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 ...

Financial Performance - Net sales for the period ended September 23, 2022, reached $1,822,063, a significant increase from $1,187,506 for the same period in 2021, representing a growth of approximately 53.4%[13] - Gross profit for the same period was $431,305, compared to $264,796 in the prior year, indicating a gross profit margin improvement[13] - Operating income increased to $55,973 from a loss of $5,030 in the previous year, showcasing a turnaround in operational performance[13] - Net income for the period was $26,577, a substantial increase from a net loss of $13,367 in the prior year, reflecting improved profitability[13] - Total net sales for the thirteen weeks ended September 23, 2022, reached $661,856, a 36.7% increase from $484,321 in the same period last year[28] - Net income for the thirteen weeks ended September 23, 2022, was $26,577, compared to a loss of $13,367 for the same period in 2021[18] - Net income for the thirteen weeks ended September 23, 2022, was $8,277, compared to $3,456 for the same period in 2021, representing a 139% increase[32] - The diluted net income per share for the thirteen weeks ended September 23, 2022, was $0.21, compared to $0.09 in the prior year[30] Assets and Liabilities - Total current assets rose to $591,496 from $469,960, marking an increase of approximately 26%[11] - Total liabilities increased to $867,810 from $723,584, which is a rise of about 19.9%[11] - Cash and cash equivalents increased to $145,425 from $115,155, representing a growth of approximately 26.2%[11] - The company reported a total stockholders' equity of $384,949, up from $350,211, indicating a growth of about 9.9%[11] - Cash and cash equivalents at the end of the period were $145,425, an increase from $134,217 at the end of the previous year[18] - The company’s inventories totaled $9,616 as of September 23, 2022, compared to $8,312 as of December 24, 2021, reflecting an increase of 15.7%[43] Cash Flow - Total net cash provided by operating activities was $31,747, a significant improvement from a cash used of $26,330 in the prior year[18] - Net cash provided by operating activities was $31.7 million for the thirty-nine weeks ended September 23, 2022, compared to net cash used of $(13.4) million in the prior year[105] - Net cash used in investing activities totaled $93.7 million, driven by capital expenditures of $31.7 million and $62.0 million for acquisitions[106] Capital Expenditures and Investments - Capital expenditures for the period were $31,666, compared to $17,872 in the same period last year[18] - The company expects capital expenditures for fiscal 2022 to be approximately $36.0 million to $45.0 million[102] Acquisitions - The company completed three acquisitions during the thirty-nine weeks ended September 23, 2022, for a total purchase price of approximately $32,500, with additional contingent consideration of up to $2,000[39] - The total consideration for the acquisition of Capital Seaboard was approximately $31,036, which included $28,000 paid in cash at closing[38] - The company acquired CGC Holdings, Inc. for approximately $31.0 million, with additional acquisitions totaling $32.5 million during the thirty-nine weeks[77][78] Expenses - Selling, general and administrative expenses increased to $130.3 million, a 31.0% rise from $99.4 million in the prior year, with a ratio to net sales of 19.7%[83] - Selling, general and administrative expenses rose to $364.8 million in 2022, a 35.1% increase from $270.0 million in 2021, representing 20.0% of net sales[92] - Interest expense rose to $10.7 million, a 156.2% increase from $4.2 million in the prior year, primarily due to higher debt levels and transaction fees[87] - Interest expense grew to $19.6 million in 2022, a 46.4% increase from $13.4 million in 2021, primarily due to higher debt levels and transaction fees[94] - Other operating expenses increased to $10.5 million in 2022, compared to a net income of $(0.2) million in 2021, reflecting a significant change of 5,150%[93] Debt and Financing - Total debt obligations increased from $399.301 million as of December 24, 2021, to $499.215 million as of September 23, 2022, primarily due to new term loans[51] - The interest rate on the 2029 Term Loans was 7.9% as of September 23, 2022, with a principal amount of $300 million maturing on August 23, 2029[52] - The Company incurred a loss on debt extinguishment of $142 thousand related to the Eighth Amendment of its senior secured term loan[53] - As of September 23, 2022, the Company had $176.820 million available for borrowing under its asset-based loan facility[60] Shareholder Equity and Stock Compensation - The weighted average common shares outstanding for the diluted earnings per share calculation increased to 41,942,676 from 36,701,927[13] - The total unrecognized compensation cost for unvested RSAs was $21.353 million as of September 23, 2022, with a weighted-average remaining period of approximately 2.1 years[64] - The Company granted 517,766 RSAs at a weighted average grant date fair value of $31.41 during the thirty-nine weeks ended September 23, 2022[62] - The outstanding stock options as of September 23, 2022, were 112,232 shares with an exercise price of $20.23[66] Taxation - The effective tax rate for the thirteen weeks ended September 23, 2022, was 27.0%, down from 44.7% in the prior year[88] - Provision for income tax expense was $9.8 million in 2022, compared to a benefit of $(5.0) million in 2021, marking a change of 295.6%[95] Market Conditions - Estimated inflation was 15.5% in the specialty category and 11.6% in the center-of-the-plate category compared to the prior year[89] - A 100 basis point increase in market interest rates would decrease after-tax earnings by approximately $2.2 million per annum[116]

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]

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