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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number: 001-35249
THE CHEFS’ WAREHOUSE, INC.
(Exact name of registrant as specified in its charter)
Delaware 20-3031526
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
100 East Ridge Road
Ridgefield, Connecticut 06877
(Address of principal executive offices)

Registrant’s telephone number, including area code: (203) 894-1345

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01CHEFThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No  
Number of shares of common stock, par value $.01 per share, outstanding at July 31, 2023: 39,665,691
1


THE CHEFS’ WAREHOUSE, INC.
FORM 10-Q
Table of Contents
  Page
PART I. FINANCIAL INFORMATION 
   
Item 1.
   
 
   
 
   
   
 
   
Item 2.
   
Item 3.
   
Item 4.
   
PART II. OTHER INFORMATION 
   
Item 1.
   
Item 1A.
   
Item 2.
   
Item 3.
Defaults Upon Senior Securities
   
Item 4.
   
Item 5.
   
Item 6.
   

 

2


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Statements in this report regarding the business of The Chefs’ Warehouse, Inc. (the “Company”) that are not historical facts are “forward-looking statements” that involve risks and uncertainties and are based on current expectations and management estimates; actual results may differ materially. Words such as “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and/or could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. The risks and uncertainties which could impact these statements include, but are not limited to the following: our sensitivity to general economic conditions, including disposable income levels and changes in consumer discretionary spending; our ability to expand our operations in our existing markets and to penetrate new markets through acquisitions; we may not achieve the benefits expected from our acquisitions, which could adversely impact our business and operating results; we may have difficulty managing and facilitating our future growth; conditions beyond our control could materially affect the cost and/or availability of our specialty food products or center-of-the-plate products and/or interrupt our distribution network; our increased distribution of center-of-the-plate products, like meat, poultry and seafood, involves increased exposure to price volatility experienced by those products; our business is a low-margin business and our profit margins may be sensitive to inflationary and deflationary pressures; because our foodservice distribution operations are concentrated in certain culinary markets, we are susceptible to economic and other developments, including adverse weather conditions, in these areas; fuel cost volatility may have a material adverse effect on our business, financial condition or results of operations; our ability to raise capital in the future may be limited; we may be unable to obtain debt or other financing, including financing necessary to execute on our acquisition strategy, on favorable terms or at all; interest charged on our outstanding debt may be adversely affected by changes in the method of determining the Secured Overnight Financing Rate (“SOFR”); our business operations and future development could be significantly disrupted if we lose key members of our management team; and significant public health epidemics or pandemics, including the COVID-19 pandemic, may adversely affect our business, results of operations and financial condition. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and, as such, speak only as of the date made. A more detailed description of these and other risk factors is contained in the Company’s most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 28, 2023 and other reports, including this Quarterly Report on Form 10-Q, filed by the Company with the SEC since that date. The Company is not undertaking to update any information in the foregoing report until the effective date of its future reports required by applicable laws.


3


PART I FINANCIAL INFORMATION

ITEM 1.            CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE CHEFS’ WAREHOUSE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
(Amounts in thousands, except share data)
June 30, 2023 December 30, 2022
ASSETS  
Current assets:  
Cash and cash equivalents$59,592 $158,800 
Accounts receivable, net of allowance of $23,673 in 2023 and $20,733 in 2022
301,375 260,167 
Inventories, net291,917 245,693 
Prepaid expenses and other current assets60,735 56,200 
Total current assets713,619 720,860 
Property and equipment, net205,535 185,728 
Operating lease right-of-use assets182,215 156,629 
Goodwill348,951 287,120 
Intangible assets, net195,785 155,703 
Other assets4,884 3,256 
Total assets$1,650,989 $1,509,296 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable$198,087 $163,397 
Accrued liabilities71,739 54,325 
Short-term operating lease liabilities23,104 19,428 
Accrued compensation28,486 34,167 
Current portion of long-term debt12,017 12,428 
Total current liabilities333,433 283,745 
Long-term debt, net of current portion709,073 653,504 
Operating lease liabilities175,142 151,406 
Deferred taxes, net7,294 6,098 
Other liabilities and deferred credits3,072 13,034 
Total liabilities1,228,014 1,107,787 
Commitments and contingencies
Stockholders’ equity:  
Preferred Stock - $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding at June 30, 2023 and December 30, 2022
  
Common Stock - $0.01 par value, 100,000,000 shares authorized, 39,665,691 and 38,599,390 shares issued and outstanding at June 30, 2023 and December 30, 2022, respectively
396 386 
Additional paid-in capital347,861 337,947 
Accumulated other comprehensive loss(1,911)(2,185)
Retained earnings76,629 65,361 
Total stockholders’ equity422,975 401,509 
Total liabilities and stockholders’ equity$1,650,989 $1,509,296 

See accompanying notes to the condensed consolidated financial statements
4


THE CHEFS’ WAREHOUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
(Amounts in thousands, except share and per share amounts)
Thirteen Weeks EndedTwenty-Six Weeks Ended
June 30,
2023
June 24,
2022
June 30,
2023
June 24,
2022
Net sales$881,820 $648,104 $1,601,465 $1,160,207 
Cost of sales673,376 492,100 1,223,313 886,690 
Gross profit208,444 156,004 378,152 273,517 
Selling, general and administrative expenses179,042 124,487 335,179 234,573 
Other operating expenses, net4,062 3,883 5,734 5,046 
Operating income25,340 27,634 37,239 33,898 
Interest expense12,006 4,465 22,012 8,830 
Income before income taxes13,334 23,169 15,227 25,068 
Provision for income tax expense3,467 6,254 3,959 6,768 
Net income$9,867 $16,915 $11,268 $18,300 
Other comprehensive income:  
Foreign currency translation adjustments193 (74)274 51 
Comprehensive income$10,060 $16,841 $11,542 $18,351 
Net income per share:   
Basic$0.26 $0.46 $0.30 $0.49 
Diluted$0.25 $0.42 $0.29 $0.47 
Weighted average common shares outstanding:  
Basic37,634,127 37,100,968 37,570,595 37,018,044 
Diluted45,604,297 42,053,453 38,201,408 41,896,379 
 
See accompanying notes to the condensed consolidated financial statements
5


THE CHEFS’ WAREHOUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
(Amounts in thousands, except share amounts)
 Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
Total
 SharesAmount
Balance December 30, 202238,599,390 $386 $337,947 $(2,185)$65,361 $401,509 
Net income— — — — 1,401 1,401 
Stock compensation998,777 10 4,780 — — 4,790 
Cumulative translation adjustment— — — 81 — 81 
Shares surrendered to pay tax withholding(54,036)(1)(1,828)— — (1,829)
Balance March 31, 202339,544,131 $395 $340,899 $(2,104)$66,762 $405,952 
Net income— — — — 9,867 9,867 
Stock compensation53,543 — 4,704 — — 4,704 
Shares issued for acquisitions75,008 1 2,495 — — 2,496 
Cumulative translation adjustment— — — 193 — 193 
Shares surrendered to pay tax withholding(6,991)— (237)— — (237)
Balance June 30, 202339,665,691 $396 $347,861 $(1,911)$76,629 $422,975 

Balance December 24, 202137,887,675 $380 $314,242 $(2,022)$37,611 $350,211 
Net income— — — — 1,385 1,385 
Stock compensation433,115 4 3,039 — — 3,043 
Warrants issued for acquisitions— — 1,701 — — 1,701 
Cumulative translation adjustment— — — 125 — 125 
Shares surrendered to pay tax withholding(64,329)(1)(2,039)— — (2,040)
Balance March 25, 202238,256,461 $383 $316,943 $(1,897)$38,996 $354,425 
Net income— — — — 16,915 16,915 
Stock compensation16,131 — 2,939 — — 2,939 
Cumulative translation adjustment— — — (74)— (74)
Shares surrendered to pay tax withholding(15,137)— (518)— — (518)
Balance June 24, 202238,257,455 $383 $319,364 $(1,971)$55,911 $373,687 

See accompanying notes to the condensed consolidated financial statements
6


THE CHEFS’ WAREHOUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Twenty-Six Weeks Ended
June 30, 2023June 24, 2022
Cash flows from operating activities:  
Net income $11,268 $18,300 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization15,682 11,755 
Amortization of intangible assets10,456 6,819 
Provision for allowance for doubtful accounts3,311 1,817 
Non-cash operating lease expense1,812 1,076 
Provision for deferred income taxes990 5,004 
Amortization of deferred financing fees1,813 1,009 
Stock compensation10,581 5,982 
Change in fair value of contingent earn-out liabilities1,092 3,628 
Intangible asset impairment1,838  
Loss on asset disposal22 17 
Changes in assets and liabilities, net of acquisitions:  
Accounts receivable(9,854)(24,659)
Inventories(35,450)(30,569)
Prepaid expenses and other current assets(2,435)106 
Accounts payable, accrued liabilities and accrued compensation453 19,733 
Other assets and liabilities(796)(237)
Net cash provided by operating activities10,783 19,781 
Cash flows from investing activities:  
Capital expenditures(23,155)(23,490)
Cash paid for acquisitions, net of cash acquired(119,580)(52,007)
Net cash used in investing activities(142,735)(75,497)
Cash flows from financing activities:  
Payment of debt, finance lease and other financing obligations(11,680)(2,769)
Payment of deferred financing fees (406)
Surrender of shares to pay withholding taxes(2,115)(2,558)
Cash paid for contingent earn-out liability(3,210)(2,000)
Borrowings under asset-based loan facility50,000  
Net cash provided by (used in) financing activities32,995 (7,733)
Effect of foreign currency on cash and cash equivalents(251)100 
Net change in cash and cash equivalents(99,208)(63,349)
Cash and cash equivalents-beginning of period158,800 115,155 
Cash and cash equivalents-end of period$59,592 $51,806 

See accompanying notes to the condensed consolidated financial statements
7


THE CHEFS’ WAREHOUSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share amounts)

Note 1 - Operations and Basis of Presentation
 
Description of Business and Basis of Presentation
 
The financial statements include the condensed consolidated accounts of The Chefs’ Warehouse, Inc. (the “Company”), and its wholly-owned subsidiaries. The Company’s quarterly periods end on the thirteenth Friday of each quarter. Every six to seven years, the Company will add a fourteenth week to its fourth quarter to more closely align its year-end to the calendar year. Fiscal 2022 contained a fourteenth week in the fourth quarter. The Company’s business consists of three operating segments: East, Midwest and West that aggregate into one reportable segment, foodservice distribution, which is concentrated primarily in the United States. The Company’s customer base consists primarily of menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools, bakeries, patisseries, chocolateries, cruise lines, casinos, specialty food stores, grocers and warehouse clubs.

Consolidation

The unaudited condensed consolidated financial statements include all the accounts of the Company and its direct and indirect wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Unaudited Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements and the related interim information contained within the notes to such unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the applicable rules of the Securities and Exchange Commission (“SEC”) for interim information and quarterly reports on Form 10-Q. Accordingly, they do not include all the information and disclosures required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements and related notes should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended December 30, 2022 filed as part of the Company’s Annual Report on Form 10-K, as filed with the SEC on February 28, 2023.

The unaudited condensed consolidated financial statements appearing in this Form 10-Q have been prepared on the same basis as the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K, as filed with the SEC on February 28, 2023, and in the opinion of management, include all normal recurring adjustments that are necessary for the fair statement of the Company’s interim period results. The year-end consolidated balance sheet data was derived from the audited financial statements but does not include all disclosures required by GAAP. Due to seasonal fluctuations and other factors, the results of operations for the thirteen and twenty-six weeks ended June 30, 2023 are not necessarily indicative of the results to be expected for the full year.

The preparation of financial statements in conformity with GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from management’s estimates.

Note 2 – Summary of Significant Accounting Policies

Revenue Recognition
 
Revenues from product sales are recognized at the point at which control of each product is transferred to the customer. The Company’s contracts contain performance obligations which are satisfied when customers have physical possession of each product. The majority of customer orders are fulfilled within a day and customer payment terms are typically 14 to 60 days from delivery. Shipping and handling activities are costs to fulfill the Company’s performance obligations. These costs are expensed as incurred and presented within selling, general and administrative expenses on the condensed consolidated statements of operations. The Company offers certain sales incentives to customers in the form of rebates or discounts. These sales incentives are accounted as variable consideration. The Company estimates these amounts based on the expected amount to be provided to customers and records a corresponding reduction in revenue. The Company does not expect a significant
8


reversal in the amount of cumulative revenue recognized. Sales tax billed to customers is not included in revenue but rather recorded as a liability owed to the respective taxing authorities at the time the sale is recognized.

The following table presents the Company’s net sales disaggregated by principal product category:
Thirteen Weeks EndedTwenty-Six Weeks Ended
June 30, 2023June 24, 2022June 30, 2023June 24, 2022
Center-of-the-Plate$336,459 38.2 %$284,286 43.9 %$642,764 40.1 %$523,062 45.1 %
Dry Goods162,653 18.4 %91,852 14.2 %284,168 17.7 %160,648 13.8 %
Pastry122,240 13.9 %67,408 10.4 %211,239 13.2 %117,803 10.2 %
Cheese and Charcuterie75,892 8.6 %52,778 8.1 %130,020 8.1 %91,166 7.9 %
Produce65,994 7.5 %72,889 11.2 %127,827 8.0 %130,043 11.2 %
Dairy and Eggs60,372 6.8 %36,735 5.7 %105,985 6.6 %63,686 5.5 %
Oils and Vinegars37,539 4.3 %27,842 4.3 %64,137 4.0 %48,867 4.2 %
Kitchen Supplies20,671 2.3 %14,314 2.2 %35,325 2.3 %24,932 2.1 %
Total$881,820 100 %$648,104 100 %$1,601,465 100 %$1,160,207 100 %

The Company determines its product category classification based on how the Company currently markets its products to its customers. The Company’s definition of its principal product categories may differ from the way in which other companies present similar information.

Food Processing Costs

Food processing costs include but are not limited to direct labor and benefits, applicable overhead and depreciation of equipment and facilities used in food processing activities. Food processing costs included in cost of sales were $16,615 and $9,398 for the thirteen weeks ended June 30, 2023 and June 24, 2022, respectively, and $28,289 and $18,434 for the twenty-six weeks ended June 30, 2023 and June 24, 2022, respectively.

Immaterial Correction of Prior Period Disclosures

During the first quarter of fiscal 2023 and subsequent to the issuance of the fiscal year 2022 consolidated financial statements, immaterial errors were identified in the weighted average remaining amortization period of intangible assets, the intangible asset amortization schedule and the debt maturity schedule. The weighted average remaining amortization period for customer relationships, non-compete agreements and trademarks were previously disclosed as 232 months, 73 months and 250 months instead of 117 months, 25 months and 165 months, respectively. This had a corresponding immaterial impact on the intangible asset amortization schedule.

In addition, the debt maturity schedule previously included the $40,000 due upon maturity of the asset-based loan facility in the thereafter total instead of in the 2027 total. Further, the Company omitted that the asset-based loan facility and term loan are classified as Level 2 within the fair value hierarchy. These immaterial errors and omissions have been corrected in Note 4 “Fair Value Measurements”, Note 8 “Goodwill and Other Intangible Assets” and Note 9 “Debt Obligations”, within these condensed consolidated financial statements.

Note 3 – Net Income per Share
 
The following table sets forth the computation of basic and diluted net income per common share:
 Thirteen Weeks EndedTwenty-Six Weeks Ended
 June 30, 2023June 24, 2022June 30, 2023June 24, 2022
Net income per share:   
Basic$0.26 $0.46 $0.30 $0.49 
Diluted$0.25 $0.42 $0.29 $0.47 
Weighted average common shares:   
Basic37,634,127 37,100,968 37,570,595 37,018,044 
Diluted45,604,297 42,053,453 38,201,408 41,896,379 
9


Reconciliation of net income per common share:
 Thirteen Weeks EndedTwenty-Six Weeks Ended
 June 30, 2023June 24, 2022June 30, 2023June 24, 2022
Numerator:   
Net income$9,867 $16,915 $11,268 $18,300 
Add effect of dilutive securities   
Interest on convertible notes, net of tax1,397 719  1,365 
Net income available to common shareholders$11,264 $17,634 $11,268 $19,665 
Denominator:   
Weighted average basic common shares outstanding37,634,127 37,100,968 37,570,595 37,018,044 
Dilutive effect of unvested common shares521,102 263,071 564,119 296,538 
Dilutive effect of stock options and warrants56,251 73,381 66,694 56,817 
Dilutive effect of convertible notes7,392,817 4,616,033  4,524,980 
Weighted average diluted common shares outstanding45,604,297 42,053,453 38,201,408 41,896,379 
 
Potentially dilutive securities that have been excluded from the calculation of diluted net income per common share because the effect is anti-dilutive are as follows:
 Thirteen Weeks EndedTwenty-Six Weeks Ended
 June 30, 2023June 24, 2022June 30, 2023June 24, 2022
Restricted share awards (“RSAs”)46,746 106,571 29,717 83,001 
Convertible notes  7,392,817 91,053 

Note 4 – Fair Value Measurements
 
Assets and Liabilities Measured at Fair Value
 
The Company’s contingent earn-out liabilities are measured at fair value. These liabilities were estimated using Level 3 inputs. Long-term earn-out liabilities were $928 and $10,483 as of June 30, 2023 and December 30, 2022, respectively, and are reflected as other liabilities and deferred credits on the condensed consolidated balance sheets. The remaining short-term earn-out liabilities are reflected as accrued liabilities on the condensed consolidated balance sheets. The fair value of contingent consideration was determined based on a probability-based approach which includes projected results, percentage probability of occurrence and the application of a discount rate to present value the payments. A significant change in projected results, discount rate, or probabilities of occurrence could result in a significantly higher or lower fair value measurement. Changes in the fair value of contingent earn-out liabilities are reflected in other operating expenses, net on the condensed consolidated statements of operations.

The following table presents the changes in Level 3 contingent earn-out liabilities:
Total
Balance December 30, 2022$17,294 
Acquisition value5,835 
Cash payments(4,250)
Changes in fair value1,092 
Balance June 30, 2023$19,971 



10


Fair Value of Financial Instruments

The carrying amounts reported in the Company’s condensed consolidated balance sheets for accounts receivable and accounts payable approximate fair value due to the immediate to short-term nature of these financial instruments. The fair values of the asset-based loan facility and term loan approximated their book values as of June 30, 2023 and December 30, 2022 as these instruments had variable interest rates that reflected current market rates available to the Company and are classified as Level 2 fair value measurements.

The following table presents the carrying value and fair value of the Company’s convertible notes and GreenLeaf Note. The fair value of the Company’s 2028 Convertible Senior Notes was based on Level 1 inputs. In estimating the fair value of its 2024 Convertible Senior Notes and Convertible Unsecured Note, the Company utilized Level 3 inputs including prevailing market interest rates to estimate the debt portion of the instrument and a Black Scholes valuation model to estimate the fair value of the conversion option. The Black Scholes model utilizes the market price of the Company’s common stock, estimates of the stock’s volatility and the prevailing risk-free interest rate in calculating the fair value estimate. The fair value of the GreenLeaf Note was determined based upon observable market prices of similar debt instruments. The Convertible Unsecured Note matured on June 29, 2023 and was repaid in full.

 June 30, 2023December 30, 2022
Fair Value HierarchyCarrying ValueFair ValueCarrying ValueFair Value
2028 Convertible Senior NotesLevel 1$287,500 $302,338 $287,500 $292,531 
2024 Convertible Senior NotesLevel 3$39,684 $41,070 $41,684 $43,723 
GreenLeaf NoteLevel 2$10,000 $9,706 $— $— 
Convertible Unsecured NoteLevel 3$ $ $4,000 $4,345 
 
Note 5 – Acquisitions
 
GreenLeaf

On May 1, 2023, the Company entered into a stock purchase agreement to acquire substantially all of the equity interests of Oakville Produce Partners, LLC (“GreenLeaf”), a leading produce and specialty food distributor in Northern California. The final purchase price was $86,124 consisting of $72,157 paid in cash at closing, $1,471 paid upon settlement of a net working capital true-up, the issuance of a $10,000 unsecured note and 75,008 shares of the Company’s common stock with an approximate value of $2,496 based on the trading price of the Company’s common stock on the date of acquisition. The acquisition was partially funded by a $40,000 incremental draw on the Company’s asset-based loan facility. The Company’s purchase price allocation is preliminary and is subject to revision pending the valuation of goodwill and intangible assets acquired. This valuation is incomplete as of June 30, 2023 as the Company is currently in the process of completing its assessment of valuation inputs and assumptions. When applicable, these valuations require the use of Level 3 inputs. All goodwill for the GreenLeaf acquisition will be amortized over 15 years for tax purposes. The goodwill recorded primarily reflects the value of acquiring an established specialty produce distributor to leverage the Company’s existing products in the markets served by GreenLeaf and any intangible assets that do not qualify for separate recognition, including assembled workforce. The intangible assets acquired consisted of customer relationships and trademarks valued at $27,760 and $2,900, respectively, as of the acquisition date. The customer relationships and trademarks are being amortized over 10 years.

Hardie’s Fresh Foods

On March 20, 2023, pursuant to an asset purchase agreement, the Company acquired substantially all of the assets of Hardie’s F&V, LLC (“Hardie’s Fresh Foods”), a specialty produce distributor with operations in Texas. The initial purchase price was approximately $42,070, consisting of $38,000 paid in cash at closing, subject to customary net working capital adjustments, and an earn-out liability valued at approximately $4,070 as of the acquisition date. If earned, the earn-out liability could total up to $10,000 over a two-year period. The payment of the earn-out liability is subject to the successful achievement of certain EBITDA targets. The Company’s purchase price allocation is preliminary and is subject to revision pending the valuation of goodwill and intangible assets acquired. This valuation is incomplete as of June 30, 2023 as the Company is currently in the process of completing its assessment of valuation inputs and assumptions as well as opening working capital. When applicable, these valuations require the use of Level 3 inputs. All goodwill for the Hardie’s Fresh Foods acquisition will be amortized over 15 years for tax purposes. The goodwill recorded primarily reflects the value of acquiring an established specialty produce distributor to leverage the Company’s existing products in the markets served by Hardie’s Fresh Foods and any intangible
11


assets that do not qualify for separate recognition, including assembled workforce. The intangible assets acquired consisted of customer relationships and trademarks valued at $13,800 and $3,600, respectively, as of the acquisition date. The customer relationships and trademarks are being amortized over 10 years, and 5 years, respectively.

Other Fiscal 2023 Acquisitions

During the twenty-six weeks ended June 30, 2023, the Company completed three other acquisitions for an aggregate initial purchase price of approximately $16,851, consisting of $12,971 paid in cash at closing, subject to customary working capital adjustments, earn-out liabilities valued at approximately of $1,665 as of the dates of acquisition, and $2,215 of deferred payments. If earned, these earn-out liabilities could total up to $2,562 in the aggregate. The Company’s aggregate purchase price allocation is preliminary and is subject to revision pending the valuations of goodwill and intangible assets acquired. This valuation is incomplete as of June 30, 2023 as the Company is currently in the process of completing its assessment of valuation inputs and assumptions as well as opening working capital. When applicable, these valuations require the use of Level 3 inputs. All goodwill of $5,891 will be amortized over 15 years for tax purposes. The intangible assets acquired consisted of customer relationships valued at $4,276 as of the acquisition dates. The customer relationships are being amortized over 10 years.

The Company reflected net sales and income before income taxes in its condensed consolidated statement of operations related to the fiscal 2023 acquisitions as follows:
 Thirteen Weeks EndedTwenty-Six Weeks Ended
 June 30, 2023June 30, 2023
Net sales$100,181 $120,403 
Income before income taxes$4,428 $6,188 

Chef Middle East

On November 1, 2022, pursuant to a share sale and purchase agreement, the Company acquired substantially all of the shares of Chef Middle East LLC (“CME”), a specialty food distributor with operations in the United Arab Emirates, Qatar and Oman. The final purchase price was approximately $116,515, consisting of $108,749 paid in cash at closing, $166 paid upon settlement of a net working capital true-up, and an earn-out liability valued at $7,600 as of the date of acquisition. If earned, the earn-out liability could total up to $10,000 over a two-year period. The measurement period adjustments recorded through the second quarter of fiscal 2023 resulted in a goodwill increase of $735, a decrease in inventories of $735, an increase in the earn-out liability of $100, an increase in accrued liabilities of $313, a decrease in other assets of $82, and a decrease in deferred tax liabilities of $35. The valuation of tangible and intangible assets acquired has been completed as of June 30, 2023. The intangible assets acquired consists of customer relationships, trademarks, and non-compete agreements valued at $25,800, $11,400, and $320, respectively, as of the acquisition date. The customer relationships, trademarks, and non-compete agreements are being amortized over 10, 15, and 3 years, respectively.

Pro forma Financial Information

The table below presents unaudited pro forma condensed consolidated income statement information of the Company as if the GreenLeaf and Hardie’s Fresh Foods acquisitions had occurred on December 25, 2021, and the CME acquisition had occurred on December 26, 2020. The pro forma results were prepared from financial information obtained from the sellers of the business, as well as information obtained during the due diligence process associated with the acquisitions. The pro forma information is not necessarily indicative of the Company’s results of operations had the acquisitions been completed on the above date, nor is it necessarily indicative of the Company’s future results. The pro forma information does not reflect any cost savings from operating efficiencies or synergies that could result from the acquisitions, any incremental costs for transitioning to become a public company, and also does not reflect additional revenue opportunities following the acquisitions. The pro forma information reflects amortization and depreciation of the acquisitions at their respective fair value. CME did not have a pro forma impact during the thirteen and twenty-six weeks ended June 30, 2023 as it was included in the condensed consolidated results of operations for the entire period.
 Thirteen Weeks EndedTwenty-Six Weeks Ended
 June 30, 2023June 24, 2022June 30, 2023June 24, 2022
Net sales$892,161 $788,182 $1,695,649 $1,435,104 
Income before income taxes$13,617 $28,513 $16,752 $39,144 

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The table below sets forth the total assets acquired and liabilities assumed:
Chef Middle EastHardie’s Fresh FoodsGreenLeafOther Acquisitions
Current assets$84,076 $27,479 $16,068 $9,783 
Customer relationships25,800 13,800 27,760 4,276 
Trademarks11,400 3,600 2,900  
Non-compete agreements320    
Goodwill24,548 7,990 46,055 5,891 
Fixed assets16,953 5,582 2,477 497 
Other assets859 854 104  
Deferred tax liability(3,600)  (241)
Right-of-use assets5,321 13,303 2,026 3,258 
Lease liabilities(5,321)(13,303)(2,026)(3,258)
Current liabilities(43,841)(17,235)(9,240)(3,336)
Other long-term liabilities   (19)
Total $116,515 $42,070 $86,124 $16,851 

The Company recognized professional fees related to acquisition activities of $1,385 and $1,019 during the thirteen weeks ended June 30, 2023 and June 24, 2022, respectively, and $2,628 and $1,862 during the twenty-six weeks ended June 30, 2023 and June 24, 2022, respectively, presented within other operating expenses, net on the condensed consolidated statements of operations.

Note 6 – Inventories
 
Inventories consist primarily of finished product and are reflected net of adjustments for shrinkage, excess and obsolescence to approximate their net realizable value totaling $10,187 and $9,198 at June 30, 2023 and December 30, 2022, respectively.

Note 7 – Property and Equipment
 
Property and equipment as of June 30, 2023 and December 30, 2022 consisted of the following:
 Useful LivesJune 30, 2023December 30, 2022
LandIndefinite$5,542 $5,542 
Buildings20 years40,704 39,893 
Machinery and equipment
5 - 10 years
34,722 32,107 
Computers, data processing and other equipment
3 - 7 years
20,326 18,475 
Software
3 - 7 years
48,544 42,609 
Leasehold improvements
1 - 40 years
124,386 94,245 
Furniture and fixtures7 years3,883 3,825 
Vehicles
5 - 10 years
34,810 31,462 
Construction-in-process 21,987 36,583 
  334,904 304,741 
Less: accumulated depreciation and amortization (129,369)(119,013)
Property and equipment, net $205,535 $185,728 

Construction-in-process at June 30, 2023 related primarily to the build-out of the Company’s Richmond, CA and Gibbstown, NJ distribution facilities and at December 30, 2022 related primarily to the build-out of the Company’s Miami, Dallas and Richmond, CA distribution facilities and the implementation of the Company’s Enterprise Resource Planning system. The net book value of equipment financed under finance leases at June 30, 2023 and December 30, 2022 was $12,572 and $11,579, respectively.



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The components of depreciation and amortization expense were as follows:
 Thirteen Weeks EndedTwenty-Six Weeks Ended
 June 30, 2023June 24, 2022June 30, 2023June 24, 2022
Depreciation expense$7,132 $4,385 $12,674 $8,800 
Software amortization$1,539 $1,481 $3,008 $2,955 
$8,671 $5,866 $15,682 $11,755 

Note 8 – Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill are presented as follows:
Carrying amount as of December 30, 2022$287,120 
Goodwill adjustments (1)
1,859 
Acquisitions59,936 
Foreign currency translation36 
Carrying amount as of June 30, 2023$348,951 
(1) The goodwill adjustments represent measurement period adjustments related to certain acquisitions completed in the prior year.

Other intangible assets as of June 30, 2023 and December 30, 2022 consisted of the following:

June 30, 2023Weighted-Average
Remaining
Amortization Period
Gross Carrying AmountAccumulated AmortizationNet Amount
Customer relationships111 months$249,628 $(93,433)$156,195 
Trademarks148 months57,655 (18,484)39,171 
Non-compete agreements21 months8,899 (8,480)419 
Total$316,182 $(120,397)$195,785 
December 30, 2022Weighted-Average
Remaining
Amortization Period
Gross Carrying AmountAccumulated AmortizationNet Amount
Customer relationships117 months$205,608 $(85,447)$120,161 
Trademarks165 months51,137 (16,201)34,936 
Non-compete agreements25 months8,899 (8,293)606 
Total$265,644 $(109,941)$155,703 

Amortization expense for other intangibles was $5,759 and $3,463 for the thirteen weeks ended June 30, 2023 and June 24, 2022, respectively, and $10,456 and $6,819 for the twenty-six weeks ended June 30, 2023 and June 24, 2022, respectively.

The Company recognized a customer relationships intangible asset impairment charge of $1,838 related to the loss of a significant Hardie’s Fresh Foods customer post acquisition. The Company’s valuation of the Hardie’s Fresh Foods’ customer list intangible asset as of the acquisition date, a Level 3 measurement, was based on an income approach using the excess earnings method which requires significant assumptions including future sales forecasts and a discount rate. The impairment charge was measured by reducing its assumption of future sales for the significant customer lost post-acquisition to zero.The impairment charge is presented within other operating expenses, net on the condensed consolidated statements of operations.


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Estimated amortization expense for other intangible assets for the remainder of the fiscal year ending December 29, 2023 and each of the next four fiscal years and thereafter is as follows:
2023$10,940 
202421,428 
202521,130 
202621,017 
202720,449 
Thereafter100,821 
Total$195,785 

Note 9 – Debt Obligations

Debt obligations as of June 30, 2023 and December 30, 2022 consisted of the following:
Weighted Average Effective Interest Rate at June 30, 2023
MaturityJune 30, 2023December 30, 2022
Senior secured term loans10.61 %August 2029$297,750 $299,250 
2028 Convertible senior notes2.77 %December 2028287,500 287,500 
2024 Convertible senior notes2.34 %December 202439,684 41,684 
Asset-based loan facility6.80 %March 202790,000 40,000 
Finance leases and other financing obligations5.38 %Various24,528 13,548 
Convertible unsecured note %June 2023 4,000 
Unamortized deferred costs and premium(18,372)(20,050)
Total debt obligations721,090 665,932 
Less: current installments(12,017)(12,428)
Total debt obligations excluding current installments$709,073 $653,504 

In connection with the GreenLeaf acquisition, the Company issued a $10,000 unsecured note bearing interest of 4.47%. The principal on the unsecured note is due in two equal installments on April 30, 2024 and 2025 and is presented under the caption “Finance leases and other financing obligations” in the table above. The convertible unsecured note matured on June 29, 2023 and was repaid in full, including all accrued interest, for $4,049 in cash.

Maturities of the Company’s debt, excluding finance leases, for the remainder of the fiscal year ending December 29, 2023 and each of the next four fiscal years and thereafter is as follows:
2023$1,500 
202447,684 
20258,000 
20263,000 
202793,000 
Thereafter571,750 
Total$724,934 


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The net carry value of the Company’s convertible notes as of June 30, 2023 and December 30, 2022 was:
June 30, 2023December 30, 2022
Principal AmountUnamortized Deferred Costs and PremiumNet AmountPrincipal AmountUnamortized Deferred Costs and PremiumNet Amount
2028 Convertible Senior Notes$287,500 $(6,303)$281,197 $287,500 $(6,876)$280,624 
2024 Convertible Senior Notes39,684 (278)39,406 41,684 (373)41,311 
Convertible Unsecured Note   4,000  4,000 
Total$327,184 $(6,581)$320,603 $333,184 $(7,249)$325,935 

The components of interest expense on the Company’s convertible notes were as follows:
 Thirteen Weeks EndedTwenty-Six Weeks Ended
 June 30, 2023June 24, 2022June 30, 2023June 24, 2022
Coupon interest$1,893 $938 $3,792 $1,875 
Amortization of deferred costs and premium333 224 668 448 
Total interest$2,226 $1,162 $4,460 $2,323 

As of June 30, 2023, the Company had reserved $24,170 of the asset-based loan facility for the issuance of letters of credit and funds totaling $85,830 were available for borrowing.

Note 10 – Stockholders’ Equity

Equity Awards

The following table reflects the activity of RSAs during the twenty-six weeks ended June 30, 2023:
Time-basedPerformance-basedMarket-based
SharesWeighted Average
Grant Date Fair Value
SharesWeighted Average
Grant Date Fair Value
SharesWeighted Average
Grant Date Fair Value
Unvested at December 30, 2022464,972 $31.74 335,425 $32.25 333,114 $30.30 
Granted224,634 32.71 742,744 33.17 87,942 28.84 
Vested(208,936)31.76     
Forfeited(3,000)34.48     
Unvested at June 30, 2023477,670 $32.17 1,078,169 $32.88 421,056 $30.00 

The Company granted 1,055,320 RSAs to its employees at a weighted average grant date fair value of $32.71 during the twenty-six weeks ended June 30, 2023. These awards are a mix of time-, market- and performance-based grants that generally vest over a range of periods up to five years. The Company recognized expense totaling $4,704 and $2,939 on its RSAs during the thirteen weeks ended June 30, 2023 and June 24, 2022, respectively, and $9,494 and $5,982 during the twenty-six weeks ended June 30, 2023 and June 24, 2022, respectively.

At June 30, 2023, the total unrecognized compensation cost for unvested RSAs was $34,735 and the weighted-average remaining period was approximately 1.3 years. Of this total, $12,783 related to RSAs with time-based vesting provisions and $21,952 related to RSAs with performance- and market-based vesting provisions. At June 30, 2023, the weighted-average remaining period for time-based vesting and performance-based vesting RSAs were approximately 2.2 years and 0.7 years, respectively.

No share-based compensation expense related to the Company’s RSAs or stock options has been capitalized. As of June 30, 2023, there were 1,088,116 shares available for grant under the 2019 Omnibus Equity Incentive Plan.

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The following table summarizes stock option activity during the twenty-six weeks ended June 30, 2023:
SharesWeighted
Average
Exercise Price
Aggregate
Intrinsic
Value
Weighted Average
Remaining Contractual
Term (in years)
Outstanding December 30, 2022112,232 $20.23 $1,465 3.2
Exercised  
Outstanding June 30, 2023112,232 $20.23 $1,743 2.7
Exercisable at June 30, 2023112,232 20.23 $1,743 2.7

In connection with the CME acquisition, the Company issued stock awards to certain members of the CME management team
which were classified as liabilities. These awards vest over a period of up to 4 years. Stock-based compensation expense for
these awards was $544 and $0 during the thirteen weeks ended June 30, 2023 and June 24, 2022, respectively, and $1,087 and $0 during the twenty-six weeks ended June 30, 2023 and June 24, 2022, respectively. The fair value of these awards was $1,450 and $362 as of June 30, 2023 and December 30, 2022, respectively, and is presented within Other liabilities and deferred credits on the Company’s condensed consolidated balance sheets.

Note 11 – Related Parties
 
The Chefs’ Warehouse Mid-Atlantic, LLC, a subsidiary of the Company, leases a distribution facility that is 100% owned by entities controlled by Christopher Pappas, the Company’s Chairman, President and Chief Executive Officer, and John Pappas, the Company’s Vice Chairman and one of its directors, and are deemed to be affiliates of these individuals. Expense related to this facility totaled $123 during the thirteen weeks ended June 30, 2023 and June 24, 2022, and $246 during the twenty-six weeks ended June 30, 2023 and June 24, 2022.

Note 12 – Income Taxes

The Company’s effective tax rate was 26.0% and 27.0% for the thirteen weeks and twenty-six weeks-ended June 30, 2023 and June 24, 2022, respectively. The effective tax rate varies from the 21% statutory rate primarily due to state taxes. The lower effective tax rate for the thirteen weeks and twenty-six weeks-ended June 30, 2023 was primarily driven by a greater mix of foreign earnings that are subject to tax rates below the US statutory rate of 21%. The Company’s income tax provision reflects the impact of an expected income tax refund receivable of $21,250 as of June 30, 2023 which is reflected in prepaid expenses and other current assets on the Company’s consolidated balance sheet.

Note 13 – Supplemental Disclosures of Cash Flow Information
Twenty-Six Weeks Ended
June 30, 2023June 24, 2022
Supplemental cash flow disclosures:
Cash paid (received) for income taxes$10,673 $(239)
Cash paid for interest, net of cash received$20,266 $7,718 
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$18,591 $13,837 
Operating cash flows from finance leases$336 $223 
Other non-cash investing and financing activities
ROU assets obtained in exchange for lease liabilities:
Operating leases$42,182 $20,116 
Finance leases$3,684 $411 
Other non-cash investing and financing activities:
Warrants issued for acquisitions$ $1,701 
Common stock issued for acquisitions$2,496 $ 
Unsecured notes issued for acquisitions$10,000 $ 
Contingent earn-out liabilities for acquisitions$5,835 $1,200 

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Note 14 – Subsequent Events

On July 7, 2023 the Company entered into a sixth amendment to the ABL Credit Agreement which increased the aggregate commitments to $300,000, up from $200,000, maturing on March 11, 2027.

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ITEM 2.         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided as a supplement to the accompanying condensed consolidated financial statements and footnotes to help provide an understanding of our financial condition, changes in our financial condition and results of operations. The following discussion should be read in conjunction with information included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 28, 2023. Unless otherwise indicated, the terms “Company”, “Chefs’ Warehouse”, “we”, “us” and “our” refer to The Chefs’ Warehouse, Inc. and its subsidiaries.

Business Overview

We are a premier distributor of specialty foods in the leading culinary markets in the United States and the Middle East. We offer more than 55,000 stock-keeping units (“SKUs”), ranging from high-quality specialty foods and ingredients to basic ingredients and staples and center-of-the-plate proteins. We serve more than 40,000 customer locations, primarily located in our 23 geographic markets across the United States, Middle East and Canada, and the majority of our customers are independent restaurants and fine dining establishments. We also sell certain of our products directly to consumers through our Allen Brothers and “Shop Like a Chef” retail channels.

Recent Acquisitions

On May 1, 2023, the Company entered into a stock purchase agreement to acquire substantially all of the equity interests of Oakville Produce Partners, LLC (“GreenLeaf”), a leading produce and specialty food distributor in Northern California. The final purchase price was $86.1 million consisting of $72.2 million paid in cash at closing, $1.5 million paid upon settlement of a net working capital true-up, the issuance of a $10.0 million unsecured note, and 75,008 shares of the Company’s common stock with an approximate value of $2.5 million.

On March 20, 2023, pursuant to an asset purchase agreement, we acquired substantially all of the assets of Hardie’s F&V, LLC (“Hardie’s Fresh Foods”), a specialty produce distributor with operations in Texas. The initial purchase price was approximately $42.1 million, consisting of $38.0 million paid in cash at closing, subject to customary working capital adjustments, and an earn-out liability valued at approximately $4.1 million as of the acquisition date. If earned, the earn-out liability could total up to $10.0 million over a two-year period.

During the twenty-six weeks ended June 30, 2023 , the Company completed three other acquisitions for an aggregate purchase price of approximately $16.9 million, consisting of $13.0 million paid in cash at closing, subject to customer working capital adjustments, earn-out liabilities valued at approximately of $1.7 million as of the dates of acquisition, and $2.2 million of deferred payments. If earned, the earn-out liabilities could total up to $2.6 million in the aggregate.



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RESULTS OF OPERATIONS
Thirteen Weeks EndedTwenty-Six Weeks Ended
June 30, 2023June 24, 2022June 30, 2023June 24, 2022
Net sales$881,820 $648,104 $1,601,465 $1,160,207 
Cost of sales673,376 492,100 1,223,313 886,690 
Gross profit208,444 156,004 378,152 273,517 
Selling, general and administrative expenses179,042 124,487 335,179 234,573 
Other operating expenses, net4,062 3,883 5,734 5,046 
Operating income25,340 27,634 37,239 33,898 
Interest expense12,006 4,465 22,012 8,830 
Income before income taxes13,334 23,169 15,227 25,068 
Provision for income tax expense3,467 6,254 3,959 6,768 
Net income$9,867 $