Q3 2022 Chefs' Warehouse Inc Earnings Call
[music].
Greetings and welcome to the chefs warehouse third quarter 2022 earnings conference call.
Remind us this conference is being recorded.
Now I'd like to tell the conference over to your host Alex Aldous General Counsel Corporate Secretary and Chief Government Relations Officer. Please go ahead Sir.
Thank you operator, good morning, everyone with me on today's call are Chris Pappas, founder, Chairman and CEO and Jim Leddy, our CFO by now you should have access to our third quarter 2022 earnings press release. It can also be found at www Dot chefs warehouse dot com under the Investor Relations section throughout this conference call we will be.
<unk> non-GAAP financial measures, including among others historical and estimated EBITDA and adjusted EBITDA as well as both historical and estimated adjusted net income and adjusted earnings per share.
Those measurements are not calculated in accordance with GAAP and maybe calculated differently than similarly, titled non-GAAP financial measures used by other companies.
Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release.
Before we begin our formal remarks I need to remind everyone that part of our discussion today will include forward looking statements, including statements regarding our estimated financial performance.
Forward looking statements are not guarantees of future performance and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect some of these risks are mentioned in todays release, others are discussed in our annual report on Form 10-K, and quarterly reports on Form 10-Q.
Which are available on the SEC website.
Today, we are going to provide a business update and go over our third quarter results in detail and then we will open up the call for questions with that I will turn the call over to Chris Pappas Chris.
Thank you Alex and thank you all for joining our third quarter 2022 earnings call.
Customer demand was strong throughout the third quarter and the cadence of business activity return to seasonal shifts more typical of the pre pandemic environment.
Seasonal September strength due to return from vacation was complemented by a moderate increase in return to office activity in many of our larger markets while product costs in aggregate remained relatively unchanged.
As the second quarter of 'twenty two.
Pricing continues to be firm in most categories, we continue to see new openings.
Gradual increases in hotel catering.
<unk> related business.
A few highlights from the third quarter as compared to the third quarter of 2021 include.
22, 2% organic growth in net sales.
<unk> sales were up 31, 6% organically over the prior year, which was driven by unique customer growth of approximately 25, 9%.
<unk> growth of 42, 1% in <unk>.
Specialty case growth of 18, 3%.
Organic pounds in center of the plate Ware, approximately 11, 6% higher than the prior year third quarter.
Gross profit margins increased approximately 113 basis points.
Gross margin in the specialty category decreased 133 basis points as compared to the third quarter of 2021.
While gross margin in the center of the plate category increased 238 basis points year over year, Jim will provide more detail on gross profit and margins in a few moments.
During the third quarter, our team made progress on a number of key initiatives aimed at further integrating recent acquisitions and leveraging the CW platform.
To provide our sales teams and customers with a continually growing and diverse product portfolio, while creating operational cost efficiencies in our delivery model.
In new England, we have ramped up the cross sell of Allen brothers northeast premium protein products.
Our specialty produce trucks.
This process.
Juices distribution cost inputs higher gross profit dollar boxes on our key northeast routes.
On the West Coast, we completed the fold in of University food into our Los Angeles distribution Center and have begun the process of expanding our distribution platform and the northwest.
We have signed the lease for our new facility in Portland, Oregon, and we expect to combine our legacy Tw specialty operations with recently acquired electric specialty foods within the next two years, we look forward to accelerate growth in the region, while creating operating leverage once the project is.
Please.
And the mid Atlantic region, we have recently completed the retrofit of our capital Seaboard distribution Center.
With the capability to offer customers in the region more of chefs warehouse specialty and premium protein products.
Along with produce and seafood.
In Texas, where our specialty business continues to grow rapidly.
We are in the final stages of the build out of our new album Brothers protein processing facility located in Dallas.
We expect to begin operations in early 2023.
Bringing us closer to our Texas customer base in that.
Adding to our growth in the Lone Star State.
I would like to thank all of our team members for their hard work expertise and dedication in delivering value for our supplier partners customers and colleagues during our successful third quarter.
Our people our chefs warehouse greatest asset and together, we look forward to continued growth for the remainder of 2022 as.
As well as into 2023 and beyond.
That I will turn it over to Jim to discuss more detailed financial information for the quarter and an update on our liquidity Jim.
Thank you, Chris and good morning, everyone I'll now provide a comparison of our current quarter operating results versus the prior year quarter and provide an update on our balance sheet and liquidity.
Sales for the quarter ended September 23rd 2022 increased approximately 36, 7% to $661 9 million from $484 3 million in the third quarter of 2021.
<unk> net sales was the result of an increase in organic sales of approximately 22, 2% as well as the contribution of sales from acquisitions, which added approximately 14, 5% to sales growth for the quarter.
Net inflation was eight 7% in the third quarter, consisting of 15% inflation in our specialty category and inflation of two 2% and our center of the plate category versus the prior year quarter.
Gross profit increased 43, 5% to $157 8 million for the third quarter of 2022 versus $110 million for the third quarter of 2021.
Gross profit margins increased approximately 113 basis points to 23, 8%.
Year over year inflation was broad based across specialty categories, while slightly inflationary on a year over year basis in aggregate certain center of plate categories were moderately deflationary compared to the prior year quarter.
Selling general and administrative expenses increased approximately 31% to $130 3 million for the third quarter of 2022 from $99 4 million for the third quarter of 2021.
The primary drivers of higher expenses were higher compensation and distribution costs associated with higher year over year volume growth route expansion and increased fuel costs.
Adjusted operating expenses increased 33, 9% versus the prior year third quarter and as a percentage of net sales adjusted operating expenses were 17, 6% for the third quarter of 2022 compared to 18% for the third quarter of 2021.
Operating income for the third quarter of 2022 was $22 1 million compared to $10 4 million for the third quarter of 2021. The increase in operating income was driven primarily by higher gross profit, partially offset by higher higher operating costs.
Income tax expense was $3 1 million for the third quarter of 2022.
Third to $2 8 million for the third quarter of 2021.
Our GAAP net income was $8 3 million or 21 cents income per diluted share for the third quarter of 2022.
Compared to net income of $3 5 million or nine income per diluted share for the third quarter of 2021.
On a non-GAAP basis, we had adjusted EBITDA of 41 million for the third quarter of 2022 compared to $23 4 million for the third quarter of the prior year. Adjusted net income was $16 4 million or 41 since income per diluted share for the third quarter of 2022 compared to $4 five.
Or 12 since income per diluted share for the prior year third quarter.
Turning to the balance sheet and an update on our liquidity during the third quarter. We completed the issuance of a $300 million term loan maturing in August of 2029.
Proceeds of the loan were used to repay the $167 million term loan maturing in June of 2025 pay fees and expenses associated with the transaction and retain approximately $108 million to $18 million in cash on the balance sheet.
More detail on the transaction is available in our 10-Q filed this morning.
Interest expense for the third quarter of 2022 was $10 7 million compared to $4 2 million in the third quarter of 2021. The increase was driven primarily by approximately $4 5 million of third party transaction fees associated with the refinancing.
At the end of the third quarter, we had total liquidity of $322 2 million comprised of $145 4 million in cash and $176 8 million of availability under our ABL facility.
As of September 23, 2022, net debt was approximately 349 million inclusive of all cash and cash equivalents.
Turning to our full year guidance for 2022 based on the current trends in the business, we are updating and raising our full year guidance as follows.
We estimate that net sales for the full year of 2022 will be in the range of $2 45 billion to $2 five 5 billion gross profit to be between $575 million and $599 million and adjusted EBITDA to be between $145 million and $155 million.
Our full year estimated diluted share count is approximately 42 5 million shares.
Currently expect our senior unsecured convertible notes to be dilutive for the full year and accordingly, those shares that could be issued upon conversion of the notes are included in the fully diluted share count.
Thank you and at this point, we will open up to questions operator.
Thank you Sir.
We will now be conducting a question and answer question.
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I'll keep that.
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Participants using speaker equipment, it may be necessary to pick up your handset before pressing the stops.
The first question you have got you Alex Slagle from Jefferies. Please go ahead.
Hey, Thanks, good morning, and congrats to all of your hard work paying off clearly.
Very strong <unk> and.
Yes also helped by the favorable summer demand backdrop, so as we shift to a more normal seasonality ahead can you help us kind of think through what the expectations are implied in the fourth Q.
I guess what the.
Implied EBITDA.
Fairly similar I think to that reported <unk> number and the gross margin at the midpoint I guess expected to be up year over year, but.
For some reason.
Let me talk through some of the drivers.
Okay.
Okay.
Hey, Alex Youre kind of trailed off.
Your question at the end there could you repeat the second part of your question.
Oh, sorry.
That was in there.
Yes that.
On the gross margin expectations.
For the fourth quarter.
Sure looks like at the midpoint, it's to be up year over year, but.
Contract.
What versus the recent <unk> levels. So if you can kind of maybe some of the drivers there whether that's pricing changes or some conservatism there or what.
Yes, I think.
It's just a little bit of continued conservatism, maybe just on the gross margin side I think the fourth quarter as is typically our strongest gross margin quarter.
Quarter.
Nothing that would indicate that we would expect.
<unk> different but.
I think it's reflected in the.
In the updated adjusted.
Adjusted EBIT guidance.
I think from a guidance perspective, we came into the year with a fee.
Fairly gradual build type of conservative view and we've adjusted the guidance throughout the year to reflect the strength that we've seen.
The cadence in the in the third quarter to your point was really a return to typical seasonality August July and August were slightly weaker.
Then may and June and Thats typical although there was an underlying strength to that and then as Chris mentioned in his prepared remarks <unk>.
September we really saw some some good seasonality strength come back in a specialty with some return to return to the office and some of our.
Business.
<unk> markets.
Starting to come back than we had expected that to be to come back towards the back half of the year and it's kind of <unk>.
Yeah.
The trending going into Q4.
Got it that's helpful. Thank you.
And then just stepping back bigger picture I mean, any kind of high level goals. You have is as you get towards year end here and think about what you want to accomplish in 2023 and whether that's growth their operations, our people and sort of what you think needs to happen to get there.
Well I mean.
This business you don't just flip on the switch.
Our people are prepared.
We anticipate.
A great fourth quarter, a record fourth quarter.
We get to see the bookings we see.
All of the parties that are.
Our book.
A lot of our major clients.
So.
Everybody's geared up for it you have to have the inventory we have to have the trucks.
The drivers and all the people available to meet the expectations of.
The volume so we've been building since coming out of Covid in February .
And.
No.
We're very blessed that it continues to build.
I think we said back in.
Second quarter and going into the third quarter that we really haven't had a season I don't know too.
Two plus years that we actually had a season right.
I think in the end of 'twenty, one we got that last omicron things didn't open until when you come back to the office. So this is really the first one that.
Do I think it's 100% I don't think its 100% in every market and every office setting but.
It's 120, 150%.
Many of our other markets and our businesses.
Our caterers or back crew.
Cruise ships are coming back.
Hotels and events are coming back so.
I think when we kind of gave guidance we were hedging.
Even if there was a slowdown in the so called recession, we would get the big uptick with all of that volume that was missing.
Our business and I think what we're seeing now is.
Our customers are still.
Doing great and now we're starting to get all of that event activity that was not there before we're getting cross selling so were anticipating.
And.
We are.
Anticipating a really busy fourth quarter.
Especially for all our our team members that have gone through two years of help that.
They can really celebrate.
Fourth quarter.
Great good to see it all paying off.
Thank you.
The next question, we have is from Peter Saleh from <unk>.
Great. Thank you and congrats on the quarter and the year.
I wanted to ask just maybe more specifically on the hospitality business. It sounds like that is starting to come back based on your comments can you give us a sense on where that is trending.
Today versus where it was pre pandemic.
Well I mean, it's really hard.
I can't remember.
Yeah.
Yeah.
It seems like ages ago, but.
What I am hearing from.
A lot of our major clients.
Been traveling extensively.
Visiting many markets.
Theres just no no real signs of any slowdown, which is what I was trepidation about right because we got a plan inventory we got a plan.
The labor to get us through that so.
We just keep seeing acceleration so.
Can't remember back to 2019 I'm sure we can get back to you and do a lot of those comps but.
We're seeing the bookings, we're seeing corporate events that.
That we haven't seen in a while.
It's.
It just seems like it's new.
Normal and even more.
Celebratory than 2019.
Great and then just on <unk>.
The inflation and the outlook I think in your prepared remarks, you guys mentioned certain center of the plate items are deflationary you can just.
Give us a little bit more color around that and then is there any reason to believe that the fourth quarter EBITDA margin won't be the strongest of the year.
Yeah. Thanks, Peter for the question in terms of center of the plate deflation.
Yes, I think we had mentioned a couple of times on earlier calls that we had expected some of the.
The real strong price increases in the back half of the year last year were mainly centered at the plate and what we've seen is specialty prices continue.
Continue to rise through 2022, whereas.
In aggregate.
Excuse me center of the plate prices have been.
Fairly flat and slightly excuse me.
Slightly deflationary.
Sequentially versus the second quarter.
Basically flat specialty prices were up one or 2% sequentially in the third quarter versus Q2 and center of the plate prices were about flat to maybe 1% deflationary in aggregate obviously different categories.
Behaves a little bit differently had slight inflation, maybe some slight deflation.
But it's all kind of evening out.
Feels like.
Pricing had reset higher and then kind of leveled off and that's why you've seen the year over year come down from.
Kind of 15% to 16% in Q2 to below 10% now a single digits in <unk>.
In Q3.
And then I am sorry could you repeat the second part of your question.
Yes, I was just curious on the on your outlook for the EBITDA margin, maybe for the fourth quarter I mean, historically I think fourth quarters.
<unk> EBITDA margin is that how we should be planning it as well.
Or what is your outlook there.
Yes, I mean, we don't we don't see anything right now.
The fourth quarter wont be our strongest quarter from a margin perspective from an EBIT margin perspective.
Revenue and EBITDA. So at the moment, we don't see anything that would.
That would change that.
And again, the fourth quarter Peter.
The margins are so strong because of all the.
Sure.
Pastry products that we sell.
Those are high margin there there are difficult categories to manage we've been.
Working on this for over 20 years.
Coming better at having the right inventories right I mean, you buy too many stances.
Taken sand out to 2024, so you try to right size our inventory.
Those are usually the higher margin items a lot of the catering items are better margin items. So what we're seeing now input cost everyone keeps asking about inflation deflation.
The input cost.
We don't see those resetting down right I don't think labor once you go to $20 an hour from 17, I don't see that changing in our manufacturers.
Cost they can get a little more efficient and have more technology, and I guess robotics, but.
Gas is still expensive diesel is expensive.
Transportation costs across the pond.
All our containers coming in we are seeing some relief, but it looks like they've all reset higher so.
I was I was.
Wrong I thought a lot of it was going to be more transitory and now I'm starting to think that a lot of it is just reset up because of energy cost.
Our labor costs real estate cost.
Warehousing is much more expensive than it was three four or five years ago.
So think that that effect of online the demand of warehousing closer to the cities is pushed up a lot of warehousing cost. So in a sense also I think it's more of a moat around our businesses.
It's really hard to come into this industry now.
It was a lot easier years ago.
But.
The cost of facilities the cost of building out facilities the cost.
That is more expensive so it's kind of a ying and again as well.
As much as there is there is headwinds. It's also I think protecting a lot of US who are strong and are setup with facilities and labor and.
The expertise to manage through this I think that's why we're seeing such a tailwind.
Great color. Thank you very much.
Thanks Peter.
The next question, we have is from Andrew Wolf.
Our king.
Okay.
Thanks, Good morning, I think I'll ask a start with a sort of follow on to what you were just talking about Chris So.
I hear what you're saying about costs being up in the industry.
Because of its capitalization and other reasons has a lot of pricing power.
As you kind of look next year and I'm not asking you to get in front of your guidance, but are you in the next few years.
It sounds like <unk>.
<unk> ability expansion as EBITDA margin goes up.
More be driven by gross profit margin.
And then the expense ratio contracting given I mean, there's obviously volume has a positive impact on the expense ratio, but let's say relative to history, and it's going to be a little more of a gross margin situation.
Situation, just given what you're talking about with overall inflation being so sticking on the cost side.
Yes.
Andy.
So much has changed it's kind of like a reset in our industry. When you used to look at margin.
I mean, obviously, we look at margin but.
I call it the spread right now.
Leveraging your overhead so theres been so much inflation.
We're not trying to be.
<unk> broad liner theres enough of those and they do a phenomenal job at what they do.
What we do and what we sell.
There's a lot of expensive products and.
No.
It's changed from <unk>.
Gross profit margins to gross profit dollar business. So.
When chocolate is now three $400 a case.
Prime beef as well.
Our center cut fillet Prime today is I don't even know 50 $60.
Business has changed it's managing your overhead it's managing your drop size.
And it's getting that spread so.
Crystal ball for next year.
We just we always look at the trend the trend is business is strong.
The.
Our clientele their clientele is spending.
<unk>.
God willing we don't get another crazy crazy variant or something that disrupts the industry again.
And it's really about selling the expensive boxes.
I think I've been saying this for the last few years coming out of Covid that.
The pipeline the pipeline was always frothy the industry is continuing to consolidate for many many many reasons a lot of it is that it's just so much more expensive today to expand for a lot of the smaller businesses right.
It is healthcare.
Facilities, it's labor.
It's technology. So we continue to see that the industry will consolidate we think will be one of the winners as the consolidator. We are building these new facilities to be able to consolidate so.
This is not a new business, but it is a new way to manage the business and I think.
<unk> is really prepared for it and we're making those investments and we're putting the cash back into the business and we have a talent officer and nothing.
There is every day, we focus on more and more acquiring talent.
Add to our bench and really we're on that trajectory to be $4 billion 5 billion and we're beyond that.
The team is really focused on doing a great job.
Okay. Thank you Tim.
Really helpful color on your kind of vision.
I wanted to ask kind of a specific question maybe more for Jim on the gross margin contraction.
On the specialty side.
Was that kind of like what's going on with edge and you just hitting the margins and not really the profit dollars or something else.
Beyond <unk>.
Certain hyper inflation in some of the categories you sell in specialty.
It's really that's the year.
The year over year comp and it's really just what I said earlier specialty prices.
Continued to rise.
Through the Q1 through Q2, and then <unk>.
Q3, although sequentially kind of flattened out versus Q3, but when compared to last year.
Inflation in specialty was 15% year over year, whereas in center of the plate It was essentially flat.
So that's just going back to what Chris said.
We're getting more gross profit dollars really strong gross profit dollar growth. If it comes at the expense of a few basis points of compression on margin.
That's just managing.
Managing price effectively.
So we're getting the gross profit dollar growth to drive EBIT growth in and that's just that's really just the year over year over year comp given what specialty prices have done.
Got it so the last thing for me is kind of a follow up on that is.
If you.
<unk> and specialty is starting to sequentially normalized or Scott.
Going up that much.
What do you think the driver there as well.
We're not talking much about.
The supply chain disruptions as we were you know a year ago, and so on but you arent big importer.
Things like overseas freight and other things.
Starting to normalize in terms of.
Pricing and you know I think availability has been okay, but.
I guess, what do you see there for.
It's hard to see your cost outlook, obviously, a buyers are doing this every day.
Yes.
I think the word normal as well.
We're far from normal.
It's it's better but.
It is.
It's still a monster to deal with I mean, our logistics teams and category teams.
<unk> never worked harder and.
It's far from normal so.
Margins.
We are in such a different world than we were in 2019.
This industry is obviously highly competitive right and it's consolidated.
Specialty little distributors and then obviously, we know all the big players.
It's about really your labor at this point to I mean.
A lot of the times and bigger accounts that would be very competitive.
Bidding and maybe you took business at very low or no margin for various reason it and today. Our focus is if we can't make money.
We really don't want the business.
Because.
You just can't get the labor.
<unk>.
No.
We're managing to we're managing to a number we're managing to every division has a goal.
To produce it.
Amount of.
Of GP manage their expenses so.
There is no crystal ball that can give you exactly what may happen next year.
It's I think we're pretty set up to handle and get the kind of.
Number we're looking at so we're looking to make X dollars next year, that's our target and that's what we're managing to.
Great, Thanks, and like everyone else congratulations on how the business is trending take care.
Thanks, Andy.
Thank you ladies and gentlemen, just a reminder, if you would like to ask a question. Please press star and then one now.
The next question is from Kelly Bania from BMO capital.
Hi, good morning.
Dan.
Congrats on another another strong quarter here.
I guess I wanted to ask about.
Our long term EBITDA margins for this year.
I'm going to come in very strong I guess that means.
At least 6%.
And with the high end of your goal long term.
Just curious.
Are there any puts and takes from a margin perspective, or I guess factors that maybe were tailwind this year that might not be as repeatable just.
Just trying to think if we could.
Moderate as we go forward either from investments or tailwind that are not repeatable before we go back to that 7% or just how you think about that long term goal.
In any different way given given how the year has played out.
Yes. Thanks for the question Kelly I think.
We don't want to get too far ahead of January when we give guidance for 'twenty three and then kind of update our medium to long term growth algorithm, but I'll, let chris jump in as well, but overall.
Given the dynamic changes that Chris mentioned in the industry et cetera.
And it's basic core I don't think it's changed we will continue to target mid single digit organic growth will continue to be a consolidator from M&A and acquired growth perspective.
And then.
As Chris mentioned in his prepared remarks, a number of bold in type of activities that are happening right now and we will continue to happen.
As we build facilities in places like new England, and consolidate the businesses that we've acquired over the past few years and started to grow.
As we grow Texas and as we consolidate.
Our.
<unk> in Northern California.
Under a project that's already underway.
Our goal will be to continue to generate operating leverage as we grow strengthen the balance sheet as we grow.
And that's a pretty powerful combination so I'll ask Chris to add whatever his thoughts, yes, Kelly I think it goes back to I said.
We're going to be a 7% or higher company.
Where.
If we're growing slower.
And the only thing that would I think.
The tourists from achieving that type of margin is that.
If we're buying more companies that we think we get really good value and we can.
Sherpa size them and sometimes that takes a few years so.
If we continue to if we went out on our track right now and did nothing I think thats an easy target.
If we take.
We're entrepreneurial, which we always have been and we take advantage of the market and what's happening in the industry.
All of US set and we're on a really fast track to be.
Be a $5 billion company.
The EBITDA margin might be lower because we bought companies that are much lower margin EBITDA margins than us.
The work begins right consolidating them putting them into our facilities.
Putting the technology in adding all the chef product so.
I would say.
If we grow faster to $5 billion, we might be lower than that and if it goes slower.
More traditional businesses are added.
It's a pretty easy target.
Okay.
Thank you.
Very helpful.
Just curious if you could just touch on availability of labor.
What youre seeing on the wage front.
And just how that's progressed relative to your expectations.
Okay.
Again I go back to this.
This is not a new business. So I think it's a very experienced team and we've seen we thought we saw at all before COVID-19, but yes.
Labor has always been a battle.
Since we started the company 35 plus years ago.
Labor's a battle, we're always shorthand at every division a shorthand it so.
It's.
Obviously coming out of Covid. It was a monster has challenged the team to gear back up because the volume came back so quickly but.
I think labor is we're getting a handle on it it's reset at a higher number.
I think we're really competitive because we are able to.
You see the numbers so the business is doing well so that means we do have labor.
Excessive labor I think we're far from that.
Even hearing from our customers.
We're finally seeing customers in parts of New York that Couldnt open for lunch, because the predictability of people coming back in as part of it but they just didn't have the labor and.
I'm starting to hear from.
Just about every.
Area, we are doing business that it's better.
So better.
Better from where we started which was terrific.
I think it continues to.
B figure it out I think more and more people are coming back into the labor market.
And I'm optimistic that that trend is going to continue not without a fight and I wish the politicians to get together and figure out really.
How to how to allow us to find labor right and give us enough choices to get labor to meet that demand because the demand is there and now we have to really figure out I don't want to get political but all our immigration policies and where.
Or is the balance because our industry is starving for labor.
Okay.
Helpful and maybe just one last one for me just on Allen Brothers, Chris I think you mentioned broadening that out.
East Coast, maybe just.
An update on which regions are Allen brothers in today, where it can tell what could be the potential long term cross selling opportunity there and what is the impact of the cannibalize. Some of your other center of the plate business, just maybe help us think about the strategy over all their with Allen brothers.
So.
We bought Allen brothers, I forget what year end.
We went through a really.
<unk> long stop learning curve, but we.
We bought Allen because it's one of the only brands in <unk>.
Foodservice.
In a business that there's not a lot of brands right.
Uh huh.
It took us a while but Allen brothers right now.
Just.
Coming <unk>.
A world class brand and foodservice.
The team the team now is doing an unbelievable job and of <unk>.
Very tough market and.
I believe that it's going to double.
I don't want to give you two years or three years, but.
Potential and how it's accelerating and the people that are joining us and the clients that are rewarding us.
I think that business is going to highly accelerate over the next few years.
Thank you.
Thanks Kelly.
The next question is from Todd Brooks from the benchmark company.
Hey, good morning to you, both and congratulations as well.
Couple of questions here.
Chris you talked about kind of momentum with cross sell and Kelly's question on Allen brothers.
As part of that but Youre building out the specialty produce category Youre building out seafood.
Seafood category as well.
And as I think about the organic growth target that mid single digits that was that was in place.
Pre pandemic as well.
I want I am hoping you could talk about kind of cross sell as a driver of organic growth and just the appetite of your customers given your service levels and the fact that you service them, so well over the pandemic as you have.
New offerings to provide them with the uptake.
For customers too.
Just grow into bigger drop sizes with <unk> as they are able to get producer seafood or.
Or other products from you so I guess within the organic growth outlook, how much of that is driven by cross sell but you guys really kind of control the success.
Sure Great.
Great question.
The major driver of.
The new facilities, Florida is delayed but.
Hopefully sooner than later, we're able to.
You get in that building and.
Thats.
It's a mask the cross sell building right the same in la most of that building.
<unk> is built but.
The.
The outlook for.
Labor.
Never mind traffic that's in all the major city anyone's traveling is seeing how bad traffic as you have to figure out how to get efficiencies.
In your transportation and.
I think the.
The company's debt figure it out the best because you don't want to homogenize the business, we've watched a lot of competitors do that so you know I always go back to.
It's a hybrid model.
We're here to service the client any way that they want but Mike.
My prediction is that.
They want quality, but they also want savings and the savings come by.
By allowing companies like ourselves.
I call it share the truck right. So when that CW truck leaves I think over the next 10 years.
It will transport seafood it'll transport.
Sure.
Meats, and other proteins and produce with specialty and all the frozen products. So that's why I always say CW with a specialty broad liner we're not a regular broad liner.
Nothing we do besides maybe some of the technology is typical of a broad liner, but there is so much that goes on behind the scenes.
To do what we do at the quality level.
I always say that ship does the hard stuff. So we're not trying to do 60 billion, but we think that we are going to be a much bigger company.
A lot of it is that cross selling and.
And you got to have the talent and you got to have the expertise to handle those products because a lot of them are perishable.
A lot of them require expertise and buying and moving around in shipping from.
40 countries.
Over 500, probably now suppliers, so I think that's our moat.
A lot of companies come after us in certain pieces of our business, but it's so hard to replace us because of the most I think we've built around our business and it's not easy everyday we struggle and obviously you know we.
We feel ourselves.
But handling seafood and handling a lot of the cut shop proteins and produce now.
I think our hybrid approach and the investments in the new buildings.
As to at least two a year major buildings going up and I think that is going to drive.
That mid to high single level organic growth that you're seeing is coming because of the ability to execute that hybrid cell.
That's great. Thanks, Chris that's helpful. And then just a final question for me Chris you touched on this in your comments, but I was wondering if we can give more color on the nature of kind of that building.
Enthusiasm about the event holiday business this year, what youre hearing from customers.
Those events are maybe manifesting themselves.
This year versus.
Obviously, maybe a little bit of activity last year as far as are we getting back to bigger events are we seeing more corporate events, just where whereas this excitement that youre seeing year over year and is there a wage to gain a way to gauge how.
Much progress back towards pre pandemic levels that event business is tracking towards thanks.
Yes.
<unk>.
Again, when you speak to all the.
Hotel operators and obviously.
Casinos on one side cruise ships and then.
I just finished a trip.
When you see tense out for 500 people or 1000 people.
No. It makes you very very happy to see that coming back so.
It's.
It seems like it's going to be a pretty strong.
<unk>.
It can happen.
God forbid something horrible happens you've got a war going on in Ukraine, you have.
Still the virus is out there.
Might get five blizzards.
We've had that before.
Through the party season so.
It is hard to predict but from my seat right now it looks like a great fourth quarter.
That's great Thanks, and congrats again.
Thanks Scott.
Yeah.
Thank you ladies and gentlemen, just a reminder, if you would like to ask a question. Please press star and then one more.
The next question is from Ben <unk> from Lake Street capital markets.
Alright, Thanks for taking my questions and congratulations to you all for a great quarter.
Chris I would like to ask kind of a follow up to your comments around that.
That you.
<unk> long established Im wondering if you can talk about how you've observed your broadline tiers.
Viewing the independent space as potential source of growth.
Over the past few quarters as conditions have improved are you seeing that these peers are increasingly looking to your market.
As a source of growth.
Or is that been relatively static here over the past few quarters as conditions have improved.
Yeah, I mean, I think if you're here.
Every last earnings call from the Big major.
Broad liners.
Everyone always talks about the independence.
I always go back.
To Jim's office, and say our numbers right because it seems like they've taken all of our business.
No we're fine.
Those numbers are real.
It's just a such a giant industry when you think about.
From <unk> to <unk>.
Fast food independence.
All different type of independence.
Theres Taco Taco change that.
Private that are independent they are up 20%.
Facility, So it's really hard to.
Identify.
What everybody is talking about when they say independents right. So.
I just know that to do what we do.
Day in and day out.
Is extremely difficult and.
I've learned over my 35 plus years.
I've tried to go after some of those very large business that the broad liners, they're much better at it they're set up at it.
It's just hard to have two masters.
The way, we load trucks the way we go about the street our salespeople.
It's it's you can do it but to do it well I would say you can go to.
Our party.
It's 30 people and there's five people on top of you and servicing U.
Youre going to get unbelievable service, it's hard to do that when you go to.
A setting that as a thousand people coming yet right. So that's why we say our core customer 100, plus seats chef is there probably an owner.
Everybody is out to give you a unbelievable hospitality I kind of think that's whose ship is and I think when we look at going after giant chain business. It's just a different animal you have to run your warehouses differently.
The way you go about it it's euro.
You're operating a facility that might be five football fields.
Just not as nimble so.
We build our facilities, we don't like to get them too big.
Not to go too much in that.
<unk> chef chef right because we have so many competitors, but what we do is really hard and it's specific and it's geared towards a certain industry.
I always say, we've kind of stay on our own Matt I mean, we kind of go up at a little bit will play with larger customers.
We're looking at opportunities around the country right now that.
I always say the great thing about <unk> is there's nobody like us and the bad thing is theres nobody exactly like us to buy.
So we're always taking some business buying a business that we can convert into a a chef warehouse overtime.
And the.
The reason to buy someone like that is because it gives you routes, which takes a very long time to get.
And we'll take those opportunities and we will take that long road over four five even six seven years of rebuilding it as a chef warehouse and I think you could see from the success our team has.
Been able to produce that we're pretty good at it.
It's it's just not plug and play it's really hard to do what we do.
Yes, very good yeah, I hear that loud and clear.
Very good well again, congratulations on a great quarter. Thanks for taking my questions and ill get back in queue.
Thank you thank you Ben.
Thank you Sir.
Gentlemen at this stage there are no further questions would you like to make any closing comments.
Sure so we'd like to thank everybody and.
All of our.
Analysts and the questions.
Couldn't be prouder of what this team at CDW.
It goes all the way down the chain.
It takes.
It takes such a big team to produce these kind of numbers and service our customers and.
We're so proud of.
The numbers that they are putting up in their ability to really rebound coming out of COVID-19. So.
A big thanks to them and we look forward for everyone joining us.
Fourth quarter call. Thank you very much.
Thank you Sir.
Ladies and gentlemen that then concludes today's conference. Thank you for joining US you may now disconnect your lines.
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