PART I. FINANCIAL INFORMATION This section presents the Company's unaudited consolidated financial statements and management's analysis of financial performance ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS 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 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) 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 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 Consolidated Statements of Cash Flows 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 capital1996 - Investing Activities: Capital expenditures of $(17,872) (in thousands) and cash paid for acquisitions of $(7,280) (in thousands)1999 - 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)19100 Notes to Consolidated Financial Statements This section provides detailed explanations of the Company's accounting policies and financial statement items Note 1 - Operations and Basis of Presentation 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 customers21 - 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 quarter22 - 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 factors2526 Note 2 – Summary of Significant Accounting Policies 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 revenue31 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 period33 Note 3 – Net Income (Loss) per Share 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 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 rates3740 Note 5 – Acquisitions 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 - Additional contingent consideration, if earned, could total $4,230 (in thousands) in earn-out amounts42 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 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 obsolescence46 Note 7 – Equipment, Leasehold Improvements and Software 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 facilities47 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 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 strategy51 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 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 rates548188 - 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) requirement5557 Note 10 – Stockholders' Equity 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, 202458 - 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 $31.7259 - 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 years60 Note 11 – Related Parties 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 Chairman62 Note 12 – Supplemental Disclosures of Cash Flow Information 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 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 expenses65 - 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 quarter65 Note 14 – Subsequent Events 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 closing66 - 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 targets66 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 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 establishments69 - The Company also sells certain products directly to consumers through its "Shop Like a Chef" online platform and the acquisition of Allen Brothers, Inc69 Effect of the COVID-19 Pandemic on our Business and Operations 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 year70 - 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, 202171 - 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 behavior72 Recent Acquisitions 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 million73 - These acquisitions also include potential additional contingent consideration in the form of earn-out amounts, which could total $4.2 million in aggregate73 Thirteen Weeks Ended September 24, 2021 Compared to Thirteen Weeks Ended September 25, 2020 This section provides a detailed comparative analysis of the Company's financial performance for the thirteen-week periods Net Sales 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 - 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 - Estimated inflation was 10.9% in the specialty category and 28.0% in the center-of-the-plate category compared to the prior year period76 Gross Profit 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 points77 - Specialty category gross profit margins increased 301 basis points due to higher estimated inventory losses in the prior year quarter, partially offset by inflation77 - Center-of-the-plate category gross profit margins decreased 488 basis points due to inflation and higher retail sales in the prior year quarter77 Selling, General and Administrative Expenses 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 growth78 - The ratio of SG&A expenses to net sales decreased predominantly due to sales growth78 Other Operating (Income) Expenses, Net 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 period80 Interest Expense 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 debt81 Provision for Income Taxes 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 - 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 Thirty-Nine Weeks Ended September 24, 2021 Compared to Thirty-Nine Weeks Ended September 25, 2020 This section provides a detailed comparative analysis of the Company's financial performance for the thirty-nine-week periods Net Sales 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 - 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 - Estimated inflation was 8.7% in the specialty category and 14.2% in the center-of-the-plate category compared to the prior year period83 Gross Profit 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 points84 - Specialty category gross profit margins increased 292 basis points due to higher estimated inventory losses from COVID-19 impacts in the prior year84 - Center-of-the-plate category gross profit margins decreased 376 basis points due to inflation84 - 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 Pandemic84 Selling, General and Administrative Expenses 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 expense86 - 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 expense86 Other Operating (Income ) Expenses, Net 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 shift87 Interest Expense 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 issuance88 Provision for Income Taxes 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 LIQUIDITY AND CAPITAL RESOURCES This section assesses the Company's ability to meet its financial obligations, including debt, working capital, and cash flows 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 borrowings94 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 months95 Cash Flows 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 million98 - 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 - 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 issuance100 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 Q4101102 - 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 conditions101 - The Pandemic had a material impact on business, particularly in Q2 fiscal 2020, due to government restrictions and non-essential business closures103 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 services104 - Substantial increases in costs and expenses could impact operating results if such increases cannot be passed along to customers104 Off-Balance Sheet Arrangements 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 arrangements105 Critical Accounting Policies and Estimates 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 liabilities106 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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 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 rates108 - 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 constant108 ITEM 4. CONTROLS AND PROCEDURES 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 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, 2021109 Changes in Internal Control over Financial Reporting 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 reporting110 PART II. OTHER INFORMATION This section includes legal proceedings, risk factors, equity sales, defaults, and other required disclosures ITEM 1. LEGAL PROCEEDINGS 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 business112 - 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 accrued112 ITEM 1A. RISK FACTORS 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, 2021113 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 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 This section confirms that the Company has not defaulted on any senior securities - The Company reported no defaults upon senior securities115 ITEM 4. MINE SAFETY DISCLOSURES This section states that there are no mine safety disclosures to report - The Company reported no mine safety disclosures116 ITEM 5. OTHER INFORMATION This section indicates that there is no other information to disclose - The Company reported no other information117 ITEM 6. EXHIBITS 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 2002119 - 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 included119 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 Officer122
The Chefs' Warehouse(CHEF) - 2021 Q3 - Quarterly Report