Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 1.32M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 25K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 25K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 22K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 22K
11: R1 Cover Page HTML 73K
12: R2 Consolidated Balance Sheets HTML 127K
13: R3 Consolidated Balance Sheets (Parenthetical) HTML 42K
14: R4 Consolidated Statements of Operations and HTML 98K
Comprehensive Income (Loss)
15: R5 Consolidated Statements of Changes in HTML 78K
Stockholders' Equity
16: R6 Consolidated Statements of Cash Flows HTML 110K
17: R7 Operations and Basis of Presentation HTML 29K
18: R8 Summary of Significant Accounting Policies HTML 75K
19: R9 Net Income (Loss) per Share HTML 68K
20: R10 Fair Value Measurements HTML 44K
21: R11 Acquisitions HTML 53K
22: R12 Inventories HTML 22K
23: R13 Equipment, Leasehold Improvements and Software HTML 55K
24: R14 Goodwill and Other Intangible Assets HTML 54K
25: R15 Debt Obligations HTML 59K
26: R16 Stockholders' Equity HTML 48K
27: R17 Related Parties HTML 24K
28: R18 Supplemental Disclosures of Cash Flow Information HTML 37K
29: R19 Subsequent Events HTML 23K
30: R20 Operations and Basis of Presentation (Policies) HTML 44K
31: R21 Summary of Significant Accounting Policies HTML 62K
(Tables)
32: R22 Net Income (Loss) per Share (Tables) HTML 72K
33: R23 Fair Value Measurements (Tables) HTML 44K
34: R24 Acquisitions (Tables) HTML 52K
35: R25 Equipment, Leasehold Improvements and Software HTML 53K
(Tables)
36: R26 Goodwill and Other Intangible Assets (Tables) HTML 61K
37: R27 Debt Obligations (Tables) HTML 55K
38: R28 Stockholders' Equity (Tables) HTML 42K
39: R29 Supplemental Disclosures of Cash Flow Information HTML 37K
(Tables)
40: R30 Operations and Basis of Presentation - Narrative HTML 25K
(Details)
41: R31 Summary of Significant Accounting Policies - HTML 31K
Narrative (Details)
42: R32 Summary of Significant Accounting Policies - HTML 61K
Schedule of Disaggregation of Revenue (Details)
43: R33 Net Income (Loss) per Share - Computation of Basic HTML 41K
and Diluted Earnings per Share (Details)
44: R34 Net Income (Loss) per Share - Schedule of HTML 56K
Reconciliation of Earnings per Share (Details)
45: R35 Net Income (Loss) per Share - Schedule of HTML 31K
Potentially Dilutive Securities Excluded from
Calculation of Diluted Net Loss per Share
(Details)
46: R36 Fair Value Measurements - Narrative (Details) HTML 22K
47: R37 Fair Value Measurements - Summary of Changes in HTML 30K
Level 3 Contingent Consideration Liability
(Details)
48: R38 Fair Value Measurements - Summary of the Carrying HTML 33K
Value and Fair Value of Convertible Subordinated
Notes (Details)
49: R39 Acquisitions - Narrative (Details) HTML 51K
50: R40 Acquisitions - Pro Forma Consolidated Statement of HTML 34K
Operations Information - Capital Seaboard
(Details)
51: R41 Acquisitions - Schedule of Purchase Price HTML 57K
Allocation (Details)
52: R42 Inventories - Narrative (Details) HTML 22K
53: R43 Equipment, Leasehold Improvements and Software HTML 64K
(Details)
54: R44 Equipment, Leasehold Improvements and Software - HTML 34K
Components of Depreciation and Amortization
Expense (Details)
55: R45 Goodwill and Other Intangible Assets - Goodwill HTML 31K
(Details)
56: R46 Goodwill and Other Intangible Assets - Intangible HTML 39K
assets (Details)
57: R47 Goodwill and Other Intangible Assets - Narrative HTML 23K
(Details)
58: R48 Goodwill and Other Intangible Assets - Future HTML 35K
amortization (Details)
59: R49 Debt Obligations - Schedule of Debt Obligations HTML 44K
(Details)
60: R50 Debt Obligations - Narrative (Details) HTML 57K
61: R51 Debt Obligations - Schedule of Convertible Senior HTML 33K
Notes (Details)
62: R52 Debt Obligations - Schedule of Components of HTML 30K
Interest Expense (Details)
63: R53 Stockholders' Equity - Schedule of Restricted HTML 58K
Stock Awards (Details)
64: R54 Stockholders' Equity - Narrative (Details) HTML 54K
65: R55 Related Parties - Narrative (Details) HTML 25K
66: R56 Supplemental Disclosures of Cash Flow Information HTML 45K
- Summary of Supplemental Cash Flow Disclosures
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(Exact name of registrant as specified in its charter)
iDelaware
i20-3031526
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
i100 East Ridge Road
iRidgefield,
iConnecticuti06877
(Address of principal executive offices)
Registrant’s telephone number, including area code: (i203)
i894-1345
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon
Stock, par value $0.01
iCHEF
iThe NASDAQ Stock Market LLC
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. iYes☒ 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). iYes☒ 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.
iLarge
accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
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 i☐ No ☒
Number of shares of common stock, par value $.01 per share, outstanding at July 25, 2022: i38,260,862
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 Offered Rate (LIBOR), or the replacement of LIBOR with an alternative rate; 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, 2022 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.
Accounts
receivable, net of allowance of $i19,798 in 2022 and $i20,260 in 2021
i208,229
i172,540
Inventories,
net
i181,594
i144,491
Prepaid
expenses and other current assets
i36,323
i37,774
Total
current assets
i477,952
i469,960
Equipment,
leasehold improvements and software, net
i155,564
i133,622
Operating
lease right-of-use assets
i138,591
i130,701
Goodwill
i237,788
i221,775
Intangible
assets, net
i118,526
i104,743
Deferred
taxes, net
i4,376
i9,380
Other
assets
i4,081
i3,614
Total
assets
$
i1,136,878
$
i1,073,795
LIABILITIES
AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
i144,547
$
i118,284
Accrued
liabilities
i44,817
i35,390
Short-term
operating lease liabilities
i17,430
i15,882
Accrued
compensation
i19,292
i22,321
Current
portion of long-term debt
i4,843
i5,141
Total
current liabilities
i230,929
i197,018
Long-term
debt, net of current portion
i392,980
i394,160
Operating
lease liabilities
i134,714
i127,296
Other
liabilities and deferred credits
i4,568
i5,110
Total
liabilities
i763,191
i723,584
Commitments
and contingencies
i
i
Stockholders’ equity:
Preferred
Stock - $ii0.01/ par value, ii5,000,000/
shares authorized, iiiino///
shares issued and outstanding at June 24, 2022 and December 24, 2021
i—
i—
Common
Stock - $ii0.01/ par value, ii100,000,000/
shares authorized, ii38,257,455/ and ii37,887,675/
shares issued and outstanding at June 24, 2022 and December 24, 2021, respectively
i383
i380
Additional
paid-in capital
i319,364
i314,242
Accumulated
other comprehensive loss
(i1,971)
(i2,022)
Retained
earnings
i55,911
i37,611
Total
stockholders’ equity
i373,687
i350,211
Total
liabilities and stockholders’ equity
$
i1,136,878
$
i1,073,795
See
accompanying notes to the consolidated financial statements
4
THE CHEFS’ WAREHOUSE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Amounts in thousands, except share and per share amounts)
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization
i11,755
i10,660
Amortization
of intangible assets
i6,819
i6,643
Benefit
for allowance for doubtful accounts
i1,817
i488
Non-cash
operating lease expense
i1,076
i209
Provision
(benefit) for deferred income taxes
i5,004
(i7,755)
Amortization
of deferred financing fees
i1,009
i1,364
Stock
compensation
i5,982
i5,738
Change
in fair value of contingent earn-out liabilities
i3,628
(i1,420)
Intangible
asset impairment
i—
i597
Loss
on asset disposal
i17
i224
Changes
in assets and liabilities, net of acquisitions:
Accounts receivable
(i24,659)
(i37,107)
Inventories
(i30,569)
(i39,347)
Prepaid
expenses and other current assets
i106
(i101)
Accounts
payable, accrued liabilities and accrued compensation
i19,733
i52,541
Other
assets and liabilities
(i237)
i167
Net
cash provided by (used in) operating activities
i19,781
(i23,922)
Cash
flows from investing activities:
Capital expenditures
(i23,490)
(i9,574)
Cash
paid for acquisitions, net of cash received
(i52,007)
(i7,165)
Net
cash used in investing activities
(i75,497)
(i16,739)
Cash
flows from financing activities:
Payment of debt, finance lease and other financing obligations
(i2,769)
(i34,372)
Proceeds
from debt issuance
i—
i51,750
Payment
of deferred financing fees
(i406)
(i1,450)
Surrender
of shares to pay withholding taxes
(i2,558)
(i1,487)
Cash
paid for contingent earn-out liability
(i2,000)
(i83)
Payments
under asset-based loan facility
i—
(i20,000)
Net
cash used in financing activities
(i7,733)
(i5,642)
Effect
of foreign currency on cash and cash equivalents
i100
(i58)
Net
change in cash and cash equivalents
(i63,349)
(i46,361)
Cash
and cash equivalents-beginning of period
i115,155
i193,281
Cash
and cash equivalents-end of period
$
i51,806
$
i146,920
See
accompanying notes to the consolidated financial statements.
7
THE CHEFS’ WAREHOUSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share amounts)
Note 1 - iOperations
and Basis of Presentation
Description of Business and Basis of Presentation
The financial statements include the consolidated accounts of The Chefs’ Warehouse, Inc. (the “Company”), and its wholly-owned subsidiaries. iThe Company’s quarterly periods end on the thirteenth Friday of each quarter. Fiscal 2022 will include a fourteenth week in the fourth 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.iThe Company’s business consists of ithree
operating segments: East Coast, Midwest and West Coast that aggregate into ione 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
iThe 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
i
The accompanying unaudited consolidated financial statements and the related interim information contained within the notes to such unaudited 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 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, 2021 filed as part of the Company’s Annual Report on Form 10-K, as filed with the SEC on February 22, 2022.
The unaudited 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, 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 and twenty-six weeks ended June 24, 2022 are not necessarily indicative of the results to be expected for the full year.
iThe
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.
8
Note
2 – iSummary of Significant Accounting Policies
Revenue Recognition
iRevenues
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 i14 to i60
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 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 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./
i
The following table presents the Company’s net sales disaggregated by principal product category:
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 $i9,398
and $i6,679 for the thirteen weeks ended June 24, 2022 and June 25, 2021, respectively, and $i18,434
and $i12,075 for the twenty-six weeks ended June 24, 2022 and June 25, 2021, respectively.
9
Note
3 – iNet Income (Loss) per Share
i
The following table sets forth the computation of basic and diluted net income (loss) per common share:
Net
income (loss) available to common shareholders
$
i17,634
$
i1,098
$
i19,665
$
(i16,823)
Denominator:
Weighted
average basic common shares outstanding
i37,100,968
i36,831,054
i37,018,044
i36,615,463
Dilutive
effect of unvested common shares
i263,071
i250,132
i296,538
i—
Dilutive
effect of stock options and warrants
i73,381
i—
i56,817
i—
Dilutive
effect of convertible notes
i4,616,033
i—
i4,524,980
i—
Weighted
average diluted common shares outstanding
i42,053,453
i37,081,186
i41,896,379
i36,615,463
/
i
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:
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 $i2,793 and $i3,252 as
of June 24, 2022 and December 24, 2021, respectively, and are reflected as other liabilities and deferred credits on the consolidated balance sheets. The remaining short-term earn-out liabilities are reflected as accrued liabilities on the 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.
10
Changes
in the fair value of contingent earn-out liabilities are reflected in other operating expenses (income), net on the consolidated statements of operations.
i
The following table presents the changes in Level 3 contingent earn-out liabilities:
The following table presents the carrying value and fair value of the Company’s convertible notes. In estimating the fair value of the convertible 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.
During the second quarter of fiscal 2022, the Company completed itwo
acquisitions for an aggregate purchase price of approximately $i22,500, paid in cash, subject to customary working capital adjustments. The Company will also pay additional contingent consideration, if earned, in the form of earn-out amounts which could total $i2,000
in the aggregate. 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 $i3,947 will be amortized over 15 years for tax purposes.
Capital Seaboard
On December 28, 2021, pursuant to an asset purchase agreement, the
Company acquired substantially all of the assets of CGC Holdings, Inc. (“Capital Seaboard”), a specialty seafood and produce distributor in Maryland. The purchase price was approximately $i31,036, consisting of $i28,000
paid in cash at closing, common stock warrants valued at $i1,701, and $i1,335
paid upon settlement of a net working capital true-up. The Company is in the process of finalizing a valuation of tangible and intangible assets of Capital Seaboard as of the acquisition date. When applicable, these valuations require the use of Level 3 inputs. Goodwill for the Capital Seaboard 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 markets and any intangible assets that do not qualify for separate recognition.
i
The
Company reflected net sales and income before taxes in its consolidated statement of operations related to the Capital Seaboard acquisition as follows:
The
table below presents unaudited pro forma consolidated income statement information of the Company as if the acquisitions had occurred on December 26, 2020. 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 and depreciation of the acquisitions at their respective fair values.
The
table below sets forth the preliminary purchase price allocation for these acquisitions:
Capital Seaboard
Other Acquisitions
Current assets
$
i10,130
$
i8,834
Customer
relationships
i7,250
i10,410
Trademarks
i2,280
i620
Goodwill
i8,334
i8,537
Fixed
assets
i9,552
i197
Other
assets
i122
i17
Current
liabilities
(i6,632)
(i4,915)
Earn-out
liability
i—
(i1,200)
Issuance
of warrants
(i1,701)
i—
Total
cash consideration
$
i29,335
$
i22,500
/
The
Company recognized professional fees of $i1,019 in operating expenses related to acquisition related activities in the second quarter of fiscal 2022.
Note 6 – iInventories
Inventories
consist primarily of finished product and are reflected net of adjustments for shrinkage, excess and obsolescence totaling $i9,315 and $i8,312 at June 24,
2022 and December 24, 2021, respectively.
12
Note 7 – iEquipment, Leasehold Improvements and Software
Equipment,
leasehold improvements and software, net
$
i155,564
$
i133,622
/
Construction-in-process
at June 24, 2022 related primarily to the implementation of the Company’s Enterprise Resource Planning (“ERP”) system and the build-out of the Company’s Miami distribution facility and at December 24, 2021 related primarily to the build-outs of the Company’s Miami and Los Angeles distribution facilities. The net book value of equipment financed under finance leases at June 24, 2022 and December 24, 2021 was $i9,774
and $i10,874, respectively.
The components of depreciation and amortization expense were as follows:
Amortization
expense for other intangibles was $i3,463 and $i3,104 for the thirteen weeks ended June 24, 2022
and June 25, 2021, respectively, and $i6,819 and $i6,643 for the twenty-six weeks ended June 24,
2022 and June 25, 2021, respectively.
i
Estimated amortization expense for other intangible assets for the remainder of the fiscal year ending December 30, 2022 and each of the next four fiscal years and thereafter is as follows:
Deferred
finance fees and original issue premium (discount)
(i4,197)
(i4,976)
Total
debt obligations
i397,823
i399,301
Less:
current installments
(i4,843)
(i5,141)
Total
debt obligations excluding current installments
$
i392,980
$
i394,160
/
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 $i150,000 to $i200,000.
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 extended to at least March 11, 2027 or March 24,
2024 if the Company’s i1.875% Convertible Senior Notes due 2024 in an aggregate principal amount in excess of $i40,000
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 i1:1
if the amount of availability under the ABL Facility falls below $i14,000, or i10%,
of the lesser of the aggregate commitments and the borrowing base then in effect.
The third amendment was accounted for as a debt modification. The Company incurred transaction costs of $i406 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.
Amortization
of deferred financing fees and premium
$
i224
$
i224
$
i448
$
i465
Total
interest
$
i1,162
$
i1,162
$
i2,323
$
i2,184
/
The
Company’s senior secured term loan credit agreement requires the Company to maintain at least $i35,000 of liquidity as of the last day of any fiscal quarter where EBITDA, as defined in the Credit Agreement, is less than $i10,000.
The Company had minimum liquidity, as defined in the Credit Agreement, of $i222,514 as of June 24, 2022.
As of June 24, 2022, the Company had reserved $i20,541
of the ABL Facility for the issuance of letters of credit. As of June 24, 2022, funds totaling $i159,460 were available for borrowing under the ABL Facility. At June 24, 2022, the interest rate charged on the Company’s senior secured term loan was approximately i6.6%
and the interest rate charged on the Company’s ABL Facility was approximately i4.5%.
Note 10 – iStockholders’
Equity
Equity Awards
i
The following table reflects the activity of RSAs during the twenty-six weeks ended June 24, 2022:
The
Company granted i489,344 RSAs to its employees and directors at a weighted average grant date fair value of $i30.50
during the twenty-six weeks ended June 24, 2022. These awards are a mix of time-, market- and performance-based grants that generally vest over a range of periods up to ifour years. The Company recognized expense totaling $i2,939
and $i3,280 on its RSAs during the thirteen weeks ended June 24, 2022 and June 25, 2021, respectively, and $i5,982
and $i5,738 during the twenty-six weeks ended June 24, 2022 and June 25, 2021, respectively.
At June 24, 2022, the total unrecognized compensation cost for unvested RSAs was $i23,850
and the weighted-average remaining period was approximately i2.2 years. Of this total, $i11,916
related to RSAs with time-based vesting provisions and $i11,934 related to RSAs with performance-based vesting provisions. At June 24, 2022, the weighted-average remaining period for time-based vesting and performance-based vesting RSAs were approximately i2.1
years and i2.2 years, respectively.
iNo
share-based compensation expense related to the Company’s RSAs or stock options has been capitalized. As of June 24, 2022, there were i2,088,866 shares available for grant under the 2019 Omnibus Equity Incentive Plan.
15
Note
11 – iRelated Parties
The Chefs’ Warehouse Mid-Atlantic, LLC, a subsidiary of the Company, leases a distribution facility that is i100% 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 one of its directors, and are deemed to be affiliates of these individuals. Expense related to this facility totaled $ii123/ during
the thirteen weeks ended June 24, 2022 and June 25, 2021, and $ii246/
during the twenty-six weeks ended June 24, 2022 and June 25, 2021.
Note 12 – iSupplemental Disclosures of Cash Flow Information
Cash
paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
i13,837
$
i12,752
Operating
cash flows from finance leases
$
i223
$
i282
ROU
assets obtained in exchange for lease liabilities:
Operating leases
$
i20,116
$
i1,625
Finance
leases
$
i411
$
i162
Other
non-cash investing and financing activities:
Warrants issued for acquisitions
$
i1,701
$
i1,120
Contingent
earn-out liabilities for acquisitions
$
i1,200
$
i3,400
/
Note
13 – iSubsequent Events
On July 25, 2022, the Company entered into a stock purchase agreement to acquire substantially all of the shares of a center-of-the-plate distributor in Florida. The purchase price was $i10,000
paid in cash at closing and is subject to a customary working capital true-up. The Company has not provided the preliminary purchase price allocation for this acquisition as the initial accounting is incomplete.
16
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 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. 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. We offer more than 50,000 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 35,000 customer locations, primarily located in our nineteen geographic markets across the United States 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 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 $152.3 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
During the second quarter of fiscal 2022, the Company completed two acquisitions for an aggregate purchase price of approximately $22.5 million, paid in cash, subject to customary working capital adjustments. The Company will also pay additional contingent consideration, if earned, in the form of earn-out amounts which could total $2 million in the aggregate.
On December 28, 2021, pursuant to an asset purchase agreement, we acquired substantially all of the assets of CGC Holdings, Inc. (“Capital Seaboard”), a specialty seafood and produce distributor in Maryland. The purchase price was approximately $31.0
million consisting of $28.0 million paid in cash at closing, common stock warrants of $1.7 million , and $1.3 million paid upon settlement of a net working capital true-up.
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.
Organic growth contributed $152.3 million, or 36.0%, to sales growth and the remaining sales growth of $72.9 million, or 17.2%, resulted from acquisitions. Organic case count increased approximately
34.8% in our specialty category. In addition, specialty unique customers and placements increased 35.9% and 54.6%, respectively, compared to the prior year period. Organic pounds sold in our center-of-the-plate category increased 14.2% compared to the prior year. Estimated inflation was 16.4% in our specialty category and 10.9% in our center-of-the-plate category compared to the prior year period.
Gross Profit
2022
2021
$
Change
% Change
Gross profit
$
156,004
$
95,874
$
60,130
62.7
%
Gross profit margin
24.1
%
22.7
%
Gross
profit increased primarily as a result of increased sales and price inflation. Gross profit margin increased approximately 140 basis points. Gross profit margins decreased 70 basis points in the Company’s specialty category and increased 230 basis points in the Company’s center-of-the-plate category.
Selling, General and Administrative Expenses
2022
2021
$
Change
% Change
Selling, general and administrative expenses
$
124,487
$
90,358
$
34,129
37.8
%
Percentage of net sales
19.2
%
21.4
%
The
increase in selling, general and administrative expenses was primarily due to higher costs associated with compensation and benefits to support sales growth. Our ratio of selling, general and administrative expenses to net sales decreased predominately due to sales growth which contributed to improved fixed cost leverage in the quarter.
18
Other Operating Expenses, Net
2022
2021
$
Change
% Change
Other operating expenses, net
$
3,883
$
857
$
3,026
353.1
%
The
increase in net other operating expenses was primarily due to non-cash charges of $3.3 million for changes in the fair value of our contingent earn-out liabilities compared to non-cash credits of $0.1 million in the prior year period. The prior year period also includes a $0.6 million impairment of Cambridge trademarks as a result of a shift in brand strategy to leverage our Allen Brothers brand in our New England region during the second quarter of fiscal 2021.
Interest Expense
2022
2021
$
Change
% Change
Interest expense
$
4,465
$
4,408
$
57
1.3
%
Interest
expense was relatively unchanged compared to the prior year period.
Provision for Income Taxes
2022
2021
$ Change
%
Change
Provision for income tax expense (benefit)
$
6,254
$
(847)
$
7,101
(838.4)
%
Effective tax rate
27.0
%
(337.5)
%
The
negative effective tax rate in the prior year period was driven by a $1.5 million discrete permanent difference related to stock compensation expense.
Organic growth contributed $328.5 million, or 46.7%, to sales growth and the remaining sales growth of $128.5 million, or 18.3%, resulted from acquisitions. Organic case count increased approximately
40.0% in our specialty category. In addition, specialty unique customers and placements increased 33.0% and 49.1%, respectively, compared to the prior year period. Organic pounds sold in our center-of-the-plate category increased 19.3% compared to the prior year. Estimated inflation was 15.8% in our specialty category and 17.8% in our center-of-the-plate category compared to the prior year period.
Gross Profit
2022
2021
$
Change
% Change
Gross profit
273,517
154,821
118,696
76.7
%
Gross profit margin
23.6
%
22.0
%
Gross
profit increased primarily as a result of sales growth and price inflation. Gross profit margin increased approximately 156 basis points. Gross profit margins increased 42 basis points in the Company’s specialty category and increased 175 basis points in the Company’s center-of-the-plate category.
Selling, General and Administrative Expenses
2022
2021
$
Change
% Change
Selling, general and administrative expenses
234,573
170,603
63,970
37.5
%
Percentage of net sales
20.2
%
24.3
%
19
The
increase in selling, general and administrative expenses was primarily due to higher costs associated with compensation and benefits 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 in the quarter..
Other Operating Expenses (Income ), Net
2022
2021
$
Change
% Change
Other operating expenses (income), net
5,046
(313)
5,359
(1,712.1)
%
The
increase in net other operating expense relates primarily to non-cash charges of $3.6 million for changes in the fair value of our contingent earn-out liabilities in the fiscal 2022 period compared to non-cash credits of $(1.4) million in the prior year period. The prior year period also includes a $0.6 million impairment of Cambridge trademarks as a result of a shift in brand strategy to leverage our Allen Brothers brand in our New England region during the second quarter of fiscal 2021.
Interest Expense
2022
2021
$
Change
% Change
Interest expense
8,830
9,171
(341)
(3.7)
%
Interest
expense decreased primarily due to lower effective interest rates charged on our outstanding debt as a result of the $50.0 million aggregate principal amount of Convertible Senior Notes issued on March 1, 2021 which were used to repay higher interest rate debt.
Provision for Income Taxes
2022
2021
$
Change
% Change
Provision for income tax expense (benefit)
6,768
(7,817)
14,585
(186.6)
%
Effective tax rate
27.0
%
31.7
%
The higher
effective tax rate in the prior period includes the impact of a $1.5 million discrete permanent difference related to stock compensation expense.
20
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):
Borrowings outstanding on asset-based loan facility
20,000
20,000
Finance leases and other financing obligations
10,201
11,602
Total
$
402,020
$
404,277
As
of June 24, 2022, we have various floating- and fixed-rate debt instruments with varying maturities for an aggregate principal amount of $391.8 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):
Working capital,excluding cash and cash equivalents
195,217
157,787
Availability
under asset-based loan facility
159,460
109,459
Total
$
406,483
$
382,401
We expect our capital expenditures, excluding cash paid for acquisitions, for fiscal 2022 will be approximately $36.0 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 12 months.
Cash Flows
The following table presents selected financial information on cash flows (in thousands):
Net cash provided by (used in) operating activities
$
19,781
$
(23,922)
Net cash used in investing activities
$
(75,497)
$
(16,739)
Net
cash used in financing activities
$
(7,733)
$
(5,642)
Net cash provided by operations was $19.8 million for the twenty-six weeks ended June 24, 2022 consisting of a net income of $18.3 million and $37.1 million of non-cash charges, partially offset by investments in working capital growth of $35.6 million. Non-cash charges increased $20.4 million primarily due to a $12.8 million change in deferred tax expenses and a $5.0 million
21
increase
in changes in the fair value of earn-out liabilities. The cash used for working capital growth of $11.8 million is primarily driven by the Company’s reinvestment in working capital to support sales growth.
Net cash used in investing activities was $75.5 million for the twenty-six weeks ended June 24, 2022, driven by capital expenditures of $23.5 million which includes the purchase of our distribution facility in Columbus, Ohio and $52.0 million in cash paid for acquisitions.
Net cash used in financing activities was $7.7 million for the twenty-six weeks ended June 24, 2022 driven by $2.8 million of payments made on senior term loans and finance lease obligations,
$2.6 million of shares surrendered to pay tax withholding related to the vesting of equity incentive plan awards and $2.0 million of earn-out liability payments classified as financing activities.
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 June 24, 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 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 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 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.
22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest
Rate Risk
As of June 24, 2022, we had an aggregate $187.8 million of indebtedness outstanding under the Term Loan and ABL Facility 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 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 24, 2022.
Changes in Internal Control over Financial Reporting
There were no changes
in our internal control over financial reporting during the quarter ended June 24, 2022 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 consolidated financial statements, and no material amounts have been accrued in our 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, 2021 filed with the SEC on February 22, 2022. 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
(1)During
the twenty-six weeks ended June 24, 2022, we withheld 15,137 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.
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
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 27, 2022.
