The Chefs' Warehouse(CHEF) - 2019 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Unaudited Q1 2019 consolidated financial statements show total assets at $847.1 million and liabilities at $538.7 million due to ASC 842 adoption, with net sales increasing to $357.0 million and net income reaching $1.1 million Consolidated Balance Sheets Total assets increased to $847.1 million and liabilities to $538.7 million as of March 29, 2019, primarily due to the $118.8 million recognition of operating lease right-of-use assets and $127.6 million in corresponding liabilities from ASC 842 adoption Consolidated Balance Sheet Highlights (in thousands) | Account | March 29, 2019 | December 28, 2018 | | :--- | :--- | :--- | | Total Assets | $847,112 | $732,398 | | Cash and cash equivalents | $17,317 | $42,410 | | Operating lease right-of-use assets | $118,792 | $— | | Goodwill | $195,546 | $184,280 | | Total Liabilities | $538,689 | $423,722 | | Operating lease liabilities (Current & Long-term) | $127,639 | $— | | Long-term debt, net | $281,675 | $278,169 | | Total Stockholders' Equity | $308,423 | $308,676 | - The significant increase in assets and liabilities is primarily due to the adoption of the new lease accounting standard, ASC 842, which required the company to recognize right-of-use assets and corresponding lease liabilities on the balance sheet for operating leases[27][29] Consolidated Statements of Operations and Comprehensive Income Net sales increased 12.1% to $357.0 million for Q1 2019, with gross profit reaching $90.2 million and net income more than doubling to $1.1 million or $0.04 per diluted share Statement of Operations Highlights (in thousands, except per share data) | Metric | Thirteen Weeks Ended Mar 29, 2019 | Thirteen Weeks Ended Mar 30, 2018 | | :--- | :--- | :--- | | Net Sales | $357,027 | $318,615 | | Gross Profit | $90,189 | $79,522 | | Operating Income | $6,150 | $5,740 | | Net Income | $1,134 | $544 | | Diluted EPS | $0.04 | $0.02 | Consolidated Statements of Cash Flows Net cash from operations was $7.4 million, while investing activities used $32.1 million primarily for acquisitions, leading to a $25.1 million decrease in cash and equivalents to $17.3 million Cash Flow Summary (in thousands) | Cash Flow Activity | Thirteen Weeks Ended Mar 29, 2019 | Thirteen Weeks Ended Mar 30, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $7,391 | $10,540 | | Net cash used in investing activities | ($32,115) | ($5,280) | | Net cash used in financing activities | ($367) | ($1,651) | | Net (decrease) increase in cash | ($25,093) | $3,570 | | Cash at end of period | $17,317 | $45,074 | - The primary use of cash in the quarter was for acquisitions, with $28.0 million paid, net of cash received[20] Notes to Consolidated Financial Statements Notes detail ASC 842 adoption, recognizing $118.0 million in ROU assets and $126.3 million in lease liabilities, the $32.0 million Bassian Farms acquisition, and $283.5 million in debt obligations - The company adopted the new lease accounting standard ASC 842 on December 29, 2018, resulting in the recognition of $118.0 million in Right-of-Use (ROU) assets and $126.3 million in lease liabilities for operating leases[27][29] - On February 25, 2019, the company acquired Bassian Farms, Inc. for an aggregate purchase price of approximately $32.0 million, funded with cash and a convertible note, adding $11.2 million to goodwill[49][50][51] Net Sales by Product Category (in thousands) | Product Category | Q1 2019 Sales | % of Total | Q1 2018 Sales | % of Total | | :--- | :--- | :--- | :--- | :--- | | Center-of-the-Plate | $156,616 | 43.9% | $141,743 | 44.5% | | Dry Goods | $63,754 | 17.9% | $54,673 | 17.2% | | Pastry | $50,205 | 14.1% | $43,677 | 13.7% | | Other | $86,052 | 24.3% | $78,522 | 24.6% | | Total | $357,027 | 100% | $318,615 | 100% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Net sales increased 12.1% due to organic growth and acquisitions, gross margin improved to 25.3%, and liquidity is supported by $90.0 million available under the ABL Facility, with projected capital expenditures of $24.0 million to $26.0 million Q1 2019 vs Q1 2018 Performance | Metric | Q1 2019 | Q1 2018 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $357.0M | $318.6M | +12.1% | | Gross Profit | $90.2M | $79.5M | +13.4% | | Gross Margin | 25.3% | 25.0% | +30 bps | | Operating Income | $6.2M | $5.7M | +8.8% | | Net Income | $1.1M | $0.5M | +120% | - Sales growth was driven by a 5.6% contribution from organic growth and 6.5% from acquisitions, with organic growth supported by increased case count in specialty and pounds sold in center-of-the-plate categories[101] - The company projects capital expenditures for fiscal 2019 to be between $24.0 million and $26.0 million, an increase from 2018 due to planned facility expansions and renovations[121] - As of March 29, 2019, the company had $90.0 million available for borrowing under its Asset Based Loan (ABL) Facility[119] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company faces interest rate risk on $283.9 million in variable-rate debt, with a 100 basis point increase potentially decreasing annual after-tax earnings by $2.1 million - The company is exposed to interest rate risk from its $283.9 million in variable-rate debt under the Term Loan and ABL Facility[131] - A 100 basis point increase in interest rates would decrease annual after-tax earnings by approximately $2.1 million[131] Item 4. Controls and Procedures Management concluded disclosure controls were effective as of March 29, 2019, with new internal controls implemented for ASC 842 adoption - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period, March 29, 2019[132] - New internal controls were implemented to manage the adoption of the new lease accounting standard (ASC 842)[133] PART II. OTHER INFORMATION Item 1. Legal Proceedings Ongoing legal proceedings are not expected to have a material adverse effect on the consolidated financial statements - The company states that ongoing legal proceedings are not expected to have a material adverse effect on its financial statements[135] Item 1A. Risk Factors No material changes to previously disclosed risk factors were reported since the last Annual Report on Form 10-K - No material changes to risk factors were reported since the last Annual Report on Form 10-K[136] Item 2. Issuer Purchases of Equity Securities The company repurchased 24,002 shares at an average price of $30.85 to satisfy tax withholding for restricted stock awards, not as part of a formal buyback program Share Repurchases in Q1 2019 | Period | Total Shares Repurchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Feb 23 - Mar 29, 2019 | 24,002 | $30.85 | | Total for Quarter | 24,002 | $30.85 | - The share repurchases were conducted to satisfy tax withholding obligations related to the vesting of employee restricted stock, not as part of a formal buyback program[138] Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including CEO and CFO Sarbanes-Oxley certifications and XBRL data files - Exhibits filed include Sarbanes-Oxley certifications from the CEO and CFO, along with XBRL instance documents for interactive data[143]