of potential deployment of capital, specifically referencing M&A. Can you speak to the role that M&A has played historically and how it could be utilized going forward for HF.

Look, it's no secret that in the foodservice space, you grow through M&A, right? Everyone have been through that. That's why there's always a lot of consolidation, again, in the broader space. So within agent specialty, it's no different. And given our size, given our reputation, the people that we deal with, we know most of the players within our space in every single market. So I think over time, this is where HF -- I want to send a message low and clear, right? We're open for business in terms of looking at M&A targets. We're actively evaluating, especially a lot of these first generation operators that as they look to monetize and exit we are the strategic acquirer for them versus anyone else because we understand their business, and we see the opportunity in terms of how do we pull demand and get synergy out here fairly quickly. So I think stay tuned in terms of the M&A front here for the foreseeable future in terms of news for HF.

And what are some of the core things that you look for in terms of acquisition targets, whether it be synergistic top line, bottom line, extending to new geographies, product categories. Could you maybe touch on just some things that make an acquisition target attractive for you?

Yes. It's -- short answer, it's all of it, right? But you had to prioritize things. So again, I think for us, in the short term, it's looking at businesses that operate within our existing market, where we know their business very well. There's probably some synergy from a customer standpoint and margin where we can buy better and sell better just given our scale and expand our share of the wallet within existing territories. But over time, as we do move more and more of this and get better, better at integration and acquisition, there's a lot of geographic expansion opportunities as well.

Today, we don't have a meaningful presence in the Mid-Atlantic in the New England area. So those are geographic expansion down the line. But again, we won it all, but you just got to take a little bite to the apple here, for sure.

And being efficient in the use of capital, maybe touch a bit in terms of how you're looking to make these acquisitions, but multiples that generally are out there, I know it can vary and then how you look to utilize cash versus paper within -- with these acquisitions?

Yes. Look, if it's smaller acquisitions, our intention is that -- our balance sheet cash flow is still fairly strong, so utilize our internal capability to do it. I think over time, as we look at a higher volume of acquisition or larger acquisition targets. This is where I think we're going to have to get a little bit active and look at alternative sourcing if speed is a factor in order to kind of consolidate and have more tuck-in M&As fairly quickly.

We fundamentally believe, again, we have a great business here, high barrier of entrance there's a unique moat about the way we do business with our suppliers and our customers. But over time, in the last few years, we believe that we're somewhat undervalued here. So there's an opportunity from a capital market standpoint. But again, all the conditions have to be met for us to really kind of think about that alternative.

You mentioned that for M&A you've got a new strategy for the company. Maybe talk about some of your past M&A success, learnings that you've had that you believe make you better positioned for the strategy going forward.

Yes. Our most recent acquisition was actually back in 2022 where we bought a couple of frozen seafood businesses, one out of Richmond, Virginia, Chicago, Illinois and Dallas, Texas. And I will say by introducing it serves multiple purposes of one, we weren't in those territory previously. So it was a geographic expansion opportunity for us.

Second, it really opened the door in terms of from a volume expansion standpoint, being able to sell a lot more frozen seafood because of the scale. So we grew that business at a time of acquisition from a $300 million product category to now over $400 million product category within just a couple of years.

So that's a great example of being able to achieve multiple objectives to do an acquisition and how volume and scale can help benefit both the top line and the bottom line in terms of expansion. So we're looking to do more of that here in the future.

Okay. Thanks for that, Felix. And a quick reminder to everybody. If you guys have any questions for Felix or Cindy, go and tap them into the questions, chat below and we'll go and get to that Q&A towards the end of the session.

Felix, Cindy, turning now to organic growth opportunities outside acquisitions. You've talked about other growth avenues such as cross-selling maybe speak about some of those organic growth opportunities you guys have available?

Yes. Organic growth is going to be important for us as well. So we effectively have a parallel dual growth pathway. One side is actively evaluate tuck-in M&A opportunities. The other side of it is focused on investing into our capacity and our capability. That's why regardless of what short-term noise might be from a macro environment standpoint, we're staying the course in terms of our investment. So we have a brand-new land facility that's coming up here hopefully, by the end of 2025.

We're retrofitting an older facility in Charlotte as well. So in those markets, we're trying to sell more frozen seafood because we're not doing much of that today in the Southeast. And then beyond that, we're going to pivot to other markets where, again, today, we're selling mostly frozen seafood, but I'm driving more Indian space capacity to sell everything else.

So over a 3- to 5-year period, we think there's probably at least a $300 million organic growth opportunity just within my existing customer accounts. So we're not talking about getting outside of that, increasing my share of the wallet. So that's what our priority is going to be here in the next 12 to 18 months is execute on those investments and expansion plan.

Were the core KPIs that we should be looking for and thinking about as you look to execute on this initiative.

I think over time, it's going to be gross profit dollar. Are we generating incremental dollars to come into the business rate. For HF Foods, one of the things, I think, that's very, very different than the broader food services that because we don't do commitments with our suppliers or with our customers, you can't look at us through the lenses of kind of every single quarter gross profit margin should be X and Y, because again, if the market fluctuates quite a bit, right?

So I think gross profit dollar is probably the best metric for us over time as we expand and whether it's organically or inorganically is are we truly winning from a top line standpoint, converting that to dollars, which ultimately kind of translate to trying to deliver this 5% EBITDA margin target that we have over this 3- to 5-year period.

One of your initiatives you guys have is the expanded cold storage. So maybe talk a little bit more and drill down in terms of the opportunity there, and how it further strengthens your business model?

Yes. I mean I touched on a little bit about Atlanta here previously, expanding co-source capacity is specific to Atlanta and Charlotte, where today, we only do about 1% to 2% frozen seafood business in those markets. in the entire Southeast market, where normally, it should be probably 10% to 15% of your mix, right? So with the construction that's done, new facilities up and running, I will literally double my co-source capacity in the market. So that's going to give me the tools and everything I need to go after again existing customer accounts. Well, I don't have to go acquire new accounts just by selling them what they typically buy from others. But again, today, I'm selling them everything for the season.

Okay. No, I appreciate that. That's of color. And maybe talk about the broader consumer environment, looking at the state of the consumer today, how has that constrained wallet had an impact on the business via foot traffic spending or otherwise?

Yes. Look, I mean, even if you go all the way back to the pandemic, 2020 to now, it's been a very call it, volatile 3, 4 years, right? Hybrid inflation environment and a deflation environment, coming out of pandemic, things kind of recover quite a bit. And then 2025, it's obviously new administration came in, policies from a tariff standpoint, immigration enforcement, all of that have an impact in terms of consumer sentiment, right, foot traffic. So across the board, I think it's not unusual to see that foot traffic that has been down, especially probably going to be in the second half of the year.

So all of the businesses, restaurants, food service, everyone is kind of responding to it as well. So there's quite -- still quite a bit of uncertainty here, I think, for the rest of the year. But again, for HF, we're not letting any sort of short-term voices kind of deter us or change our direction because fundamentally, we think we just kind of, again, scratched the tip of the iceberg here, being able to position ourselves to continue to get bigger over time. This is where, again, we're kind of staying the course from an investment standpoint and still very actively having conversations on the M&A front. So not much of that has changed for us since we're kind of playing the long game here.

And thinking about -- can you just maybe help contextualize the impact for your guys' business as distributors even though, right, you're in consumer and maybe a slowdown in the consumer for your end customer? Is it -- how does it change for you guys in? Is it that they're not working through their inventory? Are they making smaller purchases, changing the frequency. Maybe talk about how that flows through to have an impact on your business?

Yes. So again, there's been a lot of conversations about tariff impact on businesses in 2025, right? And again, for us, we're actually not very concerned about the tariff impact because, again, we've done some very strategic inventory management, leverage our long-term strategic relationship with partners, with our customers, provide a lot of proactive education in terms of pricing inventory purchase and storage.

The bigger concern, it's always about the foot traffic. When people are not going out and dining out, then people are going to be spending less, and it's going to be a drag on the volume itself. So when volume overall is going to be down, this is where you can see an even higher level of competition, right? People are going to be again, trying to protect their share of the wallet, really compete on price, compete on every single front. So there's going to be a lot of short-term pressure that's kind of good bit of unhealthy practice, I'll say, within the space because of the lower foot traffic.

But I still believe that perhaps this is just going to be temporary. And over time, agents specifically from a restaurant standpoint, is going to grow very quickly. And most of our customers are going to fare much better even if we're ever going to be a recessionary kind of environment as well.

So what is the best way to think about the margin profile for the business? And how do you plan to drive that margin expansion over time?

Yes. Again, I think if you look at EBITDA margin, right, I think our goal is next 3, 5 years, get to north of 5% EBITDA margin. Again, gross profit, I think it's going to fluctuate quite a bit here and there, given some of the macro uncertainties, commodity uncertainties as well as new businesses and territories that we want to get into in terms of our kind of strategy to go conquer beyond kind of the -- our share of the wallet. So again, I won't look at gross profit margin as probably the #1 metric. But even the margin over time is probably one that we're focused very, very heavily on which, of course, we're trying to limit our cost structure during this period of time as well.

Right. So now it's concern on the gross margin, but yes, on EBITDA. So then do you have additional levers either within the SG&A event to maybe offset some volatility on the gross margin to still meet that EBITDA margin target?

Yes. I think so. Again, if you just look at the last several quarters of results that we published so far, right, every single quarter, we have made some incremental improvement versus the prior quarter versus prior year. Even in the second quarter, we just came off -- it was a 31.1% year-over-year improvement on our adjusted EBITDA going back to Q1, Q4, even last year, we've made kind of improvement as well. In fact, we've had -- on the top line, specifically, we've had 6 consecutive quarters where we have year-over-year growth here within the business.

But again, to get to a level where we have sustainable, predictable growth, we had to put in the investment now to drive capacity so that we can bring in incremental volume here to the business. But our objective is going to be, again, north for this 5% EBITDA margin for us over time.

Okay. Great. On that topic. You recently implemented a new ERP system. How has that helped you to identify efficiencies in running the business?

Yes. So again, the ERP just got implemented here May of this year. So it was a massive sprint debt that we've done here internally. We have sites across the country. So over a 9-month period, we've got everyone on the same platform. So I think it's still going to take a little bit of time. We're kind of in this hypercare period of making sure that there's no disruption. And so far, it's been running pretty smoothly. So I think it's going to take us at least a couple of quarters to collect and rationalize and look at the data from this new platform and see where some of the opportunity.

But one thing I'd say is they certainly give us better tools to have proper controls in place, right? So you touched on a little bit about the G&A cost here. historically, we're probably a little bit heavier on the G&A side because we have outdated system, and there's some inefficiencies. So I do expect there's going to be some savings here down the line perhaps in 2026. But right now, we're not necessarily kind of quantifying exactly what that amount is going to be.

Okay. That's helpful. You touched on tariffs earlier. I just want to make sure that we understand that correctly. So it sounds like you're not overly concerned about the tariff, maybe just talk about what exposure you do or don't have your ability to potentially pass through any tariff impact and how we should think about that having an impact on the margins or overall business.

Yes. I think the good thing what we're seeing just in the last couple of weeks that it seems that things have kind of settled down here a moment. So the goal post is not continuously moving. The toughest thing, I think, for all business leader is not knowing what the actual goal post is, right? So we've been very, very proactive in terms of managing the tariffs on even before the new administration roll out the policy. Again, keep in mind, President Trump campaign on tariffs. So it shouldn't be a whole lot I think the biggest surprise for a business leader globally, is the level and the extent that probably they went with the tariffs policy, right?

So we have this conversation back in Q4 and even in Q1 with a lot of our global suppliers and a vast majority of them were rural [indiscernible] probably absorb anywhere from 70% to 80% of the tariff and then also proactively having these compensation and education sessions with our customers, every single one of them. Hey, things are going to be short. You need to change your menu offerings, you need to change your ingredient or selectively you need to start thinking about increasing your menu prices as well. So on both ends of it, we're able to get our partners, customers and suppliers are going to absorb that not 100% of the tariff that came through here in the first half of the year.

Now in the second half, I think the biggest concern industry-wise is probably with respect to seafood, right, specifically shrimp and frozen product come from India because again, currently at 25%, it might get to 50% here on the '27. So it just depends on whether or not, again, India and the U.S. can make a deal happen here. So there's a little bit of a question mark and uncertainty out there. And given the volume and the size of our frozen seafood business, that's one thing I think we got monitored here fairly closely. But short term, I think we're okay from an inventory standpoint, again, we'll make some very, very strategic bias here.

I appreciate that. Can we touch quickly maybe on product mix today and then also sourcing partners, so product mix and maybe how that ties into how diversified you are in terms of your domestic partners, you touched on that a bit now and tariffs. So maybe if we could kind of tie that all in together, that would be helpful.

Yes. So pretty significant. The vast majority of our buy is actually all domestic, right? So you think about food service, what do you sell to make a typical restaurant customer all the protein, your chicken, pork and beef, all that, this domestic, your produce, mostly domestic. What we source internationally, again, it's a majority of our frozen seafood and then you have 10 goods or packaging type material that's coming from Asia, Southeast Asia, China, for example. But again, those -- most of these things, we've done some very, very strategic inventory management. So we weathered their store quite nicely here in the first half of the year. I don't expect a significant impact here into the second half of the year.

More so on if the economy is not good, you kind of have this stagnation that's kind of happening and the foot traffic continue to be lower for different reasons, right? Then it's going to be challenging in terms of just overall volume. But other than that, we don't see any sort of significant risk here from a tariff standpoint.

Okay. Fantastic. Before we dive into Q&A, just one last one here. So you guys have your e-commerce platform. That's another new initiative in revenue stream. Could you talk to us a bit about that and some of the benefits that could come from there?

Yes. E-commerce, I see a tremendous amount of opportunity in e-commerce. I think, again, especially with new technology platform or that is still very much in a pilot phase today. I'll say the 2 sites that we have implemented e-commerce so far. Now we're just limiting the platform to our existing restaurant customers where they can order selective specialty goods from us for their own consumption, right?

Again, it's going well. We have a pretty large adoption high-margin business, you're looking at anywhere between 25%, 30% margin on some of the specialty goods. So can we build on that over time and maybe roll it out across my entire network and that eventually maybe even service the general public. Because again, our specialty, one of the core competency is being able to source the type of specialty product as well. If you look at 20,000 SKUs, over 50%, so 10,000-plus or in this Asian specialty specifically. So having this kind of new product, hard to find products available, it's a pretty significant part of it.

But it's going to take time in terms of the platform from an adoption standpoint. But this is where we're going to put some investment in as well, continue to put investment in.

Okay. Great. Thank you for that, Felix. Let's start into some Q&A. A couple of questions have been coming in. All right. So this is another question that I had as well. So just thinking about CapEx moving forward, can you touch on that a bit? How you plan to fund things? Maybe also then just touching on the balance sheet as well. So CapEx and balance sheet, how to think about that in the near term?

Yes. So again, short term, I think 2025, our CapEx, I don't have the exact number, probably in that $15 million to $20 million range, right, specifically, it's tied to facility upgrades, facility expansion. I think for the foreseeable future, as I mentioned, next couple of years, we're going to have additional CapEx needs associated with capacity expansion, but the range could vary. It depends on if you're leasing versus buying warehouses. If it's going to be buying, then it's probably going to be higher end of that.

But for the most part, I think we can support our organic CapEx requirements with our cash flow. If you're trying to do organic expansion and you got -- you want to do M&A, this is where we're going to have a different conversation and think about a different capital strategy. from a foundation standpoint. So we're having active conversations, kind of evaluating our options here. So more to come on that front.

Okay. Great. Talking about some of the relationships that you have with your restaurants or clients. Do they have multiple suppliers and distributors? Or do they have one that they prefer versus the other? Can you talk about how that relationship works and evolves and how you potentially look to kind of increase share of wallet with the respective customer?

Yes. Yes. So again, when you deal with independent restaurants, right, most of the customers are price-sensitive for sure. So it's a general practice that a source from multiple food servicing provider. You will never get 100% share of the wallet. Now because of our scale, we differentiate ourselves, both in terms of price, quality, service so forth and so forth. We generally have a larger share of wallet with our customers, probably anywhere from 25%, in some cases, maybe 50%, 60%, depending on the market and the competition, right?

Going back to what we talked about cross-selling earlier, in selected markets where today, I know what the customers should be buying, what they would buy in the price that they perhaps are paying for things but I don't have the capacity for a warehousing set of standpoint to service them, right? So just by introducing freezer space capacity or Indian space providing market to market, we can easily increase our share of wallet in those markets. So again, feel very good about those opportunities.

Okay. Great. That's helpful. Kind of before we leave things off here now. So as we look ahead coming to the end of 2025 and 2026, what are you most excited about and seeing as the greatest opportunities? We've talked about a couple of them today. So if you can close things out and talk about what you're most excited about, that would be helpful.

Yes. Look, I mean, the most exciting part, it's about keeping up the momentum. It's about execution. Again, been involved with the company for a little bit over 5 years now. For various reasons, right, we've been kind of sitting on the sideline here a little bit, both in terms of telling the HF story, getting people to recognize, understand our industry, understand our business, how unique it is, how tough it is to get into the space and the advantages that we have as an organization. So where we can take this company, whether it's doubling, tripling the business over time by organic growth by M&A as we kind of make progress, it's going to be -- that's what I'm excited about.

So even if you look at our most recent results, right, despite the lack of investment that we kind of put into the business over the last 4 or 5 years, we're able to achieve some level of growth, whether it's at industry or above industry pace. So think about what we can do now that we're fully aligned as an organization and we're putting the resource where it's required, right? So the future is bright. I'm very, very fortunate that I'm sitting in this position, being able to lead and drive this organization here.

Fantastic. I think that's a great way to close things out. Felix, Cindy, thanks so much for joining us. Again, I'll leave it up to you. If you do have any additional closing remarks, but that was great before I end things. So Felix, Cindy I pass it back over to you one last time if you have any closing remarks.

No. Again, for [indiscernible] parties. I just asked that you guys continue to follow us. I think it's an evolving story. But again, we're in a very, very good position in an industry that's hard to get into. So we're definitely, again, playing the long game here in terms of investment. So looking forward to speaking with you guys again.

Thank you very much. Again, Felix Lin, President and CEO, Cindy Yao, CFO; HF Foods traded on the NASDAQ ticker HFFG. Felix, Cindy, thanks so much for joining me. Thank you, everyone who tuned in, hopefully, founded value-add and helpful. Have a great day.

Thank you.

Thanks, Aaron. Appreciate it.

Ladies and gentlemen, greetings, and welcome to the HF Foods Group Second Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Jon DeDomenico, Vice President, Investor Relations.

Hello, everyone. Welcome to HF Foods Group's Second Quarter 2025 Earnings Conference Call. Joining me on today's call are Felix Lin, the company's President and Chief Executive Officer; and Cindy Yao, 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 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. We believe that these measures provide investors with a useful perspective on the underlying growth trends of the business and as 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' Second Quarter 2025 Earnings Call. I'll provide a business update, and Cindy will speak to our second quarter financial results. Then we will open up the line for Q&A.

I am pleased to announce that we continue our momentum in the second quarter of 2025 and are reporting the highest net revenue and gross profit ever recorded at HF. Net revenue increased 4.1% year-over-year to $314.9 million and gross profit increased 5.1% to $55.1 million. Also notably, adjusted EBITDA increased 31.1% year-over-year to $13.8 million.

Our results reflect our continued disciplined execution against our strategic initiatives, even amid a dynamic and uncertain macro environment characterized by tariffs, persistent inflationary pressures and shifts in consumer spending behaviors. These results are a testament to the resilience of our business model and the strength of our operational focus.

Our results have been impressive despite the current business environment, including the implications of tariffs and the impact of immigration concerns creating continued economic headwinds. In response to the evolving tariff landscape, 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 price increases allowed us to effectively navigate the changing environment, delivering solid net revenue growth and significant adjusted EBITDA growth. We're encouraged by our strong performance in the second quarter and the solid foundation we've built.

Consistent with what the broader industry has been experiencing, we have seen lower exit velocity and foot traffic towards the end of Q2 and continue into the beginning of Q3 as consumers pull back from spending amid economic uncertainty. There will also be natural seasonality pullback associated with Q3 as compared to Q2. That said, we remain extremely confident in our long-term growth strategy. Hence, we are committed to our capital investment and growing our capacity. We aim to continue the momentum we built for the rest of the year.

As discussed on our last call, our digital transformation initiative reached a major milestone on May 1, with successful deployment of a new, modern ERP application across our entire network. 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, unlocking the full potential of our centralized purchasing capabilities over time.

I am pleased to report that the ERP system has been running as planned and without issue. 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.

Our strategic facility enhancement initiatives continue to advance across multiple regions. We're nearing completion of renovations at our Charlotte distribution center and continue to make steady progress on our Atlanta state-of-the-art facility project, which we expect will create meaningful organic growth opportunities through expanded cross-selling capabilities.

The cold-storage capacity expansion in Atlanta will double our capacity in the region and enable us to significantly increase frozen seafood sales to our existing customer base along the eastern seaboard, significantly expanding our southeast presence. 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, 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 M&A opportunities in 2025 and beyond. We're actively evaluating opportunities, and our proven ability to successfully navigate the tariff landscape, positions us uniquely to identify and execute attractive tuck-in acquisitions that will benefit from our operational expertise and scale.

Now over to you, Cindy.

Thanks, Felix. I will now review our results for the second quarter ended June 30, 2025, versus the same period in 2024.

Net revenue for the second quarter increased 4.1% to $314.9 million from $302.3 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 5.1% to $55.1 million for the quarter compared to $52.5 million in the prior year quarter. The gross profit margin increased 13 basis points to 17.5%. The increase was primarily attributable to an increase in volume and improved pricing during the quarter.

Distribution, selling and administrative expenses increased by $1.2 million to $51 million for the second quarter, driven by volume growth. DSA expenses as a percentage of net revenue decreased from 16.5% in the prior year to 16.2% for the 3 months ended June 30, 2025, primarily due to increase in net revenue and lower professional fees, partially offset by increased payroll, rental and other expenses.

Operating income for the second quarter of 2025 was $4.1 million, up 56.9% compared with the prior year quarter. The increase in income was driven by the increase in net revenue and gross profit, partially offset by the increase in distribution, selling and administrative expense.

Adjusted EBITDA increased 31.1% to $13.8 million for the second quarter of 2025 compared to $10.6 million in the prior year quarter. Total interest expense decreased slightly to $2.8 million for the second quarter of 2025 compared to $3.1 million in the prior year quarter.

Net income increased 117% to $0.5 million compared to the second quarter of 2024. The increase in the net income was primarily driven by the increase in net revenue and managing certain DSA costs.

GAAP diluted EPS increased to $0.02 compared to $0.00 in the prior year period. Non-GAAP diluted EPS increased to $0.12 compared to $0.04 in the prior year period.

The record net revenue and gross profit results demonstrate the effectiveness of our strategic initiatives and operational discipline. These results provide a solid foundation as we continue executing our growth strategy for the remainder of 2025.

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

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, and 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 targeted M&A initiatives.

Our key competitive advantages stem from the growing demand for authentic Asian cuisine and our unmatched position as the leading nationwide Asian specialty distributor. We are 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'll now hand over to the operator for a live Q&A.

[Operator Instructions] Our first question comes from Bill Kirk with ROTH Capital Partners.

Felix, you talked a little bit about lower exit velocity and foot traffic at the end of 2Q and into 3Q. Those sound like industry-wide comments to me. So maybe can you give us a sense for how you think Asian specialty as a subsegment fared in that tougher backdrop? And more specifically, how do you think your market share is faring in today's environment?

Bill, I appreciate the question. Yes, I think one aspect of our industry that's a little bit unique and I mentioned it on the earnings is that we've seen a little bit of lower foot traffic here, specifically in -- towards the end of Q2 and into the Q3. It's probably market specific to some of our territories that's got a heavy agricultural presence. If you look at our book of business, 99% of our customers are all independently run restaurants. And there's a healthy mix of takeouts, dine-ins and buffet-type restaurants.

So in markets where we've seen there has perhaps been foot traffic impacted by some of the recent changes in immigration policy, we've seen a little bit of lower kind of buffet traffic specifically. So it's impacting some of the buffet restaurants specifically that use a lot of products from a seafood -- frozen seafood category standpoint. So I think that has perhaps the larger impact from a traffic standpoint versus any sort of tariff-related impact that the broader industry might have seen recently. Does that make sense?

Bill, does that answer your question?

It does. I was going to follow up. There's a handful of strategic investment projects that you're targeting for growth, including the possibility of M&A. How would you prioritize those projects? And maybe which can be funded through cash generation versus needing to raise outside capital for the project?

Yes. Look, I mean, we have a parallel strategy going on, right? One, from an organic growth standpoint, all the investment that's going in, it's about addressing our capacity constraints. So the investment that's going in Charlotte, that's going on in Atlanta and then beyond that in other territories because we see there's a tremendous amount of cross-selling opportunity for us. It's related to the existing accounts that we currently service, but where our customers they don't have access to our full book of product just given some of the capacity constraints. So we think there's a significant opportunity over the next 3 to 5 years, probably in the range of $200 million to $300 million of organic growth opportunity ahead of us.

From an M&A standpoint, we're really prioritizing these first-generation operators that's looking to exit. They're much smaller businesses. And perhaps it's in markets where we already have a significant presence. So tuck-in M&A, very minimal integration effort that can help us from a share-of-the-wallet expansion standpoint and also add to the margin expansion initiative that have going on.

So I think both of this is going to require a significant amount of capital. For the most part, I think we'll be able to fund the majority of it through our own cash flow. But as we look at larger M&A targets, I think this is where we have to think about a different capital structure and perhaps get a little bit more active. So we're kind of working through and thinking about the various alternatives here from a capital standpoint.

Our next question comes from Daniel Harriman with Sidoti & Company.

Congrats on the quarter, all the more impressive considering the backdrop. I just had two questions this afternoon. First, understanding that you guys don't guide for the full year, looking out through 2025 and then into '26. Can you just help us think about your growth expectations for '25 considering what you said earlier about foot traffic? And then similarly, as you think about organic growth and we think about the long-term potential of the company, what do you think a good growth rate organically is for you guys for the next 3 to 5 years? And maybe compare that a little bit to your M&A strategy.

Daniel, thanks for the question. Yes, if you look at 2025, I think we're coming off of a record quarter in Q4 2024, where we also continue the momentum into the first quarter and now also in the second quarter, despite, to your point, some of the uncertainties and noises that we've seen from a macro standpoint, whether it's the tariff impact potentially and then the lower foot traffic. So again, I think Q1, it was just about 1% top line revenue growth and then Q2 here, a little bit over 4%.

So we do expect, on a full year basis, we're probably still going to be trending toward that lower single digit, maybe in that 2%, 2.5% in line with what industry average is going to be for the rest of -- for the full year 2025. But again, as we look in the second half of 2025, I think there's going to be more uncertainties here. Everyone's been talking about it from a broader industry standpoint that there's a pull back from an overall consumer spending. But as I mentioned earlier, we're not letting any sort of potential short-term noises deter us from what our long-term strategic plan is, which is investing into our business, growing capacity and then over time, we can drive from a cross-selling standpoint.

And I noted earlier, I think over the next 3 to 5 years, specifically, just within our existing accounts, as long as the investment goes in and there's enough capacity, there's probably $200 million, $300 million worth of organic growth opportunity for us over this period of time. And then if we add on top of it, M&A opportunities, the future looks really, really good here for HF.

That's really helpful. Congrats again.

Thank you.

[Operator Instructions] Our next question comes from Todd Brooks with Benchmark Company.

Congrats on a record quarter. I wanted to lead off. Felix, you've touched on tariffs a couple of times in the discussion. I know it's been a very fluid situation. Are you getting any better sense of what the tariff impacts might look like that are having to be passed through to customers? So trying to marry maybe potential cost pressures that they're facing and a slight decline in traffic, especially for those buffet customers to understand what sort of pressure the base might be under.

Yes. I mean what we're seeing in second quarter, it's really this kind of initial reaction, right? A lot of our customers are seeing. And I think previously, I talked about we do a really good job in terms of proactively having dialogues with our suppliers and with our customers, educating them on both fronts in terms of what's happening here from a market standpoint.

One of the advantages that we have as a business and certainly what differentiates us from a broader industry is we do not have a significant amount of commitments with our suppliers. So everything happens from a spot market standpoint. So we buy and sell product at spot. So we spend a lot of resources trying to make sure we have the right inventory level and the right type of inventory as well as we go through knowing that tariff policy is going to change given this administration's kind of preview.

So second quarter, we saw a lot of strategic pricing that have flowed through, which significantly picked up on the volume side and added to the performance. As we kind of look ahead here a little bit, I think this is where you're going to see some of this tariff impact start coming in. But as a business, we're not necessarily too concerned about tariff because again, just given the specialty business that we're in, some of this product that we're looking at, there's not a whole lot of alternatives to it. But the foot traffic is one that probably impacts our business more than anything else because if people are not going out to restaurants and spending the money in terms of dining out, then regardless what the cost is, that's going to have a bigger impact in terms of volume in the business. So we're seeing a little bit of that, again, towards the end of Q2 and the beginning of Q3 and perhaps things are going to change here a little bit as we get into the rest of Q3.

There is still a bit of uncertainty. If you look at the amount of frozen seafood business that we do, there's still the question mark in terms of what the tariff is going to be for India. We do buy a good bit of frozen seafood, shrimp specifically from India. So it's currently set at 25%, potentially going to 50%, but it's subject to change. So we're still monitoring that situation very closely. But again, we're doing a fairly good job in terms of managing our inventory. I think at the end of Q2, our inventory level is probably at its highest level in a very, very long time, and it's all due to strategic planning in terms of what might happen in the second half of the year.

That's great. And you talked about some strategic pricing actions. Can you decompose the 4% revenue growth between price and volume growth? .

We just implemented a brand-new system. ERP started a complete wrap up here on May 1. So it's going to take a little bit of time, at least a year or so to kind of digest, everyone getting the same platform. But I will say majority of the increase is perhaps due to better pricing, which also drove some volume increases because naturally, if people are concerned about tariff impact, there's probably a good bit of pull forward pre-buys here. But again, we're not talking about a significant amount that's going to change quarter-to-quarter just given most of our restaurant customers have very limited real estate spaces. So at most, it's probably a week or 2 pull forward. But again, I think a good bit of is tied down to pricing itself.

Okay. Great. And the last one, if I can. You talked about the ERP implementation. Congrats on getting that in the rear view, obviously. Wondering what the lag is between implementation and efficiency as you're starting to think about margin planning into '26? And I know you talked about the first step being maybe some sales force consolidation. But kind of what's the path now to start extracting efficiencies? And have you sized what the margin benefit from ERP could be for '26?

Yes. If we look at what happened in the last 12, 18 months or so, right, I talked about, we spend a lot of time on the frozen seafood category. And certainly, this year, we're expanding into other major big volume categories such as sugar, rice, maybe some other specialty products. So I do think there's some opportunity there. But it's really hard to gauge exactly what the margin expansion opportunity is going to be for us from a percentage standpoint because, again, the uniqueness about our business is that we buy and sell everything at a spot market versus some of the larger broadliners where they have significant contracts in place, whether it's with their suppliers or with their chain customers and things. It's a lot more consistent and stable.

So I think going through our results here in the last 6 or 7 quarters, one of the key metrics that we focus on is expanding -- expansion of the gross profit dollar itself, which I think we've seen a pretty good improvement. But overall, I think one of the focus that we want to do is, again, whether it's cross-selling, expanding the organic sales opportunity or M&A is getting to the point that we can hit a 5% EBITDA margin. That's what our ultimate goal is over the next 3 to 5 years.

Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Felix Lin for closing comments.

So thanks, everyone, for joining us today. We're obviously very pleased with our latest quarterly results as we continue to build positive momentum. We're absolutely laser-focused on executing our long-term strategic plan and continue to deliver value to our shareholders over time.

If you have any follow-up questions, please feel free to reach out to our Investor Relations team. And thank you very much for your time today. We look forward to talking to you guys again at our next quarterly call.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.