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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 September 29, 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 November 1, 2023: 39,665,229
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)
September 29, 2023 December 30, 2022
ASSETS  
Current assets:  
Cash and cash equivalents$33,058 $158,800 
Accounts receivable, net of allowance of $24,792 in 2023 and $20,733 in 2022
316,138 260,167 
Inventories, net312,222 245,693 
Prepaid expenses and other current assets60,199 56,200 
Total current assets721,617 720,860 
Property and equipment, net208,927 185,728 
Operating lease right-of-use assets177,092 156,629 
Goodwill344,526 287,120 
Intangible assets, net199,618 155,703 
Other assets6,262 3,256 
Total assets$1,658,042 $1,509,296 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable$209,299 $163,397 
Accrued liabilities75,437 54,325 
Short-term operating lease liabilities22,765 19,428 
Accrued compensation30,747 34,167 
Current portion of long-term debt11,970 12,428 
Total current liabilities350,218 283,745 
Long-term debt, net of current portion689,207 653,504 
Operating lease liabilities171,207 151,406 
Deferred taxes, net9,317 6,098 
Other liabilities and deferred credits3,311 13,034 
Total liabilities1,223,260 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 September 29, 2023 and December 30, 2022
  
Common Stock - $0.01 par value, 100,000,000 shares authorized, 39,667,165 and 38,599,390 shares issued and outstanding at September 29, 2023 and December 30, 2022, respectively
397 386 
Additional paid-in capital352,576 337,947 
Accumulated other comprehensive loss(2,142)(2,185)
Retained earnings83,951 65,361 
Total stockholders’ equity434,782 401,509 
Total liabilities and stockholders’ equity$1,658,042 $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 EndedThirty-Nine Weeks Ended
September 29,
2023
September 23,
2022
September 29,
2023
September 23,
2022
Net sales$881,825 $661,856 $2,483,290 $1,822,063 
Cost of sales674,127 504,068 1,897,440 1,390,758 
Gross profit207,698 157,788 585,850 431,305 
Selling, general and administrative expenses179,614 130,255 514,793 364,828 
Other operating expenses, net2,535 5,458 8,269 10,504 
Operating income25,549 22,075 62,788 55,973 
Interest expense11,379 10,737 33,391 19,567 
Income before income taxes14,170 11,338 29,397 36,406 
Provision for income tax expense6,848 3,061 10,807 9,829 
Net income$7,322 $8,277 $18,590 $26,577 
Other comprehensive (loss) income:  
Foreign currency translation adjustments(231)(156)43 (105)
Comprehensive income$7,091 $8,121 $18,633 $26,472 
Net income per share:   
Basic$0.19 $0.22 $0.49 $0.72 
Diluted$0.19 $0.21 $0.49 $0.68 
Weighted average common shares outstanding:  
Basic37,692,588 37,120,926 37,611,179 37,047,653 
Diluted45,717,496 42,044,053 39,143,774 41,942,676 
 
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 
Net income— — — — 7,322 7,322 
Stock compensation936 1 4,729 — — 4,730 
Exercise of stock options2,705 — 55 — — 55 
Cumulative translation adjustment— — — (231)— (231)
Shares surrendered to pay tax withholding(2,167)— (69)— — (69)
Balance September 29, 202339,667,165 $397 $352,576 $(2,142)$83,951 $434,782 

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 
Net income— — — — 8,277 8,277 
Stock compensation9,986 — 3,099 — — 3,099 
Exercise of stock options3,407 — 69 — — 69 
Cumulative translation adjustment— — — (156)— (156)
Shares surrendered to pay tax withholding(741)— (27)— — (27)
Balance September 23, 202238,270,107 $383 $322,505 $(2,127)$64,188 $384,949 

See accompanying notes to the condensed consolidated financial statements
6


THE CHEFS’ WAREHOUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Thirty-Nine Weeks Ended
September 29, 2023September 23, 2022
Cash flows from operating activities:  
Net income $18,590 $26,577 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization24,167 17,667 
Amortization of intangible assets16,924 10,289 
Provision for allowance for doubtful accounts5,216 3,138 
Non-cash operating lease expense2,663 1,329 
Provision for deferred income taxes3,018 7,121 
Amortization of deferred financing fees3,421 1,621 
Loss on debt extinguishment 142 
Stock compensation15,855 9,081 
Change in fair value of contingent earn-out liabilities2,850 8,358 
Intangible asset impairment1,838  
(Gain) loss on asset disposal(44)17 
Changes in assets and liabilities, net of acquisitions:  
Accounts receivable(27,387)(25,402)
Inventories(56,350)(40,519)
Prepaid expenses and other current assets(3,460)(9,848)
Accounts payable, accrued liabilities and accrued compensation18,740 21,938 
Other assets and liabilities(5,996)238 
Net cash provided by operating activities20,045 31,747 
Cash flows from investing activities:  
Capital expenditures(35,130)(31,666)
Cash paid for acquisitions, net of cash acquired(120,600)(62,007)
Net cash used in investing activities(155,730)(93,673)
Cash flows from financing activities:  
Payment of debt, finance lease and other financing obligations(33,444)(171,434)
Proceeds from debt issuance 300,000 
Payment of deferred financing fees(354)(11,258)
Proceeds from exercise of stock options55 69 
Surrender of shares to pay withholding taxes(2,134)(2,584)
Cash paid for contingent earn-out liability(3,650)(2,538)
Borrowings under asset-based loan facility50,000  
Payments under asset-based loan facility  (20,000)
Net cash provided by financing activities10,473 92,255 
Effect of foreign currency on cash and cash equivalents(530)(59)
Net change in cash and cash equivalents(125,742)30,270 
Cash and cash equivalents-beginning of period158,800 115,155 
Cash and cash equivalents-end of period$33,058 $145,425 

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 thirty-nine weeks ended September 29, 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 for 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
8


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 EndedThirty-Nine Weeks Ended
September 29, 2023September 23, 2022September 29, 2023September 23, 2022
Center-of-the-Plate$333,809 37.9 %$280,272 42.3 %$980,120 39.5 %$803,334 44.1 %
Specialty:
Dry Goods134,398 15.2 %97,323 14.7 %395,723 15.9 %257,971 14.2 %
Pastry102,562 11.6 %71,145 10.7 %300,814 12.1 %188,948 10.4 %
Cheese and Charcuterie64,639 7.3 %54,989 8.3 %185,303 7.5 %146,155 8.0 %
Produce137,760 15.6 %74,379 11.2 %310,313 12.5 %204,422 11.2 %
Dairy and Eggs56,849 6.4 %38,719 5.9 %163,600 6.6 %102,405 5.6 %
Oils and Vinegars34,097 3.9 %29,778 4.5 %96,607 3.9 %78,645 4.3 %
Kitchen Supplies17,711 2.1 %15,251 2.4 %50,810 2.0 %40,183 2.2 %
Total Specialty$548,016 62.1 %$381,584 57.7 %$1,503,170 60.5 %$1,018,729 55.9 %
Total net sales$881,825 100 %$661,856 100 %$2,483,290 100 %$1,822,063 100 %

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. Net sales by product category includes estimates of product mix for certain locations that are not yet fully integrated into the Company’s information technology systems as of the reporting date. The table above includes the correction of an immaterial error to revise the Specialty principal product category revenue for the thirteen weeks ended September 23, 2022 and the thirty-nine weeks ended September 23, 2022 related to its Capital Seaboard acquisition. Total Specialty revenue was not impacted but aggregate revenue of $35,077 and $100,009 was adjusted from other Specialty product categories to Produce for the thirteen weeks ended September 23, 2022 and the thirty-nine weeks ended September 23, 2022, respectively.

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 $19,081 and $10,089 for the thirteen weeks ended September 29, 2023 and September 23, 2022, respectively, and $47,370 and $28,523 for the thirty-nine weeks ended September 29, 2023 and September 23, 2022, respectively.

Immaterial Correction of Prior Period Errors and Disclosures

During the third quarter of fiscal 2023, immaterial errors were identified in the calculation of the provision for income tax expense (benefit) for fiscal 2022, 2021 and 2020. The Company recorded an out of period adjustment of $2,135 to the provision for income tax expense during the thirteen and thirty-nine weeks ended September 29, 2023. The impact of these errors on prior periods would be to increase the provision for income tax expense by $1,308 for fiscal 2022 and to reduce the provision for income tax benefit by $719 and $108 for fiscal 2021 and 2020, respectively.

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.

9



Note 3 – Net Income per Share
 
The following table sets forth the computation of basic and diluted net income per common share:
 Thirteen Weeks EndedThirty-Nine Weeks Ended
 September 29, 2023September 23, 2022September 29, 2023September 23, 2022
Net income per share:   
Basic$0.19 $0.22 $0.49 $0.72 
Diluted$0.19 $0.21 $0.49 $0.68 
Weighted average common shares:   
Basic37,692,588 37,120,926 37,611,179 37,047,653 
Diluted45,717,496 42,044,053 39,143,774 41,942,676 

Reconciliation of net income per common share:
 Thirteen Weeks EndedThirty-Nine Weeks Ended
 September 29, 2023September 23, 2022September 29, 2023September 23, 2022
Numerator:   
Net income$7,322 $8,277 $18,590 $26,577 
Add effect of dilutive securities   
Interest on convertible notes, net of tax1,369 683 403 2,048 
Net income available to common shareholders$8,691 $8,960 $18,993 $28,625 
Denominator:   
Weighted average basic common shares outstanding37,692,588 37,120,926 37,611,179 37,047,653 
Dilutive effect of unvested common shares594,416 316,358 580,675 304,391 
Dilutive effect of stock options and warrants37,675 81,789 54,073 65,652 
Dilutive effect of convertible notes7,392,817 4,524,980 897,847 4,524,980 
Weighted average diluted common shares outstanding45,717,496 42,044,053 39,143,774 41,942,676 
 
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 EndedThirty-Nine Weeks Ended
 September 29, 2023September 23, 2022September 29, 2023September 23, 2022
Restricted share awards (“RSAs”)292,778 80,844 37,236 68,784 
Stock options and warrants300,000    
Convertible notes 91,053 6,494,970 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 $1,757 and $10,483 as of September 29, 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
10


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 value5,765 
Cash payments(4,625)
Changes in fair value2,850 
Balance September 29, 2023$21,284 

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 September 29, 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.

 September 29, 2023December 30, 2022
Fair Value HierarchyCarrying ValueFair ValueCarrying ValueFair Value
2028 Convertible Senior NotesLevel 1$287,500 $233,421 $287,500 $292,531 
2024 Convertible Senior NotesLevel 3$39,684 $37,270 $41,684 $43,723 
GreenLeaf NoteLevel 2$10,000 $9,821 $— $— 
Convertible Unsecured NoteLevel 3$— $— $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 September 29, 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
11


workforce. The intangible assets acquired consisted of customer relationships, trademarks and non-compete agreements valued at $38,900, $1,500, and $400 respectively, as of the acquisition date. The customer relationships are being amortized over an average of 7.5 years, the trademarks are being amortized over 5 years and the non-compete agreements are being amortized over 2 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 final purchase price was approximately $42,000, consisting of $38,000 paid in cash at closing, subject to customary net working capital adjustments, and an earn-out liability valued at approximately $4,000 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. The valuation of tangible and intangible assets acquired is incomplete as of September 29, 2023. 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 $14,000 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 thirty-nine weeks ended September 29, 2023, the Company completed three other acquisitions for an aggregate initial purchase price of approximately $17,744, consisting of $12,971 paid in cash at closing, $893 paid upon settlement of a net working capital adjustment, 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 allocations are preliminary and is subject to revision pending the valuations of goodwill and intangible assets acquired. This valuation is incomplete as of September 29, 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 $6,933 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 EndedThirty-Nine Weeks Ended
 September 29, 2023September 29, 2023
Net sales$109,973 $230,376 
Income before income taxes$4,164 $10,528 

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 September 29, 2023. The intangible assets acquired consisted 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.



12


The table below sets forth the total assets acquired and liabilities assumed:
Chef Middle EastHardie’s Fresh FoodsGreenLeafOther Acquisitions
Current assets$84,076 $26,475 $16,069 $9,697 
Customer relationships25,800 14,000 38,900 4,276 
Trademarks11,400 3,600 1,500  
Non-compete agreements320  400  
Goodwill24,548 12,346 36,155 6,933 
Fixed assets16,953 4,986 2,231 434 
Other assets859 146 109  
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)(19,553)(9,240)(3,336)
Other long-term liabilities   (19)
Total $116,515 $42,000 $86,124 $17,744 

The Company recognized professional fees related to acquisition activities of $710 and $728 during the thirteen weeks ended September 29, 2023 and September 23, 2022, respectively, and $3,338 and $1,747 during the thirty-nine weeks ended September 29, 2023 and September 23, 2022, respectively, presented within other operating expenses, net on the condensed consolidated statements of operations.
Unaudited 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. The pro forma information also reflects additional interest expense that would have been incurred by the Company to finance the acquisitions. Pro forma interest expense was estimated based on the prevailing interest rates charged on the Company’s senior secured term loan during fiscal 2022. CME did not have a pro forma impact during the thirteen and thirty-nine weeks ended September 29, 2023 as it was included in the condensed consolidated results of operations for the entire period.
 Thirteen Weeks EndedThirty-Nine Weeks Ended
 September 29, 2023September 23, 2022September 29, 2023September 23, 2022
Net sales$881,825 $800,158 $2,577,474 $2,238,390 
Income before income taxes$14,170 $12,752 $30,479 $45,836 

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 $10,415 and $9,198 at September 29, 2023 and December 30, 2022, respectively.


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Note 7 – Property and Equipment
 
Property and equipment as of September 29, 2023 and December 30, 2022 consisted of the following:
 Useful LivesSeptember 29, 2023December 30, 2022
LandIndefinite$5,542 $5,542 
Buildings20 years40,695 39,893 
Machinery and equipment
5 - 10 years
36,655 32,107 
Computers, data processing and other equipment
3 - 7 years
21,547 18,475 
Software
3 - 7 years
48,814 42,609 
Leasehold improvements
1 - 40 years
129,845 94,245 
Furniture and fixtures7 years4,097 3,825 
Vehicles
5 - 10 years
34,665 31,462 
Construction-in-process 24,050 36,583 
  345,910 304,741 
Less: accumulated depreciation and amortization (136,983)(119,013)
Property and equipment, net $208,927 $185,728 

Construction-in-process at September 29, 2023 related primarily to the build-out of the Company’s Richmond, CA and Miami, FL 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 September 29, 2023 and December 30, 2022 was $11,821 and $11,579, respectively.

The components of depreciation and amortization expense were as follows:
 Thirteen Weeks EndedThirty-Nine Weeks Ended
 September 29, 2023September 23, 2022September 29, 2023September 23, 2022
Depreciation expense$7,017 $4,455 $19,691 $13,255 
Software amortization$1,468 $1,457 $4,476 $4,412 
$8,485 $5,912 $24,167 $17,667 

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)
1,986 
Acquisitions55,434 
Foreign currency translation(14)
Carrying amount as of September 29, 2023$344,526 
(1) The goodwill adjustments represent measurement period adjustments related to certain acquisitions completed in the current and prior year.


14


Other intangible assets as of September 29, 2023 and December 30, 2022 consisted of the following:

September 29, 2023Weighted-Average
Remaining
Amortization Period
Gross Carrying AmountAccumulated AmortizationNet Amount
Customer relationships103 months$260,948 $(98,590)$162,358 
Trademarks148 months56,236 (19,640)36,596 
Non-compete agreements20 months9,299 (8,635)664 
Total$326,483 $(126,865)$199,618 
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 $6,468 and $3,470 for the thirteen weeks ended September 29, 2023 and September 23, 2022, respectively, and $16,924 and $10,289 for the thirty-nine weeks ended September 29, 2023 and September 23, 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$6,289 
202424,939 
202524,400 
202624,204 
202723,635 
Thereafter96,151 
Total$199,618 


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Note 9 – Debt Obligations

Debt obligations as of September 29, 2023 and December 30, 2022 consisted of the following:
Weighted Average Effective Interest Rate at September 29, 2023
MaturitySeptember 29, 2023December 30, 2022
Senior secured term loans10.83 %August 2029$277,000 $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 facility7.25 %March 202790,000 40,000 
Finance leases and other financing obligations5.44 %Various23,779 13,548 
Convertible unsecured note %June 2023 4,000 
Unamortized deferred costs and premium(16,786)(20,050)
Total debt obligations701,177 665,932 
Less: current installments(11,970)(12,428)
Total debt obligations excluding current installments$689,207 $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.

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. The sixth amendment to the ABL was accounted for as a debt modification. The Company incurred transaction costs of $354 which were capitalized as deferred financing fees to be amortized over the term of the ABL, presented in other non-current assets in the Company’s consolidated balance sheet.

On August 31, 2023, the Company made a voluntary prepayment of $20,000 towards the senior secured term loan. In connection with the prepayment the Company wrote off unamortized deferred financing fees of $770 which are included in interest expense within the statement of operations.

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$750 
202447,684 
20258,000 
20263,000 
202793,000 
Thereafter551,750 
Total$704,184 


16


The net carrying value of the Company’s convertible notes as of September 29, 2023 and December 30, 2022 was:

September 29, 2023December 30, 2022
Principal AmountUnamortized Deferred Costs and PremiumNet AmountPrincipal AmountUnamortized Deferred Costs and PremiumNet Amount
2028 Convertible Senior Notes$287,500 $(6,016)$281,484 $287,500 $(6,876)$280,624 
2024 Convertible Senior Notes39,684 (232)39,452 41,684 (373)41,311 
Convertible Unsecured Note   4,000  4,000 
Total$327,184 $(6,248)$320,936 $333,184 $(7,249)$325,935 

The components of interest expense on the Company’s convertible notes were as follows:

 Thirteen Weeks EndedThirty-Nine Weeks Ended
 September 29, 2023September 23, 2022September 29, 2023September 23, 2022
Coupon interest$1,893 $938 $5,685 $2,813 
Amortization of deferred costs and premium333 224 1,001 672 
Total interest$2,226 $1,162 $6,686 $3,485 

As of September 29, 2023, the Company had reserved $27,970 of the asset-based loan facility for the issuance of letters of credit and funds totaling $149,757 were available for borrowing.

Note 10 – Stockholders’ Equity

Equity Awards

The following table reflects the activity of RSAs during the thirty-nine weeks ended September 29, 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 
Granted234,070 32.23 742,744 33.17 87,942 28.84 
Vested(215,726)31.84     
Forfeited(11,500)34.31     
Unvested at September 29, 2023471,816 $31.87 1,078,169 $32.88 421,056 $30.00 

The Company granted 1,064,756 RSAs to its employees at a weighted average grant date fair value of $32.60 during the thirty-nine weeks ended September 29, 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 $4,730 and $3,099 on its RSAs during the thirteen weeks ended September 29, 2023 and September 23, 2022, respectively, and $14,224 and $9,081 during the thirty-nine weeks ended September 29, 2023 and September 23, 2022, respectively.

At September 29, 2023, the total unrecognized compensation cost for unvested RSAs was $30,006 and the weighted-average remaining period was approximately 2.5 years. Of this total, $10,915 related to RSAs with time-based vesting provisions and $19,091 related to RSAs with performance- and market-based vesting provisions. At September 29, 2023, the weighted-average remaining period for time-based vesting and performance-based vesting RSAs were approximately 2.2 years and 2.7 years, respectively.

17


No share-based compensation expense related to the Company’s RSAs or stock options has been capitalized. As of September 29, 2023, there were 1,087,180 shares available for grant under the 2019 Omnibus Equity Incentive Plan.

The following table summarizes stock option activity during the thirty-nine weeks ended September 29, 2023:
SharesWeighted
Average
Exercise Price
Aggregate
Intrinsic
Value
Weighted Average
Remaining Contractual
Term (in years)