Q2 2023 The Chefs' Warehouse Inc Earnings Call
[music].
Good morning, ladies and gentlemen.
The shifts we are how second <unk> 2023 earnings conference call.
As a reminder, this conference is being recorded.
No I'd like to turn the conference over to your host Alex August General Counsel Corporate Secretary and cheese Government Relations also please go ahead Sir.
Thank you operator, good morning, everyone with me on today's call, our Chris Pappas, founder Chairman and CEO and Jim letting our CFO by now you should have access to our second quarter of 2023 earnings press release. It can also be found at www shifts warehouse dot com under the Investor Relations section.
Throughout this conference call will be presenting non-GAAP financial measures, including among others historical an estimated EBITDA and adjusted EBITDA as well as both historical and the estimated adjusted net income and adjusted earnings per share. These measurements are not calculated in accordance with gap and may be calculated differently and similarly, titled non-GAAP financial measure.
There is 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 remarks I need to remind everyone that part of our discussion today will include forward looking statements, including statements regarding our estimated financial performance.
Such forward looking statements are not guarantee of future performance and therefore, you should not put undue reliance on the.
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 today's release.
Those are discussing or annual report on Form 10-K, and quarterly reports on Form 10-Q, which are available in the SEC website.
Today, we are going to provide a business updating go over our second quarter results in detail for a portion of our discussion. This morning, we will refer to a few slides posted on the ships warehouse website under the Investor Relations section titled Second quarter of 2023 earnings presentation. Please note that these slides are disclosed at this time for illustration perk.
<unk>.
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 second quarter of 2023 earnings call.
As we noted during our first quarter earnings reports strong snapped back and demand coming out of the army crawling Berrien.
The COVID-19 pandemic in the second quarter of 2022 provides a difficult year over year comparisons to the second quarter of 2023.
As we had anticipated for the first time since the onset of the COVID-19 pandemic second quarter business activity return to more normal seasonal trends well.
April and May with strong month's payment as expected in June we did experience some impact from the air quality issues from the Canadian wildfires in extreme heat and severe weather across many of our markets.
In addition volatility in certain protein categories resulted in moderate gross profit dollar pressure.
Overall for the quarter, our team delivered strong year over year organic revenue growth and adjusted EBITDA.
A recent acquisitions performed well a.
A few highlights from the second quarter as compared to the second quarter of 2022 include.
8.1% organic growth in net sales.
Specialty sales were up 11.4% organically over the prior year, which was driven by unique customer growth of approximately 8.7% play.
Placement growth of 11.9% and specialty case growth of 10%.
Organic pounds in the center of the play or approximately 5.9 per cent higher than the prior year second quarter.
Gross profit margins decreased approximately 43 basis points.
Gross margin in the specialty category decreased 70 basis point as compared to the second quarter of two.
2022.
Gross profit margins in the center of the plague category decreased 174 basis points year over year.
Jim provide more detail on gross profit margins in a few moments.
In addition to providing the quarter results and the update to our 2023 guidance. We thought it would be helpful to share with our team members shareholders customers and suppliers as well as all interested parties, our five year ago to leveraging the significant investments.
We have been making an infrastructure capacity expansion strategic acquisitions and geographical growth.
Please refer to the slides posted on the Investor Relations section of our website www.
Www dot chefs warehouse dot com.
Please refer to slide one this is the chefs warehouse today, we have grown from approximately $1.6 billion in revenue in 2019.
<unk> 3.3 billion plus <unk>.
Based on the guidance, we updated and raise today for 2023.
Along the way we have grown our truck pleased with thousand plus we now operate out of 51 distribution centers across the U S. Canada in the Middle East.
Past few years, despite the impact of Covid, we continue to invest in facility expansion new market entrants product category growth and most importantly, keep talent, we expect to leverage these investments since a profitable growth is part of our five year goals and beyond.
Please refer to slide to.
R capital allocation is primarily focus on creating capacity expansion and high value markets, we expect to drive incremental operating leverage through organic growth technology and process improvements to drive ongoing improvements and operational efficiency and investments.
Easier and enhance customer <unk> experience.
A continual development of our digital customer facing platforms.
We expect the growth in capacity from the infrastructure capital deployed from 2019 today combined with the projects coming online over the next 24 to 36 months to create approximately six per cent growth in capacity. These include a recent projects <unk>.
<unk> in Southern California, Florida, and Texas as well as projects underway in the United Arab Emirates U S northwest, Northern California, as well as southern New Jersey to start out with the Philadelphia region, and optimize our distribution footprint in New York to the mid Atlantic.
As we grow in scale, we expect to see the benefits of these investments Ah Sweet target $5 billion in revenue and 300 plus million and adjusted EBITDA over the next five to six years.
Additionally, we anticipate strengthening free cash flow.
Percentage of revenue allocated to Capex gradually moves from one and a half two per cent range down to 1% to 1.5% range over time.
If you refer to slide three we are carrying certain cost increases associated with these investments in the near term.
It is important to note that despite this we have delivered first half of 2023 adjusted EBITDA growth of a <unk>.
Proximately, 25% over the same period in 2022, and I'll pull your guidance implies a similarly year over year growth rate.
As we grew up as we grow in scale over the next five years, we expect the leverage these investments along with future acquisitions to deliver economies of scale continued market share gains and gradually improving adjusted EBITDA margins over this time.
The cheaper one of these calls will depend on our ability to continue to execute on the three primary pillars of the chefs warehouse unique growth model and the food away from home industry.
The integration over time have acquired companies brands and the talent, we have added and continued to out across all regions of markets.
The cross selling strategy combined with various levels of operational synergies, we employ to drive acquired adjusted EBITDA margin higher over time.
Generating operating leverage as we grow organically into the significant capacity creation, we have invested in the last few years and we expect continued to add to keep markets.
We remain focus on developing promoting and adding the best culinary expertise and operational talent in the industry.
The investments we are making combined with our three pillars of growth provide our teams with the right platform to enhance and grow the chefs warehouse business model forward.
Focused on our shared vision to be the number one partner chefs, providing them with the world's finest specialty food products and ingredients best of breed technology and a team dedicated to delivering furious support service.
With that I'll turn it over to Jim to discuss more detailed financial information for the quarter and an update on liquidity Jim.
Thank you, Chris and good morning, everyone on that will provide a comparison of our current quarter operating results versus the prior year quarter and provide an update on our balance sheet and liquidity.
Net sales for the quarter ended June 30th 2000, twenty-three increased approximately 36.1% to $881.8 million from $648.1 million in the second quarter of 2022.
The growth in net sales was as a result of an increase in organic sales of approximately 8.1% as well as the contribution of sales from acquisitions, which added approximately 28% sales.
Sales growth for the quarter.
Net inflation was 3.6% in the second quarter, consisting of 5.7 per cent inflation, they're specialty category.
Inflation of 1.1% in a center of the plate category versus the prior year quarter.
Most profit increased 33.6% to $208.4 million for the second quarter of 2023 versus 156 million for the second quarter of 2022 gross profit margins decreased approximately 43 basis points to 23.6%.
Gross profit dollar growth and margins were primarily impacted by year over year product mix changes.
Partially due to the increase in hospitality related business versus the prior year quarter combined with a sharp decline in certain protein category prices during June of 2023.
Selling general and administrative expenses increased approximately 43.8% to $179 million for the second quarter of 2023 from $124 $5 million for the second quarter of 2022.
The primary drivers of higher expenses were hired depreciation and amortization and higher compensation and benefit costs facility and distribution costs associated with higher year over year volume growth and the impact of acquisitions.
Oh no no just the basis operating expenses increased 42.2% versus the prior year second quarter and as a percentage of net sales adjusted operating expenses were 17.8% for the second quarter of 2023 compared to 17.1% for the second quarter of 2022.
Operating income for the second quarter of 2023 was $25.3 million compared to 27.6 million for the second quarter of 2022.
The decrease in operating income was driven primarily be higher operating costs <unk>.
Including higher depreciation and amortization in stock compensation costs associated with acquisitions, partially offset by higher gross profit.
Income tax expense was $3.5 million for the second quarter of 2023 compared to 6.3 million expense for the second quarter of 2022.
<unk> net income was $9.9 million or 25 cents per diluted share for the second quarter of 2023 compared to net income of $16.9 million or 42 cents per diluted share for the second quarter of 2022.
On a non-GAAP basis, we got adjusted EBITDA of 51.1 million for the second quarter of 2023 compared to $45.3 million for the prior year second quarter.
Adjusted net income was $14.4 million or 35 cents per diluted share for the second quarter of 2023 compared to $29 million or 51 cents per diluted share for the prior year second quarter.
Turning to the balance sheet and an update on our liquidity.
[noise] clothes in the recently file D. K on July 7th 2023, we completed the sixth amendment to our ABL credit facility, increasing the facility line from $200 million to $300 million.
Other than a slight increase in the fixed coupon component terms rate remained materially unchanged.
At the end of the second quarter prior to the <unk> July ABL Upsize, we had total liquidity of 144.9 million comprised of $59.6 million in cash and 85.3 million of availability under R. A b L facility as a.
June 30th 2023.
Approximately $661.5 million inclusive of all cash and cash equivalents.
Turning to our full year guidance for 2000 twenty-three based on the current trends in the business, we are providing a full year guidance as follows.
We estimate that net sales for the full year of 2023 will be in the range of 3.25 billion to 3.35 billion gross profit to be between $774 million and $797 million and adjusted EBITDA to be between $199 million and $207.
Regarding your updated guidance. Please make note of the following for modeling purposes. We currently expect interest expense for the remaining two quarters of 2023 to be approximately $12.5 million per quarter on average.
Similarly, we expect depreciation and amortization to average approximately $15 million per quarter over the same period.
Our full year estimated diluted share count is approximately 45.7 million shares for reporting purposes. We currently expect our senior unsecured convertible notes to be diluted for the full year and accordingly, Beau 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 it up to questions operator.
Thank you Sir.
Will be contacting a question answer session.
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First question you have comes from our next <unk>, Let me check. Please. Please go ahead.
Thank you.
<unk> <unk> <unk>.
<unk> on the the guidance indicated some margins it here and.
The second quarter back to normal seasonality and EBITDA margin sort of falling right into that range as I look ahead to the three Q and think about the typical five six per cent EBITDA margin was seen in the past and he suggested pretty big Fork you to get to the guide said, perhaps some thoughts on that and can I guess.
Also with the middle East, having a different seasonality on you than the U S business.
<unk>.
Pardon me to the next.
Yes, Hey, Alex Thanks for the question, Yeah, I think the the two large acquisitions that we completed during the quarter as well as the seasonality of <unk> Middle East combined.
Those are three big companies that that we would anticipate we'd have an impact on the third quarter. So I think I think number one the second quarter.
You know coming in where it was was not too far off of our expectations. We built our guidance on the second quarter coming in you know we kind of in the low six per cent range. We missed that by about 2030 basis points suck we talked about that the impacts of a couple of things that came together in June to take a.
Little bit of froth off of off of margins, but overall, you know a very strong quarter.
So I think I think the third quarter the back half of the year, it's gonna be a little more about the normal cadence, but those three acquisitions will bring up the third quarter, a little bit versus what we would have seen in the past.
Okay that makes sense and you noted the June activity was a little different and impacted by that smoke and heat waves and some of the regions outside of that did you see any signs and incremental pull back and demand or <unk>.
Change in trade down dynamics.
No I mean, I think you know with a really strong organic revenue in volume quarter, you know 8%.
You have a year organic sales growth in volume growth very moderate inflation. It was really it was really just a couple of weeks in June I think the biggest impact was the.
Kind of sudden decline in certain protein categories that took a little bit of an impact on our margin.
We had some obviously we talked about were carrying some overhead expenses that you know compared to the operating leverage that was created last year kind of gives you a an outsize difference on the percent of revenue on Opex in those things just came together and impacted the EBITDA.
Margin a little bit in the quarter.
Mostly impacted by chance.
Alright, that's helpful. Thank you.
Thanks.
Thank you. The next question we have comes from Andrew Bolt from T. L. K can you spell it.
Hi, good morning could.
Could you give them a little color on what changed in the <unk> the choppiness on the protein markets.
I, usually think prime beef.
Something with the prime beef that's hard to track outside you know on the outside with you all that I know you're diversified that until the other types of proteins.
Yeah. It was.
It was a very abnormal quarter for for protein cells.
When you look at you know.
We look at the amount of animals coming through the system.
And you know.
The the outlook is that there's not enough cattle in the system prices will remain high and continue to go higher for the next few years I think we've been talking about that in the last few calls <unk>.
And for whatever reason you know there was a blip where you know the market just went the other way.
And that's what compress some of our protein margins.
What the what the whole market.
Indeed, you know by surprise and you know it's not the first time, but but this has happened but it it did catch us by surprise and it cost us a little bit of a margin compression you know you know again.
As Jim said.
We kind of track pretty much to to our expectations. You know, we we had we had a pretty good quarter. I mean, we had great organic sales we have great placements, we had customer growth and it was kind of an odd quarter. You know between the you know coming into July as well you know what the <unk>.
S of heat waves and.
We had you know we lost a few we lost a few days of business with all the crazy smoke coming over from Canada or the outdoor cafes were closed so you know.
Team did a great job you know grabbing as much business as possible I think our customers overall.
Their customer is spending you know you've got a lot of travel right. This past quarter I mean, I think overseas you know we've read reports up up to 200 per cent of travel. So a lot of the wealthy you know a lot of the wealthy clientele of our customers are traveling and I have to being locked up for a few years with COVID-19. So.
All that you know looking at all that I mean, it was it was a pretty good quarter with with that damn beef market, you know, causing a few bumps.
Add that you know you really have to put a quarter in the context of the first half of the year.
Q1, and Q2 combined compared to last year and then also in the context of our full year guidance, we didn't construct the guidance on delivering the the profitability that we did last year last few a second quarter was.
An incredible confluence of extreme demand really strong rising prices an incredible operating leverage so the quarter came in you know kind of right in the range that we expected if you combine it with the you know the the first half of the year within the context of the first half of the year.
14% year over year organic growth for the first six months and 25 per cent you will be your adjusted EBITDA growth and that's very similar to what our full year guidance implies on a full year basis. So I think it's just the unevenness of the comparison that really caused a little bit of confusion as we came into the first.
Half of the year.
Okay Uhm no that's really helpful.
Gonna use a tortured analogy or metaphor, but has a small cleared on the beef market [laughter] on the outdoor cafes.
You know.
We're here in in Bucolic, Connecticut, and the weather is beautiful. So we hope it continues actually too chilly, so really odd and beef prices are starting to firm up you're starting to see price increases.
So it sounds like the beef market kind of Goin' completely opposite all expectations.
What drove you know you guys a little below your project does that better way to more so than you know some disruption in demand from weather.
Yeah, Yeah <unk>.
Yeah, I would say that that's true. So we we expect it to come to you in about [noise].
20th 30 basis points, and adjusted EBIT margin better than we delivered so you know a couple of million dollars, we did not expect.
You know the consensus models had as close to 7% that was built off of last year, we didn't expect to come in there in the context of our full your guidance.
Yeah, that's completely understandable given you know I look back and how good last of your second phone numbers and I. Just wanted to ask you about one other question is kind of a follow up to some of the things Alex was asking about was.
The back half guidance.
You know I mean, the sales or.
Even with June disruption.
Certainly versus what I expected so.
I'm thinking more in the March and it would it would.
Would it be right to think that year.
You get to your guidance, it's it's gotta be more what's the balance is gonna be between you know improved.
<unk> I know you want me to look at it and have spent.
Kind of in a short sighted.
Is the gross margin gonna improve a little more because you know because the second quarter had to hear that.
Or is it going to be a balance between the gross margin and the cost structure.
Yeah, it's going to be a balance yeah, it's gotta be a balance Andy we don't guide by quarter, but the comments I just mentioned about the changing seasonality due to the three large acquisitions.
Normally our third quarter, the slightly lower gross adjusted EBITDA margin than the second quarter.
I think the fact that we undershot a little bit on the second quarter it'll be no problem you know it'll the cadence will be more normal in terms of the fourth quarter, we expect it to be stronger assuming that demand holds up and you have a you know a really good fourth quarter like like most food distributors do.
The guidance implies what the second half will be in and we haven't changed it.
Yeah.
Alright, thank you.
Sandy.
Thank you.
<unk> <unk> <unk> <unk> <unk> P.
P T I G. Please go ahead.
[laughter].
Great. Thanks.
I wanted to ask maybe first on the hospitality business I know this is.
Maybe one of the segments that was <unk> latest to recover post COVID-19. What are you seem there and are you seeing I guess, the hotels and and your customers that you serve do they now have the labor to reopen and and really be more have more service in that business just trying to understand how quickly that that industry.
<unk> has recovered.
I think it's recovering we'd proceed but I I wouldn't say, it's back to you know 100 per cent.
It depends.
<unk>, which part of the country and.
What part of the cities or like Vegas.
I think it's I think it's more right now what what we're hearing from our customers. It's.
After that crazy period last year, when everything opened up.
You you have more normality and maybe too much too much travel overseas for their for you know customers customers. So.
You take like Miami Beach.
Last year was you know the last few years, where obviously one of the only places open and everybody was coming and I think they're you know the opposites happening this year that people are traveling overseas and.
Other places so you know in a way, it's giving them a chance to to build back labor I still I still think they are struggling you know we are hearing from certain customers that that they still don't have the labor force to meet you know 100 per cent demand and I.
I think part of the strategy that we've seen as they're keeping prices pretty high so maybe.
Maybe there is not the tourism that normally there is in Napa Valley.
Monday through Thursday, you know weekends, they still get a big crowd, they're keeping prices up to make their make their bottom line and there is there's still enough customers willing to pay really high rates.
Okay, you know for them to be to be profitable I mean, that's what it looks like from my C. You know the kind of strategy from us, especially the high end I mean, it's it's very expensive you know when I when I see the rates that they're posting.
Four.
Say Monday, Tuesday, Wednesday, and in Napa Valley and.
Later than they were last year for sure. So I think yeah. Yeah. You know my best My Best shot at it is the the the dollars are getting spread much more spread out you know we're seeing.
We're seeing a lot of areas do you know 120% of what we expected and we were seeing other areas do 90 per cent of expectations and what we hear from our you know our airport customers is.
The amount of business that they're doing for people, leaving.
Is you know off the charts, but the amount of people coming in is still not not back to normal.
[noise] great. Thanks for that color and then just on the two to three year targets that you guys laid out here on the adjusted EBITDA can maybe talk about some of the factors that will determine whether you come in under the high end of that EBITDA margin target is is it.
If you if you make more acquisitions, you expect you'll be closer to the low and if you make less to be at the high end just trying to understand some of the factors that will drive us even closer to the six and a quarter or the 7%.
Yeah, you know.
Our our organic growth, we always call our core business, you know that tracks that tracks pretty much to our expectation you know.
What we call the higher end up the margin expectations. So you're absolutely right you know it really depends who we acquire and we've acquired a lot of companies that are much lower margin than the typical shepp warehouse and yeah. It usually takes us a few years to shepherd size. It <unk>.
So I always say.
We can be bigger than our expectation, but module might be a little lower because we bought more companies that were fixing you know still great IBRA.
But we're still in fix mode, and if we buy less volume will be less but probably margin will be higher because it'll be more organic growth, you know, which tends to be at a higher margin.
[noise] alright, thank you very much.
Thanks for you too.
Sure.
Thank you. The next question we have contempt Kenny.
Daniel from BMO capital markets. Please go ahead.
<unk> good morning, Christians and thanks for taking our question.
Uhm.
<unk>.
About expenses for the corner just how that came in relative to your plan I think.
<unk> suggested the back half expense dollars need to come down and just curious what buckets.
That would be in maybe just help us think through as soon as that that line item for the next several quarters.
Yeah. Thanks, Kelly there was a couple of things there I mean in terms of once again the unevenness in Q1, we created really good amount of operating leverage year over year because of the comparison.
And we outperformed in Q1, it's kind of the opposite in queue to because of the comparison you know that's that's a good portion of the.
The year over year difference in operating leverage.
We we completed two very large produce company acquisitions, one at the end of the first quarter. So that was fully in the second quarter and one you know in the <unk> somewhat in the beginning of the of the second quarter.
And produce companies come with a higher percentage of operating expenses. So you know that was you know 20 or 30 or so basis points of of that difference right. There and then you know we have we had a couple of we had a large facility coming on line in Florida. So we're.
Not that adding that back any more that's impacting our opex and that just goes to the.
The discussion that we are carrying overhead right now that we will fully leverage we're creating that 30% to 60% capacity.
And that we will grow organically into over the next 234 and five years that you know go into Peter's question, that's going to be a big driver of us getting to that kind of $6 to 5% to 7% you know over the over the coming years. So those are the three main components of.
And we expect that it will come down currently we expect that in the in the second quarter I'm, sorry in the back half of the year.
Okay. That's that's helpful and just to be clear what are there any other acquisitions uhm beyond parties and Greenleaf and those are the last can I have the date M&A.
Lemonade contribution woods.
A lot stronger than than we had thought so just maybe can we walk through either what's contributing to that or how to.
Think about what is driving that line item.
You have to understand that it's all the acquisitions, we completed since the second quarter of or since the third quarter of last year. So we did just middle East, which is a multi hundred million dollar company, we didn't have last quarter.
The three big acquisitions chefs middle East parties Greenleaf.
Green leaf and then we did a couple of smaller acquisitions you know over that time, we did the mic Hudson acquisition out on the West Coast, which is a fold into our our business. We did the produce folden last December into our <unk>, our business in new England, and we did the small folding in Canada. So they are.
Been some smaller acquisitions that contributed to that as well as well in terms of the U of year contribution yeah, but it really the organic growth is really driving the.
Topline Kelly.
I guess, maybe just another way so uhm I'd be announced acquisitions that we've had kind of releases on.
Well has anything changed.
Respect your organic adjusted EBITDA outlet for the year.
No I I think you know we went into the year with our original guidance based on organic growth.
We adjusted our guidance swung reporting Q1 to reflect the parties and green leaf acquisitions.
As well as the upside from Q1, and so no nothing's really materially changed in terms of our organic growth.
And just one last followed what's what's driving the higher DNA outlook.
That's acquired growth so the adjustment to the DNA is primarily higher depreciation and amortization with the acquisition of parties and Greenleaf, which are large acquisitions higher stock compensation associated with those acquisitions and then not in DNA, but also impacting EPS.
Is higher interest rates and the higher level of debt that we added to fund those acquisitions.
Okay. Okay helpful and maybe just ask a longer term uhm question about <unk>.
The new capacity that you're adding maybe just help us.
Have a little more color on what you're seeing out there in terms of cost and locations and at 90, finding you know exactly what you need there or how 'bout this kind of thinking about how.
How that has to have a landscape maybe has changed for.
The cost of the new facility.
Yeah, well I mean these buildings had been in the Hopper for Awhile Kelly you know.
Pre COVID-19 basically so the building and which is not not up and running yet and Richmond, California I mean.
That's you know that's a cost that we we negotiate it I think it was pre COVID-19. The building in L. A was I think pre Covid. We started to go we negotiated on that so I think the buildings that are coming online now, Florida as well you know was pre COVID-19.
So you know the market is very strong actually it's actually you know I'll take that back the market is strong for warehousing I mean, it's gotten very expensive as of late you know we're hearing a little softness you know Amazon Subleased thing a lot of a lot of buildings you know I was called the Amazon effect really drove.
The price of warehousing to double close to cities.
So these buildings there they were expensive, but they were they were prenegotiated really.
Just the basic basic right to to rent them, you know to build them Yoga class were a little higher cause all the costs went up during COVID-19, which we're starting to see some normalization as the supply chains come come down. So you know we got <unk> open now we got Florida open.
Richmond will open next year, and South Jersey right outside of Pennsylvania is is halfway open you know where what will be when we moved in and now we're finishing.
That building. So that's the exciting part you know, we're adding a lot of capacity to be able to.
Accelerated organic growth and to do a very create a fold ins.
Thank you.
Thank you ladies and gents.
Just a reminder, if you would like to ask a question can assist in in one now.
The next question comes from <unk> from the Benchmark Company. Please go ahead.
Hey, Good morning, do you both just a couple of quick questions here want to follow up on the last line of questioning Chris If you look at the Florida facility or maybe the southern California Californian facility since I was a little more time, but that's been up and running.
How fast are those facilities opening opening up what you had sizes meaningful revenue opportunities to grow in those markets I'm just trying to get a sense of who these new facilities come on how quick cause he's a revenue unlock from the ability to surface more customers.
Yeah, well I mean.
There.
The revenue is the revenues unlocked. So they are growing you know they are growing faster than most of our other businesses because they were very constraint constrained on on on on the size of their buildings. So you know.
I would say they're living up to our expectation you know growing at a very quick pace and.
It's the opportunity to do very creative folded see like I said that I think for the past 10 years, you know if I could do in a creative fold and every day I would because they're really low risk because mostly what we're taking is is the sales team and the increased sales and we're able to re.
Really get rid of a lot of the the fixed overhead right. They're all facilities a lot of routes were able to synergize by combining route and that's the way we make money right. The more the more dollars on a truck that can go out every day the more G. P dollars pull up to the bottom line. So.
My expectations really L. I L a will double.
Over the next four five years, Florida, My Triple quadruple so I think that that's.
That's a great expectation and that's a great R O Y on on building out those buildings.
And if you look at your M&A pipeline of opportunities, Chris how does it mixed out as far as.
Shots on goal for fault in these type of markets versus either new platforms and different political or maybe new market entry are there a decent amount of.
Bolton is that you're always working on or are there more just with generational changes and and.
And some of these firms coming out of Covid, and just being ready to have a solid move sir.
I mean, as we expect I mean last year was you know extraordinarily busy because of all the buildup of Covid businesses that you know we had negotiated on so.
I think that was a little you know a little too frothy right now I think we're being more surgical Todd.
You know, we're really you know organic growth is our top priority you know we've invested in a lot of talent you know you're.
Gearing up for the Florida building you know, we've we've added I would say 20, plus new sales reps, you know to get ready to hit the streets. So we we made a really big investment in trying to build up the team to grow organically, which we know is the most profitable growth and.
There's always there's always bolden opportunities and we're always negotiating them you know it really comes down to price and I think being patient is prudent.
At this point you know new markets.
Yeah, I mean, we're always looking to finish our map right. We're not in the Carolinas and Georgia were not in Colorado.
I think those are secondary as far as the importance I mean, if there's something great. You know will always been opportunistic, but really driving more business into Texas facilities right now driving more business in Florida in L. A and wherever we have capacity is at the top of the list because that.
Really is where the biggest blow through for IBRA will be and that's what we're trying to do right now.
Hey, Thanks, Christian one quick one for you and they'll jump back in the queue.
I think the inflation outlook entering this year was kind of plus or minus 5% when you were <unk>.
Contemplating the initial revenue guidance.
Two causes in we saw continued inflation across both verticals.
The second quarter I guess.
Any surprises about where we attract you to go with someone inflationary standpoint, and anything you can share with us on outlook for.
Inflation deflation that you were thinking about in the second half of the year.
Yeah, I think it's kind of played out pretty similar to our expectations. I mean, obviously, we've said earlier on multiple calls before this that.
We expected debase effect to drive you know most of the disinflation.
In twenty-three just given the extreme inflation that we saw throughout 22 and you you've seen that kind of play out you know, we we reported moderate kind of 3.5% inflation.
That was primarily offset by the impact of product mix in the quarter.
I mean looking forward I would expect that you know you're starting to see some deflation in some of the larger commodities that kind of went crazy in 2022.
And so I would expect that the disinflation trend would continue to a more moderate year over year inflation, but sequential kind of flight deflationary to flattish sequentially from Q1 Q2, we saw low <unk> low single digit deflation and specialty prices and we so low.
<unk> kind of a single digit inflation sequentially incentive to play prices in aggregate. We did have the you know.
The sharp decline in in a couple of weeks in June but it didn't it didn't cause the the overall quarter to be sequentially deflationary because he probably may where you know we're we're we're kind of more normal kind of strong months. So that's kind of the way, it's been playing out and and I would we would expect that is.
Going to continue to play out that way.
Okay, great. Thanks to you about.
Thank you.
Mmm.
Thank you.
Final question, we have <unk> <unk> capital markets. Please go ahead.
Alright, Thanks for taking my question just a couple of quick one from me first of all on the acquired businesses was there anything that you guys have been a surprise with you know, particularly on the margins from any of these kind of more major acquisitions that you've made over the past few quarters that that really can came to light and it looks like a quarter.
No not really you know I would say that you know we are the two big produce companies that we added we we talked about on the Q1 call that they were slightly dilutive for.
For the full year, because they came in and an average EBIT margin that was slightly lower than than our average but in terms of you know we we did two large acquisitions a few months ago, we haven't really seen.
Anything from a margin perspective.
Surprise us and our our middle East acquisition with which we've had for you know almost nine months now.
Has performed really really well and and just in line with expectations. Yeah. I mean, the only the only real big surprise was how the protein markets behave I mean that quote.
Hold industry really by surprise, where.
The the the.
The the sound is there's not enough great cattle and the market's tight and prices. Obviously are high and then all of a sudden you had a blip, where you had a dip in and pricing and everybody. You know has four or five weeks of inventory and now you have a margin blip. So I think that's the only thing really that.
Caught us by surprise that you know kind of hurt our expectations I mean, we we track pretty close to what we expect that the quarter to be and really.
Really the only big surprise was that blip in and the protein margins that.
Kind of caught everybody by surprise.
Gotcha, that's helpful and Christian you're just trying to touch on what I wanted to add Knox around protein I mean, <unk> you know for a long time and these these kind of short term you know spice in protein categories has you know come up from time to time and not it's not a big surprise me frankly, not much you can do about it I'm wondering the degree to which.
The you perceived the effects of this to have been contained within the second quarter or if you think this is going to bleed into the third quarter results.
Yeah, I mean, if if if if I was that good I'd be in Bermuda, you know just playing the commodity markets to be honest with you. It's it's so hard I mean optimistically you know.
It should turn you know it <unk> it should turn around and price. It should go up and you know we accede you know on on our expectations of margin I mean historically at.
At a certain point it does turn.
And the margin goes you know.
For you you know it's like.
Is sitting at the table eventually the cards.
Start to come your way so we've learned being in this business out for quite a while to be patient. The business is strong you know I mean, the most important thing for my C. It is you know are we gaining customers. The answer is yes. So we're gaining placements the answer is yes.
You know do we continue to when when were you know fighting for new business and you opening the answer is yes. So you know when I see our team performing at that point I know, we're gonna get rewarded and obviously, we know that there was some bumps in the road. Some time. So you know overall I think the team did a great job and.
You know the protein market, it's [laughter] <unk> it can be very surprising sometimes you know when you speak to when you speak to the Packers you know so overall I think the prices have to go back up because there's just not enough animals.
Right now it seems like you know the animals that the farmers own very expensive to you know to bring to maturity and they want to get paid for them.
And the Packers are waiting for prices to go back up before they start to kill you know more animals, and they're killing right now waiting for prices to go back up in the street. So it's kind of a cat and mouse game.
Gotcha Gotcha, Okay very good I appreciate you all taking my questions I'll get back in line.
<unk>.
Thank you.
So that's about final clothes on gentlemen, you have reached the end of a question and answer session amount of time to call back over to Chris preference.
Please go ahead Sir.
Thank you and we thank everybody for for joining our earnings call. You know, we're very proud of the CW team.
Across the U S and Canada in the Middle East They did a phenomenal job once again.
And and kind of Squirrelly quarter, but we really did a great job getting customers and Guinea placements and we're very optimistic of all the investments that we're making and we think the team is really geared and bill to really perform.
Over the next many many years. So we we thank you again for joining and we look forward to you joining us on our next call.
Thank you Sir.
<unk> Dot com suits today's conference. Thank you for joining US let me know disconnect your lines.
Mmm.
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