SEC Filing | The Chefs' Warehouse, Inc.

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chef-20230630

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


☐			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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01	CHEF	The 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 filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging 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

THE CHEFS’ WAREHOUSE, INC.

FORM 10-Q

Table of Contents

Page

PART I. FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (unaudited):

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Operations and Comprehensive Income

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Condensed Consolidated Statements of Cash Flows

Notes to Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Item 4.

Controls and Procedures

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibits

Signatures

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.

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, net	291,917		245,693

Prepaid expenses and other current assets	60,735		56,200
Total current assets	713,619		720,860

Property and equipment, net	205,535		185,728
Operating lease right-of-use assets	182,215		156,629
Goodwill	348,951		287,120
Intangible assets, net	195,785		155,703

Other assets	4,884		3,256
Total assets	$	1,650,989	$	1,509,296
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	198,087	$	163,397
Accrued liabilities	71,739		54,325
Short-term operating lease liabilities	23,104		19,428
Accrued compensation	28,486		34,167
Current portion of long-term debt	12,017		12,428
Total current liabilities	333,433		283,745
Long-term debt, net of current portion	709,073		653,504
Operating lease liabilities	175,142		151,406
Deferred taxes, net	7,294		6,098

Other liabilities and deferred credits	3,072		13,034
Total liabilities	1,228,014		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 capital	347,861		337,947
Accumulated other comprehensive loss	(1,911)		(2,185)
Retained earnings	76,629		65,361
Total stockholders’ equity	422,975		401,509
Total liabilities and stockholders’ equity	$	1,650,989	$	1,509,296

See accompanying notes to the condensed consolidated financial statements

THE CHEFS’ WAREHOUSE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

(Amounts in thousands, except share and per share amounts)


	Thirteen Weeks Ended				Twenty-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 sales	673,376		492,100		1,223,313		886,690
Gross profit	208,444		156,004		378,152		273,517
Selling, general and administrative expenses	179,042		124,487		335,179		234,573
Other operating expenses, net	4,062		3,883		5,734		5,046
Operating income	25,340		27,634		37,239		33,898
Interest expense	12,006		4,465		22,012		8,830

Income before income taxes	13,334		23,169		15,227		25,068
Provision for income tax expense	3,467		6,254		3,959		6,768
Net income	$	9,867	$	16,915	$	11,268	$	18,300
Other comprehensive income:
Foreign currency translation adjustments	193		(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:
Basic	37,634,127		37,100,968		37,570,595		37,018,044
Diluted	45,604,297		42,053,453		38,201,408		41,896,379

See accompanying notes to the condensed consolidated financial statements

THE CHEFS’ WAREHOUSE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(Amounts in thousands, except share amounts)


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total
	Shares	Amount
Balance December 30, 2022	38,599,390	$	386	$	337,947	$	(2,185)	$	65,361	$	401,509

Net income	—	—		—		—		1,401		1,401
Stock compensation	998,777	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, 2023	39,544,131	$	395	$	340,899	$	(2,104)	$	66,762	$	405,952

Net income	—	—		—		—		9,867		9,867
Stock compensation	53,543	—		4,704		—		—		4,704


Shares issued for acquisitions	75,008	1		2,495		—		—		2,496

Cumulative translation adjustment	—	—		—		193		—		193
Shares surrendered to pay tax withholding	(6,991)	—		(237)		—		—		(237)
Balance June 30, 2023	39,665,691	$	396	$	347,861	$	(1,911)	$	76,629	$	422,975


Balance December 24, 2021	37,887,675	$	380	$	314,242	$	(2,022)	$	37,611	$	350,211

Net income	—	—		—		—		1,385		1,385
Stock compensation	433,115	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, 2022	38,256,461	$	383	$	316,943	$	(1,897)	$	38,996	$	354,425

Net income	—	—		—		—		16,915		16,915
Stock compensation	16,131	—		2,939		—		—		2,939




Cumulative translation adjustment	—	—		—		(74)		—		(74)
Shares surrendered to pay tax withholding	(15,137)	—		(518)		—		—		(518)
Balance June 24, 2022	38,257,455	$	383	$	319,364	$	(1,971)	$	55,911	$	373,687

See accompanying notes to the condensed consolidated financial statements

THE CHEFS’ WAREHOUSE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)


	Twenty-Six Weeks Ended
	June 30, 2023		June 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 amortization	15,682		11,755
Amortization of intangible assets	10,456		6,819
Provision for allowance for doubtful accounts	3,311		1,817
Non-cash operating lease expense	1,812		1,076
Provision for deferred income taxes	990		5,004
Amortization of deferred financing fees	1,813		1,009

Stock compensation	10,581		5,982
Change in fair value of contingent earn-out liabilities	1,092		3,628
Intangible asset impairment	1,838		—
Loss on asset disposal	22		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 compensation	453		19,733

Other assets and liabilities	(796)		(237)
Net cash provided by operating activities	10,783		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 facility	50,000		—


Net cash provided by (used in) financing activities	32,995		(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 period	158,800		115,155
Cash and cash equivalents-end of period	$	59,592	$	51,806

See accompanying notes to the condensed consolidated financial statements

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

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 Ended								Twenty-Six Weeks Ended
	June 30, 2023				June 24, 2022				June 30, 2023				June 24, 2022
Center-of-the-Plate	$	336,459	38.2	%	$	284,286	43.9	%	$	642,764	40.1	%	$	523,062	45.1	%
Dry Goods	162,653		18.4	%	91,852		14.2	%	284,168		17.7	%	160,648		13.8	%
Pastry	122,240		13.9	%	67,408		10.4	%	211,239		13.2	%	117,803		10.2	%
Cheese and Charcuterie	75,892		8.6	%	52,778		8.1	%	130,020		8.1	%	91,166		7.9	%
Produce	65,994		7.5	%	72,889		11.2	%	127,827		8.0	%	130,043		11.2	%
Dairy and Eggs	60,372		6.8	%	36,735		5.7	%	105,985		6.6	%	63,686		5.5	%
Oils and Vinegars	37,539		4.3	%	27,842		4.3	%	64,137		4.0	%	48,867		4.2	%
Kitchen Supplies	20,671		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 Ended				Twenty-Six Weeks Ended
	June 30, 2023		June 24, 2022		June 30, 2023		June 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:
Basic	37,634,127		37,100,968		37,570,595		37,018,044
Diluted	45,604,297		42,053,453		38,201,408		41,896,379

Reconciliation of net income per common share:


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	June 30, 2023		June 24, 2022		June 30, 2023		June 24, 2022
Numerator:
Net income	$	9,867	$	16,915	$	11,268	$	18,300
Add effect of dilutive securities
Interest on convertible notes, net of tax	1,397		719		—		1,365
Net income available to common shareholders	$	11,264	$	17,634	$	11,268	$	19,665
Denominator:
Weighted average basic common shares outstanding	37,634,127		37,100,968		37,570,595		37,018,044
Dilutive effect of unvested common shares	521,102		263,071		564,119		296,538
Dilutive effect of stock options and warrants	56,251		73,381		66,694		56,817
Dilutive effect of convertible notes	7,392,817		4,616,033		—		4,524,980
Weighted average diluted common shares outstanding	45,604,297		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 Ended		Twenty-Six Weeks Ended
	June 30, 2023	June 24, 2022	June 30, 2023	June 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 value	5,835

Cash payments	(4,250)
Changes in fair value	1,092
Balance June 30, 2023	$	19,971

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, 2023				December 30, 2022
	Fair Value Hierarchy	Carrying Value		Fair Value		Carrying Value		Fair Value
2028 Convertible Senior Notes	Level 1	$	287,500	$	302,338	$	287,500	$	292,531
2024 Convertible Senior Notes	Level 3	$	39,684	$	41,070	$	41,684	$	43,723
GreenLeaf Note	Level 2	$	10,000	$	9,706	$	—	$	—
Convertible Unsecured Note	Level 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

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 Ended		Twenty-Six Weeks Ended
	June 30, 2023			June 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 Ended				Twenty-Six Weeks Ended
	June 30, 2023		June 24, 2022		June 30, 2023		June 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

The table below sets forth the total assets acquired and liabilities assumed:


	Chef Middle East		Hardie’s Fresh Foods		GreenLeaf		Other Acquisitions
Current assets	$	84,076	$	27,479	$	16,068	$	9,783
Customer relationships	25,800		13,800		27,760		4,276
Trademarks	11,400		3,600		2,900		—
Non-compete agreements	320		—		—		—
Goodwill	24,548		7,990		46,055		5,891
Fixed assets	16,953		5,582		2,477		497
Other assets	859		854		104		—
Deferred tax liability	(3,600)		—		—		(241)
Right-of-use assets	5,321		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 Lives	June 30, 2023		December 30, 2022
Land	Indefinite	$	5,542	$	5,542
Buildings	20 years	40,704		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 fixtures	7 years	3,883		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.

The components of depreciation and amortization expense were as follows:


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	June 30, 2023		June 24, 2022		June 30, 2023		June 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
Acquisitions	59,936
Foreign currency translation	36
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, 2023	Weighted-Average Remaining Amortization Period	Gross Carrying Amount		Accumulated Amortization		Net Amount
Customer relationships	111 months	$	249,628	$	(93,433)	$	156,195

Trademarks	148 months	57,655		(18,484)		39,171
Non-compete agreements	21 months	8,899		(8,480)		419
Total		$	316,182	$	(120,397)	$	195,785


December 30, 2022	Weighted-Average Remaining Amortization Period	Gross Carrying Amount		Accumulated Amortization		Net Amount
Customer relationships	117 months	$	205,608	$	(85,447)	$	120,161
Trademarks	165 months	51,137		(16,201)		34,936
Non-compete agreements	25 months	8,899		(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.

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
2024	21,428
2025	21,130
2026	21,017
2027	20,449
Thereafter	100,821
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		Maturity	June 30, 2023		December 30, 2022
Senior secured term loans	10.61	%	August 2029	$	297,750	$	299,250
2028 Convertible senior notes	2.77	%	December 2028	287,500		287,500
2024 Convertible senior notes	2.34	%	December 2024	39,684		41,684
Asset-based loan facility	6.80	%	March 2027	90,000		40,000

Finance leases and other financing obligations	5.38	%	Various	24,528		13,548
Convertible unsecured note	—	%	June 2023	—		4,000


Unamortized deferred costs and premium				(18,372)		(20,050)
Total debt obligations				721,090		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
2024	47,684
2025	8,000
2026	3,000
2027	93,000
Thereafter	571,750
Total	$	724,934

The net carry value of the Company’s convertible notes as of June 30, 2023 and December 30, 2022 was:


	June 30, 2023						December 30, 2022
	Principal Amount		Unamortized Deferred Costs and Premium		Net Amount		Principal Amount		Unamortized Deferred Costs and Premium		Net Amount
2028 Convertible Senior Notes	$	287,500	$	(6,303)	$	281,197	$	287,500	$	(6,876)	$	280,624
2024 Convertible Senior Notes	39,684		(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 Ended				Twenty-Six Weeks Ended
	June 30, 2023		June 24, 2022		June 30, 2023		June 24, 2022
Coupon interest	$	1,893	$	938	$	3,792	$	1,875
Amortization of deferred costs and premium	333		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-based			Performance-based			Market-based
	Shares	Weighted Average Grant Date Fair Value		Shares	Weighted Average Grant Date Fair Value		Shares	Weighted Average Grant Date Fair Value




Unvested at December 30, 2022	464,972	$	31.74	335,425	$	32.25	333,114	$	30.30
Granted	224,634	32.71		742,744	33.17		87,942	28.84
Vested	(208,936)	31.76		—	—		—	—
Forfeited	(3,000)	34.48		—	—		—	—
Unvested at June 30, 2023	477,670	$	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.

The following table summarizes stock option activity during the twenty-six weeks ended June 30, 2023:


	Shares	Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Term (in years)




Outstanding December 30, 2022	112,232	$	20.23	$	1,465	3.2

Exercised	—	—

Outstanding June 30, 2023	112,232	$	20.23	$	1,743	2.7
Exercisable at June 30, 2023	112,232	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, 2023		June 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

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.

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 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.

RESULTS OF OPERATIONS


	Thirteen Weeks Ended				Twenty-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 sales	673,376		492,100		1,223,313		886,690
Gross profit	208,444		156,004		378,152		273,517
Selling, general and administrative expenses	179,042		124,487		335,179		234,573
Other operating expenses, net	4,062		3,883		5,734		5,046
Operating income	25,340		27,634		37,239		33,898


Interest expense	12,006		4,465		22,012		8,830
Income before income taxes	13,334		23,169		15,227		25,068
Provision for income tax expense	3,467		6,254		3,959		6,768
Net income	$	9,867	$	16,915	$	11,268	$	18,300

Management evaluates the results of operations and cash flows using a variety of key performance indicators, including net sales compared to prior periods and internal forecasts, costs of our products and results of our cost-control initiatives, and use of operating cash. These indicators are discussed throughout the “Results of Operations” and “Liquidity and Capital Resources” sections of this MD&A.