UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended June 28, 2024
OR
| 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)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
(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:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
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.
| ☒ | 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 July 29, 2024: 39,826,473
1
THE CHEFS’ WAREHOUSE, INC.
FORM 10-Q
Table of Contents
| Page | |||||||||||||||||
| PART I. FINANCIAL INFORMATION | |||||||||||||||||
| Item 1. | |||||||||||||||||
| Item 2. | |||||||||||||||||
| Item 3. | |||||||||||||||||
| Item 4. | |||||||||||||||||
| PART II. OTHER INFORMATION | |||||||||||||||||
| Item 1. | |||||||||||||||||
| Item 1A. | |||||||||||||||||
| Item 2. | |||||||||||||||||
| Item 3. | |||||||||||||||||
| Item 4. | |||||||||||||||||
| Item 5. | |||||||||||||||||
| Item 6. | |||||||||||||||||
2
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: 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; the relatively low margins of our business, which are sensitive to inflationary and deflationary pressures and intense competition; the effects of rising costs for and/or decreases in supply of commodities, ingredients, packaging, other raw materials, distribution and labor; crude oil prices and their impact on distribution, packaging and energy costs; our continued ability to promote our brand successfully, to anticipate and respond to new customer demands, and to develop new products and markets to compete effectively; our ability and the ability of our supply chain partners to continue to operate distribution centers and other work locations without material disruption, and to procure ingredients, packaging and other raw materials when needed despite disruptions in the supply chain or labor shortages; risks associated with the expansion of our business; our possible inability to identify new acquisitions or to integrate recent or future acquisitions, or our failure to realize anticipated revenue enhancements, cost savings or other synergies from recent or future acquisitions; other factors that affect the food industry generally, including: recalls if products become adulterated or misbranded, liability if product consumption causes injury, ingredient disclosure and labeling laws and regulations and the possibility that customers could lose confidence in the safety and quality of certain food products; new information or attitudes regarding diet and health or adverse opinions about the health effects of the products we distribute; changes in disposable income levels and consumer purchasing habits; competitors’ pricing practices and promotional spending levels; fluctuations in the level of our customers’ inventories and credit and other related business risks; and the risks associated with third-party suppliers, including the risk that any failure by one or more of our third-party suppliers to comply with food safety or other laws and regulations may disrupt our supply of raw materials or certain products or injure our reputation; our ability to recruit and retain senior management and a highly skilled and diverse workforce; unanticipated expenses, including, without limitation, litigation or legal settlement expenses; the cost and adequacy of our insurance policies; the impact and effects of public health crises, pandemics and epidemics, such as the outbreak of COVID-19, and the adverse impact thereof on our business, financial condition, and results of operations; significant governmental regulation and any potential failure to comply with such regulations; federal, state, provincial and local tax rules in the United States and the foreign countries in which we operate, including tax reform and legislation; risks relating to our substantial indebtedness; our ability to raise additional capital and/or obtain debt or other financing, on commercially reasonable terms or at all; our ability to meet future cash requirements, including the ability to access financial markets effectively and maintain sufficient liquidity; the effects of currency movements in the jurisdictions in which we operate as compared to the U.S. dollar; the effects of international trade disputes, tariffs, quotas and other import or export restrictions on our international procurement, sales and operations; other factors discussed elsewhere in this report, including Part I, Item 1A of this Form 10-K and in our other public filings with the SEC.
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 27, 2024 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 reports until the filing or effective dates of its future reports required by applicable laws.
3
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)
| June 28, 2024 | December 29, 2023 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net of allowances ($ | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued liabilities | |||||||||||
| Short-term operating lease liabilities | |||||||||||
| Accrued compensation | |||||||||||
| Current portion of long-term debt | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt, net of current portion | |||||||||||
| Operating lease liabilities | |||||||||||
| Deferred taxes, net | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred Stock - $ | |||||||||||
Common Stock - $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Retained earnings | |||||||||||
| Treasury stock | ( | ||||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See accompanying notes to the condensed consolidated financial statements.
4
THE CHEFS’ WAREHOUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
(Amounts in thousands, except share and per share amounts)
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||||||||
| June 28, 2024 | June 30, 2023 | June 28, 2024 | June 30, 2023 | ||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Other operating expenses, net | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Provision for income tax expense | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive (loss) income: | |||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | |||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
| Net income per share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
5
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 | Treasury Stock | Total | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance December 29, 2023 | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Common stock repurchased | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Warrants exercised | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Common stock issued under stock plans, net of shares surrendered to pay tax withholding | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||
| Balance March 29, 2024 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Common stock repurchased | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Warrants exercised | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Common stock issued under stock plans, net of shares surrendered to pay tax withholding | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||
| Balance June 28, 2024 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
6
THE CHEFS’ WAREHOUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (continued)
(Unaudited)
(Amounts in thousands, except share amounts)
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Treasury Stock | Total | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance December 30, 2022 | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued under stock plans, net of shares surrendered to pay tax withholding | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||
| Balance March 31, 2023 | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Shares issued for acquisition | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued under stock plans, net of shares surrendered to pay tax withholding | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||
| Balance June 30, 2023 | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
7
THE CHEFS’ WAREHOUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
| Twenty-Six Weeks Ended | |||||||||||
| June 28, 2024 | June 30, 2023 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of intangible assets | |||||||||||
| Provision for allowance for doubtful accounts | |||||||||||
| Provision for deferred income taxes | |||||||||||
| Loss on debt extinguishment | |||||||||||
| Stock compensation | |||||||||||
| Change in fair value of contingent earn-out liabilities | ( | ||||||||||
| Intangible asset impairment | |||||||||||
| Non-cash interest and other operating activities | |||||||||||
| Changes in assets and liabilities, net of acquisitions: | |||||||||||
| Accounts receivable | ( | ||||||||||
| Inventories | ( | ( | |||||||||
| Prepaid expenses and other current assets | ( | ( | |||||||||
| Accounts payable, accrued liabilities and accrued compensation | |||||||||||
| Other assets and liabilities | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Cash paid for acquisitions, net of cash acquired | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Payment of debt and other financing obligations | ( | ( | |||||||||
| Payment of finance leases | ( | ( | |||||||||
| Common stock repurchases | ( | ||||||||||
| Surrender of shares to pay withholding taxes | ( | ( | |||||||||
| Cash paid for contingent earn-out liability | ( | ( | |||||||||
| Borrowings under asset-based loan facility and revolving credit facilities | |||||||||||
| Net cash (used in) provided by financing activities | ( | ||||||||||
| Effect of foreign currency on cash and cash equivalents | ( | ||||||||||
| Net change in cash and cash equivalents | ( | ( | |||||||||
| Cash and cash equivalents-beginning of period | |||||||||||
| Cash and cash equivalents-end of period | $ | $ | |||||||||
See accompanying notes to the condensed consolidated financial statements.
8
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 Chefs’ Warehouse, Inc. (the “Company”), and its wholly-owned subsidiaries, is a premier distributor of specialty food and center-of-the-plate products in the United States, the Middle East and Canada. The Company is focused on serving the specific needs of chefs who own and/or operate some of the nation’s leading menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools, bakeries, patisseries, chocolateries, cruise lines, casinos and specialty food stores.
Consolidation
The unaudited 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 29, 2023 filed as part of the Company’s Annual Report on Form 10-K (the “2023 Form 10-K”).
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 2023 Form 10-K, 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 and other factors, the results of operations for the thirteen and twenty-six weeks ended June 28, 2024 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.
9
Note 2 – Summary of Significant Accounting Policies
Revenue Recognition
The following table presents the Company’s net sales disaggregated by principal product category:
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| June 28, 2024 | June 30, 2023 | June 28, 2024 | June 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| Center-of-the-Plate | $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||
| Specialty: | |||||||||||||||||||||||||||||||||||||||||||||||
| Dry Goods | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Produce | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Pastry | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Cheese and Charcuterie | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Dairy and Eggs | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Oils and Vinegars | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Kitchen Supplies | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Total Specialty | $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||
| Total net sales | $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||
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. Net sales by product category includes estimates of product mix for certain locations that are not yet fully integrated into the Company’s information technology systems as of the reporting date. Prior period product category amounts have been reclassified to conform to the current period’s presentation.
Food Processing Costs
Share Repurchases
Guidance Not Yet Adopted
Improvements to Income Tax Disclosures: In December 2023, the Financial Accounting Standards Board (“FASB”) issued guidance designed to improve the transparency and usefulness of income tax disclosures. The amendments include provisions to address the consistency of the income tax rate reconciliation and requirement to disaggregate income taxes paid by jurisdiction. The guidance is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company expects to adopt this guidance when effective and is evaluating the impact of adoption on its consolidated financial statements, which is limited to financial statement disclosures.
Improvements to Reportable Segment Disclosures: In November 2023, the FASB issued guidance which requires entities, including those with one reportable segment, to enhance reportable segment disclosures requirements particularly with respect to significant expenses. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis. Early adoption is permitted. The Company expects to adopt this guidance when effective and is evaluating the impact of adoption on its consolidated financial statements, which is limited to financial statement disclosures.
10
Note 3 – Net Income per Share
The following table sets forth the computation of basic and diluted net income per common share:
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||||||||
| June 28, 2024 | June 30, 2023 | June 28, 2024 | June 30, 2023 | ||||||||||||||||||||
| Net income per share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average common shares: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
Reconciliation of net income per common share:
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||||||||
| June 28, 2024 | June 30, 2023 | June 28, 2024 | June 30, 2023 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Add effect of dilutive securities | |||||||||||||||||||||||
| Interest on convertible notes, net of tax | |||||||||||||||||||||||
| Net income available to common shareholders | $ | $ | $ | $ | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average basic common shares outstanding | |||||||||||||||||||||||
| Dilutive effect of unvested common shares | |||||||||||||||||||||||
| Dilutive effect of stock options and warrants | |||||||||||||||||||||||
| Dilutive effect of convertible notes | |||||||||||||||||||||||
| Weighted average diluted common shares outstanding | |||||||||||||||||||||||
Potentially dilutive securities that have been excluded from the calculation of diluted net income per common share because the effect is anti-dilutive are as follows:
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||||||||
| June 28, 2024 | June 30, 2023 | June 28, 2024 | June 30, 2023 | ||||||||||||||||||||
| Restricted share awards (“RSAs”) and restricted stock units (“RSUs”) | |||||||||||||||||||||||
| Convertible notes | |||||||||||||||||||||||
11
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. The fair value of contingent consideration was predominantly 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 expenses, net on the condensed consolidated statements of operations.
The following table presents the changes in Level 3 contingent earn-out liabilities:
| Total | |||||
| Balance December 29, 2023 | $ | ||||
| Cash payments | ( | ||||
| Changes in fair value | ( | ||||
| Balance June 28, 2024 | $ | ||||
The long-term portion of contingent earn-out liabilities were $637 and $50 as of June 28, 2024 and December 29, 2023, respectively, and are reflected as other liabilities on the Company’s condensed consolidated balance sheets. The remaining short-term portion of earn-out liabilities are reflected as accrued liabilities on the Company’s condensed consolidated balance sheets.
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 their immediate to short-term nature. The fair values of the asset-based loan facility and term loan approximated their book values as of June 28, 2024 and December 29, 2023, 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 and its unsecured note issued in connection with the acquisition of Oakville Produce Partners, LLC (“GreenLeaf”) in fiscal 2023 (“GreenLeaf Note”). The fair value of the Company’s 2028 Convertible Senior Notes was based on Level 1 inputs. In estimating the fair value of its 2024 Convertible Senior Notes, 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. The fair value of the GreenLeaf Note was determined based upon observable market prices of similar debt instruments.
| June 28, 2024 | December 29, 2023 | |||||||||||||||||||||||||
| Fair Value Hierarchy | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||||
| 2028 Convertible Senior Notes | Level 1 | $ | $ | $ | $ | |||||||||||||||||||||
| 2024 Convertible Senior Notes | Level 3 | $ | $ | $ | $ | |||||||||||||||||||||
| GreenLeaf Note | Level 2 | $ | $ | $ | $ | |||||||||||||||||||||
Note 5 – Acquisitions
The Company paid approximately $315 during the twenty-six weeks ended June 28, 2024 upon settlement of net working capital true-ups on prior year acquisitions, resulting in measurement period adjustments which increased goodwill by $656 and reduced prepaid expenses and other current assets by $341 .
The Company recognized professional fees related to acquisition activities of $1,385 and $2,628 during the thirteen and twenty-six weeks ended June 30, 2023, respectively, presented within other operating expenses, net on the condensed consolidated
12
statements of operations. There were no
Unaudited Pro forma Financial Information
The table below presents unaudited pro forma condensed consolidated income statement information of the Company as if the GreenLeaf and Hardie’s Fresh Foods acquisitions had occurred on December 30, 2022. 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 acquisitions. The pro forma information is not necessarily indicative of the Company’s results of operations had the acquisitions 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 acquisitions, any incremental costs for transitioning to become a public company, and also does not reflect additional revenue opportunities following the acquisitions. The pro forma information reflects amortization expense related to the acquired intangible assets and depreciation expense on the acquired fair value of property and equipment. The pro forma information also reflects additional interest expense that would have been incurred by the Company to finance the acquisitions. Pro forma interest expense was estimated based on the prevailing interest rates charged on the Company’s senior secured term loan during fiscal 2022.
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||
| June 30, 2023 | June 30, 2023 | ||||||||||||||||
| Net sales | $ | $ | |||||||||||||||
| Income before income taxes | $ | $ | |||||||||||||||
Note 6 – Inventories
Note 7 – Property and Equipment
Property and equipment is net of accumulated depreciation and amortization of $154,745 and $137,008 at June 28, 2024 and December 29, 2023, respectively.
Note 8 – Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill are presented as follows:
| Carrying amount as of December 29, 2023 | $ | ||||
| Goodwill adjustments | |||||
| Foreign currency translation | ( | ||||
| Carrying amount as of June 28, 2024 | $ | ||||
The goodwill adjustments included in the table above represent measurement period adjustments related to certain acquisitions completed in the prior year.
Other intangible assets are net of accumulated amortization of $145,002 and $132,660 as of June 28, 2024 and December 29, 2023, respectively. Amortization expense for other intangibles was $6,171 and $5,759 for the thirteen weeks ended June 28, 2024 and June 30, 2023, respectively, and $12,342 and $10,456 for the twenty-six weeks ended June 28, 2024 and June 30, 2023, respectively.
The Company recognized a customer relationships intangible asset impairment charge of $1,838 , $1,333 net of tax, during the thirteen and twenty-six weeks ended June 30, 2023 related to the loss of a significant Hardie’s Fresh Foods customer post-acquisition.
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Note 9 – Debt Obligations
Debt obligations as of June 28, 2024 and December 29, 2023 consisted of the following:
Weighted Average Effective Interest Rate at June 28, 2024 | Maturity | June 28, 2024 | December 29, 2023 | ||||||||||||||||||||
| Senior secured term loans | % | August 2029 | $ | $ | |||||||||||||||||||
| 2028 Convertible senior notes | % | December 2028 | |||||||||||||||||||||
| 2024 Convertible senior notes | % | December 2024 | |||||||||||||||||||||
| Asset-based loan facility | % | March 2027 | |||||||||||||||||||||
| Finance leases and other financing obligations | % | Various | |||||||||||||||||||||
| Unamortized deferred costs and premium | ( | ( | |||||||||||||||||||||
| Total debt obligations | |||||||||||||||||||||||
| Less: current installments | ( | ( | |||||||||||||||||||||
| Total long-term debt | $ | $ | |||||||||||||||||||||
Senior Secured Term Loan Credit Facility
In March 2024, the Company entered into an eleventh amendment (“Eleventh Amendment”) to its senior secured term loan agreement, which reduced the interest rate spread on its senior secured term loan facility. As a result of this amendment, the Company incurred a loss on debt extinguishment of $50 during the twenty-six weeks ended June 28, 2024, which represents the portion of unamortized deferred financing fees attributable to the lender that exited the loan syndicate. Arrangement fees of $775 and third-party transaction costs of $91 were expensed as incurred during the twenty-six weeks ended June 28, 2024 and included in interest expense and other operating expenses, respectively, within the Company’s condensed consolidated statements of operations.
Additionally, during the twenty-six weeks ended June 28, 2024, the Company made voluntary principal prepayments totaling $8,000 towards the senior secured term loan. In connection with the prepayments, the Company wrote-off unamortized deferred financing fees of $77 and $316 during the thirteen and twenty-six weeks ended June 28, 2024, respectively, which were included in interest expense within the Company’s condensed consolidated statements of operations.
GreenLeaf Unsecured Note
During the twenty-six weeks ended June 28, 2024, the Company made a scheduled principal payment of $5,000 towards the GreenLeaf Note. The GreenLeaf Note is presented under the caption “Finance leases and other financing obligations” in the table above.
Convertible Notes
The net carrying value of the Company’s convertible senior notes as of June 28, 2024 and December 29, 2023 was:
| June 28, 2024 | December 29, 2023 | |||||||||||||||||||||||||||||||||||||
| Principal Amount | Unamortized Deferred Costs and Premium | Net Amount | Principal Amount | Unamortized Deferred Costs and Premium | Net Amount | |||||||||||||||||||||||||||||||||
| 2028 Notes | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
| 2024 Notes | ( | ( | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
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The components of interest expense on the Company’s convertible notes were as follows:
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||||||||
| June 28, 2024 | June 30, 2023 | June 28, 2024 | June 30, 2023 | ||||||||||||||||||||
| Coupon interest | $ | $ | $ | $ | |||||||||||||||||||
| Amortization of deferred costs and premium | |||||||||||||||||||||||
| Total interest | $ | $ | $ | $ | |||||||||||||||||||
As of June 28, 2024, the Company had reserved $29,377 of its asset-based loan facility for the issuance of letters of credit and funds totaling $170,623 were available for borrowing.
Note 10 – Stockholders’ Equity
Equity Awards
The following table reflects the activity of RSAs and RSUs during the twenty-six weeks ended June 28, 2024:
| 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 29, 2023 | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||||||||||||||||
| Vested | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Forfeited | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Unvested at June 28, 2024 | $ | $ | $ | |||||||||||||||||||||||||||||||||||
The Company granted 617,392 RSAs and RSUs to its employees and directors at a weighted average grant date fair value of $37.91 during the twenty-six weeks ended June 28, 2024. These awards are a mix of time-, market- and performance-based grants that generally vest over a range of periods up to 5 years. The Company recognized expense on its RSAs and RSUs totaling $3,946 and $4,704 during the thirteen weeks ended June 28, 2024 and June 30, 2023, respectively, and $7,536 and $9,494 during the twenty-six weeks ended June 28, 2024 and June 30, 2023, respectively.
At June 28, 2024, the total unrecognized compensation cost for unvested RSAs and RSUs was $27,702 and the weighted-average remaining period was approximately 1.8 years. Of this total, $14,525 related to awards with time-based vesting provisions and $13,177 related to awards with performance- and market-based vesting provisions. At June 28, 2024, the weighted-average remaining period for time-based vesting and performance-based vesting RSAs and RSUs were approximately 1.7 years and 2.0 years, respectively.
Share Repurchase Program
In November 2023, the Company announced a two-year share repurchase program in an amount up to $100,000 , targeting $25,000 to $100,000 of share repurchases by the end of fiscal 2025. The remaining share purchase authorization was $90,000 at June 28, 2024. The Company is not obligated to repurchase any specific number of shares and may suspend or discontinue the program at any time.
Note 11 – Related Parties
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Note 12 – Income Taxes
The Company’s effective tax rate was 30.0 % and 26.0 % for the thirteen weeks ended June 28, 2024 and June 30, 2023, respectively, and 30.0 % and 26.0 % for the twenty-six weeks ended June 28, 2024 and June 30, 2023, respectively. The higher effective tax rate for the thirteen and twenty-six weeks ended June 28, 2024 is primarily due to the non-deductibility of certain compensation-related items. The effective tax rate otherwise varies from the 21% statutory rate primarily due to state taxes.
The Company’s income tax provision reflects the impact of an expected income tax refund receivable of $25,244 as of June 28, 2024, which is reflected in prepaid expenses and other current assets on the Company’s condensed consolidated balance sheet.
The Organization for Economic Co-operation and Development (the “OECD”) introduced a framework under Pillar Two which includes a global corporate minimum tax rate of 15%. Some jurisdictions in which the Company operates have started to enact laws implementing Pillar Two. The Company is monitoring these developments and currently does not believe the rules effective in fiscal 2024 will have a material impact on its consolidated financial statements.
Note 13 – Supplemental Disclosures of Cash Flow Information
| Twenty-Six Weeks Ended | |||||||||||
| June 28, 2024 | June 30, 2023 | ||||||||||
| Supplemental cash flow disclosures: | |||||||||||
| Cash paid for income taxes | $ | $ | |||||||||
| Cash paid for interest, net of cash received | $ | $ | |||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows from operating leases | $ | $ | |||||||||
| Operating cash flows from finance leases | $ | $ | |||||||||
| ROU assets obtained in exchange for lease liabilities: | |||||||||||
| Operating leases | $ | $ | |||||||||
| Finance leases | $ | $ | |||||||||
| Non-cash investing and financing activities: | |||||||||||
| Common stock issued for acquisitions | $ | $ | |||||||||
| Unsecured notes issued for acquisitions | $ | $ | |||||||||
| Contingent earn-out liabilities for acquisitions | $ | $ | |||||||||
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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 for the fiscal year ended December 29, 2023 (the “2023 Form 10-K”) filed with the SEC. 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 the leading culinary markets in the United States, the Middle East and Canada. We offer more than 70,000 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 44,000 core customer locations, primarily located in our 23 geographic markets across the United States, the 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 retail channel.
Acquisitions
On May 1, 2023, the Company entered into a stock purchase agreement to acquire substantially all of the equity interests of Oakville Produce Partners, LLC (“GreenLeaf”), a leading produce and specialty food distributor in Northern California. The final purchase price was $88.2 million consisting of $72.2 million paid in cash at closing, $3.5 million paid upon settlement of a net working capital true-up, the issuance of a $10.0 million unsecured note, and 75,008 shares of the Company’s common stock with an approximate value of $2.5 million based on the trading price of the Company’s common stock on the date of acquisition.
On March 20, 2023, pursuant to an asset purchase agreement, we acquired substantially all of the assets of Hardie’s F&V, LLC (“Hardie’s Fresh Foods”), a specialty produce distributor with operations in Texas. The final purchase price was approximately $41.4 million, consisting of $38.0 million paid in cash at closing, $0.6 million received upon settlement of a net working capital true-up, and an earn-out liability valued at approximately $4.0 million as of the acquisition date. If earned, the earn-out liability could total up to $10.0 million over a two-year period.
RESULTS OF OPERATIONS
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||||||||
| (in thousands) | June 28, 2024 | June 30, 2023 | June 28, 2024 | June 30, 2023 | |||||||||||||||||||
| Net sales | $ | 954,704 | $ | 881,820 | $ | 1,829,192 | $ | 1,601,465 | |||||||||||||||
| Cost of sales | 725,702 | 673,376 | 1,390,754 | 1,223,313 | |||||||||||||||||||
| Gross profit | 229,002 | 208,444 | 438,438 | 378,152 | |||||||||||||||||||
| Selling, general and administrative expenses | 194,834 | 179,042 | 385,155 | 335,179 | |||||||||||||||||||
| Other operating expenses, net | 301 | 4,062 | 3,413 | 5,734 | |||||||||||||||||||
| Operating income | 33,867 | 25,340 | 49,870 | 37,239 | |||||||||||||||||||
| Interest expense | 11,690 | 12,006 | 24,934 | 22,012 | |||||||||||||||||||
| Income before income taxes | 22,177 | 13,334 | 24,936 | 15,227 | |||||||||||||||||||
| Provision for income tax expense | 6,653 | 3,467 | 7,481 | 3,959 | |||||||||||||||||||
| Net income | $ | 15,524 | $ | 9,867 | $ | 17,455 | $ | 11,268 | |||||||||||||||
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Thirteen Weeks Ended June 28, 2024 Compared to Thirteen Weeks Ended June 30, 2023
Net Sales
| 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||
| Net sales | $ | 954,704 | $ | 881,820 | $ | 72,884 | 8.3 | % | |||||||||||||||
Organic growth contributed $62.8 million, or 7.2%, to sales growth and the remaining sales growth of $10.1 million, or 1.1%, resulted from acquisitions. Organic case count increased approximately 4.7% in our specialty category. In addition, specialty unique customers and placements increased 8.2% and 11.3%, respectively, compared to the prior year period. Organic pounds sold in our center-of-the-plate category increased 2.9% compared to the prior year. Estimated inflation was 2.7% in our specialty category and 4.3% in our center-of-the-plate category compared to the prior year period.
Gross Profit
| 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||
| Gross profit | $ | 229,002 | $ | 208,444 | $ | 20,558 | 9.9 | % | |||||||||||||||
| Gross profit margin | 24.0 | % | 23.6 | % | |||||||||||||||||||
Gross profit dollars increased primarily as a result of increased sales and price inflation. Gross profit margin increased approximately 35 basis points. Gross profit margins increased 50 basis points in the Company’s specialty category and were relatively unchanged in the Company’s center-of-the-plate category.
Selling, General and Administrative Expenses
| 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||
| Selling, general and administrative expenses | $ | 194,834 | $ | 179,042 | $ | 15,792 | 8.8 | % | |||||||||||||||
| Percentage of net sales | 20.4 | % | 20.3 | % | |||||||||||||||||||
The increase in selling, general and administrative expenses was primarily due to higher depreciation and amortization expenses driven by acquisitions and facility investments, and higher costs associated with compensation and benefits, facilities and distribution to support sales growth. Our ratio of selling, general and administrative expenses to net sales increased 10 basis points due to increased near-term costs associated with our investments in facilities and acquisitions.
Other Operating Expenses, Net
| 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||
| Other operating expenses, net | $ | 301 | $ | 4,062 | $ | (3,761) | (92.6) | % | |||||||||||||||
Other operating expenses, net decreased by $3.8 million primarily due to an impairment charge on customer relationships intangible assets of $1.8 million recorded during the thirteen weeks ended June 30, 2023 related to the loss of a significant Hardie’s Fresh Foods customer post-acquisition and lower third-party deal costs incurred in connection with business acquisitions and financing arrangements during the thirteen weeks ended June 28, 2024 compared to the prior year quarter.
Interest Expense
| 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||
| Interest expense | $ | 11,690 | $ | 12,006 | $ | (316) | (2.6) | % | |||||||||||||||
Interest expense decreased primarily due to lower principal amounts outstanding on the senior secured term loans in 2024.
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Provision for Income Tax Expense
| 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||
| Provision for income tax expense | $ | 6,653 | $ | 3,467 | $ | 3,186 | 91.9 | % | |||||||||||||||
| Effective tax rate | 30.0 | % | 26.0 | % | |||||||||||||||||||
The higher effective tax rate for the thirteen weeks ended June 28, 2024 was primarily driven by the non-deductibility of certain compensation-related items.
Twenty-Six Weeks Ended June 28, 2024 Compared to Twenty-Six Weeks Ended June 30, 2023
Net Sales
| 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||
| Net sales | $ | 1,829,192 | $ | 1,601,465 | $ | 227,727 | 14.2 | % | |||||||||||||||
Organic growth contributed $126.2 million, or 7.9%, to sales growth and the remaining sales growth of $101.6 million, or 6.3%, resulted from acquisitions. Organic case count increased approximately 4.7% in our specialty category. In addition, specialty unique customers and placements increased 9.1% and 11.6%, respectively, compared to the prior year period. Organic pounds sold in our center-of-the-plate category increased 4.5% compared to the prior year. Estimated inflation was 2.1% in our specialty category and 4.5% in our center-of-the-plate category compared to the prior year period.
Gross Profit
| 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||
| Gross profit | $ | 438,438 | $ | 378,152 | $ | 60,286 | 15.9 | % | |||||||||||||||
| Gross profit margin | 24.0 | % | 23.6 | % | |||||||||||||||||||
Gross profit dollars increased primarily as a result of sales growth and price inflation. Gross profit margin increased approximately 36 basis points. Gross profit margins increased 27 basis points in the Company’s specialty category and increased 7 basis points in the Company’s center-of-the-plate category.
Selling, General and Administrative Expenses
| 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||
| Selling, general and administrative expenses | $ | 385,155 | $ | 335,179 | $ | 49,976 | 14.9 | % | |||||||||||||||
| Percentage of net sales | 21.1 | % | 20.9 | % | |||||||||||||||||||
The increase in selling, general and administrative expenses was primarily due to higher depreciation and amortization expenses, driven by acquisitions and facility investments, and higher costs associated with compensation and benefits, facilities and distribution to support sales growth. Our ratio of selling, general and administrative expenses to net sales increased by 20 basis points due to increased near-term costs associated with our investments in facilities and acquisitions.
Other Operating Expenses, Net
| 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||
| Other operating expenses, net | $ | 3,413 | $ | 5,734 | $ | (2,321) | (40.5) | % | |||||||||||||||
The decrease in net other operating expense relates primarily to an impairment charge on customer relationships intangible assets of $1.8 million recorded during the twenty-six weeks ended June 30, 2023 related to the loss of a significant Hardie’s Fresh Foods customer post-acquisition, non-cash credits of $0.6 million for changes in the fair value of our contingent earn-out liabilities in the current period compared to non-cash charges of $1.1 million in the prior year period and lower third-party deal costs incurred in connection with business acquisitions and financing arrangements during the twenty-six weeks ended June 28, 2024, partially offset by charges associated with employee severance in the first quarter of 2024.
Interest Expense
19
| 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||
| Interest expense | $ | 24,934 | $ | 22,012 | $ | 2,922 | 13.3 | % | |||||||||||||||
Interest expense increased primarily driven by higher average principal amounts of outstanding debt during the period and higher rates of interest charged on the variable rate portion of our outstanding debt.
Provision for Income Taxes
| 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||
| Provision for income tax expense | $ | 7,481 | $ | 3,959 | $ | 3,522 | 89.0 | % | |||||||||||||||
| Effective tax rate | 30.0 | % | 26.0 | % | |||||||||||||||||||
The higher effective tax rate for the twenty-six weeks ended June 28, 2024 was primarily driven by the non-deductibility of certain compensation-related items.
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):
| June 28, 2024 | December 29, 2023 | ||||||||||
| Senior secured term loan | $ | 266,750 | $ | 276,250 | |||||||
| Total convertible debt | 327,184 | 327,184 | |||||||||
| Borrowings outstanding on asset-based loan facility | 100,000 | 100,000 | |||||||||
| Finance leases and other financing obligations | 38,558 | 31,892 | |||||||||
Recent Financing Transactions
In March 2024, we amended our senior secured term loan agreement, which reduced the interest rate spread by 75 basis points on our senior secured term loan facility. Additionally, during the twenty-six weeks ended June 28, 2024, we made voluntary principal prepayments of $8.0 million towards the senior secured term loan.
During the twenty-six weeks ended June 28, 2024, we made a scheduled principal payment of $5.0 million towards the unsecured note issued in connection with the GreenLeaf acquisition. The note is presented under the caption “Finance leases and other financing obligations” in the table above.
In November 2023, we announced a two-year share repurchase program in an amount up to $100.0 million, targeting $25.0 million to $100.0 million of share repurchases by the end of fiscal 2025. During the thirteen weeks ended June 28, 2024, we repurchased 129,523 shares of our common stock at an average purchase price of $38.58 per share and during the twenty-six weeks ended June 28, 2024, we repurchased 264,076 shares of our common stock at an average purchase price of $37.86 per share. The share repurchases were funded by our available cash. The remaining share purchase authorization was $90.0 million at June 28, 2024. We are not obligated to repurchase any specific number of shares and may suspend or discontinue the program at any time.
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Liquidity
The following table presents selected financial information on liquidity (in thousands):
| June 28, 2024 | December 29, 2023 | ||||||||||
| Cash and cash equivalents | $ | 38,340 | $ | 49,878 | |||||||
Working capital(1), excluding cash and cash equivalents | 302,675 | 295,288 | |||||||||
| Availability under asset-based loan facility | 170,623 | 172,030 | |||||||||
(1) We define working capital as current assets less current liabilities.
We expect our capital expenditures, excluding cash paid for acquisitions, for fiscal 2024 will be approximately $40.0 million to $45.0 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 twelve months.
Cash Flows
The following table presents selected financial information on cash flows (in thousands):
| Twenty-Six Weeks Ended | |||||||||||
| June 28, 2024 | June 30, 2023 | ||||||||||
| Net cash provided by operating activities | $ | 60,226 | $ | 10,783 | |||||||
| Net cash used in investing activities | (33,438) | (142,735) | |||||||||
| Net cash (used in) provided by financing activities | (38,363) | 32,995 | |||||||||
Our cash provided by operating activities is predominately driven by net sales to our customers. Our cash used in operating activities is primarily driven by our payments to suppliers for our inventory, employee compensation, payments to support our facilities, our distribution network, interest on our indebtedness, payments to tax authorities and other general corporate expenditures. Net cash provided by operations was $60.2 million for the twenty-six weeks ended June 28, 2024 compared to $10.8 million for the twenty-six weeks ended June 30, 2023. The increase in cash provided by operating activities was primarily due to sales growth and lower inventory purchase levels in the current period as the prior year results included a strategic pull forward of inventory purchases that did not recur.
Net cash used in investing activities was $33.4 million for the twenty-six weeks ended June 28, 2024, driven by capital expenditures of $33.1 million.
Net cash used in financing activities was $38.4 million for the twenty-six weeks ended June 28, 2024 driven by $14.5 million of payments of debt and other financing obligations, $10.0 million used to repurchase our common stock, $7.3 million paid for shares surrendered to pay tax withholding related to the vesting of equity incentive plan awards, $3.6 million of earn-out payments and $3.8 million of finance lease payments.
Recent Accounting Pronouncements
Information related to new accounting guidance is included in Note 1 “Operations and Basis of Presentation” to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
21
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 June 28, 2024, we had aggregate indebtedness outstanding of $367.6 million that bore interest at variable rates. A 100 basis point increase in market interest rates would decrease our after-tax earnings by approximately $2.6 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 June 28, 2024.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended June 28, 2024 that 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 29, 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, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
Issuer Purchases of Equity Securities
Total Number of Shares Repurchased(1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2) | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in thousands) | |||||||||||||||||||||||
| March 30, 2024 to April 26, 2024 | 1,919 | $ | 36.86 | — | $ | 95,000 | ||||||||||||||||||||
| April 27, 2024 to May 24, 2024 | 4,740 | 36.30 | — | 95,000 | ||||||||||||||||||||||
| May 25, 2024 to June 28, 2024 | 129,979 | 38.58 | 129,523 | 90,000 | ||||||||||||||||||||||
| Total | 136,638 | $ | 38.48 | 129,523 | $ | 90,000 | ||||||||||||||||||||
(1)Represents withholding of 136,638 shares of our common stock during the thirteen weeks ended June 28, 2024 to satisfy tax withholding requirements related to restricted shares of our common stock awarded to our officers and key employees
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resulting from either elections under 83(b) of the Internal Revenue Code of 1986, as amended, or upon vesting of such awards, in addition to shares purchased as part of a publicly announced program.
(2)In November 2023, we announced a two-year share repurchase program in an amount up to $100.0 million targeting $25.0 million to $100.0 million of share repurchases by the end of fiscal 2025.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
Rule 10b5-1 and Non-Rule 10b5-1 Trading Arrangements
During the quarterly period covered by this report, none of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act, of 1934, as amended) adopted terminated
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ITEM 6. EXHIBITS
| Exhibit No. | Description | |||||||
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||||||
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||||||
| Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||||||||
| Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||||||||
| 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 | |||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document. | |||||||
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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 July 31, 2024.
| THE CHEFS’ WAREHOUSE, INC. | |||||||||||
| (Registrant) | |||||||||||
| Date: July 31, 2024 | /s/ James Leddy | ||||||||||
| James Leddy | |||||||||||
| Chief Financial Officer | |||||||||||
| (Principal Financial Officer) | |||||||||||
| Date: July 31, 2024 | /s/ Timothy McCauley | ||||||||||
| Timothy McCauley | |||||||||||
| Chief Accounting Officer | |||||||||||
| (Principal Accounting Officer) | |||||||||||
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