Q1 2024 The Chefs' Warehouse Inc Earnings Call

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Operator: Greetings and welcome to the Chefs' Warehouse First Quarter 2024 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Alex Aldous, General Counsel, Corporate Secretary, and Chief Government Relations Officer. Please proceed.

Greetings and welcome to the chefs warehouse first quarter 2024 earnings conference call.

As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host Alex Aldous General Counsel Corporate Secretary and Chief Government Relations Officer. Please proceed.

Alexandros Aldous: Thank you, Operator. Good morning, everyone.

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 by now you should have access to our first quarter 2024 earnings press release. It can also be found at www dot chefs warehouse dot com under the Investor Relations Sir.

Alexandros Aldous: With me on today's call are Chris Pappas, Founder, Chairman, and CEO, and Jim Leddy, our CFO. By now, you should have access to our first quarter 2024 earnings press release. It can also be found at www.chefswarehouse.com under the Investor Relations section.

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Alexandros Aldous: 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 are included in today's press release.

Alexandros Aldous: 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.

Alexandros Aldous: Titled non-GAAP financial measures used by other companies quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in todays 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 financial performance. Such forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Some of these risks are mentioned in today's 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 financial performance such forward looking statements are not guarantees of future performance and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties.

Alexandros Aldous: That could cause actual results to differ materially from what we expect some of these risks are mentioned in todays release, others are discussed in our annual report on Form 10-K, and quarterly reports on Form 10-Q, which are available on the SEC web site.

Alexandros Aldous: Others are discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q, which are available on the SEC website. Today we are going to provide a business update and go over our first quarter results in detail. Then we will open the call for questions. With that, I will turn the call over to Chris Pappas.

Alexandros Aldous: Today, we are going to provide a business update and go over our first quarter results in detail.

Then we will open the call for questions with that I will turn the call over to Chris Pappas Chris.

Christopher Pappas: Thank you, Alex, and thank you all for joining our first quarter 2024 earnings call. First quarter 2024 business activity displayed typical seasonal cadence as revenue trends coming out of January increased steadily in February and March. Our business units, international and domestic, delivered strong new customer and placement growth during the first quarter, and aggregate price inflation continued to trend in the low single-digit range. I would like to thank all our Chefs' Warehouse teams for sales and operations, as well as all the supporting functions, for delivering a great start to 2024. As we head into the second quarter and the rest of the year,

Christopher Pappas: Thank you Alex and thank you all for joining our first quarter 2024 earnings call.

Christopher Pappas: First quarter 2024 business activity displayed typical seasonal cadence as revenue trends coming out of January increased steadily in February and March.

Christopher Pappas: Our business units international and domestic delivered strong new customer and placement growth during the first quarter and aggregate price inflation continued to trend in the low single digit range.

I would like to thank all our chef warehouse teams for sales and operations to all the supporting functions.

Christopher Pappas: So delivering a great start to 2024.

Christopher Pappas: As we head into the second quarter.

Christopher Pappas: I would also like to recognize our customer and supplier partners for their support and confidence in our people, diversity, and quality of products in our high-touch, flexible distribution platform. A few highlights from the first quarter include 8.8% organic growth in net sales. Specialty sales were up 7% organically over the prior year, which was driven by unique customer growth of approximately 10.1%, placement growth of 12%, and specialty case growth of 4.6%. Organic pounds in the center of the plate were approximately 6.2% higher than the prior year first quarter.

Christopher Pappas: And the rest of the year I would also like to recognize our customer and supplier partners for their support and confidence in.

Christopher Pappas: And our people diversity and quality of products and our high touch flexible distribution platform.

Christopher Pappas: Gross profit margins increased approximately 37 basis points. Gross margin in the specialty category was unchanged as compared to the first quarter of 2023, while gross margin in the center-of-the-plate category increased 19 basis points year-over-year. Excluding the impact of Hardy's specialty, gross profit margins increased approximately 58 basis points versus the prior year quarter. Jim will provide more detail on gross profit and margins in a few minutes. As we move into the next phase of our growth, focused on harvesting the investments we have made in the past few years, our teams are engaged in continual operational improvement processes across our domestic and international markets.

Christopher Pappas: A few highlights from the first quarter include.

Christopher Pappas: 8.8% organic growth in net sales.

Christopher Pappas: Especially specialty sales were up 7% organically over the prior year, which was driven by unique customer growth of approximately 10, 1%.

Christopher Pappas: Placement growth of 12% and specialty case growth of four point.

Christopher Pappas: 6%.

Christopher Pappas: Organic pounds in center of the plate or approximately six 2% higher than the prior year first quarter.

Christopher Pappas: Gross profit margins increased approximately 37 basis points.

Christopher Pappas: Gross margin in the specialty category was unchanged as compared to the first quarter of 2023, while gross margin in the center of the plate category increased 19 basis points year over year.

Christopher Pappas: Excluding the impact of parties specialty gross profit margins increased approximately 58 basis points versus the prior year quarter.

Christopher Pappas: Jim will provide more detail on gross profit and margins in a few minutes.

Christopher Pappas: As we move into the next phase of our growth focused on harvesting the investments we have made the past few years.

Christopher Pappas: Our teams are engaged and continual operational improvement processes.

Christopher Pappas: Our domestic and international markets.

Christopher Pappas: These work streams include implementing technology-driven product selection and loading processes in our distribution centers, enhancements to our customer-facing digital platform, as well as our continued consolidation of operations and routes in key markets. A few highlights are... During the quarter, we completed the consolidation of our Foley Fresh Seafood Facility located in Boston into our new bed for Massachusetts operations. This move reduces overhead expenses and facilitates improved cross-sale opportunities with our specialty produce and Allen Brothers distribution platform in New England.

Christopher Pappas: These work streams include implementing technology driven product selection.

Christopher Pappas: Floating processes in our distribution centers enhancements to our customer facing digital platform as well as our continued consolidation of operation and routes in key markets.

Christopher Pappas: A few highlights are.

Christopher Pappas: During the quarter, we completed the consolidation of our bogey for seafood facility located in Boston into our New Bedford, Massachusetts operation.

Christopher Pappas: This move reduces overhead expenses and facilitates improved cross sell opportunities with our specialty produce and Allen brothers distribution platform and new England.

Christopher Pappas: In Northern California, our project to consolidate multiple protein processing and distribution operations into our new Richmond facility continues to progress. We anticipate initiating operations during the second quarter with the phased-in consolidation during the second half of 2024 and the first quarter of 2025. We expect to see the majority of operational and distribution efficiencies emerge starting in 2025. In Texas, the integration of Hardee's and our specialty operations continues to move forward. In addition to driving cross-sell opportunities and initiating improvements in operational efficiency, our teams are making progress on capacity optimization and use.

Christopher Pappas: In Northern California, our project to consolidate multiple protein processing and distribution operations.

Christopher Pappas: Two our new Richmond facility continues to progress we anticipate initiating operations during the second quarter with the phased in consolidation during the second half of 2024 and the first quarter of 2025, we expect to see the majority of operational and distribution efficiency.

Christopher Pappas: <unk> emerged starting in 2025.

Christopher Pappas: In Texas, the integration of <unk> and our specialty operations continues to move forward.

Christopher Pappas: In addition to driving cross sell opportunities and initiating improvements in operational efficiency. Our teams are making progress on capacity optimization in Houston.

Christopher Pappas: We expect this will facilitate growth in specialty produce and protein cross-sale to customers in the greater Houston market, as well as reduce internal transfer costs going forward. These projects, while not all-inclusive, are aimed at providing our teams with a continuous and ever-evolving platform for growth and operational efficiency within the unique business model that Chefs' Warehouse provides to the thousands of artisan suppliers we represent and customers we serve. We are focused on continued organic growth and building on our brand as the premier marketer and distributor of specialty ingredients, produce, and value-add proteins in the region we operate in. 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? Thank you.

Christopher Pappas: We expect this will facilitate growth in specialty produce and protein cross sell to customers in the greater Houston market as well as reduced internal transfer costs going forward.

Christopher Pappas: These projects, while not all inclusive are aimed at providing our teams with the continuous and ever evolving platform for growth and operational efficiency within the unique business model that chefs warehouse provides to the thousands of artisan suppliers, we represent and customers we serve.

Christopher Pappas: We are focused on continued organic growth and building on our brand as the premier marketer and distributor of specialty ingredients routers and value add proteins in the region we operate.

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. Thank.

James F. 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 March 29, 2024, increased approximately 21.5% to $874.5 million from $719.6 million in the first quarter of 2023. The growth in net sales was the result of an increase in organic sales of approximately 8.8%, as well as the contribution of sales from acquisitions, which added approximately 12.7% to sales growth for the quarter. Net inflation was 2.7% in the first quarter, consisting of 1.2% inflation in our specialty category and inflation of 4.6% in our center-of-the-plate category versus the prior year quarter.

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 F. Leddy: Gross profit increased 23.4% to $209.4 million for the first quarter of 2024 versus $169.7 million for the first quarter of 2023. Gross profit margins increased approximately 37 basis points to 23.9%, and our Procurement, Sales, Pricing, and Operations teams delivered strong gross profit dollar growth across categories during the quarter. Selling general and administrative expenses increased approximately 21.9% to $190.3 million for the first quarter of 2024 from $156.1 million for the first quarter of 2023. The increase was primarily due to higher depreciation and amortization.

James F. Leddy: Due to acquisitions and facility investments and costs associated with compensation, including benefits, facility costs, and distribution costs to support sales growth in the current quarter, adjusted operating expenses increased 23.6% versus the prior year first quarter. And as a percentage of net sales, adjusted operating expenses were 19.3% for the first quarter of 2024, compared to 19.1% for the first quarter of 2023. Operating income for the first quarter of 2024 was $16 million, compared to $11.9 million for the first quarter of 2023. The increase in operating income was driven primarily by higher gross profit, partially offset by higher selling, general, and administrative expenses compared with the prior year quarter.

James F. Leddy: Our net sales for the quarter ended March 29, 2024 increased approximately 21, 5% to $874 5 million from $719 6 million in the first quarter of 2023 the growth in net sales was the result of an increase in organic sales of approximately eight 8% as well as the.

James F. Leddy: Income tax expense was $0.8 million for the first quarter of 2024, compared to $0.5 million for the first quarter of 2023. Our gap net income was $1.9 million, or $0.05 per diluted share, for the first quarter of 2024, compared to net income of $1.4 million, or $0.04 per diluted share, for the first quarter of 2023. On a non-GAAP basis, we had adjusted EBITDA of $40.2 million for the first quarter of 2024, compared to $32.8 million for the prior year's first quarter.

James F. Leddy: Adjusted net income was $5.9 million, or $0.15 per diluted share, for the first quarter of 2024, compared to $4.6 million, or $0.12 per diluted share, for the prior year first quarter. Now turning to the balance sheet and an update on our liquidity. At the end of the first quarter, we had total liquidity of $204 million, comprised of $42 million in cash and $162 million of availability under our ABL facility. During the first quarter, we executed the following transactions as part of our progress towards achieving our year-end 2025 capital allocation goals of 2.5 to 3 times net debt leverage and repurchasing 25 million to 100 million equivalent outstanding shares.

James F. Leddy: <unk> of sales from acquisitions, which added approximately 12, 7% sales growth for the quarter.

James F. Leddy: Net inflation was two 7% in the first quarter, consisting of one 2% inflation in our specialty category and inflation of four 6% and our center of the plate category versus the prior year quarter.

James F. Leddy: Gross profit increased 23, 4% to $209 4 million for the first quarter of 2024 versus $169 7 million for the first quarter of 2023.

James F. Leddy: Gross profit margins increased approximately 37 basis points to 23, 9%.

James F. Leddy: And our procurement sales pricing and operations teams delivered strong gross profit dollar growth across categories during the quarter.

James F. Leddy: Selling general and administrative expenses increased approximately 21, 9% to $190 3 million for the first quarter of 2024 from $156 1 million for the first quarter of 2023, the increase was <unk>.

James F. Leddy: Driven was primarily due to the higher depreciation and amortization.

James F. Leddy: Driven by acquisitions and facility investments and costs associated with compensation, including benefits facility costs and distribution costs to support sales growth in the current quarter.

James F. Leddy: Adjusted operating expenses increased 23, 6% versus the prior year first quarter and as a percentage of net sales adjusted operating expenses were 19, 3% for the first quarter of 2024 compared to 19, 1% for the first quarter of 2023.

James F. Leddy: Operating income for the first quarter of 2024 was $16 million compared to $11 9 million for the first quarter of 2023. The increase in operating income was driven primarily by higher gross profit, partially offset by higher selling general and administrative expenses versus the prior year quarter.

Income tax expense was zero point $8 million for the fourth quarter of 2024 compared to 0.5 million expense for the first quarter of 2023.

James F. Leddy: Our GAAP net income was $1 9 million or <unk> <unk> per diluted share for the first quarter of 2024 compared to net income of $1 4 million or <unk> <unk> per diluted share for the first quarter of 2023.

James F. Leddy: On a non-GAAP basis, we had adjusted EBITDA of $40 2 million for the first quarter of 2024 compared to $32 8 million for the prior year first quarter. Adjusted net income was $5 9 million or 15 cents per diluted share for the first quarter of 2024 compared to $4 6 million or 12.

James F. Leddy: Per diluted share for the prior year first quarter.

James F. Leddy: Turning to the balance sheet and an update on our liquidity at the end of the first quarter. We had total liquidity of 204 million comprised of $42 million in cash and $162 million of availability under our ABL facility.

James F. Leddy: During the first quarter, we executed the folly following transactions as part of our progress towards achieving our year end 2025 capital allocation goals of two five to three times net debt leverage and repurchasing $25 million to $100 million equivalent outstanding shares as of March 29 2020.

James F. Leddy: As of March 29, 2024, we repurchased $5 million of our outstanding common shares, resulting in a reduction of approximately 135,000 shares outstanding, and we repaid $6.7 million on the outstanding balance of our term loan. In addition, during the first quarter, we repriced our $270 million term loan maturing in 2029, reducing the coupon from SOFR adjusted for a credit spread plus a fixed spread of 4.75% to SOFR plus a fixed spread of 4%, lowering interest costs by 85 to 90 basis points, depending on the SOFR term selected.

James F. Leddy: Four we repurchased $5 million of our outstanding common shares, resulting in a reduction of approximately 135000 shares outstanding and we repaid $6 $7 million on the outstanding balance of our term loan in.

James F. Leddy: In addition, during the first quarter, we repriced, our $270 million term loan maturing in 2029, reducing the coupon from sulphur adjusted for a credit spread plus a fixed spread of 475% to sulfur plus a fixed spread of 4% lowering interest cost by 85% to 90 basis points.

James F. Leddy: Depending on the sofa term selected.

James F. Leddy: As of March 29, 2024, total net debt was approximately $662 million, inclusive of all cash and cash equivalents, and net debt to adjusted EBITDA was approximately 3.3 times as compared to approximately 3.4 times as of the fourth quarter of 2023. 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 $3.64 billion to $3.785 billion, gross profit to be between $867 million and $902 million, and adjusted EBITDA to be between $207 million and $219 million.

James F. Leddy: As of March 29, 2024, total net debt was approximately $662 million inclusive of all cash and cash equivalents and net debt to adjusted EBITDA was approximately three three times.

James F. Leddy: As compared to approximately three four times as of the fourth quarter of 2023.

James F. 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 F. Leddy: We estimate that net sales for the full year of 2024 will be in the range of $3 64 billion to $3 785 billion gross profit to be between $867 million and $902 million and adjusted EBITDA to be between $207 million and $219 million.

James F. Leddy: Please note for the second and third quarters of 2024, we expect both the convertible notes maturing in December of this year and those maturing in 2028 to be dilutive for reporting purposes, and therefore, we expect the fully diluted share count to be approximately $45 9 million shares for those reporting.

James F. Leddy: Please note, for the second and third quarters of 2024, we expect both the convertible notes maturing in December of this year and those maturing in 2028 to be diluted for reporting purposes. Therefore, we expect the fully diluted share count to be approximately 45.9 million shares for those reporting periods. For the fourth quarter and the full year of 2024, we expect the remaining convertible notes maturing in 2028 to be dilutive, and therefore, we expect the fully dilutive share count to be approximately 45 million shares for the fourth quarter and the full year reporting period. Thank you, and at this point, we will open up to questions. Operator?

James F. Leddy: Periods.

James F. Leddy: For the fourth quarter and the full year of 2024, we expect the remaining convertible notes maturing in 2028 to be dilutive and therefore, we expect the fully diluted share count to be approximately 45 million shares for the fourth quarter of and the full year reporting periods.

Speaker Change: Thank you and at this point, we will open it up to questions operator.

Speaker Change: Thank you we will now conduct a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Operator: Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's Star 1 to ask a question at this time. One moment while we post our first question. Our first question comes from Alex Slagle with Jeffries. Please proceed.

Speaker Change: Confirmation tone will indicate your line is in the question queue.

Speaker Change: You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the snarky once again Thats star one to ask a question at this time one moment, while we poll for our first question.

Speaker Change: Our first question comes from Alex Slagle with Jefferies. Please proceed.

Alexander Russell Slagle: Thanks, Hey, guys good morning.

Alexander Russell Slagle: Thanks. Hey guys, good morning. Good morning.

Alexander Russell Slagle: Good morning, really really strong gross profit.

Alexander Russell Slagle: Really, really strong gross profit. I mean, that's the first quarter gross margin we've seen in like five years on an apples-to-apples basis. You know, it stands on the momentum you reported in the 4Q, so just kind of curious if you could dig into some of the drivers behind that and maybe what's changed and to the degree some of that's sustainable as we look ahead.

Alexander Russell Slagle: First quarter gross margin I think we've seen in like five years on an apples to apples basis.

Alexander Russell Slagle: It stands on the momentum we reported in the <unk>. So just kind of curious if you can dig into some of the drivers behind that and maybe what's changed and to the degree some of that is sustainable as we look ahead.

Speaker Change: Yes. Thanks for the question I'll start and I'll, let Chris jump in but.

James F. Leddy: Yeah, thanks for the question. I'll start, and I'll let Chris jump in. But yeah, I mean, ever since coming out of the summer of 2023, we really focused on gross profit dollar growth and gross profit margin as, you know, as things normalized coming out of that kind of weird summer. I think the combination of our growth in digital, providing our sales reps with more tools, more data, and still maintaining that strong sales relationship has really helped us improve margins year over year and just continue the momentum that we had at the end of last year.

Christopher Pappas: Yes, I mean ever since.

Christopher Pappas: Coming out of the summer of 2023.

Speaker Change: We really focused on gross profit dollar growth in gross profit margin.

Speaker Change: As things normalized coming out of that kind of weird summer I think the combination of our growth in digital providing our sales reps with more tools more data and still maintaining that strong sales relationship.

Speaker Change: Has really helped us improve margins year over year and just continue the momentum that we had at the end of last year.

Speaker Change: Okay.

James F. Leddy: Okay. Yeah, and even on the Op-Back, I mean, I know the expectation was that we'd kind of be working through some ongoing cost headwinds, and more so through the first half of the year. I don't know, it's just to the degree that this is in line with your expectations, what we've reported, or if there's any other dynamics. Given what you've seen in the first quarter, even with the higher op-ecs, the EBITDA margin seems to be the highest I've seen for our first quarter, at least in a really long time.

Speaker Change: Yeah, and even on the Opex I mean, I know the expectation was that we can.

Speaker Change: <unk> been working through some long line cost headwinds and more so through the first half of the year.

Speaker Change: And in that way.

Speaker Change: To the degree that.

Speaker Change: In line with your expectations with what we reported.

Speaker Change: Are there any other dynamics.

Speaker Change: I think given what you've seen in the first quarter rates, because I mean, even with the higher Opex and now it's like the EBITDA margin seems to be highest I've seen in first.

Speaker Change: First quarter at least in a really long time.

James F. Leddy: Yeah, I mean, to your point, OPEX came in where we expected. It's a little bit higher year-over-year, but we expected that, and we built that into the guidance, and that's really mainly driven by all of the facility investments that we made in the last year or two. The main one impacting the first half of this year is we don't lap the Florida rent until the summer. We moved in in the summer of last year, and then some of our other facility investments like expansion in Seattle, expansion in the Philadelphia and southern New Jersey market, we won't lap those rent increases until the back half of the year as well. So that's driving the year-over-year growth, but operating expenses were right in line with what we expected, and our operations teams did a great job during the first quarter, continuing what they did in the fourth quarter.

Speaker Change: Yes, I mean.

Speaker Change: To your point Opex came in where we expected, it's a little bit higher year over year, but we expected that and we built that into the guidance and thats really mainly driven by.

Speaker Change: All of the facility investments that we made in the last year or two the main one impacting the first half of this year is we don't lap the Florida rent until the summer we moved in in the summer of last year and then some of our other facility investments like expansion in Seattle expansion into Philly.

Speaker Change: And southern New Jersey market.

Speaker Change: We won't lap those rent increases until the back half of the year as well so.

Speaker Change: That's driving the year over year, but operating expenses were right in line with what we expected.

Speaker Change: Our ops teams did a great job during the first quarter continuing what they did.

Speaker Change: In the fourth quarter.

Christopher Pappas: Yeah, I think, Alex, just to add to what Jim said, you know, if you look back on the last few years, what I think we keep saying is that, you know, we're investing in facilities, we're investing in systems, and we're investing in people. We continue to add more and more people to business development and sales. We think we have a very differentiating approach to the market than a lot of our competition.

Speaker Change: I think Alex just.

Alex: Add to what Jim said.

Alex: If you look back the last few years, what I think we keep saying is that we're investing in facilities. We're investing in systems. We're investing in people we continue to add.

Alex: More and more people into business development and sales, we think we have a.

Alex: A very differentiating.

Alex: Approach to the market than a lot of our competition, we only focus on one sector really.

Christopher Pappas: You know, we only focus on one sector, really, and we think we're the best at it. And, you know, there's always going to be a little up and down in the economy, you know, but our goal is, again, to be the preferred partner, you know, to most of the independent restaurants and more of the high end. And I think we get rewarded for it.

Alex: We think we're the best at it and.

Alex: There is always going to be a little up and down the economy, but our goal is again to be the preferred partner.

Alex: Most of the independent restaurants.

Alex: More of the high end and.

Alex: I think we get rewarded for it.

Alexander Russell Slagle: And, you know, we're all at the mercy of, you know, what really happens in the economy. But, you know, I think our customers are a little more insulated. You know, the higher end, you know, the consumer has a little bit more expendable income. And I think our clientele, you know, maybe doesn't have as much sway as what we're seeing right now in, maybe QSR. And we're really, you know, raising prices by a dollar or two is pushing away traffic. So, you know, we don't have that crystal ball, but, you know, we thought that the quarter kind of came in where we had anticipated, and obviously, we hope that continues. Thanks.

Alex: We were all at the at the Mercy of what really happens in the economy, but.

Operator: Thanks. I'll pass it along to others.

Alex: Our I think our customers are a little more insulated.

Alex: Yes, the more higher end.

Alex: Consumer.

Alex: It has a little bit more expendable income and I think our our clientele.

Alex: Maybe it doesn't have as much sway as what we're seeing right now and maybe <unk>.

Alex: And we're really raising prices of $1 two as is pushing away traffic. So.

Alex: We don't have that crystal ball, but.

Alex: We think we thought that the.

Alex: The quarter kind of came in where we had anticipated and obviously, we hope that continues.

Speaker Change: Thanks, I'll pass it along with others.

Speaker Change: Thanks, Alex.

Alex: Thank you. Our next question comes from Mark Carden with UBS. Please proceed.

Mark Carden: Thank you. Our next question comes from Mark Carden with UBS. Please proceed.

Mark Carden: Good morning. Thanks so much for taking my question. So to kind of jump on that last point a little bit, you talked about your customers being a little more insulated economically. Are you guys seeing any changes at all in the competitive backdrop with respect to pricing for distributors? Do you think any segments of your customer set are facing any pressures to lower their menu prices, or is it just different for your guys overall?

Mark Carden: Good morning. Thanks, so much for taking my question so to kind of jump on that last point, a little bit you talked about your customers being a little more insulated.

Mark Carden: Economically are you guys seeing.

Mark Carden: Any changes at all in the competitive backdrop with respect to pricing for distributors.

Mark Carden: Do you think any segments of your customers that are facing any pressures to lower their menu prices or is it just different for you guys overall.

Speaker Change: Yeah, well I don't know if I've ever seen restaurants lower prices. So.

Christopher Pappas: Well, I don't know if I've ever seen restaurants lower prices, so... I don't know if that's going to happen, you know, maybe you get a longer happy hour or, you know, incentives like, you know, Monday, Tuesday, Wednesday, it all depends on which part of the country you're talking about, you know, I think the coasts are a little different than, you know, the middle of the country, you know, I mean, I think we're all concerned with the massive inflation, you know, we've seen the last four or five years, you know, what that would do for traffic, but, you know, again, most of our independents are really good restaurateurs and they'll find that, you know, that space where they can offer value and offer value for, you know, their customer trade that is more affected by price, you know, speaking to a lot of our customers going into the call, I think it's all the expectation as well, you know, the last year or two coming out of COVID, I think there was a lot of celebratory spending, there was customers who maybe in the past weren't regular customers that were going out and spending more money in some of the more higher end restaurants, especially, I think, you know, you've heard chatter about steakhouses and it's just amazing how many more steakhouses there are today than as customers of ours than we had four or five years ago and we think that, you know, we kind of expected that to kind of, you know, tone down a little bit, I think, you know, they were blessed with a tremendous amount of growth and I think we're going back to a more normal pace like we saw, you know, in 2018 and 19, where, you know, maybe some of these clients were doing 300, you know, 300 turns a night and they went to 500 turns over the last year or two and, of course, nobody likes to see the turns go backwards, but I think it's a more normal pace, so.

Mark Carden: Uh huh.

Mark Carden: I don't know if thats going to happen maybe.

Mark Carden: Got a longer happy hour or.

Mark Carden: Yes.

Mark Carden: Incentives.

Mark Carden: On Monday, Tuesday, Wednesday, but it all depends on which part of the country, you're talking about I think the coast are little different than the middle of the country.

Mark Carden: I mean, I think we're all concerned with the massive inflation, we've seen in the last four or five years.

Mark Carden: What that would do for traffic but.

Mark Carden: Again, most of our independents are are really good restaurant tours and.

Mark Carden: They will find that.

Mark Carden: That space, where they can offer value and offer value for.

Mark Carden: Their customer trade that is more affected by price.

Mark Carden: You can do a lot of our customers going into the call.

Mark Carden: I think it's all the expectation as well as during the last year or two coming out of Covid. I think there was a lot of celebratory spending there was.

Mark Carden: Customers, who.

Mark Carden: Maybe in the past Werent regular customers that we're going out and spending more money in some of the more higher end restaurants, especially I think you've heard chatter about steakhouses and.

Mark Carden: It's just amazing how many more steakhouses there are today then.

Mark Carden: <unk>.

Mark Carden: As customers of ours, and we had four or five years ago, and we think that we kind of expected that.

Mark Carden: Yeah.

Mark Carden: Toned down a little bit I think.

Mark Carden: We're blessed with.

Mark Carden: Tremendous amount of.

Mark Carden: Of growth and I think we're going back to a more normal pace like we saw in 2018 and 19.

Mark Carden: Sure.

Mark Carden: Maybe some of these clients were doing 303.

Mark Carden: 300.

Mark Carden: Turns at night.

Mark Carden: They went to 500 turns over the last year or two and of course nobody likes to see the turns go backwards, but I think it's more normal pace.

Mark Carden: No.

Mark Carden: We would be happy with this pace for the next 20 years honestly.

Christopher Pappas: We would be happy with this pace for the next 20 years, honestly. I don't know if it's ever going to go back to what we saw coming out of COVID. Obviously, what we saw during COVID, we never want to see again.

Mark Carden: I don't know if its ever going to go back to what we saw coming out of Covid. Obviously, what we started during covered we never want to see that.

Christopher Pappas: You know, that was horrible when all our customers closed. So I think we're getting back to a more normal pace, and there will be winners and losers. We've seen a tremendous amount of new openings, which we kind of expected, you know, that were delayed with COVID. And with that, you're going to kind of see an even out.

Mark Carden: That was horrible on all of our customers close so I think we'll get back to a more normal pace and there'll be winners and losers, we've seen a tremendous amount of new openings, which we kind of expected that.

Mark Carden: That was delayed with COVID-19 and with that Youre going to kind of see an evening out of the client's customers have more choices.

Christopher Pappas: I think clients, customers have more choices in many neighborhoods and in many cities. And maybe they're, you know, I think a lot of our customers are seeing that there is more competition for them where maybe there wasn't four or five years ago. And, you know, I think we're benefiting because we're gaining more and more customers. So even though some of our older customers might be down a bit, we're gaining with more seats in similar areas, and we're getting that extra volume.

Mark Carden: Many neighborhoods in many cities and maybe there.

Mark Carden: I think a lot of our customers are seeing that where there is more competition for them.

Mark Carden: We had maybe there wasn't a four or five years ago.

Mark Carden: I think the.

Mark Carden: I think we're benefiting because we're gaining I think more and more customers. So even though some of our older customers might be down a bit we're gaining with more seats in similar areas and we're getting that that extra volume. So.

Christopher Pappas: So, you know, we're optimistic that it's going to find the balance. And our job, obviously, is to have the most compelling proposition for customers to choose us as their distribution partners and, you know, give us a large share of that purchase.

Mark Carden: We're optimistic that it's going to find the balance and our job obviously is to have the most compelling.

Mark Carden: Our position for customers to choose us as their.

Mark Carden: As their distribution partners and give us a large share of that of that purchase.

Speaker Change: Got it that's helpful context, and then how is your middle East business holding up a bit some of the continued turmoil in the region.

Christopher Pappas: That's helpful context. And then, how is your Middle East business holding up amidst some of the continued turmoil in the region? Has it remained largely immune outside of some sourcing adjustments, or has it gotten any more challenging? Um, I think...

Speaker Change: It remains largely immune outside of some sourcing adjustments or has it gotten any more challenging.

Christopher Pappas: I think the only challenge was business was almost too good, you know, coming out of the fourth quarter. I think, you know, again, when we chose to enter that market, we did a lot of homework, and we thought it was going to become more and more of a chosen destination from European travelers, world travelers, and a lot of the money that's in the Middle East, and the business continues to perform.

Mark Carden: I think the only challenge was business was almost too good.

Mark Carden: Coming out of the fourth quarter I think.

Mark Carden: Again, when we chose to enter that market. We did a lot of homework and we thought it was going to become more and more of a chosen destination.

Mark Carden: From European travelers, the world travelers and a lot of the money that's in the middle East and.

Mark Carden: The business continues to perform I think the only major headwind, we had was that big storm.

Christopher Pappas: I think the only major headwind we had was that big storm. If you followed, you know, over the past few weeks, they got hit with torrential downpours that kind of flooded the streets, and, you know, we lost a few days of business. But, you know, some of the trouble in the Red Sea as far as getting product in was a bit of a headwind, but the business, that management team there is first class. They continue to execute, and we're excited about the additional building that we've been adding on and building to give them more capacity so they can meet the demand that keeps coming.

Mark Carden: You've followed.

Mark Carden: Over the past few weeks, they got hit with <unk>.

Mark Carden: Torrential downpours that kind of flooded the streets.

Mark Carden: We lost a few days.

Mark Carden: Business, but some.

Mark Carden: Some of the trouble in the in the Red Sea as far as getting product in was a bit of a headwind but.

Mark Carden: The business that management team there is first class they continue to execute and where.

Mark Carden: We're excited about.

Mark Carden: The additional <unk>.

Mark Carden: Building that we've been adding on an in building to give them more capacity. So they can meet the demand that keeps coming.

Speaker Change: Thanks, so much and good luck.

Operator: Thank you. Thanks, Mark.

Speaker Change: Thank you thanks Mark.

Peter Mokhlis Saleh: Our next question comes from Peter Saleh with BTIG. Please proceed.

Speaker Change: Our next question comes from Peter <unk> with <unk>. Please proceed.

Peter: Great. Thanks for taking the question and congrats on a great start to the year.

Peter Mokhlis Saleh: Great. Thanks for taking the question and congrats on a great start to the year. I didn't want to ask about the complexion of growth for this year. Your organic growth is, you know, a little over 8% here or closer to 9%, and that's well above your long-term algorithm, the 4% to 6% organic growth. So can you just help us out a little bit?

Peter: I didn't want to ask about the complexion of growth for this year and your organic growth is a little over 8% here are closer to 9% and thats well above your long term algorithm the four 6% organic growth.

Speaker Change: Can you just help us out a little bit how do we think about this year, how sustainable is that organic growth rate.

James F. Leddy: How do we think about this year? How sustainable is that organic growth rate? And how do we think about organic versus acquisition benefits for the balance of this year?

Speaker Change: And how do we think about organic versus acquisition benefit for the balance of this year.

James F. Leddy: Thanks for the question, Pete. In terms of acquired growth, the bulk of it happened this past quarter. So the two big acquisitions we did last year were Hardee's and Greenleaf from a top-line perspective. And we bought Hardee's really right at the end of the first quarter, and we bought Greenleaf in the middle of the second quarter. So it's really heavily weighted.

Speaker Change: Thanks for the question Pete.

Speaker Change: In terms of acquired growth the bulk of it has happened this past quarter. So the two big acquisitions, we did last year, where <unk> and green leaf from a topline perspective.

Speaker Change: And we bought Hardy is really right at the end of the first quarter. When we bought green leaf in the middle of the second quarter. So it's really heavily weighted you see or are acquired wrap was 12, 7% this quarter.

James F. Leddy: You know, our acquired wrap was, you know, 12.7% this quarter, and that'll decline significantly. In terms of organic growth, you know, the mid to the high point of our guidance implies about, you know, kind of in the 6%, maybe 7% organic range for the full year. So it'll decline a little bit from the, you know, 8%. Now, some of that will depend on price, you know, what inflation does. But I think we're comfortable with the guidance right now, and it kind of implies our long-term growth algorithm from an organic perspective.

Speaker Change: And that will that will decline significantly in terms of organic.

Speaker Change: The mid to the high point of our guidance implies it out.

Speaker Change: In the 6%, maybe 7% organic range for the full year. So it will decline a little bit from the 8% now some of that will depend on price what inflation does.

Speaker Change: But I think we're comfortable.

Speaker Change: With the guidance right now and it kind of implies or our long term growth algorithm from an organic perspective.

Peter Mokhlis Saleh: Great, and then can you just comment a little bit on the protein market and what you're seeing currently? I think last year around this time, maybe spring and into the summer, there was some volatility that happened. What are you seeing currently? And what are the expectations, I guess, at least in the medium to near term?

Speaker Change: Great and then can you just comment a little bit on the on the protein market and what Youre seeing currently I think last year around this time in the spring and into the summer there was some volatility.

Speaker Change: That happened what are you seeing currently and what are the expectations I guess at least in the medium to near term.

Speaker Change: Yeah.

Christopher Pappas: Again, I would say if we were that good at predicting commodity markets, we'd own a trading floor somewhere in Bermuda. You would think it's predictable, Peter, but it's always proven to us that there are some underlying factors that sometimes confuse the market. It's driven by retail, right? So if retail slows down, especially for what we buy, which is top choice and a lot of prime, you do get breaks in prices. I think, year over year, I think we had a few points of inflation in last year's first quarter, but we don't take major, major positions.

Speaker Change: Again.

Speaker Change: I would say if we were that good.

Speaker Change: <unk> commodity.

Speaker Change: Markets we'd be.

Speaker Change: We don't a trading floor somewhere in Bermuda.

Speaker Change: It's.

Speaker Change: So it's kind of you would think it's predictable Peter but.

Speaker Change: It has always proven us debt.

Speaker Change: Some underlying factors that.

Speaker Change: Sometimes confuse the market.

Speaker Change: The.

Speaker Change: It's driven by retail Reits, so if retail slows down, especially for what we buy which is upper choice.

Speaker Change: Lot of Prime.

Speaker Change: You do get breaks in the prices I think our year over year year over year, I think we had a few points of inflation over the last the.

Speaker Change: Last year's first quarter.

Speaker Change: But we don't take major major positions.

Speaker Change: We've learned that.

Christopher Pappas: We've learned that there isn't a lot of upside unless the price has dropped so low that you're really comfortable taking a much larger position. So I think that we go with the market. If investors want to buy in and have us take a position for them, we'll do it, but we try to avoid that big risk of being wrong.

Speaker Change: There isn't a lot of upside unless the prices dropped so low that you're really comfortable to take a much larger position. So.

Speaker Change: I think that we go with the market customers want to buy in and have us take a position for them.

Speaker Change: We'll do it but we try to avoid that big risk.

Speaker Change: Of being wrong.

James F. Leddy: Pete, I'll just add that, you know, while we had some year-over-year inflation, prices and the protein market in Q1 kind of behaved kind of how they've behaved historically. In other words, sequentially coming out of the holiday season in Q4, prices kind of declined as they normally do in Q1. And then you would, historically, see them start to ramp up as you're going into barbecue season in the summer.

Speaker Change: Pete I'll just add that.

Speaker Change: We had some year over year inflation.

Pete: Prices in the protein market in Q1 kind of behaved kind of how they behaved historically in other words sequentially coming out of the holiday season in Q4 prices kind of declined as they normally do in Q1, and then historically you would see that start to ramp up as youre going into barbecue season in the summer and so thats.

James F. Leddy: And so that's, you know, that's still to be determined.

Speaker Change: That's still to be determined.

Peter Mokhlis Saleh: Understood. Thank you very much. I'll pass it along.

Speaker Change: Understood. Thank you very much I'll pass it along.

Speaker Change: Thanks Pete.

Operator: The next question comes from Andrew Wolf with CL King. Please proceed.

Speaker Change: The next question comes from Andrew Wolf with C. L. King. Please proceed.

Speaker Change: Yes.

Andrew Paul Wolf: Hi, thank you. Good morning.

Andrew Paul Wolf: Hi, Thank you good morning.

Andrew Paul Wolf: You asked also sort of on the organic sales being so much.

Andrew Paul Wolf: The stronger than your competitors and really most of the sector. The restaurants it's concluded.

Andrew Paul Wolf: I want to ask also, sort of on the organic sales thing, you know, so much stronger than your competitors and really most of the sector, the restaurants included. How much would you sort of say this is your core customer base? and more of a well-positioned, less sensitive to inflation in their consumer behavior. Versus, you know, just taking share at the business, either through better selling or better products and selection or just more, you know, people going up and down the street.

Andrew Paul Wolf: How much would you say this is.

Andrew Paul Wolf: Your core customer base.

Andrew Paul Wolf: More of a well positioned less sensitive to inflation and their consumer behavior versus.

Andrew Paul Wolf: Just taking share at the business either through better sailing or better products and selection.

Andrew Paul Wolf: Or just more people going up and down the street.

Andrew Paul Wolf: Yes.

Christopher Pappas: I think a lot is with take and share. I don't want to sound like Rodney Dangerfield that we get no respect, being smaller of all the public companies in the space, but we've invested a lot. People that really understand our business and follow our story, we're not a new business. We're getting close to our 40th anniversary.

Andrew Paul Wolf: Andy I think a lot is we're taking share.

Speaker Change: I don't want it sounded like Rodney danger that we get no respect.

Speaker Change: Smaller or all the other public companies in this space, but.

Speaker Change: You know we've invested a lot.

Speaker Change: People that really understand our business and our follow our story.

Speaker Change: We're not a new business.

Speaker Change: We're getting close to a 40 year anniversary, we know the industry really well and we've made big bets, we've invested in facilities or investing in technology and we've made tremendous investments.

Christopher Pappas: We know the industry really well, and we've made big bets. We've invested in facilities, we're investing in technology, and we've made tremendous investments in talent. No one's completely immune to economic cycles, but we've made the investments to continue to grow and continue to protect our turf. Our turf is really upscale, casual, and fine dining and to be the best at it. I hate to have a Cassandra's crystal ball prediction, but having done this now for almost 40 years, I've seen a lot of the cycles. Yes, we do have a piece of our customer portfolio that they are down. They are seeing negative comps.

Speaker Change: In talent and.

Speaker Change: No one's completely immune to economic cycles, but.

Speaker Change: We.

Speaker Change: We made the investments to continue to grow and continue to protect our turf and our turf is really key.

Speaker Change: Casual fine dining and to be the best at it and.

Speaker Change: Okay.

Speaker Change: Hate to have a.

Speaker Change: Cassandras Crystal ball prediction, but.

Speaker Change: Doing this now for almost 40 years I've seen a lot of the cycles, yes, we.

Speaker Change: We do have a a a piece of our customer.

Speaker Change: Yes.

Speaker Change: A portfolio that they are down they are seeing negative comps and we kind of expected that.

Christopher Pappas: We expected that, and we expected that we'd continue to go out, and they do have a lot of choices. We attract a huge number of new customers every year to have that diversity of super high-end, high-end, upscale, casual, and emerging concepts. We went into produce. I call it, that's our plant-based hedge. We like the business. We bought Hardee's last year to get into Texas. It is a great company. We're chef-icizing it, like we said.

Speaker Change: We kind of expected that.

Speaker Change: We'll continue to cloud and they do have a lot of choices and we go after a huge amount of new customers every year to have that diversity of Super high end high end skilled casual.

Speaker Change: And emerging concepts. So we went into produce I'd call. It that's our plant based hedge.

Speaker Change: We like the business.

Speaker Change: We bought <unk> last year to get into Texas, a great company with.

Speaker Change: Sherpa sizing it like we said, we're going to add more and more products and give there.

Christopher Pappas: We're going to add more and more products and give their sales teams more opportunities. We call it more at-bats with customers with all the chef products. There are over 50,000 items that make us who we are.

Speaker Change: <unk> seems more opportunities that we call it more at bats with customers with all the ship products are over.

Speaker Change: 50000 items that.

Speaker Change: Make us who we are there come from.

Speaker Change: <unk> of artisan producers so.

Speaker Change: I think we expect to continue to grow and outgrow most of the industry and obviously there'll be some some headwinds in the way, but we think our investments.

Speaker Change: We are the right investments and we expect to get rewarded.

Speaker Change: Great. Thank you Chris I appreciate that can I just ask one other.

Christopher Pappas: Great. Thank you, Chris. I appreciate that.

Speaker Change: Question really a follow up you haven't mentioned.

Speaker Change: Labor productivity.

Speaker Change: I didn't hear it.

Speaker Change: Whereas in the past quarters.

Speaker Change: I would like you felt pretty good about it. So can you just give us an update height billing about hiring.

Andrew Paul Wolf: Can I just ask one more question...? Not really a follow-up. You haven't mentioned labor productivity, I think, or I didn't hear it, where in the past quarters, you sound like you felt pretty good about it. So, if you just give us an update, how are you feeling about, you know, hiring, training, turnover, labor productivity? And, you know, where I think you mentioned you're going to invest in some automated picking, I know that's longer term, it's sort of a separate thing, but you know, where that fits into, I guess your cost structure going, you know, long-term cost structure.

Speaker Change: Training.

Speaker Change: Turnover of labor productivity.

Speaker Change: And where I think you mentioned you've been investing in some automated picking I know thats a longer term sort of a separate thing, but where that fits into.

Speaker Change: Yes, your cost structure going long term cost structure.

Christopher Pappas: Yeah, it's still people, process, product; people are, you know, they're our greatest asset, and we keep investing in, you know, trying to make it a great place to work. And it's always challenging. Obviously, COVID was a new level of the word challenging.

Speaker Change: Yes. It is.

Speaker Change: Still people.

Speaker Change: Assess product.

Speaker Change:

Speaker Change: People are there are they are our greatest asset and we keep investing and trying to make it a great place to work.

Speaker Change: It's always challenging obviously COVID-19 was.

Speaker Change: A new level of the word challenging but.

Christopher Pappas: But I think we're getting more and more productive. I think the team, especially in the new areas we've invested in, will continue to get better. As for training, we've invested more and more in training. I think you have to

Speaker Change: I think we are getting more and more productive.

Speaker Change: I think the teams, especially in the new areas, we've invested in it it will continue to get better as training.

Speaker Change: Training.

Speaker Change: We've invested in more more and more into training.

Speaker Change: I think you have to you have a lot of new people coming into the industry I would say nobody really graduates.

Christopher Pappas: You have a lot of new people coming into the industry, but I would say nobody really graduates school and comes out and says, I really want to go into food service. So it's not like you're looking for accountants or doctors or bankers. It's people that we hire a lot from the industry. In sales, we have a lot of chefs that work for us that have changed careers. But in a lot of other positions, it's people that are coming into the industry.

Speaker Change: School and it comes out and says I really want to go into foodservice right.

Speaker Change: So its not like Youre, looking for accountants, or doctors or or bankers.

Speaker Change: It's people that are.

Speaker Change: We hire a lot out of out of the industry in sales we have a lot of chefs that work for us that have changed careers, but in a lot of the other positions. It's people that are coming in to the industry and you have to train them and you have to make sure that you make it a great place to work because we want them to stay because it does take years for them to get better.

Christopher Pappas: And you have to train them, and you have to make sure that you make it a great place to work, because we want them to stay. Because it does take years for them to get better and better at their jobs. No matter how much technology you have, we are in the people business. So it's always a headwind, but that's what we do. And we think we do it really well, and we continue to get more productive.

Speaker Change: And better at their job no matter, how much technology you have.

Speaker Change: Our in the people business, so always a headwind, but it's what we do and we think we do it really well and we continue to get more productive Andy I'll just add.

James F. Leddy: Andy, I'll just add that, you know, when we talk about our five-year plan and getting operating leverage, you know, gradually increasing as we, you know, as we go through the next two to five years, you know, a big part of that is the impact on rationalizing labor and labor costs through consolidating facilities like we're doing in Northern California, we're doing in Florida now, we're doing in Texas, New England, consolidating routes as part of those facility consolidations, and then the, you know, the tech-related process improvements are really focused on error reduction and a lot on inventory management, and so I think our operating teams and our procurement teams are doing a great job of starting that, and hopefully we get more benefit from it down the road as well.

James F. Leddy: Andy, I'll just add.

Speaker Change: When we talk about our five year plan and getting operating leverage gradually increasing as we as we go through the next two to five years, a big part of that is.

Speaker Change: The impact on rationalizing labor and labor costs through consolidating facilities like we're doing in the.

Speaker Change: Northern California, we've we're doing in Florida, now, we're doing in Texas, New England.

Speaker Change: Consolidating routes as part of those facility consolidations and then the tech related process improvements are really focused on ever reduction.

Speaker Change: And a lot on inventory management, and so I think our operating teams and our procurement teams are doing a great job of a.

Speaker Change: Starting that and hopefully we get more benefit from from it down the road as well.

Speaker Change: Okay. Thank you I appreciate it.

Andrew Paul Wolf: Okay, thank you. I appreciate it.

Speaker Change: The next question comes from Kelly Bania with BMO capital. Please proceed.

Operator: The next question comes from Kelly Bania with BMO Capital. Please proceed.

Kelly Ann Bania: Good morning, thanks for taking our questions. Jim, you were starting to touch on this a little bit, but I just was curious if you could update us on the pace and the cost of those facility expansions, whether it be, you know, Northern California or some of the others that you have going on or coming time-wise and expense-wise on plan and any changes to that outlook for this year.

Kelly Ann Bania: Good morning, Thanks for taking our questions.

Kelly Ann Bania: Jimmy we're.

Kelly Ann Bania: Starting to touch on this a little bit, but just was curious if you can update.

Kelly Ann Bania: On the pace and the cost of those facility expansions whether it be.

Kelly Ann Bania: Northern California, or some of the others that you have going on.

Kelly Ann Bania: Coming timeline and expense wise on plan and any changes to that outlook for next year.

James F. Leddy: No real changes to the outlook. I think, you know, we have a little bit of front-loaded capex in the first half of the year as we finish our building in Northern California and we expect in a few weeks to start the phased-in consolidation of four separate facilities. I think, as we mentioned in our prepared remarks, we expect most of the cost savings and efficiencies to really emerge in 2025 because we're going to spend the rest of this year really in a very thoughtful phased-in consolidation, just managing the logistics and servicing the customers through that process. You know, we finished most of the consolidation in Florida.

Kelly Ann Bania: Yeah.

Speaker Change: No real changes to the outlook I think we have a little bit of Frontloaded capex.

Speaker Change: In the first half of the year as we finish.

Speaker Change: Our building in northern California.

Speaker Change: We expect in a few weeks to start the phased in consolidation of four separate facilities.

Speaker Change: I think as we mentioned in our prepared remarks, we expect most of the cost savings and efficiencies to really emerge in 2025, because we were going to spend the rest of this year really in a very thoughtful phased in consolidation.

Speaker Change: Just managing the logistics.

Speaker Change: Logistics and servicing the customers through that process.

Speaker Change: We're.

Speaker Change: We finished most of the consolidation in Florida.

James F. Leddy: So, from an operating perspective, I'll just go back to what I stated earlier. Most of the impact from a year-over-year perspective is in the first half of the year as we pass those increased rents that we had last year. The year-over-years, we expect to get better. That's assuming, of course, that the top line and gross profit hold up accordingly per our guidance and per our plan. So, you know, I think we'll get the bulk of the benefit really starting in, you know, the latter part of this year and then into 2025 and then into 2026. So, it's really setting us up for the next couple of years in terms of generating operating leverage.

Speaker Change: From an Opex perspective, I'll just go back to what I stated earlier.

Speaker Change: Most of the impact from a year over year perspective is in the first half of the year as we lap those increased rents that we had last year will the year over year as well, we expect to get better that's assuming of course top line gross profit holdup accordingly.

Speaker Change: For our guidance and per our plan so.

Speaker Change: I think look we'll get the bulk of the benefit really starting in the latter part of this year and then into 'twenty five and then into 'twenty six so it's really setting us up for the next couple of years in terms of.

Speaker Change: Generating operating leverage.

Speaker Change: Okay.

Speaker Change: Great. Thank you can.

James F. Leddy: Great, thank you. Can you also just touch a little bit more on the seasonality trends that you're seeing? It sounds like spring has really trended as expected, or maybe a little bit better, but there's always a lot of moving parts in the spring. So just help us understand what you're seeing so far and any real divergences among geographies that might be of note.

Speaker Change: Can you also just touch a little bit more on the seasonality trends that you are saying it sounds like the spring has really trended as expected or maybe a little bit better, but theres always a lot of moving parts in the spring.

Speaker Change: Help us understand what youre seeing so far and any any real divergences.

Speaker Change: Divergences among geographies.

Speaker Change: Of note.

James F. Leddy: Well, I think the only thing we would mention is, you know, with the early Easter, there was a little bit of noise around the last week of March and the first week of April, but nothing like hugely material that we would necessarily call out. And then the rest of April started to build back to where we expected or very close to where we expected.

Speaker Change: Well I think the only thing we would mention is with the early Easter there was a little bit of noise around the last week of March in the first week of April, but nothing like hugely material that we would necessarily call out and then the rest of April.

Speaker Change: Started to to build back to where we expected.

Speaker Change: Close to where we expected.

James F. Leddy: I don't think, you know, we'll see anything going into the summer. Hopefully, we don't have the kind of volatility or significant international travel impact that we had last summer, but, you know, obviously, we can't predict that right now. So I wouldn't say there's anything that we would call out right now, seasonally, other than, you know, as we talked about earlier, there's always concerns about the macroeconomic environment that we're hearing a lot about.

Speaker Change: Don't think.

Speaker Change: We see anything.

Speaker Change: Going into the summer hopefully, we don't have the kind of volatility or.

Speaker Change: Significant international travel impact that we had last summer, but obviously, we can't predict that right now so I wouldn't say, there's anything that we would call out right now.

Speaker Change: <unk>.

Speaker Change: Other than as we talked about earlier, there's always concerns about the macroeconomic environment that we're hearing a lot about.

Speaker Change: Okay. That's helpful.

Kelly Ann Bania: Okay, that's helpful. And just another one on the SKU count. Obviously, there have been a lot of acquisitions and expansions into new categories, but the SKUs are up to 70,000, I believe, now. What's the right number over time?

Speaker Change: Another one on the <unk>.

Speaker Change: You count obviously, there's been a lot of acquisitions.

Speaker Change: Expansion that didnt categories, but the skus that up to 70000 I believe now.

Speaker Change: What's the what's the right number over time, how do you make sure.

Christopher Pappas: How do you make sure to balance that selection with the complexity of having more and more SKUs? Just any thoughts on that. Yeah, well, the skews are, again, you've got to be very...

Speaker Change: That selection and and with the complexity of having more and more skus just any thoughts on that.

Christopher Pappas: Yeah, well, the SKUs is, again, you've got to be very careful, it's a little misleading sometimes, because, you know, it's kind of like the 80-20 rule, I mean, you know, it's 80% of the business is in 20% of the SKUs, so we run a huge just-in-time process, because of our independent customer base, it puts a tremendous demand on being able to accommodate a lot of the creativity that, you know, the people that run these restaurants demand of us, and I think that's one of the things that, you know, we are probably the best in the industry, because we kind of understand it, you know, we've been doing it for so long, so I think as we get bigger and we expand more territories and more categories, I think that proliferates a lot of, you know, the amount of SKUs that come through the system, And I think what's driving the SKU count up is we've expanded a lot of the categories. And so with the category expansion, you have a lot of SKUs that come in and out.

Speaker Change: Well the Skus as again, you got to be very careful that's a little misleading.

Speaker Change: Sometimes because.

Speaker Change: It's kind of like the 80 20 rule.

Speaker Change: 80% of the business is 20% of the Skus. So.

Speaker Change: We run a a huge just in time.

Speaker Change: Process, because because of our independent customer base that puts a tremendous demand on being able to accommodate.

Speaker Change: The creativity that.

Speaker Change: The people that run these restaurants demand of us and I think thats one of the things that we are we are probably the best in the industry because.

Speaker Change: Because we kind of understand it we've been doing it for so long so I think as we get bigger and we expand more territories in more categories I think that proliferates a lot of the.

Speaker Change: The amount of Skus that come through the system, but it is something we focus on everyday to obviously be accommodating but also have the discipline. So you don't have the waste.

Speaker Change: And I think what's driving the SKU count up as we've expanded a lot of the categories and so with the category expansion you have a lot of skus that come in and out.

Christopher Pappas: But I still think that, you know, when you really look at what's in the buildings, and we do work on this every day because, you know, you have to draw the line somewhere where you have how much duplication of inventory that's very similar. So I think category management does a great job with that and continues to work on educating the sales staff and customers that we may have what they're looking for.

Speaker Change: But I still I still think that when you really look at whats.

Speaker Change: What's in the buildings.

Speaker Change: We do work on this everyday because.

Speaker Change: You have to draw the line somewhere where you have how much duplication of.

Speaker Change: Inventory, that's that's very similar so I think category management does a great job with that and continues to work on educating the sales staff and customers that.

Speaker Change: We may have we may have what they're looking for it might be a different label or it might be a different pack size, but please take what we stocked because bringing in new product is very expensive right warehouse space continues to get very expensive frozen space.

Christopher Pappas: It might be a different label, or it might be a different pack size, but please take what we have in stock because bringing in new product is very expensive, right? Warehouse space continues to get very expensive. Frozen space is obviously very expensive today to build. So I wouldn't get too held up on, you know, the massive proliferation of SKUs.

Speaker Change: We see as very expensive today.

Speaker Change: To build so.

Speaker Change: I wouldn't get too I wouldn't get too held up on.

Speaker Change: The massive proliferation of avast.

Speaker Change: Averse of Skus.

Speaker Change: Great. Thank you.

Speaker Change: Thanks Kelly.

Speaker Change: The next question comes from Ben <unk> with Lake Street Capital. Please proceed.

Operator: The next question comes from Ben Klieve with Lake Street Capital. Please proceed.

Benjamin David Klieve: Alright, thanks for taking my questions. A couple quick ones for me.

Ben: Alright, excuse me alright, thanks for taking my questions.

Ben: Quick ones from me first of all Jim I. Appreciate your comment the Capex. This year is gonna be front loaded Q1, as a percentage of sales of 2%, but I'm, hoping you can elaborate on this a bit in some way.

Benjamin David Klieve: First of all, Jim, I appreciated your comment that CapEx this year is going to be front-loaded. Q1 is a percentage of sales of 2%, but I'm hoping you can elaborate on this a bit in some way. You know, full-year CapEx expectations, perhaps your expectations for the kind of range of CapEx as a percentage of revenue, you know, just kind of some sense of how this line item is going to play out for the balance of the year.

Ben: Full year Capex expectations, perhaps your expectation for kind of a range of capex as a percentage of revenue just kind of some sense of how this line item is going to play out for the balance of the year.

James F. Leddy: Oh yeah, thanks, Ben. Yeah, I think we're going to be, I think we should come in pretty close to 1%, maybe it's 1.1 or 1.2%, or maybe a little bit below, but the bulk of our CapEx this year is two major projects, which is finishing out the Richmond, California facility I talked about earlier, which is a big project, and then our Chefs' Middle East expansion. So, I think, you know, we put out our guidance of 35 to 45 million in CapEx. I expect us to stay within that range, and if we land within that range, we'll be pretty close to our goal this year of close to 1% of revenue.

James F. Leddy: Oh, yes, thanks, Ben Yeah, I think we're going to be I think we should come in pretty close to 1%, maybe it's one one or one 2% or maybe a little bit below but.

Speaker Change: The bulk of our Capex this year.

Speaker Change: Two major project, which is finishing out the Richmond, California facility I talked about earlier.

Speaker Change: Is a big project and then our chefs middle East expansion. The bulk of that project is happening in the first half of the year and then we'll round out into the back half of the year and then we have the normal kind of technology investments in maintenance Capex. So as those two projects finished towards the end of the third quarter that that <unk>.

Speaker Change: Half of the year, we expect to be on the lower end in the first half of this year to be on the higher end. So I think we put out our guidance of 35% to $45 million of Capex I expect us to stay within that range and if we land within that range. We will we'll be pretty close to our goal this year of close to one.

Speaker Change: 1% of revenue.

Benjamin David Klieve: Great, great. So there's kind of a steep decline here throughout the year. That's perfect. Thanks, Jim.

Speaker Change: Great great so kind of a steep decline here throughout the year that's perfect. Thanks, Jim.

Benjamin David Klieve: And then last one for me, and I'll get back in queue, a product-specific question regarding cocoa just going parabolic this year. I know it's not a huge element of your business, but I'm just curious, you know, how effectively you guys have been able to navigate this? Has this been an issue in the first quarter or so far here in the second quarter?

Speaker Change: And then last one for me and I'll get back in queue product specific question regarding telco just going parabolic. This year I know, it's not a huge element of your business, but I'm just curious.

Speaker Change: How effectively you guys have been able to navigate this this has been any issue in the first quarter or so far here in the second quarter.

Christopher Pappas: Yeah, I mean, it's a good topic. It's a little frightening what's happened in the cocaine market, and it's just amazing that... The demand for chocolate desserts is still very, very high. I think we do offer a plethora of choices for customers. We carry many types of different chocolate, and it's something that I look at on a weekly basis. The concerns were, oh my God, people are going to stop eating chocolate, and that just doesn't happen.

Speaker Change: Yes, it is a good topic.

Speaker Change: It's it's a little frightening what's happened in the cocoa market.

Speaker Change: And it's just amazing that.

Speaker Change: The demand.

Speaker Change: <unk> for chocolate chocolate desserts.

Speaker Change: It's still very very high.

Speaker Change: I think we do offer a plethora of choices for customers.

Speaker Change: Very many types of different different chocolate and it's something that I look at on a weekly basis. The concerns were Oh My God people are going to stop eating chocolate and that just hasn't happened. So.

Christopher Pappas: People are, you know, there is a little switching, you know, in-brand, something a little bit more affordable, but they continue, our customer base continues to enjoy producing the desserts, and the demand is still there.

Speaker Change: People are.

Speaker Change: There is a little switching in brand something a little bit more affordable Budd.

Speaker Change: They continue to our customer base continues to.

Speaker Change: To enjoy.

Speaker Change: Producing the desserts and the demand is still there.

Speaker Change: Got it very helpful.

Benjamin David Klieve: Got it. Very helpful. All right. I appreciate you guys taking my questions. I'll get back in queue.

Speaker Change: Alright, I appreciate you guys, taking my questions I'll get back in queue.

Speaker Change: Thanks Ben.

Operator: The next question comes from Todd Brooks with Benchmark Capital. Please proceed.

Speaker Change: The next question comes from Todd Brooks with benchmark capital. Please proceed.

Speaker Change: Hey, good morning, Thanks for taking my questions.

Todd Brooks: Hey, good morning. Thanks for taking my questions. First question, Chris. You talked about touching base with a bunch of your customers in advance of the call. I'm just wondering, we're going into a bit of the celebratory season here, Mother's Day, Father's Day, graduation, and then we obviously roll into the strongest window for, or one of the strongest windows for, events across the summer. What are you hearing about those two slices of the market and business from your customers?

Todd Brooks: First question, Chris you talked about touching base with a bunch of a bunch of your customers in advance of the call I am just wondering going into the payer the celebratory season here mother's day father's day graduation, and then.

Todd Brooks: We obviously roll into the strongest window for one of the stronger windows for events across the summer.

Christopher Pappas: Yeah, I think that part is, um, is, is... unchanged from what I'm hearing that, you know, events were booked, and events are happening. Obviously, we're coming out of nothing happening in COVID, so we kind of expected that. You know, Vegas sounds very strong. Again, the EU sounds very strong. I think of lots of weddings, lots of christenings, bar mitzvahs, and graduations. So I think the catering side is pretty strong. We don't hear anything that, you know, would cause us to think any different at this point.

Todd Brooks: Are you hearing about those two slices of the market and the business from your customers.

Christopher Pappas: Yeah, I think that part is.

Speaker Change: <unk> is unchanged.

Speaker Change: Unchanged of what I'm hearing.

Speaker Change: Hearing that.

Speaker Change: Events were booked events are happening.

Christopher Pappas: Obviously, we're coming out of.

Christopher Pappas: Nothing happening in Covid.

Christopher Pappas: No.

Speaker Change: We've kind of expected that.

Christopher Pappas: Vegas sounds very strong again in the EU sounds very strong.

Speaker Change: I think lots of weddings lots of Chris things, Brian Mitts Foods graduations.

Speaker Change: So.

Speaker Change: I think I think the catering side is is pretty strong.

Speaker Change: No.

Speaker Change: We don't hear anything.

Speaker Change: What causes that.

Christopher Pappas: Any different at this point.

Christopher Pappas: Great.

Todd Brooks: Great. Second question.

Christopher Pappas: Question.

Todd Brooks: I know, um... We don't want a crystal ball too much on inflation, but in just listening to the restaurant companies, it seems like inflation's firmed up maybe a little bit more than they expected going into the year. I know, Jim, you shared the 2.7% inflation for the first quarter. How are you thinking about maybe benchmarks around the inflationary environment as you're looking at Q2 and then maybe the second half of this year?

Speaker Change: I know.

Todd Brooks: We don't want a crystal ball too much on inflation.

Todd Brooks: Listening to the restaurant companies it seems like completions firmed up maybe a little bit more.

Todd Brooks: And the expected going into the <unk>.

Christopher Pappas: Going into the year I know, Jim you shared the two 7% inflation for the first quarter.

Todd Brooks: Are you thinking about maybe brackets around the deflationary environment as Youre looking Q2, and then maybe second half of this year.

Todd Brooks: Are you saying this deeply?

Christopher Pappas: Are you seeing deflationary environment.

Todd Brooks: Inflation. Inflation. Yeah. Yeah.

Todd Brooks: Intellect.

Todd Brooks: Deflation yes.

Todd Brooks: Yes, well protein really caused.

Christopher Pappas: Well, protein really caused, you know, from last year, caused, you know, over a point difference. I think our specialty, you know, fresh specialty business was only about a point and a half of inflation. So we've really seen that moderate.

Christopher Pappas: From last year cause over a point different I think are our specialty fresh specialty business was only about a point and a half.

Christopher Pappas: Of inflation, so we've really seen that moderate.

Christopher Pappas: It's really the labor factor I don't think the cost of labor is going to go down so.

Christopher Pappas: It's really, you know, the labor factor. I don't think the cost of labor is going to go down. So I think it's pretty embedded now in everybody's forecast that you're going to have continued high labor costs. So we were worried about deflation for a while. That's why I said you're asking about deflation or inflation, but we don't see, you know; there's always something in the world.

Christopher Pappas: I think it's I think it's pretty pretty embedded now in everybody's.

Christopher Pappas: <unk> forecast that youre going to Youre going to have that continued high labor cost.

Christopher Pappas: So we were worried about deflation for a while and that's why I said are you asking about deflation or inflation, but we don't see theres always something in the world I mean, obviously we have.

Christopher Pappas: I mean, obviously, we have wars going on and, you know, we watch the cost of freight and what's happening to transport, the cost of fuel. But we don't see anything really that would make us think that, you know, something drastic is going to happen to the cost of goods and, you know, either way, deflation or inflation at this point.

Christopher Pappas: What is going on.

Christopher Pappas: We watch the whats the cost of freight and what's happening to to transport the cost of fuel.

Christopher Pappas: But we don't see anything really that would.

Christopher Pappas: Make us think that.

Christopher Pappas: Something drastic is going to happen.

Christopher Pappas: And the cost of goods.

Christopher Pappas: Either way deflation or inflation at this point.

Speaker Change: Okay, great. Thanks, and one final one.

Christopher Pappas: Turning to the plate pound was very strong in the quarter up in that 6% range.

Todd Brooks: Great, thanks. And one final one. The center of the plate pounds very strongly in the quarter up in that, I guess. What's the complexion of that? Are you seeing? And Ikari.

Ikari: Yes, what's the complexion of that are you seeing.

Todd Brooks: Was it actually a switch back to beef with that.

Todd Brooks: Sequential kind of stabilization that you saw or is it other proteins that are driving that growth just any color you can give us there.

Ikari: Yes, I mean, we continue to see demand across the board.

Christopher Pappas: Yeah, I mean, we continue to see demand across the board. You know, I thought when the gluten-free craze started, we wouldn't sell any pasta. We sell lots of pasta. We sell a lot of vegetables, too, but we sell a tremendous amount of steak and what we think is the best hamburger in the market. We sell a tremendous amount of chicken, so we're not seeing anything really change in the demand that we saw over the past few years, you know, the trends.

Christopher Pappas: I thought with the gluten free craze started we wouldn't sell any parts that we sell lots of pasta.

Christopher Pappas: <unk>.

Christopher Pappas: We sell a lot of vegetables, too, but we sell a tremendous amount of stake.

Christopher Pappas: What we think is the best Hamburger in the market.

Christopher Pappas: We saw a tremendous amount of chicken. So we're not we're not seeing anything really.

Christopher Pappas: Change in.

Christopher Pappas: In.

Christopher Pappas: The demand that.

Christopher Pappas: We saw over the past few years.

Christopher Pappas: Trends so.

Christopher Pappas: <unk>.

Christopher Pappas: I think it's kind of spread out; there's a lot of diversity on the menus, and people like choices. We were talking about this the other day, you know, do we think menus are going to shrink? Many, many neighborhood restaurants, I mean, they're serving the same customers week in, week out. They have to continue to be creative, and they have to continue to give people a reason to come back. And I think that's what independent restaurants do really well. They're constantly creative, and they're constantly making it more interesting for their patrons to keep coming back, so I think that trend will continue.

Christopher Pappas: I think it's kind of spread out this big diversity and menus and people like choices, we've been talking about this the other day.

Christopher Pappas: Do we think menus are going to shrink or.

Christopher Pappas: Yes.

Christopher Pappas: Many many neighborhood restaurants, I mean, they are serving the same customers weekend week out they have to continue to be creative and they have to continue to give people a reason to come back. Obviously, there is the house favorites, but everybody like something a little bit and I think thats, what independent restaurants, do really well there.

Christopher Pappas: Really creative and they're constantly making it more interesting for for their patronage to to keep coming back. So I think that trend continues.

Todd Brooks: Okay, great. Thanks, Chris.

Chris: Okay, great. Thanks, Chris.

Chris: Thanks Todd.

Christopher Pappas: Thank you. At this time, I would like to turn the call back to management for closing comments.

Speaker Change: Thank you at this time I would like to turn the call back to management for closing comments.

Speaker Change: Well, we thank everybody for joining our call today.

Christopher Pappas: Well, we thank everybody for joining our call today. Chefs' Warehouse's team is hard at work, and I think their success is well-earned, and we're hoping for a great next quarter, and we look forward to everybody joining our call again. Thank you very much.

Christopher Pappas: <unk> warehouses team.

Christopher Pappas: <unk> team is hard at work in there.

Christopher Pappas: <unk>.

Christopher Pappas: Their success is well earned in.

Christopher Pappas: We're hoping for a great.

Christopher Pappas: Great next quarter, and we look forward to everybody to join our call again, Thank you very much.

Speaker Change: Thank you. This does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a great day.

Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.