[Filing Information](index=1&type=section&id=Filing%20Information) Details the Form 10-Q filing for The Chefs' Warehouse, Inc. for the quarter ended June 24, 2022 - The Chefs' Warehouse, Inc. filed a Form 10-Q for the quarterly period ended June 24, 2022[1](index=1&type=chunk)[2](index=2&type=chunk) Registrant Details | Detail | Value | | :--- | :--- | | **Registrant Name** | THE CHEFS' WAREHOUSE, INC. | | **State of Incorporation** | Delaware | | **IRS Employer Identification No.** | 20-3031526 | | **Principal Executive Offices** | 100 East Ridge Road, Ridgefield, Connecticut 06877 | | **Telephone Number** | (203) 894-1345 | | **Trading Symbol** | CHEF | | **Exchange** | The NASDAQ Stock Market LLC | | **Filer Status** | Large accelerated filer | | **Common Stock Outstanding (July 25, 2022)** | 38,260,862 shares | [Cautionary Statement Regarding Forward-Looking Statements](index=4&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) Highlights inherent risks and uncertainties in forward-looking statements, which may cause actual results to differ materially - The report contains forward-looking statements that involve risks and uncertainties, and actual results may differ materially from expectations. Key risks include sensitivity to economic conditions, ability to expand through acquisitions, managing future growth, supply chain disruptions, price volatility in center-of-the-plate products, low-margin business sensitivity to inflation/deflation, concentration in certain culinary markets, fuel cost volatility, limited future capital raising ability, interest rate changes (LIBOR), loss of key management, and the impact of public health epidemics like COVID-19[7](index=7&type=chunk) [PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) Presents the company's unaudited consolidated financial statements and management's analysis for the reporting period [ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS](index=5&type=section&id=ITEM%201.%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) This section presents the unaudited consolidated financial statements, including the balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, fair value measurements, acquisitions, debt obligations, and other financial disclosures for the periods ended June 24, 2022 [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) Provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific reporting dates Consolidated Balance Sheet Highlights (Amounts in thousands) | Metric | June 24, 2022 | December 24, 2021 | Change (vs. Dec 2021) | | :--- | :--- | :--- | :--- | | **Total Current Assets** | $477,952 | $469,960 | +$7,992 | | Cash and cash equivalents | $51,806 | $115,155 | -$63,349 | | Accounts receivable, net | $208,229 | $172,540 | +$35,689 | | Inventories, net | $181,594 | $144,491 | +$37,103 | | **Total Assets** | $1,136,878 | $1,073,795 | +$63,083 | | **Total Current Liabilities** | $230,929 | $197,018 | +$33,911 | | Accounts payable | $144,547 | $118,284 | +$26,263 | | **Total Liabilities** | $763,191 | $723,584 | +$39,607 | | **Total Stockholders' Equity** | $373,687 | $350,211 | +$23,476 | [Consolidated Statements of Operations and Comprehensive Income (Loss)](index=6&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20%28Loss%29) Reports the company's financial performance over specific periods, including net sales, gross profit, operating income, and net income Consolidated Statements of Operations Highlights (Amounts in thousands, except per share) | Metric | 13 Weeks Ended June 24, 2022 | 13 Weeks Ended June 25, 2021 | Change (YoY) | 26 Weeks Ended June 24, 2022 | 26 Weeks Ended June 25, 2021 | Change (YoY) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Net sales** | $648,104 | $422,968 | +53.2% | $1,160,207 | $703,185 | +65.0% | | **Gross profit** | $156,004 | $95,874 | +62.7% | $273,517 | $154,821 | +76.7% | | **Operating income (loss)** | $27,634 | $4,659 | +493.1% | $33,898 | $(15,469) | N/A | | **Net income (loss)** | $16,915 | $1,098 | +1440.5% | $18,300 | $(16,823) | N/A | | **Basic EPS** | $0.46 | $0.03 | +1433.3% | $0.49 | $(0.46) | N/A | | **Diluted EPS** | $0.42 | $0.03 | +1300.0% | $0.47 | $(0.46) | N/A | [Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) Details the changes in the company's equity accounts, including common stock, additional paid-in capital, and retained earnings Stockholders' Equity Changes (Amounts in thousands, except share amounts) | Item | Balance Dec 24, 2021 | 26 Weeks Ended June 24, 2022 | Balance June 24, 2022 | | :--- | :--- | :--- | :--- | | **Common Shares** | 37,887,675 | +369,780 | 38,257,455 | | **Common Stock Amount** | $380 | +$3 | $383 | | **Additional Paid-in Capital** | $314,242 | +$5,122 | $319,364 | | **Accumulated Other Comprehensive Loss** | $(2,022) | +$51 | $(1,971) | | **Retained Earnings** | $37,611 | +$18,300 | $55,911 | | **Total Stockholders' Equity** | $350,211 | +$23,476 | $373,687 | - Net income for the 26 weeks ended June 24, 2022, was **$18,300 thousand**, contributing to the increase in retained earnings. Stock compensation added **$5,982 thousand** to additional paid-in capital, while shares surrendered for tax withholding reduced it by **$2,557 thousand**[15](index=15&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Summarizes the cash inflows and outflows from operating, investing, and financing activities over specific periods Consolidated Cash Flow Highlights (Amounts in thousands) | Cash Flow Activity | 26 Weeks Ended June 24, 2022 | 26 Weeks Ended June 25, 2021 | Change (YoY) | | :--- | :--- | :--- | :--- | | **Net cash provided by (used in) operating activities** | $19,781 | $(23,922) | +$43,703 | | **Net cash used in investing activities** | $(75,497) | $(16,739) | -$58,758 | | **Net cash used in financing activities** | $(7,733) | $(5,642) | -$2,091 | | **Net change in cash and cash equivalents** | $(63,349) | $(46,361) | -$16,988 | | **Cash and cash equivalents - end of period** | $51,806 | $146,920 | -$95,114 | - Operating cash flows significantly improved, turning from a net use of **$23.9 million** in 2021 to a net provision of **$19.8 million** in 2022. This was driven by net income and non-cash charges, partially offset by investments in working capital. Investing activities saw a substantial increase in cash used, primarily due to higher capital expenditures and cash paid for acquisitions[18](index=18&type=chunk) [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for the consolidated financial statements, covering the company's operations, significant accounting policies, per-share calculations, fair value measurements, recent acquisitions, inventory, fixed assets, goodwill, debt, equity, related party transactions, and supplemental cash flow information [Note 1 - Operations and Basis of Presentation](index=9&type=section&id=Note%201%20-%20Operations%20and%20Basis%20of%20Presentation) Describes the company's business operations, reportable segments, customer base, and the basis for financial statement preparation - The Company operates as a foodservice distributor primarily in the United States, with three operating segments (East Coast, Midwest, West Coast) aggregated into one reportable segment. Its customer base includes independent restaurants, fine dining establishments, hotels, caterers, and specialty food stores. The financial statements are unaudited and prepared in accordance with GAAP for interim reporting, and results for the reported periods are not necessarily indicative of the full year due to seasonal fluctuations, the COVID-19 pandemic, and other factors[21](index=21&type=chunk)[23](index=23&type=chunk)[24](index=24&type=chunk) [Note 2 – Summary of Significant Accounting Policies](index=11&type=section&id=Note%202%20%E2%80%93%20Summary%20of%20Significant%20Accounting%20Policies) Outlines the key accounting principles and methods used in preparing the financial statements, including revenue recognition and cost of sales - Revenue from product sales is recognized when control is transferred to the customer, typically upon physical possession. Sales incentives (rebates/discounts) are treated as variable consideration and reduce revenue. Shipping and handling costs are expensed as incurred within SG&A[27](index=27&type=chunk) Net Sales by Principal Product Category (Amounts in thousands) | Product Category | 13 Weeks Ended June 24, 2022 | % of Total | 13 Weeks Ended June 25, 2021 | % of Total | | :--- | :--- | :--- | :--- | :--- | | Center-of-the-Plate | $284,286 | 43.9% | $215,089 | 50.9% | | Dry Goods | $103,597 | 16.0% | $57,117 | 13.5% | | Pastry | $76,320 | 11.8% | $41,312 | 9.8% | | Cheese and Charcuterie | $59,109 | 9.1% | $34,303 | 8.1% | | Produce | $37,214 | 5.7% | $30,558 | 7.2% | | Dairy and Eggs | $39,846 | 6.1% | $18,902 | 4.5% | | Oils and Vinegars | $31,517 | 4.9% | $16,881 | 4.0% | | Kitchen Supplies | $16,215 | 2.5% | $8,806 | 2.0% | | **Total** | **$648,104** | **100%** | **$422,968** | **100%** | - Food processing costs included in cost of sales increased to **$9,398 thousand** for the thirteen weeks ended June 24, 2022, from **$6,679 thousand** in the prior year period[29](index=29&type=chunk) [Note 3 – Net Income (Loss) per Share](index=13&type=section&id=Note%203%20%E2%80%93%20Net%20Income%20%28Loss%29%20per%20Share) Details the calculation of basic and diluted earnings per share, including the impact of potentially dilutive securities Net Income (Loss) per Share (Amounts in thousands, except per share) | Metric | 13 Weeks Ended June 24, 2022 | 13 Weeks Ended June 25, 2021 | 26 Weeks Ended June 24, 2022 | 26 Weeks Ended June 25, 2021 | | :--- | :--- | :--- | :--- | :--- | | **Net income (loss)** | $16,915 | $1,098 | $18,300 | $(16,823) | | **Basic EPS** | $0.46 | $0.03 | $0.49 | $(0.46) | | **Diluted EPS** | $0.42 | $0.03 | $0.47 | $(0.46) | | **Weighted average basic common shares outstanding** | 37,100,968 | 36,831,054 | 37,018,044 | 36,615,463 | | **Weighted average diluted common shares outstanding** | 42,053,453 | 37,081,186 | 41,896,379 | 36,615,463 | - The diluted EPS calculation for the 26 weeks ended June 24, 2022, included dilutive effects from unvested common shares (**296,538**), stock options and warrants (**56,817**), and convertible notes (**4,524,980**)[32](index=32&type=chunk) [Note 4 – Fair Value Measurements](index=13&type=section&id=Note%204%20%E2%80%93%20Fair%20Value%20Measurements) Explains the valuation methodologies and inputs used for assets and liabilities measured at fair value, such as contingent earn-out liabilities and convertible notes - Contingent earn-out liabilities are measured at fair value using Level 3 inputs, based on projected results, probability of occurrence, and a discount rate. The total contingent earn-out liabilities increased from **$6,877 thousand** at December 24, 2021, to **$9,705 thousand** at June 24, 2022, primarily due to a **$3,628 thousand** change in fair value and **$1,200 thousand** from new acquisitions, partially offset by **$2,000 thousand** in cash payments[33](index=33&type=chunk)[36](index=36&type=chunk) Fair Value of Convertible Notes (Amounts in thousands) | Instrument | Carrying Value (June 24, 2022) | Fair Value (June 24, 2022) | Carrying Value (Dec 24, 2021) | Fair Value (Dec 24, 2021) | | :--- | :--- | :--- | :--- | :--- | | Convertible Senior Notes | $200,000 | $223,854 | $200,000 | $206,182 | | Convertible Unsecured Note | $4,000 | $4,474 | $4,000 | $4,102 | [Note 5 – Acquisitions](index=14&type=section&id=Note%205%20%E2%80%93%20Acquisitions) Provides details on recent business acquisitions, including purchase prices, consideration, and preliminary allocation of assets and liabilities - During Q2 2022, the Company completed two acquisitions for an aggregate purchase price of approximately **$22,500 thousand** in cash, with potential additional contingent consideration of **$2,000 thousand**. Goodwill of **$3,947 thousand** was recorded for these acquisitions[39](index=39&type=chunk) - On December 28, 2021, the Company acquired Capital Seaboard, a specialty seafood and produce distributor, for approximately **$31,036 thousand**, including **$28,000 thousand** cash, **$1,701 thousand** in common stock warrants, and **$1,335 thousand** for working capital true-up. This acquisition contributed **$70,353 thousand** in net sales and **$2,892 thousand** in income before income taxes for the twenty-six weeks ended June 24, 2022[40](index=40&type=chunk)[41](index=41&type=chunk) Preliminary Purchase Price Allocation for Acquisitions (Amounts in thousands) | Asset/Liability | Capital Seaboard | Other Acquisitions | | :--- | :--- | :--- | | Current assets | $10,130 | $8,834 | | Customer relationships | $7,250 | $10,410 | | Trademarks | $2,280 | $620 | | Goodwill | $8,334 | $8,537 | | Fixed assets | $9,552 | $197 | | Other assets | $122 | $17 | | Current liabilities | $(6,632) | $(4,915) | | Earn-out liability | — | $(1,200) | | Issuance of warrants | $(1,701) | — | | **Total cash consideration** | **$29,335** | **$22,500** | [Note 6 – Inventories](index=15&type=section&id=Note%206%20%E2%80%93%20Inventories) Describes the company's inventory valuation policies and adjustments for shrinkage, excess, and obsolescence - Inventories, primarily finished product, are reported net of adjustments for shrinkage, excess, and obsolescence. These adjustments totaled **$9,315 thousand** at June 24, 2022, an increase from **$8,312 thousand** at December 24, 2021[45](index=45&type=chunk) [Note 7 – Equipment, Leasehold Improvements and Software](index=16&type=section&id=Note%207%20%E2%80%93%20Equipment%2C%20Leasehold%20Improvements%20and%20Software) Presents the net book value of property, plant, and equipment, including depreciation and amortization expenses Equipment, Leasehold Improvements and Software, Net (Amounts in thousands) | Asset Category | June 24, 2022 | December 24, 2021 | | :--- | :--- | :--- | | Land | $5,542 | $5,020 | | Buildings | $23,443 | $18,406 | | Machinery and equipment | $30,067 | $28,099 | | Computers, data processing and other equipment | $16,386 | $15,480 | | Software | $40,098 | $39,799 | | Leasehold improvements | $92,552 | $69,105 | | Furniture and fixtures | $3,671 | $3,582 | | Vehicles | $28,007 | $29,632 | | Construction-in-process | $23,870 | $24,355 | | **Total Gross** | **$263,636** | **$233,478** | | Less: accumulated depreciation and amortization | $(108,072) | $(99,856) | | **Net Amount** | **$155,564** | **$133,622** | - Construction-in-process at June 24, 2022, primarily related to the implementation of the Company's ERP system and the build-out of its Miami distribution facility. Total depreciation and amortization expense for the twenty-six weeks ended June 24, 2022, was **$11,755 thousand**, up from **$10,660 thousand** in the prior year[47](index=47&type=chunk)[48](index=48&type=chunk) [Note 8 – Goodwill and Other Intangible Assets](index=16&type=section&id=Note%208%20%E2%80%93%20Goodwill%20and%20Other%20Intangible%20Assets) Details the carrying amounts of goodwill and other intangible assets, along with related amortization expenses Goodwill Carrying Amount (Amounts in thousands) | Item | Amount | | :--- | :--- | | Carrying amount as of December 24, 2021 | $221,775 | | Goodwill adjustments | $(792) | | Acquisitions | $16,871 | | Foreign currency translation | $(66) | | **Carrying amount as of June 24, 2022** | **$237,788** | Other Intangible Assets, Net (Amounts in thousands) | Intangible Asset | Gross Carrying Amount (June 24, 2022) | Accumulated Amortization (June 24, 2022) | Net Amount (June 24, 2022) | | :--- | :--- | :--- | :--- | | Customer relationships | $173,387 | $(79,952) | $93,435 | | Non-compete agreements | $8,579 | $(8,151) | $428 | | Trademarks | $39,407 | $(14,744) | $24,663 | | **Total** | **$221,373** | **$(102,847)** | **$118,526** | - Amortization expense for other intangibles was **$6,819 thousand** for the twenty-six weeks ended June 24, 2022, compared to **$6,643 thousand** in the prior year period[52](index=52&type=chunk) [Note 9 – Debt Obligations](index=17&type=section&id=Note%209%20%E2%80%93%20Debt%20Obligations) Summarizes the company's various debt instruments, including term loans, convertible notes, and asset-based loan facilities Debt Obligations (Amounts in thousands) | Debt Type | June 24, 2022 | December 24, 2021 | | :--- | :--- | :--- | | Senior secured term loans | $167,819 | $168,675 | | Convertible senior notes | $200,000 | $200,000 | | Asset-based loan facility | $20,000 | $20,000 | | Finance lease and other financing obligations | $10,201 | $11,602 | | Convertible unsecured note | $4,000 | $4,000 | | Deferred finance fees and original issue premium (discount) | $(4,197) | $(4,976) | | **Total debt obligations** | **$397,823** | **$399,301** | | Less: current installments | $(4,843) | $(5,141) | | **Total debt obligations excluding current installments** | **$392,980** | **$394,160** | - On March 11, 2022, the Company amended its asset-based loan (ABL) facility, increasing aggregate commitments from **$150,000 thousand** to **$200,000 thousand**. The ABL Facility matures on March 11, 2027, with certain springing maturity dates. As of June 24, 2022, **$159,460 thousand** was available for borrowing under the ABL Facility[54](index=54&type=chunk)[59](index=59&type=chunk) - Interest expense on Convertible Senior Notes for the twenty-six weeks ended June 24, 2022, was **$2,323 thousand**, including **$1,875 thousand** in coupon interest and **$448 thousand** in amortization of deferred financing fees and premium[58](index=58&type=chunk) [Note 10 – Stockholders' Equity](index=18&type=section&id=Note%2010%20%E2%80%93%20Stockholders%27%20Equity) Discusses changes in stockholders' equity, including restricted share awards and related compensation expenses - During the twenty-six weeks ended June 24, 2022, the Company granted **489,344 Restricted Share Awards (RSAs)** with a weighted average grant date fair value of **$30.50**. These awards are a mix of time-, market-, and performance-based grants, generally vesting over up to four years[60](index=60&type=chunk) - Total unrecognized compensation cost for unvested RSAs was **$23,850 thousand** at June 24, 2022, with a weighted-average remaining period of approximately **2.2 years**. The Company recognized **$5,982 thousand** in stock compensation expense for RSAs during the twenty-six weeks ended June 24, 2022[60](index=60&type=chunk)[61](index=61&type=chunk) [Note 11 – Related Parties](index=19&type=section&id=Note%2011%20%E2%80%93%20Related%20Parties) Discloses transactions and arrangements with related parties, such as lease agreements with company executives - The Company leases a distribution facility from entities controlled by its Chairman, President, CEO, and Vice Chairman. Expense related to this facility totaled **$246 thousand** for the twenty-six weeks ended June 24, 2022[64](index=64&type=chunk) [Note 12 – Supplemental Disclosures of Cash Flow Information](index=19&type=section&id=Note%2012%20%E2%80%93%20Supplemental%20Disclosures%20of%20Cash%20Flow%20Information) Provides additional details on non-cash investing and financing activities and other cash flow items Supplemental Cash Flow Disclosures (Amounts in thousands) | Item | 26 Weeks Ended June 24, 2022 | 26 Weeks Ended June 25, 2021 | | :--- | :--- | :--- | | Cash paid for interest, net of cash received | $7,718 | $7,766 | | Operating cash flows from operating leases | $13,837 | $12,752 | | ROU assets obtained in exchange for lease liabilities (Operating leases) | $20,116 | $1,625 | | Warrants issued for acquisitions | $1,701 | $1,120 | | Contingent earn-out liabilities for acquisitions | $1,200 | $3,400 | [Note 13 – Subsequent Events](index=19&type=section&id=Note%2013%20%E2%80%93%20Subsequent%20Events) Reports significant events occurring after the balance sheet date but before the financial statements were issued - On July 25, 2022, subsequent to the reporting period, the Company entered into a stock purchase agreement to acquire a center-of-the-plate distributor in Florida for **$10,000 thousand** in cash, subject to working capital adjustments. The initial accounting for this acquisition is incomplete[66](index=66&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=20&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on the Company's financial condition, changes in financial condition, and results of operations, highlighting business overview, the impact of COVID-19, recent acquisitions, detailed analysis of operating results for the thirteen and twenty-six weeks ended June 24, 2022, liquidity and capital resources, seasonality, inflation, off-balance sheet arrangements, and critical accounting policies [Business Overview](index=20&type=section&id=Business%20Overview) Describes the company's core business as a specialty food distributor, its product offerings, and customer base - The Chefs' Warehouse, Inc. is a premier distributor of specialty foods in nine leading culinary markets in the U.S., offering over **50,000 SKUs**, including high-quality specialty foods, basic ingredients, and center-of-the-plate proteins. It serves over **35,000 customer locations**, primarily independent restaurants and fine dining establishments, across **19 geographic markets** in the U.S. and Canada, and also sells directly to consumers through Allen Brothers and 'Shop Like a Chef' retail channels[69](index=69&type=chunk) [Effect of the COVID-19 Pandemic on our Business and Operations](index=20&type=section&id=Effect%20of%20the%20COVID-19%20Pandemic%20on%20our%20Business%20and%20Operations) Discusses the pandemic's impact on demand, costs, labor, and the company's recovery, while acknowledging future uncertainties - The COVID-19 pandemic adversely impacted demand, caused cost inflation, and led to labor shortages. Despite these challenges, the Company returned to profitability in Q2 fiscal 2021 and experienced sequential business improvement, contributing **$152.3 million** in organic sales growth compared to the prior year quarter[70](index=70&type=chunk) - The future impact of the pandemic remains uncertain, depending on factors such as disease severity, new variants, government responses, infection rates, medical treatments, and consumer spending behavior[71](index=71&type=chunk) [Recent Acquisitions](index=20&type=section&id=Recent%20Acquisitions) Summarizes the company's recent acquisition activities, including purchase prices and strategic rationale - In Q2 fiscal 2022, the Company completed two acquisitions for approximately **$22.5 million** in cash, with potential earn-out payments of **$2 million**. Additionally, on December 28, 2021, it acquired Capital Seaboard, a specialty seafood and produce distributor, for approximately **$31.0 million**[72](index=72&type=chunk)[73](index=73&type=chunk) [Results of Operations](index=21&type=section&id=Results%20of%20Operations) The Company experienced significant sales and gross profit growth for both the thirteen and twenty-six weeks ended June 24, 2022, compared to the prior year periods, driven by organic growth, acquisitions, and price inflation. Operating income and net income also saw substantial improvements, reflecting better fixed cost leverage despite increased operating expenses [Thirteen Weeks Ended June 24, 2022 Compared to Thirteen Weeks Ended June 25, 2021](index=21&type=section&id=Thirteen%20Weeks%20Ended%20June%24%2C%202022%20Compared%20to%20Thirteen%20Weeks%20Ended%20June%24%2C%202021) Analyzes the company's financial performance for the most recent quarter, highlighting key revenue, profit, and expense trends Key Financial Performance (13 Weeks Ended) | Metric | 2022 (in thousands) | 2021 (in thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | **Net Sales** | $648,104 | $422,968 | $225,136 | 53.2% | | **Gross Profit** | $156,004 | $95,874 | $60,130 | 62.7% | | Gross Profit Margin | 24.1% | 22.7% | +1.4 pp | | | **Selling, General and Administrative Expenses** | $124,487 | $90,358 | $34,129 | 37.8% | | SG&A as % of Net Sales | 19.2% | 21.4% | -2.2 pp | | | **Other Operating Expenses, Net** | $3,883 | $857 | $3,026 | 353.1% | | **Interest Expense** | $4,465 | $4,408 | $57 | 1.3% | | **Provision for Income Tax Expense (Benefit)** | $6,254 | $(847) | $7,101 | (838.4)% | | Effective Tax Rate | 27.0% | (337.5)% | | | - Net sales growth was driven by **$152.3 million (36.0%) organic growth** and **$72.9 million (17.2%) from acquisitions**. Organic case count in specialty increased by **34.8%**, and organic pounds sold in center-of-the-plate increased by **14.2%**. Estimated inflation was **16.4% in specialty** and **10.9% in center-of-the-plate**. Gross profit margin increased due to higher sales and price inflation, with center-of-the-plate margins increasing by **230 basis points**[76](index=76&type=chunk)[78](index=78&type=chunk) - The increase in other operating expenses was primarily due to **$3.3 million** in non-cash charges for changes in the fair value of contingent earn-out liabilities, compared to non-cash credits in the prior year. The prior year also included a **$0.6 million** impairment of Cambridge trademarks[81](index=81&type=chunk) [Twenty-Six Weeks Ended June 24, 2022 Compared to Twenty-Six Weeks Ended June 25, 2021](index=22&type=section&id=Twenty-Six%20Weeks%20Ended%20June%24%2C%202022%20Compared%20to%20Twenty-Six%20Weeks%20Ended%20June%24%2C%202021) Analyzes the company's financial performance for the year-to-date period, detailing revenue, profit, and expense changes Key Financial Performance (26 Weeks Ended) | Metric | 2022 (in thousands) | 2021 (in thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | **Net Sales** | $1,160,207 | $703,185 | $457,022 | 65.0% | | **Gross Profit** | $273,517 | $154,821 | $118,696 | 76.7% | | Gross Profit Margin | 23.6% | 22.0% | +1.6 pp | | | **Selling, General and Administrative Expenses** | $234,573 | $170,603 | $63,970 | 37.5% | | SG&A as % of Net Sales | 20.2% | 24.3% | -4.1 pp | | | **Other Operating Expenses (Income), Net** | $5,046 | $(313) | $5,359 | (1,712.1)% | | **Interest Expense** | $8,830 | $9,171 | $(341) | (3.7)% | | **Provision for Income Tax Expense (Benefit)** | $6,768 | $(7,817) | $14,585 | (186.6)% | | Effective Tax Rate | 27.0% | 31.7% | | | - Net sales growth was driven by **$328.5 million (46.7%) organic growth** and **$128.5 million (18.3%) from acquisitions**. Organic case count in specialty increased by **40.0%**, and organic pounds sold in center-of-the-plate increased by **19.3%**. Estimated inflation was **15.8% in specialty** and **17.8% in center-of-the-plate**. Gross profit margin increased by **156 basis points**, with specialty margins up **42 basis points** and center-of-the-plate margins up **175 basis points**[84](index=84&type=chunk)[85](index=85&type=chunk) - Interest expense decreased due to lower effective interest rates from the issuance of **$50.0 million Convertible Senior Notes** in March 2021, used to repay higher interest rate debt[90](index=90&type=chunk) [Liquidity and Capital Resources](index=24&type=section&id=Liquidity%20and%20Capital%20Resources) The Company finances its operations and growth through cash flows, debt, operating leases, and equity. It maintains sufficient liquidity, with an increased ABL facility, to meet its short-term needs, despite a decrease in cash and cash equivalents due to significant investing activities, particularly acquisitions and capital expenditures [Indebtedness](index=24&type=section&id=Indebtedness) Details the company's outstanding debt obligations, including term loans, convertible debt, and asset-based loan facilities Selected Indebtedness Information (Amounts in thousands) | Debt Type | June 24, 2022 | December 24, 2021 | | :--- | :--- | :--- | | Senior secured term loan | $167,819 | $168,675 | | Total convertible debt | $204,000 | $204,000 | | Borrowings outstanding on asset-based loan facility | $20,000 | $20,000 | | Finance leases and other financing obligations | $10,201 | $11,602 | | **Total** | **$402,020** | **$404,277** | - As of June 24, 2022, the Company had **$391.8 million** in aggregate principal amount of various floating- and fixed-rate debt instruments. The ABL Facility was increased from **$150.0 million** to **$200.0 million** on March 11, 2022[95](index=95&type=chunk)[96](index=96&type=chunk) [Liquidity](index=24&type=section&id=Liquidity) Assesses the company's ability to meet short-term obligations using cash, working capital, and available credit facilities Selected Liquidity Information (Amounts in thousands) | Metric | June 24, 2022 | December 24, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $51,806 | $115,155 | | Working capital, excluding cash and cash equivalents | $195,217 | $157,787 | | Availability under asset-based loan facility | $159,460 | $109,459 | | **Total** | **$406,483** | **$382,401** | - The Company expects capital expenditures for fiscal 2022 to be approximately **$36.0 million to $45.0 million**. Management believes existing cash, working capital, and ABL facility availability are sufficient to meet liquidity requirements for the next 12 months[97](index=97&type=chunk) [Cash Flows](index=24&type=section&id=Cash%20Flows) Provides a detailed breakdown of cash generated and used across operating, investing, and financing activities Selected Cash Flow Information (Amounts in thousands) | Cash Flow Activity | 26 Weeks Ended June 24, 2022 | 26 Weeks Ended June 25, 2021 | | :--- | :--- | :--- | | Net income (loss) | $18,300 | $(16,823) | | Non-cash charges | $37,107 | $16,748 | | Changes in working capital | $(35,626) | $(23,847) | | **Net cash provided by (used in) operating activities** | **$19,781** | **$(23,922)** | | **Net cash used in investing activities** | **$(75,497)** | **$(16,739)** | | **Net cash used in financing activities** | **$(7,733)** | **$(5,642)** | - Net cash provided by operating activities significantly improved to **$19.8 million**, driven by net income and increased non-cash charges, partially offset by working capital investments. Net cash used in investing activities increased to **$75.5 million**, primarily due to **$23.5 million** in capital expenditures and **$52.0 million** for acquisitions. Net cash used in financing activities was **$7.7 million**, mainly for debt payments, tax withholding related to equity awards, and earn-out liability payments[98](index=98&type=chunk)[100](index=100&type=chunk)[101](index=101&type=chunk) [Seasonality](index=25&type=section&id=Seasonality) Discusses the impact of seasonal fluctuations on the company's sales and operating results, particularly for its direct-to-consumer business - Excluding its direct-to-consumer business, the Company generally does not experience material seasonality. However, sales and operating results can vary due to factors like operating expenses, growth strategies, personnel changes, product demand, supply shortages, weather, and economic conditions[102](index=102&type=chunk) - The direct-to-consumer business is seasonal, with center-of-the-plate protein sales typically higher during the fourth-quarter holiday season, generating a disproportionate amount of operating cash flows in that quarter, despite year-round advertising and promotional expenses[103](index=103&type=chunk) [Inflation](index=25&type=section&id=Inflation) Addresses the company's exposure to cost inflation and its ability to manage and pass on increased costs to customers - Profitability depends on the Company's ability to anticipate and react to changes in costs of key operating resources, including food, raw materials, labor, energy, and other supplies. Substantial cost increases, if not passed on to customers, could adversely impact operating results[105](index=105&type=chunk) [Off-Balance Sheet Arrangements](index=25&type=section&id=Off-Balance%20Sheet%20Arrangements) Confirms the absence of any material off-balance sheet arrangements that could impact the company's financial position - As of June 24, 2022, the Company did not have any off-balance sheet arrangements[106](index=106&type=chunk) [Critical Accounting Policies and Estimates](index=25&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Identifies the accounting policies and estimates that require significant management judgment and could materially affect financial reporting - Critical accounting policies and estimates include determining the allowance for doubtful accounts, inventory valuation (excess and obsolete inventory), business combinations, valuing goodwill and intangible assets, self-insurance reserves, accounting for income taxes, and contingent earn-out liabilities. These policies require significant management judgment and estimates[107](index=107&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=26&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section discusses the Company's exposure to market risks, specifically interest rate risk, and quantifies the potential impact of changes in market interest rates on its financial performance [Interest Rate Risk](index=26&type=section&id=Interest%20Rate%20Risk) Quantifies the potential financial impact of changes in market interest rates on the company's variable-rate debt obligations - As of June 24, 2022, the Company had **$187.8 million** of indebtedness outstanding under its Term Loan and ABL Facility that bore interest at variable rates. A **100 basis point increase** in market interest rates would decrease the Company's after-tax earnings by approximately **$1.4 million** per annum, assuming other variables remain constant[109](index=109&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=26&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) This section details the evaluation of the Company's disclosure controls and procedures and reports on any changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=26&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Reports on the effectiveness of the company's disclosure controls and procedures as assessed by senior management - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of June 24, 2022[110](index=110&type=chunk) [Changes in Internal Control over Financial Reporting](index=26&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) Confirms whether any material changes occurred in the company's internal control over financial reporting during the quarter - There were no material changes in the Company's internal control over financial reporting during the quarter ended June 24, 2022[111](index=111&type=chunk) [PART II. OTHER INFORMATION](index=26&type=section&id=PART%20II.%20OTHER%20INFORMATION) Provides additional disclosures not covered in the financial information section, including legal proceedings, risk factors, equity sales, and exhibits [ITEM 1. LEGAL PROCEEDINGS](index=26&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section addresses the Company's involvement in legal proceedings and management's assessment of their potential impact - The Company is involved in ordinary course legal proceedings, claims, and litigation. Management believes the outcome of these matters, individually or in aggregate, will not have a material adverse effect on its consolidated financial statements, and no material amounts have been accrued[112](index=112&type=chunk) [ITEM 1A. RISK FACTORS](index=26&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section refers to the Company's previously disclosed risk factors and confirms no material changes - There have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 24, 2021[113](index=113&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=26&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This section provides information on shares repurchased to satisfy tax withholding requirements related to equity awards Shares Repurchased for Tax Withholding | Period | Total Number of Shares Repurchased | Average Price Paid Per Share | | :--- | :--- | :--- | | March 26, 2021 to April 22, 2022 | 4,877 | $33.14 | | April 23, 2022 to May 20, 2022 | 3,941 | $36.97 | | May 21, 2022 to June 24, 2022 | 6,319 | $33.24 | | **Total (26 Weeks Ended June 24, 2022)** | **15,137** | **$34.18** | - During the twenty-six weeks ended June 24, 2022, the Company withheld **15,137 shares** of common stock to satisfy tax withholding requirements for restricted shares awarded to officers and key employees[114](index=114&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=28&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) This section confirms no defaults on senior securities - There were no defaults upon senior securities[116](index=116&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=28&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This section confirms no mine safety disclosures - There are no mine safety disclosures[117](index=117&type=chunk) [ITEM 5. OTHER INFORMATION](index=28&type=section&id=ITEM%205.%20OTHER%20INFORMATION) This section indicates no other information to report - There is no other information to report[118](index=118&type=chunk) [ITEM 6. EXHIBITS](index=29&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed as part of the Form 10-Q, including certifications and XBRL-related documents - Exhibits include certifications from the CEO and CFO (Sections 302 and 906 of Sarbanes-Oxley Act of 2002) and various XBRL taxonomy extension documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents, and Cover Page Interactive Data File)[120](index=120&type=chunk) [SIGNATURES](index=30&type=section&id=SIGNATURES) This section contains the required signatures for the Form 10-Q filing - The report was signed on July 27, 2022, by James Leddy, Chief Financial Officer, and Timothy McCauley, Chief Accounting Officer[122](index=122&type=chunk)

Financial Data and Key Metrics Changes - Net sales for Q1 2022 increased approximately 82.8% to $512.1 million from $280.2 million in Q1 2021, driven by a 62.9% increase in organic sales and a 19.9% contribution from acquisitions [12][15] - Gross profit increased 99.4% to $117.5 million, with gross profit margins rising approximately 191 basis points to 22.9% [13][15] - Adjusted EBITDA for Q1 2022 was $21.5 million compared to a negative adjusted EBITDA of $9.5 million in Q1 2021 [15] Business Line Data and Key Metrics Changes - Specialty sales grew 70.3% organically year-over-year, with unique customer growth of approximately 29.4% and placement growth of 41.6% [7] - Organic pounds and center-of-the-plate sales were approximately 26% higher than the prior year [7] Market Data and Key Metrics Changes - Net inflation was 21.7% in Q1 2022, with 14.9% inflation in the specialty category and 28.5% in the center-of-the-plate category [13] - The company noted that the labor market is improving, facilitating new customer openings and increased restaurant capacity [6] Company Strategy and Development Direction - The company is focused on becoming a leading national marketer and distributor of specialty food products, with plans to enhance its distribution capabilities through new facilities in Southern California and South Florida [8][10] - The introduction of a new digital platform aims to improve customer experience and drive sales [9] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the recovery from COVID-19, noting strong demand trends in March and April [6][18] - The company is prepared for potential challenges in the labor market and inflation, with strategies in place to manage costs and maintain profitability [35][39] Other Important Information - The company has been certified as a great place to work, indicating a strong workplace culture [10] - Total liquidity at the end of Q1 2022 was $205.6 million, with net debt approximately $319.1 million [15][16] Q&A Session Summary Question: Concerns about revenue guidance being conservative - Management indicated that the guidance reflects strength seen in Q1 but is cautious due to macroeconomic uncertainties [18] Question: Labor market conditions and hiring - Management noted ongoing challenges in the labor market but expressed optimism about gradual improvements [19] Question: Business spending trends - Management observed an increase in bookings for corporate events, indicating a recovery in business spending [22][24] Question: Inflation trends and product costs - Management reported mixed inflation trends, with some categories experiencing price increases while others showed signs of stabilization [31][33] Question: Consumer pushback on pricing - Management noted that while some consumers are sensitive to price increases, demand for high-quality dining experiences remains strong [39] Question: M&A landscape and deal opportunities - Management described the M&A environment as competitive but emphasized a disciplined approach to acquisitions [46][48] Question: Expectations for returning to 2019 volume levels - Management indicated that they are on track to meet or exceed pre-pandemic volume levels by the end of the year [52] Question: Impact of diesel costs on operations - Management has factored in increased diesel prices into their guidance and is adapting pricing strategies to mitigate impacts [54] Question: Savings from new facilities - Management expects significant savings from the new Southern California facility through improved operational efficiencies [56][59]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 25, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________ Commission file number: 001-35249 THE CHEFS' WAREHOUSE, INC. (Exact name of registrant as specified in its charter) Delaware 20-3031526 (State or ...

[Part I](index=5&type=section&id=Part%20I) This section covers the company's business, risk factors, properties, legal proceedings, and mine safety disclosures [Item 1. Business](index=5&type=section&id=Item%201.%20Business) The company is a premier specialty food distributor in the US and Canada, serving high-end foodservice and direct-to-consumer markets - The company is a premier distributor of specialty food and center-of-the-plate products in the United States and Canada, focused on serving chefs in leading menu-driven independent restaurants, fine dining establishments, and other high-end foodservice customers[13](index=13&type=chunk) - The product portfolio includes over **50,000 Stock Keeping Units (SKUs)** from more than **2,500 different suppliers**, comprising imported and domestic specialty food products, custom-cut beef, seafood, hormone-free poultry, produce, and broadline food products[14](index=14&type=chunk) - Net revenues grew from approximately **$1.3 billion in FY2017 to $1.7 billion in FY2021**, driven by organic growth and twelve acquisitions totaling over **$112.7 million** in cash purchase prices since December 2017[15](index=15&type=chunk) - The company serves over **35,000 core customer locations** in nineteen primary geographic markets across the United States and Canada, supported by approximately **570 sales and customer service professionals** and **40 distribution centers**[16](index=16&type=chunk) - Despite the adverse impact of the COVID-19 Pandemic on demand, costs, and labor, the company returned to profitability during the second quarter of fiscal 2021[17](index=17&type=chunk) Liquidity Position (as of December 24, 2021) | Metric | Amount (Millions $) | | :----------------------- | :------------------ | | Working Capital | 157.8 | | Cash and Cash Equivalents | 115.2 | | ABL Facility Availability | 109.5 | - Key growth strategies include increasing penetration with existing customers, expanding the customer base in existing markets, improving operating margins through efficiency and technology, and pursuing selective acquisitions[28](index=28&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk)[31](index=31&type=chunk) - The company has no meaningful customer concentration, with its top ten customers accounting for less than **7.5% of total net sales** for fiscal year 2021[34](index=34&type=chunk) - The company employs a sophisticated sales force of approximately **570 professionals**, many with culinary training, who are compensated primarily on gross profit dollars obtained and supported by ongoing education and training[42](index=42&type=chunk)[43](index=43&type=chunk)[44](index=44&type=chunk) - The company is subject to extensive international, federal, state, provincial, and local regulations, including those from the FDA, USDA, Health Canada, and transportation authorities, and believes it is in material compliance[60](index=60&type=chunk)[61](index=61&type=chunk)[63](index=63&type=chunk)[64](index=64&type=chunk)[66](index=66&type=chunk) - The core business generally does not experience material seasonality, but the Allen Brothers direct-to-consumer business sees higher sales during the fourth-quarter holiday season[69](index=69&type=chunk)[70](index=70&type=chunk) - Profitability is sensitive to changes in the costs of key operating resources (food, labor, energy), and the inability to pass on cost increases to customers can impact operating results[72](index=72&type=chunk) [Item 1A. Risk Factors](index=15&type=section&id=Item%201A.%20Risk%20Factors) The company faces diverse risks from economic conditions, growth management, supply chain, labor costs, IT failures, and substantial indebtedness - The company's success is significantly dependent on general economic conditions and consumer discretionary spending, particularly in the food-away-from-home industry, making it vulnerable to economic downturns[81](index=81&type=chunk)[82](index=82&type=chunk) - Future growth relies on expanding in existing markets and penetrating new ones through organic growth or acquisitions, which carry risks such as difficulty in market expansion, integration challenges, and potential liabilities or dilution from M&A[83](index=83&type=chunk)[84](index=84&type=chunk)[85](index=85&type=chunk)[86](index=86&type=chunk)[87](index=87&type=chunk)[89](index=89&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk)[93](index=93&type=chunk) - Operating in a low-margin industry, the company's profit margins are sensitive to inflationary and deflationary pressures, and the inability to pass on cost increases can negatively impact profitability[99](index=99&type=chunk) - The foodservice distribution industry is highly competitive, and the company faces risks of price reductions, reduced gross margins, and loss of market share from competitors[100](index=100&type=chunk) - The company's profitability and operating margins are dependent on the cost and availability of specialty food products, produce, and center-of-the-plate products, which can be affected by supplier issues, weather, government regulation, and transportation interruptions[117](index=117&type=chunk)[118](index=118&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk)[123](index=123&type=chunk) - Distribution of center-of-the-plate products (meat, poultry, seafood) involves exposure to price volatility due to factors like feed costs, weather, diseases, and government regulation, along with risks of product recalls[124](index=124&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk)[127](index=127&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk) - Increases in labor costs (e.g., minimum wage, healthcare), labor shortages, and unionization efforts could slow growth or harm the business[135](index=135&type=chunk)[136](index=136&type=chunk)[138](index=138&type=chunk)[139](index=139&type=chunk)[141](index=141&type=chunk)[142](index=142&type=chunk) - Concentration of foodservice distribution operations in certain culinary markets makes the company susceptible to local economic downturns, adverse weather conditions, and other catastrophic events[146](index=146&type=chunk)[147](index=147&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk) - Reliance on information technology systems exposes the company to risks of system failures, cybersecurity incidents, and data breaches, which could interrupt operations and adversely affect the business[153](index=153&type=chunk) - The company's substantial indebtedness of approximately **$404.3 million** as of December 24, 2021, limits cash flow, increases vulnerability to adverse conditions, and may restrict future financing or lead to default if covenants are not met[171](index=171&type=chunk)[173](index=173&type=chunk)[174](index=174&type=chunk)[176](index=176&type=chunk) - Changes in the method of determining LIBOR or its replacement with an alternative rate (like SOFR) may adversely affect interest charged on outstanding debt, potentially requiring renegotiation of credit facilities on less favorable terms[182](index=182&type=chunk)[183](index=183&type=chunk) - The price of the common stock may be volatile due to various factors, and the concentration of ownership among executive officers, directors, and their affiliates (approximately **10.8%**) may prevent new investors from influencing significant corporate decisions[184](index=184&type=chunk)[186](index=186&type=chunk) [Item 1B. Unresolved Staff Comments](index=28&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) No unresolved staff comments from the SEC - No unresolved staff comments[198](index=198&type=chunk) [Item 2. Properties](index=29&type=section&id=Item%202.%20Properties) The company operates 40 distribution centers in the US and Canada, owning four facilities and leasing the rest - The company operates **40 distribution centers** in the United States and Canada, totaling approximately **2.5 million square feet**[201](index=201&type=chunk) - Four distribution facilities are owned (two in Massachusetts, one in Cincinnati, Ohio, and one in Chicago, Illinois), with all other properties being leased[201](index=201&type=chunk) - Properties are considered to be in good condition and adequate for operations, providing sufficient capacity for anticipated requirements[202](index=202&type=chunk) [Item 3. Legal Proceedings](index=29&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in routine legal proceedings, with no material adverse effects currently anticipated - The company is subject to various legal proceedings arising from normal business activities[203](index=203&type=chunk) - Management is not aware of any pending or threatened legal proceedings that could have a material adverse effect on the business, operating results, or financial condition[203](index=203&type=chunk) [Item 4. Mine Safety Disclosures](index=29&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[204](index=204&type=chunk) [Part II](index=30&type=section&id=Part%20II) This section covers market information, management's discussion and analysis, financial statements, and controls [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=30&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Common stock trades on NASDAQ; 198 holders; no cash dividends; recent repurchases for tax withholding - The company's common stock is publicly traded under the symbol "CHEF" on the NASDAQ Global Select Market[206](index=206&type=chunk) - As of February 8, 2022, there were **198 holders of record** of the common stock[206](index=206&type=chunk) - The company has never paid cash dividends on its common stock and does not anticipate paying any in the foreseeable future, also being prohibited by its senior secured credit facilities[207](index=207&type=chunk) Issuer Purchases of Equity Securities (Q4 Fiscal 2021) | Period | Total Number of Shares Repurchased | Average Price Paid Per Share | | :--------------------------------- | :------------------------------- | :--------------------------- | | September 25, 2021 to October 22, 2021 | — | — | | October 23, 2021 to November 19, 2021 | 1,096 | $36.06 | | November 20, 2021 to December 24, 2021 | 7,730 | $32.57 | | **Total** | **8,826** | **$33.00** | - The shares repurchased were withheld to satisfy tax withholding requirements upon the vesting of restricted shares awarded to officers and key employees[214](index=214&type=chunk) [Item 6. Reserved](index=31&type=section&id=Item%206.%20Reserved) This item is reserved and contains no information - This item is reserved[216](index=216&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Analyzes financial condition and operations, highlighting Pandemic impact, acquisitions, and key performance drivers [Overview and Recent Developments](index=32&type=section&id=Overview%20and%20Recent%20Developments) Premier specialty food distributor recovering from Pandemic, with strong liquidity and growth via acquisitions and operational improvements - The company is a premier distributor of specialty foods in leading culinary markets, offering over **50,000 SKUs** to more than **35,000 core customer locations**, primarily independent restaurants and fine dining establishments[218](index=218&type=chunk) - Key differentiating factors include a distinctive product portfolio, highly trained sales force, strong sourcing, integrated warehouse management, sophisticated distribution, and an experienced management team[219](index=219&type=chunk) - Sales growth has been driven by increased demand, market share gains, expansion of distribution centers (including new ones in San Francisco, Toronto, Dallas, Los Angeles, and Miami), and the import and sale of proprietary brands[220](index=220&type=chunk) - The COVID-19 Pandemic impacted demand and costs, but the company returned to profitability in Q2 2021 with **$157.8 million in working capital** and **$115.2 million in cash and cash equivalents** as of December 24, 2021[221](index=221&type=chunk) - Recent acquisitions include Sid Wainer & Son (**$44.1 million**) and Cambridge Packing Co. (**$16.4 million**) in early 2020, and Bassian Farms (**$31.8 million**) in 2019[223](index=223&type=chunk)[224](index=224&type=chunk)[226](index=226&type=chunk) - Impairment charges of **$0.6 million** (Cambridge trademark in 2021) and **$24.2 million** (Del Monte and Bassian Farms trademarks in 2020) were recognized due to a strategic shift to leverage the Allen Brothers brand[227](index=227&type=chunk)[228](index=228&type=chunk) - Growth strategies include sales and service territory expansion, operational excellence, expanded purchasing programs, product innovation, system enhancements, and operating expense reduction through centralization[229](index=229&type=chunk) - Distribution capacity expanded to approximately **2.5 million square feet** across **40 facilities** as of February 11, 2022[230](index=230&type=chunk) [Key Factors Affecting Our Performance](index=33&type=section&id=Key%20Factors%20Affecting%20Our%20Performance) Performance is influenced by the food-away-from-home industry, economic conditions, volatile food costs, product mix shifts, and industry consolidation - Results of operations are materially impacted by the success of the food-away-from-home industry, general economic conditions, weather, discretionary spending levels, and consumer confidence[231](index=231&type=chunk) - Volatile food costs directly impact profitability; prolonged inflation may negatively affect profit margins if not passed to customers, while deflation can also impact profit levels[232](index=232&type=chunk) - Shifts in product sales mix, driven by new product categories, acquisitions, and growth in higher velocity items (e.g., dairy products), impact net sales and gross profit margins[234](index=234&type=chunk) - The fragmented but consolidating foodservice distribution industry continues to present acquisition opportunities for faster business growth[235](index=235&type=chunk) [Performance Indicators](index=34&type=section&id=Performance%20Indicators) Management assesses performance through net sales growth and gross profit/margin, driven by volume, commodity prices, and product mix - Net sales growth is driven principally by changes in volume and, to a lesser degree, changes in price related to commodity price inflation and product mix[237](index=237&type=chunk) - Gross profit and gross profit margin are driven by changes in volume, fluctuations in food and commodity prices, the ability to pass on price increases, and the product mix of net sales[237](index=237&type=chunk) [Key Financial Definitions](index=34&type=section&id=Key%20Financial%20Definitions) This section defines key financial terms including net sales, cost of sales, selling, general and administrative expenses, other operating expenses, and interest expense - Net sales consist primarily of sales of specialty products, produce, center-of-the-plate proteins, and other food products to independently-owned restaurants and high-end foodservice customers, net of discounts and sales incentives, and direct-to-consumer sales[238](index=238&type=chunk) - Cost of sales includes the net purchase price of products sold, transportation costs to distribution facilities, and food processing costs (direct labor, benefits, overhead, depreciation)[238](index=238&type=chunk) - Selling, general and administrative expenses include facilities, product shipping and handling, warehouse, and other selling, general and administrative costs[238](index=238&type=chunk) - Other operating expenses primarily relate to changes in the fair value of earn-out liabilities, gains/losses on asset disposals, asset impairments, and third-party deal costs for acquisitions or financing[238](index=238&type=chunk) - Interest expense consists primarily of interest on outstanding indebtedness and amortization/write-off of deferred financing fees[238](index=238&type=chunk) [Results of Operations](index=35&type=section&id=Results%20of%20Operations) Fiscal 2021 saw significant recovery with increased net sales and reduced net loss, contrasting with 2020's Pandemic-driven decline Consolidated Statements of Operations (Amounts in thousands) | Metric | FY2021 | FY2020 | FY2019 | | :----------------------------------- | :------- | :------- | :------- | | Net sales | 1,745,757 | 1,111,631 | 1,591,834 | | Cost of sales | 1,355,272 | 863,480 | 1,205,266 | | Gross profit | 390,485 | 248,151 | 386,568 | | Selling, general and administrative expenses | 379,252 | 336,394 | 329,542 | | Other operating expenses | 422 | 14,417 | 6,359 | | Operating income (loss) | 10,811 | (102,660) | 50,667 | | Interest and other expense, net | 17,587 | 20,946 | 18,264 | | (Loss) income before income taxes | (6,776) | (123,606) | 32,403 | | Provision for income tax (benefit) expense | (1,853) | (40,703) | 8,210 | | Net (loss) income | (4,923) | (82,903) | 24,193 | - Net sales increased by **$634.1 million (57.0%)** in FY2021, with organic growth contributing **$574.2 million (51.6%)** due to Pandemic recovery and acquisitions contributing **$59.9 million (5.4%)**[241](index=241&type=chunk) - Gross profit increased by **$142.3 million (57.4%)** in FY2021, with gross profit margin rising **4 basis points to 22.4%**[242](index=242&type=chunk) - Selling, general and administrative expenses increased by **$42.9 million (12.7%)** in FY2021, but decreased as a percentage of net sales from **30.3% to 21.7%** due to sales growth[243](index=243&type=chunk) - Other operating expenses decreased significantly by **$14.0 million (97.1%)** in FY2021, primarily due to a **$24.2 million impairment charge** for trademarks in FY2020[245](index=245&type=chunk) - Net sales declined by **$480.2 million (30.2%)** in FY2020, with organic sales down **$616.7 million (38.8%)** due to the Pandemic, partially offset by **$136.5 million (8.6%)** from acquisitions[248](index=248&type=chunk) - Gross profit decreased by **$138.4 million (35.8%)** in FY2020, with gross profit margin falling **196 basis points to 22.3%**[249](index=249&type=chunk) - Selling, general and administrative expenses increased by **$6.9 million (2.1%)** in FY2020, but increased as a percentage of net sales from **20.7% to 30.3%** due to the Pandemic's adverse impact on sales and a **$15.8 million non-cash bad debt expense**[251](index=251&type=chunk) - Other operating expenses increased by **$8.1 million (126.7%)** in FY2020, primarily due to a **$24.2 million impairment charge** on Del Monte and Bassian trademarks[252](index=252&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) Finances operations via cash flows, credit, and equity; **$404.3 million** total debt; sufficient liquidity for next year - The company finances day-to-day operations and growth primarily with cash flows from operations, borrowings under senior secured credit facilities, other indebtedness, operating leases, trade payables, and equity financing[255](index=255&type=chunk) Selected Indebtedness Information (Amounts in thousands) | Debt Type | Dec 24, 2021 | Dec 25, 2020 | Dec 27, 2019 | | :------------------------------------ | :----------- | :----------- | :----------- | | Senior secured term loan | $168,675 | $201,553 | $238,129 | | Total convertible debt | $204,000 | $154,000 | $154,000 | | Borrowings outstanding on asset-based loan facility | $20,000 | $40,000 | $— | | Finance leases and other financing obligations | $11,602 | $15,798 | $3,905 | - On March 1, 2021, **$50.0 million** in 1.875% Convertible Senior Notes were issued, with proceeds repaying **$31.2 million** of senior secured term loans and a portion of ABL borrowings[259](index=259&type=chunk) - On June 8, 2020, the company amended its senior secured credit agreement, converting **$238.1 million** of term loans into a new 2025 Tranche, extending maturity and increasing the fixed-rate portion of interest[260](index=260&type=chunk) - Public offerings in May and June 2020 generated **$85.9 million** in net proceeds from **6,634,615 common stock shares**[264](index=264&type=chunk) - The company believes its existing cash and cash equivalents, working capital, and ABL availability are sufficient to satisfy liquidity requirements over the next twelve months[265](index=265&type=chunk) Selected Liquidity Information (Amounts in thousands) | Metric | Dec 24, 2021 | Dec 25, 2020 | Dec 27, 2019 | | :------------------------------------ | :----------- | :----------- | :----------- | | Cash and cash equivalents | $115,155 | $193,281 | $140,233 | | Working capital, excluding cash and cash equivalents | $157,787 | $94,279 | $162,772 | | Availability under asset-based loan facility | $109,459 | $50,282 | $90,015 | - Capital expenditures were approximately **$38.8 million** for fiscal 2021 and are projected to be **$35.0 million to $45.0 million** for fiscal 2022[266](index=266&type=chunk) [Cash Flows](index=39&type=section&id=Cash%20Flows) Fiscal 2021 saw net cash used in operations, investing, and financing, contrasting with 2020's positive operating and financing cash flows Consolidated Statements of Cash Flows (Amounts in thousands) | Cash Flow Activity | FY2021 | FY2020 | FY2019 | | :------------------------------------ | :------- | :------- | :------- | | Net (loss) income | $(4,923) | $(82,903) | $24,193 | | Non-cash charges | $47,372 | $62,509 | $47,625 | | Changes in working capital | $(62,348) | $63,275 | $(26,811) | | Net cash (used in) provided by operating activities | $(19,899) | $42,881 | $45,007 | | Net cash used in investing activities | $(48,991) | $(67,968) | $(44,154) | | Net cash (used in) provided by financing activities | $(9,222) | $78,056 | $96,947 | - Net cash used in operations for fiscal 2021 was **$19.9 million**, driven by a net loss and **$62.3 million** in working capital investments to support growth, partially offset by **$47.4 million** of non-cash charges[270](index=270&type=chunk) - Net cash used in investing activities for fiscal 2021 was **$49.0 million**, including **$38.8 million** in capital expenditures (e.g., Los Angeles, New England, Miami distribution facilities) and **$10.2 million** for acquisitions[271](index=271&type=chunk) - Net cash used in financing activities for fiscal 2021 was **$9.2 million**, primarily due to **$37.6 million** in senior term loan and finance lease payments and a **$20.0 million ABL payment**, partially offset by **$51.8 million** from convertible senior notes issuance[272](index=272&type=chunk) - Net cash provided by operations for fiscal 2020 was **$42.9 million**, despite an **$82.9 million net loss**, offset by **$62.5 million** in non-cash charges (including a **$24.2 million trademark write-down**) and a **$63.3 million** increase in working capital[273](index=273&type=chunk) - Net cash used in investing activities for fiscal 2020 was **$68.0 million**, including **$7.0 million** in capital expenditures (e.g., ERP system implementation) and **$60.9 million** for acquisitions (e.g., Sid Wainer and Cambridge)[274](index=274&type=chunk) - Net cash provided by financing activities for fiscal 2020 was **$78.1 million**, driven by **$85.9 million** net proceeds from common stock offerings and **$40.0 million** net draws on the ABL facility, partially offset by **$40.4 million** in debt and finance lease payments[275](index=275&type=chunk) [Seasonality](index=39&type=section&id=Seasonality) The core business is not materially seasonal, but the direct-to-consumer segment sees higher sales and cash flows in Q4 due to holidays - Excluding the Allen Brothers direct-to-consumer business, the company generally does not experience any material seasonality[276](index=276&type=chunk) - The Allen Brothers direct-to-consumer business is subject to seasonal fluctuations, with sales typically higher during the holiday season in the fourth quarter, generating a disproportionate amount of operating cash flows[277](index=277&type=chunk) - The COVID-19 Pandemic materially impacted net sales most significantly during the second quarter of fiscal 2020 due to government restrictions and temporary closures of non-essential businesses[278](index=278&type=chunk)[279](index=279&type=chunk) [Inflation](index=40&type=section&id=Inflation) Profitability depends on managing volatile operating costs; inability to pass on cost increases to customers can impact results - Profitability is dependent on the ability to anticipate and react to changes in the costs of key operating resources, including food, raw materials, labor, energy, and other supplies and services[280](index=280&type=chunk) - Substantial increases in costs and expenses could impact operating results if such increases cannot be passed along to customers[280](index=280&type=chunk) [Commitments and Significant Contractual Obligations](index=40&type=section&id=Commitments%20and%20Significant%20Contractual%20Obligations) Total contractual obligations were **$635.0 million** as of December 24, 2021, primarily debt and leases, with assets pledged as collateral Contractual Obligations and Commercial Commitments (Amounts in thousands, as of December 24, 2021) | Obligation Type | Total | Less than One Year | 1-3 Years | 4-5 Years | Thereafter | | :------------------------------ | :------ | :----------------- | :-------- | :-------- | :--------- | | Indebtedness | $403,991 | $5,662 | $234,790 | $163,539 | $— | | Finance lease obligations | $12,748 | $3,834 | $5,553 | $3,192 | $169 | | Pension exit liabilities | $1,861 | $170 | $375 | $428 | $888 | | Long-term operating leases | $216,423 | $24,726 | $38,167 | $27,644 | $125,886 | | **Total** | **$635,023** | **$34,392** | **$278,885** | **$194,803** | **$126,943** | - Outstanding letters of credit totaled approximately **$20.5 million** as of December 24, 2021[283](index=283&type=chunk) - Substantially all of the company's assets are pledged as collateral to secure borrowings under its credit facilities[283](index=283&type=chunk) [Off-Balance Sheet Arrangements](index=40&type=section&id=Off-Balance%20Sheet%20Arrangements) As of December 24, 2021, the company had no off-balance sheet arrangements - As of December 24, 2021, the company did not have any off-balance sheet arrangements[284](index=284&type=chunk) [Critical Accounting Policies](index=40&type=section&id=Critical%20Accounting%20Policies) Critical accounting policies involve estimates for doubtful accounts, inventory, business combinations, goodwill, self-insurance, income taxes, and earn-out liabilities - Critical accounting policies include: allowance for doubtful accounts, inventory valuation, business combinations, valuing goodwill and intangible assets, self-insurance reserves, accounting for income taxes, and contingent earn-out liabilities[285](index=285&type=chunk) - The allowance for doubtful accounts is determined by analyzing customer creditworthiness, accounts receivable balances, payment history, payment terms, historical bad debt levels, and current macroeconomic factors, including the impact of the Pandemic[286](index=286&type=chunk)[287](index=287&type=chunk) - Inventory adjustments for excess and obsolescence are based on demand and age; **$14.6 million** in charges were incurred in fiscal 2020 due to the Pandemic[288](index=288&type=chunk) - Business combinations are accounted for by recording acquired assets and assumed liabilities at estimated fair values, with judgments impacting depreciation and amortization. Goodwill is the excess of purchase price over identifiable net assets[289](index=289&type=chunk) - Goodwill is tested for impairment annually (Q4) or more frequently at the reporting unit level (East Coast, Midwest, West Coast) using qualitative or quantitative (discounted cash flow) assessments; no impairment was found in fiscal 2020 or 2021[290](index=290&type=chunk)[291](index=291&type=chunk)[292](index=292&type=chunk)[293](index=293&type=chunk)[295](index=295&type=chunk)[296](index=296&type=chunk) - Intangible asset impairment charges included **$0.6 million** (Cambridge trademark in fiscal 2021) and **$24.2 million** (Del Monte and Bassian Farms trademarks in fiscal 2020) due to brand strategy shifts[297](index=297&type=chunk)[298](index=298&type=chunk) - Self-insurance reserves for group medical, workers' compensation, and automobile liability are estimated based on historical claims experience and cost trends, subject to inherent uncertainties[301](index=301&type=chunk)[302](index=302&type=chunk) - Income tax provision involves judgment on deferred tax assets, with valuation allowances of **$2.0 million** (2021) and **$2.3 million** (2020) for net operating losses[303](index=303&type=chunk)[305](index=305&type=chunk) - Contingent earn-out liabilities related to business combinations are remeasured at fair value each balance sheet date, with changes recorded in operations, using probability-based approaches and Monte Carlo simulations[306](index=306&type=chunk) [Recent Accounting Pronouncements](index=43&type=section&id=Recent%20Accounting%20Pronouncements) Recent accounting guidance adopted in fiscal 2021 for income taxes and convertible instruments had an immaterial impact, with no material impact expected from future adoptions - Guidance adopted in fiscal 2021 includes simplifying the accounting for income taxes and accounting for convertible instruments and contracts in an entity's own equity, with an immaterial impact on consolidated financial statements[341](index=341&type=chunk)[342](index=342&type=chunk) - No recent accounting guidance not yet adopted is expected to have a material impact on the company's financial statements[343](index=343&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=44&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Primary market risk is interest rate fluctuations on floating-rate debt; 100 basis point increase impacts earnings by **$1.4 million** annually - The company's exposure to interest rate market risk primarily relates to its long-term debt[310](index=310&type=chunk) - As of December 24, 2021, the company had an aggregate of **$188.7 million** in floating-rate indebtedness[310](index=310&type=chunk) - A **100 basis point** increase in market interest rates would decrease after-tax earnings by approximately **$1.4 million** per annum, holding other variables constant[310](index=310&type=chunk) [Item 8. Consolidated Financial Statements and Supplementary Data](index=45&type=section&id=Item%208.%20Consolidated%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements, including balance sheets, statements of operations, equity changes, and cash flows, along with accompanying notes [Report of Independent Registered Public Accounting Firm](index=46&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) BDO USA, LLP issued unqualified opinions on the financial statements and internal controls, identifying Convertible Notes as a critical audit matter - BDO USA, LLP issued an unqualified opinion on the consolidated financial statements for the period ended December 24, 2021, stating they present fairly the financial position, results of operations, and cash flows in conformity with GAAP[313](index=313&type=chunk) - An unqualified opinion was also expressed on the effectiveness of the company's internal control over financial reporting as of December 24, 2021[314](index=314&type=chunk) - The accounting evaluation of Convertible Notes was identified as a critical audit matter due to the challenging judgment required for evaluating contract terms and potential derivatives[319](index=319&type=chunk)[320](index=320&type=chunk) [Consolidated Balance Sheets](index=48&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased by **$99.5 million** to **$1,073.8 million** in 2021, driven by receivables and inventories, with liabilities also rising Consolidated Balance Sheet Highlights (Amounts in thousands) | Metric | Dec 24, 2021 | Dec 25, 2020 | Change | | :------------------------------------ | :----------- | :----------- | :----- | | Cash and cash equivalents | $115,155 | $193,281 | $(78,126) | | Accounts receivable, net | $172,540 | $96,383 | $76,157 | | Inventories, net | $144,491 | $82,519 | $61,972 | | Total current assets | $469,960 | $405,662 | $64,298 | | Equipment, leasehold improvements and software, net | $133,622 | $115,448 | $18,174 | | Goodwill | $221,775 | $214,864 | $6,911 | | Intangible assets, net | $104,743 | $111,717 | $(6,974) | | **Total assets** | **$1,073,795** | **$974,325** | **$99,470** | | Accounts payable | $118,284 | $57,515 | $60,769 | | Total current liabilities | $197,018 | $118,102 | $78,916 | | Long-term debt, net of current portion | $394,160 | $398,084 | $(3,924) | | Operating lease liabilities | $127,296 | $109,133 | $18,163 | | **Total liabilities** | **$723,584** | **$629,735** | **$93,849** | | Common Stock | $380 | $373 | $7 | | Additional paid in capital | $314,242 | $303,734 | $10,508 | | Retained earnings | $37,611 | $42,534 | $(4,923) | | **Total stockholders' equity** | **$350,211** | **$344,590** | **$5,621** | [Consolidated Statements of Operations and Comprehensive (Loss) Income](index=49&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20(Loss)%20Income) Net sales recovered to **$1,745.8 million** in 2021, yielding positive operating income and reduced net loss, improving EPS Consolidated Statements of Operations and Comprehensive (Loss) Income (Amounts in thousands, except per share) | Metric | FY2021 | FY2020 | FY2019 | | :----------------------------------- | :------- | :------- | :------- | | Net sales | $1,745,757 | $1,111,631 | $1,591,834 | | Gross profit | $390,485 | $248,151 | $386,568 | | Operating income (loss) | $10,811 | $(102,660) | $50,667 | | Net (loss) income | $(4,923) | $(82,903) | $24,193 | | Basic Net (loss) income per share | $(0.13) | $(2.46) | $0.82 | | Diluted Net (loss) income per share | $(0.13) | $(2.46) | $0.81 | | Weighted average basic common shares outstanding | 36,744,304 | 33,716,157 | 29,532,342 | | Weighted average diluted common shares outstanding | 36,744,304 | 33,716,157 | 30,073,338 | [Consolidated Statements of Changes in Stockholders' Equity](index=50&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Total stockholders' equity increased to **$350.2 million** in 2021, reflecting net loss, stock compensation, and prior year public offerings Consolidated Statements of Changes in Stockholders' Equity Highlights (Amounts in thousands) | Metric | Dec 24, 2021 | Dec 25, 2020 | Dec 27, 2019 | | :------------------------------------ | :----------- | :----------- | :----------- | | Common Stock Amount | $380 | $373 | $304 | | Additional Paid in Capital | $314,242 | $303,734 | $212,240 | | Accumulated Other Comprehensive Loss | $(2,022) | $(2,051) | $(2,048) | | Retained Earnings | $37,611 | $42,534 | $125,437 | | **Total Stockholders' Equity** | **$350,211** | **$344,590** | **$335,933** | | Net (loss) income | $(4,923) | $(82,903) | $24,193 | | Stock compensation | $11,479 | $9,292 | $4,399 | | Public offering (net proceeds) | $— | $85,941 | $— | | Warrants issued for acquisition | $1,120 | $— | $— | | Shares surrendered to pay withholding taxes | $(2,084) | $(3,670) | $(1,022) | [Consolidated Statements of Cash Flows](index=51&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Fiscal 2021 saw net cash used in operating, investing, and financing activities, resulting in a **$78.1 million** decrease in cash and cash equivalents Consolidated Statements of Cash Flows (Amounts in thousands) | Cash Flow Activity | FY2021 | FY2020 | FY2019 | | :------------------------------------ | :------- | :------- | :------- | | Net cash (used in) provided by operating activities | $(19,899) | $42,881 | $45,007 | | Net cash used in investing activities | $(48,991) | $(67,968) | $(44,154) | | Net cash (used in) provided by financing activities | $(9,222) | $78,056 | $96,947 | | Effect of foreign currency on cash and cash equivalents | $(14) | $79 | $23 | | Net change in cash and cash equivalents | $(78,126) | $53,048 | $97,823 | | Cash and cash equivalents at end of year | $115,155 | $193,281 | $140,233 | [Notes to Consolidated Financial Statements](index=52&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes provide detailed information on operations, accounting policies, financial accounts, debt, equity, leases, taxes, and cash flow disclosures [Note 1 - Operations and Basis of Presentation](index=52&type=section&id=Note%201%20-%20Operations%20and%20Basis%20of%20Presentation) The company operates in three food product distribution segments, facing ongoing Pandemic impacts, and adopted new immaterial accounting guidance in 2021 - The company's business consists of three operating segments: East Coast, Midwest, and West Coast, which aggregate into one reportable segment: food product distribution[337](index=337&type=chunk) - The COVID-19 Pandemic has had and continues to have an adverse impact on demand, cost inflation, and labor shortages, with future impacts remaining uncertain[338](index=338&type=chunk)[339](index=339&type=chunk) - New accounting guidance for simplifying income taxes and convertible instruments was adopted on December 26, 2020, with an immaterial impact on the consolidated financial statements[341](index=341&type=chunk)[342](index=342&type=chunk) [Note 2 – Summary of Significant Accounting Policies](index=53&type=section&id=Note%202%20%E2%80%93%20Summary%20of%20Significant%20Accounting%20Policies) Details policies for revenue, cost of sales, SG&A, cash, receivables, inventory, vendor rebates, depreciation, leases, software, debt, and intangibles - Revenue from product sales is recognized when control is transferred to the customer, typically within a day of order, with sales incentives accounted for as variable consideration[347](index=347&type=chunk) Net Sales Disaggregated by Principal Product Category (Amounts in thousands) | Product Category | FY2021 ($) | FY2021 (%) | FY2020 ($) | FY2020 (%) | FY2019 ($) | FY2019 (%) | | :------------------------ | :--------- | :--------- | :--------- | :--------- | :--------- | :--------- | | Center-of-the-Plate | 877,060 | 50.2% | 533,813 | 48.0% | 711,980 | 44.7% | | Dry Goods | 238,758 | 13.7% | 150,631 | 13.6% | 260,976 | 16.4% | | Pastry | 178,352 | 10.2% | 135,913 | 12.2% | 221,041 | 13.9% | | Cheeses and Charcuterie | 143,048 | 8.2% | 107,915 | 9.7% | 158,834 | 10.0% | | Produce | 120,759 | 6.9% | 80,920 | 7.3% | 17,955 | 1.1% | | Dairy and Eggs | 79,512 | 4.6% | 38,172 | 3.4% | 110,740 | 7.0% | | Oils and Vinegars | 71,369 | 4.1% | 40,389 | 3.6% | 80,155 | 5.0% | | Kitchen Supplies | 36,899 | 2.1% | 23,878 | 2.2% | 30,153 | 1.9% | | **Total** | **$1,745,757** | **100%** | **$1,111,631** | **100%** | **$1,591,834** | **100%** | - Cost of sales includes product purchase price, freight, and food processing costs, totaling **$28.4 million** in FY2021, **$18.7 million** in FY2020, and **$19.8 million** in FY2019[355](index=355&type=chunk) - Selling, general and administrative expenses include facilities, shipping, and warehouse costs; shipping and handling costs were **$98.7 million** in FY2021, **$78.2 million** in FY2020, and **$85.6 million** in FY2019[356](index=356&type=chunk) - Allowance for doubtful accounts was **$20.3 million** in 2021 and **$24.0 million** in 2020, based on creditworthiness, payment history, and macroeconomic factors[287](index=287&type=chunk)[359](index=359&type=chunk) - Inventories are valued at lower of cost or market, with adjustments for shrinkage, excess, and obsolescence totaling **$8.3 million** in 2021 and **$9.0 million** in 2020[411](index=411&type=chunk) - The company recorded intangible asset impairment charges of **$0.6 million** (Cambridge trademark) in FY2021 and **$24.2 million** (Del Monte and Bassian Farms trademarks) in FY2020 due to brand strategy shifts[375](index=375&type=chunk) - Goodwill is tested for impairment annually in the fourth quarter or more frequently if circumstances indicate; no impairment was found in fiscal 2020 or 2021[377](index=377&type=chunk)[378](index=378&type=chunk)[379](index=379&type=chunk)[380](index=380&type=chunk)[381](index=381&type=chunk) [Note 3 – Net (Loss) Income per Share](index=59&type=section&id=Note%203%20%E2%80%93%20Net%20(Loss)%20Income%20per%20Share) This note details basic and diluted net (loss) income per share, with potentially dilutive securities excluded in 2021 and 2020 due to anti-dilutive effects Net (Loss) Income per Share (Amounts in thousands, except per share) | Metric | FY2021 | FY2020 | FY2019 | | :------------------------------------ | :------- | :------- | :------- | | Net (loss) income | $(4,923) | $(82,903) | $24,193 | | Basic Net (loss) income per share | $(0.13) | $(2.46) | $0.82 | | Diluted Net (loss) income per share | $(0.13) | $(2.46) | $0.81 | | Weighted average basic common shares outstanding | 36,744,304 | 33,716,157 | 29,532,342 | | Weighted average diluted common shares outstanding | 36,744,304 | 33,716,157 | 30,073,338 | Potentially Dilutive Securities Excluded from Diluted EPS (Shares) | Security Type | Dec 24, 2021 | Dec 25, 2020 | Dec 27, 2019 | | :------------------------------------ | :----------- | :----------- | :----------- | | Restricted share awards | 306,084 | 505,568 | 132,861 | | Stock options and warrants | 139,198 | 115,639 | — | | Convertible notes | 4,410,639 | 3,484,788 | 76,384 | - Potentially dilutive securities were excluded from the calculation of diluted net (loss) income per common share in fiscal 2021 and 2020 because their effect was anti-dilutive[396](index=396&type=chunk) [Note 4 – Fair Value Measurements](index=60&type=section&id=Note%204%20%E2%80%93%20Fair%20Value%20Measurements) Fair value measurements for contingent earn-out liabilities (**$6.9 million** in 2021) and convertible notes are detailed, Pandemic impacted valuations - Contingent earn-out liabilities are measured at fair value using Level 3 inputs, based on projected results, probability of occurrence, and a discount rate[397](index=397&type=chunk) - The Pandemic's impact on revenue growth and profitability resulted in a significant reduction in the fair value of contingent earn-out liabilities[397](index=397&type=chunk) Changes in Level 3 Contingent Earn-out Liabilities (Amounts in thousands) | Metric | Dec 24, 2021 | Dec 25, 2020 | Dec 27, 2019 | | :------------------------------------ | :----------- | :----------- | :----------- | | Balance at Beginning of Period | $2,756 | $14,698 | N/A | | Acquisition value | $5,500 | $3,464 | N/A | | Cash payments | $(83) | $(3,927) | N/A | | Changes in fair value | $(1,296) | $(11,479) | N/A | | **Balance at End of Period** | **$6,877** | **$2,756** | **$14,698** | - The fair values of the asset-based loan facility and term loan approximated their book values due to variable interest rates reflecting current market rates[399](index=399&type=chunk) Carrying Value and Fair Value of Convertible Notes (Amounts in thousands) | Debt Type | Dec 24, 2021 Carrying Value | Dec 24, 2021 Fair Value | Dec 25, 2020 Carrying Value | Dec 25, 2020 Fair Value | | :------------------------------------ | :-------------------------- | :------------------------ | :-------------------------- | :------------------------ | | Convertible Senior Notes | $200,000 | $206,182 | $150,000 | $163,204 | | Convertible Unsecured Note | $4,000 | $4,102 | $4,000 | $4,290 | [Note 5 – Acquisitions](index=60&type=section&id=Note%205%20%E2%80%93%20Acquisitions) In 2021, three acquisitions totaled **$11.3 million**; prior year acquisitions included Sid Wainer & Son (**$44.1 million**) and Bassian Farms (**$31.8 million**) - In fiscal 2021, three acquisitions totaled approximately **$11.3 million**, including **$10.2 million** in cash and **$1.1 million** in common stock warrants, with potential contingent consideration of up to **$9.8 million**[402](index=402&type=chunk) - Fiscal 2021 acquisitions contributed **$49.5 million** in net sales and a **$(44) thousand** loss before income taxes[404](index=404&type=chunk) - On January 27, 2020, Sid Wainer & Son was acquired for approximately **$44.1 million**, including cash and potential contingent consideration of up to **$4.0 million**[405](index=405&type=chunk) - On February 25, 2019, Bassian Farms, Inc. was acquired for approximately **$31.8 million**, including cash and a **$4.0 million** unsecured convertible note, with potential contingent consideration of up to **$9.0 million**[407](index=407&type=chunk) Purchase Price Allocation for Acquisitions (Amounts in thousands) | Asset/Liability | Sid Wainer | Bassian | Other Acquisitions | | :------------------------------ | :--------- | :------ | :----------------- | | Current assets | $22,960 | $6,657 | $14,244 | | Customer relationships | — | $15,530 | $11,067 | | Trademarks | $3,500 | $4,610 | $2,812 | | Goodwill | $11,571 | $13,065 | $13,636 | | Fixed assets | $19,425 | $856 | $1,433 | | Right-of-use assets | $8,259 | — | $2,787 | | Lease liabilities | $(8,259) | — | $(2,787) | | Current liabilities | $(11,294) | $(2,501) | $(6,449) | | Earn-out liability | $(2,081) | $(7,450) | $(7,783) | | **Total consideration** | **$44,081** | **$31,777** | **$27,341** | [Note 6 – Inventories](index=61&type=section&id=Note%206%20%E2%80%93%20Inventories) Inventories, primarily finished products, are valued at the lower of cost or market, with adjustments for shrinkage, excess, and obsolescence totaling **$8.3 million** in 2021 - Inventories consist primarily of finished product, valued at the lower of cost or market using a mixture of first-in, first-out (FIFO) and average cost methods[411](index=411&type=chunk) Inventory Adjustments (Amounts in thousands) | Metric | Dec 24, 2021 | Dec 25, 2020 | | :------------------------------------ | :----------- | :----------- | | Adjustments for shrinkage, excess, and obsolescence | $8,312 | $9,013 | [Note 7 – Equipment, Leasehold Improvements and Software](index=63&type=section&id=Note%207%20%E2%80%93%20Equipment,%20Leasehold%20Improvements%20and%20Software) Net book value of equipment, leasehold improvements, and software was **$133.6 million** in 2021, with **$24.4 million** in construction-in-process and **$15.9 million** depreciation Equipment, Leasehold Improvements and Software (Amounts in thousands) | Asset Category | Dec 24, 2021 | Dec 25, 2020 | | :------------------------------------ | :----------- | :----------- | | Land | $5,020 | $5,020 | | Buildings | $18,406 | $15,685 | | Machinery and equipment | $28,099 | $24,900 | | Computers, data processing and other equipment | $15,480 | $14,207 | | Software | $39,799 | $33,063 | | Leasehold improvements | $69,105 | $68,747 | | Furniture and fixtures | $3,582 | $3,500 | | Vehicles | $29,632 | $21,873 | | Construction-in-process | $24,355 | $8,115 | | Less: accumulated depreciation and amortization | $(99,856) | $(79,662) | | **Net Book Value** | **$133,622** | **$115,448** | - Construction-in-process at December 24, 2021, primarily for Los Angeles and Miami distribution facilities, is expected to be completed in FY2022 for approximately **$20.0 million**[412](index=412&type=chunk) Depreciation and Software Amortization Expense (Amounts in thousands) | Expense Type | FY2021 | FY2020 | FY2019 | | :------------------------------------ | :------- | :------- | :------- | | Depreciation expense | $15,918 | $14,984 | $9,535 | | Software amortization | $6,080 | $4,790 | $3,793 | [Note 8 – Goodwill and Other Intangible Assets](index=63&type=section&id=Note%208%20%E2%80%93%20Goodwill%20and%20Other%20Intangible%20Assets) Goodwill increased to **$221.8 million** in 2021 from acquisitions; **$0.6 million** and **$24.2 million** trademark impairment charges in 2021 and 2020 Changes in Carrying Amount of Goodwill (Amounts in thousands) | Metric | Amount | | :------------------------------------ | :------- | | Carrying amount as of December 27, 2019 | $197,743 | | Acquisitions | $17,104 | | Foreign currency translation | $17 | | **Carrying amount as of December 25, 2020** | **$214,864** | | Acquisitions | $6,845 | | Foreign currency translation | $66 | | **Carrying amount as of December 24, 2021** | **$221,775** | Other Intangible Assets, Net (Amounts in thousands) | Asset Category | Dec 24, 2021 Gross Carrying Amount | Dec 24, 2021 Accumulated Amortization | Dec 24, 2021 Net Amount | Dec 25, 2020 Net Amount | | :------------------------------------ | :--------------------------------- | :---------------------------- | :-------------------- | :-------------------- | | Customer relationships | $155,678 | $(74,644) | $81,034 | $86,544 | | Non-compete agreements | $8,579 | $(8,018) | $561 | $827 | | Trademarks | $36,514 | $(13,366) | $23,148 | $24,346 | | **Total** | **$200,771** | **$(96,028)** | **$104,743** | **$111,717** | - In Q2 FY2021, a **$0.6 million** impairment charge (**$0.4 million net of tax**) fully wrote down the Cambridge trademark's net book value[416](index=416&type=chunk) - In Q4 FY2020, a **$24.2 million** impairment charge (**$17.5 million net of tax**) wrote down Del Monte and Bassian Farms trademarks due to a brand strategy shift[416](index=416&type=chunk) Amortization Expense for Other Intangible Assets (Amounts in thousands) | Fiscal Year | Amortization Expense | | :------------------------------------ | :------------------- | | December 24, 2021 | $12,967 | | December 25, 2020 | $13,502 | | December 27, 2019 | $12,663 | Estimated Amortization Expense for Other Intangible Assets (Amounts in thousands) | Fiscal Year | Estimated Expense | | :------------------------------------ | :---------------- | | 2022 | $11,984 | | 2023 | $10,955 | | 2024 | $10,097 | | 2025 | $9,680 | | 2026 | $9,680 | | Thereafter | $52,347 | | **Total** | **$104,743** | [Note 9 – Debt Obligations](index=64&type=section&id=Note%209%20%E2%80%93%20Debt%20Obligations) Total debt obligations were **$399.3 million** in 2021 (term loans, convertible notes, ABL), with details on refinancing, interest rates, and covenants Debt Obligations (Amounts in thousands) | Debt Type | Dec 24, 2021 | Dec 25, 2020 | | :------------------------------------ | :----------- | :----------- | | Senior secured term loan | $168,675 | $201,553 | | Convertible senior notes | $200,000 | $150,000 | | Asset-based loan facility | $20,000 | $40,000 | | Finance lease and other financing obligations | $11,602 | $15,798 | | Convertible unsecured note | $4,000 | $4,000 | | Deferred finance fees and original issue discount | $(4,976) | $(7,172) | | **Total debt obligations** | **$399,301** | **$404,179** | | Less: current installments | $(5,141) | $(6,095) | | **Total debt obligations excluding current installments** | **$394,160** | **$398,084** | Maturities of Debt (excluding finance leases) (Amounts in thousands) | Fiscal Year | Amount | | :------------------------------------ | :------- | | 2022 | $1,712 | | 2023 | $25,712 | | 2024 | $201,712 | | 2025 | $163,539 | | 2026 | $— | | Thereafter | $— | | **Total** | **$392,675** | - On March 1, 2021, **$50.0 million** in Convertible Senior Notes were issued, repaying **$31.2 million** of 2022 tranche senior secured term loans and a portion of ABL borrowings[436](index=436&type=chunk) - The 2025 Tranche of the Term Loan Facility has a springing maturity date of June 22, 2024, if the 1.875% convertible senior notes due December 1, 2024, have not been repaid or refinanced[427](index=427&type=chunk) - The Term Loans' interest rate was **5.6%** and the ABL interest rate was **1.4%** at December 24, 2021[428](index=428&type=chunk)[431](index=431&type=chunk) - As of December 24, 2021, **$109.5 million** was available for borrowing under the ABL facility[434](index=434&type=chunk) - The Convertible Senior Notes' effective interest rate was approximately **2.3%** at December 24, 2021, with an initial conversion price of approximately **$44.20 per share**[436](index=436&type=chunk)[437](index=437&type=chunk) - The Convertible Unsecured Note, issued for the Bassian acquisition, has a **4.5% interest rate** (increasing to **5.0%** after two years) and is convertible into common stock at **$43.93 per share**[439](index=439&type=chunk)[440](index=440&type=chunk) [Note 10 – Stockholders' Equity](index=66&type=section&id=Note%2010%20%E2%80%93%20Stockholders'%20Equity) Equity changes include **$1.1 million** warrants for acquisition, **$85.9 million** from 2020 public offerings, and **$11.5 million** stock compensation expense in 2021 - In fiscal 2021, **$1.1 million** in warrants were issued for an acquisition, allowing purchase of up to **150,000 shares** at **$31.96 per share**, expiring April 22, 2024[441](index=441&type=chunk) - Preferred Stock Purchase Rights, approved in March 2020, expired on March 21, 2021[442](index=442&type=chunk) - Public offerings in May and June 2020 generated approximately **$85.9 million** in net proceeds from the issuance of **6,634,615 shares of common stock**[443](index=443&type=chunk) - The 2019 Omnibus Equity Incentive Plan provides for stock options, SARs, RSAs, and other awards, with **883,042 shares** available for grant as of December 24, 2021[444](index=444&type=chunk)[445](index=445&type=chunk) Stock Compensation Expense (Amounts in thousands) | Fiscal Year | Stock Compensation Expense | | :------------------------------------ | :------------------------- | | December 24, 2021 | $11,479 | | December 25, 2020 | $9,292 | | December 27, 2019 | $4,399 | - Unrecognized compensation cost for unvested RSAs was **$18.3 million** as of December 24, 2021, to be recognized over a weighted-average period of approximately **2.2 years**[452](index=452&type=chunk) Stock Option Activity (as of December 24, 2021) | Metric | Shares | Weighted Average Exercise Price | | :------------------------------------ | :------- | :------------------------------ | | Outstanding | 115,639 | $20.23 | | Exercisable | 115,639 | $20.23 | [Note 11 – Leases](index=68&type=section&id=Note%2011%20%E2%80%93%20Leases) Total net lease cost was **$38.1 million** in 2021, with operating lease liabilities of **$143.2 million** and finance lease liabilities of **$11.6 million** Components of Net Lease Cost (Amounts in thousands) | Lease Cost Type | FY2021 | FY2020 | FY2019 | | :------------------------------------ | :------- | :------- | :------- | | Operating lease cost | $26,531 | $27,521 | $27,415 | | Total finance lease cost | $5,222 | $4,718 | $404 | | Short-term lease cost | $3,491 | $2,475 | $2,143 | | Variable lease cost | $3,331 | $1,990 | $2,707 | | Sublease income | $(430) | $(96) | $(514) | | **Total lease cost, net** | **$38,145** | **$36,608** | **$32,155** | Maturities of Lease Liabilities (Amounts in thousands, as of December 24, 2021) | Fiscal Year | Operating Leases Total | Finance Leases Vehicles and Equipment | | :------------------------------------ | :--------------------- | :------------------------------------ | | 2022 | $24,726 | $3,834 | | 2023 | $21,270 | $3,041 | | 2024 | $16,897 | $2,512 | | 2025 | $14,692 | $1,992 | | 2026 | $12,952 | $1,200 | | Thereafter | $125,886 | $169 | | **Total** | **$216,423** | **$12,748** | | Less interest | $(73,245) | $(1,146) | | **Present value** | **$143,178** | **$11,602** | - As of December 24, 2021, the weighted-average lease term for operating leases was **12.0 years** and for finance leases was **4.0 years**[455](index=455&type=chunk) - The weighted-average discount rate for operating leases was **6.8%** and for finance leases was **4.1%** as of December 24, 2021[455](index=455&type=chunk) - The company is obligated to make approximately **$10.0 million** in payments for uncommenced distribution facility leases[456](index=456&type=chunk) [Note 12 – Income Taxes](index=69&type=section&id=Note%2012%20%E2%80%93%20Income%20Taxes) Effective tax rate was **27.3%** in 2021, with **$1.4 million** ERTC receivable and **$9.4 million** net deferred tax assets, including **$2.0 million** valuation allowances - The company recognized a **$1.4 million** receivable for the Employee Retention Tax Credit (ERTC) in Q2 fiscal 2021[459](index=459&type=chunk) Income Tax (Benefit) Expense and Effective Tax Rate (Amounts in thousands) | Metric | FY2021 | FY2020 | FY2019 | | :------------------------------------ | :------- | :------- | :------- | | Total income tax (benefit) expense | $(1,853) | $(40,703) | $8,210 | | Effective tax rate | 27.3% | 32.9% | 25.3% | - The higher effective tax rate in fiscal 2020 was primarily due to the carryback of a portion of the net taxable loss, allowing tax refunds against taxes paid in fiscal 2015 and 2017 at **35% statutory rates**[459](index=459&type=chunk) Deferred Tax Assets and Liabilities, Net (Amounts in thousands) | Metric | Dec 24, 2021 | Dec 25, 2020 | | :------------------------------------ | :----------- | :----------- | | Total deferred tax assets | $77,660 | $72,279 | | Total deferred tax liabilities | $(66,234) | $(62,483) | | Valuation allowance | $(2,046) | $(2,261) | | **Total net deferred tax asset** | **$9,380** | **$7,535** | - As of December 24, 2021, a valuation allowance of **$2.0 million** was held against foreign (**$1.2 million**) and certain state (**$0.8 million**) net operating loss carryforwards[462](index=462&type=chunk) - The company's Canada net operating loss carryforward of **$1.5 million** expires between fiscal 2038 and 2040, state NOLs of **$6.3 million** expire from fiscal 2026 onwards, and federal NOLs of **$7.4 million** are indefinite-lived[462](index=462&type=chunk) - No material uncertain tax positions existed as of December 24, 2021[465](index=465&type=chunk) [Note 13 – Supplemental Disclosures of Cash Flow Information](index=72&type=section&id=Note%2013%20%E2%80%93%20Supplemental%20Disclosures%20of%20Cash%20Flow%20Information) Supplemental cash flow details include cash paid for taxes/interest, lease cash flows, and non-cash investing/financing activities Supplemental Disclosures of Cash Flow Information (Amounts in thousands) | Metric | FY2021 | FY2020 | FY2019 | | :------------------------------------ | :------- | :------- | :------- | | Cash paid for income taxes, net of cash received | $(230) | $308 | $6,046 | | Cash paid for interest | $15,387 | $18,182 | $16,271 | | Operating cash flows from operating leases | $25,111 | $25,090 | $25,302 | | Operating cash flows from finance leases | $555 | $3,856 | $96 | | ROU assets obtained in exchange for lease liabilities: Operating leases | $32,741 | $7,201 | $155,027 | | ROU assets obtained in exchange for lease liabilities: Finance leases | $536 | $16,063 | $4,183 | | Non-cash investing and financing activities: Warrants issued for acquisition | $1,120 | $— | $— | | Non-cash investing and financing activities: Contingent earn-out liabilities for acquisitions | $5,500 | $3,464 | $7,929 | | Non-cash investing and financing activities: Convertible notes issued for acquisitions | $— | $— | $4,000 | [Note 14 – Employee Benefit Plans](index=72&type=section&id=Note%2014%20%E2%80%93%20Employee%20Benefit%20Plans) The 401(k) Plan includes discretionary matching contributions, which were temporarily suspended from March 2020 to August 2021 due to the Pandemic - The company sponsors a 401(k) Plan for eligible full-time employees, offering discretionary matching contributions equal to **50% of employee contributions**, up to a maximum of **6% of annual salary**, capped at **$2.5 thousand per employee per year**[467](index=467&type=chunk) - Matching contributions were temporarily suspended from March 31, 2020, through August 31, 2021, as a result of the Pandemic[467](index=467&type=chunk) 401(k) Plan Matching Contributions Expense (Amounts in thousands) | Fiscal Year | Matching Contributions Expense | | :------------------------------------ | :----------------------------- | | December 24, 2021 | $683 | | December 25, 2020 | $720 | | December 27, 2019 | $1,268 | [Note 15 – Related Parties](index=72&type=section&id=Note%2015%20%E2%80%93%20Related%20Parties) The company leases a distribution facility from entities controlled by its Chairman and Vice Chairman, with lease expense of **$493 thousand** in 2021 - The Chefs' Warehouse Mid-Atlantic, LLC leases a distribution facility from entities controlled by Christopher Pappas (Chairman, President, CEO) and John Pappas (Vice Chairman, Director)[468](index=468&type=chunk) - Lease expense for this facility was **$493 thousand** for fiscal 2021, **$488 thousand** for fiscal 2020, and **$433 thousand** for fiscal 2019[468](index=468&type=chunk) - The lease was amended during the first quarter of fiscal 2020 and expires on September 30, 2023[468](index=468&type=chunk) [Note 16 – Commitments and Contingencies](index=72&type=section&id=Note%2016%20%E2%80%93%20Commitments%20and%20Contingencies) The company is involved in legal and tax matters, maintains self-insurance reserves (e.g., **$7.1 million** for workers' compensation), and has unionized employees - The company is involved in various legal proceedings and tax matters, establishing reserves when a loss is probable and can be reasonably estimated[469](index=469&type=chunk)[472](index=472&type=chunk) - Management does not believe there is a reasonable possibility of material loss or loss in excess of accrued amounts for legal matters[469](index=469&type=chunk) Self-Insurance Reserves (Amounts in thousands) | Reserve Type | Dec 24, 2021 | Dec 25, 2020 | | :------------------------------------ | :----------- | :----------- | | Medical program | $2,373 | $1,220 | | Automobile liability program | $3,980 | $3,450 | | Workers' compensation | $7,053 | $7,696 | - Approximately **9%** of the company's employees are represented by unions, with collective bargaining agreements expiring between fiscal 2022 and 2025[474](index=474&type=chunk) [Note 17 – Valuation Reserves](index=73&type=section&id=Note%2017%20%E2%80%93%20Valuation%20Reserves) The allowance for doubtful accounts decreased to **$20.3 million** in 2021, and the allowance for deferred tax assets decreased to **$2.0 million** Valuation Account Activity (Amounts in thousands) | Valuation Account | Balance at Beginning of Period (FY2021) | (Recoveries) to Additions Charged Expense (FY2021) | Deductions (FY2021) | Balance at End of Period (FY2021) | | :------------------------------------ | :-------------------------------------- | :------------------------------------------------- | :------------------ | :-------------------------------- | | Allowance for doubtful accounts | $24,027 | $(422) | $(3,345) | $20,260 | | Allowance for deferred tax assets | $2,261 | $(215) | $— | $2,046 | [Note 18 – Subsequent Events](index=73&type=section&id=Note%2018%20%E2%80%93%20Subsequent%20Events) On December 28, 2021, the company agreed to acquire CGC Holdings, Inc., a specialty seafood and produce distributor, for **$28.0 million** cash - On December 28, 2021, the company agreed to acquire substantially all assets of CGC Holdings, Inc., a specialty seafood and produce distributor, for **$28.0 million** in cash[476](index=476&type=chunk) - The preliminary purchase price allocations for the CGC Holdings, Inc. acquisition are incomplete[476](index=476&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=74&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) There are no changes in or disagreements with accountants on accounting and financial disclosure - Not applicable[478](index=478&type=chunk) [Item 9A. Controls and Procedures](index=74&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure cont

The Chefs' Warehouse, Inc. (NASDAQ:CHEF) Q4 2021 Earnings Conference Call February 8, 2022 8:30 AM ET Company Participants Alex Aldous - General Counsel, Corporate Secretary & Chief Government Relations Officer Chris Pappas - Founder, Chairman & CEO Jim Leddy - CFO Conference Call Participants Alex Slagle - Jefferies Fred Wightman - Wolfe Research Peter Saleh - BTIG Todd Brooks - Benchmark Kelly Bania - BMO Capital Disclaimer*: This transcript is designed to be used alongside the freely available audio reco ...

The Chefs' Warehouse, Inc. 1 INVESTOR PRESENTATION JANUARY 2022 Safe Harbor Statement Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements in this presentation regarding the business of The Chefs' Warehouse, Inc. (the "Company") that are not historical facts are "forward-looking statements" that involve risks and uncertainties and are based on current expectations and management estimates; actual results may differ materially. The risks and uncertainties which could i ...

The Chefs' Warehouse, Inc. (NASDAQ:CHEF) Q3 2021 Earnings Conference Call October 27, 2021 8:30 AM ET Company Participants Alex Aldous - General Counsel, Corporate Secretary & Chief Government Relations Officer Chris Pappas - Founder, Chairman & Chief Executive Officer Jim Leddy - Chief Financial Officer Conference Call Participants Fred Wightman - Wolfe Research Alex Slagle - Jefferies Kelly Bania - BMO Capital Peter Saleh - BTIG Todd Brooks - C.L. King Ben Klieve - Lake Street Capital Markets Operator Gre ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the Company's unaudited consolidated financial statements and management's analysis of financial performance [ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS](index=4&type=section&id=ITEM%201.%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) This section presents the Company's unaudited consolidated financial statements, including the balance sheets, statements of operations and comprehensive income (loss), statements of changes in stockholders' equity, and statements of cash flows, along with detailed notes explaining the accounting policies, financial instrument valuations, acquisitions, debt obligations, and other relevant financial information for the periods ended September 24, 2021 [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This section details the Company's financial position, including assets, liabilities, and equity, as of specific dates Total Assets (in thousands) | Metric | Sep 24, 2021 | Dec 25, 2020 | Change | | :----- | :----------- | :----------- | :----- | | Total Assets | $1,032,012 | $974,325 | $57,687 | | Current Assets | $456,498 | $405,662 | $50,836 | | Accounts Receivable, net | $151,720 | $96,383 | $55,337 | | Inventories, net | $132,802 | $82,519 | $50,283 | | Goodwill | $220,376 | $214,864 | $5,512 | | Intangible assets, net | $105,696 | $111,717 | $(6,021) | Total Liabilities & Equity (in thousands) | Metric | Sep 24, 2021 | Dec 25, 2020 | Change | | :----- | :----------- | :----------- | :----- | | Total Liabilities | $692,946 | $629,735 | $63,211 | | Current Liabilities | $183,902 | $118,102 | $65,800 | | Accounts Payable | $108,972 | $57,515 | $51,457 | | Accrued Compensation | $18,624 | $9,401 | $9,223 | | Long-term debt, net of current portion | $394,979 | $398,084 | $(3,105) | | Total Stockholders' Equity | $339,066 | $344,590 | $(5,524) | [Consolidated Statements of Operations and Comprehensive Income (Loss)](index=5&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) This section presents the Company's revenues, expenses, and net income or loss for the reported periods Thirteen Weeks Ended September 24, 2021 vs. September 25, 2020 (in thousands) | Metric | Sep 24, 2021 | Sep 25, 2020 | Change | % Change | | :----- | :----------- | :----------- | :----- | :------- | | Net Sales | $484,321 | $254,030 | $230,291 | 90.7% | | Gross Profit | $109,975 | $60,362 | $49,613 | 82.2% | | Operating Income (Loss) | $10,439 | $(11,925) | $22,364 | N/A | | Net Income (Loss) | $3,456 | $(11,427) | $14,883 | N/A | | Basic EPS | $0.09 | $(0.31) | $0.40 | N/A | Thirty-Nine Weeks Ended September 24, 2021 vs. September 25, 2020 (in thousands) | Metric | Sep 24, 2021 | Sep 25, 2020 | Change | % Change | | :----- | :----------- | :----------- | :----- | :------- | | Net Sales | $1,187,506 | $829,957 | $357,549 | 43.1% | | Gross Profit | $264,796 | $189,276 | $75,520 | 39.9% | | Operating Income (Loss) | $(5,030) | $(54,392) | $49,362 | N/A | | Net Income (Loss) | $(13,367) | $(45,846) | $32,479 | N/A | | Basic EPS | $(0.36) | $(1.39) | $1.03 | N/A | [Consolidated Statements of Changes in Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) This section outlines changes in the Company's equity, including net income, stock compensation, and share transactions Stockholders' Equity Changes (December 25, 2020 to September 24, 2021, in thousands) | Metric | Dec 25, 2020 | Sep 24, 2021 | Change | | :----- | :----------- | :----------- | :----- | | Total Stockholders' Equity | $344,590 | $339,066 | $(5,524) | | Common Shares Outstanding | 37,274,768 | 37,884,249 | 609,481 | | Additional Paid in Capital | $303,734 | $311,503 | $7,769 | | Retained Earnings | $42,534 | $29,167 | $(13,367) | - Key activities affecting equity during the thirty-nine weeks ended September 24, 2021, included net losses/income, stock compensation (**$2,458**, **$3,280**, **$2,710 in thousands**), warrants issued for acquisitions (**$1,120 in thousands**), and shares surrendered to pay tax withholding (**$(1,192)**, **$(541)**, **$(59) in thousands**)[16](index=16&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section reports the Company's cash inflows and outflows from operating, investing, and financing activities Cash Flow Summary (Thirty-Nine Weeks Ended September 24, 2021 vs. September 25, 2020, in thousands) | Metric | Sep 24, 2021 | Sep 25, 2020 | Change | | :----- | :----------- | :----------- | :----- | | Net Cash (Used in) Provided by Operating Activities | $(26,330) | $53,869 | $(80,199) | | Net Cash Used in Investing Activities | $(25,152) | $(65,846) | $40,694 | | Net Cash (Used in) Provided by Financing Activities | $(7,493) | $80,457 | $(87,950) | | Net Change in Cash and Cash Equivalents | $(59,064) | $68,312 | $(127,376) | | Cash and Cash Equivalents - End of Period | $134,217 | $208,545 | $(74,328) | - Key drivers of cash flow for the thirty-nine weeks ended September 24, 2021, included: - Operating Activities: Net loss of **$(13,367) (in thousands)** offset by **$30,729 (in thousands)** in non-cash charges, but impacted by **$(43,692) (in thousands)** in changes in working capital[19](index=19&type=chunk)[96](index=96&type=chunk) - Investing Activities: Capital expenditures of **$(17,872) (in thousands)** and cash paid for acquisitions of **$(7,280) (in thousands)**[19](index=19&type=chunk)[99](index=99&type=chunk) - Financing Activities: Payments of debt/finance lease obligations **$(35,918) (in thousands)**, payment on ABL facility **$(20,000) (in thousands)**, partially offset by proceeds from convertible senior notes **$51,750 (in thousands)**[19](index=19&type=chunk)[100](index=100&type=chunk) [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the Company's accounting policies and financial statement items [Note 1 - Operations and Basis of Presentation](index=8&type=section&id=Note%201%20-%20Operations%20and%20Basis%20of%20Presentation) This note describes the Company's business, the impact of the COVID-19 pandemic, and the basis of financial statement preparation - The Company's business is foodservice distribution, primarily in the United States, serving menu-driven independent restaurants, fine dining establishments, and other culinary customers[21](index=21&type=chunk) - The COVID-19 Pandemic adversely impacted many customers, but the Company experienced sequential business improvement starting in Q2 fiscal 2021, contributing **$213,719 (in thousands)** in organic sales growth in Q3 2021 compared to the prior year quarter[22](index=22&type=chunk) - The unaudited interim financial statements are prepared in accordance with GAAP, and results for the thirteen and thirty-nine weeks ended September 24, 2021, are not necessarily indicative of full-year results due to seasonal fluctuations, the Pandemic, and other factors[25](index=25&type=chunk)[26](index=26&type=chunk) [Note 2 – Summary of Significant Accounting Policies](index=9&type=section&id=Note%202%20%E2%80%93%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the key accounting principles applied, including revenue recognition and cost of sales - Revenue from product sales is recognized when control is transferred to the customer, typically upon physical possession. Sales incentives (rebates or discounts) are accounted for as variable consideration, reducing revenue[31](index=31&type=chunk) Net Sales by Principal Product Category (Thirteen Weeks Ended Sep 24, 2021 vs. Sep 25, 2020, in thousands) | Product Category | Sep 24, 2021 | % of Total | Sep 25, 2020 | % of Total | | :--------------- | :----------- | :--------- | :----------- | :--------- | | Center-of-the-Plate | $238,783 | 49.3% | $115,570 | 45.5% | | Dry Goods | $66,455 | 13.7% | $31,495 | 12.4% | | Pastry | $48,842 | 10.1% | $27,618 | 10.9% | | Cheese and Charcuterie | $40,403 | 8.3% | $33,329 | 13.1% | | Produce | $35,900 | 7.4% | $24,172 | 9.5% | | Dairy and Eggs | $21,922 | 4.5% | $6,301 | 2.5% | | Oils and Vinegars | $21,855 | 4.5% | $9,487 | 3.7% | | Kitchen Supplies | $10,161 | 2.2% | $6,058 | 2.4% | | **Total** | **$484,321** | **100%** | **$254,030** | **100%** | - Food processing costs included in cost of sales were **$7,524 (in thousands)** for the thirteen weeks ended September 24, 2021, an increase from **$4,276 (in thousands)** in the prior year period[33](index=33&type=chunk) [Note 3 – Net Income (Loss) per Share](index=10&type=section&id=Note%203%20%E2%80%93%20Net%20Income%20(Loss)%20per%20Share) This note details the calculation of basic and diluted earnings per share and potentially dilutive securities Net Income (Loss) per Share (Thirteen Weeks Ended Sep 24, 2021 vs. Sep 25, 2020) | Metric | Sep 24, 2021 | Sep 25, 2020 | | :----- | :----------- | :----------- | | Basic EPS | $0.09 | $(0.31) | | Diluted EPS | $0.09 | $(0.31) | Net Income (Loss) per Share (Thirty-Nine Weeks Ended Sep 24, 2021 vs. Sep 25, 2020) | Metric | Sep 24, 2021 | Sep 25, 2020 | | :----- | :----------- | :----------- | | Basic EPS | $(0.36) | $(1.39) | | Diluted EPS | $(0.36) | $(1.39) | Potentially Dilutive Securities Excluded (Anti-Dilutive) | Security Type | Thirteen Weeks Ended Sep 24, 2021 | Thirty-Nine Weeks Ended Sep 24, 2021 | | :------------ | :-------------------------------- | :----------------------------------- | | Restricted share awards ("RSAs") | 50,412 | 297,978 | | Stock options | — | 38,102 | | Warrants | 126,359 | 84,854 | | Convertible notes | 4,616,033 | 4,341,664 | [Note 4 – Fair Value Measurements](index=10&type=section&id=Note%204%20%E2%80%93%20Fair%20Value%20Measurements) This note explains the valuation methods and inputs used for financial instruments, including contingent earn-out liabilities Contingent Earn-out Liabilities (Level 3 Inputs, in thousands) | Metric | Dec 25, 2020 | Sep 24, 2021 | Change | | :----- | :----------- | :----------- | :----- | | Balance | $2,756 | $4,714 | $1,958 | Fair Value of Financial Instruments (Sep 24, 2021, in thousands) | Debt Type | Carrying Value | Fair Value | | :-------- | :------------- | :--------- | | Convertible Senior Notes | $200,000 | $199,592 | | Convertible Unsecured Note | $4,000 | $3,901 | - The fair value of contingent earn-out liabilities and convertible notes is estimated using Level 3 inputs, including projected results, probability of occurrence, discount rates, market price of common stock, stock volatility, and risk-free interest rates[37](index=37&type=chunk)[40](index=40&type=chunk) [Note 5 – Acquisitions](index=11&type=section&id=Note%205%20%E2%80%93%20Acquisitions) This note provides details on recent acquisitions, including purchase price, consideration, and financial impact - During the second quarter of fiscal 2021, the Company completed two acquisitions for an aggregate purchase price of approximately **$8,400 (in thousands)**, consisting of **$7,280 (in thousands)** paid in cash and common stock warrants valued at **$1,120 (in thousands)**[42](index=42&type=chunk) - Additional contingent consideration, if earned, could total **$4,230 (in thousands)** in earn-out amounts[42](index=42&type=chunk) Financial Impact of Q2 Fiscal 2021 Acquisitions (Thirteen Weeks Ended Sep 24, 2021, in thousands) | Metric | Amount | | :----- | :----- | | Net sales | $16,052 | | Loss before income taxes | $(285) | [Note 6 – Inventories](index=13&type=section&id=Note%206%20%E2%80%93%20Inventories) This note describes the composition and valuation of inventories, including adjustments for shrinkage and obsolescence Inventory Adjustments (in thousands) | Metric | Sep 24, 2021 | Dec 25, 2020 | | :----- | :----------- | :----------- | | Shrinkage, excess, and obsolescence | $8,070 | $9,013 | - Inventories primarily consist of finished product and are reflected net of adjustments for shrinkage, excess, and obsolescence[46](index=46&type=chunk) [Note 7 – Equipment, Leasehold Improvements and Software](index=13&type=section&id=Note%207%20%E2%80%93%20Equipment,%20Leasehold%20Improvements%20and%20Software) This note presents the net book value of property, plant, and equipment, along with depreciation and amortization expenses Equipment, Leasehold Improvements and Software, Net (in thousands) | Metric | Sep 24, 2021 | Dec 25, 2020 | Change | | :----- | :----------- | :----------- | :----- | | Gross Amount | $213,252 | $195,110 | $18,142 | | Accumulated Depreciation and Amortization | $(95,109) | $(79,662) | $(15,447) | | **Net Amount** | **$118,143** | **$115,448** | **$2,695** | - Construction-in-process increased from **$8,115 (in thousands)** at December 25, 2020, to **$16,837 (in thousands)** at September 24, 2021, primarily related to the build-outs of the Company's Los Angeles and Miami distribution facilities[47](index=47&type=chunk) Depreciation and Amortization Expense (Thirty-Nine Weeks Ended Sep 24, 2021 vs. Sep 25, 2020, in thousands) | Expense Type | Sep 24, 2021 | Sep 25, 2020 | | :----------- | :----------- | :----------- | | Depreciation expense | $11,679 | $11,023 | | Software amortization | $4,591 | $3,691 | | **Total** | **$16,270** | **$14,714** | [Note 8 – Goodwill and Other Intangible Assets](index=14&type=section&id=Note%208%20%E2%80%93%20Goodwill%20and%20Other%20Intangible%20Assets) This note details the carrying amounts of goodwill and other intangible assets, including changes from acquisitions and impairment Goodwill Carrying Amount (in thousands) | Metric | Dec 25, 2020 | Sep 24, 2021 | Change | | :----- | :----------- | :----------- | :----- | | Carrying amount | $214,864 | $220,376 | $5,512 | | Acquisitions contribution | | $5,496 | | Other Intangible Assets, Net (in thousands) | Metric | Sep 24, 2021 | Dec 25, 2020 | Change | | :----- | :----------- | :----------- | :----- | | Net Amount | $105,696 | $111,717 | $(6,021) | - A **$597 (in thousands)** impairment charge was recognized in Q2 fiscal 2021 to fully write-down the Cambridge trademark due to a shift in brand strategy[51](index=51&type=chunk) Estimated Amortization Expense for Other Intangible Assets (in thousands) | Year | Amount | | :--- | :----- | | 2021 (remainder) | $3,136 | | 2022 | $11,765 | | 2023 | $10,736 | | 2024 | $9,876 | | 2025 | $9,459 | | Thereafter | $60,724 | | **Total** | **$105,696** | [Note 9 – Debt Obligations](index=15&type=section&id=Note%209%20%E2%80%93%20Debt%20Obligations) This note outlines the Company's debt structure, including term loans, convertible notes, and compliance with covenants Total Debt Obligations (in thousands) | Metric | Sep 24, 2021 | Dec 25, 2020 | Change | | :----- | :----------- | :----------- | :----- | | Total Debt Obligations | $400,603 | $404,179 | $(3,576) | | Senior secured term loans | $169,103 | $201,553 | $(32,450) | | Convertible senior notes | $200,000 | $150,000 | $50,000 | | Asset-based loan facility | $20,000 | $40,000 | $(20,000) | - On March 1, 2021, the Company issued **$50,000 (in thousands)** aggregate principal amount of 1.875% Convertible Senior Notes to repay **$31,166 (in thousands)** of senior secured term loans and a portion of asset-based loan facility borrowings, resulting in lower effective interest rates[54](index=54&type=chunk)[81](index=81&type=chunk)[88](index=88&type=chunk) - As of September 24, 2021, the Company was in compliance with all debt covenants and had minimum liquidity of **$250,638 (in thousands)**, exceeding the **$35,000 (in thousands)** requirement[55](index=55&type=chunk)[57](index=57&type=chunk) [Note 10 – Stockholders' Equity](index=16&type=section&id=Note%2010%20%E2%80%93%20Stockholders'%20Equity) This note describes changes in stockholders' equity, including warrants issued and restricted share awards - In connection with an acquisition during Q2 fiscal 2021, the Company issued warrants with a fair value of **$1,120 (in thousands)** to purchase up to **150,000 shares** of common stock at an exercise price of **$31.96 per share**, expiring April 22, 2024[58](index=58&type=chunk) - The Company granted **755,428 Restricted Share Awards (RSAs)** during the thirty-nine weeks ended September 24, 2021, with a weighted average grant date fair value of **$31.72**[59](index=59&type=chunk) - Total unrecognized compensation cost for unvested RSAs was **$20,830 (in thousands)** at September 24, 2021, with a weighted-average remaining period of approximately **2.2 years**[60](index=60&type=chunk) [Note 11 – Related Parties](index=16&type=section&id=Note%2011%20%E2%80%93%20Related%20Parties) This note discloses transactions with related parties, specifically lease arrangements with entities controlled by executives Related Party Lease Expense (in thousands) | Period | Sep 24, 2021 | Sep 25, 2020 | | :----- | :----------- | :----------- | | Thirteen Weeks | $124 | $124 | | Thirty-Nine Weeks | $370 | $365 | - The Company leases a distribution facility from entities controlled by its Chairman, President, CEO, and Vice Chairman[62](index=62&type=chunk) [Note 12 – Supplemental Disclosures of Cash Flow Information](index=17&type=section&id=Note%2012%20%E2%80%93%20Supplemental%20Disclosures%20of%20Cash%20Flow%20Information) This note provides additional details on non-cash investing and financing activities and other cash flow items Supplemental Cash Flow Disclosures (Thirty-Nine Weeks Ended Sep 24, 2021, in thousands) | Metric | Amount | | :----- | :----- | | Cash paid for interest, net | $10,690 | | Operating cash flows from operating leases | $18,965 | | Warrants issued for acquisitions (non-cash) | $1,120 | | Contingent earn-out liabilities for acquisitions (non-cash) | $3,400 | [Note 13 – Coronavirus Aid, Relief, and Economic Security Act](index=17&type=section&id=Note%2013%20%E2%80%93%20Coronavirus%20Aid,%20Relief,%20and%20Economic%20Security%20Act) This note explains the Company's recognition of the Employee Retention Tax Credit and its impact on financial statements - The Company recognized a **$1,418 (in thousands)** receivable related to the Employee Retention Tax Credit (ETRC) during Q2 fiscal 2021, presented within prepaid expenses and other current assets, with a corresponding reduction in selling, general and administrative expenses[65](index=65&type=chunk) - The Consolidated Appropriations Act of 2021 expanded the ETRC, increasing the credit to **70%** of qualified wages paid from January 1, 2021, through June 30, 2021, capped at **$10 (in thousands)** per employee per quarter[65](index=65&type=chunk) [Note 14 – Subsequent Events](index=17&type=section&id=Note%2014%20%E2%80%93%20Subsequent%20Events) This note discloses significant events occurring after the reporting period, including a recent acquisition - On October 5, 2021, the Company acquired substantially all assets of a specialty center-of-plate producer and distributor in Las Vegas, Nevada, for approximately **$3,025 (in thousands)** in cash at closing[66](index=66&type=chunk) - The acquisition includes potential additional contingent consideration of up to **$5,000 (in thousands)** over a four-year period upon successful attainment of certain performance targets[66](index=66&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=18&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on the Company's financial condition and results of operations, highlighting the impact of the COVID-19 pandemic, recent acquisitions, and detailed comparisons of financial performance for the thirteen and thirty-nine weeks ended September 24, 2021, against prior periods. It also discusses liquidity, capital resources, seasonality, inflation, and critical accounting policies [Business Overview](index=18&type=section&id=Business%20Overview) This section describes the Company's core business as a specialty food distributor and its market position - The Chefs' Warehouse is a premier distributor of specialty foods in nine leading U.S. culinary markets, offering over **50,000 stock-keeping units (SKUs)** to more than **34,000 customer locations**, primarily independent restaurants and fine dining establishments[69](index=69&type=chunk) - The Company also sells certain products directly to consumers through its "Shop Like a Chef" online platform and the acquisition of Allen Brothers, Inc[69](index=69&type=chunk) [Effect of the COVID-19 Pandemic on our Business and Operations](index=18&type=section&id=Effect%20of%20the%20COVID-19%20Pandemic%20on%20our%20Business%20and%20Operations) This section discusses the pandemic's impact on the Company's sales, liquidity, and future operational uncertainties - Despite adverse impacts on many customers, the Company experienced sequential business improvement throughout fiscal 2021, contributing **$213.7 million** in organic sales growth during the third quarter of fiscal 2021 compared to the prior year[70](index=70&type=chunk) - The Company closed the quarter with **$134.2 million** in total cash and cash equivalents and approximately **$109.5 million** of remaining availability under its asset-based loan facility as of September 24, 2021[71](index=71&type=chunk) - The future impact of the Pandemic on business, operations, and liquidity remains difficult to predict and is highly dependent on future developments such as disease severity, government responses, vaccination programs, and consumer spending behavior[72](index=72&type=chunk) [Recent Acquisitions](index=18&type=section&id=Recent%20Acquisitions) This section summarizes the financial details and potential contingent consideration of recent company acquisitions - During the second quarter of fiscal 2021, the Company completed two acquisitions for an aggregate purchase price of approximately **$8.4 million**, comprising **$7.3 million** paid in cash and common stock warrants valued at approximately **$1.1 million**[73](index=73&type=chunk) - These acquisitions also include potential additional contingent consideration in the form of earn-out amounts, which could total **$4.2 million** in aggregate[73](index=73&type=chunk) [Thirteen Weeks Ended September 24, 2021 Compared to Thirteen Weeks Ended September 25, 2020](index=19&type=section&id=Thirteen%20Weeks%20Ended%20September%2024,%202021%20Compared%20to%20Thirteen%20Weeks%20Ended%20September%2025,%202020) This section provides a detailed comparative analysis of the Company's financial performance for the thirteen-week periods [Net Sales](index=19&type=section&id=Net%20Sales_13_weeks) This subsection analyzes the drivers of net sales growth, including organic contributions, acquisitions, and inflation Net Sales (in thousands) | Metric | 2021 | 2020 | $ Change | % Change | | :----- | :--- | :--- | :------- | :------- | | Net sales | $484,321 | $254,030 | $230,291 | 90.7% | - Organic growth contributed **$213.7 million (84.2%)** to sales growth, and acquisitions contributed **$16.6 million (6.5%)**[76](index=76&type=chunk) - Organic case count in the specialty category increased by approximately **57.5%**, and organic pounds sold in the center-of-the-plate category increased by **56.9%**[76](index=76&type=chunk) - Estimated inflation was **10.9%** in the specialty category and **28.0%** in the center-of-the-plate category compared to the prior year period[76](index=76&type=chunk) [Gross Profit](index=19&type=section&id=Gross%20Profit_13_weeks) This subsection examines changes in gross profit and margin, highlighting impacts from inventory losses and inflation Gross Profit (in thousands) | Metric | 2021 | 2020 | $ Change | % Change | | :----- | :--- | :--- | :------- | :------- | | Gross profit | $109,975 | $60,362 | $49,613 | 82.2% | | Gross profit margin | 22.7% | 23.8% | | -105 bps | - Gross profit margin decreased by approximately **105 basis points**[77](index=77&type=chunk) - Specialty category gross profit margins increased **301 basis points** due to higher estimated inventory losses in the prior year quarter, partially offset by inflation[77](index=77&type=chunk) - Center-of-the-plate category gross profit margins decreased **488 basis points** due to inflation and higher retail sales in the prior year quarter[77](index=77&type=chunk) [Selling, General and Administrative Expenses](index=19&type=section&id=Selling,%20General%20and%20Administrative%20Expenses_13_weeks) This subsection discusses the changes in SG&A expenses and their ratio to net sales, driven by compensation and sales growth Selling, General and Administrative Expenses (in thousands) | Metric | 2021 | 2020 | $ Change | % Change | | :----- | :--- | :--- | :------- | :------- | | SG&A expenses | $99,431 | $76,433 | $22,998 | 30.1% | | Percentage of net sales | 20.5% | 30.1% | | -960 bps | - The increase in selling, general and administrative expenses was primarily due to higher costs associated with compensation and benefits to support sales growth[78](index=78&type=chunk) - The ratio of SG&A expenses to net sales decreased predominantly due to sales growth[78](index=78&type=chunk) [Other Operating (Income) Expenses, Net](index=20&type=section&id=Other%20Operating%20(Income)%20Expenses,%20Net_13_weeks) This subsection analyzes the changes in other operating income/expenses, primarily due to contingent earn-out liabilities Other Operating (Income) Expenses, Net (in thousands) | Metric | 2021 | 2020 | $ Change | % Change | | :----- | :--- | :--- | :------- | :------- | | Other operating (income) expenses, net | $105 | $(4,146) | $4,251 | (102.5)% | - The increase in net other operating expenses was primarily due to non-cash charges of **$0.1 million** for changes in the fair value of contingent earn-out liabilities in 2021, compared to non-cash credits of **$4.6 million** in the prior year period[80](index=80&type=chunk) [Interest Expense](index=20&type=section&id=Interest%20Expense_13_weeks) This subsection explains the decrease in interest expense due to lower effective rates from debt refinancing Interest Expense (in thousands) | Metric | 2021 | 2020 | $ Change | % Change | | :----- | :--- | :--- | :------- | :------- | | Interest expense | $4,191 | $4,706 | $(515) | (10.9)% | - Interest expense decreased primarily due to lower effective interest rates on outstanding debt, resulting from the issuance of **$50.0 million** aggregate principal amount of Convertible Senior Notes on March 1, 2021, which were used to repay higher interest rate debt[81](index=81&type=chunk) [Provision for Income Taxes](index=20&type=section&id=Provision%20for%20Income%20Taxes_13_weeks) This subsection details the income tax provision and effective tax rate, influenced by discrete items and prior-period tax refunds Provision for Income Taxes (in thousands) | Metric | 2021 | 2020 | $ Change | % Change | | :----- | :--- | :--- | :------- | :------- | | Provision for income tax expense (benefit) | $2,792 | $(5,204) | $7,996 | (153.7)% | | Effective tax rate | 44.7% | 31.3% | | | - The effective tax rate in the current period is driven by various discrete items; excluding these, the rate was approximately **29.2%**[82](index=82&type=chunk) - The higher effective tax rate in fiscal 2020 was primarily related to the net loss forecast, allowing tax refunds against taxes paid in fiscal 2015 and 2017 at statutory rates of **35%**[82](index=82&type=chunk) [Thirty-Nine Weeks Ended September 24, 2021 Compared to Thirty-Nine Weeks Ended September 25, 2020](index=20&type=section&id=Thirty-Nine%20Weeks%20Ended%20September%2024,%202021%20Compared%20to%20Thirty-Nine%20Weeks%20Ended%20September%2025,%202020) This section provides a detailed comparative analysis of the Company's financial performance for the thirty-nine-week periods [Net Sales](index=20&type=section&id=Net%20Sales_39_weeks) This subsection analyzes the drivers of net sales growth, including organic contributions, acquisitions, and inflation Net Sales (in thousands) | Metric | 2021 | 2020 | $ Change | % Change | | :----- | :--- | :--- | :------- | :------- | | Net sales | $1,187,506 | $829,957 | $357,549 | 43.1% | - Organic growth contributed **$322.1 million (38.8%)** to sales growth, and acquisitions contributed **$35.5 million (4.3%)**[83](index=83&type=chunk) - Organic case count in the specialty category increased by approximately **22.9%**, and organic pounds sold in the center-of-the-plate category increased by **21.2%**[83](index=83&type=chunk) - Estimated inflation was **8.7%** in the specialty category and **14.2%** in the center-of-the-plate category compared to the prior year period[83](index=83&type=chunk) [Gross Profit](index=20&type=section&id=Gross%20Profit_39_weeks) This subsection examines changes in gross profit and margin, highlighting impacts from inventory losses and inflation Gross Profit (in thousands) | Metric | 2021 | 2020 | $ Change | % Change | | :----- | :--- | :--- | :------- | :------- | | Gross profit | $264,796 | $189,276 | $75,520 | 39.9% | | Gross profit margin | 22.3% | 22.8% | | -51 bps | - Gross profit margin decreased by approximately **51 basis points**[84](index=84&type=chunk) - Specialty category gross profit margins increased **292 basis points** due to higher estimated inventory losses from COVID-19 impacts in the prior year[84](index=84&type=chunk) - Center-of-the-plate category gross profit margins decreased **376 basis points** due to inflation[84](index=84&type=chunk) - The prior year gross profit included a charge of approximately **$9.8 million** related to estimated inventory losses from obsolescence at the onset of the Pandemic[84](index=84&type=chunk) [Selling, General and Administrative Expenses](index=21&type=section&id=Selling,%20General%20and%20Administrative%20Expenses_39_weeks) This subsection discusses the changes in SG&A expenses and their ratio to net sales, driven by operating expenses and bad debt Selling, General and Administrative Expenses (in thousands) | Metric | 2021 | 2020 | $ Change | % Change | | :----- | :--- | :--- | :------- | :------- | | SG&A expenses | $270,034 | $253,480 | $16,554 | 6.5% | | Percentage of net sales | 22.7% | 30.5% | | -780 bps | - The increase in selling, general and administrative expense relates primarily to higher operating expenses in fiscal 2021 to support sales growth, partially offset by an estimated non-cash charge of approximately **$15.8 million** recorded in the prior year related to incremental bad debt expense[86](index=86&type=chunk) - The ratio of SG&A expenses to net sales was lower as a result of sales growth and a **104 basis point** decrease in non-cash charges related to bad debt expense[86](index=86&type=chunk) [Other Operating (Income ) Expenses, Net](index=21&type=section&id=Other%20Operating%20(Income%20)%20Expenses,%20Net_39_weeks) This subsection analyzes the changes in other operating income/expenses, primarily due to contingent earn-out liabilities and impairment Other Operating (Income) Expenses, Net (in thousands) | Metric | 2021 | 2020 | $ Change | % Change | | :----- | :--- | :--- | :------- | :------- | | Other operating income, net | $(208) | $(9,812) | $9,604 | (97.9)% | - The decrease in net other operating income relates primarily to lower non-cash credits for changes in the fair value of contingent earn-out liabilities (**$1.4 million credit** in 2021 vs. **$11.2 million credit** in 2020) and a **$0.6 million** impairment of Cambridge trademarks due to a brand strategy shift[87](index=87&type=chunk) [Interest Expense](index=21&type=section&id=Interest%20Expense_39_weeks) This subsection explains the decrease in interest expense due to one-time costs and lower effective rates from debt refinancing Interest Expense (in thousands) | Metric | 2021 | 2020 | $ Change | % Change | | :----- | :--- | :--- | :------- | :------- | | Interest expense | $13,362 | $15,602 | $(2,240) | (14.4)% | - Interest expense decreased primarily due to **$1.2 million** in one-time third-party costs incurred during Q2 2020 for the extension of senior secured term loans and lower effective interest rates from the **$50.0 million** Convertible Senior Notes issuance[88](index=88&type=chunk) [Provision for Income Taxes](index=21&type=section&id=Provision%20for%20Income%20Taxes_39_weeks) This subsection details the income tax provision and effective tax rate, influenced by prior-period net loss carryback Provision for Income Taxes (in thousands) | Metric | 2021 | 2020 | $ Change | % Change | | :----- | :--- | :--- | :------- | :------- | | Provision for income tax benefit | $(5,025) | $(24,148) | $19,123 | (79.2)% | | Effective tax rate | 27.3% | 34.5% | | | - The higher effective tax rate in the prior period is primarily related to the carryback of a portion of the fiscal 2020 net loss, which allowed the Company to claim tax refunds against taxes paid in fiscal 2015 and 2017 at statutory tax rates of **35%**[89](index=89&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=22&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section assesses the Company's ability to meet its financial obligations, including debt, working capital, and cash flows [Indebtedness](index=22&type=section&id=Indebtedness) This subsection provides an overview of the Company's debt structure and recent refinancing activities Selected Financial Information on Indebtedness (in thousands) | Metric | Sep 24, 2021 | Dec 25, 2020 | Change | | :----- | :----------- | :----------- | :----- | | Senior secured term loan | $169,103 | $201,553 | $(32,450) | | Total convertible debt | $204,000 | $154,000 | $50,000 | | Borrowings outstanding on asset-based loan facility | $20,000 | $40,000 | $(20,000) | | **Total** | **$407,453** | **$411,351** | **$(3,898)** | - On March 1, 2021, the Company issued **$50.0 million** aggregate principal amount of 1.875% Convertible Senior Notes, using net proceeds to repay **$31.2 million** of senior secured term loans and a portion of asset-based loan facility borrowings[94](index=94&type=chunk) [Liquidity](index=22&type=section&id=Liquidity) This subsection details the Company's cash, working capital, and available credit to meet future financial needs Selected Financial Information on Liquidity (in thousands) | Metric | Sep 24, 2021 | Dec 25, 2020 | Change | | :----- | :----------- | :----------- | :----- | | Cash and cash equivalents | $134,217 | $193,281 | $(59,064) | | Working capital, excluding cash and cash equivalents | $138,379 | $94,279 | $44,100 | | Availability under asset-based loan facility | $109,459 | $50,282 | $59,177 | | **Total** | **$382,055** | **$337,842** | **$44,213** | - The Company believes its existing balances of cash and cash equivalents, working capital, and availability under its asset-based loan facility are sufficient to satisfy its working capital needs, capital expenditures, debt service, and other liquidity requirements over the next **12 months**[95](index=95&type=chunk) [Cash Flows](index=22&type=section&id=Cash%20Flows_MD%26A) This subsection analyzes the Company's cash flows from operating, investing, and financing activities Selected Financial Information on Cash Flows (Thirty-Nine Weeks Ended Sep 24, 2021 vs. Sep 25, 2020, in thousands) | Metric | Sep 24, 2021 | Sep 25, 2020 | | :----- | :----------- | :----------- | | Net cash (used in) provided by operating activities | $(26,330) | $53,869 | | Net cash used in investing activities | $(25,152) | $(65,846) | | Net cash (used in) provided by financing activities | $(7,493) | $80,457 | - Net cash used in operations was **$26.3 million** for the thirty-nine weeks ended September 24, 2021, driven by a net loss of **$13.4 million** and investments in working capital growth of **$43.7 million**[98](index=98&type=chunk) - Net cash used in investing activities was **$25.2 million**, primarily for capital expenditures (**$17.9 million**) including distribution facility build-outs, and cash paid for acquisitions (**$7.3 million**)[99](index=99&type=chunk) - Net cash used in financing activities was **$7.5 million**, mainly due to **$35.9 million** in debt and finance lease payments and a **$20.0 million** payment on the asset-based loan facility, partially offset by **$51.8 million** from convertible senior notes issuance[100](index=100&type=chunk) [Seasonality](index=23&type=section&id=Seasonality) This section discusses the impact of seasonal fluctuations and other external factors on the Company's sales and operations - The Company generally does not experience material seasonality, except for its direct-to-consumer business, which sees higher center-of-the-plate protein sales during the fourth-quarter holiday season, generating a disproportionate amount of operating cash flows in Q4[101](index=101&type=chunk)[102](index=102&type=chunk) - Sales and operating results may vary due to factors such as changes in operating expenses, management's ability to execute strategies, personnel changes, product demand, supply shortages, weather patterns, and general economic conditions[101](index=101&type=chunk) - The Pandemic had a material impact on business, particularly in Q2 fiscal 2020, due to government restrictions and non-essential business closures[103](index=103&type=chunk) [Inflation](index=23&type=section&id=Inflation) This section addresses the Company's exposure to inflation in operating costs and its ability to pass these costs to customers - The Company's profitability is dependent on its ability to anticipate and react to changes in the costs of key operating resources, including food and other raw materials, labor, energy, and other supplies and services[104](index=104&type=chunk) - Substantial increases in costs and expenses could impact operating results if such increases cannot be passed along to customers[104](index=104&type=chunk) [Off-Balance Sheet Arrangements](index=23&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of any off-balance sheet arrangements as of the reporting date - As of September 24, 2021, the Company did not have any off-balance sheet arrangements[105](index=105&type=chunk) [Critical Accounting Policies and Estimates](index=23&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section identifies the key accounting policies and estimates that require significant management judgment - The Company's critical accounting policies and estimates include determining the allowance for doubtful accounts, inventory valuation, business combinations, valuing goodwill and intangible assets, self-insurance reserves, accounting for income taxes, and contingent earn-out liabilities[106](index=106&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=24&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section discusses the Company's exposure to market risks, specifically focusing on interest rate risk due to its variable-rate indebtedness [Interest Rate Risk](index=24&type=section&id=Interest%20Rate%20Risk) This section assesses the Company's exposure to interest rate fluctuations on its variable-rate debt - As of September 24, 2021, the Company had an aggregate of **$189.1 million** of indebtedness outstanding under the Term Loan and ABL Facility that bore interest at variable rates[108](index=108&type=chunk) - A **100 basis point** increase in market interest rates would decrease the Company's after-tax earnings by approximately **$2.4 million** per annum, holding other variables constant[108](index=108&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=24&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) This section details the evaluation of the Company's disclosure controls and procedures and reports on any changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=24&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section reports on management's conclusion regarding the effectiveness of the Company's disclosure controls - The Company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were **effective** as of September 24, 2021[109](index=109&type=chunk) [Changes in Internal Control over Financial Reporting](index=24&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section confirms no material changes to the Company's internal control over financial reporting during the quarter - There were no changes in the Company's internal control over financial reporting during the quarter ended September 24, 2021, that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting[110](index=110&type=chunk) [PART II. OTHER INFORMATION](index=25&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section includes legal proceedings, risk factors, equity sales, defaults, and other required disclosures [ITEM 1. LEGAL PROCEEDINGS](index=25&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section addresses the Company's involvement in legal proceedings and management's assessment of their potential impact - The Company is involved in legal proceedings, claims, and litigation arising out of the ordinary conduct of its business[112](index=112&type=chunk) - Management believes that the result of such legal proceedings, either individually or in the aggregate, will not have a material adverse effect on the consolidated financial statements, and no material amounts have been accrued[112](index=112&type=chunk) [ITEM 1A. RISK FACTORS](index=25&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section confirms that there have been no material changes to the Company's previously disclosed risk factors - There have been no material changes to the Company's risk factors as previously disclosed in its Annual Report on Form 10-K for the year ended December 25, 2020, filed with the SEC on February 23, 2021[113](index=113&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=25&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This section reports on the Company's unregistered sales of equity securities, specifically detailing shares withheld for tax purposes related to restricted stock awards Shares Withheld for Tax Withholding (Thirteen Weeks Ended Sep 24, 2021) | Period | Total Number of Shares Repurchased (1) | Average Price Paid Per Share | | :----- | :------------------------------------- | :--------------------------- | | July 24, 2021 to August 20, 2021 | 1,732 | $29.62 | | August 21, 2021 to September 24, 2021 | 285 | $27.42 | | **Total** | **2,017** | **$29.31** | (1) Shares withheld to satisfy tax withholding requirements related to restricted shares of common stock awarded to officers and key employees [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=25&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) This section confirms that the Company has not defaulted on any senior securities - The Company reported no defaults upon senior securities[115](index=115&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=25&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This section states that there are no mine safety disclosures to report - The Company reported no mine safety disclosures[116](index=116&type=chunk) [ITEM 5. OTHER INFORMATION](index=25&type=section&id=ITEM%205.%20OTHER%20INFORMATION) This section indicates that there is no other information to disclose - The Company reported no other information[117](index=117&type=chunk) [ITEM 6. EXHIBITS](index=26&type=section&id=ITEM%206.%20EXHIBITS) This section lists all exhibits filed as part of the Form 10-Q, including certifications and XBRL-related documents - Exhibits include certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[119](index=119&type=chunk) - XBRL-related documents such as the Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, Presentation Linkbase, and Cover Page Interactive Data File are also included[119](index=119&type=chunk) [SIGNATURES](index=27&type=section&id=SIGNATURES) This section contains the official signatures for the Form 10-Q report - The report was signed on October 27, 2021, by James Leddy, Chief Financial Officer, and Timothy McCauley, Chief Accounting Officer[122](index=122&type=chunk)

Financial Data and Key Metrics Changes - Net sales for Q2 2021 increased approximately 111% to $423 million from $200.5 million in Q2 2020, driven by a 106.1% increase in organic sales and a 4.9% contribution from acquisitions [16][21] - Gross profit increased 120.8% to $95.9 million for Q2 2021 compared to $43.4 million for Q2 2020, with gross profit margins improving approximately 101 basis points to 22.7% [17][18] - Adjusted EBITDA was positive at $17.2 million for Q2 2021, compared to a negative adjusted EBITDA of $13.7 million for the prior year [22] Business Line Data and Key Metrics Changes - Specialty sales increased approximately 48.1% sequentially versus Q1 2021, with average unique customers increasing by 22% and placements rising by approximately 36% [7] - Specialty gross margin increased 316 basis points compared to Q1 2021, while center-of-the-plate gross margin increased 31 basis points [10] Market Data and Key Metrics Changes - Recent sales have been trending in line with 2019 sales, inclusive of acquisitions completed in 2020 and 2021 [13] - Net inflation was reported at 11.5% in Q2 2021, with specialty category inflation at 10.6% and center-of-the-plate inflation at 12.1% compared to the prior year [17] Company Strategy and Development Direction - The company completed the acquisition of Nicola Imports to expand its presence in Arizona and enter the Denver market, indicating a focus on geographic expansion [11] - The company is implementing system and process improvements to enhance efficiency and has nearly 100% of specialty locations utilizing mobile truck scanning [12] Management's Comments on Operating Environment and Future Outlook - Management noted that the return of indoor and outdoor dining capacity has strengthened consumer demand, and they are optimistic about future growth as travel and hospitality sectors recover [6][30] - The company is cautious about providing guidance for 2021 due to uncertainties regarding economic recovery and travel-related business activity [24] Other Important Information - Total operating expenses increased approximately 32.5% to $91.2 million for Q2 2021, driven by higher compensation and transportation costs [19] - The company had total liquidity of $247.7 million as of June 25, 2021, comprised of $146.9 million in cash and $100.8 million available under its ABL facility [23] Q&A Session Summary Question: Can you provide more color on the ramp in demand and how you captured it? - Management noted that major cities began to open in mid to late May, leading to a significant ramp in demand, particularly in June [26] Question: How much of the recent sales level is due to openings and celebrations? - Management indicated that recent business activity is similar to June levels, and they have not seen significant changes as they enter the quieter season [28] Question: What does the sales force look like compared to 2019? - Management reported that they are approaching 2019 levels in terms of average weekly customers actively buying [35] Question: Can you discuss the factors affecting gross margin? - Management explained that gross margins are approximately 300 basis points below 2019 levels, primarily due to inflation and volume recovery [36] Question: How is inflation being absorbed throughout the supply chain? - Management confirmed that there is pricing power throughout the value chain, and while inflation is pronounced compared to Q2 2020, it is less so compared to 2019 [42][44] Question: What is the status of inventory levels? - Management stated that they have a strong cash position and are effectively managing working capital, with additional investments expected [46] Question: Can you elaborate on the Texas ramp-up? - Management expressed satisfaction with the Texas business moving towards breakeven faster than expected, with ongoing investments in hiring and market opportunities [48] Question: What are the expectations for the exit rate for fiscal '21? - Management remains conservative, expecting to come out of the year at a run rate similar to pre-pandemic levels, but is cautious about making bold predictions [60]

[Cautionary Statement Regarding Forward-Looking Statements](index=3&type=section&id=CAUTIONARY%20STATEMENT%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section highlights that statements in the report not based on historical facts are forward-looking and involve risks and uncertainties. Actual results may differ materially due to various factors beyond the Company's control, including economic conditions, acquisition challenges, supply chain disruptions, and the ongoing COVID-19 pandemic - Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors[8](index=8&type=chunk) - Key risks include sensitivity to general economic conditions, ability to expand through acquisitions, managing future growth, conditions affecting product cost/availability, price volatility in center-of-the-plate products, low-margin business sensitivity to inflation/deflation, concentration in certain culinary markets, fuel cost volatility, limitations on raising capital, changes in LIBOR, loss of key management, and significant public health epidemics like COVID-19[8](index=8&type=chunk) [Part I. Financial Information](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the Company's comprehensive financial data, including statements, notes, and management's analysis of operations and liquidity [Item 1. Consolidated Financial Statements](index=4&type=section&id=ITEM%201.%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) This section presents the Company's unaudited consolidated financial statements, including the balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, significant transactions, and financial position [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) The consolidated balance sheets show the Company's financial position at June **25, 2021**, compared to December **25, 2020**, indicating changes in assets, liabilities, and stockholders' equity | Metric | June 25, 2021 (thousands) | December 25, 2020 (thousands) | |:----------------------------|:--------------------------|:------------------------------| | Cash and cash equivalents | **$146,920** | **$193,281** | | Accounts receivable, net | **$136,072** | **$96,383** | | Inventories, net | **$122,936** | **$82,519** | | Total current assets | **$439,582** | **$405,662** | | Total assets | **$1,010,598** | **$974,325** | | Accounts payable | **$107,918** | **$57,515** | | Total current liabilities | **$175,883** | **$118,102** | | Total liabilities | **$677,549** | **$629,735** | | Total stockholders' equity | **$333,049** | **$344,590** | [Consolidated Statements of Operations and Comprehensive Income (Loss)](index=5&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) The consolidated statements of operations detail the Company's financial performance for the thirteen and twenty-six weeks ended June **25, 2021**, compared to the prior year periods, showing significant recovery in net sales and a return to net income for the quarter | Metric (thousands) | 13 Weeks Ended June 25, 2021 | 13 Weeks Ended June 26, 2020 | 26 Weeks Ended June 25, 2021 | 26 Weeks Ended June 26, 2020 | |:-----------------------------|:-----------------------------|:-----------------------------|:-----------------------------|:-----------------------------| | Net sales | **$422,968** | **$200,496** | **$703,185** | **$575,927** | | Gross profit | **$95,874** | **$43,426** | **$154,821** | **$128,914** | | Operating income (loss) | **$4,659** | **$(25,409)** | **$(15,469)** | **$(42,467)** | | Net income (loss) | **$1,098** | **$(20,334)** | **$(16,823)** | **$(34,419)** | | Basic EPS | **$0.03** | **$(0.62)** | **$(0.46)** | **$(1.10)** | | Diluted EPS | **$0.03** | **$(0.62)** | **$(0.46)** | **$(1.10)** | [Consolidated Statements of Changes in Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) This statement outlines the changes in stockholders' equity for the periods ended June **25, 2021**, and June **26, 2020**, reflecting the impact of net income/loss, stock compensation, warrants issued for acquisitions, and shares surrendered for tax withholding | Item | 26 Weeks Ended June 25, 2021 (thousands) | 26 Weeks Ended June 26, 2020 (thousands) | |:--------------------------------------|:-----------------------------------------|:-----------------------------------------| | Net income (loss) | **$1,098** | **$(20,334)** | | Stock compensation | **$3,280** | **$1,999** | | Warrants issued for acquisitions | **$1,120** | — | | Shares surrendered to pay tax withholding | **$(541)** | **$(23)** | | Total Stockholders' Equity (End of Period) | **$333,049** | **$387,317** | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The consolidated statements of cash flows provide a summary of cash generated from or used in operating, investing, and financing activities for the twenty-six weeks ended June **25, 2021**, and June **26, 2020** | Cash Flow Activity (thousands) | 26 Weeks Ended June 25, 2021 | 26 Weeks Ended June 26, 2020 | |:-------------------------------|:-----------------------------|:-----------------------------| | Net cash (used in) provided by operating activities | **$(23,922)** | **$47,579** | | Net cash used in investing activities | **$(16,739)** | **$(67,850)** | | Net cash (used in) provided by financing activities | **$(5,642)** | **$81,992** | | Net change in cash and cash equivalents | **$(46,361)** | **$61,591** | | Cash and cash equivalents-end of period | **$146,920** | **$201,824** | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes provide detailed explanations and additional information pertinent to the consolidated financial statements, covering operations, accounting policies, fair value measurements, acquisitions, debt, equity, and the impact of the COVID-19 pandemic and related government acts [Note 1 - Operations and Basis of Presentation](index=8&type=section&id=Note%201%20-%20Operations%20and%20Basis%20of%20Presentation) This note describes the Company's business as a foodservice distributor primarily in the United States, its customer base, and the significant impact of the COVID-19 pandemic, which showed sequential improvement in **Q2 2021** but remains uncertain for future periods - The Company operates as a foodservice distributor with three operating segments (East Coast, Midwest, West Coast) aggregated into one reportable segment, primarily serving menu-driven independent restaurants, fine dining establishments, and other culinary businesses[21](index=21&type=chunk) - The COVID-19 pandemic continues to impact customers, but the Company experienced sequential improvement and organic sales growth of **$212,610 thousand** in **Q2 2021** compared to the prior year quarter[22](index=22&type=chunk) - The future impact of the Pandemic on business, operations, and liquidity remains difficult to predict, depending on factors like disease severity, government responses, vaccination pace, and consumer behavior[23](index=23&type=chunk) [Note 2 – Summary of Significant Accounting Policies](index=10&type=section&id=Note%202%20%E2%80%93%20Summary%20of%20Significant%20Accounting%20Policies) This note details the Company's revenue recognition policies, which involve recognizing sales upon transfer of control to customers, and provides a disaggregation of net sales by principal product category, highlighting the dominance of Center-of-the-Plate products - Revenues from product sales are recognized when control is transferred to the customer, typically within a day of order fulfillment, with sales incentives (rebates/discounts) accounted for as variable consideration reducing revenue[31](index=31&type=chunk) | Product Category | 13 Weeks Ended June 25, 2021 | 13 Weeks Ended June 26, 2020 | 26 Weeks Ended June 25, 2021 | 26 Weeks Ended June 26, 2020 | |:---------------------|:-----------------------------|:-----------------------------|:-----------------------------|:-----------------------------| | Center-of-the-Plate | **$215,089** (**50.9%**) | **$115,834** (**57.8%**) | **$354,934** (**50.5%**) | **$279,654** (**48.6%**) | | Dry Goods | **$57,117** (**13.5%**) | **$24,099** (**12.0%**) | **$96,897** (**13.8%**) | **$81,985** (**14.2%**) | | Pastry | **$41,312** (**9.8%**) | **$15,548** (**7.8%**) | **$70,110** (**10.0%**) | **$64,809** (**11.3%**) | | Cheese and Charcuterie | **$34,303** (**8.1%**) | **$15,594** (**7.8%**) | **$57,402** (**8.2%**) | **$50,667** (**8.8%**) | | Produce | **$30,558** (**7.2%**) | **$12,048** (**6.0%**) | **$51,149** (**7.3%**) | **$36,068** (**6.3%**) | | Dairy and Eggs | **$18,902** (**4.5%**) | **$7,495** (**3.7%**) | **$31,483** (**4.5%**) | **$29,641** (**5.1%**) | | Oils and Vinegars | **$16,881** (**4.0%**) | **$5,436** (**2.7%**) | **$26,355** (**3.7%**) | **$21,595** (**3.7%**) | | Kitchen Supplies | **$8,806** (**2.0%**) | **$4,442** (**2.2%**) | **$14,855** (**2.0%**) | **$11,508** (**2.0%**) | | Total Net Sales | **$422,968** (**100%**) | **$200,496** (**100%**) | **$703,185** (**100%**) | **$575,927** (**100%**) | - Food processing costs included in cost of sales were **$6,679 thousand** for the thirteen weeks ended June **25, 2021**, up from **$4,013 thousand** in the prior year, and **$12,075 thousand** for the twenty-six weeks ended June **25, 2021**, up from **$9,426 thousand**[33](index=33&type=chunk) [Note 3 – Net Income (Loss) per Share](index=11&type=section&id=Note%203%20%E2%80%93%20Net%20Income%20%28Loss%29%20per%20Share) This note provides the computation of basic and diluted net income (loss) per common share, along with the reconciliation of the numerator and denominator, and lists potentially dilutive securities excluded due to their anti-dilutive effect | Metric | 13 Weeks Ended June 25, 2021 | 13 Weeks Ended June 26, 2020 | 26 Weeks Ended June 25, 2021 | 26 Weeks Ended June 26, 2020 | |:----------------------------------------|:-----------------------------|:-----------------------------|:-----------------------------|:-----------------------------| | Net income (loss) per share: Basic | **$0.03** | **$(0.62)** | **$(0.46)** | **$(1.10)** | | Net income (loss) per share: Diluted | **$0.03** | **$(0.62)** | **$(0.46)** | **$(1.10)** | | Weighted average common shares: Basic | **36,831,054** | **32,698,295** | **36,615,463** | **31,150,883** | | Weighted average common shares: Diluted | **37,081,186** | **32,698,295** | **36,615,463** | **31,150,883** | | Potentially Dilutive Securities (Excluded) | 13 Weeks Ended June 25, 2021 | 13 Weeks Ended June 26, 2020 | 26 Weeks Ended June 25, 2021 | 26 Weeks Ended June 26, 2020 | |:-------------------------------------------|:-----------------------------|:-----------------------------|:-----------------------------|:-----------------------------| | Restricted share awards ("RSAs") | — | **773,988** | **349,389** | **613,905** | | Stock options | — | **115,639** | **39,320** | **9,538** | | Warrants | **103,226** | — | **52,459** | — | | Convertible notes | **4,616,033** | **3,484,788** | **4,205,246** | **3,484,788** | [Note 4 – Fair Value Measurements](index=11&type=section&id=Note%204%20%E2%80%93%20Fair%20Value%20Measurements) This note details the fair value measurements for contingent earn-out liabilities and convertible notes, utilizing Level **3** inputs and valuation models like Black Scholes for complex instruments - Contingent earn-out liabilities are measured at fair value using Level **3** inputs, with long-term liabilities at **$2,278 thousand** (June **25, 2021**) and **$2,556 thousand** (December **25, 2020**)[36](index=36&type=chunk) | Contingent Earn-out Liabilities (thousands) | December 25, 2020 | June 25, 2021 | |:--------------------------------------------|:------------------|:--------------| | Balance | **$2,756** | **$4,653** | | Acquisition value | **$3,464** | **$3,400** | | Cash payments | **$(3,927)** | **$(83)** | | Changes in fair value | **$(11,479)** | **$(1,420)** | | Convertible Notes (thousands) | June 25, 2021 Carrying Value | June 25, 2021 Fair Value | December 25, 2020 Carrying Value | December 25, 2020 Fair Value | |:-------------------------------|:-----------------------------|:-------------------------|:---------------------------------|:-----------------------------| | Convertible Senior Notes | **$200,000** | **$203,115** | **$150,000** | **$163,204** | | Convertible Unsecured Note | **$4,000** | **$4,063** | **$4,000** | **$4,290** | [Note 5 – Acquisitions](index=12&type=section&id=Note%205%20%E2%80%93%20Acquisitions) This note outlines the two acquisitions completed in **Q2 2021** for an aggregate purchase price of approximately **$8.285 million**, including cash, common stock warrants, and potential contingent earn-out amounts - During **Q2 2021**, the Company completed two acquisitions for an aggregate purchase price of approximately **$8,285 thousand**, consisting of **$7,165 thousand** in cash and **$1,120 thousand** in common stock warrants[41](index=41&type=chunk) - Additional contingent consideration of up to **$3,400 thousand** in earn-out amounts may be paid[41](index=41&type=chunk) | Purchase Price Allocation (thousands) | Amount | |:--------------------------------------|:-------| | Current assets | **$4,240** | | Customer relationships | **$2,110** | | Trademarks | **$2,140** | | Goodwill | **$5,663** | | Fixed assets | **$586** | | Right-of-use assets | **$761** | | Lease liabilities | **$(761)** | | Current liabilities | **$(3,054)** | | Earn-out liability | **$(3,400)** | | Issuance of warrants | **$(1,120)** | | Total consideration | **$7,165** | [Note 6 – Inventories](index=13&type=section&id=Note%206%20%E2%80%93%20Inventories) This note clarifies that inventories primarily consist of finished products and are reported net of adjustments for shrinkage, excess, and obsolescence | Inventory Adjustments (thousands) | June 25, 2021 | December 25, 2020 | |:----------------------------------|:--------------|:------------------| | Total adjustments | **$8,297** | **$9,013** | [Note 7 – Equipment, Leasehold Improvements and Software](index=13&type=section&id=Note%207%20%E2%80%93%20Equipment%2C%20Leasehold%20Improvements%20and%20Software) This note provides a breakdown of the Company's equipment, leasehold improvements, and software, along with their accumulated depreciation and amortization, and details the components of depreciation and software amortization expense | Asset Category (thousands) | June 25, 2021 | December 25, 2020 | |:---------------------------|:--------------|:------------------| | Land | **$5,020** | **$5,020** | | Buildings | **$15,685** | **$15,685** | | Machinery and equipment | **$24,931** | **$24,900** | | Computers, data processing, and other equipment | **$14,483** | **$14,207** | | Software | **$39,657** | **$33,063** | | Leasehold improvements | **$68,790** | **$68,747** | | Construction-in-process | **$10,892** | **$8,115** | | Less: accumulated depreciation and amortization | **$(89,832)** | **$(79,662)** | | Net Equipment, leasehold improvements and software | **$114,982** | **$115,448** | | Expense (thousands) | 13 Weeks Ended June 25, 2021 | 13 Weeks Ended June 26, 2020 | 26 Weeks Ended June 25, 2021 | 26 Weeks Ended June 26, 2020 | |:--------------------------|:-----------------------------|:-----------------------------|:-----------------------------|:-----------------------------| | Depreciation expense | **$3,841** | **$3,663** | **$7,776** | **$7,231** | | Software amortization | **$1,712** | **$1,250** | **$2,884** | **$2,444** | | Total | **$5,553** | **$4,913** | **$10,660** | **$9,675** | [Note 8 – Goodwill and Other Intangible Assets](index=13&type=section&id=Note%208%20%E2%80%93%20Goodwill%20and%20Other%20Intangible%20Assets) This note details the changes in goodwill and the composition of other intangible assets, including customer relationships, non-compete agreements, and trademarks. It also reports an impairment charge for the Cambridge trademark due to a brand strategy shift | Goodwill (thousands) | December 25, 2020 | June 25, 2021 | |:---------------------|:------------------|:--------------| | Carrying amount | **$214,864** | **$220,575** | | Acquisitions | — | **$5,663** | | Foreign currency translation | — | **$48** | | Intangible Assets (thousands) | June 25, 2021 Gross Carrying Amount | June 25, 2021 Accumulated Amortization | June 25, 2021 Net Amount | |:------------------------------|:------------------------------------|:---------------------------------------|:-------------------------| | Customer relationships | **$143,821** | **$(60,095)** | **$83,726** | | Non-compete agreements | **$8,579** | **$(7,885)** | **$694** | | Trademarks | **$46,103** | **$(21,724)** | **$24,379** | | Total | **$198,503** | **$(89,704)** | **$108,799** | - The Company recognized a **$597 thousand** impairment charge to fully write-down the net book value of its Cambridge trademark due to a shift in brand strategy to leverage the Allen Brothers brand[50](index=50&type=chunk) [Note 9 – Debt Obligations](index=14&type=section&id=Note%209%20%E2%80%93%20Debt%20Obligations) This note details the Company's debt obligations, including senior secured term loans, convertible senior notes, and asset-based loan facility, and highlights the recent issuance of additional convertible senior notes to repay existing debt | Debt Obligation (thousands) | June 25, 2021 | December 25, 2020 | |:----------------------------|:--------------|:------------------| | Senior secured term loans | **$169,531** | **$201,553** | | Convertible senior notes | **$200,000** | **$150,000** | | Asset-based loan facility | **$20,000** | **$40,000** | | Total debt obligations | **$401,387** | **$404,179** | - On March **1, 2021**, the Company issued **$50,000 thousand** aggregate principal amount of **1.875%** Convertible Senior Notes, using net proceeds to repay **$31,166 thousand** of senior secured term loans and a portion of the asset-based loan facility[52](index=52&type=chunk) - As of June **25, 2021**, the Company was in compliance with all debt covenants, had minimum liquidity of **$253,386 thousand**, and **$100,805 thousand** available for borrowing under the ABL Facility[55](index=55&type=chunk) [Note 10 – Stockholders' Equity](index=15&type=section&id=Note%2010%20%E2%80%93%20Stockholders%27%20Equity) This note details the activity of Restricted Share Awards (RSAs) during the twenty-six weeks ended June **25, 2021**, including grants, vesting, and forfeitures, and reports the total unrecognized compensation cost | RSA Activity (Shares) | Unvested at Dec 25, 2020 | Granted | Vested | Forfeited | |:----------------------|:-------------------------|:----------|:----------|:----------| | Time-based | **901,318** | **351,562** | **(582,804)** | **(7,359)** | | Performance-based | — | **199,231** | — | — | | Market-based | **26,952** | **199,241** | — | — | - The Company granted **750,034** RSAs with a weighted average grant date fair value of **$31.74** during the twenty-six weeks ended June **25, 2021**[56](index=56&type=chunk) - Total unrecognized compensation cost for unvested RSAs was **$25,655 thousand** at June **25, 2021**, with a weighted-average remaining period of approximately **2.4** years[57](index=57&type=chunk) [Note 11 – Related Parties](index=16&type=section&id=Note%2011%20%E2%80%93%20Related%20Parties) This note discloses lease expenses paid to entities controlled by the Company's chairman, president, CEO, and vice chairman | Related Party Lease Expense (thousands) | 13 Weeks Ended June 25, 2021 | 13 Weeks Ended June 26, 2020 | 26 Weeks Ended June 25, 2021 | 26 Weeks Ended June 26, 2020 | |:----------------------------------------|:-----------------------------|:-----------------------------|:-----------------------------|:-----------------------------| | Lease expense | **$123** | **$123** | **$246** | **$241** | [Note 12 – Supplemental Disclosures of Cash Flow Information](index=16&type=section&id=Note%2012%20%E2%80%93%20Supplemental%20Disclosures%20of%20Cash%20Flow%20Information) This note provides supplemental cash flow disclosures, including cash paid for income taxes and interest, operating and finance lease cash flows, and other non-cash investing and financing activities | Supplemental Cash Flow Disclosures (thousands) | 26 Weeks Ended June 25, 2021 | 26 Weeks Ended June 26, 2020 | |:-----------------------------------------------|:-----------------------------|:-----------------------------| | Cash paid for income taxes, net | **$(208)** | **$334** | | Cash paid for interest, net | **$7,766** | **$9,730** | | Operating cash flows from operating leases | **$12,752** | **$13,476** | | Operating cash flows from finance leases | **$282** | **$264** | | ROU assets obtained for lease liabilities: Operating leases | **$1,625** | **$5,744** | | ROU assets obtained for lease liabilities: Finance leases | **$162** | **$13,980** | | Warrants issued for acquisitions | **$1,200** | — | | Contingent earn-out liabilities for acquisitions | **$3,400** | **$3,464** | [Note 13 – Coronavirus Aid, Relief, and Economic Security Act](index=16&type=section&id=Note%2013%20%E2%80%93%20Coronavirus%20Aid%2C%20Relief%2C%20and%20Economic%20Security%20Act) This note discusses the Company's recognition of a receivable related to the Employee Retention Tax Credit (ETRC) under the CARES Act and the Consolidated Appropriations Act of **2021** - The Company recognized a **$1,418 thousand** receivable related to the Employee Retention Tax Credit (ETRC) during **Q2 2021**, which is presented within prepaid expenses and other current assets[62](index=62&type=chunk) - The ETRC was expanded by the Consolidated Appropriations Act of **2021**, increasing the credit to **70%** of qualified wages paid from January **1, 2021**, through June **30, 2021**, capped at **$10,000** per employee per quarter[62](index=62&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=17&type=section&id=Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition, changes in financial condition, and results of operations, offering insights into business performance, the impact of COVID-19, recent acquisitions, liquidity, and critical accounting policies [Business Overview](index=17&type=section&id=Business%20Overview) The Company is a premier distributor of specialty foods in leading culinary markets, offering a wide range of products to over **34,000** customer locations, primarily independent restaurants and fine dining establishments, with a growing direct-to-consumer segment - The Company is a premier distributor of specialty foods in nine leading culinary markets in the U.S., offering over **50,000** SKUs[65](index=65&type=chunk) - It serves over **34,000** customer locations, mainly independent restaurants and fine dining establishments, across **16** geographic markets in the U.S. and Canada[65](index=65&type=chunk) - Through Allen Brothers and the 'Shop Like a Chef' platform, the Company also sells products directly to consumers[65](index=65&type=chunk) [Effect of the COVID-19 Pandemic on our Business and Operations](index=17&type=section&id=Ef%20ect%20of%20the%20COVID-19%20Pandemic%20on%20our%20Business%20and%20Operations) While many customers continue to be impacted by COVID-19, the Company experienced sequential business improvement in **Q2 2021**, leading to significant organic sales growth. The future impact of the pandemic remains uncertain, but the Company maintains a strong liquidity position - The Company observed sequential improvement in business throughout **Q2 2021**, contributing to organic sales growth of **$212.6 million** compared to the prior year quarter[66](index=66&type=chunk) - The Company closed the quarter with **$146.9 million** in cash and cash equivalents and approximately **$100.8 million** of remaining availability under its asset-based loan facility as of June **25, 2021**[67](index=67&type=chunk) - The future impact of the Pandemic on business, operations, and liquidity is difficult to predict and depends on various factors including disease severity, government responses, vaccination programs, and consumer spending[68](index=68&type=chunk) [Recent Acquisitions](index=17&type=section&id=Recent%20Acquisitions) In **Q2 2021**, the Company completed two acquisitions for an aggregate purchase price of approximately **$8.3 million**, involving cash, common stock warrants, and potential contingent earn-out payments - Two acquisitions were completed in **Q2 2021** for an aggregate purchase price of approximately **$8.3 million**[69](index=69&type=chunk) - The purchase price included **$7.2 million** in cash at closing and common stock warrants valued at approximately **$1.1 million**[69](index=69&type=chunk) - Additional contingent consideration in the form of earn-out amounts could total **$3.4 million**[69](index=69&type=chunk) [Results of Operations](index=18&type=section&id=RESULTS%20OF%20OPERATIONS) This section provides a detailed analysis of the Company's financial performance for the thirteen and twenty-six weeks ended June **25, 2021**, compared to the corresponding periods in **2020**, highlighting significant increases in net sales and gross profit, and changes in operating expenses and net income/loss [Thirteen Weeks Ended June 25, 2021 Compared to Thirteen Weeks Ended June 26, 2020](index=18&type=section&id=Thirteen%20Weeks%20Ended%20June%2025%2C%202021%20Compared%20to%20Thirteen%20Weeks%20Ended%20June%2026%2C%202020) For the thirteen weeks ended June **25, 2021**, the Company reported substantial growth in net sales and gross profit, a return to operating income, and net income, driven by organic growth and acquisitions, despite increased operating expenses | Metric (thousands) | 2021 | 2020 | $ Change | % Change | |:-----------------------------|:----------|:----------|:----------|:---------| | Net Sales | **$422,968** | **$200,496** | **$222,472** | **111.0%** | | Gross Profit | **$95,874** | **$43,426** | **$52,448** | **120.8%** | | Gross Profit Margin | **22.7%** | **21.7%** | | | | Selling, General and Administrative Expenses | **$90,358** | **$68,165** | **$22,193** | **32.6%** | | Operating Income (Loss) | **$4,659** | **$(25,409)** | **$30,068** | **118.3%** | | Net Income (Loss) | **$1,098** | **$(20,334)** | **$21,432** | **105.4%** | - Organic growth contributed **$212.6 million** (**106.1%**) to sales growth, with acquisitions adding **$9.9 million** (**4.9%**). Organic case count in specialty increased by **122.9%**, and organic pounds sold in center-of-the-plate increased by **66.5%**[72](index=72&type=chunk) - Gross profit margin increased by **101** basis points, with specialty category margins up **629** basis points, partially offset by a **421** basis point decrease in center-of-the-plate margins. Prior period included a **$5.5 million** charge for inventory obsolescence[73](index=73&type=chunk) - Other operating expenses increased primarily due to a **$0.6 million** impairment of Cambridge trademarks, partially offset by non-cash credits for contingent earn-out liabilities[76](index=76&type=chunk) [Twenty-Six Weeks Ended June 25, 2021 Compared to Twenty-Six Weeks Ended June 26, 2020](index=19&type=section&id=Twenty-Six%20Weeks%20Ended%20June%2025%2C%202021%20Compared%20to%20Twenty-Six%20Weeks%20Ended%20June%2026%2C%202020) For the twenty-six weeks ended June **25, 2021**, the Company saw a **22.1%** increase in net sales and a **20.1%** increase in gross profit, despite a slight decrease in gross profit margin. Operating expenses decreased due to lower bad debt expense from the prior year, leading to a reduced net loss | Metric (thousands) | 2021 | 2020 | $ Change | % Change | |:-----------------------------|:----------|:----------|:----------|:---------| | Net Sales | **$703,185** | **$575,927** | **$127,258** | **22.1%** | | Gross Profit | **$154,821** | **$128,914** | **$25,907** | **20.1%** | | Gross Profit Margin | **22.0%** | **22.4%** | | | | Selling, General and Administrative Expenses | **$170,603** | **$177,047** | **$(6,444)** | **(3.6%)** | | Operating Income (Loss) | **$(15,469)** | **$(42,467)** | **$26,998** | **63.6%** | | Net Income (Loss) | **$(16,823)** | **$(34,419)** | **$17,596** | **51.1%** | - Organic growth contributed **$108.4 million** (**18.8%**) to sales growth, with acquisitions adding **$18.9 million** (**3.3%**). Organic case count in specialty increased by **7.1%**, and organic pounds sold in center-of-the-plate increased by **7.1%**[79](index=79&type=chunk) - Gross profit margin decreased by **37** basis points, with specialty category margins up **261** basis points, offset by a **316** basis point decrease in center-of-the-plate margins. Prior year included an **$8.8 million** charge for inventory obsolescence[80](index=80&type=chunk) - Selling, general and administrative expenses decreased primarily due to a **$15.8 million** non-cash charge for bad debt expense in the prior year, partially offset by higher operating expenses to support sales growth[82](index=82&type=chunk) [Liquidity and Capital Resources](index=20&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section details the Company's financing strategies, debt structure, current liquidity position, and cash flow activities, emphasizing its ability to meet short-term and long-term obligations [Indebtedness](index=20&type=section&id=Indebtedness) The Company finances operations through cash flows, credit facilities, and other debt. Total indebtedness decreased slightly, with a recent issuance of convertible senior notes used to repay existing debt | Indebtedness (thousands) | June 25, 2021 | December 25, 2020 | |:-------------------------|:--------------|:------------------| | Senior secured term loan | **$169,531** | **$201,553** | | Total convertible debt | **$204,000** | **$154,000** | | Borrowings outstanding on asset-based loan facility | **$20,000** | **$40,000** | | Finance leases and other financing obligations | **$11,732** | **$15,798** | | Total | **$405,263** | **$411,351** | - On March **1, 2021**, the Company issued **$50.0 million** in **1.875%** Convertible Senior Notes, using net proceeds to repay **$31.2 million** of senior secured term loans and a portion of its asset-based loan facility[91](index=91&type=chunk) [Liquidity](index=21&type=section&id=Liquidity) The Company's liquidity position, comprising cash, working capital, and available credit, is deemed sufficient to meet operational needs, capital expenditures, and debt service for the next **12** months, despite ongoing economic uncertainty | Liquidity (thousands) | June 25, 2021 | December 25, 2020 | |:-----------------------------------------|:--------------|:------------------| | Cash and cash equivalents | **$146,920** | **$193,281** | | Working capital, excluding cash and cash equivalents | **$116,779** | **$94,279** | | Availability under asset-based loan facility | **$100,805** | **$50,282** | | Total | **$364,504** | **$337,842** | - Management believes existing cash, working capital, and ABL facility availability are sufficient to satisfy working capital needs, capital expenditures, debt service, and other liquidity requirements over the next **12** months[92](index=92&type=chunk) [Cash Flows](index=21&type=section&id=Cash%20Flows) For the twenty-six weeks ended June **25, 2021**, the Company used cash in operating, investing, and financing activities, primarily driven by a net loss, capital expenditures for facility build-outs, acquisitions, and debt payments, partially offset by proceeds from convertible notes | Cash Flow Activity (thousands) | 26 Weeks Ended June 25, 2021 | 26 Weeks Ended June 26, 2020 | |:-------------------------------|:-----------------------------|:-----------------------------| | Net loss | **$(16,823)** | **$(34,419)** | | Non-cash charges | **$16,748** | **$28,377** | | Changes in working capital | **$(23,847)** | **$53,621** | | Cash (used in) provided by operating activities | **$(23,922)** | **$47,579** | | Cash used in investing activities | **$(16,739)** | **$(67,850)** | | Cash (used in) provided by financing activities | **$(5,642)** | **$81,992** | - Net cash used in operating activities was **$23.9 million**, driven by a net loss and reinvestment in working capital to support sales growth, partially offset by non-cash charges[93](index=93&type=chunk) - Net cash used in investing activities was **$16.7 million**, primarily for capital expenditures (**$9.6 million** for distribution facilities) and cash paid for acquisitions (**$7.2 million**)[94](index=94&type=chunk) - Net cash used in financing activities was **$5.6 million**, due to **$34.4 million** in debt and lease payments and a **$20.0 million** ABL facility payment, partially offset by **$51.8 million** from convertible senior notes issuance[95](index=95&type=chunk) [Seasonality](index=22&type=section&id=Seasonality) The Company generally does not experience material seasonality, except for its direct-to-consumer business, which sees higher sales during the fourth-quarter holiday season. The COVID-19 pandemic significantly impacted sales, particularly in **Q2 2020** - Excluding the direct-to-consumer business, the Company generally does not experience material seasonality[97](index=97&type=chunk) - The direct-to-consumer business is subject to seasonal fluctuations, with center-of-the-plate protein sales typically higher during the fourth-quarter holiday season[98](index=98&type=chunk) - The COVID-19 pandemic materially impacted business, with net sales most significantly affected during **Q2 2020** due to government restrictions and business closures[99](index=99&type=chunk) [Inflation](index=22&type=section&id=Inflation) The Company's profitability is sensitive to changes in the costs of key operating resources, including food, labor, and energy, and its ability to pass these increases on to customers - Profitability depends on the ability to anticipate and react to changes in costs of food, raw materials, labor, energy, and other supplies and services[100](index=100&type=chunk) - Substantial increases in costs and expenses could impact operating results if they cannot be passed along to customers[100](index=100&type=chunk) [Off-Balance Sheet Arrangements](index=22&type=section&id=Off-Balance%20Sheet%20Arrangements) As of June **25, 2021**, the Company did not have any off-balance sheet arrangements - As of June **25, 2021**, the Company did not have any off-balance sheet arrangements[101](index=101&type=chunk) [Critical Accounting Policies and Estimates](index=22&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The preparation of financial statements requires management to make significant estimates and judgments, with critical accounting policies including allowance for doubtful accounts, inventory valuation, business combinations, goodwill and intangible asset valuation, self-insurance reserves, income taxes, and contingent earn-out liabilities - Critical accounting policies include determining allowance for doubtful accounts, inventory valuation (excess and obsolete inventory), business combinations, valuing goodwill and intangible assets, self-insurance reserves, accounting for income taxes, and contingent earn-out liabilities[102](index=102&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=22&type=section&id=Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section primarily addresses the Company's exposure to interest rate risk, noting that a significant portion of its indebtedness bears variable interest rates - As of June **25, 2021**, the Company had **$189.5 million** of indebtedness outstanding under the Term Loan and ABL Facility that bore interest at variable rates[103](index=103&type=chunk) - A **100** basis point increase in market interest rates would decrease the Company's after-tax earnings by approximately **$2.4 million** per annum, holding other variables constant[103](index=103&type=chunk) [Controls and Procedures](index=22&type=section&id=Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the effectiveness of the Company's disclosure controls and procedures, concluding they were effective as of June **25, 2021**. No material changes to internal control over financial reporting occurred during the quarter - The Company's disclosure controls and procedures were evaluated and concluded to be effective as of June **25, 2021**[104](index=104&type=chunk)[105](index=105&type=chunk) - There were no material changes in internal control over financial reporting during the quarter ended June **25, 2021**[106](index=106&type=chunk) [Part II. Other Information](index=24&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, debt defaults, and other required disclosures [Item 1. Legal Proceedings](index=24&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The Company is involved in various legal proceedings arising from its ordinary business conduct, but management believes these will not have a material adverse effect on its consolidated financial statements - The Company is involved in legal proceedings, claims, and litigation in the ordinary course of business[108](index=108&type=chunk) - Management believes the outcome of these proceedings will not have a material adverse effect on the consolidated financial statements[108](index=108&type=chunk) [Item 1A. Risk Factors](index=24&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section refers to the risk factors previously disclosed in the Company's Annual Report on Form **10-K**, stating that no material changes have occurred - There have been no material changes to the Company's risk factors as previously disclosed in its Annual Report on Form **10-K** filed on February **23, 2021**[109](index=109&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=24&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) During the thirteen weeks ended June **25, 2021**, the Company withheld **17,077** shares of common stock to satisfy tax withholding requirements related to restricted share awards | Period | Total Number of Shares Repurchased (1) | Average Price Paid Per Share | |:-------------------------------------|:---------------------------------------|:-----------------------------| | March 27, 2021 to April 23, 2021 | **8,006** | **$30.80** | | April 24, 2021 to May 21, 2021 | **1,735** | **$30.92** | | May 22, 2021 to June 25, 2021 | **7,336** | **$32.41** | | Total (13 weeks ended June 25, 2021) | **17,077** | **$31.50** | - The shares were withheld to satisfy tax withholding requirements related to restricted shares awarded to officers and key employees[110](index=110&type=chunk) [Item 3. Defaults Upon Senior Securities](index=24&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) The Company reported no defaults upon senior securities - There were no defaults upon senior securities[111](index=111&type=chunk) [Item 4. Mine Safety Disclosures](index=24&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) The Company reported no mine safety disclosures - There were no mine safety disclosures[112](index=112&type=chunk) [Item 5. Other Information](index=24&type=section&id=ITEM%205.%20OTHER%20INFORMATION) The Company reported no other information - There was no other information to report[113](index=113&type=chunk) [Item 6. Exhibits](index=25&type=section&id=ITEM%206.%20EXHIBITS) This section lists all exhibits filed as part of the Form **10-Q**, including various agreements, certifications, and XBRL-related documents - Exhibits include the **2021** Form of Restricted Share Award Agreement (Directors), **2021** Non-Employee Director Deferral Plan, Certifications of CEO and CFO (Sections **302** and **906** of Sarbanes-Oxley Act), and various XBRL Taxonomy Extension Documents[115](index=115&type=chunk) [Signatures](index=26&type=section&id=SIGNATURES) The report is duly signed on behalf of The Chefs' Warehouse, Inc. by its Chief Financial Officer and Chief Accounting Officer, certifying its submission on July **28, 2021** - The report was signed by James Leddy, Chief Financial Officer, and Timothy McCauley, Chief Accounting Officer, on July **28, 2021**[118](index=118&type=chunk)