The Chefs' Warehouse(CHEF) - 2021 Q2 - Quarterly Report

Cautionary Statement Regarding Forward-Looking Statements 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] - 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] Part I. Financial Information 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 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 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) 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 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 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 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 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] - 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] - 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] Note 2 – Summary of Significant Accounting Policies 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] | 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] Note 3 – Net Income (Loss) per Share 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 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] | 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 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] - Additional contingent consideration of up to $3,400 thousand in earn-out amounts may be paid[41] | 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 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 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 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] Note 9 – Debt Obligations 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] - 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] Note 10 – Stockholders' Equity 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] - 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] Note 11 – Related Parties 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 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 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] - 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] Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - 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] - Through Allen Brothers and the 'Shop Like a Chef' platform, the Company also sells products directly to consumers[65] Effect of the COVID-19 Pandemic on our Business and Operations 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] - 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] - 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] Recent Acquisitions 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] - The purchase price included $7.2 million in cash at closing and common stock warrants valued at approximately $1.1 million[69] - Additional contingent consideration in the form of earn-out amounts could total $3.4 million[69] Results of Operations 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 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] - 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] - 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] Twenty-Six Weeks Ended June 25, 2021 Compared to Twenty-Six Weeks Ended June 26, 2020 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] - 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] - 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] Liquidity and Capital Resources 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 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] 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] Cash Flows 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] - 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] - 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] 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] - 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] - The COVID-19 pandemic materially impacted business, with net sales most significantly affected during Q2 2020 due to government restrictions and business closures[99] 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] - Substantial increases in costs and expenses could impact operating results if they cannot be passed along to customers[100] Off-Balance Sheet Arrangements 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] Critical Accounting Policies and Estimates 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] Quantitative and Qualitative Disclosures about Market Risk 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] - 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] Controls and Procedures 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][105] - There were no material changes in internal control over financial reporting during the quarter ended June 25, 2021[106] Part II. Other Information This section covers legal proceedings, risk factors, equity sales, debt defaults, and other required disclosures Item 1. Legal Proceedings 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] - Management believes the outcome of these proceedings will not have a material adverse effect on the consolidated financial statements[108] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] Item 3. Defaults Upon Senior Securities The Company reported no defaults upon senior securities - There were no defaults upon senior securities[111] Item 4. Mine Safety Disclosures The Company reported no mine safety disclosures - There were no mine safety disclosures[112] Item 5. Other Information The Company reported no other information - There was no other information to report[113] Item 6. Exhibits 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] 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]