What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-05-11 compared with 2025-11-10 · 47 added, 165 removed, 143 unchanged (60% of the section changed)

22 unchanged sentences

Transformation Plan

To position the business for long-term success, we have initiated a comprehensive, operational transformation plan in an effort to drive growth and cost savings.

To position the business for long-term success, starting in 2024, we initiated a comprehensive, operational transformation plan in an effort to drive growth and cost savings.

Our transformation is focused on four key areas, each of which we expect will positively impact future growth or cost savings.

The components of our transformation are as follows:

The components of our transformation were as follows:

• Centralized Purchasing:

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Within this, we have defined new truck specifications, initiated a replacement program for 50% of our current fleet, implemented a national fuel savings program to maximize efficiency, and plan to outsource domestic inbound freight logistics to a third-party partner to adopt a cohesive national approach to our supply chain.

This is expected to deliver substantial improvements to our transportation system.

This is expected to deliver substantial improvements to our transportation system moving forward.

• Digital Transformation:

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Financial Overview

Three Months Ended September 30, Nine Months Ended September 30,

($ in thousands) 2025 2024 Change 2025 2024 Change

Three Months Ended March 31,

($ in thousands) 2026 2025 Change

Net revenue $ 312,002 $ 298,428 $ 13,574

30 unchanged sentences

Results of Operations

Comparison of Three Months Ended September 30, 2025 to Three Months Ended September 30, 2024

The following table sets forth a summary of our consolidated results of operations for the three months ended September 30, 2025 and 2024 .

Comparison of Three Months Ended March 31, 2026 to Three Months Ended March 31, 2025

The following table sets forth a summary of our consolidated results of operations for the three months ended March 31, 2026 and 2025 .

The historical results presented below are not necessarily indicative of the results that may be expected for any future period.

Three Months Ended September 30,

Three Months Ended March 31,

($ in thousands) 2026 2025 Change

9 unchanged sentences

Change in fair value of interest rate swap contracts (843) 1,184 (2,027)

Loss before income taxes

(1,634) (5,091) 3,457

Income (loss) before income taxes 959 (2,462) 3,421

Income tax benefit

(397) (932) 535

Net loss and comprehensive loss (874) (3,837) 2,963

Net income (loss) and comprehensive income (loss) 1,356 (1,530) 2,886

net income attributable to noncontrolling interests 131 115 16

Net loss and comprehensive loss attributable to HF Foods Group Inc.

Net income (loss) and comprehensive income (loss) attributable to HF Foods Group Inc.

$ 1,225 $ (1,645) $ 2,870

The following table sets forth the components of our consolidated results of operations expressed as a percentage of net revenue for the periods indicated:

Three Months Ended September 30,

Three Months Ended March 31,

Net revenue 100.0 % 100.0 %

7 unchanged sentences

Change in fair value of interest rate swap contracts (0.3) % 0.4 %

Loss before income taxes

(0.6) % (1.7) %

Income (loss) before income taxes 0.3 % (0.8) %

Income tax benefit

(0.1) % (0.3) %

Net loss and comprehensive loss (0.4) % (1.3) %

Net income (loss) and comprehensive income (loss) 0.4 % (0.5) %

net income attributable to noncontrolling interests — % — %

Net loss and comprehensive loss attributable to HF Foods Group Inc.

Net income (loss) and comprehensive income (loss) attributable to HF Foods Group Inc.

0.4 % (0.5) %

Net revenue for the three months ended September 30, 2025 increased by $8.6 million, or 2.9%, compared to the same period in 2024.

The increase was primarily attributable to volume increases and improved pricing in Meat & Poultry and Seafood, offset by a slight decrease in volume within other categories.

Gross profit was $50.4 million for three months ended September 30, 2025 compared to $50.2 million in the same period in 2024 , an increase of $0.2 million, or 0.5%.

The increase was primarily attributable to an increase in volume and improved pricing during the quarter.

Gross profit margin for the three months ended September 30, 2025 of 16.4% remained relatively consistent compared to 16.8% in the same period in 2024 due to an increased proportion of sales from lower margin products, particularly Seafood .

Net revenue for the three months ended March 31, 2026 increased by $13.6 million, or 4.5%, compared to the same period in 2025.

The increase was primarily due to volume growth and pricing improvement in Seafood followed by volume growth for Commodity.

Gross profit was $50.5 million for three months ended March 31, 2026 compared to $51.0 million in the same period in 2025, a decrease of $0.4 million, or 0.8%.

The decrease was primarily due to increased sales in lower margin products like Seafood and an uptick in landed costs.

Gross profit margin for the three months ended March 31, 2026 of 16.2% declined compared to 17.1% in the same period in 2025.

Distribution, Selling and Administrative Expenses

Distribution, selling and administrative expenses decreased by $0.4 million, or 0.7%, to $49.3 million, for the three months ended September 30, 2025 .

Distribution, selling and administrative expenses as a percentage of net revenue decreased to 16.1% for the three months ended September 30, 2025 from 16.6% in the same period in 2024, primarily due to increased net revenue and lower personnel, professional and insurance costs, partially offset by increased rental, occupancy and other expenses.

Distribution, selling and administrative expenses decreased by $0.3 million, or 0.6%, to $49.5 million, for the three months ended March 31, 2026.

Distribution, selling and administrative expenses as a percentage of net revenue decreased to 15.9% for the three months ended March 31, 2026 from 16.7% in the same period in 2025, primarily due to increased net revenue and lower professional fees and bad debt expenses, partially offset by increased depreciation and auto & truck expenses.

Interest Expense

Interest expense for the three months ended September 30, 2025 of $2.9 million increased slightly compared to $2.6 million for the three months ended September 30, 2024.

Average floating interest rates on our floating-rate debt for the three months ended September 30, 2025 decreased by approximately 1.0% on our line of credit and 1.0% on the JPMorgan Chase mortgage-secured term loan, compared to the same period in 2024.

Our average daily line of credit balance decreased by $0.2 million, or 0.3%, to $61.5 million for the three months ended September 30, 2025 from $61.7 million for the three months ended September 30, 2024, and our average daily JPMorgan Chase mortgage-secured term loan balance decreased by $5.1 million, or 5.0%, to $97.9 million for the three months ended September 30, 2025 from $103.0 million for the three months ended September 30, 2024.

Interest expense for the three months ended March 31, 2026 of $2.8 million increased slightly compared to $2.6 million for the three months ended March 31, 2025.

Average floating interest rates on our floating-rate debt for the three months ended March 31, 2026 decreased by approximately 0.6% on our line of credit and 0.6% on the JPMorgan Chase mortgage-secured term loan, compared to the same period in 2025.

Our average daily line of credit balance increased by $8.0 million, or 16.4%, to $56.7 million for the three months ended March 31, 2026 from $48.7 million for the three months ended March 31, 2025, and our average daily JPMorgan Chase mortgage-secured term loan balance decreased by $6.7 million, or 6.7%, to $93.7 million for the three months ended March 31, 2026 from $100.4 million for the three months ended March 31, 2025.

Income Tax Benefit

Income tax benefit was $0.8 million for the three months ended September 30, 2025, compared to an income tax benefit of $1.3 million for the three months ended September 30, 2024, primarily due to a decrease in loss before income taxes.

Net Loss Attributable to HF Foods Group, Inc.

Net loss attributable to HF Foods Group, Inc.

was $1.1 million for the three months ended September 30, 2025, compared to net loss of $3.9 million for the three months ended September 30, 2024.

The improvement was primarily driven by an increase in income from operations of $0.6 million compared to the prior year period and a decrease in change in fair value of interest rate swap contracts by $3.2 million compared to 2024.

Income tax benefit was $0.4 million for the three months ended March 31, 2026, compared to an income tax benefit of $0.9 million for the three months ended March 31, 2025, primarily due to an increase in income before income taxes, partially offset by investment tax credits.

Net Income Attributable to HF Foods Group, Inc.

Net income attributable to HF Foods Group, Inc.

was $1.2 million for the three months ended March 31, 2026, compared to net loss of $1.6 million for the three months ended March 31, 2025.

The improvement was primarily driven by gain on sale of Utah building and positive change in fair value of interest rate swap contracts by $2.0 million compared to 2025.

EBITDA and Adjusted EBITDA

The following table reconciles EBITDA and Adjusted EBITDA to the most directly comparable GAAP measure:

Three Months Ended September 30,

Three Months Ended March 31,

($ in thousands) 2026 2025 Change

$ (874) $ (3,837) $ 2,963

Net income (loss) $ 1,356 $ (1,530) $ 2,886

Interest expense, net

7 unchanged sentences

Business transformation costs (1)

1,592 77 1,515

Other non-routine expense (2)

Executive transition and organizational redesign (3)

Adjusted EBITDA $ 11,748 $ 8,305 $ 3,443

_________________

(1) Represents costs associated with the launch and continued implementation of strategic projects including supply chain management improvements and technology infrastructure initiatives.

(2) Includes contested proxy and related legal and consulting costs and facility closure costs.

(3) Includes severance and related expenses for the Company’s transition of executive officers and organizational redesign.

Results of Operations

Comparison of Nine Months Ended September 30, 2025 to Nine Months Ended September 30, 2024

The following table sets forth a summary of our consolidated results of operations for the nine months ended September 30, 2025 and 2024.

The historical results presented below are not necessarily indicative of the results that may be expected for any future period.

Nine Months Ended September 30,

($ in thousands) 2025 2024 Change

Net revenue $ 920,259 $ 896,385 $ 23,874

Cost of revenue 763,759 743,346 20,413

Gross profit 156,500 153,039 3,461

Distribution, selling and administrative expenses 150,107 149,988 119

Income from operations

6,393 3,051 3,342

Interest expense 8,367 8,597 (230)

Other expense (income), net (825) 3,040 (3,865)

Change in fair value of interest rate swap contracts 1,916 959 957

Lease guarantee income — (5,548) 5,548

Loss before income taxes

(3,065) (3,997) 932

Income tax expense (benefit)

(1,171) 164 (1,335)

Net loss and comprehensive loss (1,894) (4,161) 2,267

net income (loss) attributable to noncontrolling interests (349) 456 (805)

Net loss and comprehensive loss attributable to HF Foods Group Inc.

$ (1,545) $ (4,617) $ 3,072

The following table sets forth the components of our consolidated results of operations expressed as a percentage of net revenue for the periods indicated:

Nine Months Ended September 30,

Net revenue 100.0 % 100.0 %

Cost of revenue 83.0 % 82.9 %

Gross profit 17.0 % 17.1 %

Distribution, selling and administrative expenses 16.3 % 16.7 %

Income from operations

Interest expense 0.9 % 1.0 %

Other expense (income), net (0.1) % 0.3 %

Change in fair value of interest rate swap contracts 0.2 % 0.1 %

Lease guarantee income — % (0.6) %

Loss before income taxes

(0.3) % (0.4) %

Income tax expense (benefit)

Net loss and comprehensive loss (0.2) % (0.4) %

net income (loss) attributable to noncontrolling interests — % 0.1 %

Net loss and comprehensive loss attributable to HF Foods Group Inc.

(0.2) % (0.5) %

Net revenue for the nine months ended September 30, 2025 increased by $23.9 million, or 2.7%, compared to the same period in 2024.

This increase was primarily attributable to volume growth and improved pricing in Commodity, Meat & Poultry and Seafood, partially offset by decrease in volume within other categories.

Gross profit was $156.5 million for the nine months ended September 30, 2025 compared to $153.0 million in the same period in 2024 , an increase of $3.5 million, or 2.3% .

The gross profit increase was primarily attributable to increased net revenue partially offset by increased costs.

Gross profit margin for the nine months ended September 30, 2025 slightly decreased to 17.0% compared to 17.1% in the same period in 2024.

Distribution, Selling and Administrative Expenses

Distribution, selling and administrative expenses of $150.1 million for the nine months ended September 30, 2025 slightly increased compared to prior year expenses of $150.0 million primarily due to an increase in rental, occupancy and delivery expense, partially offset by a decrease in professional and insurance fees and travel and entertainment costs.

Distribution, selling and administrative expenses as a percentage of net revenue decreased to 16.3% for the nine months ended September 30, 2025 from 16.7% in the same period in 2024, primarily due to increased revenue and lower professional fees, partially offset by increased rental, occupancy and delivery costs.

Interest Expense

Interest expense for the nine months ended September 30, 2025 decreased by $0.2 million or 2.7% , compared to the nine months ended September 30, 2024, primarily due to a decrease in our average daily JPMorgan Chase mortgage-secured term loan balance of $5.1 million, partially offset by an increase in our average daily line of credit balance of $0.3 million combined with a slightly lower interest-rate environment.

Average floating interest rates on our floating-rate debt for the nine months ended September 30, 2025 decreased by approximately 1.0% on the line of credit and 1.0% on the JPMorgan Chase mortgage-secured term loan, compared to the same period in 2024.

Our average daily line of credit balance increased by $0.3 million, or 0.6%, to $54.6 million for the nine months ended September 30, 2025 from $54.3 million for the nine months ended September 30, 2024, and our average daily JPMorgan Chase mortgage-secured term loan balance decreased by $5.1 million, or 4.9%, to $99.1 million for the nine months ended September 30, 2025 from $104.2 million for the nine months ended September 30, 2024.

Income Tax Expense (Benefit)

Income tax benefit was $1.2 million for the nine months ended September 30, 2025, compared to the income tax expense of $0.2 million for the nine months ended September 30, 2024.

The change was primarily driven by the SEC settlement that impacted the tax provision for the period ended September 30, 2024.

Net Loss Attributable to HF Foods Group, Inc.

Net loss attributable to HF Foods Group Inc.

was $1.5 million for the nine months ended September 30, 2025, compared to net loss of $4.6 million for the nine months ended September 30, 2024.

The improvement of $3.1 million was primarily driven by an increase in income from operations of $3.3 million compared to the prior year period;

however, the prior year’s results included a one time gain from lease guarantee income offset by an SEC settlement within other expense, which did not recur in the current year, thereby partially offsetting the year-over-year improvement.

EBITDA and Adjusted EBITDA

The following table reconciles EBITDA and Adjusted EBITDA to the most directly comparable GAAP measure:

Nine Months Ended September 30,

($ in thousands) 2025 2024 Change

Net loss $ (1,894) $ (4,161) $ 2,267

Interest expense, net

8,331 8,597 (266)

Income tax expense (benefit)

(1,171) 164 (1,335)

Depreciation and amortization 21,269 19,932 1,337

EBITDA 26,535 24,532 2,003

Lease guarantee income — (5,548) 5,548

Change in fair value of interest rate swap contracts 1,916 959 957

Stock-based compensation expense 1,618 1,961 (343)

SEC settlement — 3,900 (3,900)

Business transformation costs (1)

2,458 1,180 1,278

Other non-routine expense (2)

Other non-routine (income) expense (2)

(1,218) 100 (1,318)

4 unchanged sentences

(1) Represents costs associated with the launch and continued implementation of strategic projects including supply chain management improvements and technology infrastructure initiatives.

(2) Includes contested proxy and related legal and consulting costs and facility closure costs.

(2) Includes the gain recognized on the sale of the Utah facility in 2026 and legal and consulting expenses incurred in connection with various corporate projects and other strategic initiatives.

(3) Includes severance and related expenses for the Company’s transition of executive officers and organizational redesign.

Liquidity and Capital Resources

As of September 30, 2025, we had cash of approximately $12.3 million, checks issued not presented for payment of $2.1 million and access to approximately $49.8 million in additional funds through our $125.0 million line of credit, subject to a borrowing base calculation.

As of March 31, 2026, we had cash of approximately $11.1 million, checks issued not presented for payment of $5.0 million and access to approximately $55.2 million in additional funds through our $125.0 million line of credit, subject to a borrowing base calculation.

We have funded working capital and other capital requirements primarily by cash flow from operations and bank loans.

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However, our ability to repay our current obligations will depend on the future realization of our current assets.

Management has considered the historical experience, the economy, the trends in the foodservice distribution industry to determine the expected collectability of accounts receivable and the realization of inventories as of September 30, 2025.

We are party to an amortizing interest rate swap contract with JPMorgan Chase for an initial notional amount of $120.0 million, expiring in March 2028, as a means to partially hedge our existing floating rate loans exposure.

Pursuant to the agreement, we will pay the swap counterparty a fixed rate of 4.11% in exchange for floating payments based on CME Term SOFR.

Management believes we have sufficient funds to meet our working capital requirements and debt obligations in the next twelve months.

Management believes we have sufficient access to funds to meet our working capital requirements and debt obligations in the next twelve months.

However, there are a number of factors that could potentially arise which might result in shortfalls in anticipated cash flow, such as the demand for our products, economic conditions, competitive pricing in the foodservice distribution industry, and our bank and suppliers being able to provide continued support.

If the future cash flow from operations and other capital resources is insufficient to fund our liquidity needs, we may have to resort to reducing or delaying our expected capital investment plans, liquidating assets, obtaining additional debt or equity capital, or refinancing all or a portion of our debt.

As of September 30, 2025, we have no off-balance sheet arrangements that currently have or are reasonably likely to have a material effect on our consolidated financial position, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources.

The following table summarizes cash flow data for the nine months ended September 30, 2025 and 2024:

Nine Months Ended September 30,

As of March 31, 2026, we have no off-balance sheet arrangements that currently have or are reasonably likely to have a material effect on our consolidated financial position, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources.

The following table summarizes cash flow data for the three months ended March 31, 2026 and 2025:

Three Months Ended March 31,

(In thousands) 2026 2025 Change

1 unchanged sentence

Net cash used in investing activities (11,119) (3,564) (7,555)

Net cash provided by financing activities

3,240 1,411 1,829

Net decrease in cash and cash equivalents

$ (2,139) $ (3,787) $ 1,648

Net cash used in financing activities (1,749) (1,752) 3

Net increase in cash and cash equivalents $ 2,420 $ 1,632 $ 788

Operating Activities

Net cash provided by operating activities consists primarily of net income (loss) adjusted for non-cash items, including depreciation and amortization, changes in deferred income taxes and others, and includes the effect of working capital changes.

Net cash provided by operating activities increased by $0.3 million primarily due to an increase in non-cash expense add-backs, offset by the timing of working capital outlays mainly for inventory purchases to counter potential tariff increases.

Net cash provided by operating activities increased by $8.3 million primarily due to an increase in non-cash expense add-backs and increases in accounts payable balances, offset by the timing of working capital outlays mainly for inventory purchases and increases in our accounts receivable balances.

Investing Activities

Net cash used in investing activities increased by $0.4 million primarily due to increased capital project spend in the nine months ended September 30, 2025.

Net cash used in investing activities increased by $7.6 million primarily due to increased capital project spend in the three months ended March 31, 2026, partially offset by proceeds from the sale of the Utah property (see Note 4 - Balance Sheet Components for additional information).

Financing Activities

Net cash used in financing activities increased by $1.8 million to $3.2 million during the nine months ended September 30, 2025 primarily due to the higher overall net proceeds from line of credit activity for the nine months ended September 30, 2025 as compared the nine months ended September 30, 2024.

Net cash used in financing activities remained relatively consistent at $1.7 million during the three months ended March 31, 2026 primarily due to the higher overall net proceeds from line of credit activity, offset by overall lower interest rates as compared to the three months ended March 31, 2025.

Critical Accounting Policies and Estimates

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These assumptions form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Part II, Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2024 Annual Report on Form 10-K includes a summary of the critical accounting policies and estimates we believe are the most important to aid in understanding our financial results.

There have been no changes to those critical accounting policies and estimates that have had a material impact on our reported amounts of assets, liabilities, revenue, or expenses during the nine months ended September 30, 2025.

Goodwill Impairment

The Company’s annual goodwill impairment assessment is performed as of December 31.

As a result of continued declines in the level of stock price, the Company performed a quantitative goodwill impairment assessment as of December 31, 2024.

The results of the testing as of December 31, 2024, concluded that the estimated fair value of the reporting unit fell short of carrying value, and therefore impairment existed as of that date.

A goodwill impairment charge of $46.3 million was recorded during the fourth quarter of the year ended December 31, 2024.

For the December 31, 2024 impairment test, we used a combination of discounted cash flow (“DCF”) model and market approaches, such as public company comparable analysis and comparable acquisitions analysis to determine fair value of the reporting unit.

The income approach and market approaches were weighted equally to estimate fair value.

The income approach requires detailed forecasts of cash flows, including significant assumptions such as revenue growth rates, gross profit margins, distribution, selling and administrative expenses, among other assumptions, and an estimate of weighted-average cost of capital which we believe approximate the assumptions from a market participant’s perspective.

The market approaches are primarily impacted by an enterprise value multiple of EBITDA.

These estimates incorporate many uncertain factors which could be impacted by changes in market conditions, interest rates, growth rate, tax rates, costs, customer behavior, regulatory environment and other macroeconomic changes.

In addition, we considered the reasonableness of the fair value of the reporting unit by assessing the implied enterprise value control premium based on our market capitalization and also considered the lack of liquidity in the Company’s common stock.

The Company’s common stock is fairly thinly traded, with a higher level of internal stockholders than its peers, and limited equity analyst coverage.

As a result, the implied value from the traded stock price is based on limited investment public interest.

Our market capitalization is calculated using the number of common shares outstanding and common stock publicly traded price.

We determined that the implied control premium was reasonable which

corroborates our fair value estimates.

We categorize the fair value determination as Level 3 in the fair value hierarchy due to its use of internal projections and unobservable measurement inputs.

Assumptions used in impairment testing are made at a point in time and require significant judgment;

therefore, they are subject to change based on the facts and circumstances present at each impairment test date.

Additionally, these assumptions are generally interdependent and do not change in isolation.

We performed sensitivity analyses on the key inputs and assumptions used in determining the estimated fair value of our reporting unit by utilizing changes in assumptions that would reasonably likely occur.

Assuming all other assumptions and inputs used in the fair value analysis are held constant, for the December 31, 2024 impairment test, a 100 basis point increase in the discount rate assumption, a 1x decrease in the respective EBITDA multiple assumptions, a 25 basis point decrease in the gross profit margin assumption, and a 50 basis point decrease in the revenue growth rate assumption would result in a decrease in the fair value of our reporting unit of approximately $11.6 million, $31.0 million, $7.3 million, and $5.5 million, respectively, which would likely result in further impairment.

These estimated changes in fair value are not necessarily representative of the actual impairment that would be recorded in the event of a fair value decline.

As of September 30, 2025, the Company determined that there were no events or circumstances that would more likely than not reduce the fair value of the reporting unit below its carrying value.

Management considered the decrease in the Company’s share price around September 30, 2025 and concluded this was primarily attributable to market reactions and higher-than normal trade volumes caused by potential dilution related to the Company’s announcement of a $100 million At the Market (“ATM”) equity offering on September 25, 2025.

We believe that due to the Company’s normally low trading volume, this creates higher volatility and fluctuations in stock price, and such a decline is not considered a sustained decline as of September 30, 2025.

If, in future periods, the financial performance of the reporting unit does not meet forecasted expectations, or a prolonged decline occurs in the market price of our common stock, it may cause a change in the results of the impairment assessment and, as such, could result in further impairment of goodwill.

Part II, Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2025 Annual Report includes a summary of the critical accounting policies and estimates we believe are the most important to aid in understanding our financial results.

Recent Accounting Pronouncements

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis