Q4 2023 The Chefs' Warehouse Inc Earnings Call
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Operator: www.chefswarehouseinc.com BF-WATCH TV 2021, Greetings and welcome to the Chefs' Warehouse's fourth quarter 2023 Earnings Conference Call. As a reminder, this conference is being recorded. Corporate Secretary, and Chief Government Relations Officer, please go ahead, sir. Thank you, operator. Good morning, everyone.
Speaker Change: Greetings and welcome to the ships, we have fourth quarter of 2023 earnings conference call.
Speaker Change: As a reminder, this conference is being recorded.
Speaker Change: Oh now I understand the conference ever Che your host Alex Aldous.
Alexandros Aldous: General Counsel corporate Secretary and Chief Government Relations Officer. Please go ahead Sir.
Alexandros Aldous: Thank you operator, good morning, everyone with me on today's call are Chris Pappas, founder, Chairman and CEO and Jim Leddy, our CFO.
Alexandros Aldous: With me on today's call are Chris Pappas, the founder, chairman, and CEO, and Jim Leddy, our CFO. By now, you should have access to our fourth quarter 2023 earnings press release, which can also be found at www.chefswarehouse.com under the investor relations section. Throughout this conference call, we will be presenting 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. These measurements are not calculated in accordance with GAAP and may be calculated differently in similarly titled non-GAAP financial measures used by other companies. Here, we present Quantitative Reconciliations of our Non-GAAP Financial Measures to their Most Directly Comparable GAAP Financial Measures, here in today's show.
Alexandros Aldous: Now you should have access to our fourth quarter 2020 earnings press release.
Alexandros Aldous: It can also be found at www dot chefs warehouse.
Alexandros Aldous: Under the Investor Relations section.
James E. Leddy: Throughout this conference call, we will be presenting 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.
James E. Leddy: These measurements are not calculated in accordance with GAAP and may be calculated differently.
James E. Leddy: These 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.
Alexandros Aldous: 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, Such forward-looking statements are not guarantees of future performance, and therefore you should not put them in reliance. The following 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... Today we are going to provide a business update and go over our fourth quarter results in detail. Then we will open up the call to questions. With that, I will turn the call over to Chris Pappas. Chris.
James E. Leddy: Before we begin our formal remarks I need to remind everyone that part of our discussion today will forward looking statements, including statements regarding our estimated financial performance.
James E. Leddy: Such forward looking statements are not guarantees of future performance.
And therefore, you should not put undue reliance on them.
James E. Leddy: These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.
James E. Leddy: Some of these risks are mentioned in today's release.
James E. Leddy: These are discussed in our annual report on Form 10-K, and quarterly reports on Form 10-Q, which are available on the FTC webs.
James E. Leddy: Today, we are going to provide a business update and go over our fourth quarter results in detail.
Speaker Change: We will open up the call for questions.
Speaker Change: With that I will turn the call over to Chris Pappas.
Christopher Pappas: Thank you, Alex. And thank you all for joining our fourth quarter 2023 earnings call. Business activity coming out of September strengthens into the fourth quarter as seasonal customers emerge. Volume trends progressed through November and December to close out 2023. Price inflation continued to moderate, and our Chefs' Warehouse teams across our North American and international markets delivered strong organic growth and margin improvement. As we move into 2024, I would like to thank all of our CW teammates for the dedication and passion they have for our mission to discover and deliver the finest specialty foods, fresh produce, and center-of-the-plate produce to inspire culinary creativity and feed the success of our customer and supplier partners. We strive for excellence and impeccable service. As a reminder, we are comparing the fourth quarter of 2023, a 13-week fiscal quarter, to the fourth quarter of 2022, a 14-week fiscal quarter, and as such, we will present certain results both as reported and on a pro rata 13-week comparison.
Speaker Change: Chris.
Thank you Alex and thank you all for joining our fourth quarter 2023 earnings call.
Christopher Pappas: Business activity coming out of September strengthens into the fourth quarter, a seasonal customer demand and volume trends progressed through November and December to close out 2023.
Christopher Pappas: Price inflation continued to moderate and our chefs warehouse teams across our North American and international markets delivered strong organic growth and margin improvement.
Christopher Pappas: As we move into 2024, I would like to thank all of our CW team mate.
Christopher Pappas: Dedication and passion they have for our mission.
Christopher Pappas: Scarborough and deliver the final specialty foods fresh produce.
Christopher Pappas: Play protein.
Christopher Pappas: In spite of the culinary creativity and feed the success of our customer supplier partner.
Christopher Pappas: As we strive for excellence and impeccable service.
Christopher Pappas: As a reminder, we are comparing the fourth quarter of 'twenty 2023, a 13 week fiscal quarter for the fourth quarter of 2022, a 14 week fiscal quarter and as such we will present certain rebuild both as reported and on a pro rata <unk>.
Christopher Pappas: Gene week comparison.
Christopher Pappas: A few highlights from the fourth quarter on a pro-radar basis include 11.3% organic growth in net sales. Specialty sales were up 11.2% organically over the prior year, which was driven by unique customer growth of approximately 12.4%, and placement growth of 6.5%. Specialty Case Growth of 11.3% Organic pounds in the center of the plate were approximately 8.4% higher than the prior year fourth quarter. Gross profit margins increased approximately 38%. Gross Margin and Specialty Category decreased 76 basis points, as compared to the fourth quarter of 2022, while gross margin in the center of the play category increased 71 basis points, year of the year. Specialty gross profit margins were lowered primarily due to the addition of Harding, excluding Hardy's specialty gross profit margin increase, approximately 35 basis points versus the prior year quarter.
Christopher Pappas: A few highlights from the fourth quarter on a pro rate basis include.
Christopher Pappas: 11, 3% organic growth in net sales.
Christopher Pappas: Specialty sales were up 11, 2% organically over the prior year, which was driven by unique customer growth of approximately 12, 4%.
Christopher Pappas: Placement growth of six 5%.
And specialty case growth of 11, 3%.
Christopher Pappas: Organic pounds in center of the plate were approximately eight 4% higher than the prior year fourth quarter.
Christopher Pappas: Gross profit margins increased approximately 38 basis points.
Christopher Pappas: Gross margin in specialty category decreased 76 basis points.
Christopher Pappas: Compared to the fourth quarter 2022, while gross margin in the center of the plate category increased 71 basis points year over year.
Christopher Pappas: Specialty gross profit margins were lower primarily due to the addition of parties excluding hardee's specialty gross profit margins increased approximately 35 basis points versus the prior year quarter.
Christopher Pappas: Jim will provide more details on gross profit and margins in a few minutes. During the fourth quarter, we completed multiple steps as part of our ongoing focus on harvesting our investments in warehouse and distribution capacity and recent acquisitions. These projects involve both consolidation of distribution centers.
Christopher Pappas: Jim will provide more details on gross profit and margin in a few moments.
Christopher Pappas: During the fourth quarter, we completed multiple steps as part of our ongoing focus on harvesting our investments in warehouse and distribution capacity and recent acquisitions.
Christopher Pappas: This project involves both consolidation of distribution center routes and operations in certain markets as well as further integration of acquired sales teams distribution and cross selling with our existing specialty and protein businesses in key markets across our network a few highlights are.
Christopher Pappas: Routes and Operations in Certain Markets, as well as further integration of acquired sales teams, distribution, and cross-selling with our existing specialty and protein businesses in key markets across our network. If you highlight R. In Florida, we completed the consolidation of three facilities into our new distribution center located in Opa-locka. We now have meat and seafood processing, specialty, and produce distribution operating under one roof. There is significant room to grow over the years to come. We initiated operations in our new distribution center located in southern New Jersey serving Philadelphia and Pennsylvania.
Christopher Pappas: In Florida, we completed the consolidation of three facilities into our new distribution center located in a blocker.
Christopher Pappas: We now have meat seafood processing specialty and produce distribution operating under one roof with significant room to grow over the years to come.
Christopher Pappas: We initiated operations in our new distribution center located in Southern New Jersey, serving the Philadelphia, Pennsylvania market.
Christopher Pappas: This facility provides expanded capacity in the region, as well as creates additional room for growth in the New York Metro and Mid-Atlantic markets. In Dallas and Austin, Texas, we have begun the process of cross-selling our specialty in Allen Brothers Protein distribution, parties facilitated by a combined sales force and route consolidation in the initial stages. We have reduced facility-related costs in Houston and are working on future distribution plans in the state's largest market.
Christopher Pappas: This facility provides expanded capacity in the region as well as creates additional room for growth in the New York Metro and mid Atlantic markets.
Christopher Pappas: And Dallas and Austin, Texas, we have begun the process of cross selling our specialty in Allen brothers protein.
Christopher Pappas: <unk> with hearty facilitated by a combined sales force and route consolidation in the initial stages.
We have reduced facility related cost and use them and are working on future distribution plans and the state's largest market.
Christopher Pappas: Our expansion in Dubai continues to progress, and we anticipate commencing operations out of the additional capacity in the second half of this year. Additionally, our consolidation of protein processing in Northern California is on track to begin a phased-in move starting in the second quarter of 2024, progressing through the end of the year. For 2024 and beyond, we expect to leverage our expanding infrastructure and further integrate recent acquisitions while strengthening the balance sheet, focusing on free cash flow generation, and delivering our two-year capital allocation. As we enter this next phase of our growth, we expect Chefs' Warehouse to remain rooted in our DNA as the leading specialty food marketer and distributor to the upscale, casual, and higher-end dining establishments in the markets we serve. With that, I'll turn it over to Jim to discuss more detailed financial information for the quarter and an update on our liquidity. Jim?
Christopher Pappas: Our expansion in Dubai continues to progress.
Christopher Pappas: We anticipate commencing operations out of the additional capacity in the second half of this year.
Christopher Pappas: The consolidation of protein processing in northern California is on track to begin a phased been moved starting in the second quarter of 2024 and progressing through the end of the year.
Christopher Pappas: For 2024, and beyond we expect to leverage our expanding infrastructure further integrate recent acquisitions, while strengthening the balance sheet focusing on free cash flow generation and delivering our two year capital allocation plan.
Christopher Pappas: As we enter this next phase of our growth, we expect chefs warehouse or remaining rooted in our DNA is the leading specialty food marketer and distributor distributor.
Christopher Pappas: Upscale casual and higher end Donnie establishment in the markets we serve.
Christopher Pappas: With that I'll turn it over to Jim to discuss more detailed financial information for the quarter and an update on our liquidity Jim.
James E. Leddy: 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. Our net sales for the quarter ended December 29, 2023, increased approximately 29.3% to $950.5 million from $734.8 million in the fourth quarter of 2022, which represents a pro-rated 13-week net sales for the fourth quarter of 2022. Net sales on a reported basis, 13 weeks compared to 14 weeks, increased 20.1%. The pro-rata growth in net sales was the result of an increase in organic sales of approximately 11.3%, as well as the contribution of sales from acquisitions, which added approximately 18% to the sales growth for the quarter. Net inflation was 1.8% in the fourth quarter, consisting of 0.6% inflation in our specialty category and inflation of 3.4% in our center of the plate category versus the prior year quarter.
James E. Leddy: 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.
James E. Leddy: Our net sales for the quarter ended December 29, 2023 increased approximately 29, 3% to $950 5 million from $734 8 million in the fourth quarter of 2022, which represents a prorated 13 week net sales for the fourth quarter of 2022.
James E. Leddy: Net sales on a reported basis 13 weeks compared to 14 weeks increased 21%.
James E. Leddy: Pro rata growth in net sales was the result of an increase in organic sales of approximately 11, 3% as well as the contribution of sales from acquisitions, which added approximately 18% of the sales growth for the quarter.
Net inflation was one 8% in the fourth quarter, consisting of 0.6% inflation in our specialty category and inflation of three 4% in our center of the plate category versus the prior year quarter.
James E. Leddy: Gross profit increased 31, 4% to $228 6 million for the fourth quarter of 2023 versus a pro rated $173 9 million for the fourth quarter of 2022 on a reported basis comparing 13 weeks to 14 weeks gross profit increased 22%.
James E. Leddy: Gross profit margins increased approximately 38 basis points to 24.1%. As mentioned on our third quarter call, gross profit, dollar growth, and margin trends improved significantly coming out of the softer summer months. These trends continued as the quarter progressed into the holiday season, and our teams across our regions, including sales, operations, procurement, and all the supporting functions, delivered a strong margin performance while providing the premium quality product and service our customers have come to expect from the Chefs' Warehouse. Selling general and administrative expenses increased approximately 23.8% to $190 million for the fourth quarter of 2023 from $153.4 million for the fourth quarter of 2022. The increase was primarily due to higher costs associated with compensation, including benefits, facility costs, and distribution costs to support sales growth in the current quarter. On a prorated basis, adjusted operating expenses increased 33% versus the prior year's fourth quarter.
James E. Leddy: Gross profit margins increased approximately 38 basis points to 24, 1%.
James E. Leddy: As mentioned on our third quarter call gross profit dollar growth and margin trends improved significantly coming out of the softer summer months he's.
James E. Leddy: These trends continued as the quarter progressed into the holiday season, and our teams across our regions, including sales operations procurement and all the supporting functions delivered a strong margin performance, while providing the premium quality product and service our customers have come to expect from the chefs warehouse.
Selling general and administrative expenses increased approximately 23, 8% to $190 million for the fourth quarter of 2023 from $153 4 million for the fourth quarter of 2022.
Increase was primarily due to higher costs associated with compensation, including benefits facility costs and distribution costs to support sales growth in the current quarter.
James E. Leddy: On a pro rated basis, adjusted operating expenses increased 33% versus the prior year fourth quarter and as a percentage of net sales adjusted operating expenses were 17, 8% for the fourth quarter of 2023 compared to 17, 3% for the fourth quarter of 2022.
James E. Leddy: And as a percentage of net sales, adjusted operating expenses were $17.8 billion for the fourth quarter of 2023, compared to 17.3, for the fourth quarter of 2020. Operating income for the fourth quarter of 2023 was $38.2 million, compared to $29.8 million for the fourth quarter of 2020. The increase in operating income was driven primarily by higher gross profit and lower other operating expenses, partially offset by higher selling general and administrative expenses compared with the prior year quarter. Income tax expense was $10.1 million for the fourth quarter of 2023 compared to $4.3 million for the fourth quarter of 2022.
James E. Leddy: Operating income for the fourth quarter of 2023 was $38 2 million compared to $29 8 million for the fourth quarter of 2020 to incur.
James E. Leddy: The increase in operating income was driven primarily by higher gross profit and lower other operating expenses, partially offset by higher selling general and administrative expenses versus the prior year quarter.
Income tax expense was $10 1 million for the fourth quarter of 2023 compared to $4 3 million expense for the fourth quarter of 2022.
James E. Leddy: Our GAAP net income was $16 million or 38 cents per diluted share for the fourth quarter of 2023 compared to net income of $1 2 million or three cents per diluted share for the fourth quarter of 2022.
James E. Leddy: On a non-GAAP basis, we had adjusted EBITDA of $59 million for the fourth quarter of 2023 compared to $50 1 million for the prior year fourth quarter.
James E. Leddy: Our GAAP net income was $16 million, or $0.38 per diluted share, for the fourth quarter of 2023, compared to net income of $1.2 million, or $0.03 per diluted share, for the fourth quarter of 2023, on a non-gap basis. We had adjusted EBITDA of $59 million for the fourth quarter of 2023 compared to $50.1 million for the prior year's fourth quarter. Adjusted net income was $20.2 million or $0.47 per diluted share for the fourth quarter of 2023 compared to $18.2 million or $0.46 per diluted share for the prior year's fourth quarter. Turning to the balance sheet and an update on our liquidity, at the end of the fourth quarter, we had total liquidity of $221.9 million, comprised of $49.9 million in cash and $172 million of availability under our ABL facility. The total net debt was approximately $662.5 million.
Adjusted net income was $20 2 million or <unk> 47 cents per diluted share for the fourth quarter of 2023 compared to $18 2 million or <unk> 46 cents per diluted share for the prior year fourth quarter.
James E. Leddy: Turning to the balance sheet and an update on our liquidity at the end of the fourth quarter, we had total liquidity of $221 9 million.
James E. Leddy: Comprised of $49 9 million in cash and 172 million of availability under our ABL facility total net debt was approximately $662 5 million inclusive of all cash and cash equivalents.
James E. Leddy: And net debt to adjusted EBITDA was approximately three four times as compared to approximately three six times as of the end of the third quarter of 2023.
James E. Leddy: Turning to our full year guidance for 2024 based on the current trends in the business, we are providing our full year financial guidance as follows.
James E. Leddy: We estimate that net sales for the full year of 2024 will be in the range of $3 625 billion to $3 77, 5 billion gross profit to be between $865 million and $900 million and adjusted EBITDA to be between $205 million and $218 million.
James E. Leddy: Our full year estimated diluted share count is approximately $44 9 million shares for reporting purposes. We currently expect our senior unsecured convertible notes maturing in 2028 to be dilutive for the full year and accordingly, so shares that could be issued.
James E. Leddy: Inclusive of all cash and cash equivalents, and Net Debt to Adjusted EBITDA was approximately 3.4 times as compared to approximately 3.6 times as of the end of the third quarter of 2023. Now, turning to our full-year guidance for 2024. Based on the current trends in the business, we are providing our full-year financial guidance as follows. We estimate that net sales for the full year of 2024 will be in the range of $3.625 billion to $3.775 billion, gross profit to be between $865 million and $900 million, and adjusted EBITDA to be between $205,000,000 and $200,000,000. Our full-year estimated diluted share count is approximately 44.9 million shares.
James E. Leddy: Upon conversion of the notes are included in our fully diluted share count.
Speaker Change: Thank you and at this point, we will open it up to questions operator.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Before we start the Q&A, we just want to remind everyone that a reconciliation of the non.
Speaker Change: non-GAAP financial measures to the list I think the comparable GAAP financial measures can be found in the industrial relations section of the Companys website and in today's press release.
Speaker Change: Thank you.
Speaker Change: Well now be conducting a question and answer session.
Speaker Change: We did not have sufficient piece by smoking one on your telephone keypad.
A confirmation tone will indicate an easier question Kim.
You may still choose to leave the question Ken.
Speaker Change: Our first question comes from Alex Slagle of.
Alexander Russell Slagle: Jefferies. Please go ahead.
Alright, thank you.
James E. Leddy: For reporting purposes, we currently expect our senior unsecured convertible notes maturing in 2028 to be diluted for the full year, and accordingly, those shares that could be issued upon conversion of the notes are included in our fully diluted share count. Thank you, and at this point, we will open it up to questions. Operator.
Alexander Russell Slagle: Thanks for the question.
Alexander Russell Slagle: Wanted to ask about the outlook for 'twenty, four and and maybe I guess first you think.
Alexander Russell Slagle: To provide some expectations on the magnitude of impact related to acquisitions that are rolling over in the 'twenty four and.
Alexander Russell Slagle: You get a sense for the cadence what that looks like I'm, assuming no other transactions.
Speaker Change: Hey, Alex.
Alex: Good morning, Thanks for the question.
Alex: Yeah in terms of the acquisition wrap impact.
Alex: Yeah, we had size that.
Alex: Previously right around 2.5% to 3%.
Operator: Thank you. Before we start the Q&A, we just want to remind everyone that a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the industry relations section of the company's website and in today's press release. Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star then 1 on each telephone keypad. The confirmation tone will indicate that your line is in the question queue; you may press star 2 to leave the question queue.
Alex: Okay.
Alex: Right.
Alex: And then I guess in terms of the.
Alex: Look for 'twenty for 2024 was the first part of your question Yeah.
Alex: Well.
Alex: We started off.
Alex: With January.
Alex: It's a pretty good month, obviously, there was some weather impact.
Alex: That we saw in some of our markets but.
Alex: We actually.
Alex: January is relative.
Alex: Worst months.
Alex: And the industry.
Alex: Really.
Alex: And for our company and the.
Alex: The entire industry, but actually our teams executed very well during the month and we had a pretty good January and it feels like.
Alex: The usual build coming out of January into February is taking place.
Alexandros Aldous: Our first question comes from Alex Fagel of Jeffries. Please go ahead. All right, thank you. Thanks for the question. I wanted to ask about the Outlook for 24 and, maybe..., spokesperson. Thank you, everyone, for tuning in. We will see you next week. Have a great week! Take care, to provide some expectations on the magnitude of impact related to acquisitions that are rolling over into 2024, and get a sense for the cadence, what that looks like, assuming no other transactions. Oh, hey Alex.
Alex: So right now we're.
Alex: Sticking with our guidance and.
Alex: And go from there.
Speaker Change: Okay, and the expectation for the elevated operating expenses and continuing through the first half.
Speaker Change: As we think about the typical.
Speaker Change: First quarter second quarter cadence of EBITDA in its first quarter is usually only 14% 15% of your annual EBITDA is that are we kind of getting back to that.
Speaker Change: With a normal season.
Speaker Change: Seasonal cadence or.
Speaker Change: Opex expenses should we expect that to be.
Speaker Change: More elevated.
Speaker Change: Yeah, we we.
Speaker Change: We wrap the.
The increased rent from Florida and.
Speaker Change: Kind of midway through the year.
Speaker Change: And then we will wrap the impact of the additional new Jersey rent kind of in the third quarter.
Christopher Pappas: Good morning. Thanks for the question. Yeah, in terms of the acquisition wrap impact, we had sized that previously right around two and a half to three percent. Great. And then, in terms of the outlook for 2024, was that the first part of your question? Yeah. Well, you know, we started off with January. It's a pretty good month.
Speaker Change: So there are some elevated expenses continuing in the first half of Gary but.
Speaker Change: The percentages in terms of.
Speaker Change: EBITDA.
Speaker Change: Returning to more normal than they have.
Speaker Change: The past three or four years for sure.
Speaker Change: Great. Thanks for that I'll pass it along.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Todd Brooks of Benchmark company.
Todd Brooks: Please go ahead.
Todd Brooks: Hey, thanks for the questions and congrats on the Q4 results.
Christopher Pappas: Obviously, there was some weather impact that we saw in some of our markets, but we actually, you know, January's a relative month, so it's always the worst month in the industry. Really, for our company, the entire industry, but actually, our teams executed very well during the month, and we had a pretty good January, and it feels like the usual build coming out of January into February is taking place, so right now, we're sticking with our guidance and going from there. The expectation for the elevated operating expenses and continuing through the first half, we think about the typical first quarter, second quarter cadence of EBITDA. I mean, in the first quarter, it's usually only 14, 15% of your annual EBITDA.
Todd Brooks: Thanks, a couple of quick couple quick questions for you one.
Todd Brooks: And now as part of the new two year capital allocation plan you guys did put a share repurchase in place.
Todd Brooks: And did some work with your lending partners too.
Todd Brooks: Be able to execute against not just not much evidence of it and what the full quarter share count was but where are you active on the plan at all in the fourth quarter.
Speaker Change: No we actually.
Speaker Change: Put it into place well through the.
Speaker Change: The fourth quarter.
Speaker Change: About almost halfway through and no we hadn't executed any of it as of the end of the fourth quarter.
Speaker Change: Okay, but I think in your full year guidance, what your point of two per fully diluted at the 44 nine.
That implies some repurchase anticipated over the course of 'twenty four.
Speaker Change: No what it really implies is that we expect to.
Christopher Pappas: Is that, are we kind of getting back to that sort of normal? Seasonal Cadence, or, or the OPEX expenses should we expect that to be? and more elevated?
Speaker Change: Cash settled the 2024.
Speaker Change: Converged $39 million that mature at the end of 2024, and so we don't expect them to be fully dilutive for the entire year. So the previous estimate.
Christopher Pappas: Yeah, we wrapped the increased rent from Florida and kind of midway through the year, and then we'll wrap the impact of the additional New Jersey rent kind of in the third quarter. So there are some elevated expenses continuing in the first half of the year, but the percentages in terms of EBITDA are returning to more normal than they have been the past three or four years, for sure. Great. Thanks for that. I'll pass it on.
Speaker Change: <unk> 45.7.
7 million. So you just pretty much take out that 900000 shares associated with the 2024 converts and that gets you to the $44 nine.
Speaker Change: Great. Thanks, Jim and then another.
Speaker Change: Other one Chris I'd love to hear.
Speaker Change: Im just looking at the unique customer growth and it seems to be accelerating nicely on a year over year basis over the past several quarters. What are what are the drivers there and what's the tail too.
Operator: Thank you. Our next question comes from Todd Brooks of Benchmark Company. Please go ahead.
Christopher Pappas: The ability for <unk> to go out and add new customers to the fold as you look into 'twenty four thanks.
Speaker Change: Yes, a great question Todd.
Todd Brooks: Hey, thanks for the questions and congrats on the Q4 results. I have a couple quick questions for you. One, I know as part of the new two-year capital allocation plan, you guys did put a share repurchase in place and did some work with your lending partners to... be able to execute against that. Just not much evidence of it in the full quarter share count. But were you active on the plan at all in the fourth quarter? No, we actually put it into place well through the fourth quarter, you know, about almost halfway through, and no, we hadn't executed any of it as of the end of the fourth quarter.
Speaker Change: Again, we continue to hire and train.
Speaker Change: New sales.
Speaker Change: Salespeople to the team and that's been our engine driver for almost 40 years now so.
Speaker Change: As much as we are using digital.
To grow awareness and take more and more of our of our orders the actual orders are coming in.
Speaker Change: From customers, which is freeing up the sales team to go out and continue to open.
Speaker Change: More customers than it really is the it as such.
Speaker Change: An important part of our growth because you know natural attrition for various reasons as sticky as our customer bases I mean, we've had customers now for over 30 years.
Speaker Change: Yeah, you got to have new customers constantly coming in it's just the nature of who we sell we sell to independent restaurants and.
James E. Leddy: Okay, but I think, in your full-year guidance, what you pointed to for fully diluted, the 44.9, does that imply some repurchase anticipated over the course of 24? No, what it really implies is that we expect to cash settle the 2024 converts to $39 million that mature at the end of 2024, and so we don't expect them to be fully diluted for the entire year. So the previous estimate was $45.7 million, so you just pretty much take out those 900,000 shares associated with the 2024 converts, and that gets you to $44.9 million. Great. Thanks, Jim. And then another one, Chris.
Speaker Change: As they as they mature their leases, sometimes mature out and many other reasons why there is turnover, but let's face it customers love, new restaurants, and restaurant tours liked to open new restaurants, and we feel that.
That's where we're winning you know most of the customers that are opening in the territories that we sell.
Speaker Change: Chef is a dominant partner and I think that's what's driving that number.
Speaker Change: Great. Thanks, Chris.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Mark Carden of UBS. Please go ahead.
Mark Carden: Great. Good morning. Thanks, so much for taking the question so to start it sounds like sales got stronger sequentially as the quarter progressed, reflecting some seasonality just to clarify did you guys also see the rate of growth pick up in each month, when you adjust out the extra week and then any specific call outs with respect to demand and the amount of trade down Youre seeing.
Christopher Pappas: I'd love to hear... I'm just looking at unique customer growth, and it seems to be accelerating nicely on a year-over-year basis over the past year and a half. What are the drivers there, and what's the tail? The ability for Chef to go out and add new customers to the fold as you look. Great, thanks. Our next question comes from Mark Carden of UBS. Please go ahead.
Mark Carden: Is that more or less than you guys might have expected. Thanks, so much.
Speaker Change: Alright, Thanks Mark.
Speaker Change: <unk> in the quarter I think you pointed out was pretty typical of a normal season prior to the.
Speaker Change: The many years that COVID-19 volatility impacted seasonality.
We talked about on our Q3 call. We we saw strength in demand and margin in September coming out of the weaker summer months I think October and November were kind of very typical October and November from a seasonal perspective and then.
Operator: Great, good morning. Thanks so much for taking the questions. So to start, it sounds like sales got stronger sequentially as the quarter progressed, reflecting some seasonality. Just to clarify, did you guys also see the rate of growth pick up in each month when you adjusted out that extra week? And then any specific call outs with respect to demand and the amount of trade down you're seeing? Is it more or less than you guys might have expected? Thanks so much.
Speaker Change: December was I think the first December the three weeks between Thanksgiving and Christmas.
Speaker Change: That you really saw the corporate parties come back the level of events come back to.
Speaker Change: Pre COVID-19 levels I think in 'twenty, two you saw a little bit of that but it wasn't completely back in so I think those are three very strong weeks.
Speaker Change: And that.
Speaker Change: I think I think that that really helped the quarter.
Speaker Change: Get back to what we would call a normal fourth quarter.
Speaker Change: Got it that's helpful. And then you guys mentioned that inflation moderated in <unk> do you think it's bottomed out at this point and just how do you see it shaping up.
Mark Carden: Thanks, Mark. No, the cadence in the quarter, I think, as you pointed out, was pretty typical of a normal season prior to the many years that COVID volatility impacted seasonality. You know, we talked about it on our Q3 call; we saw strength in demand and margin in September coming out of the weaker summer months. I think October and November were kind of very typical, October and November from a seasonal perspective.
Speaker Change: In 2004 at this point.
Speaker Change: You know I would say, we don't really predict inflation, but what we expect right now and what we see is in.
In aggregate I mean, we have 70000 products going through our distribution centers.
Speaker Change: Our inflationary some are deflationary, but in aggregate what we've seen so.
Speaker Change: So far in the beginning of the year is kind of a continuation of what we saw in the fourth quarter, which was.
Speaker Change: Moderate kind of low to mid single digit type of.
Speaker Change: Sequential and year over year inflation.
Speaker Change: With a little bit of it.
Speaker Change: Our mix on certain products you know right now you have.
Speaker Change: Things that are Coco base like chocolate have olive oil affected by drought.
Speaker Change: A couple of daily dairy products that are inflationary, but but overall.
James E. Leddy: And then December was, I think, the first December, the three weeks between Thanksgiving and Christmas that you really saw the corporate parties come back, the level of events come back to pre-COVID levels. You know, I think on December 22, you saw a little bit of that, but it wasn't completely back. And so I think those were three very strong weeks. And that, you know, I think that really helped the quarter get back to what we would call a normal fourth quarter. Got it, that's helpful.
Speaker Change: You're kind of seeing moderate inflation, so far this year and we kind of expect that to continue.
Speaker Change: Great. Thanks, so much good luck guys.
Thank you.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Kelly Bania of BMO capital markets. Please go ahead.
Kelly Ann Bania: Good morning, Thanks for taking our questions.
Kelly Ann Bania: Kelly I wanted to talk about good morning, I wanted to talk about some of the acquisitions.
Kelly Ann Bania: Obviously several had been flowing in for the last couple of quarters.
Kelly Ann Bania: Maybe can you just talk a little bit more in detail about how they're performing.
James E. Leddy: And then you guys mentioned that inflation moderated in 4Q. Do you think it's bottomed out at this point? And just how do you see it shaping up in 24?
Kelly Ann Bania: Like there might be some top line upside coming in from one or more about correct me, if I'm wrong, and maybe just help us understand how.
James E. Leddy: You know, I would say we don't really predict inflation, but what we expect right now and what we see is, in aggregate, I mean, we have 70,000 products going through our distribution centers. Some are inflationary, some are deflationary, but in aggregate, what we've seen so far in the beginning of the year is kind of a continuation of what we saw in the fourth quarter, which was, you know, moderate, kind of low to mid-single-digit type of sequential and year-over-year inflation, you know, with a little bit of a mix on certain products. You know, right now, we have things that are cocoa-based, like chocolate. You have olive oil affected by droughts.
Kelly Ann Bania: How are you finding those acquisitions getting integrated to that to the broader chef warehouse network.
Sure.
Kelly Ann Bania: I think things are going.
Speaker Change: Very well Kelly.
Speaker Change: The team has their arms around.
Speaker Change: The acquisitions from <unk>.
Speaker Change: The past two years and.
Speaker Change: You can see from our growth.
Speaker Change: We call it hybrid growth I call it right now as companies become.
Speaker Change: Comfortable as part of the chefs warehouse.
Speaker Change: Family of companies, we start to.
Speaker Change: We start to share best practices and many many of the acquisitions we've already.
Speaker Change: Put them on our computer systems. So they could start to see other warehouses and what products are available in the sales team starts to melt together and I think that's really what's what's been the driving force behind you now.
James E. Leddy: You have a couple of dairy products that are inflationary. But overall, you're kind of seeing moderate inflation so far this year, and we kind of expect that to continue. Great, thanks so much and good luck, guys. Thank you. Our next question comes from Kelly Bania of BMO Capital Markets. Please go ahead. Good morning. Thanks for taking our question. Good morning.
Speaker Change: Our continued growth.
Speaker Change: For the past many years so.
Speaker Change: We're not we're not we're not anywhere near the finish line of what our expectations are but.
Speaker Change: Every day, we get better and.
Speaker Change: I think that shows in the numbers, we continue to we continue to cross sell each other's customers and that's really the focus right. We built these new warehouses and continue to build.
Speaker Change: The warehouses in markets that we have three or four.
Speaker Change: Independent businesses. So we're here in Florida today, and this is one of our our U S facilities, where we're able to sell proteins and dairy and some produce and all of our specialty and dry goods and combine them on the same trucks and.
Speaker Change: We will continue to get the synergies and that's what's going to drive the bottom line over the next many years.
Speaker Change: Thank you just wanted to follow up with a couple more questions you mentioned that the sales force and growth there it seems.
Operator: I wanted to talk about some of the acquisitions. Obviously, several have been flowing in for the last couple of quarters, but maybe you could just talk a little bit more in detail about how they're performing? It seems like there might be some top-line upside coming in from one or more, but correct me if I'm wrong and maybe just help us understand how you're finding those acquisitions getting integrated into the broader Chefs' Warehouse Network. Sure.
Speaker Change: So some of the big broad liners are maybe also increasing sales force head count more than in recent years and I guess. The question is are you not seeing dynamic across many of the private specialty competitors that you compete more directly with on a day to day base.
Speaker Change: And maybe just remind us.
Speaker Change: Hi of yourself and the growth in head count.
Speaker Change: Year in coming years, and you effect.
Speaker Change: Yeah.
Christopher Pappas: I think things are going very well, Kelly. I think the team has their arms around the acquisitions from the past two years, and you can see from our growth; we call it hybrid growth. I call it right now; as companies become comfortable as part of the Chefs' Warehouse family of companies, we start to share best practices. In many of the acquisitions, we've already put them on our computer systems, so they can start to see other warehouses and what products are available, and the sales team starts to meld together. I think that's really what's been the driving force behind our continued growth for the past many years. We're not anywhere near the finish line of what our expectations are, but every day we get better, and I think that shows in the numbers.
Speaker Change: The Street perspective, I think we always see some new people.
Speaker Change: We hear from all of our.
Speaker Change: All of our leaders is a.
Speaker Change: Again everything is so expensive today so.
Speaker Change: When you hire when you hire people the benefits are really exciting.
Speaker Change: If you could put them on the road car expenses are very expensive so.
Speaker Change: I think our view is you know continue to use technology.
Speaker Change: To free to free our team up and I think that it's going more and more into what I call. A team. So you know I think I've been saying this for the past five years seven years that you know my vision is theres over 1000 people in the sales department.
Speaker Change: With all our companies so it's quite a big people in sales, but it's really leveraging.
Speaker Change: And having them do.
Speaker Change: More calls on new customers more calls to their existing customers introducing new products as we continue to integrate in all the regions that we have chef warehouse protein businesses now with our other businesses and now produce so it's really doing more.
Christopher Pappas: We continue to cross-sell each other's customers, and that's really the focus, right? We built these new warehouses and continue to build the warehouses in markets where we have three, four independent businesses. We're here in Florida today, and this is one of our newest facilities where we're able to sell proteins and dairy and some produce and all our specialty and dry goods and combine them on the same trucks. We'll continue to get the synergies, and that's what's going to drive the bottom line over the next many years. Thank you.
Speaker Change: With luck.
Speaker Change: I think thats the key and I think every company is facing that and is trying to do the same thing whether you're.
Speaker Change: One of the giant $70 billion.
Speaker Change: Public companies or you're a small.
Speaker Change: Independent in the marketplace.
Speaker Change: You're going to have to get leverage because everything is more expensive you know everything is completed.
Speaker Change: The last especially the last five years or so.
Speaker Change: It's so important to get more efficient and larger dropped.
Speaker Change: You have to get the leverage on your overhead.
Speaker Change: Thank you and just maybe last one.
Speaker Change: It doesn't sound like there's any issues here, but maybe just talk about zelle.
Speaker Change: Your ability and cost and getting some of the products like an import over from Europe.
Christopher Pappas: Um, just wanted to follow up with a couple more questions. You mentioned the sales force and growth there. It seems as though some of the big broad liners are maybe also increasing. Salesforce headcount more than in recent years.
Speaker Change: In today's market conditions, and just remind us what percent of your products are coming.
Speaker Change: From there.
Speaker Change: So there I mean, there hasnt been.
Really the impact from what's happening in the Red Sea to our U S or north American businesses. So.
Christopher Pappas: And I guess the question is, are you seeing that same dynamic across many of the private and specialty competitors that you compete more directly with on a day-to-day basis? And maybe just remind us of the size of your Salesforce and the growth in headcount this year and in the coming years that you expect. Yeah, you know, from the street perspective, I think we always see, you know, some new people.
Speaker Change: Logistics prices have obviously come way down since the crazy Covid prices.
Speaker Change: Kind of settled in.
Speaker Change: In a range that are a little bit higher than.
Speaker Change: Before but not not insane. So we haven't really had much difficulty.
Speaker Change: Coming from Europe.
Speaker Change: We don't really disclose the percentage that comes from Europe.
Speaker Change: We have had a little bit of some bumps with our chefs middle East business with some of the product that comes via the Red Sea.
Christopher Pappas: You know, what we hear from all our, you know, all our leaders is, you know, again, everything is so expensive today. So, you know, when you hire people, the benefits are really expensive if you put them on the road. You know, car expenses are very expensive.
Speaker Change: But they've done a great job of mitigating that and it seems that the the price impacts are being felt really by by the entire market there and are being passed on and customers and restaurants are adapting their menus and adjusting just like they would doing any kind of.
Speaker Change: Supply chain disruption, but it hasn't been material to date and the team over there is doing a great job of.
Christopher Pappas: So I think our view is, you know, to continue to use technology to free our team up. And I think that it's going, you know, more and more into what I call a team cell. You know, I think I've been saying this for the past five, seven years that, you know, my vision is, you know, there are over a thousand people in the sales department at all our companies. So it's quite a large number of people in sales, but it's really leveraging them and having them do, you know, more calls to new customers, more calls to their existing customers, and introducing new products. You know, as we continue to integrate all the regions that we have Chef's Warehouse protein businesses now, you know, with our other businesses and now produce. So it's really doing more with less. I think that's the key.
Speaker Change: Managing so institutions and working with customers et cetera, So I would just say overall.
Speaker Change: So logistics environment.
Speaker Change: It Hasnt really.
Speaker Change: A lot of volatility over the last six months or a year that we experienced over the first two or three years post COVID-19.
Speaker Change: Yeah, Kelly just to add a little bit a little more insight to that.
Speaker Change: Again, I think ever since Covid everybody.
Kelly Ann Bania: Our partners in.
Kelly Ann Bania: From over 2000 suppliers in 40 countries.
Kelly Ann Bania: Kind of adapted everybody keeps more inventory now because the world is in a pretty volatile state right with two wars going on and we've.
Kelly Ann Bania: We've got climate change impacts so I.
Kelly Ann Bania: I think everyone's gotten kind of ahead of it right. So.
Kelly Ann Bania: In the U S like Jim said.
Kelly Ann Bania: Oh.
Kelly Ann Bania: I think everybody was everybody always anticipate some sort of disruption. So we're kind of way ahead of it you know our inventories find the team is all over it and as Jim said.
Kelly Ann Bania: In Dubai, which is a major warehouse.
Kelly Ann Bania: They had a great.
Kelly Ann Bania: December.
Kelly Ann Bania: Business was with <unk>.
Kelly Ann Bania: <unk> was strong and I think any pressure came because.
Kelly Ann Bania: It was so strong the demand was there and it's an incredible team there that is very seasoned in.
Christopher Pappas: And I think every company is facing that and is trying to do the same thing. Whether you're one of the giant $70 billion public companies or you're a small independent in the marketplace, you're going to have to get leverage because everything is more expensive. Everything's been plated, especially in the last five years.
Kelly Ann Bania: Yeah, there are accustomed to dealing with something going on with the logistical challenges and they tried to get ahead of it.
Kelly Ann Bania: Before something happens so I think I think we're good.
Kelly Ann Bania: Thank you very much.
Speaker Change: Thank you Kevin.
Speaker Change: Our next question comes from Andrew Wolf of C. L.
Christopher Pappas: So it's so important to get more efficient and larger drops to get leverage on your overhead. Thank you. And just maybe, the last one.
Andrew Wolf: Please go ahead.
Andrew Wolf: [laughter].
Andrew Wolf: Hi, Good morning, I wanted to ask about the guidance.
James E. Leddy: It doesn't sound like there's any issues here, but maybe just talk about your ability and cost to get some of the products that you import from Europe in today's market conditions. And just remind us what percent of your products are coming from there. So there, I mean, there hasn't been really any impact from what's happening in the Red Sea on our U.S. or North American businesses. So logistics prices have obviously come way down since the crazy COVID prices and kind of settled in a range that is a little bit higher than before, but not, you know, not insane. So we haven't really had much difficulty, you know, coming from Europe.
Andrew Wolf: In terms of the margins.
Andrew Wolf: EBITDA margin so at the midpoint of sales and EBITDA.
Andrew Wolf: <unk> expands about 10 basis points.
Andrew Wolf: In 'twenty four from 23.
Andrew Wolf: And.
Andrew Wolf: Gross margin at the midpoint as you know more than that closer to 20.
Andrew Wolf: So.
Andrew Wolf: And from Alex's question. It appears you guys are.
Andrew Wolf: Looking at the first half being sort of heavy on Opex and then starting to improve so I just wanted to get a sense you know kind of if you could sort of dive a little more into the cadence of margins.
Andrew Wolf: Sort of as they flow for the year both.
James E. Leddy: We don't really disclose the percentage that comes from Europe. We have had a little bit of some bumps with our Chefs Middle East business with some of the product that comes via the Red Sea, but they've done a great job of mitigating that. And it seems that the price impacts are being felt really by the entire market there and are being passed on. And customers and restaurants are adapting their menus and adjusting just like they would during any kind of supply chain disruption. But it hasn't been material to date.
Andrew Wolf: How you see particularly the opex.
Andrew Wolf: The business is deleveraging.
Andrew Wolf: And I know, you're not said it well actually at ICR, you did talk about longer term guidance.
Andrew Wolf: Just how you do see the Opex leverage.
Andrew Wolf: Really being reestablished.
Andrew Wolf: He was the guy who would sort of be.
Andrew Wolf: Like.
Andrew Wolf: Is it going to get greater and greater once you start to establish it.
Andrew Wolf: Is that how you view it and get it you know getting margins up to that 6% to 7% long term goal.
Christopher Pappas: And the team over there is doing a great job of managing substitutions and working with customers, et cetera. So I would just say overall, the logistics environment hasn't really had a lot of volatility over the last six months or a year that we experienced, you know, over the first two or three years post COVID. Yeah, Kelly, just to add a little bit, a little more insight to that, you know, again, I think ever since COVID, everybody, all our partners in, you know, from over 2000 suppliers in 40 countries, kind of have adapted. Everybody keeps more inventory now because, you know, the world is in a pretty volatile state, right, with two wars going on. And, you know, we've got climate change impacts. So, I think everyone's gotten kind of ahead of it, right? So, in the US, like Jim said, you know, I think everybody always anticipates some sort of disruption.
Andrew Wolf: Okay.
Andrew Wolf: Yes.
Speaker Change: Thanks, Andy.
Speaker Change: Yes, just in terms of the guidance and the cadence through the year.
Speaker Change: It's a range I mean, if you look at our EBITDA guidance of $205 million to $218 million.
Speaker Change: I think the.
Speaker Change: The midpoint.
Speaker Change: EBIT margin percentages as conservative I think theres a chance that.
Speaker Change: That could be improved.
Speaker Change: We do still have some of the near term cost headwinds related to the all the growth investments, we talked about that at ICR and in our Q3 call. So.
Speaker Change: It's mainly in the first half of the year in the back half of the year, we will.
Speaker Change: We expect to start to get a little more leverage and then it's really about 25 and 26.
Speaker Change: Just go back to Chris's comments.
Speaker Change: We are we expect to drive organic volume through this.
Incredible amount of capacity that we've invested in and added in key growth markets.
Speaker Change: Over the next couple of years.
Christopher Pappas: So, we're kind of way ahead of it, you know, our inventory is fine, the team is all over it, and as Jim said, you know, in Dubai, which is our major warehouse, they had a great December, you know, business was, business was strong. And I think any pressure came because the, you know, demand was there. And it's an incredible team there that, you know, is very seasoned. And, you know, they're accustomed to dealing with, you know, something going on, you know, with the logistical challenges, and they try to get ahead of it, you know, way before, you know, something happens. So, I think we're good. Thank you very much.
Speaker Change: It'll it'll beginning 'twenty four but we still have as I mentioned some of the we haven't wrapped some of the larger rent investments in some of the other growth related costs, but those will dissipate a lot of the transition cost that we've experienced related to.
Speaker Change: The significant amount of M&A, we've done over the last two years that will start to decline.
Speaker Change: And so it's going to be it's going to be gradual combine that with.
Speaker Change: Improving adjusted EBITDA margins.
Speaker Change: Key investments like Hardee's in Texas, which is a.
Speaker Change: A key strategic decision too.
Speaker Change: Enhance and accelerate our platform for growth in Texas, which is a huge growth market.
Speaker Change: And.
Speaker Change: Theyre diluting us initially so.
Speaker Change: I think.
Speaker Change: We're a little bit above five 6% for the full year of 'twenty three if you excluded the dilutive the initial dilutive impact of adding parties, we'd be very close to what we delivered in 2022, we'd be around five 9% in 2022, we delivered 6%. So it's really just about driving the organic volte.
Operator: Thank you, Kevin. Our next question comes from Andrew Wolf of CR King. Please go ahead.
Andrew Wolf: Hi, good morning. I wanted to ask about the guidance in terms of the margin. So at the midpoint of sales, it expands about 10 bases, and, um... The gross margin at the midpoint is, you know, more than that. And, you know, from Alex's question, it appears you guys are, looking at, you know, the first half being sort of heavy on OPEX, starting to improve. So I just wanted to get the sense, you know, kind of if you could sort of dive a little more into the cadence of March.
Speaker Change: Through these significant capacity investments and then improving that.
Speaker Change: Adjusted EBIT margins over time as we integrate.
Speaker Change: This kind of 15% of our revenue base that comes at a lower EBITDA margin percentage.
Speaker Change: Okay.
Speaker Change: Thanks, Jim and just speaking of Hardee's, you know and I know.
Speaker Change: Yeah. The other acquisitions that were similar smaller I think but similar where you are.
Speaker Change: Table two margin them up I think.
Speaker Change: You know 300 basis points in the two Boston acquisition so.
James E. Leddy: Sort of as they flow for the year, you know how you see, how you, particularly the op-ecs. And, you know, I know you're not saying this well, actually, at ICR, you did talk about longer-term guidance. This is how you do see the OpEx leverage really being re-established. We're going to get greater and greater once you start to establish it. Is that how you view it in getting a market? to several. Yeah, thanks, Andy.
Speaker Change:
James E. Leddy: Could you just give us a sense of that.
James E. Leddy: Is it.
James E. Leddy: You know I think you've got is it more right sizing the business or is it more the cross sell and which I guess it is more the latter but.
James E. Leddy: What percent of the customers.
Are you kind of is the right goal either based on experience or how are you.
James E. Leddy: How you're modeling it that you want to cross sell to and what kind of penetration and how does just give us a sense of what.
James E. Leddy: You know needs to happen.
James E. Leddy: Yeah, just in terms of the guidance and the cadence through the year, you know, it's a range. I mean, if you look at our EBITDA guidance, it's, you know, $205 million to $218 million. I think the midpoint adjusted EBITDA margin percentage is conservative. I think there's a chance that, you know, that could be improved.
James E. Leddy: For that acquisition to really move the right way.
Speaker Change: Yeah. Thanks Sandeep.
Speaker Change: Every market is unique.
Speaker Change: Great. So obviously New York is.
Speaker Change: First business and are our biggest market and our business our biggest business out of one opco right. San Francisco is quite big when you look at all the businesses that we own so.
Speaker Change: Each.
Speaker Change: We go through a very very.
James E. Leddy: We do still have some of the near-term costs and headwinds related to all the growth investments. You know, we talked about that at ICR and on our Q3 call, so that's mainly in the first half of the year. In the back half of the year, we expect to get, you know, start to get a little more leverage, and then it's really about $25 and $26. And I'll just go back to Chris'
Speaker Change: Thoughtful process before we make an acquisition and as you know you've been following us for a long time to get our to get the footprint.
We've had two.
Speaker Change: Much more effective unless you are.
Speaker Change: And exiting the market next to you which is typical typical in the distribution business right. If you are a typical distributor, which we're not we always say, we're a marketing company that also distributes and thats our strength right with over a 1000 of our own vehicles.
James E. Leddy: We expect to drive organic volume through this, you know, incredible amount of capacity that we've invested in and added in key growth markets over the next couple of years. And it'll begin in 24, but we still have, as I mentioned, some of the – we haven't wrapped some of the larger rent investments than some of the other growth-related costs, but those will dissipate. A lot of the transition costs that we've experienced related to the significant amount of M&A we've done over the last two years will start to decline. And so it's going to be – it's going to be gradual. Combining that with, you know, improving adjusted EBITDA margins at, you know, key investments like Hardee's in Texas, which is a key strategic decision to enhance and accelerate our platform for growth in Texas, which is a huge growth market, and, you know, they're diluting us initially. So, you know, I think we're a little bit above 5.6% for the full year of 23. If you excluded the dilutive impact of adding Hardee's, we'd be very close to what we delivered in 2022. We'd be around 5.9%.
Speaker Change: In the streets every day.
Speaker Change: Most of our our own destiny, bringing these wonderful products to market. So in the case of Texas since we're talking about it.
Speaker Change: The thought process of when.
Speaker Change: Texas is going to be a big market. Obviously, a lot of people have moved to Texas and continue to move to Texas.
Various reasons in the past five six years.
Speaker Change: More of our customers are opening to Texas, they want us to serve them there and now we have in Allen brothers.
Speaker Change: Cut shop facility, which is doing phenomenal.
Speaker Change: We have a chefs warehouse, which we put together with some small acquisitions just to get.
Speaker Change: Enough business to get the warehouse moving.
Speaker Change: When we bought some noncore businesses, but.
Speaker Change: That's when we realized what are the opportunity it was because there really was no body.
Speaker Change: In Texas to buy who was like up and Thats always the great thing is theres nobody like chef really that puts you know.
Speaker Change: The amount of 2000 artisan vendors from around the world together.
Speaker Change: In one building and has the logistical expertise and the ability to train our sales force, which does take time, so really when we looked at hardee's.
Speaker Change: They were not chefs warehouse their margins werent their bottom line wasn't anywhere near what Jeff warehouses, but over the next 510 years, we continue to.
Speaker Change: It was a great company.
Speaker Change: We're changing the way they go to market, we're selling more and more independent restaurants, we're starting to add chefs warehouse products to their trucks.
Speaker Change: And Thats really the March and you've watched us do this year for many years right now.
Speaker Change: As we grow as we did in new England.
Speaker Change: When was the similar when we bought Sid Wainer, a great company.
Speaker Change: Great people, and we kind of shrunk their business and we're growing them more as a chef warehouse with more of our products on their trucks and they are starting to look more and more like our chefs warehouse right, they're marching towards the EBITDA margins that.
James E. Leddy: In 2022, we delivered 6%. So it's really just about driving organic volume through these significant capacity investments and then improving the adjusted EBITDA margins over time as we integrate this kind of 15% of our revenue base that comes at a lower EBITDA margin percentage. Thanks, Jim. And just speaking of Hardee's, you know, and I know you had other acquisitions that were similar, smaller, I think, but similar, where you're able to, you know, margin them up to enter BASIS Points. Thank you, boss. So Visit www.
Speaker Change: We expect our businesses and I think thats, what youre going to start to see in Texas and in most markets, where we've made these investments so it's pretty exciting.
Speaker Change: Citing times, you know I always look at it as well.
Speaker Change: We own a bunch of stadiums and.
Speaker Change: The stadiums are doing great and you have to add more seats to do more business and as you are.
Speaker Change: You are adding and building those seats it costs money, it's a drag on your overall percentage when you look at your capital, but as the stadium seats start to open and you start to fill them.
Speaker Change: You start to get a great return on your investment and I think thats the way we look at it.
Speaker Change: Okay. Thank you very much.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Our next question comes from Peter <unk> of <unk>. Please go ahead.
Peter: Yes, good morning, and thanks for taking the question and congrats on a strong quarter.
Peter: I did want to ask about I think in the past we were talking about how some of the less mature markets like a Texas or Florida, Youre, a customer buys less of their needs from chef versus some of the more mature markets like New York City.
Operator: FEMA.gov. You know, I think you got it right about right-sizing the business, or is it more cross-sell, which I guess it is more the latter? You know, what percent of the customers are you kind of the right goal either based on experience? How you're modeling it, that you want to cross L2 and, you know, what kind of penetration and, you know, how does... Give us a sense of what, you know, needs to happen for that acquisition to, you know, really move forward.
Peter: Are you starting to see some evidence now that given the investments you guys have made in some of the organic growth that youre seeing.
Peter: Some of these customers are starting to pick up their purchases from you in terms of their needs is that percentage of that is kind of ticking up are you seeing any evidence of that.
Christopher Pappas: Yeah, thanks, Andy. Every market is unique, right? So, you know, obviously, New York is our first business and our biggest market and our business, our biggest business out of one opco, right? San Francisco is quite big when you look at all the businesses that we own.
Speaker Change: Yeah. Thanks for the question Peter Yes, yes, absolutely.
Speaker Change:
Speaker Change: I couldn't I couldn't be more optimistic.
Speaker Change: Than I am right now that things are going as planned everything takes a little time right you got to get the systems in the warehouse setup.
Speaker Change: We're still in the first inning.
Speaker Change: But Florida, Florida is growing at a very rapid pace and every day, we're selling more and more items to the customers that we had as we start to fill up the warehouse.
Christopher Pappas: So, you know, each time we make an acquisition, we go through a very, very, you know, thoughtful process before we make an acquisition. And, as you know, you've been following us for a long time, to get our, to get the footprint, you know, we've had to, it's much more effective unless you're, you know, annexing the market next to you, which is typical, you know, If you're a typical distributor, which we're not, you know, we always say we're a marketing company that also distributes. And that's our strength, right?
Speaker Change: So Florida.
Speaker Change: <unk> is going to be you know top four markets over the next five years and so as Texas, Texas, It's taken a little longer because we didn't have the facilities. So we're wrapping operating out of multiple facilities right now.
Speaker Change: We're starting to figure it out.
Speaker Change: Austin, you've got San Antonio You got Dallas, you've got Houston, It's a it's a very large players with a country in itself, but everyday.
Speaker Change: The team is making headway as salespeople start too.
Comfortable with these.
Speaker Change: <unk> of items.
Speaker Change: Even though we hire a lot of chefs who understand food, it's really understanding that.
Speaker Change: How to go to market sell against your competition, but.
Speaker Change: Yes.
Speaker Change: The reason we've made these investments is we're so encouraged to see the reception we get when.
Christopher Pappas: With over 1000 of our own vehicles on the streets every day, we control most of our own destiny, bringing these wonderful products to market. So, in the case of Texas, you know, since we're talking about it, you know, the thought process of, we know, Texas is going to be a big market, obviously, a lot of people have moved to Texas and continue to move to Texas for various reasons in the past five, six years. More of our customers are opening up to Texas; they want us to serve them there. And now we have an Allen Brothers cut shop facility, which is doing phenomenally well. We have a chef's warehouse, which we put together with some small acquisitions, just to get, you know, enough business to get the warehouse moving. We bought some non-core businesses. But, you know, that's when we realized what an opportunity it was, because there really was nobody, you know, in Texas to buy who was like us.
Speaker Change: When we start to enter a market and you're hitting on two probably therefore.
Speaker Change: A big long term growth markets, Texas, and Florida, and absolutely we're starting to sell more items to these customers.
Speaker Change: Great and then just Jim are there any calendar shifts or anything that we should be aware of in the first quarter that might be beneficial or detrimental to the business and then just on the inflation.
James E. Leddy: So it kind of.
James E. Leddy: Maybe low to mid single digit expectation for this year is there any sort of change in the cadence first half versus second half I know you guys.
James E. Leddy: I would like to really forecast out the inflation I'm just trying to understand if there's anything that we should be thinking about.
James E. Leddy: Higher or lower in the first half on inflation.
Speaker Change: Thanks, Pete in terms of the first quarter, there have been no significant calendar shifts that.
Pete: That really come to mind right now so nothing to really call out there.
Pete: In terms of inflation once again.
Pete: We build it into the range of our guidance.
Pete: The range of our guidance incorporates.
Christopher Pappas: And that's always the great thing is there's nobody like Chef that puts, you know, the amount of, you know, 2000 artisan vendors from around the world together in one building and has the logistical expertise and the ability to train a sales force, which does take time. So really, when we looked at Hardee's, you know, they were not a Chef Warehouse, their margins weren't, their bottom line wasn't anywhere near what Chef Warehouse was, but over the next five, 10 years, we continue to, you know, it was a great company, we're changing the way they go to market, you know, we're selling more and more independent restaurants, we're starting to add Chef Warehouse products And that's really the march.
Pete: Potential variability on volume due to macro demand, which we don't control and due to price which.
Pete: We don't control as well, but we adapt to as as we move through the year, whether it's trying to hold price in a deflationary environment or managing the.
Pete: Managing the customer and the pricing in an inflationary environment.
Speaker Change: So I think.
Speaker Change: It's just incorporated into that range of the guidance and we adapt and manage as we move along.
Speaker Change: Great. Thank you very much.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Ben <unk> of Lake Street Capital markets. Please go ahead.
Ben: Alright, Thanks for taking my questions and congratulations on wrapping up a really good 2023.
Christopher Pappas: And you've watched us do this year, you know, for many years to come, you know, and as we grow, as we did in New England, you know, New England was similar; we bought Sid Weiner, a great company, you know, great people, and we kind of shrunk their business. And we're regrowing them more as a chef's warehouse, with more of our product on their trucks. And they're starting to look more and more like a chef's warehouse, right?
Ben: Just one question for me.
Ben: I'll call I appreciate your comments about kind of focusing on integration of your legacy investments and acquisitions.
Ben: And.
Speaker Change: About 24, and my question to you Jim.
Speaker Change: In this context, where youre really focusing on what you have already done in integrating these investments what remains compelling to you in.
Christopher Pappas: They're marching towards the EBITDA margins that we expect in our businesses, and I think that's what you're going to start to see in Texas and in most markets where we've made these investments. So it's pretty exciting times. You know, I always look at it as, you know, we own a bunch of stadiums, and the stadiums are doing great. And you have to add more seats to do more business. And as you're, you know, adding and building those seats, it costs money, it's a drag on your overall percentage when you look at your capital, but as the stadium seats start to open, and you start to fill them, you start to get a great return on your investment. And I think that's the way we should look at it. Okay, thank you very much. Our next question comes from Peter Feller of BTIG. Please go ahead.
James E. Leddy: A potential acquisition.
James E. Leddy: You could potentially still making 2024 are there kind of high level characteristics of an acquisition. You are you could look to make in 'twenty four or as you put it really kind of off of off the gas here for the balance of this year.
James E. Leddy: Yeah.
Speaker Change: Thanks for the question.
Speaker Change: Again, <unk> being the little Guy.
James E. Leddy: All of the public companies that were measured against.
James E. Leddy: We have to acquire to get the footprint and now the focus has shifted on you know we created by the end of the year, we'll probably have 60% more capacity so.
James E. Leddy: Yes, the focus is on hyper hyper charging organic growth and of course, we're always opportunistic we've always been opportunistic so.
James E. Leddy: We're not looking to do anything major in new territory and we've already stated.
James E. Leddy: What our Capex forecast is going to be so we're focused on creating more cash.
Operator: Yeah, good morning, and thanks for taking the question and congrats on a strong quarter. I did want to ask you about how some of the less mature markets like Texas and or Florida, your customers buy less of their needs from Chefs versus some of the more mature markets like New York City. Are you starting to see some evidence now that, given the investments you guys have made and some of the organic growth that you're seeing, that some of these customers are starting to pick up their purchases from you in terms of their needs? Is that percentage of their needs kind of ticking up? Are you seeing any evidence of that?
James E. Leddy: Pay down some debt and maybe buy back shares but.
James E. Leddy: Great folding which could.
James E. Leddy: Speed up some of the I'm not we don't want to fill up all our capacity. That's why we built it we want to grow into it but.
James E. Leddy: Some of these little tuck in acquisitions can be extremely profitable and.
James E. Leddy: Help us on our March to our our EBITDA goals. So we're always looking people who were always calling but the real focus right now is to drive the organic growth because we have we finally have.
James E. Leddy: Good capacity and a lot of our new major markets like we said, Florida and Los Angeles.
Peter Feller: Yeah, thanks for the question, Peter. Yeah, absolutely. I couldn't be more optimistic than I am right now that things are going as planned. Everything takes a little time, right?
James E. Leddy: Our new.
James E. Leddy: Processing facility is opening in San Francisco.
James E. Leddy: And in this quarter and we're going to consolidate at a whole bunch of businesses into one state of New York facilities. So we got a lot of exciting things happening in the next year.
Christopher Pappas: You've got to get your systems in, the warehouse set up, and we're still in the first inning, but Florida is growing at a very rapid pace, and every day we're selling more and more items to the customers that we have as we start to fill up the warehouse. So Florida is going to be one of the top four markets over the next five years, and so is Texas. Texas is taking a little longer because we didn't have the facilities, so we're operating out of multiple facilities right now as we're starting to figure it out. You've got Austin, you've got San Antonio, you've got Dallas, you've got Houston.
Speaker Change: Very good alright, thanks, Chris.
Speaker Change: I appreciate that comment.
Speaker Change: Plenty more to talk about but that's a good place to leave it. Thanks for taking the question I will get back in line here.
Speaker Change: Thanks Ben.
Speaker Change: And we have reached the end of our question and answer session.
Speaker Change: Ladies.
Speaker Change: A question from BNP.
Speaker Change: Yes, well. Thank you for everybody for joining our call Couldnt I couldnt be prouder of the team at chef and what they are accomplishing and we look forward to.
Speaker Change: Many many great things from this team and look forward to everyone. Joining our next call. So thank you very much have a great day.
Christopher Pappas: It's a very large place, a country in itself, but every day, the team is making headway as salespeople start to get comfortable with these thousands of items. Even though we hire a lot of chefs who understand food, it's really understanding how to go to market and sell against your competition. But the reason we've made these investments is we're so encouraged to see the reception we get when we start to enter a market, and you're hitting on two probably of the big long-term growth markets, Texas and Florida, and absolutely we're starting to sell more items to these customers. Great
Speaker Change: Thank you very much Sir ladies and gentlemen that concludes todays event.
Speaker Change: Thank you for joining us and you may now disconnect your lines.
Speaker Change: Okay.
Speaker Change: [music].
James E. Leddy: And then just, Jim, are there any calendar shifts or anything that we should be aware of in the first quarter that might be beneficial or detrimental to the business? And then just on inflation, I think you guys said kind of, you know, maybe a low to mid-single-digit expectation for this year. Is there any sort of change in the cadence, first half versus second half?
James E. Leddy: I know you guys don't like to really forecast inflation. I'm just trying to understand if there's anything that we should be thinking about higher or lower in the first half on inflation. Thanks, Pete. In terms of the first quarter, there have been no significant calendar shifts that really come to mind right now, so there's nothing really to call out there. In terms of inflation, once again, you know, we build it into the range of our guidance. The range of our guidance incorporates potential variability in volume due to, you know, macro demand, which we don't control, and due to price, which, you know, we don't control as well, but we adapt to as we move through the year, you know, whether it's trying to hold prices in a deflationary environment or, you know Great, thank you very much.
Operator: Thank you. Our next question comes from Ben Cleave of Lake Street Capital Markets. Keith, please go ahead.
Ben Cleave: All right, thank you for taking my questions and congratulations on wrapping up a really good 2023. Just one question for me, you know, throughout the call, I appreciated your comments about, you know, kind of focusing on the integration of your legacy investments and acquisitions and throughout 24. And my question to you, Jim, is, you know, in this context where you're really focusing on what you have already done and integrating these investments, what remains compelling to you in a potential acquisition that you could potentially still make in 2024? Are there kind of high-level characteristics of an acquisition you could look to make in 2024? Or is your foot really kind of off the gas here for balance?
Speaker Change: [music].
Christopher Pappas: Yeah, thanks for the question. You know, again, Chefs, you know, being the little guy, you know, of all the public companies that we're measured against, you know, we had to acquire, you know, to get the footprint. And now the focus has shifted on, you know, we've created, by the end of the year, we'll probably have 60% more capacity. So, yeah, the focus is on hypercharging organic growth. And, of course, we're always opportunistic. So, you know, we're not looking to do, you know, anything major in, you know, new territory.
Christopher Pappas: And we've already stated, you know, what our CapEx forecast is going to be. So we're focused on creating more cash, pay down some debt, and maybe buy back shares. But, you know, if there's a great fold in, you know, which could, you know, speed up some of the, not we don't want to fill up all our capacity; that's why we build it; we want to grow into it. But, you know, some of these little tuck-in acquisitions could be extremely profitable and, you know, help us on our march, you know, to our EBITDA goals. So, you know, we're always looking. You know, people are always calling.
Christopher Pappas: But, you know, the real focus right now is to drive organic growth because we finally have, you know, good capacity in a lot of our major markets, like we've said, you know, Florida and Los Angeles. Our new processing facility is opening in San Francisco, hopefully in this quarter. And, you know, we're going to consolidate a whole bunch of businesses into one state-of-the-art facility. So we have a lot of exciting things happening in the next year or two. Very good. All right. Thanks, Chris. I appreciate that comment.
Ben Cleave: There's plenty more to talk about, but that's a good place to leave it. Thanks for taking my question. I'll get back to you.
Christopher Pappas: Thanks, Ben. And we have reached the end of our question and answer session. We'd like to take a further question from Ben Queen. Yes, well, thank you everybody for joining our call. I couldn't be prouder of the team at Chef and what they're accomplishing. And we look forward to many, many great things from the team and look forward to everyone joining us on our next call. So, thank you very much. Have a great day!
Operator: Thank you very much. Ladies and gentlemen, that concludes today's event. Thank you for joining us, and you may now disconnect your line. The Ultimate Parody Site!
Operator: © The Bulletproof Executive 2013, © The Ultimate Parody Site! Subs by www.zeoranger.co.uk, © BF-WATCH TV 2021, ENTERTAINMENT WEEKLY.. ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Subs by www.zeoranger.co.uk, ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Music ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Greetings and welcome to the Chefs' Warehouse fourth quarter of 2023 earnings conference call. As a reminder, this conference is being recorded. I've now decided to hand the conference over to your host, Alexandros Aldous, General Counsel.
Alexandros Aldous: Corporate Secretary and Chief Government Relations Officer, please go ahead, sir. Thank you, operator. Good morning, everyone.
Alexandros Aldous: With me on today's call are Chris Pappas, the founder, chairman, and CEO, and Jim Leddy, our CFO. By now, you should have access to our fourth quarter 2023 earnings press release, which can also be found at www.chefswarehouse.com under the investor relations section. Throughout this conference call, we will be presenting 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. These measurements are not calculated in accordance with GAAP and may be calculated differently in 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, here in today's.
Speaker Change: [music].
Alexandros Aldous: 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... Such forward-looking statements are not guarantees of future performance, and therefore you should not put them in reliance. The following 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... Others are discussed in our annual report on Form 10-K and quarterly reports on Form 10-2, which are available on the FCC website.
Alexandros Aldous: Today we are going to provide a business update and go over our fourth quarter results in detail. Then we will open up the call for questions. With that, I will turn the call over to Chris Pappas.
Christopher Pappas: Thank you, Alex, and thank you all for joining us for our fourth quarter 2023 earnings. Business activity coming out of September strengthens into the fourth quarter due to seasonal customer demand. Volume trends progressed through November and December to close out 2023. Price inflation continued to moderate, and our Chefs' Warehouse teams across our North American and international markets delivered strong organic growth and margin improvements. As we move into 2024, I would like to thank all of our CW teammates for the dedication and passion they have for our mission to discover and deliver the finest specialty foods, fresh produce, and center-of-the-plate produce to inspire culinary creativity and feed the success of our customer and supplier partners. We strive for excellence and impeccable service. As a reminder, we are comparing the fourth quarter of 2023, a 13-week fiscal quarter, to the fourth quarter of 2022, a 14-week fiscal quarter, and as such, we will present certain results both as reported and on a pro rata 13-week comparison.
Christopher Pappas: A few highlights from the fourth quarter on a pro-radar basis include 11.3% organic growth in net sales. Specialty sales were up 11.2% organically over the prior year, which was driven by unique customer growth of approximately 12.4%, and placement growth of 6.5%. Specialty Case Growth of 11.3% Organic pounds in the center of the plate were approximately 8.4% higher than the prior year fourth quarter. Gross profit margin increased approximately 38% as compared to the fourth quarter of 2022, while gross margin in the center of the play category increased 71 basis points year of the year. Specialty gross profit margins were lowered primarily due to the addition of Hardy's specialty gross profit margin increase, approximately 35 basis points versus the prior year quarter.
Christopher Pappas: Jim will provide more details on gross profits and margins in a few minutes. During the fourth quarter, we completed multiple steps as part of our ongoing focus on harvesting our investments in warehouse and distribution capacity and recent acquisitions. These projects involve both consolidation of distribution centers.
Speaker Change: [music].
Christopher Pappas: Routes and Operations in Certain Markets, as well as further integration of acquired sales teams, distribution, and cross-selling with our existing specialty and protein businesses in key markets across our network. A few highlights are: In Florida, we completed the consolidation of three facilities into our new distribution center located in Opa-locka. We now have meat and seafood processing, specialty, and produce distribution operating under one roof, with significant room to grow over the years to come. We initiated operations in our new distribution center located in southern New Jersey serving Philadelphia and Pennsylvania.
Christopher Pappas: This facility provides expanded capacity in the region, as well as creates additional room for growth in the New York Metro and Mid-Atlantic markets. In Dallas and Austin, Texas, we have begun the process of cross-selling our specialty in Allen Brothers Protein distribution, parties facilitated by a combined sales force and route consolidation in the initial stages. We have reduced facility-related costs in Houston and are working on future distribution plans in the state's largest market.
Christopher Pappas: Our expansion in Dubai continues to progress, and we anticipate commencing operations out of the additional capacity in the second half of this year. Additionally, our consolidation of protein processing in Northern California is on track to begin a phased-in move starting in the second quarter of 2024. For 2024 and beyond, we expect to leverage our expanding infrastructure, further integrate recent acquisitions while strengthening the balance sheet, focusing on free cash flow generation, and delivering our two-year capital allocation. As we enter this next phase of our growth, we expect Chefs' Warehouse to remain rooted in our DNA as the leading specialty food marketer and distributor to the upscale, casual, and higher-end dining establishments in the markets we serve. With that, I'll turn it over to Jim to discuss more detailed financial information for the quarter and an update on our liquidity. Jim?
James E. Leddy: 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. Our net sales for the quarter ended December 29th, 2023, increased approximately 29.3% to $950.5 million from $734.8 million in the fourth quarter of 2022, which represents a pro-rated 13-week net sales for the fourth quarter of 2022. Net sales on a reported basis, 13 weeks compared to 14 weeks, increased 20.1%. The pro-rata growth in net sales was the result of an increase in organic sales of approximately 11.3%, as well as the contribution of sales from acquisitions, which added approximately 18% to the sales growth for the quarter. Net inflation was 1.8% in the fourth quarter, consisting of 0.6% inflation in our specialty category and inflation of 3.4% in our center of the plate category versus the prior year quarter.
Speaker Change: <unk> 23 earnings conference call.
Speaker Change: As a reminder, this conference is being recorded.
Speaker Change: Notwithstanding the conference over to your host.
Speaker Change: Alex.
Alex: General Counsel corporate Secretary and Chief Government Relations Officer. Please go ahead Sir.
Alex: Thank you operator, good morning, everyone with me on todays call are Chris Pappas, founder, Chairman and CEO and Jim Leddy, our CFO.
Alex: Now you should have access to our fourth quarter 2023 earnings press release.
Alex: It can also be found at www dot chefs warehouse dot com under the Investor Relations section.
Alex: Throughout this conference call, we will be presenting 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.
Alex: These measurements are not calculated in accordance with GAAP and may be calculated differently.
Alex: Titled non-GAAP financial measures used by other companies.
James E. Leddy: Gross profit increased 31.4% to $228.6 million for the fourth quarter of 2023 versus a pro-rated $173.9 million for the fourth quarter of 2022. On a reported basis, comparing 13 weeks to 14 weeks, gross profit increased 22%. Gross profit margins increased approximately 38 basis points to 24.1%. As mentioned on our third quarter call, gross profit, dollar growth, and margin trends improved significantly coming out of the softer summer months. These trends continued as the quarter progressed into the holiday season, and our teams across our region, including sales, operations, procurement, and all the supporting functions, delivered a strong margin performance while providing the premium quality product and service our customers have come to expect from the Chefs' Warehouse. Selling general and administrative expenses increased approximately 23.8 percent to $190 million for the fourth quarter of 2023 from $153.4 million for the fourth quarter of 2022. The increase was primarily due to higher costs associated with compensation, including benefits, facility costs, and distribution costs to support sales growth in the current quarter. On a prorated basis, Adjusted Operating Expenses increased 33% versus the prior year's fourth quarter.
Speaker Change: Wanted to see the reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release.
Speaker Change: 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.
Speaker Change: Such forward looking statements are not guarantees of future performance.
Speaker Change: Therefore, you should not put undue reliance on them.
Speaker Change: These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.
Speaker Change: These risks are mentioned in todays release others.
Speaker Change: As I discussed in our annual report on Form 10-K, and quarterly reports on Form 10-Q, which are available on the FCC webs.
Speaker Change: Today, we are going to provide a business update and go over our fourth quarter results in detail and then we will open up the call for questions.
Speaker Change: With that I will turn the call over to Chris Pappas.
Speaker Change: Chris.
Christopher Pappas: Thank you Alex and thank you all for joining our fourth quarter 2023 earnings call.
Christopher Pappas: Business activity coming out of September strengthens into the fourth quarter, a seasonal customer demand and volume trends progressed through November and December to close out 2023.
Christopher Pappas: Price inflation continued to moderate and our chefs warehouse teams across our North American and international markets delivered strong organic growth and margin improvement.
Christopher Pappas: As we move into 2024, I would like to thank all of our CW TMA.
Christopher Pappas: Dedication and passion they have for our mission to discover and deliver the final specialty foods fresh produce.
Speaker Change: <unk> protein.
Speaker Change: Inspire the culinary creativity and feed the success of our customer supplier partner.
Speaker Change: As we strive for excellence and impeccable service.
James E. Leddy: And as a percentage of net sales, Adjusted Operating Expenses were 17.8% for the fourth quarter of 2023, compared to 17.3% for the fourth quarter of 2020. Operating income for the fourth quarter of 2023 was $38.2 million, compared to $29.8 million for the fourth quarter of 2020. The increase in operating income was driven primarily by higher gross profit and lower other operating expenses, partially offset by higher selling general and administrative expenses compared with the prior year quarter. Income tax expense was $10.1 million for the fourth quarter of 2023 compared to $4.3 million for the fourth quarter of 2022.
Speaker Change: As a reminder, we are comparing the fourth quarter of 2008 2023.
Speaker Change: <unk> fiscal quarter for the fourth quarter of 2022, a 14 week fiscal quarter and as such we will prevent certain results both as reported and on a pro rata <unk>.
Speaker Change: 14 week comparison a.
Speaker Change: A few highlights from the fourth quarter on a pro rate.
Speaker Change: <unk> you.
Speaker Change: 11, 3% organic growth in net sales.
Speaker Change: Specialty sales were up 11, 2% organically over the prior year, which was driven by unique customer growth of approximately 12, 4%.
Speaker Change: Placement growth of six 5% and specialty case growth of 11, 3%.
Speaker Change: Organic pounds in center of the plate or approximately eight 4% higher than the prior year fourth quarter.
Speaker Change: Gross profit margins increased approximately 38 basis points.
Speaker Change: Gross margin in specialty category decreased 76 basis points as compared to the fourth quarter 2022, while gross margin in the center of the plate category increased 71 basis points year over year.
James E. Leddy: We had adjusted EBITDA of $59 million for the fourth quarter of 2023 compared to $50.1 million for the prior year of the fourth quarter. Adjusted net income was $20.2 million, or $0.47 per diluted share, for the fourth quarter of 2023, compared to $18.2 million, or $0.46 per diluted share, for the prior year of the fourth quarter. Turning to the balance sheet and an update on our liquidity, at the end of the fourth quarter, we had total liquidity of $221.9 million, comprised of $49.9 million in cash and $172 million of availability under our ABL facility. Total net debt was approximately $662.5 million.
Speaker Change: Specialty gross profit margins were lower primarily due to the addition of parties.
Speaker Change: Excluding hearty specialty gross profit margin increased.
Speaker Change: Proximately 35 basis points versus the prior year quarter.
Speaker Change: Jim will provide more details on gross profit and margin in a few moments.
Speaker Change: During the fourth quarter, we completed multiple steps as part of our ongoing focus on harvesting our investments in warehouse and distribution capacity and recent acquisitions.
Speaker Change: This project involves both consolidation of distribution center routes and operations in certain markets as well as further integration of acquired sales teams distribution and cross selling.
Speaker Change: Existing specialty and protein businesses in key markets across our network a few highlight our <unk>.
Speaker Change: In Florida, we completed the consolidation of three facilities into our new distribution center located in a blocker we.
Speaker Change: We now have meat and seafood processing specialty in produce distribution operating under one roof with significant room to grow over the years to come.
Speaker Change: We initiated operations in our new distribution center located in Southern New Jersey, serving the Philadelphia, Pennsylvania market.
Speaker Change: This facility provides expanded capacity in the region as well as creates additional room for growth in the New York Metro and mid Atlantic markets.
James E. Leddy: Inclusive of all cash and cash equivalents, and Net Debt to Adjusted EBITDA was approximately 3.4 times as compared to approximately 3.6 times as of the end of the third quarter of 2023. Now, turning to our full-year guidance for 2024. Based on the current trends in the business, we are providing our full-year financial guidance as follows. We estimate that net sales for the full year of 2024 will be in the range of $3.625 billion to $3.775 billion, and gross profit will be between $865 million and $900 million. Our full-year estimated diluted share count is approximately 44.9 million shares.
Speaker Change: In Dallas, and Austin, Texas, we have begun the process of cross selling our specialty on Allen brothers protein distribution with parties facilitated by a combined sales force and route consolidation in the initial stages.
Speaker Change: We have reduced facility related cost and use them and are working on future distribution plans and the state's largest market.
Speaker Change: Our expansion in Dubai continues to progress and we anticipate commencing operations out of the additional capacity in the second half of this year.
Speaker Change: Our consolidation of protein processing in northern California is on track to begin a phased been moved starting in the second quarter of 2024 and progressing through the end of the year.
James E. Leddy: For reporting purposes, we currently expect our senior unsecured convertible notes maturing in 2028 to be diluted for the full year, and accordingly, those shares that could be issued upon conversion of the notes are included in our fully diluted share count. Thank you, and at this point, we will open it up to questions. Operator.
Speaker Change: For 2024, and beyond we expect to leverage our expanding infrastructure further integrate recent acquisitions, while strengthening the balance sheet focusing on free cash flow generation and delivering our two year capital allocation plan.
Speaker Change: As we enter this next phase of our growth, we expect chefs warehouse or embedding rooted in our DNA is the leading specialty food marketer and distributor distributor to the upscale casual and higher end dining establishment in the markets we serve.
Operator: Thank you. Before we start the Q&A, we just want to remind everyone that a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the Industrial Relations section of the company's website and in today's press release. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star then 1 on each telephone keypad. The confirmation tone will indicate that Alani is in the question queue; you may press star 2 to leave the question queue.
Speaker Change: With that I'll turn it over to Jim to discuss more detailed financial information for the quarter and an update on our liquidity Jim.
James E. Leddy: 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.
James E. Leddy: Our net sales for the quarter ended December 29, 2023 increased approximately 29, 3% to $950 5 million from $734 8 million in the fourth quarter of 2022, which represents a prorated 13 week net sales for the fourth quarter of 2022.
Alexander Russell Slagle: Our first question comes from Alex. Sagle of Jeffries, please go ahead. All right, thank you. Thanks for the question. I wanted to ask about the Outlook for 24 and maybe... Chefs' Purse, to provide some expectations on the magnitude of impact related to acquisitions that are rolling over into 2024, get a sense for the cadence, what that looks like, assuming no other transactions. Oh, hey, Alex.
James E. Leddy: Net sales on a reported basis 13 weeks compared to 14 weeks increased 21%.
James E. Leddy: The pro rata growth in net sales was the result of an increase in organic sales of approximately 11, 3% as well as the contribution of sales from acquisitions, which added approximately 18% of the sales growth for the quarter.
Christopher Pappas: Good morning. Thanks for the question. Yeah, in terms of the acquisition wrap impact, we had sized that previously right around two and a half to three percent. Great. And then, in terms of the outlook for 2024, was that the first part of your question? Yeah. Well, we started off with January. It's a pretty good month.
James E. Leddy: Net inflation was one 8% in the fourth quarter, consisting of 0.6% inflation in our specialty category and inflation of three 4% in our center of the plate category versus the prior year quarter.
Christopher Pappas: Obviously, there was some weather impact that we saw in some of our markets, but we actually, you know, January is relative, so it's always the worst month in the industry, really, for our company and the entire industry. But actually, our teams executed very well during the month, and we had a pretty good January, and it feels like the usual build coming out of January into February is taking place. So right now, we're sticking with our guidance and going from there. The expectation for the elevated operating expenses and continuing through the first half, we think about the typical first quarter, second quarter cadence of EBITDA. I mean, the first quarter is usually only 14-15% of your annual EBITDA. Are we kind of getting back to that sort of normal seasonal cadence, or are the OPEX expenses, should we expect that to be? and more elevated.
James E. Leddy: Gross profit increased 31, 4% to $228 6 million for the fourth quarter of 2023 versus a pro rated $173 9 million for the fourth quarter of 2022 on a reported basis comparing 13 weeks to 14 weeks gross profit increased 22%.
James E. Leddy: Gross profit margins increased approximately 38 basis points to 24, 1%.
James E. Leddy: As mentioned on our third quarter call gross profit dollar growth and margin trends improved significantly coming out of the softer summer months. These.
James E. Leddy: These trends continued as the quarter progressed into the holiday season, and our teams across our regions, including sales operations procurement and all the supporting functions delivered a strong margin performance, while providing the premium quality product and service our customers have come to expect from the chefs warehouse.
James E. Leddy: Selling general and administrative expenses increased approximately 23, 8% to $190 million for the fourth quarter of 2023 from $153 4 million for the fourth quarter of 2022. The increase was primarily due to higher costs associated with compensation, including benefits facility costs.
Christopher Pappas: Yeah, we wrapped the increased rent from Florida and kind of midway through the year, and then we'll wrap the impact of the additional New Jersey rent kind of in the third quarter. So there are some elevated expenses continuing in the first half of the year, but the percentages in terms of EBITDA are returning to more normal than they have been the past three or four years, for sure. Great. Thanks for that. I'll pass it along.
James E. Leddy: And distribution costs to support sales growth in the current quarter.
Todd Brooks: Thank you. Our next question comes from Todd Brooks of Benchmark Company. Please go ahead. Hey, thanks for the questions and congrats on the Q4 results. Thanks, Todd. A couple quick questions for you. One.
James E. Leddy: On a pro rated basis, adjusted operating expenses increased 33% versus the prior year fourth quarter and as a percentage of net sales adjusted operating expenses were 17, 8% for the fourth quarter of 2023 compared to 17, 3% for the fourth quarter of 2022.
Christopher Pappas: I know as part of the new two-year capital allocation plan, you guys did put a share repurchase in place and did some work with your lending partners to... be able to execute against that. Just not much evidence of it in the full quarter share count. But were you active on the plan at all in the fourth quarter? No, we actually put it into place well through the fourth quarter, you know, about almost halfway through, and no, we hadn't executed any of it as of the end of the fourth quarter.
James E. Leddy: Operating income for the fourth quarter of 2023 was $38 2 million compared to $29 8 million for the fourth quarter of 2022. The increase in operating income was driven primarily by higher gross profit and lower other operating expenses, partially offset by higher selling general and administrative expenses.
James E. Leddy: Versus the prior year quarter.
James E. Leddy: Income tax expense was $10 1 million for the fourth quarter of 2023 compared to $4 3 million expense for the fourth quarter of 2022.
James E. Leddy: Okay, but I think, in your full-year guidance, what you pointed to for fully diluted, the 44.9, does that imply some repurchase anticipated over the course of 24? No, what it really implies is that we expect to cash settle the 2024 converts to $39 million that mature at the end of 2024, and so we don't expect them to be fully diluted for the entire year. So the previous estimate was $45.7 million, so you just pretty much take out those 900,000 shares associated with the 2024 converts, and that gets you to $44.9 million. Great. Thanks, Jim. And then another one, Chris, I'd love to hear. Looking at unique customer growth, it seems to be accelerating nicely on a year-over-year basis over the past several quarters. What are the drivers there?
James E. Leddy: Our GAAP net income was $16 million or <unk> 38 per diluted share for the fourth quarter of 2023 compared to net income of $1 2 million or <unk> <unk> per diluted share for the fourth quarter of 2022.
James E. Leddy: On a non-GAAP basis, we had adjusted EBITDA of $59 million for the fourth quarter of 2023 compared to $50 1 million for the prior year fourth quarter. Adjusted net income was $20 2 million or <unk> 47 per diluted share for the fourth quarter of 2023 compared to $18 2 million or <unk> 46.
James E. Leddy: <unk> per diluted share for the prior year fourth quarter.
James E. Leddy: Turning to the balance sheet and an update on our liquidity at the end of the fourth quarter. We had total liquidity of $221 9 million comprised of $49 9 million in cash and $172 million of availability under our ABL facility total net debt was approximately $662 5 million.
James E. Leddy: Inclusive of all cash and cash equivalents.
Christopher Pappas: And what's the tale too? The ability for Chef to go out and add new customers to the fold as you look. Yes, a great question, Todd. Again, we continue to hire and train new salespeople for the team, and that's been our engine driver for almost 40 years now. So, as much as we are using digital to grow awareness and take more and more of our orders, the actual orders are coming in from customers, which is freeing up the sales team to go out and continue to acquire more customers. And it really is such an important part of our growth because natural attrition, for various reasons, as sticky as our customer base is, I mean, we've had customers now for over 30 years; you've got to have new customers constantly coming in. It's just the nature of who we sell to.
James E. Leddy: And net debt to adjusted EBITDA was approximately three four times as compared to approximately three six times as of the end of the third quarter of 2023.
James E. Leddy: Turning to our full year guidance for 2024 based on the current trends in the business, we are providing our full year financial guidance as follows.
James E. Leddy: We estimate that net sales for the full year of 2024 will be in the range of $3 $6 5 billion to $3 775 billion gross profit to be between $865 million and $900 million and adjusted EBITDA to be between $205 million and $218 million.
James E. Leddy: Our full year estimated diluted share count is approximately $44 9 million shares for reporting purposes. We currently expect our senior unsecured convertible notes maturing in 2028 to be dilutive for the full year and accordingly, those shares that could be issued.
Christopher Pappas: We sell to independent restaurants, and as they mature, their leases sometimes mature out, and there are many other reasons why there's turnover. But let's face it, customers love new restaurants, and restaurateurs like to open new restaurants, and we feel that that's where we're winning. Most of the customers that are opening in the territories that we sell, I think Chef is the dominant partner, and I think that's what's driving that number. Great, thanks. Our next question comes from Mark Corden of UBS. Please go ahead.
James E. Leddy: Upon conversion of the notes are included in our fully diluted share count.
Speaker Change: Thank you and at this point, we will open it up to questions operator.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Before we start the Q&A, we just want to remind everyone that a reconciliation of the <unk>.
Speaker Change: non-GAAP financial measures to the mis generated comparable GAAP financial measures can be found in the Investor Relations section of the Companys website and in today's press release.
Speaker Change: Thank you.
Speaker Change: We'll now be conducting a question and answer session.
Mark Corden: Great. Good morning. Thanks so much for taking the questions. So to start, it sounds like sales got stronger sequentially as the quarter progressed, reflecting some seasonality. Just to clarify, did you guys also see the rate of growth pick up in each month when you adjusted out that extra week? And then any specific call outs with respect to demand and the amount of trade down you're seeing? Is it more or less than you guys might have expected? Thanks so much.
Speaker Change: If you did not have sufficient piece with Destocking one on your telephone keypad.
Speaker Change: The confirmation tone will indicate an easy in the question queue.
Speaker Change: You may still choose to leave the question Ken.
Speaker Change: Our first question comes from Alex Slagle of Jefferies. Please go ahead.
Alexander Russell Slagle: Alright. Thank you thanks for the question.
Alexander Russell Slagle: Wanted to ask about the outlook for 'twenty, four and maybe I guess first if you could provide some expectations on the magnitude of impact related to acquisitions that are rolling over in the 'twenty four.
Christopher Pappas: Thanks Mark. Now the cadence in the quarter, I think, as you pointed out, was pretty typical of a normal season prior to the many years that COVID volatility impacted seasonality. You know, we talked about it on our Q3 call; we saw strength in demand and margin in September coming out of the weaker summer months. I think October and November were kind of very typical October and November from a seasonal perspective.
Alexander Russell Slagle: Get a sense for the cadence what that looks like I'm, assuming no other transactions.
Speaker Change: Hey, Alex.
Alex: Good morning, Thanks for the question.
Alex: Yes in terms of the acquisition wrap impact.
Speaker Change: Yes, we had size that.
Speaker Change: Previously right around 2.5% to 3%.
Speaker Change: Okay.
Speaker Change: Great.
Speaker Change: And then I guess in terms of the outlook for 2004 2024 was the first part of your question.
Christopher Pappas: And then December was, I think, the first December, the three weeks between Thanksgiving and Christmas, that you really saw the corporate parties come back, the level of events come back to pre-COVID levels. You know, I think on December 22, you saw a little bit of that, but it wasn't completely back. And so I think those were three very strong weeks. And that, you know, I think that really helped the quarter get back to what we would call a normal fourth quarter. Got it, that's helpful.
Speaker Change: Yeah.
Speaker Change: Well.
Speaker Change: We started off with January.
Speaker Change: Pretty good months, obviously, there was some weather impact that.
Speaker Change: That we saw in some of our markets but.
Speaker Change: We actually.
Speaker Change: January is relative.
Speaker Change: First months.
Speaker Change: And the industry.
Speaker Change: Really.
Speaker Change: For our company and the.
Speaker Change: The entire industry, but actually our teams executed very well during the month and we had a pretty good January and it feels like.
Speaker Change: The usual builds coming out of January into February is taking place.
Speaker Change: So right now we are.
Speaker Change: Sticking with our guidance and.
Speaker Change: And go from there.
Speaker Change: Okay, and the expectation for the elevated operating expenses and continuing through the first half.
James E. Leddy: And then you guys mentioned that inflation moderated in 4Q. Do you think it's bottomed out at this point? And just how do you see it shaping up in 24?
Speaker Change: As we think about the typical.
Speaker Change: First quarter second quarter cadence of EBITDA in its first quarter is usually only 14% 15% of your annual EBITDA is that are we kind of getting back to that.
James E. Leddy: You know, I would say we don't really predict inflation, but what we expect right now and what we see is, in aggregate, I mean, we have 70,000 products going through our distribution centers. Some are inflationary, some are deflationary, but in aggregate, what we've seen so far in the beginning of the year is kind of a continuation of what we saw in the fourth quarter, which was, you know, moderate, kind of low to mid-single-digit type of sequential and year-over-year inflation, you know, with a little bit of a mix on certain products. You know, right now, we have things that are cocoa-based, like chocolate. You have olive oil affected by droughts.
Speaker Change: With a normal season.
Speaker Change: Seasonal cadence or.
Speaker Change: The Opex expenses should we expect that to be.
Speaker Change: More elevated.
Speaker Change: Yes.
Speaker Change: We wrap the.
Speaker Change: The increased rent from Florida and.
Speaker Change: Kind of midway through the year.
Speaker Change: And then we will wrap the impact of the additional new Jersey rent kind of in the third quarter.
Speaker Change: So there are some elevated expenses continuing in the first half of the year, but.
Speaker Change: The percentages in terms of.
Speaker Change: EBITDA.
Speaker Change: Returning to more normal than they have the.
Speaker Change: The past three or four years for sure.
Speaker Change: Great. Thanks for that I'll pass it along.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Todd Brooks of Benchmark company.
Todd Brooks: Go ahead.
James E. Leddy: You have a couple of dairy products that are inflationary. But overall, you're kind of seeing moderate inflation so far this year, and we kind of expect that to continue. Great, thanks so much, and good luck, guys. Thank you. Our next question comes from Kelly Bania of BMO Capital Markets. Please go ahead. Good morning. Thanks for taking our question. Good morning.
Todd Brooks: Hey, thanks for the questions and congrats on the Q4 results.
Todd Brooks: Thanks, a couple quick couple quick questions for you one.
Todd Brooks: And now as part of the new two year capital allocation plan you guys did put a share repurchase in place.
Todd Brooks: And did some work with your lending partners too.
Todd Brooks: Be able to execute against not just not much evidence of it and what the full quarter share count was but where are you active on the plan at all in the fourth quarter.
Kelly Ann Bania: I wanted to talk about some of the acquisitions. Obviously, several have been flowing in for the last couple of quarters, but maybe you could just talk a little bit more in detail about how they're performing? It seems like there might be some top-line upside coming in from one or more, but correct me if I'm wrong and maybe just help us understand how you're finding those acquisitions getting integrated into the broader Chefs' Warehouse Network. I think things are going very well, Kelly. I think the team has their arms around the acquisitions from the past two years, and you can see from our growth. We call it hybrid growth. I call it right now, as companies become comfortable as part of the Chefs' Warehouse family of companies, we start to share best practices.
Speaker Change: No we absolutely.
Speaker Change: Put it into place well through the.
Speaker Change: The fourth quarter.
Speaker Change: About almost halfway through and no we havent executed any of it as of the end of the fourth quarter.
Speaker Change: Okay, but I think in your full year guidance, what your point of two per fully diluted to 44, 9% does that imply some repurchase anticipated over the course of 'twenty four.
Speaker Change: No what it really implies is that we expect to.
Speaker Change: Cash settled the 2020 for converged $39 million that mature at the end of 2024, and so we don't expect them to be fully dilutive for the entire year. So the previous estimate of 45.7.
Speaker Change: 7 million. So you just pretty much take out that there was 900000 shares associated with the 2024 converts and that gets you to the $44 nine.
Speaker Change: Great. Thanks, Jim and then.
Speaker Change: Other one Chris I'd love to hear.
Christopher Pappas: I'm just looking at the unique customer growth and it seems to be accelerating nicely on a year over year basis over the past several quarters. What are what are the drivers there and what's the tail too.
Kelly Ann Bania: In many of the acquisitions, we've already put them on our computer systems, so they could start to see other warehouses and what products are available. The sales team starts to meld together, and I think that's really what's been the driving force behind our continued growth for the past few years. We're not anywhere near the finish line of what our expectations are, but every day we get better, and I think that shows in the numbers.
Christopher Pappas: The ability for <unk> to go out and add new customers to the fold as you look into 'twenty four thanks.
Speaker Change: Yes, a great question Todd.
Speaker Change: Again, we continue to hire and train.
Speaker Change: New sales.
Speaker Change: Salespeople to the team and that's been our engine driver for almost 40 years now so.
Speaker Change: As much as we are using digital.
Speaker Change: To grow awareness and take more and more of our of our orders the actual orders are coming in.
Speaker Change: From customers, which is freeing up the sales team to go out and continue to open.
Speaker Change: More customers than it really is the it is.
Speaker Change: Such an important part of our growth because you know.
Speaker Change: Natural attrition for various reasons as sticky as our customer bases I mean, we've had customers now for over 30 years.
Christopher Pappas: We continue to cross-sell each other's customers, and that's really the focus. We built these new warehouses and continue to build the warehouses and markets so we have three, four independent businesses. We're here in Florida today, and this is one of our newest facilities where we're able to sell proteins and dairy and some produce and all our specialty and dry goods and combine them on the same trucks. We'll continue to achieve these synergies, and that's what's going to drive the bottom line over the next many years. Thank you.
Speaker Change: Yeah, you've got to have new customers constantly coming in it's just the nature of of who we sell we sell to independent restaurants and.
Speaker Change: As they are.
Speaker Change: As they mature their leases, sometimes mature out and many other reasons why.
Speaker Change: There is turnover, but you know.
Speaker Change: Let's face it customers love, new restaurants, and restaurant tours like to opening new restaurants.
Speaker Change: And we feel that that's where we're winning.
Speaker Change: Most of the customers that are opening in the territories that we sell I think chef is a dominant partner and I think that's what's driving that number.
Speaker Change: Great. Thanks, Chris.
Speaker Change: Okay.
Speaker Change: Our next question comes from Mark Carden of UBS. Please go ahead.
Mark Carden: Great. Good morning, Thanks, so much for taking the questions. So to start it sounds like sales got stronger sequentially as the quarter progressed, reflecting seasonality just to clarify did you guys also see the rate of growth pick up in each month, but when you adjust out the extra week and then any specific callouts with respect demand.
Christopher Pappas: Um, I just wanted to follow up with a couple more questions. You mentioned the sales force and growth there. It seems as though some of the big broad liners are maybe also increasing. Salesforce headcount is higher than in recent years. And I guess the question is, are you seeing that same dynamic across many of the private and specialty competitors that you compete, you know, more directly with on a day to day basis, and maybe just remind us of the size of your Salesforce and the growth in headcount this year and in the coming years that you expect. From the street perspective, I think we always see, you know, some new people. You know, what we hear from all our, you know, all our leaders is, you know, again, everything is so expensive today. So, you know, when you hire people, the benefits are really expensive. If you put them on the road, you know, car expenses are very expensive.
Speaker Change: And the amount of trade down Youre seeing is that more or less than you guys might've expected. Thanks, so much.
Speaker Change: Alright, Thanks Mark.
Speaker Change: The cadence in the quarter I think you pointed out was pretty typical of a normal season prior to the.
Speaker Change: Many years that COVID-19 volatility impacted seasonality.
Speaker Change: We talked about on our Q3 call. We we saw strength in demand and margin in September coming out of the weaker summer months I think October and November were kind of very typical October and November from a seasonal perspective and then.
Speaker Change: December was I think the first December the three weeks between Thanksgiving and Christmas.
Speaker Change: That you really saw the corporate parties come back the level of events come back to.
Christopher Pappas: So I think our view is, you know, to continue to use technology to free our team up. And I think that it's going, you know, more and more into what I call a team cell. You know, I think I've been saying this for the past five, seven years that, you know, my vision is, you know, there are over a thousand people in the sales department at all our companies. So it's quite a large number of people in sales, but it's really leveraging them and having them do, you know, more calls to new customers, more calls to their existing customers, and introducing new products. You know, as we continue to integrate all the regions that we have Chef's Warehouse protein businesses now, you know, with our other businesses and now produce.
Speaker Change: Pre COVID-19 levels I think in 'twenty, two you saw a little bit of that but it wasn't completely back in so I think those are three very strong weeks.
Speaker Change: And that.
Speaker Change: I think I think that that really helped the quarter.
Speaker Change: Get back to what we would call it normal fourth quarter.
Speaker Change: Got it that's helpful. And then you guys mentioned that inflation moderated in <unk> do you think it's bottomed out at this point and just how do you see it shaping up.
Speaker Change: In 2004 at this point.
Speaker Change: And I would say, we don't really predict inflation, but what we expect right now and what we see is.
Speaker Change: In aggregate I mean, we have 70000 products going through our distribution centers. Some are inflationary some are deflationary, but in aggregate what we've seen so.
Speaker Change: So far in the beginning of the year is kind of a continuation of what we saw in the fourth quarter, which was.
Speaker Change: Moderate kind of low to mid single digit type of.
Speaker Change: Sequential and year over year inflation.
Speaker Change: With a little bit of it.
Speaker Change: Our mix on certain products you know right now you have.
Speaker Change: Things that are Coco base like chocolate olive oil affected by droughts.
Christopher Pappas: So it's really doing more with less. I think that's the key. And I think every company is facing that and is trying to do the same thing. Whether you're one of the giant $70 billion public companies or you're a small independent in the marketplace, you're gonna have to get leverage because everything is more expensive. Everything's been plated, especially in the last five years.
Speaker Change: A couple of daily dairy products that are inflationary, but but overall.
Speaker Change: You're kind of seeing moderate inflation, so far this year and we kind of expect that to continue.
Speaker Change: Great. Thanks, so much good luck guys.
Speaker Change #104: Thank you.
Speaker Change #104: Our next question comes from Kelly Bania of BMO capital markets. Please go ahead.
Christopher Pappas: So it's so important to get more efficient and larger drops to get leverage on your overhead. Thank you, and just maybe last one, doesn't sound like there are any issues here, but maybe just talk about your ability and cost to get some of the products that you import from Europe in today's market conditions and just remind us what percent of your products are coming from there. So there, I mean, there hasn't been really any impact from what's happening in the Red Sea on our U.S. or North American businesses. So logistics prices have obviously come way down since the crazy COVID prices and kind of settled in a range that is a little bit higher than before, but not, you know, not insane. So we haven't really had much difficulty, you know, coming from Europe. We don't really disclose the percentage that comes from Europe.
Kelly Ann Bania: Good morning, Thanks for taking our questions.
Kelly Ann Bania: Kelly I wanted to talk about good morning, I wanted to talk about some of the acquisitions.
Kelly Ann Bania: Obviously several have been flowing in for the last couple of quarters.
Kelly Ann Bania: Maybe can you just talk a little bit more in detail about how they're performing.
Kelly Ann Bania: Like there might be some topline upside coming in from one or more about correct me, if I'm wrong, and maybe just help us understand how.
Kelly Ann Bania: How are you finding those acquisitions getting integrated into the broader chef warehouse network.
Kelly Ann Bania: Sure.
Kelly Ann Bania: I think things are going.
Speaker Change #101: Very well Kelly.
Speaker Change #100: The team has their arms around.
Speaker Change #100: The acquisitions from.
Speaker Change: The past two years and.
Speaker Change: You can see from our growth.
Speaker Change: We call it hybrid growth I'd call it right now as companies become.
Speaker Change: Comfortable as part of the chefs warehouse.
Speaker Change: Family of companies.
Speaker Change: We start to.
Speaker Change: We start to share best practices and many many of the acquisitions we've already.
Speaker Change: Put them on our computer systems. So they could start to see other warehouses and what products are available in the sales team starts to melt together.
James E. Leddy: We have had a little bit of some bumps with our Chefs Middle East business with some of the product that comes via the Red Sea, but they've done a great job of mitigating that. And it seems that the price impacts are being felt really by the entire market there and are being passed on, and customers and restaurants are adapting their menus and adjusting just like they would during any kind of supply chain disruption. But it hasn't been material to date, and the team over there is doing a great job of managing substitutions and working with customers, et cetera. So I would just say overall that the logistics environment hasn't really had a lot of volatility over the last, you know, six months or a year that we experienced over the first, you know, two or three years post COVID.
Speaker Change: I think that's really what's the what's been the driving force behind.
Speaker Change: Our continued growth.
Speaker Change: For the past many years so.
Speaker Change: We're not at the we're not we're not anywhere near the finish line of our expectations there but.
Speaker Change: Every day, we get better.
Speaker Change: I think that shows in the numbers, we continue to we continue to cross sell each other's customers and that's really the focus right. We built these new warehouses and continue to build.
Speaker Change: The warehouses and markets that we have three or four.
Speaker Change: Independent businesses. So you know we're here in Florida today, and this is one of our our U S facilities, where we're able to sell our proteins and dairy and some produce and all of our specialty and dry goods and combine them.
Speaker Change: On the same trucks and you know, we'll continue to get the synergies and that's what's going to drive the bottom line over the next many years.
Speaker Change #103: Thank you just wanted to follow up with a couple more questions. You mentioned the sales force and growth there it seems.
Christopher Pappas: Yeah, Kelly, just to add a little bit, a little more insight to that, you know, again, I think ever since COVID, everybody, all our partners in, you know, from over 2000 suppliers in 40 countries, kind of have adapted. Everybody keeps more inventory now because, you know, the world is in a pretty volatile state, right, with two wars going on. And, you know, we've got climate change impacts. So I think everyone's gotten kind of ahead of it, right? So in the US, like Jim said, you know, I think everybody was, everybody always anticipates some sort of disruption.
Speaker Change: So some of the big broad liners are maybe also increasing sales force.
Speaker Change #102: I'd count more than in recent years and I guess the question is are you not seeing dynamic across many of the private specialty.
Speaker Change #102: It appears that you compete more directly with on a day to day.
Speaker Change #105: And maybe just remind us.
Speaker Change #105: Of your Salesforce and the growth in head count this year and in coming years and you effect.
Speaker Change #105: Yeah.
Speaker Change #105: You don't own the Street perspective, I think we always see some new people.
Speaker Change #105: We hear from.
Speaker Change: All are.
Speaker Change: All of our leaders is.
Speaker Change: Again everything is so expensive today, so you know.
Speaker Change: When you hire when you hire people the benefits are really.
Speaker Change: So if you put them on the road car expenses are very expensive so.
Christopher Pappas: So we're kind of way ahead of it, you know, inventory is fine, the team is all over it, and as Jim said, you know, in Dubai, which is our major warehouse, they had a great December, you know, business was, business was strong, and I think any pressure came because the, you know, it was so strong that the man was there.
Speaker Change: I think our view is you know continue to use technology.
Speaker Change: To free to free our team up and I think that it's going more and more into what I call <unk>.
Speaker Change: I think I've been saying this for the past five years seven years that you know.
Speaker Change: My vision is theres over 1000 people in the sales department.
Speaker Change: With all our companies so it's quite a big people in sales, but it's really leveraging.
Speaker Change: And having them do.
Speaker Change: More calls on new customers more calls to their existing customers introducing new products as we continue to integrate in all the regions that we have chef warehouse protein businesses now with our other businesses and now produce so it's really doing more.
Christopher Pappas: And it's an incredible team there that, you know, is very seasoned. And, you know, they're accustomed to dealing with, you know, something going on, you know, with the logistical challenges, and they try to get ahead of it, you know, way before, you know, something happens. So I think I think we're good. Thank you very much.
Speaker Change: With luck.
Speaker Change #106: That's the key and I think every company is facing that and is trying to do the same thing whether you're one of the giant $71 billion.
Speaker Change: Public companies or you're a small independent in the marketplace, you're going to have to get leverage because everything is more expensive you know everything is completed.
Speaker Change: Especially the last five years or so.
Andrew Wolf: Thank you, Kevin. Our next question comes from Andrew Wolf of CL King. Please go ahead. Hi, good morning.
Speaker Change: It's so important to get more efficient.
Speaker Change: And largely dropped.
Speaker Change: You have to get the leverage on your overhead.
Speaker Change #107: Thank you and just maybe last one.
Speaker Change #107: It doesn't sound like there's any issues here, but maybe just talk about zelle.
Andrew Wolf: I wanted to ask about the guidance in terms of the margin. So at the midpoint of sales, and even, you know, it's about, it expands about 10 percent base, and, um... Gross margin at the midpoint is, you know, more than that. And, you know, from Alex's question, it appears you guys are looking at, you know, the first half being sort of heavy on OPEX, and starting to improve. So I just wanted to get the sense, you know, kind of if you could sort of. Dive a little more into the cadence of Marjorie.
Speaker Change #107: Your ability at cost and getting some of the products that you can port over from Europe.
Speaker Change #107: In today's market conditions, and just remind us what percent of your products are coming.
Speaker Change #107: From there.
Speaker Change #107: So I mean, there hasnt been.
Speaker Change: Really any impact from what's happening in the Red Sea to our U S or north American businesses. So.
Speaker Change: Logistics prices have obviously come way down since the crazy Covid prices.
Speaker Change: Kind of settled in.
Speaker Change: In a range that are a little bit higher than.
Speaker Change: And before but not not insane and so we haven't really had much difficulty.
James E. Leddy: Sort of as they flow for the year, Now how you see, how you, particularly the op-eds. And, you know, I know you're not saying this well, actually, at ICR, you did talk about longer-term guidance. Just how do you see the OpEx leverage really being re-established? Is it going to get greater and greater once you start to establish it? Is that how you view it and getting, you know, getting married? and several others.
Speaker Change: Coming from Europe.
Speaker Change #108: We don't really disclose the percentage that comes from Europe.
Speaker Change #108: We have had a little bit of some bumps with our middle East business with some of the product that comes via the Red Sea.
Speaker Change #108: But they've done a great job of mitigating that and it seems that the price impacts are being felt really by by the entire market there and are being passed on and customers and restaurants are adapting their menus and adjusting just like they would during any kind of.
James E. Leddy: Yeah, thanks, Andy. Yeah, just in terms of the guidance and the cadence through the year, you know, it's a range. I mean, if you look at our EBITDA guidance, it's, you know, $205 million to $218 million. I think the midpoint adjusted EBITDA margin percentage is conservative.
Speaker Change: Supply chain disruption, but it hasn't been material to date and the team over there is doing a great job of.
Speaker Change: Managing so institutions and working with customers et cetera, So I would just say overall.
Speaker Change: So logistics environment.
Speaker Change: It Hasnt really.
Speaker Change: A lot of volatility over the last six months or a year that we experienced over the first two years or three years post COVID-19.
James E. Leddy: I think there's a chance that, you know, that could be improved. We do still have some of the near-term costs and headwinds related to all the growth investments. You know, we talked about that at ICR and on our Q3 call, so that's mainly in the first half of the year. In the back half of the year, we expect to get, you know, start to get a little more leverage, and then it's really about $25 and $26. And I would just go back to Chris's comments.
Speaker Change #109: Kelly just to add a little bit a little more insight to that.
Speaker Change #110: Again, I think ever since Covid everybody.
Kelly Ann Bania: Our partners in.
Kelly Ann Bania: From over 2000 suppliers.
Kelly Ann Bania: Countries.
Speaker Change #111: Kind of have adapted everybody keeps more inventory now because the world is in a pretty volatile state right with two wars going on.
Speaker Change: We've got climate change impacts so.
Speaker Change: I think everyone's gotten kind of ahead of it right. So.
Speaker Change: The U S like Jim said.
Speaker Change: No.
Speaker Change: I think everybody was everybody always anticipate some sort of disruption. So we're kind of way ahead of it you know our inventory is fine the team is all over it and as Jim said.
Speaker Change: In Dubai, which is our major warehouse.
Speaker Change: They had a great.
Speaker Change: December.
Speaker Change: Business was business was strong and I think any pressure came because you know.
James E. Leddy: We expect to drive organic volume through this, you know, incredible amount of capacity that we've invested in and added in key growth markets over the next couple of years. And it'll begin in 2024, but we still have, as I mentioned, some of the – we haven't wrapped some of the larger rent investments and some of the other growth-related costs, but those will dissipate. A lot of the transition costs that we've experienced related to the significant amount of M&A we've done over the last two years will start to decline. And so it's going to be – it's going to be gradual. Combining that with, you know, improving adjusted EBITDA margins at, you know, key investments like Hardee's in Texas, which is a key strategic decision to enhance and accelerate our platform for growth in Texas, which is a huge growth market, and, you know, they're diluting us initially. So, you know, I think we're a little bit above 5.6% for the full year of 2023. If you excluded the dilutive impact of adding Hardee's, we'd be very close to what we delivered in 2022. We'd be around 5.9%.
Speaker Change: It was so strong the demand was there and it's an incredible team there that is very season then.
Speaker Change: They're they're they're accustomed to dealing with something going on with the logistical challenges and they try to get ahead of it way before something happens. So I think I think we're good.
Speaker Change #113: Thank you very much.
Speaker Change #112: Thank you Kelly.
Speaker Change: Our next question comes from Andrew Wolf of C. L. King. Please go ahead.
Andrew Wolf: Hi, Good morning, I wanted to ask about the guidance.
Andrew Wolf: Terms of the margins.
Andrew Wolf: EBITDA margin so at the midpoint of sales and EBITDA.
Andrew Wolf: Spans about 10 basis points in 'twenty four from 23.
Andrew Wolf: And gross margin at the midpoint as you know more than that closer to 20.
Andrew Wolf: So.
Speaker Change #114: And from Alex's question. It appears you guys are looking at the first half being sort of heavy on Opex and then starting to improve so I just wanted to get a sense you know kind of if you could sort of dive.
Speaker Change #114: I have a little more into the cadence of margins.
Andrew Wolf: Sort of as they flow for the year both.
Andrew Wolf: Now how you see particularly the Opex, where the business is deleveraging.
Andrew Wolf: And I know, you're not said it well actually at ICR, you did talk about longer term guidance.
Andrew Wolf: Just how you do see the Opex leverage.
Andrew Wolf: Really being reestablished.
Andrew Wolf: Is it going to sort of be.
Andrew Wolf: Uh huh.
Andrew Wolf: Is it going to get greater and greater once you start to establish it.
Andrew Wolf:
James E. Leddy: In 2022, we delivered 6%. So it's really just about driving the organic volume through these significant capacity investments and then improving the adjusted EBITDA margins over time as we integrate, you know, this kind of 15% of our revenue base that comes at a lower EBITDA margin percentage. Thanks, Jim. And just speaking of Hardee's, you know, and I know you had other acquisitions that were similar, smaller, I think, but similar, where you're able to, you know, margin them up, to enter basis points. Thank you, boss. So.
Andrew Wolf: How you view, it and get it getting margins up to that 6% to 7% long term goal.
Speaker Change #118: Yes, Thanks, Andy.
Speaker Change #116: Yes, just in terms of the guidance and the cadence through the year.
Speaker Change #115: It's a range I mean, if you look at our EBITDA guidance at $205 million to $218 million.
Speaker Change #115: I think the.
Speaker Change #117: To meet the mid point.
Andrew Wolf: Adjusted EBIT margin percentages as conservative I think theres a chance that.
Andrew Wolf: That could be improved.
Andrew Wolf: We do still have some of the near term cost headwinds related to the all the growth investments, we talked about that at ICR and in our Q3 call. So.
Andrew Wolf: Mainly in the first half of the year in the back half of the year.
Andrew Wolf: We expect to start to get a little more leverage and then it's really about 25% and 26.
Andrew Wolf: Just go back to Chris's comments.
James E. Leddy: You know, could you just give us a sense of that, you know, like... Visit www.fema.gov. You know, I think you've got, is it more right-sizing the business, or is it more cross-sell, which I guess it is more the latter? You know, what percent of the customers, you know, is the right goal either based on experience? How are you modeling it, that you want to cross L2 and, you know, what kind of penetration and, you know, how does... Give us a sense of what, you know, needs to happen for that acquisition to, you know, really move forward.
Andrew Wolf: We expect to drive organic volume through this.
Andrew Wolf: Incredible amount of capacity that we've invested in and added in key growth markets.
Andrew Wolf: Over the next couple of years.
Andrew Wolf: It'll it'll begin in 'twenty four but we still have as I mentioned some of the we haven't wrapped some of the larger rent investments in some of the other growth related costs, but those will dissipate a lot of the transition cost that we've experienced related to the.
Andrew Wolf: A significant amount of M&A, we've done over the last two years that will start to decline.
Andrew Wolf: And so it's going to be it's going to be gradual combine that with.
Christopher Pappas: Yeah, thanks, Andy. Every market is unique, right? So, you know, obviously, New York is our first business and our biggest market and our business, our biggest business out of one opco, right? San Francisco is quite big when you look at all the businesses that we own.
Andrew Wolf: Improving adjusted EBITDA margins.
Andrew Wolf: Ed.
Andrew Wolf: Key investments like <unk>, and Texas, which is a key strategic decision too.
Andrew Wolf: Enhance and accelerate our platform for growth in Texas, which is a huge growth market.
Andrew Wolf: And.
Andrew Wolf: Theyre diluting us initially so.
Andrew Wolf: I think we're a little bit above five 6% for the full year of 'twenty three if you excluded the dilutive the initial dilutive impact of adding parties, we'd be very close to what we delivered in 2022, we'd be around five 9% in 2022, we delivered 6%. So it's really just about dry.
Christopher Pappas: So, you know, each time we make an acquisition, we go through a very, very, you know, thoughtful process before we make an acquisition. And, as you know, you've been following us for a long time, to get our, to get the footprint, you know, we've had to, it's much more effective unless you're, you know, annexing the market next to you, which is typical, you know, If you're a typical distributor, which we're not, you know, we always say we're a marketing company that also distributes, and that's our strength, right? With over a thousand of our own vehicles on the streets every day, we control most of our own destiny, bringing these wonderful products to market.
Andrew Wolf: And the organic volume through these significant capacity investments and then improving the.
Andrew Wolf: Adjusted EBIT margins over time as we integrate.
Andrew Wolf: Just kind of 15% of our revenue base that comes at a lower EBITDA margin percentage.
Andrew Wolf: Okay.
Speaker Change #119: Thanks, Jim and just speaking of Hardee's, you know and I know.
Speaker Change #121: Yeah. The other acquisitions that were similar smaller I think but similar where you are.
Speaker Change #120: Able to.
Speaker Change #120: Them up I think.
Speaker Change #120: 300 basis points in the Boston acquisition so.
James E. Leddy: Could you just give us a sense of that.
Christopher Pappas: So, in the case of Texas, you know, since we're talking about it, you know, the thought process of, obviously, a lot of people have moved to Texas and continue to move to Texas for various reasons in the past five, six years. More of our customers are opening up to Texas. They want us to serve them there.
Speaker Change #120: Is it.
Andrew Wolf: I think you've got is it more right sizing the business or is it more the cross sell and which I guess it is more the latter but.
Andrew Wolf: What percent of the customers.
Andrew Wolf: Now you're kind of is the right goal either based on experience or.
Andrew Wolf: How you're modeling it that you want to cross sell to and what.
Andrew Wolf: It kind of penetration and how does.
Andrew Wolf: Give us a sense of what.
Andrew Wolf: Needs to happen.
Andrew Wolf: For that acquisition to really move the right way.
Christopher Pappas: And now we have an Allen Brothers cut shop facility, which is doing phenomenally. We have a Chef's Warehouse, which we put together with some small acquisitions just to get, you know, enough business to get the warehouse moving. We bought some non-core businesses, but, you know, that's when we realized what an opportunity it was because there really was nobody in Texas to buy who was like us. And that's always the great thing is there's nobody like Chef, really, that puts, you know, the amount of, you know, 2,000 artists and vendors from around the world together in one building and has the logistical expertise and the ability to train a sales force, which does So, really, when we looked at Hardee's, you know, they were not a Chef's Warehouse.
Speaker Change #122: Yeah. Thanks, Andy every.
Andrew Wolf: Every market is unique.
Andrew Wolf: Great. So obviously New York is.
Andrew Wolf: First business and are our biggest market and our business.
Andrew Wolf: Our biggest business out of one off write San Francisco's is quite big when you look at all the businesses that we own so.
Andrew Wolf: Each.
Andrew Wolf: We go through a very very.
Andrew Wolf: Thoughtful process before we make an acquisition.
Andrew Wolf: As you know you've been following us for a long time to get our to get the footprint.
Andrew Wolf: We've had two it's much more effective unless you are.
Andrew Wolf: And exiting the market next to you which is typical typical in the distribution business right. If you are a typical distributor, which we're not we always say, we're a marketing company that also distributes and that's our strength right with over a 1000 of our own vehicles.
Andrew Wolf: In the streets every day, we control most of our own destiny, bringing these wonderful products to market. So in the case of Texas since we're talking about it.
Andrew Wolf: The thought process of we know, Texas is going to be a big market. Obviously, a lot of people to move to Texas and continue to move to Texas.
Andrew Wolf: For various reasons in the past five six years.
Andrew Wolf: More of our customers are opening to Texas, they want us to serve them there and now we have in Allen brothers.
Christopher Pappas: Their margins weren't, their bottom line wasn't anywhere near a Chef's Warehouse, but over the next five, ten years, you know, we continued to grow. We were changing the way they went to market. You know, we were selling more and more independent restaurants. We're starting to add Chef's Warehouse products to their trucks. And that's really the march.
Andrew Wolf: Cut shop facility, which is doing phenomenal.
Andrew Wolf: We have a chefs warehouse, which we put together with some small acquisitions just to get.
Andrew Wolf: Enough business to get the warehouse moving.
Andrew Wolf: We bought some noncore businesses, but.
Andrew Wolf: That's when we realized the opportunity it was because there really was no body.
Andrew Wolf: In Texas to buy who was like that's always the great thing is theres nobody liked chef really that puts.
Andrew Wolf: The amount of 2000 artisan vendors from around the world together.
Christopher Pappas: And you've watched us do this year, you know, for many years now, you know, and as we grow, as we did in New England, you know. New England was similar. We bought Sid Weiner, a great company, you know, great people, and we kind of shrunk their business, and we're regrowing them more as a Chef's Warehouse with more of our product on their trucks, and they're starting to look more and more like a Chef's Warehouse, right? They're marching towards the EBITDA margins that we expect in our businesses, and I think that's what you're going to start to see in Texas and in most markets where we've made these investments. So, it's pretty exciting times. You know, I always look at it as, you know, we own a bunch of stadiums, and the stadiums are doing great, and you have to add more seats to do more business, and as you're, you know, you're adding and building those seats, it costs money.
Andrew Wolf: In one building and has the logistical expertise and.
Andrew Wolf: And the ability to train our sales force, which does take time, so really when we looked at hardee's.
Andrew Wolf: They were not chefs warehouse their margins werent their bottomline wasn't anywhere near whats up warehouses, but over the next 510 years, we continue to.
Andrew Wolf: It was a great company.
Andrew Wolf: We're changing the way they go to market, we're selling more and more independent restaurants, we're starting to add chefs warehouse products.
Andrew Wolf: Their trucks.
Andrew Wolf: And that's really the March and you've watched US do this year for many years right now and as we grow as we did in new England.
Andrew Wolf: When was the similar when we bought Sid Wainer, a great company.
Andrew Wolf: Great people, and we kind of shrunk their business and growing.
Andrew Wolf: Growing them more as a chef warehouse with more of our products on their trucks and they're starting to look more and more like our chefs warehouse right, they're marching towards the EBITDA margins that.
Andrew Wolf: We expect our businesses and I think thats, what youre going to start to see in Texas and in most markets, where we've made these investments. So it's pretty exciting times you know I always look at it is.
Andrew Wolf: We own a bunch of stadiums and.
Andrew Wolf: The stadiums are doing great and you have to add more seats to do more business and as you are.
Christopher Pappas: It's a drag, you know, on your overall percentage when you look at your capital, but as the stadium seats start to open and you start to fill them, you start to get a great return on your investment, and I think that's the way we look at it. Okay, thank you very much. Our next question comes from Peter Feller of BTIG. Please go ahead.
Andrew Wolf: Youre, adding and building those seats it costs money, it's a drag on your overall percentage when you look at your capital, but as the stadium seats start to open and you start to fill them.
Andrew Wolf: You start to get a great return on your investment and I think that's the way we look at it.
Speaker Change #123: Okay. Thank you very much.
Speaker Change #123: Yeah.
Speaker Change #123: Our next question comes from Peter Saleh of <unk>. Please go ahead.
Peter Feller: Yeah, good morning, and thanks for taking the question and congrats on a strong quarter. I did want to ask you about how some of the less mature markets, like Texas and or Florida, your customers buy less of their needs from Chefs versus some of the more mature markets like New York City. Are you starting to see some evidence now that, given the investments you guys have made and some of the organic growth that you're seeing, that some of these customers are starting to pick up their purchases from you in terms of their needs? Is that percentage of their needs kind of ticking up? Are you seeing any evidence of that?
Speaker Change #123: Sure.
Peter Saleh: Yes, good morning, and thanks for taking my question and congrats on a.
Peter Saleh: Strong quarter.
Peter Saleh: I did want to ask about I think in the past we were talking about how some of the less mature markets like Texas and Florida.
Peter Saleh: Customer buys less of their needs from chef versus some of the more mature markets like New York City.
Peter Saleh: Are you starting to see some evidence now that given the investments you guys have made from the organic growth that you are seeing.
Peter Saleh: Some of these customers are starting to pick up their purchases from you in terms of their needs is that percentage of that is kind of ticking up are you seeing any evidence of that.
Christopher Pappas: Yeah, thanks for the question, Peter. Absolutely. You know, I couldn't be more optimistic than I am right now that things are going as planned. You know, everything takes a little time, right? You got to get your systems in, the warehouse set up. And, you know, we're still in the first inning, you know, but Florida is growing at a very rapid pace. And every day, we're selling more and more items to the customers that we have as we start to fill up the warehouse. So Florida, you know, Florida is going to be, you know, one of the top four markets over the next five years. And so is Texas, you know. Texas is taking a little longer because we didn't have the facilities. So we're operating out of multiple facilities right now, as we're starting to figure it out. You know, you got Austin, you got San Antonio, you got Dallas, you got Houston. It's a very large place; it's a country in itself.
Speaker Change #127: Yeah. Thanks for the question Peter Yes, yes, absolutely.
Speaker Change #127:
Speaker Change #125: I couldn't I couldn't be more optimistic.
Speaker Change #124: Than I am right now that things are going as planned everything takes a little time right you got to get the systems in the warehouse setup.
Speaker Change #124: We're still in the first inning.
Speaker Change #124: But Florida, Florida is growing at a very rapid pace and every day, we are selling more and more items to the customers that we had as we start to fill up the warehouse.
Speaker Change #124: So, Florida, Florida is gonna be top four markets over the next five years, and so as Texas, Texas, It's taken a little longer because we didn't have the facilities. So we're wrapping operating out of multiple facilities right now.
Speaker Change #124: We're starting to figure it out you've got Australia, you've got San Antonio You got Dallas, You've got Houston, It's a it's a very large place which country in itself, but every day.
Christopher Pappas: But every day, the team is making headway as salespeople start to, you know, get comfortable with the thousands of items, you know, even though we hire a lot of chefs who understand food, it's really understanding how to go to market and sell against your competition. But the reason we've made these investments is, you know, we're so encouraged to see the reception we get. When we start to enter a market, and you're hitting on two of our big long-term growth markets, Texas and Florida, and absolutely, we're starting to sell more items to these customers. Great. And then just, Jim, are there any calendar shifts or anything that we should be aware of in the first quarter that might be beneficial or detrimental to the business? And then just on inflation, I think you guys said kind of, you know, maybe a low to mid-single-digit expectation for this year. Is there any sort of change in the pace, first half versus second half?
Speaker Change #124: The team is making headway as salespeople start to.
Speaker Change #124: Get comfortable.
Speaker Change #124: Thousands of items.
Speaker Change #124: Even though we hire a lot of chefs who understand food, it's really understanding that.
Speaker Change #124: How to go to market sell against your competition.
Speaker Change #124: But.
Speaker Change #124: Yes.
Speaker Change #124: The reason we've made these investments is we're so encouraged to see the reception we get when we start to enter a market and you're hitting on two probably therefore.
Speaker Change #124: A big long term growth markets, Texas, and Florida, and absolutely we are.
Speaker Change #124: Still more items to these customers.
Speaker Change #128: Great and then just Jim are there any calendar shifts or anything that we should be aware of in the first quarter that might be beneficial or detrimental to the business and then just on the inflation.
James E. Leddy: So kind of.
James E. Leddy: Maybe low to mid single digit expectation for this year is there any sort of change in the cadence first half versus second half I know you guys.
James E. Leddy: I know you guys don't like to really forecast inflation. I'm just trying to understand if there's anything that we should be thinking about higher or lower in the first half on inflation. Thanks, Pete. In terms of the first quarter, there have been no significant calendar shifts that really come to mind right now, so nothing to really call out there.
James E. Leddy: I would like to really forecast out the inflation I'm just trying to understand if there's anything that we should be thinking about.
Speaker Change #128: Higher or lower in the first half on inflation.
Speaker Change #129: Thanks Pete.
Speaker Change #129: The first quarter, there have been no significant calendar shifts that.
Speaker Change #129: That really come to mind right now so nothing to really call out there.
James E. Leddy: In terms of inflation, once again, you know, we build it into the range of our guidance. The range of our guidance incorporates potential variability in volume due to, you know, macro demand, which we don't control, and due to price, which, you know, we don't control as well, but we adapt to as we move through the year, you know, whether it's trying to hold prices in a deflationary environment or, you know So I think, you know, it's just incorporated into that range of guidance, and we adapt and manage as we move along. Great, thank you very much.
Speaker Change #124: In terms of inflation once again.
Speaker Change #124: We build it into the range of our guidance.
Speaker Change #124: The range of our guidance incorporates potential.
Speaker Change #124: Potential variability on volume due to macro demand, which we don't control and due to price, which we.
Speaker Change #124: We don't control as well, but we adapt to.
Speaker Change #124: As we move through the year.
Speaker Change #124: Whether it's trying to hold price in a deflationary environment or managing the.
Speaker Change #124: Managing the customer and the pricing in an inflationary environment.
Speaker Change #130: I think.
Speaker Change #130: Just incorporated into that range of the guidance and we adapt and manage as we move along.
Speaker Change #135: Great. Thank you very much.
Ben Cleave: Thank you. Our next question comes from Ben Cleave of Lake Street, Capital Marks, a kick of the head. Yeah, thanks for the question. You know, again, Chefs, you know, being the little guy, you know, of all the public companies that we're measured against, you know, we had to acquire, you know, to get the footprint. And now the focus has shifted on, you know, we've created, by the end of the year, we'll probably have 60% more capacity. So, yeah, the focus is on hypercharging organic growth. And, of course, we're always opportunistic. So, you know, we're not looking to do, you know, anything major and, you know, new territory.
Speaker Change #136: Thank you.
Speaker Change #124: Yes.
Speaker Change #124: Our next question comes from Ben <unk> of Lake Street capital markets.
Ben: Please go ahead.
Ben: Alright, Thanks for taking my questions and congratulations on wrapping up a really good 2023.
Ben: Just one question for me.
Ben: Throughout the call I appreciate your comments about kind of focusing on integration of your legacy investments and acquisitions.
Ben: <unk>.
Ben: Throughout 2004, and my question to you Jim.
Ben: In this context, where youre really focusing on what you have already done in integrating these investments what remains compelling to you in.
Ben: <unk> acquisition that.
Speaker Change #124: That you could potentially still making 2024 or are there kind of high level characteristics of an acquisition. You are you could look to make in 'twenty four or as you put it really kind of off of off the gas here for the balance of this year.
Christopher Pappas: And we've already stated, you know, what our CapEx forecast is going to be. So we're focused on creating more, you know, cash, pay down some debt, and maybe buy back shares. But, you know, there's a great demand for it, which could, you know, speed up some of the, we don't want to fill up all our capacity. That's why we built it.
Speaker Change #124: Yes.
Speaker Change #133: Thanks for the question.
Speaker Change #139: Again, <unk> being the little Guy.
Speaker Change #134: All the public companies.
Speaker Change #134: We're measured against.
Speaker Change #134: We have to acquire to get the footprint and now the focus has shifted on you know we created by the end of the year, we'll probably have 60% more capacity so.
Christopher Pappas: We want to grow into it, but, you know, some of these little tuck-in acquisitions could be extremely, you know, profitable and, you know, help us on our march to our EBITDA goals. So, you know, we're always looking, you know, people are always calling. But, you know, the real focus right now is to drive organic growth because we finally have, you know, good capacity in a lot of our major markets, like we've said, you know, Florida and Los Angeles.
Speaker Change #124: Yes, the focus is on hyper hyper charging organic growth and of course, we're always opportunistic we've always been opportunistic so.
Speaker Change #124: We're not looking to do.
Speaker Change #124: Major in new territory.
Speaker Change #124: We've already stated.
Speaker Change #124: What our Capex forecast is going to be so we're focused on creating more cash.
Speaker Change #124: Pay down some debt and.
Speaker Change #124: Maybe buy back shares but.
Speaker Change #124: Great folding which could.
Speaker Change #124: Speed up some of the we don't want to fill up all our capacity. That's why we built it we want to grow into it but.
Speaker Change #124: Some of these little tuck in acquisitions can be extremely profitable.
Speaker Change #124: Help us on our March to our our EBITDA goals. So we're always looking people who were always calling but the real focus right now is to drive the organic growth because we have we finally have.
Christopher Pappas: Our new processing facility is opening in San Francisco, hopefully in this quarter. And, you know, we're going to consolidate a whole bunch of businesses into one state-of-the-art facility. So we've got a lot of exciting things happening in the next year or two.
Speaker Change #124: Good capacity and a lot of our new major markets like we said, Florida and Los Angeles.
Speaker Change #124: Our new.
Speaker Change #124: Processing facility is opening in San Francisco.
Speaker Change #124: <unk> and.
Speaker Change #124: This quarter and we're going to consolidate at a whole bunch of businesses into one state of New York facilities. So we got a lot of exciting things happening in the next year.
Ben Cleave: Very good. All right. Thanks, Chris. I appreciate that comment. There's plenty more to talk about, but that's a good place to leave it. Thanks for taking my question. I'll get back to you.
Speaker Change #141: Very good alright, thanks, Chris I appreciate that comment.
Speaker Change #137: Plenty more to talk about but I think equates to leave it. Thanks for taking my question I will get back in line here.
Christopher Pappas: Thanks for that. And we have reached the end of our question and answer session. We'd like to take a further question from Ben Queen. Yes, well, thank you everybody for joining our call. I couldn't be prouder of the team at Chef and what they're accomplishing.
Speaker Change #142: Thanks Ben.
Speaker Change #138: And we have reached the end of our question and answer session.
Speaker Change #138: Ladies.
Speaker Change #131: A question from BNP.
Speaker Change #132: Yes, well. Thank you for everybody for joining our call Couldnt I couldnt be prouder of the team at chef and what they are accomplishing and we look forward to.
Christopher Pappas: And we look forward to many, many great things from the team and look forward to everyone joining our next call. So, thank you very much. Have a great day. Thank you very much. Ladies and gentlemen, that concludes today's event. Thank you for joining us, and you may now disconnect your line.
Speaker Change #132: Many many great things from this team and look forward to everyone. Joining our next call. So thank you very much have a great day.
Speaker Change #140: Thank you very much Sir ladies and gentlemen that concludes todays event.
Speaker Change #143: Thank you for joining us and you may now disconnect your lines.