UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 If an emerging growth company, indicate by check mark if registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 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 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 ...

The Chefs' Warehouse, Inc. (NASDAQ:CHEF) Q1 2023 Earnings Conference Call May 3, 2023 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 Alex Slagle - Jefferies Peter Saleh - BTIG Kelly Bania - BMO Capital Markets Andrew Wolf - C.L. King Todd Brooks - Benchmark Company Ben Klieve - Lake Street Operator Good day, and w ...

Part I [Business Overview](index=5&type=section&id=Item%201.%20BUSINESS) The company is a premier distributor of specialty food products to over 40,000 customer locations across the US, Middle East, and Canada, focusing on organic growth and strategic acquisitions - The company is a leading distributor of specialty food products, offering over **55,000 SKUs** from more than **2,500 suppliers** to over **40,000 customer locations**[11](index=11&type=chunk)[17](index=17&type=chunk) - Net revenues grew from approximately **$1.3 billion in fiscal 2018 to $2.6 billion in fiscal 2022**, supported by organic growth and **sixteen acquisitions** since December 2018 with an aggregate cash consideration of over **$294.5 million**[12](index=12&type=chunk) - The company's growth strategy focuses on four key pillars: increasing sales to existing customers, expanding the customer base in current markets, improving operating margins through efficiency gains, and pursuing selective strategic acquisitions[22](index=22&type=chunk)[23](index=23&type=chunk)[24](index=24&type=chunk)[25](index=25&type=chunk) - Operations are supported by a network of **44 distribution centers** and a sales force of approximately **720 professionals**, many with culinary backgrounds[48](index=48&type=chunk)[35](index=35&type=chunk) [Risk Factors](index=16&type=section&id=Item%201A.%20RISK%20FACTORS) The company faces diverse risks including macroeconomic factors, supply chain and labor issues, geographic concentration, IT and data security threats, regulatory compliance, and substantial indebtedness [Business and Macroeconomic Risk](index=16&type=section&id=Business%20and%20Macroeconomic%20Risk) Business success depends on consumer spending and successful acquisition integration, operating in a low-margin industry sensitive to inflation and intense competition - Business success is significantly tied to consumer discretionary spending, which affects the food-away-from-home industry[91](index=91&type=chunk) - Future growth is dependent on expanding operations and penetrating new markets, with a history of growth through acquisitions that present integration challenges and financial risks[67](index=67&type=chunk)[69](index=69&type=chunk)[93](index=93&type=chunk) - The foodservice distribution industry is a low-margin business, making profitability sensitive to inflationary pressures and volatile food costs[98](index=98&type=chunk)[129](index=129&type=chunk) [Supply Chain and Labor Risk](index=20&type=section&id=Supply%20Chain%20and%20Labor%20Risk) The company faces supply chain disruptions, volatile food costs, and rising labor expenses, including potential shortages and unionization risks, with 4% of employees unionized - Profitability is dependent on anticipating and reacting to interruptions in the distribution network and changes in food costs, with reliance on numerous third-party suppliers without long-term contracts[109](index=109&type=chunk)[141](index=141&type=chunk) - Center-of-the-plate products (meat, poultry, seafood) expose the company to significant price volatility due to factors like feed costs, weather, and livestock diseases[112](index=112&type=chunk)[144](index=144&type=chunk) - The company faces risks from rising labor costs, potential shortages of qualified personnel, and unionization efforts. As of December 30, 2022, **181 of 4,124 full-time employees (approx. 4%)** are represented by unions[181](index=181&type=chunk)[152](index=152&type=chunk) [Geographic and Global Risk](index=23&type=section&id=Geographic%20and%20Global%20Risk) Operations are concentrated in key culinary markets, with New York representing **18.8% of net sales in fiscal 2022**, making the company vulnerable to regional events and public health crises - Operations are concentrated in key culinary markets, with the New York market representing **18.8% of net sales in fiscal 2022**, creating exposure to regional economic conditions and events[122](index=122&type=chunk)[154](index=154&type=chunk) - Significant public health crises, like the COVID-19 pandemic, can adversely affect business by impacting customer demand, supply chains, and labor availability[184](index=184&type=chunk)[121](index=121&type=chunk) [Information Technology, Intellectual Property and Data Risk](index=24&type=section&id=Information%20Technology%2C%20Intellectual%20Property%20and%20Data%20Risk) Heavy reliance on IT systems exposes the company to failures and cyber threats, while new technology investments may not yield benefits, and intellectual property protection is crucial - The company relies on IT systems for business processes and is exposed to risks of system failures and cybersecurity incidents that could interrupt operations and cause data breaches[156](index=156&type=chunk)[188](index=188&type=chunk)[189](index=189&type=chunk) - Significant investments in new information technology may not produce the anticipated benefits in operational efficiency and cost savings[158](index=158&type=chunk)[190](index=190&type=chunk) - The company's ability to protect its intellectual property, including trademarks and proprietary brands, is crucial, and failure to do so could harm brand value and business performance[159](index=159&type=chunk)[191](index=191&type=chunk) [Legal and Regulatory Risk](index=25&type=section&id=Legal%20and%20Regulatory%20Risk) As a food distributor, the company faces product liability claims and extensive governmental regulation from agencies like the FDA and USDA, with non-compliance risking penalties - The company faces inherent risk of product liability claims if its products cause injury or illness, which could result in substantial costs and reputational damage[161](index=161&type=chunk)[192](index=192&type=chunk) - The business is highly regulated by federal, state, and local authorities in the U.S., Canada, and the Middle East, including the FDA, USDA, and Health Canada. Non-compliance can lead to significant penalties[163](index=163&type=chunk)[194](index=194&type=chunk) [Financial Risk](index=28&type=section&id=Financial%20Risk) The company's substantial indebtedness of approximately **$686.0 million** as of December 30, 2022, limits investment, increases vulnerability to downturns, and restricts financial flexibility - As of December 30, 2022, the company had approximately **$686.0 million** in total indebtedness, which may limit its ability to invest in the business and increases financial vulnerability[199](index=199&type=chunk) - The substantial debt requires a significant portion of cash flow for service payments, limits flexibility, and makes the company more vulnerable to interest rate increases on its variable-rate borrowings[170](index=170&type=chunk)[200](index=200&type=chunk) [Risks Relating to Ownership of our Common Stock](index=29&type=section&id=Risks%20Relating%20to%20Ownership%20of%20our%20Common%20Stock) Common stock ownership risks include price volatility influenced by market conditions, significant ownership concentration by insiders (**11.9%** as of February 13, 2023), and no anticipated dividends - The market price of the company's common stock may be volatile due to factors like earnings performance, analyst recommendations, and general market conditions[174](index=174&type=chunk)[204](index=204&type=chunk) - As of February 13, 2023, executive officers, directors, and their affiliates beneficially owned approximately **11.9%** of outstanding common stock, enabling significant influence over corporate matters[206](index=206&type=chunk)[230](index=230&type=chunk) - The company does not anticipate paying cash dividends in the foreseeable future, meaning investment returns depend on potential stock price appreciation[177](index=177&type=chunk)[207](index=207&type=chunk) [Unresolved Staff Comments](index=32&type=section&id=Item%201B.%20UNRESOLVED%20STAFF%20COMMENTS) The company reports no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[234](index=234&type=chunk) [Properties](index=33&type=section&id=Item%202.%20PROPERTIES) As of February 13, 2023, the company operates **44 distribution centers** totaling approximately **2.9 million square feet** across the US, Canada, and the Middle East, with most properties leased - The company operates **44 distribution centers** totaling approximately **2.9 million square feet** in the U.S., Canada, Qatar, Oman, and the United Arab Emirates[211](index=211&type=chunk) - The company owns **five facilities** and leases all other properties, including its corporate headquarters in Ridgefield, Connecticut[211](index=211&type=chunk)[212](index=212&type=chunk) [Legal Proceedings](index=33&type=section&id=Item%203.%20LEGAL%20PROCEEDINGS) The company is not currently aware of any pending or threatened legal proceedings that would materially adversely affect its business or financial condition - The company is not currently aware of any pending legal proceedings that would have a material adverse effect on its financial condition or operations[236](index=236&type=chunk) [Mine Safety Disclosures](index=33&type=section&id=Item%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company - Not applicable[237](index=237&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=34&type=section&id=Item%205.%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) The company's common stock trades on NASDAQ under "CHEF", with **204 holders of record** as of December 31, 2022, and no cash dividends are anticipated due to credit facility restrictions - The company's common stock is traded on the NASDAQ under the symbol "CHEF", with **204 holders of record** as of December 31, 2022[215](index=215&type=chunk) - The company has never paid a cash dividend and does not plan to in the foreseeable future, a policy reinforced by restrictions in its credit facilities[238](index=238&type=chunk) 5-Year Cumulative Total Return Comparison | Index | Dec 2017 | Dec 2018 | Dec 2019 | Dec 2020 | Dec 2021 | Dec 2022 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | The Chefs' Warehouse, Inc. | $100.00 | $152.83 | $185.22 | $116.54 | $158.88 | $162.34 | | NASDAQ Composite Index | $100.00 | $95.38 | $130.47 | $185.48 | $226.75 | $151.61 | | S&P Smallcap Food Distributor Index | $100.00 | $63.50 | $59.46 | $63.45 | $122.95 | $112.92 | [Reserved](index=35&type=section&id=Item%206.%20RESERVED) This item is reserved and contains no information [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=36&type=section&id=Item%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses the company's financial performance, including **$2.6 billion** in net sales for fiscal 2022, liquidity with **$686.0 million** in debt, and critical accounting estimates [Overview and Recent Developments](index=36&type=section&id=Overview%20and%20Recent%20Developments) The company, a premier specialty food distributor, returned to profitability in Q2 2021, driven by key acquisitions including Chef Middle East LLC for **$108.7 million** and Capital Seaboard for **$31.0 million** - On November 1, 2022, the company acquired Chef Middle East LLC (CME) for approximately **$108.7 million** in cash, expanding its presence to the United Arab Emirates, Qatar, and Oman[225](index=225&type=chunk) - On December 28, 2021, the company acquired Capital Seaboard, a specialty seafood and produce distributor in Maryland, for a purchase price of approximately **$31.0 million**[247](index=247&type=chunk) [Results of Operations](index=42&type=section&id=Results%20of%20Operations) Financial performance significantly improved in fiscal 2022, with net sales increasing **49.7%** to **$2.6 billion** and net income reaching **$27.8 million**, driven by pandemic recovery and acquisitions Consolidated Results of Operations (in thousands) | Metric | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Net Sales | $2,613,399 | $1,745,757 | $1,111,631 | | Gross Profit | $618,636 | $390,485 | $248,151 | | Operating Income (Loss) | $85,738 | $10,811 | $(102,660) | | Net Income (Loss) | $27,750 | $(4,923) | $(82,903) | [Fiscal Year 2022 Compared to Fiscal Year 2021](index=42&type=section&id=Fiscal%20Year%202022%20Compared%20to%20Fiscal%20Year%202021) In fiscal 2022, net sales surged **49.7%** to **$2.61 billion**, driven by organic growth and acquisitions, leading to a **58.4%** increase in gross profit and a net income of **$27.8 million** FY 2022 vs. FY 2021 Performance | Metric | 2022 | 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $2,613,399 | $1,745,757 | $867,642 | 49.7% | | Gross Profit | $618,636 | $390,485 | $228,151 | 58.4% | | Gross Profit Margin | 23.7% | 22.4% | - | 1.3 ppt | | SG&A Expenses | $518,219 | $379,252 | $138,967 | 36.6% | - Organic growth contributed **$561.6 million (32.2%)** to sales growth, while acquisitions added **$306.1 million (17.5%)**. The 53rd week of the fiscal year contributed approximately **2.0%** to annual sales growth[283](index=283&type=chunk) [Fiscal Year 2021 Compared to Fiscal Year 2020](index=43&type=section&id=Fiscal%20Year%202021%20Compared%20to%20Fiscal%20Year%202020) Fiscal 2021 saw a significant recovery, with net sales increasing **57.0%** to **$1.75 billion**, and the net loss narrowing dramatically to **$4.9 million** from **$82.9 million** in fiscal 2020 FY 2021 vs. FY 2020 Performance | Metric | 2021 | 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $1,745,757 | $1,111,631 | $634,126 | 57.0% | | Gross Profit | $390,485 | $248,151 | $142,334 | 57.4% | | Gross Profit Margin | 22.4% | 22.3% | - | 0.1 ppt | | SG&A Expenses | $379,252 | $336,394 | $42,858 | 12.7% | - Organic growth contributed **$574.2 million (51.6%)** to sales growth, primarily driven by recovery from the COVID-19 pandemic[288](index=288&type=chunk) [Liquidity and Capital Resources](index=44&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 30, 2022, total debt was **$674.7 million**, with key financing activities including a **$300.0 million** term loan refinancing and **$287.5 million** in new convertible notes, resulting in **$23.1 million** cash from operations Indebtedness (in thousands) | Debt Instrument | Dec 30, 2022 | Dec 24, 2021 | | :--- | :--- | :--- | | Senior secured term loan | $299,250 | $168,675 | | Total convertible debt | $333,184 | $204,000 | | ABL and revolving credit | $42,217 | $20,000 | | Finance leases & other | $11,331 | $11,602 | Cash Flow Summary (in thousands) | Cash Flow Activity | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Operating Activities | $23,134 | $(19,899) | $42,881 | | Investing Activities | $(232,023) | $(48,991) | $(67,968) | | Financing Activities | $253,215 | $(9,222) | $78,056 | - Significant 2022 financing activities included refinancing the senior secured term loan for **$300.0 million** and issuing **$287.5 million** in 2.375% Convertible Senior Notes due 2028[322](index=322&type=chunk)[296](index=296&type=chunk) [Critical Accounting Estimates](index=47&type=section&id=Critical%20Accounting%20Estimates) The company's financial statements rely on critical accounting estimates for doubtful accounts, inventory, business combinations, goodwill, intangible assets, self-insurance, income taxes, and contingent earn-out liabilities - Key critical accounting policies requiring significant estimates include: allowance for doubtful accounts, inventory valuation, business combinations, goodwill and intangible asset valuation, self-insurance reserves, income taxes, and contingent earn-out liabilities[307](index=307&type=chunk) - The allowance for doubtful accounts was **$20.7 million** as of Dec 30, 2022, against an accounts receivable balance of **$260.2 million**[308](index=308&type=chunk) - Goodwill is tested for impairment annually in the fourth quarter. For fiscal 2022 and 2021, a qualitative assessment was performed, which concluded that the fair value of reporting units exceeded their carrying values[359](index=359&type=chunk)[338](index=338&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=49&type=section&id=Item%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company's primary market risk is interest rate exposure on its **$341.5 million** floating-rate debt as of December 30, 2022, where a **100 basis point** increase would reduce after-tax earnings by **$2.5 million** annually - The company's main market risk is interest rate risk from its debt. As of December 30, 2022, it had **$341.5 million** in floating-rate debt[343](index=343&type=chunk) - A **100 basis point** increase in interest rates would reduce after-tax earnings by approximately **$2.5 million** annually[343](index=343&type=chunk) [Consolidated Financial Statements and Supplementary Data](index=51&type=section&id=Item%208.%20CONSOLIDATED%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section presents the company's audited consolidated financial statements for fiscal years 2020-2022, including balance sheets and cash flows, which received an unqualified opinion from BDO USA, LLP - The independent registered public accounting firm, BDO USA, LLP, issued an unqualified opinion on the consolidated financial statements[345](index=345&type=chunk)[370](index=370&type=chunk) Key Financial Statement Data (in thousands) | Metric | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Total Assets | $1,509,296 | $1,073,795 | | Total Liabilities | $1,107,787 | $723,584 | | Total Stockholders' Equity | $401,509 | $350,211 | [Notes to Consolidated Financial Statements](index=58&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, recent acquisitions like Chef Middle East and Capital Seaboard, goodwill and intangible assets, and debt obligations totaling **$665.9 million** as of December 30, 2022 - Note 5 details the acquisition of Chef Middle East for ~**$108.7 million** and Capital Seaboard for ~**$31.0 million**, including purchase price allocations[476](index=476&type=chunk)[452](index=452&type=chunk) - Note 9 provides a comprehensive breakdown of debt obligations, which totaled **$665.9 million** as of December 30, 2022, including senior secured term loans and convertible senior notes[485](index=485&type=chunk) - Note 8 shows that Goodwill increased to **$287.1 million** in 2022 from **$221.8 million** in 2021, primarily due to acquisitions. Net intangible assets also increased to **$155.7 million** from **$104.7 million**[507](index=507&type=chunk)[483](index=483&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=83&type=section&id=Item%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) The company reports no changes in or disagreements with its accountants regarding accounting principles, financial disclosure, or auditing scope - There were no disagreements with accountants on accounting and financial disclosure[630](index=630&type=chunk) [Controls and Procedures](index=83&type=section&id=Item%209A.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 30, 2022, a conclusion attested to by BDO USA, LLP with an unqualified opinion - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[662](index=662&type=chunk) - Based on an assessment using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 30, 2022[632](index=632&type=chunk) - The independent registered public accounting firm, BDO USA, LLP, provided an unqualified attestation report on the company's internal control over financial reporting[623](index=623&type=chunk)[665](index=665&type=chunk) [Other Information](index=85&type=section&id=Item%209B.%20OTHER%20INFORMATION) The company reports no other information for this item - None[669](index=669&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=85&type=section&id=Item%209C.%20DISCLOSURE%20REGARDING%20FOREIGN%20JURISDICTIONS%20THAT%20PREVENT%20INSPECTIONS) This item is not applicable to the company - Not applicable[620](index=620&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=86&type=section&id=Item%2010.%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Annual Meeting of Stockholders Proxy Statement - Required information is incorporated by reference from the company's Proxy Statement for the 2023 Annual Meeting of Stockholders[640](index=640&type=chunk) [Executive Compensation](index=86&type=section&id=Item%2011.%20EXECUTIVE%20COMPENSATION) Information regarding executive compensation is incorporated by reference from the 2023 Annual Meeting of Stockholders Proxy Statement - Required information is incorporated by reference from the company's Proxy Statement for the 2023 Annual Meeting of Stockholders[671](index=671&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=86&type=section&id=Item%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) Information on security ownership of beneficial owners, management, and related stockholder matters is incorporated by reference from the 2023 Annual Meeting of Stockholders Proxy Statement - Required information is incorporated by reference from the company's Proxy Statement for the 2023 Annual Meeting of Stockholders[591](index=591&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=86&type=section&id=Item%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%2C%20AND%20DIRECTOR%20INDEPENDENCE) Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2023 Annual Meeting of Stockholders Proxy Statement - Required information is incorporated by reference from the company's Proxy Statement for the 2023 Annual Meeting of Stockholders[672](index=672&type=chunk) [Principal Accounting Fees and Services](index=86&type=section&id=Item%2014.%20PRINCIPAL%20ACCOUNTING%20FEES%20AND%20SERVICES) Information regarding principal accounting fees and services is incorporated by reference from the 2023 Annual Meeting of Stockholders Proxy Statement - Required information is incorporated by reference from the company's Proxy Statement for the 2023 Annual Meeting of Stockholders[592](index=592&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=87&type=section&id=Item%2015.%20EXHIBITS%20AND%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists all financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K, with financial statements indexed under Item 8 - This section provides a list of all financial statements and exhibits filed with the Form 10-K[674](index=674&type=chunk) [Form 10-K Summary](index=87&type=section&id=Item%2016.%20FORM%2010-K%20SUMMARY) The company has chosen not to provide a summary for its Form 10-K - None provided[594](index=594&type=chunk)

The Chefs' Warehouse, Inc. (NASDAQ:CHEF) Q4 2022 Earnings Conference Call February 15, 2023 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 Kelly Bania - BMO Capital Alex Slagle - Jefferies Peter Saleh - BTIG Andrew Wolf - C.L. King Todd Brooks - Benchmark Company Operator Greetings and welcome to The Chefs' Wareho ...

➢ More targeted talent acquisition ➢ Improved benefit propositions ➢ Upgraded health coverage and 401k options ➢ Competitive pay ➢ Training and talent development The Chefs' Warehouse, Inc. 16 2019 — 2022* *Based on 2022 Full-Year Guidance Mid-Point 2019 2022* 2019 2022* $387 $594 Gross Profit Adjusted Operating Expenses $297 $442 *Based on 2022 Full-Year Guidance Mid-Point 1.0x since 2019 (1) Free Cash Flow defined as Adjusted EBITDA less Capital Expenditures. (2) Free Cash flow Conversion defined as Free ...

The Chefs' Warehouse, Inc. (NASDAQ:CHEF) Q3 2022 Earnings Conference Call October 26, 2022 8:30 AM ET Company Participants Alexandros Aldous - General Counsel, Corporate Secretary, Chief Government Relations Officer, and Chief Administrative Officer Christopher Pappas - Founder, Chairman, President and Chief Executive Officer James Leddy - Chief Financial Officer Conference Call Participants Alexander Slagle - Jefferies Peter Saleh - BTIG Andrew Wolf - C.L. King Todd Brooks - The Benchmark Company Operator ...

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 September 23, 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 ...

Financial Data and Key Metrics Changes - Net sales for Q2 2022 increased approximately 53.2% to $648.1 million from $423 million in Q2 2021, driven by a 36% increase in organic sales and a 17.2% contribution from acquisitions [12][16] - Gross profit increased 62.7% to $156 million, with gross profit margins rising approximately 140 basis points to 24.1% [13][16] - Adjusted EBITDA for Q2 2022 was $45.3 million, compared to $17.2 million for the prior year [17] - GAAP net income was $16.9 million or $0.42 per diluted share, compared to $1.1 million or $0.03 per diluted share in Q2 2021 [16] Business Line Data and Key Metrics Changes - Specialty sales grew 52.2% organically over the prior year, with unique customer growth of approximately 35.9% and placement growth of 54.6% [7] - Organic pounds in the center of the plate business were approximately 14.2% higher than the prior year [7] - Gross profit margins in the specialty category decreased 70 basis points, while margins in the center of the plate category increased 230 basis points year-over-year [8] Market Data and Key Metrics Changes - Net inflation was 13.6% in Q2 2022, with 16.4% inflation in the specialty category and 10.9% in the center of the plate category compared to the prior year [12] Company Strategy and Development Direction - The company completed three acquisitions to enhance its distribution capabilities and expand its market presence, including University Foods, Alexa Specialty Foods, and Master Purveyors [9][10] - The focus remains on integrating these acquisitions to create operating leverage and drive growth in key regions [10][35] - The company aims to maintain a strong balance sheet while pursuing further acquisitions and expanding its distribution capacity [24][54] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about returning to normal seasonality and the potential for continued growth as hospitality and event-related business improves [6][30] - There is cautious optimism regarding the macroeconomic environment, with management acknowledging potential challenges but also recognizing strong consumer demand [30][40] - The company anticipates that the reopening of the economy will benefit its business, particularly in the hospitality sector [30][42] Other Important Information - Total liquidity at the end of Q2 2022 was $210.8 million, consisting of $51.8 million in cash and $159 million available under the ABL facility [18] - The company raised its full-year financial guidance, estimating net sales for 2022 to be in the range of $2.375 billion to $2.475 billion [19] Q&A Session Summary Question: Guidance and seasonality - The guidance reflects acquisitions and a return to normal seasonality, with the second quarter typically being stronger than the third [21][23] Question: Trends throughout the quarter - The quarter was driven by firm pricing and a return to over 100% of volume from 2019, with Q3 expected to be seasonally weaker [26][27] Question: Pricing and deflation outlook - Management anticipates moderate deflation in center of the plate pricing, but overall pricing is expected to remain firm due to market dynamics [28][29] Question: Acquisitions and customer base - Acquisitions are aimed at expanding the customer base and leveraging synergies, with a focus on integrating new businesses effectively [35][44] Question: Future growth drivers - The company sees potential for growth as hospitality recovers, with a focus on high-end customers and strategic acquisitions [39][42] Question: Inflation/deflation impact - Management views deflation as a mixed bag, with high-end customers able to pass costs along while others adjust menus creatively [46][48] Question: M&A environment - The pace of acquisitions is expected to increase as the market normalizes, with a focus on synergistic deals [50][53] Question: Return on investment in talent - Investments in sales and operations are starting to yield results, contributing to strong organic growth [57][59]

[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]