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

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

Financial Data and Key Metrics Changes - Net sales for Q3 2021 increased approximately 90.7% to $484.3 million from $254 million in Q3 2020, driven by an organic sales increase of approximately 84.2% and acquisitions contributing approximately 6.5% to sales growth [14][20] - Gross profit increased 82.2% to $110 million, with gross profit margins decreasing approximately 105 basis points to 22.7% [16] - Adjusted EBITDA was positive at $23.4 million for Q3 2021 compared to negative adjusted EBITDA of $4.9 million for the prior year [21] Business Line Data and Key Metrics Changes - Specialty sales increased approximately 18.1% sequentially versus Q2 2021, with average unique customers increasing 7.1% and higher placements of approximately 8% [8] - Specialty cases increased 12.8% versus Q2 2021, while center-of-the-plate pounds sold were approximately 2.8% higher sequentially [9] Market Data and Key Metrics Changes - Sales trends remained strong, exiting the quarter at approximately 103% of 2019 sales, with limited growth in return to offices and hospitality-related activity contributing to a moderate increase in sales trends [7][12] - Net inflation was 18.7% in Q3 2021, with 10.9% inflation in the specialty category and 28% in the center-of-the-plate category compared to the prior year [15] Company Strategy and Development Direction - The company completed two acquisitions in October 2021 to enhance growth in high-end center-of-the-plate product lines, including Silver State Meats in Las Vegas and certain assets of Martin Preferred Foods in Texas [10][12] - The company aims to expand its Southern California specialty protein sales and enhance its Allen Brothers brand in Texas [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the future growth of the culinary industry and the company's investments in market and category expansion despite ongoing labor and supply chain challenges [13] - The company is cautiously optimistic about the return of business and travel, modeling a gradual build back through the end of 2021 and into 2022 [26][28] Other Important Information - Total operating expenses increased approximately 37.7% to $99.5 million, driven by higher compensation and transportation costs [18] - The company had total liquidity of $243.7 million at the end of Q3 2021, with net debt of approximately $266.4 million [22] Q&A Session Summary Question: Impact of Delta Variant on Business - Management noted that there was minimal impact from the Delta variant, with consistent revenue trends throughout July and August, and a gradual build in September as college markets opened [24][25] Question: Staffing Challenges - Staffing remains a challenge, but the company has become more strategic and efficient in operations, prioritizing existing customers and seeing an increase in applicants [29][30] Question: Inflationary Cost Pressures - Management indicated that they have been able to pass along higher costs to customers, maintaining gross profit dollars despite inflationary pressures [35][39] Question: Industry Outlook for Independence - Management observed that while some small businesses closed, many are now looking for new locations and planning new restaurant openings, indicating a potential surge in development [61][62] Question: Recent Acquisitions Impact on Margins - The recent acquisitions are seen as growth investments with no significant immediate impact on margins, but expected to contribute positively over the next few years [64][65]

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

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

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

The Chefs' Warehouse, Inc. (NASDAQ:CHEF) Q1 2021 Earnings Conference Call April 28, 2021 8:30 AM ET Company Participants Alex Aldous - General Counsel, Corporate Secretary & Chief Government Relations Officer Chris Pappas - Chairman and Chief Executive Officer Jim Leddy - Chief Financial Officer Conference Call Participants Alex Slagle - Jefferies Peter Saleh - BTIG Kelly Bania - BMO Capital Todd Brooks - C.L. King & Associates Ben Klieve - Lake Street Capital Markets Operator Greetings, and welcome to The ...

Financial Performance - Net sales for the thirteen weeks ended March 26, 2021, were $280,217, a decrease of 25.4% compared to $375,431 for the same period in 2020[14]. - Gross profit for the same period was $58,947, representing a gross margin of 21.0%, down from $85,488 and a margin of 22.8% in the prior year[14]. - The company reported a net loss of $17,921 for the thirteen weeks ended March 26, 2021, compared to a net loss of $14,085 for the same period in 2020, reflecting an increase in losses of 27.5%[14]. - Operating loss for the period was $20,128, compared to an operating loss of $17,058 for the same period in 2020, indicating a worsening of 12.1%[14]. - The company reported a net cash used in operating activities of $11,663 for the thirteen weeks ended March 26, 2021, compared to net cash provided by operating activities of $21,985 in the same period of the previous year[19]. - The Company reported net sales of $280,217 for the thirteen weeks ended March 26, 2021, a decrease of 25.4% compared to $375,431 for the same period in 2020[31]. - The Company experienced a net loss of $17,921 for the thirteen weeks ended March 26, 2021, compared to a net loss of $14,085 for the same period in 2020, resulting in a basic and diluted net loss per share of $(0.49)[34]. - Organic sales declined by $105.0 million, or 28.0%, primarily due to the impacts of the COVID-19 pandemic, with organic case count in the specialty category down approximately 39.4%[68]. - Gross profit decreased to $58.9 million, down $26.5 million or 31.0% from $85.5 million in the prior year, with a gross profit margin of 21.0%, down from 22.8%[69]. - Selling, general and administrative expenses were $80.2 million, a decrease of $28.6 million or 26.3% compared to $108.9 million in the prior year[70]. - The company reported a net loss of $17.9 million for the quarter, compared to a net loss of $14.1 million in the same quarter of the previous year[65]. Assets and Liabilities - Total current assets decreased to $398,904 as of March 26, 2021, from $405,662 as of December 25, 2020, a decline of 1.9%[12]. - Total liabilities increased to $634,566 as of March 26, 2021, compared to $629,735 as of December 25, 2020, an increase of 0.1%[12]. - Cash and cash equivalents decreased to $175,000 as of March 26, 2021, from $193,281 as of December 25, 2020, a decline of 9.5%[12]. - The Company’s inventories were valued at $8,755 as of March 26, 2021, compared to $9,013 as of December 25, 2020, reflecting adjustments for shrinkage and obsolescence[40]. - As of March 26, 2021, total debt obligations amounted to $402.532 million, a slight decrease from $404.179 million on December 25, 2020[47]. - As of March 26, 2021, the company had an aggregate indebtedness of $190.0 million under the Term Loan and ABL Facility, with a potential after-tax earnings decrease of approximately $1.4 million per annum for a 100 basis point increase in market interest rates[91]. Shareholder Information - The weighted average common shares outstanding increased to 36,401,748 for the thirteen weeks ended March 26, 2021, compared to 29,621,433 for the same period in 2020, an increase of 22.9%[14]. - The weighted average common shares outstanding increased to 36,401,748 for the thirteen weeks ended March 26, 2021, up from 29,621,433 in the prior year[34]. - The company repurchased a total of 38,503 shares of common stock during the thirteen weeks ended March 26, 2021, at an average price of $29.51 per share[97]. Expenses and Costs - The company incurred interest expense of $4,763 for the thirteen weeks ended March 26, 2021, down from $5,124 in the same period of the previous year[14]. - Food processing costs included in cost of sales were $5,396 for the thirteen weeks ended March 26, 2021, slightly down from $5,413 for the same period in 2020[32]. - Depreciation expense for the thirteen weeks ended March 26, 2021 was $3.935 million, an increase from $3.568 million for the same period in 2020[43]. - The company recognized stock-based compensation expense of $2.458 million for RSAs during the thirteen weeks ended March 26, 2021, compared to $851 thousand for the same period in 2020[51]. - Selling, general and administrative expenses were $80.2 million, a decrease of $28.6 million or 26.3% compared to $108.9 million in the prior year[70]. Legal and Compliance - The company believes that the outcome of ongoing legal proceedings will not have a material adverse effect on its consolidated financial statements[94]. - The company is involved in legal proceedings arising from ordinary business conduct, but management believes these will not materially affect financial statements[94]. - There were no changes in internal control over financial reporting during the quarter ended March 26, 2021, that materially affected the company's financial reporting[93]. - The company did not have any off-balance sheet arrangements as of March 26, 2021[88]. - The company's disclosure controls and procedures were evaluated and deemed effective as of March 26, 2021[92]. - There have been no material changes to the company's risk factors as previously disclosed in its Annual Report on Form 10-K for the year ended December 25, 2020[95]. Accounting and Guidance - The Company adopted new accounting guidance in fiscal 2021, which had an immaterial impact on its consolidated financial statements[28]. - The effective tax rate for the quarter was 28.0%, down from 36.5% in the prior year, primarily due to tax refunds claimed against prior years[74]. - The company is not providing guidance on capital expenditures for fiscal 2021 due to uncertainty regarding the economic recovery and pandemic-related restrictions[79]. - The effective interest rate on the company's Convertible Senior Notes was approximately 2.3% as of March 26, 2021[47]. Acquisitions - The company entered into an asset purchase agreement on April 23, 2021, to acquire assets of a specialty producer for approximately $6 million, with potential additional contingent consideration of up to $4 million[57].

Financial Performance - Net revenues increased from approximately $1.2 billion in fiscal year 2016 to $1.6 billion in fiscal year 2019, but decreased to $1.1 billion in fiscal year 2020 due to the COVID-19 pandemic[15]. - The company's revenue for the year ended December 25, 2020, was $137.54 million, indicating a decline from the previous year, which is a decrease of about 37%[212]. - The Chefs' Warehouse, Inc. reported revenue of $218.60 million for the year ended December 27, 2019, reflecting a significant increase compared to $180.37 million in 2018, representing a growth of approximately 21.5%[212]. - The S&P Smallcap Food Distributor Index showed a decline from 68.74 in 2018 to 64.37 in 2019, indicating a decrease of approximately 5.5%[212]. Acquisitions and Growth Strategy - The company completed eleven acquisitions since December 2018, with an aggregate cash consideration of over $132.7 million, funded through operational cash, borrowings, and common stock offerings[15]. - The company has successfully completed twenty acquisitions since its IPO, enhancing its market penetration and product capabilities[37]. - A significant portion of past growth has been achieved through acquisitions, which may adversely affect results during integration periods[94]. - Future growth is dependent on expanding operations in existing markets and penetrating new markets through organic growth or acquisitions[88]. - The company has identified substantial organic growth opportunities to recover net revenues to pre-pandemic levels by increasing penetration with existing customers and expanding its customer base[32]. Market Position and Customer Base - The company serves over 34,000 customer locations across 16 primary geographic markets in the U.S. and Canada, leveraging a sales force of approximately 490 professionals[16]. - The company has a competitive advantage as the largest distributor of specialty food products in key culinary markets, including New York and San Francisco[23]. - The top ten customers accounted for less than 8.5% of total net sales in fiscal year 2020, indicating no significant customer concentration risk[38]. - The company expanded its direct-to-consumer product offerings by launching the "Shop Like a Chef" online home delivery platform in several markets[39]. Operational Efficiency and Technology - The company plans to improve operating margins through investments in facilities and technology, aiming for efficiencies in purchasing, warehousing, and distribution[34]. - The company has made significant investments in technology, including a fully-integrated ERP system and route optimization software[58]. - The company operates 36 distribution centers and utilizes advanced routing and logistics planning software for efficient deliveries[54]. - The company relies heavily on information technology for operations, and any disruptions could adversely affect business continuity and financial performance[155]. Financial Risks and Challenges - The company has approximately $411.4 million in total indebtedness, including $201.6 million in senior secured term loans and $154.0 million in convertible debt[176]. - The company's indebtedness limits its ability to invest in business needs and increases vulnerability to economic downturns and interest rate fluctuations[177]. - Profitability is heavily influenced by the ability to manage costs of key resources, including food, labor, and energy, with inflation potentially affecting operating results[77]. - Economic conditions, including disposable income levels and consumer confidence, significantly impact consumer discretionary spending, which could affect the company's profitability[86]. - The company may face challenges in managing future growth due to rapid expansion, which has placed significant demands on administrative, operational, and financial resources[99]. Supply Chain and Market Conditions - Supply chain conditions beyond the company's control could materially affect the cost and availability of specialty food products[122]. - The company is experiencing increased exposure to price volatility in center-of-the-plate products, which are expected to contribute a larger percentage of revenues due to recent acquisitions[129]. - The prices of meat and poultry products are largely influenced by feed ingredient production, which is affected by global supply and demand, agricultural policies, and unpredictable weather patterns[130]. - The company faces risks from supply chain interruptions due to external factors such as weather, political unrest, and natural disasters, which could disrupt product availability and increase costs[128]. Regulatory and Compliance Issues - Increased scrutiny and regulation in the food safety sector could lead to higher operational costs and potential penalties for non-compliance[136]. - Regulatory compliance is critical, as failure to meet governmental regulations could result in penalties, recalls, or loss of licenses, adversely impacting financial condition[163]. Labor and Workforce - The company has 2,221 full-time employees, with approximately 7% represented by unions[63]. - Labor costs are a significant concern, with potential increases due to shortages, unionization, and regulatory changes, which could slow growth and harm profitability[139]. - The company has a workforce of 2,221 full-time employees, with approximately 7% represented by unions, which may lead to increased labor costs and potential work stoppages[145]. Customer Behavior and Market Trends - The direct-to-consumer business experiences seasonal fluctuations, with significant sales typically occurring in the fourth quarter, particularly during the holiday season[75]. - Changes in consumer eating habits due to health trends may require modifications to the product portfolio, potentially increasing costs[115]. - Customers are generally not obligated to continue purchasing products, leading to potential volatility in order volumes and customer retention[106]. Risk Management - The company has implemented a disaster recovery plan to mitigate risks from catastrophic events, but failure to execute this plan could lead to significant operational challenges[154]. - The company is self-insured for certain liabilities, and fluctuations in claims could adversely affect financial results if substantial losses occur[120]. - The company faces risks related to product liability claims, which could arise from contamination in products sold, potentially leading to substantial financial liabilities[162].

Financial Data and Key Metrics Changes - Net sales for Q4 2020 decreased approximately 34% to $281.7 million from $426.5 million in Q4 2019, driven by a decline in organic sales of approximately 41.7% [13] - Gross profit decreased 42.5% to $58.9 million for Q4 2020, with gross profit margins decreasing approximately 311 basis points to 20.9% [14] - GAAP net loss was $37.1 million or $1.02 loss per diluted share for Q4 2020, compared to net income of $10.9 million or $0.36 per diluted share for Q4 2019 [18] Business Line Data and Key Metrics Changes - Specialty sales were up 3.3% organically, driven by an increase in unique customers of approximately 5.4% and higher placements of approximately 2.8% [7] - Organic pounds in center-of-the-plate were approximately 8.2% higher than in Q3 2020 [7] - Gross margin in the specialty category decreased 460 basis points compared to Q3 2020, primarily due to COVID-related inventory adjustments [8] Market Data and Key Metrics Changes - October and November business trends remained stable at approximately 70% of prior year revenue, while December revenue was above 60% of prior year [6] - Sales in January 2021 were trending at approximately 62% of prior year, despite winter limiting outdoor dining demand [9] Company Strategy and Development Direction - The company aims to emerge from the challenging period in a strong financial and strategic position, focusing on growth investments and business development opportunities [11] - The company is shifting its Northern California center-of-the-plate brand strategy to leverage the Allen Brothers brand, discontinuing sales under the Del Monte and Bassian Farms trade names [8] - The company plans to continue investing in growth markets, with a new LA facility and Florida expansion expected to be completed in the first half of 2022 [11] Management's Comments on Operating Environment and Future Outlook - Management noted that 2020 was the most challenging year in the company's history, with a focus on supporting customers and adapting to new business models during the pandemic [10] - There is optimism for 2022, with expectations of a rebuilding year in 2021 and a potential surge in demand as restrictions ease [27] - Management expressed confidence in the recovery of independent restaurants, emphasizing consumer support for local establishments [30] Other Important Information - The company had total liquidity of $232.2 million as of February 5, 2021, with net debt of approximately $210.2 million [19] - The company will not provide guidance for 2021 due to uncertainty regarding economic recovery and dining restrictions [19] Q&A Session Summary Question: Successes with Allen Brothers brand - Management highlighted the significant growth in B2C sales during COVID, with many new customers discovering the brand [22] Question: Role of outdoor dining in business - Management expressed excitement about the growth of outdoor dining and its potential to remain a part of the dining experience post-pandemic [26] Question: Anticipated mix change post-pandemic - Management believes that while larger chains may gain some market share, there will be strong consumer support for independent restaurants [30] Question: Inventory planning and cash position - Management expects to invest in accounts receivable and inventory as demand increases, maintaining a strong liquidity position [32] Question: Customer acquisition trends - Management noted an increase in new credit applications during the pandemic, with many clients taking advantage of real estate opportunities [35] Question: Preparedness for recovery - Management indicated that the company is set up to handle new business with existing infrastructure and a strong sales team [39] Question: Strategic M&A opportunities - Management is focused on disciplined M&A, looking for companies that fit into their high-margin, high-touch business model [42] Question: Pent-up demand for events - Management is seeing signs of pent-up demand for events, particularly in warmer markets, with expectations for a surge in catering and celebrations [49] Question: Deflation and inflation outlook - Management discussed volatility in pricing, with expectations of a more inflationary environment as restaurants reopen [64]