UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 25, 202231, 2023
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________ to _________
Commission file number: 001-35249
THE CHEFS’ WAREHOUSE, INC.
(Exact name of registrant as specified in its charter)
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Delaware | | 20-3031526 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
100 East Ridge Road
Ridgefield, Connecticut 06877
(Address of principal executive offices)
Registrant’s telephone number, including area code: (203) 894-1345
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.01 | CHEF | The NASDAQ Stock Market LLC |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☒ | | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Number of shares of common stock, par value $.01 per share, outstanding at April 25, 2022: 38,232,118May 8, 2023: 39,542,217
THE CHEFS’ WAREHOUSE, INC.
FORM 10-Q
Table of Contents
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PART I. FINANCIAL INFORMATION | | | | |
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Item 1. | | | | | |
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Item 2. | | | | | |
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Item 3. | | | | | |
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PART II. OTHER INFORMATION | | | | |
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Item 1. | | | | | |
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Item 1A. | | | | | |
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Item 2. | | | | | |
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Item 3. | | | | | |
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Item 4. | | | | | |
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Item 5. | | | | | |
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Item 6. | | | | | |
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Statements in this report 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. Words such as “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and/or could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. The risks and uncertainties which could impact these statements include, but are not limited to the following: our sensitivity to general economic conditions, including disposable income levels and changes in consumer discretionary spending; our ability to expand our operations in our existing markets and to penetrate new markets through acquisitions; we may not achieve the benefits expected from our acquisitions, which could adversely impact our business and operating results; we may have difficulty managing and facilitating our future growth; conditions beyond our control could materially affect the cost and/or availability of our specialty food products or center-of-the-plate products and/or interrupt our distribution network; our increased distribution of center-of-the-plate products, like meat, poultry and seafood, involves increased exposure to price volatility experienced by those products; our business is a low-margin business and our profit margins may be sensitive to inflationary and deflationary pressures; because our foodservice distribution operations are concentrated in certain culinary markets, we are susceptible to economic and other developments, including adverse weather conditions, in these areas; fuel cost volatility may have a material adverse effect on our business, financial condition or results of operations; our ability to raise capital in the future may be limited; we may be unable to obtain debt or other financing, including financing necessary to execute on our acquisition strategy, on favorable terms or at all; interest charged on our outstanding debt may be adversely affected by changes in the method of determining London Interbank Offeredthe Secured Overnight Financing Rate (LIBOR), or the replacement of LIBOR with an alternative rate;(“SOFR”); our business operations and future development could be significantly disrupted if we lose key members of our management team; and significant public health epidemics or pandemics, including the COVID-19 pandemic, may adversely affect our business, results of operations and financial condition. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and, as such, speak only as of the date made. A more detailed description of these and other risk factors is contained in the Company’s most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 22, 202228, 2023 and other reports, including this Quarterly Report on Form 10-Q, filed by the Company with the SEC since that date. The Company is not undertaking to update any information in the foregoing report until the effective date of its future reports required by applicable laws.
PART I FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THE CHEFS’ WAREHOUSE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except share data)
| | | March 25, 2022 (unaudited) | | December 24, 2021 | | March 31, 2023 | | December 30, 2022 |
ASSETS | ASSETS | | | | ASSETS | | | |
Current assets: | Current assets: | | | | Current assets: | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 79,439 | | | $ | 115,155 | | Cash and cash equivalents | $ | 91,742 | | | $ | 158,800 | |
Accounts receivable, net of allowance of $19,168 in 2022 and $20,260 in 2021 | 169,792 | | | 172,540 | | |
Accounts receivable, net of allowance of $22,571 in 2023 and $20,260 in 2022 | | Accounts receivable, net of allowance of $22,571 in 2023 and $20,260 in 2022 | 274,598 | | | 260,167 | |
Inventories, net | Inventories, net | 152,443 | | | 144,491 | | Inventories, net | 274,787 | | | 245,693 | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | 37,002 | | | 37,774 | | Prepaid expenses and other current assets | 55,714 | | | 56,200 | |
Total current assets | Total current assets | 438,676 | | | 469,960 | | Total current assets | 696,841 | | | 720,860 | |
| Equipment, leasehold improvements and software, net | 151,751 | | | 133,622 | | |
Property and equipment, net | | Property and equipment, net | 196,256 | | | 185,728 | |
Operating lease right-of-use assets | Operating lease right-of-use assets | 148,381 | | | 130,701 | | Operating lease right-of-use assets | 178,872 | | | 156,629 | |
Goodwill | Goodwill | 230,988 | | | 221,775 | | Goodwill | 307,773 | | | 287,120 | |
Intangible assets, net | Intangible assets, net | 108,832 | | | 104,743 | | Intangible assets, net | 167,823 | | | 155,703 | |
Deferred taxes, net | 8,876 | | | 9,380 | | |
| Other assets | Other assets | 4,065 | | | 3,614 | | Other assets | 4,566 | | | 3,256 | |
Total assets | Total assets | $ | 1,091,569 | | | $ | 1,073,795 | | Total assets | $ | 1,552,131 | | | $ | 1,509,296 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | Current liabilities: | | | | Current liabilities: | | | |
Accounts payable | Accounts payable | $ | 121,444 | | | $ | 118,284 | | Accounts payable | $ | 169,912 | | | $ | 163,397 | |
Accrued liabilities | Accrued liabilities | 34,852 | | | 35,390 | | Accrued liabilities | 72,057 | | | 54,325 | |
Short-term operating lease liabilities | Short-term operating lease liabilities | 17,835 | | | 15,882 | | Short-term operating lease liabilities | 21,690 | | | 19,428 | |
Accrued compensation | Accrued compensation | 15,069 | | | 22,321 | | Accrued compensation | 27,370 | | | 34,167 | |
Current portion of long-term debt | Current portion of long-term debt | 4,971 | | | 5,141 | | Current portion of long-term debt | 13,199 | | | 12,428 | |
Total current liabilities | Total current liabilities | 194,171 | | | 197,018 | | Total current liabilities | 304,228 | | | 283,745 | |
Long-term debt, net of current portion | Long-term debt, net of current portion | 393,565 | | | 394,160 | | Long-term debt, net of current portion | 654,417 | | | 653,504 | |
Operating lease liabilities | Operating lease liabilities | 143,827 | | | 127,296 | | Operating lease liabilities | 171,972 | | | 151,406 | |
Deferred taxes, net | | Deferred taxes, net | 6,221 | | | 6,098 | |
| Other liabilities and deferred credits | Other liabilities and deferred credits | 5,581 | | | 5,110 | | Other liabilities and deferred credits | 9,341 | | | 13,034 | |
Total liabilities | Total liabilities | 737,144 | | | 723,584 | | Total liabilities | 1,146,179 | | | 1,107,787 | |
Commitments and contingencies | Commitments and contingencies | 0 | | 0 | Commitments and contingencies | | | |
Stockholders’ equity: | Stockholders’ equity: | | | | Stockholders’ equity: | | | |
Preferred Stock - $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding at March 25, 2022 and December 24, 2021 | — | | | — | | |
Common Stock, - $0.01 par value, 100,000,000 shares authorized, 38,256,461 and 37,887,675 shares issued and outstanding at March 25, 2022 and December 24, 2021, respectively | 383 | | | 380 | | |
Additional paid in capital | 316,943 | | | 314,242 | | |
Preferred Stock - $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding at March 31, 2023 and December 30, 2022 | | Preferred Stock - $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding at March 31, 2023 and December 30, 2022 | — | | | — | |
Common Stock - $0.01 par value, 100,000,000 shares authorized, 39,544,131 and 38,599,390 shares issued and outstanding at March 31, 2023 and December 30, 2022, respectively | | Common Stock - $0.01 par value, 100,000,000 shares authorized, 39,544,131 and 38,599,390 shares issued and outstanding at March 31, 2023 and December 30, 2022, respectively | 395 | | | 386 | |
Additional paid-in capital | | Additional paid-in capital | 340,899 | | | 337,947 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (1,897) | | | (2,022) | | Accumulated other comprehensive loss | (2,104) | | | (2,185) | |
Retained earnings | Retained earnings | 38,996 | | | 37,611 | | Retained earnings | 66,762 | | | 65,361 | |
Total stockholders’ equity | Total stockholders’ equity | 354,425 | | | 350,211 | | Total stockholders’ equity | 405,952 | | | 401,509 | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 1,091,569 | | | $ | 1,073,795 | | Total liabilities and stockholders’ equity | $ | 1,552,131 | | | $ | 1,509,296 | |
See accompanying notes to the condensed consolidated financial statements.statements
THE CHEFS’ WAREHOUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Amounts in thousands, except share and per share amounts)
| | | Thirteen Weeks Ended | | | Thirteen Weeks Ended | |
| | March 25, 2022 | | March 26, 2021 | | | March 31, 2023 | | March 25, 2022 | |
Net sales | Net sales | $ | 512,103 | | | $ | 280,217 | | | Net sales | $ | 719,645 | | | $ | 512,103 | | |
Cost of sales | Cost of sales | 394,590 | | | 221,270 | | | Cost of sales | 549,937 | | | 394,590 | | |
Gross profit | Gross profit | 117,513 | | | 58,947 | | | Gross profit | 169,708 | | | 117,513 | | |
Selling, general and administrative expenses | Selling, general and administrative expenses | 110,086 | | | 80,245 | | | Selling, general and administrative expenses | 156,137 | | | 110,086 | | |
Other operating expenses (income), net | 1,163 | | | (1,170) | | | |
Operating income (loss) | 6,264 | | | (20,128) | | | |
Other operating expenses, net | | Other operating expenses, net | 1,672 | | | 1,163 | | |
Operating income | | Operating income | 11,899 | | | 6,264 | | |
Interest expense | Interest expense | 4,365 | | | 4,763 | | | Interest expense | 10,006 | | | 4,365 | | |
| Income (loss) before income taxes | 1,899 | | | (24,891) | | | |
Provision for income tax expense (benefit) | 514 | | | (6,970) | | | |
Net income (loss) | $ | 1,385 | | | $ | (17,921) | | | |
Income before income taxes | | Income before income taxes | 1,893 | | | 1,899 | | |
Provision for income tax expense | | Provision for income tax expense | 492 | | | 514 | | |
Net income | | Net income | $ | 1,401 | | | $ | 1,385 | | |
Other comprehensive income: | Other comprehensive income: | | | | | Other comprehensive income: | | | | |
Foreign currency translation adjustments | Foreign currency translation adjustments | 125 | | | 81 | | | Foreign currency translation adjustments | 81 | | | 125 | | |
Comprehensive income (loss) | $ | 1,510 | | | $ | (17,840) | | | |
Net income (loss) per share: | | | | | |
Comprehensive income | | Comprehensive income | $ | 1,482 | | | $ | 1,510 | | |
Net income per share: | | Net income per share: | | | | |
Basic | Basic | $ | 0.04 | | | $ | (0.49) | | | Basic | $ | 0.04 | | | $ | 0.04 | | |
Diluted | Diluted | $ | 0.04 | | | $ | (0.49) | | | Diluted | $ | 0.04 | | | $ | 0.04 | | |
Weighted average common shares outstanding: | Weighted average common shares outstanding: | | | | Weighted average common shares outstanding: | | | |
Basic | Basic | 36,935,717 | | | 36,401,748 | | | Basic | 37,507,093 | | | 36,935,717 | | |
Diluted | Diluted | 37,307,478 | | | 36,401,748 | | | Diluted | 38,161,269 | | | 37,307,478 | | |
See accompanying notes to the condensed consolidated financial statements.statements
THE CHEFS’ WAREHOUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
(Amounts in thousands, except share amounts)
| | | Common Stock | | Additional Paid in Capital | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Total | | Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Total |
| | Shares | | Amount | | | Shares | | Amount | |
Balance December 24, 2021 | 37,887,675 | | | $ | 380 | | | $ | 314,242 | | | $ | (2,022) | | | $ | 37,611 | | | $ | 350,211 | | |
Balance December 30, 2022 | | Balance December 30, 2022 | 38,599,390 | | | $ | 386 | | | $ | 337,947 | | | $ | (2,185) | | | $ | 65,361 | | | $ | 401,509 | |
| Net income | Net income | — | | | — | | | — | | | — | | | 1,385 | | | 1,385 | | Net income | — | | | — | | | — | | | — | | | 1,401 | | | 1,401 | |
Stock compensation | Stock compensation | 433,115 | | | 4 | | | 3,039 | | | — | | | — | | | 3,043 | | Stock compensation | 998,777 | | | 10 | | | 4,780 | | | — | | | — | | | 4,790 | |
| Warrants issued for acquisition | — | | | — | | | 1,701 | | | — | | | — | | | 1,701 | | |
| | Cumulative translation adjustment | Cumulative translation adjustment | — | | | — | | | — | | | 125 | | | — | | | 125 | | Cumulative translation adjustment | — | | | — | | | — | | | 81 | | | — | | | 81 | |
Shares surrendered to pay tax withholding | Shares surrendered to pay tax withholding | (64,329) | | | (1) | | | (2,039) | | | — | | | — | | | (2,040) | | Shares surrendered to pay tax withholding | (54,036) | | | (1) | | | (1,828) | | | — | | | — | | | (1,829) | |
Balance March 25, 2022 | 38,256,461 | | | $ | 383 | | | $ | 316,943 | | | $ | (1,897) | | | $ | 38,996 | | | $ | 354,425 | | |
Balance March 31, 2023 | | Balance March 31, 2023 | 39,544,131 | | | $ | 395 | | | $ | 340,899 | | | $ | (2,104) | | | $ | 66,762 | | | $ | 405,952 | |
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| Balance December 25, 2020 | 37,274,768 | | | $ | 373 | | | $ | 303,734 | | | $ | (2,051) | | | $ | 42,534 | | | $ | 344,590 | | |
Balance December 24, 2021 | | Balance December 24, 2021 | 37,887,675 | | | $ | 380 | | | $ | 314,242 | | | $ | (2,022) | | | $ | 37,611 | | | $ | 350,211 | |
| Net loss | — | | | — | | | — | | | — | | | (17,921) | | | (17,921) | | |
Net income | | Net income | — | | | — | | | — | | | — | | | 1,385 | | | 1,385 | |
Stock compensation | Stock compensation | 673,430 | | | 6 | | | 2,452 | | | — | | | — | | | 2,458 | | Stock compensation | 433,115 | | | 4 | | | 3,039 | | | — | | | — | | | 3,043 | |
| Warrants issued for acquisitions | | Warrants issued for acquisitions | — | | | — | | | 1,701 | | | — | | | — | | | 1,701 | |
| Cumulative translation adjustment | Cumulative translation adjustment | — | | | — | | | — | | | 81 | | | — | | | 81 | | Cumulative translation adjustment | — | | | — | | | — | | | 125 | | | — | | | 125 | |
Shares surrendered to pay tax withholding | Shares surrendered to pay tax withholding | (38,503) | | | — | | | (1,192) | | | — | | | — | | | (1,192) | | Shares surrendered to pay tax withholding | (64,329) | | | (1) | | | (2,039) | | | — | | | — | | | (2,040) | |
Balance March 26, 2021 | 37,909,695 | | | $ | 379 | | | $ | 304,994 | | | $ | (1,970) | | | $ | 24,613 | | | $ | 328,016 | | |
Balance March 25, 2022 | | Balance March 25, 2022 | 38,256,461 | | | $ | 383 | | | $ | 316,943 | | | $ | (1,897) | | | $ | 38,996 | | | $ | 354,425 | |
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See accompanying notes to the condensed consolidated financial statements.statements
THE CHEFS’ WAREHOUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
| | | Thirteen Weeks Ended | | Thirteen Weeks Ended |
| | March 25, 2022 | | March 26, 2021 | | March 31, 2023 | | March 25, 2022 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
Net income (loss) | $ | 1,385 | | | $ | (17,921) | | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | |
Net income | | Net income | $ | 1,401 | | | $ | 1,385 | |
Adjustments to reconcile net income to net cash (used in ) provided by operating activities: | | Adjustments to reconcile net income to net cash (used in ) provided by operating activities: | | | |
Depreciation and amortization | Depreciation and amortization | 5,889 | | | 5,107 | | Depreciation and amortization | 7,011 | | | 5,889 | |
Amortization of intangible assets | Amortization of intangible assets | 3,356 | | | 3,539 | | Amortization of intangible assets | 4,697 | | | 3,356 | |
Benefit for allowance for doubtful accounts | (178) | | | (451) | | |
Provision (benefit) for allowance for doubtful accounts | | Provision (benefit) for allowance for doubtful accounts | 1,849 | | | (178) | |
Non-cash operating lease expense | Non-cash operating lease expense | 802 | | | 109 | | Non-cash operating lease expense | 585 | | | 802 | |
Provision (benefit) for deferred income taxes | 504 | | | (5,025) | | |
Provision for deferred income taxes | | Provision for deferred income taxes | 123 | | | 504 | |
Amortization of deferred financing fees | Amortization of deferred financing fees | 539 | | | 864 | | Amortization of deferred financing fees | 967 | | | 539 | |
| Stock compensation | Stock compensation | 3,043 | | | 2,458 | | Stock compensation | 5,334 | | | 3,043 | |
Change in fair value of contingent earn-out liabilities | Change in fair value of contingent earn-out liabilities | 299 | | | (1,308) | | Change in fair value of contingent earn-out liabilities | 372 | | | 299 | |
| Loss on asset disposal | Loss on asset disposal | 17 | | | 5 | | Loss on asset disposal | 57 | | | 17 | |
Changes in assets and liabilities, net of acquisitions: | Changes in assets and liabilities, net of acquisitions: | | | | Changes in assets and liabilities, net of acquisitions: | | | |
Accounts receivable | Accounts receivable | 10,084 | | | (2,585) | | Accounts receivable | 9,860 | | | 10,084 | |
Inventories | Inventories | (4,391) | | | (9,357) | | Inventories | (20,075) | | | (4,391) | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | (1,080) | | | 850 | | Prepaid expenses and other current assets | 1,612 | | | (1,080) | |
Accounts payable, accrued liabilities and accrued compensation | Accounts payable, accrued liabilities and accrued compensation | (9,830) | | | 12,026 | | Accounts payable, accrued liabilities and accrued compensation | (15,044) | | | (9,830) | |
| Other assets and liabilities | Other assets and liabilities | (156) | | | 26 | | Other assets and liabilities | (1,010) | | | (156) | |
Net cash provided by (used in) operating activities | 10,283 | | | (11,663) | | |
Net cash (used in) provided by operating activities | | Net cash (used in) provided by operating activities | (2,261) | | | 10,283 | |
| Cash flows from investing activities: | Cash flows from investing activities: | | | | Cash flows from investing activities: | | | |
Capital expenditures | Capital expenditures | (14,206) | | | (2,896) | | Capital expenditures | (8,696) | | | (14,206) | |
Cash paid for acquisitions, net of cash received | (28,000) | | | — | | |
Cash paid for acquisitions, net of cash acquired | | Cash paid for acquisitions, net of cash acquired | (50,937) | | | (28,000) | |
| Net cash used in investing activities | Net cash used in investing activities | (42,206) | | | (2,896) | | Net cash used in investing activities | (59,633) | | | (42,206) | |
| Cash flows from financing activities: | Cash flows from financing activities: | | | | Cash flows from financing activities: | | | |
| Payment of debt, finance lease and other financing obligations | Payment of debt, finance lease and other financing obligations | (1,405) | | | (32,834) | | Payment of debt, finance lease and other financing obligations | (3,378) | | | (1,405) | |
| Proceeds from debt issuance | — | | | 51,750 | | |
| | Payment of deferred financing fees | Payment of deferred financing fees | (406) | | | (1,450) | | Payment of deferred financing fees | — | | | (406) | |
| Surrender of shares to pay withholding taxes | Surrender of shares to pay withholding taxes | (2,040) | | | (1,192) | | Surrender of shares to pay withholding taxes | (1,763) | | | (2,040) | |
| Payments under asset-based loan facility | — | | | (20,000) | | |
| | Net cash used in financing activities | Net cash used in financing activities | (3,851) | | | (3,726) | | Net cash used in financing activities | (5,141) | | | (3,851) | |
| Effect of foreign currency on cash and cash equivalents | Effect of foreign currency on cash and cash equivalents | 58 | | | 4 | | Effect of foreign currency on cash and cash equivalents | (23) | | | 58 | |
Net change in cash and cash equivalents | Net change in cash and cash equivalents | (35,716) | | | (18,281) | | Net change in cash and cash equivalents | (67,058) | | | (35,716) | |
Cash and cash equivalents-beginning of period | Cash and cash equivalents-beginning of period | 115,155 | | | 193,281 | | Cash and cash equivalents-beginning of period | 158,800 | | | 115,155 | |
Cash and cash equivalents-end of period | Cash and cash equivalents-end of period | $ | 79,439 | | | $ | 175,000 | | Cash and cash equivalents-end of period | $ | 91,742 | | | $ | 79,439 | |
See accompanying notes to the condensed consolidated financial statements.statements
THE CHEFS’ WAREHOUSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share amounts)
Note 1 - Operations and Basis of Presentation
Description of Business and Basis of Presentation
The financial statements include the condensed consolidated accounts of The Chefs’ Warehouse, Inc. (the “Company”), and its wholly-owned subsidiaries. The Company’s quarterly periods end on the thirteenth Friday of each quarter. Every six to seven years, the Company will add a fourteenth week to its fourth quarter to more closely align its year-end to the calendar year. Fiscal 2022 contained a fourteenth week in the fourth quarter. The Company’s business consists of 3three operating segments: East, Coast, Midwest and West Coast that aggregate into 1one reportable segment, foodservice distribution, which is concentrated primarily in the United States. The Company’s customer base consists primarily of menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools, bakeries, patisseries, chocolateries, cruise lines, casinos, specialty food stores, grocers and warehouse clubs.
Consolidation
The condensed consolidated financial statements include all the accounts of the Company and its direct and indirect wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Unaudited Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements and the related interim information contained within the notes to such unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the applicable rules of the Securities and Exchange Commission (“SEC”) for interim information and quarterly reports on Form 10-Q. Accordingly, they do not include all the information and disclosures required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements and related notes should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended December 24, 202130, 2022 filed as part of the Company’s Annual Report on Form 10-K, as filed with the SEC on February 22, 2022.28, 2023.
The unaudited condensed consolidated financial statements appearing in this Form 10-Q have been prepared on the same basis as the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K, as filed with the SEC on February 22, 2022,28, 2023, and in the opinion of management, include all normal recurring adjustments that are necessary for the fair statement of the Company’s interim period results. The year-end consolidated balance sheet data was derived from the audited financial statements but does not include all disclosures required by GAAP. Due to seasonal fluctuations the COVID-19 pandemic and other factors, the results of operations for the thirteen weeks ended March 25, 202231, 2023 are not necessarily indicative of the results to be expected for the full year.
The preparation of financial statements in conformity with GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from management’s estimates.
Note 2 – Summary of Significant Accounting Policies
Revenue Recognition
Revenues from product sales are recognized at the point at which control of each product is transferred to the customer. The Company’s contracts contain performance obligations which are satisfied when customers have physical possession of each product. The majority of customer orders are fulfilled within a day and customer payment terms are typically 14 to 60 days from delivery. Shipping and handling activities are costs to fulfill the Company’s performance obligations. These costs are expensed as incurred and presented within selling, general and administrative expenses on the condensed consolidated statements of operations. The Company offers certain sales incentives to customers in the form of rebates or discounts. These sales incentives are accounted as variable consideration. The Company estimates these amounts based on the expected amount to be provided to customers and records a corresponding reduction in revenue. The Company does not expect a significant reversal in the amount
reversal in the amount of cumulative revenue recognized. Sales tax billed to customers is not included in revenue but rather recorded as a liability owed to the respective taxing authorities at the time the sale is recognized.
The following table presents the Company’s net sales disaggregated by principal product category:
| | | Thirteen Weeks Ended | | | Thirteen Weeks Ended | |
| | March 25, 2022 | | March 26, 2021 | | | March 31, 2023 | | March 25, 2022 | |
Center-of-the-Plate | Center-of-the-Plate | $ | 238,776 | | | 46.6 | % | | $ | 139,845 | | | 49.9 | % | | Center-of-the-Plate | $ | 306,305 | | | 42.6 | % | | $ | 238,776 | | | 46.6 | % | |
Dry Goods | Dry Goods | 78,515 | | | 15.3 | % | | 39,780 | | | 14.2 | % | | Dry Goods | 122,934 | | | 17.1 | % | | 68,796 | | | 13.4 | % | |
Pastry | Pastry | 57,751 | | | 11.3 | % | | 28,798 | | | 10.3 | % | | Pastry | 89,162 | | | 12.4 | % | | 50,395 | | | 9.8 | % | |
Cheese and Charcuterie | Cheese and Charcuterie | 43,488 | | | 8.5 | % | | 23,099 | | | 8.2 | % | | Cheese and Charcuterie | 55,141 | | | 7.7 | % | | 38,388 | | | 7.5 | % | |
Produce | Produce | 27,897 | | | 5.4 | % | | 20,591 | | | 7.3 | % | | Produce | 52,999 | | | 7.4 | % | | 57,154 | | | 11.2 | % | |
Dairy and Eggs | Dairy and Eggs | 29,420 | | | 5.7 | % | | 12,581 | | | 4.5 | % | | Dairy and Eggs | 49,078 | | | 6.8 | % | | 26,951 | | | 5.3 | % | |
Oils and Vinegars | Oils and Vinegars | 24,087 | | | 4.7 | % | | 9,474 | | | 3.4 | % | | Oils and Vinegars | 28,878 | | | 4.0 | % | | 21,025 | | | 4.1 | % | |
Kitchen Supplies | Kitchen Supplies | 12,169 | | | 2.5 | % | | 6,049 | | | 2.2 | % | | Kitchen Supplies | 15,148 | | | 2.0 | % | | 10,618 | | | 2.1 | % | |
Total | Total | $ | 512,103 | | | 100 | % | | $ | 280,217 | | | 100 | % | | Total | $ | 719,645 | | | 100 | % | | $ | 512,103 | | | 100 | % | |
The Company determines its product category classification based on how the Company currently markets its products to its customers. The Company’s definition of its principal product categories may differ from the way in which other companies present similar information.
Food Processing Costs
Food processing costs include but are not limited to direct labor and benefits, applicable overhead and depreciation of equipment and facilities used in food processing activities. Food processing costs included in cost of sales were $9,036$11,674 and $5,396$9,036 for the thirteen weeks ended March 31, 2023 and March 25, 2022, respectively.
Immaterial Correction of Prior Period Disclosures
Subsequent to the issuance of the fiscal year 2022 consolidated financial statements, immaterial errors were identified in the weighted average remaining amortization period of intangible assets, the intangible asset amortization schedule and March 26, 2021,the debt maturity schedule.The weighted average remaining amortization period for customer relationships, non-compete agreements and trademarks were previously disclosed as 232 months, 73 months and 250 months instead of 117 months, 25 months and 165 months, respectively. This had a corresponding immaterial impact on the intangible asset amortization schedule.
In addition, the debt maturity schedule previously included the $40,000 due upon maturity of the asset-based loan facility in the thereafter total instead of in the 2027 total. Further, the Company omitted that the asset-based loan facility and term loan are classified as Level 2 within the fair value hierarchy. These immaterial errors and omissions have been corrected in Note 4 “Fair Value Measurements”, Note 8 “Goodwill and Other Intangible Assets” and Note 9 “Debt Obligations”, within these condensed consolidated financial statements.
Note 3 – Net Income (Loss) per Share
The following table sets forth the computation of basic and diluted net income (loss) per common share:
| | | Thirteen Weeks Ended | | | Thirteen Weeks Ended | |
| | March 25, 2022 | | March 26, 2021 | | | March 31, 2023 | | March 25, 2022 | |
Net income (loss) per share: | | | | | |
Net income per share: | | Net income per share: | | | | |
Basic | Basic | $ | 0.04 | | | $ | (0.49) | | | Basic | $ | 0.04 | | | $ | 0.04 | | |
Diluted | Diluted | $ | 0.04 | | | $ | (0.49) | | | Diluted | $ | 0.04 | | | $ | 0.04 | | |
Weighted average common shares: | Weighted average common shares: | | | | | Weighted average common shares: | | | | |
Basic | Basic | 36,935,717 | | | 36,401,748 | | | Basic | 37,507,093 | | | 36,935,717 | | |
Diluted | Diluted | 37,307,478 | | | 36,401,748 | | | Diluted | 38,161,269 | | | 37,307,478 | | |
Reconciliation of net income (loss) per common share:
| | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | |
| March 25, 2022 | | March 26, 2021 | | | | |
Numerator: | | | | | | | |
Net income (loss) | $ | 1,385 | | | $ | (17,921) | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Denominator: | | | | | | | |
Weighted average basic common shares outstanding | 36,935,717 | | | 36,401,748 | | | | | |
Dilutive effect of unvested common shares | 330,415 | | | — | | | | | |
Dilutive effect of stock options and warrants | 41,346 | | | — | | | | | |
| | | | | | | |
Weighted average diluted common shares outstanding | 37,307,478 | | | 36,401,748 | | | | | |
Reconciliation of net income per common share:
| | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | |
| March 31, 2023 | | March 25, 2022 | | | | |
Numerator: | | | | | | | |
Net income | $ | 1,401 | | | $ | 1,385 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Denominator: | | | | | | | |
Weighted average basic common shares outstanding | 37,507,093 | | | 36,935,717 | | | | | |
Dilutive effect of unvested common shares | 577,557 | | | 330,415 | | | | | |
Dilutive effect of stock options and warrants | 76,619 | | | 41,346 | | | | | |
| | | | | | | |
Weighted average diluted common shares outstanding | 38,161,269 | | | 37,307,478 | | | | | |
Potentially dilutive securities that have been excluded from the calculation of diluted net income (loss) per common share because the effect is anti-dilutive are as follows:
| | | Thirteen Weeks Ended | | | Thirteen Weeks Ended | |
| | March 25, 2022 | | March 26, 2021 | | | March 31, 2023 | | March 25, 2022 | |
Restricted share awards (“RSAs”) | Restricted share awards (“RSAs”) | 113,061 | | | 779,968 | | | Restricted share awards (“RSAs”) | — | | | 113,061 | | |
Stock options and warrants | Stock options and warrants | 293,407 | | | 115,639 | | | Stock options and warrants | — | | | 293,407 | | |
Convertible notes | Convertible notes | 4,616,033 | | | 3,795,570 | | | Convertible notes | 7,483,870 | | | 4,616,033 | | |
Note 4 – Fair Value Measurements
Assets and Liabilities Measured at Fair Value
The Company’s contingent earn-out liabilities are measured at fair value. These liabilities were estimated using Level 3 inputs. Long-term earn-out liabilities were $3,551$6,790 and $3,252$10,483 as of March 25, 202231, 2023 and December 24, 2021,30, 2022, respectively, and are reflected as other liabilities and deferred credits on the condensed consolidated balance sheets. The remaining short-term earn-out liabilities are reflected as accrued liabilities on the condensed consolidated balance sheets. The fair value of contingent consideration was determined based on a probability-based approach which includes projected results, percentage probability of occurrence and the application of a discount rate to present value the payments. A significant change in projected results, discount rate, or probabilities of occurrence could result in a significantly higher or lower fair value measurement. Changes in the fair value of contingent earn-out liabilities are reflected in other operating (income)expenses, net on the condensed consolidated statements of operations.
The following table presents the changes in Level 3 contingent earn-out liabilities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Bassian | | Sid Wainer | | Other Acquisitions | | Total |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Balance December 24, 2021 | | | | | $ | 1,133 | | | $ | — | | | $ | 5,744 | | | $ | 6,877 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Changes in fair value | | | | | 232 | | | — | | | 67 | | | 299 | |
Balance March 25, 2022 | | | | | $ | 1,365 | | | $ | — | | | $ | 5,811 | | | $ | 7,176 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Total |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Balance December 30, 2022 | | | | | | | | | | | $ | 17,294 | |
Acquisition value | | | | | | | | | | | 7,800 | |
| | | | | | | | | | | |
Cash payments | | | | | | | | | | | — | |
Changes in fair value | | | | | | | | | | | 372 | |
Balance March 31, 2023 | | | | | | | | | | | $ | 25,466 | |
Fair Value of Financial Instruments
The carrying amounts reported in the Company’s condensed consolidated balance sheets for accounts receivable and accounts payable approximate fair value due to the immediate to short-term nature of these financial instruments. The fair values of the asset based loan facility and term loan approximated their book values as of March 31, 2023 and December 30, 2022 as these instruments had variable interest rates that reflected current market rates available to the Company and are classified as Level 2 fair value measurements.
The following table presents the carrying value and fair value of the Company’s convertible notes. The fair value of the Company’s 2029 Convertible Senior Notes was based on Level 1 inputs. In estimating the fair value of the convertible notes,its 2024 Convertible Senior Notes and Convertible Unsecured Note, the Company utilized Level 3 inputs including prevailing market interest rates to estimate the debt portion of the instrument and a Black Scholes valuation model to estimate the fair value of the conversion option. The Black Scholes model utilizes the market price of the Company’s common stock, estimates of the stock’s volatility and the prevailing risk-free interest rate in calculating the fair value estimate.
| | | | | | | | | | | | | | | | | | | | | | | |
| March 25, 2022 | | December 24, 2021 |
| Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Convertible Senior Notes | $ | 200,000 | | | $ | 208,722 | | | $ | 200,000 | | | $ | 206,182 | |
Convertible Unsecured Note | $ | 4,000 | | | $ | 4,172 | | | $ | 4,000 | | | $ | 4,102 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 30, 2022 |
| Fair Value Hierarchy | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
2028 Convertible Senior Notes | Level 1 | $ | 287,500 | | | $ | 291,813 | | | $ | 287,500 | | | $ | 292,531 | |
2024 Convertible Senior Notes | Level 3 | $ | 39,684 | | | $ | 40,695 | | | $ | 41,684 | | | $ | 43,723 | |
Convertible Unsecured Note | Level 3 | $ | 4,000 | | | $ | 4,120 | | | $ | 4,000 | | | $ | 4,345 | |
Note 5 – Acquisitions
Hardie’s Fresh Foods
On December 28, 2021,March 20, 2023, pursuant to an asset purchase agreement, the Company acquired substantially all of the assets of CGC Holdings, Inc.Hardie’s F&V, LLC (“Capital Seaboard”Hardie’s Fresh Foods”), a specialty seafood and produce distributor with operations in Maryland.Texas. The purchase price was approximately $29,701 consisting of $28,000$38,000, paid in cash at closing,closing. The Company will also pay additional contingent consideration, if earned, in the form of an earn-out amount which could total $10,000 over a two-year period. The payment of the earn-out liability is subject to a customary working capital adjustment,the successful achievement of certain gross profit targets. The Company estimated the fair value of this contingent earn-out liability to be $6,500 as of March 20, 2023 and common stock warrants of $1,701.March 31, 2023. The Company is in the process of finalizing a valuation of tangible and intangible assets of Capital SeaboardHardie’s Fresh Foods as of the acquisition date. When applicable, these valuations require the use of Level 3 inputs. Goodwill for the Capital SeaboardHardie’s Fresh Foods acquisition will be amortized over 15 years for tax purposes. The goodwill recorded primarily reflects the value of acquiring an established specialty seafood and produce distributor to leverage the Company’s existing products in the markets served by Capital Seaboard, to supply Capital Seaboard’s product offerings to our East Coast marketsHardie’s Fresh Foods and any intangible assets that do not qualify for separate recognition.
10Other Fiscal 2023 Acquisitions
During the thirteen weeks ended March 31, 2023, the Company completed two other acquisitions for an aggregate purchase price of approximately $14,436, consisting of $12,221 paid in cash at closing, subject to customary working capital adjustments, and $2,215 of deferred payments. The Company will also pay additional contingent consideration, if earned, in the form of earn-out amount which could total $2,000 in the aggregate. The Company estimated the fair value of the contingent earn-out liability to be $1,300 as of March 31, 2023. The Company is in the process of finalizing a valuation of the tangible and intangible assets as of the acquisition date. When applicable, these valuations require the use of Level 3 inputs. Goodwill of $4,596 will be amortized over 15 years for tax purposes.
The Company reflected net sales and income before income taxes in its condensed consolidated statement of operations related to the fiscal 2023 acquisitions as follows:
| | | | | | | | | | | |
| Thirteen Weeks Ended | | |
| March 25, 202231, 2023 | | | | | | |
Net sales | $ | 31,68220,207 | | | | | | | |
Income before income taxes | $ | 1,1331,760 | | | | | | | |
Chef Middle East
On November 1, 2022, pursuant to a share sale and purchase agreement, the Company acquired substantially all of the shares of Chef Middle East LLC (“CME”), a specialty food distributor with operations in the United Arab Emirates, Qatar and Oman. The purchase price was approximately $108,915, consisting of $108,749 paid in cash at closing and $166 paid upon settlement of a net working capital true-up. The measurement period adjustments recorded during the first quarter of fiscal 2023 resulted in a goodwill increase of $866, a decrease in inventories of $735 and a decrease in deferred tax liabilities of $35. The Company will also pay additional contingent consideration, if earned, in the form of an earn-out amount which could total $10,000 over
a two-year period. The payment of the earn-out liability is subject to the successful achievement of certain gross profit targets. The Company estimated the fair value of this contingent earn-out liability to be $7,500 as of March 31, 2023 and December 30, 2022. The Company is in the process of finalizing a valuation of tangible and intangible assets of CME as of the acquisition date. When applicable, these valuations require the use of Level 3 inputs. The goodwill recorded primarily reflects the value of acquiring an established specialty seafood and produce distributor and any intangible assets that do not qualify for separate recognition.
The table below presents unaudited pro forma condensed consolidated income statement information of the Company as if the Capital Seaboard acquisitionHardie’s Fresh Foods and CME acquisitions had occurred on December 26, 2020.25, 2021. The pro forma results were prepared from financial information obtained from the sellers of the business, as well as information obtained during the due diligence process associated with the acquisition.acquisitions. The pro forma information is not necessarily indicative of the Company’s results of operations had the acquisitionacquisitions been completed on the above date, nor is it necessarily indicative of the Company’s future results. The pro forma information does not reflect any cost savings from operating efficiencies or synergies that could result from the acquisition,acquisitions, any incremental costs for Capital Seaboard transitioning to become a public company, and also does not reflect additional revenue opportunities following the acquisition.acquisitions. The pro forma information reflects amortization and depreciation of the Capital Seaboard acquisitionacquisitions at their respective fair values.value. CME did not have a proforma impact during the thirteen weeks ended March 31, 2023 as it was included in the condensed consolidated results of operations for the entire period.
| | | Thirteen Weeks Ended | | | Thirteen Weeks Ended | |
| | March 25, 2022 | | March 26, 2021 | | | March 31, 2023 | | March 25, 2022 | |
Net sales | Net sales | $ | 512,103 | | | $ | 306,712 | | | Net sales | $ | 773,547 | | | $ | 621,761 | | |
Income (loss) before income taxes | $ | 1,899 | | | $ | (25,716) | | | |
Income before income taxes | | Income before income taxes | $ | 1,159 | | | $ | 7,139 | | |
The table below sets forth the preliminary purchase price allocation of this acquisition:for the Company’s acquisitions:
| | | | | | | |
| | | Capital Seaboard | | | | | | | | | | | | | | | | | | | | Chef Middle East | | Hardie’s Fresh Foods | | | Other Acquisitions | Current assets | $ | 84,076 | | | $ | 27,479 | | | | $ | 9,787 | | Customer relationships | 25,800 | | | 11,200 | | | | 1,531 | | Trademarks | 11,400 | | | 1,900 | | | | 2,600 | | Non-compete agreements | 320 | | | — | | | | — | | Goodwill | 24,680 | | | 14,720 | | | | 4,596 | | Fixed assets | 16,953 | | | 5,582 | | | | 117 | | Other assets | 941 | | | 854 | | | | 15 | | Deferred tax liability | (3,600) | | | — | | | | — | | Right-of-use assets | 5,321 | | | 13,303 | | | | 3,258 | | | | | | | | | Lease liabilities | (5,321) | | | (13,303) | | | | (3,258) | | | | | | | | | Current liabilities | (44,155) | | | (17,235) | | | | (2,880) | | Earn-out liability | (7,500) | | | (6,500) | | | | (1,300) | | | | | | | | | | | | | | | | | | | | | | | Total consideration | $ | 108,915 | | | $ | 38,000 | | | | $ | 14,436 | |
|
Current assets | | | $ | 10,130 | |
Customer relationships | | | 4,500 | |
Trademarks | | | 2,900 | |
| | | |
Goodwill | | | 9,129 | |
Fixed assets | | | 9,552 | |
Other assets | | | 122 | |
| | | |
Right-of-use assets | | | 16,427 | |
| | | |
Lease liabilities | | | (16,427) | |
| | | |
Current liabilities | | | (6,632) | |
| | | |
| | | |
Issuance of warrants | | | (1,701) | |
| | | |
Total cash consideration | | | $ | 28,000 | |
The Company recognized professional fees of $1,243 and $659 in operating expenses related to acquisition related activities induring the first quarter of fiscal 2022.thirteen weeks ended weeks ended March 31, 2023 and March 25, 2022, respectively.
Note 6 – Inventories
Inventories consist primarily of finished product and are reflected net of adjustments for shrinkage, excess and obsolescence to approximate their net realizable value totaling $9,273$10,127 and $8,312$9,198 at March 25, 202231, 2023 and December 24, 2021,30, 2022, respectively.
Note 7 – Equipment, Leasehold ImprovementsProperty and SoftwareEquipment
Equipment, leasehold improvementsProperty and softwareequipment as of March 25, 202231, 2023 and December 24, 202130, 2022 consisted of the following:
| | | | | Useful Lives | | March 25, 2022 | | December 24, 2021 | | | Useful Lives | | March 31, 2023 | | December 30, 2022 |
Land | Land | | Indefinite | | $ | 5,542 | | | $ | 5,020 | | Land | | Indefinite | | $ | 5,542 | | | $ | 5,542 | |
Buildings | Buildings | | 20 years | | 23,436 | | | 18,406 | | Buildings | | 20 years | | 40,591 | | | 39,893 | |
Machinery and equipment | Machinery and equipment | | 5 - 10 years | | 29,013 | | | 28,099 | | Machinery and equipment | | 5 - 10 years | | 38,214 | | | 32,107 | |
Computers, data processing and other equipment | Computers, data processing and other equipment | | 3 - 7 years | | 15,811 | | | 15,480 | | Computers, data processing and other equipment | | 3 - 7 years | | 19,667 | | | 18,475 | |
Software | Software | | 3 - 7 years | | 39,988 | | | 39,799 | | Software | | 3 - 7 years | | 48,541 | | | 42,609 | |
Leasehold improvements | Leasehold improvements | | 1 - 40 years | | 77,326 | | | 69,105 | | Leasehold improvements | | 1 - 40 years | | 119,213 | | | 94,245 | |
Furniture and fixtures | Furniture and fixtures | | 7 years | | 3,648 | | | 3,582 | | Furniture and fixtures | | 7 years | | 2,949 | | | 3,825 | |
Vehicles | Vehicles | | 5 - 10 years | | 29,412 | | | 29,632 | | Vehicles | | 5 - 10 years | | 31,421 | | | 31,462 | |
| Construction-in-process | Construction-in-process | | | | 31,461 | | | 24,335 | | Construction-in-process | | | | 11,333 | | | 36,583 | |
| | | | | 255,637 | | | 233,458 | | | | | | 317,471 | | | 304,741 | |
Less: accumulated depreciation and amortization | Less: accumulated depreciation and amortization | | | | (103,886) | | | (99,836) | | Less: accumulated depreciation and amortization | | | | (121,215) | | | (119,013) | |
Equipment, leasehold improvements and software, net | | | | $ | 151,751 | | | $ | 133,622 | | |
Property and equipment, net | | Property and equipment, net | | | | $ | 196,256 | | | $ | 185,728 | |
Construction-in-process at March 25, 2022 and December 24, 202131, 2023 related primarily to the build-outsbuild-out of the Company’s Los AngelesMiami, Richmond, CA and Gibbstown, NJ distribution facilities and at December 30, 2022 related primarily to the build-out of the Company’s Miami, Dallas and Richmond, CA distribution facilities.facilities and the implementation of the Company’s Enterprise Resource Planning system. The net book value of equipment financed under finance leases at March 25, 202231, 2023 and December 24, 202130, 2022 was $10,450$10,036 and $10,874,$11,579, respectively.
The components of depreciation and amortization expense were as follows:
| | | Thirteen Weeks Ended | | | Thirteen Weeks Ended | |
| | March 25, 2022 | | March 26, 2021 | | | March 31, 2023 | | March 25, 2022 | |
Depreciation expense | Depreciation expense | $ | 4,415 | | | $ | 3,935 | | | Depreciation expense | $ | 5,542 | | | $ | 4,415 | | |
Software amortization | Software amortization | $ | 1,474 | | | $ | 1,172 | | | Software amortization | $ | 1,469 | | | $ | 1,474 | | |
| | $ | 5,889 | | | $ | 5,107 | | | | $ | 7,011 | | | $ | 5,889 | | |
Note 8 – Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill are presented as follows:
| | | | | |
| |
| |
| |
| |
Carrying amount as of December 24, 202130, 2022 | $ | 221,775287,120 | |
Goodwill adjustments(1) | 581,342 | |
Acquisitions | 9,12919,316 | |
Foreign currency translation | 26 (5) | |
Carrying amount as of March 25, 202231, 2023 | $ | 230,988307,773 | |
(1) Reflect measurement period adjustments primarily related to net working capital true-ups of prior year acquisitions.
Other intangible assets as of March 25, 202231, 2023 and December 24, 202130, 2022 consisted of the following:
| March 25, 2022 | | Weighted-Average Remaining Amortization Period | | Gross Carrying Amount | | Accumulated Amortization | | Net Amount | |
March 31, 2023 | | March 31, 2023 | | Weighted-Average Remaining Amortization Period | | Gross Carrying Amount | | Accumulated Amortization | | Net Amount |
Customer relationships | Customer relationships | | 120 months | | $ | 160,201 | | | $ | (77,180) | | | $ | 83,021 | | Customer relationships | | 113 months | | $ | 220,531 | | | $ | (89,038) | | | $ | 131,493 | |
Trademarks | | Trademarks | | 159 months | | 53,031 | | | (17,213) | | | 35,818 | |
Non-compete agreements | Non-compete agreements | | 23 months | | 8,579 | | | (8,085) | | | 494 | | Non-compete agreements | | 23 months | | 8,899 | | | (8,387) | | | 512 | |
Trademarks | | 165 months | | 39,436 | | | (14,119) | | | 25,317 | | |
Total | Total | | $ | 208,216 | | | $ | (99,384) | | | $ | 108,832 | | Total | | $ | 282,461 | | | $ | (114,638) | | | $ | 167,823 | |
| December 24, 2021 | | Weighted-Average Remaining Amortization Period | | Gross Carrying Amount | | Accumulated Amortization | | Net Amount | |
December 30, 2022 | | December 30, 2022 | | Weighted-Average Remaining Amortization Period | | Gross Carrying Amount | | Accumulated Amortization | | Net Amount |
Customer relationships | Customer relationships | | 120 months | | $ | 155,678 | | | $ | (74,644) | | | $ | 81,034 | | Customer relationships | | 117 months | | $ | 205,608 | | | $ | (85,447) | | | $ | 120,161 | |
Trademarks | | Trademarks | | 165 months | | 51,137 | | | (16,201) | | | 34,936 | |
Non-compete agreements | Non-compete agreements | | 26 months | | 8,579 | | | (8,018) | | | 561 | | Non-compete agreements | | 25 months | | 8,899 | | | (8,293) | | | 606 | |
Trademarks | | 179 months | | 36,514 | | | (13,366) | | | 23,148 | | |
Total | Total | | $ | 200,771 | | | $ | (96,028) | | | $ | 104,743 | | Total | | $ | 265,644 | | | $ | (109,941) | | | $ | 155,703 | |
Amortization expense for other intangibles was $3,356$4,697 and $3,539$3,356 for the thirteen weeks ended March 25, 202231, 2023 and March 26, 2021,25, 2022, respectively.
Estimated amortization expense for other intangible assets for the remainder of the fiscal year ending December 30, 202229, 2023 and each of the next four fiscal years and thereafter is as follows:
| 2022 | $ | 9,523 | | |
2023 | 2023 | 11,841 | | 2023 | $ | 18,713 | |
2024 | 2024 | 10,980 | | 2024 | 18,045 | |
2025 | 2025 | 10,561 | | 2025 | 17,901 | |
2026 | 2026 | 10,561 | | 2026 | 17,701 | |
2027 | | 2027 | 17,196 | |
Thereafter | Thereafter | 55,366 | | Thereafter | 78,267 | |
Total | Total | $ | 108,832 | | Total | $ | 167,823 | |
Note 9 – Debt Obligations
Debt obligations as of March 25, 202231, 2023 and December 24, 202130, 2022 consisted of the following:
| | | March 25, 2022 | | December 24, 2021 | | Weighted Average Effective Interest Rate at March 31, 2023 | | Maturity | | March 31, 2023 | | December 30, 2022 |
Senior secured term loans | Senior secured term loans | | $ | 168,247 | | | $ | 168,675 | | Senior secured term loans | 10.32 | % | | August 2029 | | $ | 298,500 | | | $ | 299,250 | |
Convertible senior notes | | 200,000 | | | 200,000 | | |
2028 Convertible senior notes | | 2028 Convertible senior notes | 2.77 | % | | December 2028 | | 287,500 | | | 287,500 | |
2024 Convertible senior notes | | 2024 Convertible senior notes | 2.34 | % | | December 2024 | | 39,684 | | | 41,684 | |
Asset-based loan facility | Asset-based loan facility | | 20,000 | | | 20,000 | | Asset-based loan facility | 7.12 | % | | March 2027 | | 40,000 | | | 40,000 | |
Finance lease and other financing obligations | | 10,875 | | | 11,602 | | |
Finance leases | | Finance leases | 5.61 | % | | Various | | 14,913 | | | 11,331 | |
Convertible unsecured note | Convertible unsecured note | | 4,000 | | | 4,000 | | Convertible unsecured note | 5.00 | % | | June 2023 | | 4,000 | | | 4,000 | |
Other revolving credit facilities | | Other revolving credit facilities | 7.72 | % | | April 2023 | | 2,217 | | | 2,217 | |
| Deferred finance fees and original issue premium (discount) | | (4,586) | | | (4,976) | | |
Unamortized deferred costs and premium | | Unamortized deferred costs and premium | | (19,198) | | | (20,050) | |
Total debt obligations | Total debt obligations | | 398,536 | | | 399,301 | | Total debt obligations | | 667,616 | | | 665,932 | |
Less: current installments | Less: current installments | | (4,971) | | | (5,141) | | Less: current installments | | (13,199) | | | (12,428) | |
Total debt obligations excluding current installments | Total debt obligations excluding current installments | | $ | 393,565 | | | $ | 394,160 | | Total debt obligations excluding current installments | | $ | 654,417 | | | $ | 653,504 | |
On March 11, 2022, the Company entered into a third amendment to its asset-based loan facility (“ABL Facility”) which increased the aggregate commitments from $150,000 to $200,000. The interest rate charged on borrowings under the ABL Facility is equal to a spread plus, at the Company’s option, either the Base Rate (as defined in the ABL Credit Agreement) or a forward-looking term rate based on the secured overnight financing rate term (except for swingline loans) for one-, three-, or six-month interest periods chosen by the Company. The ABL Facility matures on March 11, 2027 subject to a springing maturity date of March 24, 2025 should the Company’s term loan not have been been extended to at least March 11, 2027 or March 24, 2024 if the Company’s 1.875% Convertible Senior Notes due 2024 in an aggregate principal amount in excess of $40,000 remain outstanding having a maturity date not earlier than six months after March 11, 2027.
The ABL Credit Agreement contains customary affirmative covenants, negative covenants and events of default as more particularly described in the ABL Credit Agreement. The Company is required to comply with a minimum consolidated fixed charge coverage ratio of 1:1 if the amount of availability under the ABL Facility falls below $14,000 or 10% of the lesser of the aggregate commitments and the borrowing base then in effect.
The Company incurred transaction costs of $406 which were capitalized as deferred financing fees, presented in other assets on the Company’s consolidated balance sheets, to be amortized over the term of the ABL Facility.
Maturities of the Company’s debt, excluding finance leases, for the remainder of the fiscal year ending December 29, 2023 and each of the next four fiscal years and thereafter is as follows:
| | | | | |
2023 | $ | 8,467 | |
2024 | 42,684 | |
2025 | 3,000 | |
2026 | 3,000 | |
2027 | 43,000 | |
Thereafter | 571,750 | |
Total | $ | 671,901 | |
The net carry value of the Company’s Convertible Senior Notesconvertible notes as of March 25, 202231, 2023 and December 24, 202130, 2022 was:
| | | | | | | | | | | | | | |
| | March 25, 2022 | | December 24, 2021 |
Principal amount outstanding | | $ | 200,000 | | | $ | 200,000 | |
Unamortized deferred financing fees and premium | | (2,462) | | | (2,686) | |
Net carry value | | $ | 197,538 | | | $ | 197,314 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 30, 2022 |
| | Principal Amount | | Unamortized Deferred Costs and Premium | | Net Amount | | Principal Amount | | Unamortized Deferred Costs and Premium | | Net Amount |
2028 Convertible Senior Notes | | $ | 287,500 | | | $ | (6,589) | | | $ | 280,911 | | | $ | 287,500 | | | $ | (6,876) | | | $ | 280,624 | |
2024 Convertible Senior Notes | | 39,684 | | | (325) | | | 39,359 | | | 41,684 | | | (373) | | | 41,311 | |
Convertible Unsecured Note | | 4,000 | | | — | | | 4,000 | | | 4,000 | | | — | | | 4,000 | |
Total | | $ | 331,184 | | | $ | (6,914) | | | $ | 324,270 | | | $ | 333,184 | | | $ | (7,249) | | | $ | 325,935 | |
The components of interest expense on the Company’s Convertible Senior Notesconvertible notes were as follows:
| | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | |
| March 25, 2022 | | March 26, 2021 | | | | |
Coupon interest | $ | 938 | | | $ | 781 | | | | | |
Amortization of deferred financing fees and premium | $ | 224 | | | $ | 241 | | | | | |
Total interest | $ | 1,162 | | | $ | 1,022 | | | | | |
The Company’s senior secured term loan credit agreement requires the Company to maintain at least $35,000 of liquidity as of the last day of any fiscal quarter where EBITDA, as defined in the Credit Agreement, is less than $10,000. The Company had minimum liquidity, as defined in the Credit Agreement, of $210,831 as of March 25, 2022. | | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | |
| March 31, 2023 | | March 25, 2022 | | | | |
Coupon interest | $ | 1,899 | | | $ | 938 | | | | | |
Amortization of deferred costs and premium | 335 | | | 224 | | | | | |
| | | | | | | |
Total interest | $ | 2,234 | | | $ | 1,162 | | | | | |
As of March 25, 2022,31, 2023, the Company had reserved $20,541$24,170 of the ABL Facilityasset-based loan facility for the issuance of letters of credit. As of March 25, 2022,credit and funds totaling $126,240$135,830 were available for borrowing under the ABL Facility. At March 25, 2022, the interest rate charged on the Company’s senior secured term loan was approximately 5.7% and the interest rate charged on the Company’s ABL Facility was approximately 1.8%.borrowing.
Note 10 – Stockholders’ Equity
Equity Awards
The following table reflects the activity of RSAs during the thirteen weeks ended March 25, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Time-based | | Performance-based | | Market-based |
| | Shares | | Weighted Average Grant Date Fair Value | | Shares | | Weighted Average Grant Date Fair Value | | Shares | | Weighted Average Grant Date Fair Value |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Unvested at December 24, 2021 | | 617,996 | | | $ | 28.33 | | | 187,437 | | | $ | 32.04 | | | 185,129 | | | $ | 31.44 | |
Granted | | 115,695 | | | 32.44 | | | 167,261 | | | 32.44 | | | 167,261 | | | 29.12 | |
Vested | | (240,112) | | | 27.50 | | | — | | | — | | | — | | | — | |
Forfeited | | (7,615) | | | 27.32 | | | (4,743) | | | 32.13 | | | (4,744) | | | 30.85 | |
Unvested at March 25, 2022 | | 485,964 | | | $ | 29.73 | | | 349,955 | | | $ | 32.23 | | | 347,646 | | | $ | 30.33 | |
31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Time-based | | Performance-based | | Market-based |
| | Shares | | Weighted Average Grant Date Fair Value | | Shares | | Weighted Average Grant Date Fair Value | | Shares | | Weighted Average Grant Date Fair Value |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Unvested at December 30, 2022 | | 464,972 | | | $ | 31.74 | | | 335,425 | | | $ | 32.25 | | | 333,114 | | | $ | 30.30 | |
Granted | | 197,345 | | | 32.55 | | | 713,490 | | | 33.16 | | | 87,942 | | | 28.84 | |
Vested | | (161,555) | | | 31.82 | | | — | | | — | | | — | | | — | |
Forfeited | | — | | | — | | | — | | | — | | | — | | | — | |
Unvested at March 31, 2023 | | 500,762 | | | $ | 32.03 | | | 1,048,915 | | | $ | 32.87 | | | 421,056 | | | $ | 30.00 | |
The Company granted 450,217998,777 RSAs to its employees at a weighted average grant date fair value of $31.21$32.66 during the thirteen weeks ended March 25, 2022.31, 2023. These awards are a mix of time-, market- and performance-based grants that generally vest over a range of periods up to fourfive years. The Company recognized expense totaling $3,043$4,790 and $2,458$3,043 on its RSAs during the thirteen weeks ended March 25, 202231, 2023 and March 26, 2021,25, 2022, respectively.
At March 25, 2022,31, 2023, the total unrecognized compensation cost for unvested RSAs was $26,685$37,653 and the weighted-average remaining period was approximately 2.42.9 years. Of this total, $12,445$13,865 related to RSAs with time-based vesting provisions and $14,240$23,788 related to RSAs with performance- and market-based vesting provisions. At March 25, 2022,31, 2023, the weighted-average remaining period for time-based vesting and performance-based vesting RSAs were approximately 2.42.6 years and 2.53.0 years, respectively.
No share-based compensation expense related to the Company’s RSAs or stock options has been capitalized. As of March 25, 2022,31, 2023, there were 449,9571,542,375 shares available for grant under the 2019 Omnibus Equity Incentive Plan.
The following table summarizes stock option activity during the thirteen weeks ended March 31, 2023: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shares | | Weighted Average Exercise Price | | Aggregate Intrinsic Value | | Weighted Average Remaining Contractual Term (in years) |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Outstanding December 30, 2022 | | 112,232 | | | $ | 20.23 | | | $ | 1,465 | | | 3.2 |
| | | | | | | | |
Exercised | | — | | | — | | | | | |
| | | | | | | | |
Outstanding March 31, 2023 | | 112,232 | | | $ | 20.23 | | | $ | 1,551 | | | 2.9 |
Exercisable at March 31, 2023 | | 112,232 | | | 20.23 | | | $ | 1,551 | | | 2.9 |
In connection with the CME acquisition, the Company issued stock awards to certain members of the CME management team
which were classified as liabilities. These awards vest over a period of up to four years. Stock-based compensation expense for
these awards was $544 and $0 during the thirteen weeks ended March 31, 2023 and March 25, 2022, respectively. The fair value of these awards was $906 and $362 as of March 31, 2023 and December 30, 2022, respectively, and is presented within Other liabilities and deferred credits on the Company’s condensed consolidated balance sheets.
Note 11 – Related Parties
The Chefs’ Warehouse Mid-Atlantic, LLC, a subsidiary of the Company, leases a distribution facility that is 100% owned by entities controlled by Christopher Pappas, the Company’s Chairman, President and Chief Executive Officer, and John Pappas, the Company’s Vice Chairman and Chief Operating Officer, and are deemed to be affiliates of these individuals. Expense related to this facility totaled $123 during the thirteen weeks ended March 25, 202231, 2023 and March 26, 2021.25, 2022.
Note 12 – Income Taxes
The Company’s effective tax rate was 26.0% and 27.1% thirteen weeks ended March 31, 2023 and March 25, 2022. The effective tax rate varies from the 21% statutory rate primarily due to state taxes. The lower effective tax rate for the thirteen weeks ended March 31, 2023 was primarily driven by a greater mix of foreign earnings that are subject to tax rates below the US statutory rate of 21%.
Note 1213 – Supplemental Disclosures of Cash Flow Information
| | | Thirteen Weeks Ended | | Thirteen Weeks Ended |
| | March 25, 2022 | | March 26, 2021 | | March 31, 2023 | | March 25, 2022 |
Supplemental cash flow disclosures: | Supplemental cash flow disclosures: | | | | Supplemental cash flow disclosures: | | | |
Cash received for income taxes | $ | (282) | | | $ | (237) | | |
Cash paid (received) for income taxes | | Cash paid (received) for income taxes | $ | 2,539 | | | $ | (282) | |
Cash paid for interest, net of cash received | Cash paid for interest, net of cash received | $ | 3,011 | | | $ | 2,929 | | Cash paid for interest, net of cash received | $ | 7,366 | | | $ | 3,011 | |
Cash paid for amounts included in the measurement of lease liabilities: | Cash paid for amounts included in the measurement of lease liabilities: | | Cash paid for amounts included in the measurement of lease liabilities: | |
Operating cash flows from operating leases | Operating cash flows from operating leases | $ | 6,766 | | | $ | 6,369 | | Operating cash flows from operating leases | $ | 9,001 | | | $ | 6,766 | |
Operating cash flows from finance leases | Operating cash flows from finance leases | $ | 1,028 | | | $ | 145 | | Operating cash flows from finance leases | $ | 914 | | | $ | 1,028 | |
Other non-cash investing and financing activities | | Other non-cash investing and financing activities | |
ROU assets obtained in exchange for lease liabilities: | ROU assets obtained in exchange for lease liabilities: | | ROU assets obtained in exchange for lease liabilities: | |
Operating leases | Operating leases | $ | 8,589 | | | $ | 14 | | Operating leases | $ | 32,615 | | | $ | 8,589 | |
Finance leases | Finance leases | $ | — | | | $ | 162 | | Finance leases | $ | 2,697 | | | $ | — | |
Other non-cash investing and financing activities: | | |
| Warrants issued for acquisitions | Warrants issued for acquisitions | $ | 1,701 | | | $ | — | | Warrants issued for acquisitions | $ | — | | | $ | 1,701 | |
| Contingent earn-out liabilities for acquisitions | | Contingent earn-out liabilities for acquisitions | $ | 7,800 | | | $ | — | |
Note 14 – Subsequent Events
On May 1, 2023, the Company entered into a stock purchase agreement to acquire substantially all of the assets of Greenleaf Produce and Specialty Foods, a leading produce and specialty food distributor in Northern California. The initial purchase price was $80,000 consisting of $70,000 paid in cash at closing, subject to a customary working capital true-up, and the issuance of a $10,000 unsecured note. The unsecured note matures on April 30, 2025 and bears interest of 4.47%. The Company has not provided preliminary purchase price allocation for this acquisition as the initial accounting is incomplete. The acquisition was partially funded by a $40,000 incremental draw on the Company’s asset-based loan facility.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided as a supplement to the accompanying condensed consolidated financial statements and footnotes to help provide an understanding of our financial condition, changes in our financial condition and results of operations. The following discussion should be read in conjunction with information included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 22, 2022.28, 2023. Unless otherwise indicated, the terms “Company”, “Chefs’ Warehouse”, “we”, “us” and “our” refer to The Chefs’ Warehouse, Inc. and its subsidiaries.
Business Overview
We are a premier distributor of specialty foods in nine of the leading culinary markets in the United States.States and the Middle East. We offer more than 50,00055,000 stock-keeping units (“SKUs”), ranging from high-quality specialty foods and ingredients to basic ingredients and staples and center-of-the-plate proteins. We serve more than 35,00040,000 customer locations, primarily located in our nineteen23 geographic markets across the United States, Middle East and Canada, and the majority of our customers are independent restaurants and fine dining establishments. We also sell certain of our products directly to consumers through our Allen Brothers and “Shop Like a Chef” retail channels.
Effect of the COVID-19 Pandemic on our Business and Operations
The COVID-19 pandemic (“Pandemic”) has had and continues to have an adverse impact on numerous aspects of our business and those of our customers including, but not limited to, demand for our products, cost inflation and labor shortages. Despite these challenges, we’ve continued to provide our core customers with high touch service, executed on our cost control measures and have returned to profitability since the second quarter of fiscal 2021. We continue to experience sequential improvement in our business which has contributed to organic sales growth of $176.3 million compared to the prior year quarter.
The extent to which the Pandemic will impact our financial condition or results of operations is uncertain and will depend on future developments including new information that may emerge on the severity or transmissibility of the disease, new variants, government responses, trends in infection rates, development and distribution of effective medical treatments and vaccines, and future consumer spending behavior, among others.
Recent Acquisitions
On December 28, 2021,March 20, 2023, pursuant to an asset purchase agreement, we acquired substantially all of the assets of CGC Holdings, Inc.Hardie’s F&V, LLC (“Capital Seaboard”Hardie’s Fresh Foods”), a specialty seafood and produce distributor with operations in Maryland.Texas. The initial purchase price was approximately $29.7$38.0 million, paid in cash at closing and is subject to customary working capital adjustments. We will also pay additional contingent consideration, if earned, in the form of an earn-out amount which could total $10.0 million over a two-year period.
During the thirteen weeks ended March 31, 2023 , the Company completed two other acquisitions for an aggregate purchase price of approximately $14.4 million, consisting of $28.0$12.2 million paid in cash at closing, subject to a customarycustomer working capital adjustment,adjustments, and common stock warrants$2.2 million of $1.7 million.deferred payments. The Company will also pay additional contingent consideration, if earned, in the form of earn-out amounts which could total $2.0 million in the aggregate.
RESULTS OF OPERATIONS
| | | Thirteen Weeks Ended | | | Thirteen Weeks Ended | |
| | March 25, 2022 | | March 26, 2021 | | | March 31, 2023 | | March 25, 2022 | |
Net sales | Net sales | $ | 512,103 | | | $ | 280,217 | | | Net sales | $ | 719,645 | | | $ | 512,103 | | |
Cost of sales | Cost of sales | 394,590 | | | 221,270 | | | Cost of sales | 549,937 | | | 394,590 | | |
Gross profit | Gross profit | 117,513 | | | 58,947 | | | Gross profit | 169,708 | | | 117,513 | | |
Selling, general and administrative expenses | Selling, general and administrative expenses | 110,086 | | | 80,245 | | | Selling, general and administrative expenses | 156,137 | | | 110,086 | | |
Other operating expenses (income), net | 1,163 | | | (1,170) | | | |
Operating income (loss) | 6,264 | | | (20,128) | | | |
Other operating expenses, net | | Other operating expenses, net | 1,672 | | | 1,163 | | |
Operating income | | Operating income | 11,899 | | | 6,264 | | |
| Interest expense | Interest expense | 4,365 | | | 4,763 | | | Interest expense | 10,006 | | | 4,365 | | |
Income (loss) before income taxes | 1,899 | | | (24,891) | | | |
Provision for income tax expense (benefit) | 514 | | | (6,970) | | | |
Net income (loss) | $ | 1,385 | | | $ | (17,921) | | | |
Income before income taxes | | Income before income taxes | 1,893 | | | 1,899 | | |
Provision for income tax expense | | Provision for income tax expense | 492 | | | 514 | | |
Net income | | Net income | $ | 1,401 | | | $ | 1,385 | | |
|
Management evaluates the results of operations and cash flows using a variety of key performance indicators, including net sales compared to prior periods and internal forecasts, costs of our products and results of our cost-control initiatives, and use of operating cash. These indicators are discussed throughout the “Results of Operations” and “Liquidity and Capital Resources” sections of this MD&A.
Thirteen Weeks Ended March 25, 202231, 2023 Compared to Thirteen Weeks Ended March 26, 202125, 2022
Net Sales
| | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | $ Change | | % Change |
Net sales | $ | 512,103 | | | $ | 280,217 | | | $ | 231,886 | | | 82.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | $ Change | | % Change |
Net sales | $ | 719,645 | | | $ | 512,103 | | | $ | 207,542 | | | 40.5 | % |
Organic growth contributed $176.3$87.9 million, or 62.9%17.1%, to sales growth and the remaining sales growth of $55.6$119.7 million, or 19.9%23.4%, resulted from acquisitions. Organic case count increased approximately 47.3%16.8% in our specialty category. In addition, specialty unique customers and placements increased 29.4%21.2% and 41.6%18.7%, respectively, compared to the prior year period. Organic pounds sold in our center-of-the-plate category increased 26.0%14.4% compared to the prior year. Estimated inflation was 14.9%5.5% in our specialty category and 28.5%3.2% in our center-of-the-plate category compared to the prior year period.
Gross Profit
| | | 2022 | | 2021 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change |
Gross profit | Gross profit | $ | 117,513 | | | $ | 58,947 | | | $ | 58,566 | | | 99.4 | % | Gross profit | $ | 169,708 | | | $ | 117,513 | | | $ | 52,195 | | | 44.4 | % |
Gross profit margin | Gross profit margin | 22.9 | % | | 21.0 | % | | Gross profit margin | 23.6 | % | | 22.9 | % | |
|
Gross profit dollars increased primarily as a result of increased sales and price inflation. Gross profit margin increased approximately 19164 basis points due to favorable sales mix towards higher margin specialty products.points. Gross profit margins increased 21365 basis points in the Company’s specialty category and increased 111decreased 68 basis points in the Company’s center-of-the-plate category. Estimated inflation was 5.5% in the Company’s specialty category and 3.2% in the center-of-the-plate category compared to the prior year period. Specialty margins increased primarily due to changes in product mix. Margin rates in the center-of-the-plate category decreased due to higher inflationary impacts of certain products during the first quarter of fiscal 2023.
Selling, General and Administrative Expenses
| | | 2022 | | 2021 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change |
Selling, general and administrative expenses | Selling, general and administrative expenses | $ | 110,086 | | | $ | 80,245 | | | $ | 29,841 | | | 37.2 | % | Selling, general and administrative expenses | $ | 156,137 | | | $ | 110,086 | | | $ | 46,051 | | | 41.8 | % |
Percentage of net sales | Percentage of net sales | 21.5 | % | | 28.6 | % | | Percentage of net sales | 21.7 | % | | 21.5 | % | |
|
The increase in selling, general and administrative expenses was primarily due to higher costs associated with compensation and benefits, facilities costs, and distribution costs to support sales growth. Our ratio of selling, general and administrative expenses to net sales decreased predominately due to sales growth which contributing to improved fixed cost leverage inwas relatively consistent with the prior year quarter.
Other Operating Expenses, (Income), Net
| | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | $ Change | | % Change |
Other operating expenses (income), net | $ | 1,163 | | | $ | (1,170) | | | $ | 2,333 | | | (199.4) | % |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | $ Change | | % Change |
Other operating expenses, net | $ | 1,672 | | | $ | 1,163 | | | $ | 509 | | | 43.8 | % |
| | | | | | | |
| | | | | | | |
The increase in net other operating expenses was primarily due to non-cash charges of $0.3 million for changeshigher third-party deal costs incurred in the fair value of our contingent earn-out liabilities compared to non-cash credits of $1.3 million in the prior year period.connection with business acquisitions.
Interest Expense
| | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | $ Change | | % Change |
Interest expense | $ | 4,365 | | | $ | 4,763 | | | $ | (398) | | | (8.4) | % |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | $ Change | | % Change |
Interest expense | $ | 10,006 | | | $ | 4,365 | | | $ | 5,641 | | | 129.2 | % |
| | | | | | | |
| | | | | | | |
Interest expense decreasedincreased primarily driven by higher principal amounts of outstanding debt due to lower effective interest ratesour 2028 convertible notes issued on December 13, 2022, our term loan refinancing on August 23, 2022, an increase in amounts drawn on our outstanding debt as a resultasset-based loan facility and higher rates of interest charged on the $50.0 million aggregate principal amountvariable rate portion of Convertible Senior Notes issued on March 1, 2021 which were used to repay higher interest rateour outstanding debt.
Provision for Income Taxes
| | | 2022 | | 2021 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change |
Provision for income tax expense (benefit) | $ | 514 | | | $ | (6,970) | | | $ | 7,484 | | | (107.4) | % | |
Provision for income tax expense | | Provision for income tax expense | $ | 492 | | | $ | 514 | | | $ | (22) | | | (4.3) | % |
Effective tax rate | Effective tax rate | 27.1 | % | | 28.0 | % | | Effective tax rate | 26.0 | % | | 27.1 | % | |
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The increase in income tax expense is due to pre-tax income in the current period compared to a pre-tax loss in the prior year quarter. Thelower effective tax rate infor the current period is lower duethirteen weeks ended March 31, 2023 was primarily driven by a greater mix of foreign earnings that are subject to insignificant changes in certain permanent tax differences.rates below the US statutory rate of 21%.
LIQUIDITY AND CAPITAL RESOURCES
We finance our day-to-day operations and growth primarily with cash flows from operations, borrowings under our senior secured credit facilities and other indebtedness, operating leases, trade payables and equity financing.
Indebtedness
The following table presents selected financial information on our indebtedness (in thousands):
| | | March 25, 2022 | | December 24, 2021 | | | March 31, 2023 | | December 30, 2022 | |
Senior secured term loan | Senior secured term loan | $ | 168,247 | | | $ | 168,675 | | | Senior secured term loan | $ | 298,500 | | | $ | 299,250 | | |
Total convertible debt | Total convertible debt | 204,000 | | | 204,000 | | | Total convertible debt | 331,184 | | | 333,184 | | |
Borrowings outstanding on asset-based loan facility | 20,000 | | | 20,000 | | | |
Borrowings outstanding on asset-based loan facility and revolving credit facilities | | Borrowings outstanding on asset-based loan facility and revolving credit facilities | 42,217 | | | 42,217 | | |
Finance leases and other financing obligations | Finance leases and other financing obligations | 10,875 | | | 11,602 | | | Finance leases and other financing obligations | 14,913 | | | 11,331 | | |
Total | Total | $ | 403,122 | | | $ | 404,277 | | | Total | $ | 686,814 | | | $ | 685,982 | | |
As of March 25, 2022,31, 2023, we have various floating- and fixed-rate debt instruments with varying maturities for an aggregate principal amount of $392.2$671.9 million.
On March 11, 2022, we entered into a third amendment to our asset-based loan facility ABL Facility which increased the aggregate commitments from $150.0 million to $200.0 million. See Note 9 “Debt Obligations” to our consolidated financial statements for a full description.
Liquidity
The following table presents selected financial information on liquidity (in thousands):
| | | | March 25, 2022 | | December 24, 2021 | | | March 31, 2023 | | December 30, 2022 | |
Cash and cash equivalents | Cash and cash equivalents | $ | 79,439 | | | $ | 115,155 | | | Cash and cash equivalents | $ | 91,742 | | | $ | 158,800 | | |
Working capital, excluding cash and cash equivalents | Working capital, excluding cash and cash equivalents | 165,066 | | | 157,787 | | | Working capital, excluding cash and cash equivalents | 300,871 | | | 278,315 | | |
Availability under asset-based loan facility | Availability under asset-based loan facility | 126,240 | | | 109,459 | | | Availability under asset-based loan facility | 135,830 | | | 135,827 | | |
Total | Total | $ | 370,745 | | | $ | 382,401 | | | Total | $ | 528,443 | | | $ | 572,942 | | |
We expect our capital expenditures, excluding cash paid for acquisitions, for fiscal 20222023 will be approximately $36.0$50.0 million to $45.0$60.0 million. We believe our existing balances of cash and cash equivalents, working capital and the availability under our asset-based loan facility, are sufficient to satisfy our working capital needs, capital expenditures, debt service and other liquidity requirements associated with our current operations over the next 12 months.
Cash Flows
The following table presents selected financial information on cash flows (in thousands):
| | | Thirteen Weeks Ended | | | Thirteen Weeks Ended | |
| | March 25, 2022 | | March 26, 2021 | | | March 31, 2023 | | March 25, 2022 | |
Net income (loss) | $ | 1,385 | | | $ | (17,921) | | | |
Net income | | Net income | $ | 1,401 | | | $ | 1,385 | | |
Non-cash charges | Non-cash charges | $ | 14,271 | | | $ | 5,298 | | | Non-cash charges | $ | 20,995 | | | $ | 14,271 | | |
Changes in working capital | Changes in working capital | $ | (5,373) | | | $ | 960 | | | Changes in working capital | $ | (24,657) | | | $ | (5,373) | | |
Net cash provided by (used in) operating activities | $ | 10,283 | | | $ | (11,663) | | | |
Net cash (used in) provided by operating activities | | Net cash (used in) provided by operating activities | $ | (2,261) | | | $ | 10,283 | | |
Net cash used in investing activities | Net cash used in investing activities | $ | (42,206) | | | $ | (2,896) | | | Net cash used in investing activities | $ | (59,633) | | | $ | (42,206) | | |
Net cash used in financing activities | Net cash used in financing activities | $ | (3,851) | | | $ | (3,726) | | | Net cash used in financing activities | $ | (5,141) | | | $ | (3,851) | | |
Net cash used in operations was $2.3 million for the thirteen weeks ended March 31, 2023 compared to net cash provided by operating activities of $10.3 million for the thirteen weeks ended March 25, 2022 consisting of a net income of $1.4 million and $14.3 million of non-cash charges, partially offset2022. The decrease in cash provided by investments inoperating activities was primarily due to the working capital growth of $5.4 million. Non-cash charges decreased $9.0$19.3 million primarily dueversus the prior year period which was driven by a strategic decision to a $5.5 millionpull forward inventory purchases of certain product categories during the first quarter of fiscal 2023. We expect our inventory levels to normalize during the remainder of the year. The increase in deferred taxcash used for working capital growth was partially offset by increased net income, net of non-cash charges, in the current year of $22.4 million compared to $15.7 million in the prior year period. This increase is driven by higher depreciation and amortization expenses, and a $1.6 millionstock-based
increasecompensation expenses and a release in changesour provision for doubtful accounts in the fair value of earn-out liabilities. The cash used for working capital growth of $6.3 million is primarily driven byprior year quarter related to the Company’s reinvestmentpandemic recovery which did not recur in working capital to support sales growth.the current period.
Net cash used in investing activities was $42.2$59.6 million for the thirteen weeks ended March 25, 2022,31, 2023, driven by capital expenditures of $14.2$8.7 million which includes the purchase of our distribution facility in Columbus, Ohio and $28.0$50.9 million in cash paid for the Capital Seaboard acquisition.acquisitions.
Net cash used in financing activities was $3.9$5.1 million for the thirteen weeks ended March 25, 2022,31, 2023 driven by $2.0$3.4 million of payments of debt and other financing obligations, including finance leases, and $1.8 million paid for shares surrendered to pay tax withholding related to the vesting of equity incentive plan awards and $1.4 million of payments made on senior term loans and finance lease obligations..awards.
Seasonality
Excluding our direct-to-consumer business, we generally do not experience any material seasonality. However, our sales and operating results may vary from quarter to quarter due to factors such as changes in our operating expenses, management’s ability to execute our operating and growth strategies, personnel changes, demand for our products, supply shortages, weather patterns and general economic conditions.
Our direct-to-consumer business is subject to seasonal fluctuations, with direct-to-consumer center-of-the-plate protein sales typically higher during the holiday season in our fourth quarter; accordingly, a disproportionate amount of operating cash flows from this portion of our business is generated by our direct-to-consumer business in the fourth quarter of our fiscal year. Despite a significant portion of these sales occurring in the fourth quarter, there are operating expenses, principally advertising and promotional expenses, throughout the year.
The Pandemic has had a material impact on our business and operations and those of our customers. Our net sales were most significantly impacted during the second quarter of fiscal 2020 when, in an effort to limit the spread of the virus, federal, state and local governments began implementing various restrictions that resulted in the closure of non-essential businesses in many of the markets we serve, which forced our customers in those markets to either transition their establishments to take-out service, delivery service or temporarily cease operations.
Inflation
Our profitability is dependent on, among other things, our 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. Substantial increases in costs and expenses could impact our operating results to the extent that such increases cannot be passed along to our customers. The impact of inflation and deflation on food, labor, energy and occupancy costs can significantly affect the profitability of our operations.
Off-Balance Sheet Arrangements
As of March 25, 2022, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.
Critical Accounting Policies and Estimates
The preparation of the Company’s condensed consolidated financial statements requires it to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The SEC has defined critical accounting policies and estimates as those that are both most important to the portrayal of the Company’s financial condition and results and require its most difficult, complex or subjective judgments or estimates. Based on this definition, we believe our critical accounting policies and estimates include the following: (i) determining our allowance for doubtful accounts, (ii) inventory valuation, with regard to determining inventory balance adjustments for excess and obsolete inventory, (iii) business combinations, (iv) valuing goodwill and intangible assets, (v) self-insurance reserves, (vi) accounting for income taxes and (vii) contingent earn-out liabilities. Our critical accounting policies and estimates are described in the Form 10-K filed with the SEC on February 22, 2022.28, 2023.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our exposure to interest rate market risk relates primarily to our long-term debt. As of March 25, 2022,31, 2023, we had an aggregate $188.2 million of indebtedness outstanding under the Term Loan and ABL Facilityof $340.7 million that bore interest at variable rates. A 100 basis point increase in market interest rates would decrease our after tax earnings by approximately $1.4$2.5 million per annum, holding other variables constant.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of March 25, 2022.31, 2023.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended March 25, 202231, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in legal proceedings, claims and litigation arising out of the ordinary conduct of our business. Although we cannot assure the outcome, management presently believes that the result of such legal proceedings, either individually or in the aggregate, will not have a material adverse effect on our condensed consolidated financial statements, and no material amounts have been accrued in our condensed consolidated financial statements with respect to these matters.
ITEM 1A. RISK FACTORS
There have been no material changes to our risk factors as previously disclosed in Part I, Item 1A. included in our Annual Report on Form 10-K for the year ended December 24, 202130, 2022 filed with the SEC on February 22, 2022.28, 2023. In addition to the information contained herein, you should consider the risk factors disclosed in our Annual Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Number of Shares Repurchased(1) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs |
December 25, 2021 to January 21, 2022 | | — | | | $ | — | | | — | | | — | |
January 22, 2022 to February 18, 2022 | | — | | | �� | | | — | | | — | |
February 19, 2022 to March 25, 2022 | | 64,329 | | | 31.67 | | | — | | | — | |
Total | | 64,329 | | | $ | 31.67 | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Number of Shares Repurchased(1) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs |
December 31, 2022 to January 27, 2023 | | — | | | $ | — | | | — | | | — | |
January 28, 2023 to February 24, 2023 | | 52,632 | | | 33.84 | | | — | | | — | |
February 25, 2023 to March 31, 2023 | | 1,404 | | | 33.05 | | | — | | | — | |
Total | | 54,036 | | | $ | 33.82 | | | — | | | — | |
(1)During the thirteen weeks ended March 25, 2022,31, 2023, we withheld 64,32954,036 shares of our common stock to satisfy tax withholding requirements related to restricted shares of our common stock awarded to our officers and key employees resulting from either elections under 83(b) of the Internal Revenue Code of 1986, as amended, or upon vesting of such awards.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6.7. EXHIBITS
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Exhibit No. | | Description |
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| | Amendment No. 3, dated as of March 11, 2022, to the ABL Facility. |
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| | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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| | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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101.INS | | XBRL Instance Document – the instance document does not appear on the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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101.SCH | | XBRL Taxonomy Extension Schema Document |
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101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
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104 | | Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on April 27, 2022.May 10, 2023.
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| THE CHEFS’ WAREHOUSE, INC. |
| (Registrant) |
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Date: April 27, 2022May 10, 2023 | | | /s/ James Leddy |
| James Leddy |
| Chief Financial Officer |
| (Principal Financial Officer) |
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Date: April 27, 2022May 10, 2023 | | | /s/ Timothy McCauley |
| | | Timothy McCauley |
| | | Chief Accounting Officer |
| | | (Principal Accounting Officer) |