CHEFS' WAREHOUSE, INC.
10-Ks and 10-Qs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 24, 2022
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)
|
|
|
|||||||||||||
|
(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
|||||||||||||
(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 | ||||||
|
|
|
|
||||||
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.
|
|
☒ | 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 25, 2022:
38,260,862
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 London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with an alternative rate; 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 22, 2022 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. CONSOLIDATED FINANCIAL STATEMENTS
THE CHEFS’ WAREHOUSE, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
| June 24, 2022 (unaudited) | December 24, 2021 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ |
|
$ |
|
|||||||
|
Accounts receivable, net of allowance of $
|
|
|
|||||||||
| Inventories, net |
|
|
|||||||||
| Prepaid expenses and other current assets |
|
|
|||||||||
| Total current assets |
|
|
|||||||||
| Equipment, leasehold improvements and software, net |
|
|
|||||||||
| Operating lease right-of-use assets |
|
|
|||||||||
| Goodwill |
|
|
|||||||||
| Intangible assets, net |
|
|
|||||||||
| Deferred taxes, net |
|
|
|||||||||
| Other assets |
|
|
|||||||||
| Total assets | $ |
|
$ |
|
|||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ |
|
$ |
|
|||||||
| Accrued liabilities |
|
|
|||||||||
| Short-term operating lease liabilities |
|
|
|||||||||
| Accrued compensation |
|
|
|||||||||
| Current portion of long-term debt |
|
|
|||||||||
| Total current liabilities |
|
|
|||||||||
| Long-term debt, net of current portion |
|
|
|||||||||
| Operating lease liabilities |
|
|
|||||||||
| Other liabilities and deferred credits |
|
|
|||||||||
| Total liabilities |
|
|
|||||||||
| Commitments and contingencies |
|
|
|||||||||
| Stockholders’ equity: | |||||||||||
|
Preferred Stock - $
|
|
|
|||||||||
|
Common Stock - $
|
|
|
|||||||||
| Additional paid-in capital |
|
|
|||||||||
| Accumulated other comprehensive loss |
(
|
(
|
|||||||||
| Retained earnings |
|
|
|||||||||
| Total stockholders’ equity |
|
|
|||||||||
| Total liabilities and stockholders’ equity | $ |
|
$ |
|
|||||||
See accompanying notes to the consolidated financial statements
4
THE CHEFS’ WAREHOUSE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Amounts in thousands, except share and per share amounts)
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||||||||
|
June 24,
2022 |
June 25,
2021 |
June 24,
2022 |
June 25,
2021 |
||||||||||||||||||||
| Net sales | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Cost of sales |
|
|
|
|
|||||||||||||||||||
| Gross profit |
|
|
|
|
|||||||||||||||||||
| Selling, general and administrative expenses |
|
|
|
|
|||||||||||||||||||
| Other operating expenses (income), net |
|
|
|
(
|
|||||||||||||||||||
| Operating income (loss) |
|
|
|
(
|
|||||||||||||||||||
| Interest expense |
|
|
|
|
|||||||||||||||||||
| Income (loss) before income taxes |
|
|
|
(
|
|||||||||||||||||||
| Provision for income tax expense (benefit) |
|
(
|
|
(
|
|||||||||||||||||||
| Net income (loss) | $ |
|
$ |
|
$ |
|
$ |
(
|
|||||||||||||||
| Other comprehensive income: | |||||||||||||||||||||||
| Foreign currency translation adjustments |
(
|
|
|
|
|||||||||||||||||||
| Comprehensive income (loss) | $ |
|
$ |
|
$ |
|
$ |
(
|
|||||||||||||||
| Net income (loss) per share: | |||||||||||||||||||||||
| Basic | $ |
|
$ |
|
$ |
|
$ |
(
|
|||||||||||||||
| Diluted | $ |
|
$ |
|
$ |
|
$ |
(
|
|||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic |
|
|
|
|
|||||||||||||||||||
| Diluted |
|
|
|
|
|||||||||||||||||||
See accompanying notes to the consolidated financial statements.
5
THE CHEFS’ WAREHOUSE, INC.
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 24, 2021 |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
||||||||||||||||||||||||
| Net income | — | — | — | — |
|
|
|||||||||||||||||||||||||||||
| Stock compensation |
|
|
|
— | — |
|
|||||||||||||||||||||||||||||
| Warrants issued for acquisition | — | — |
|
— | — |
|
|||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | — |
|
— |
|
|||||||||||||||||||||||||||||
| Shares surrendered to pay tax withholding |
(
|
(
|
(
|
— | — |
(
|
|||||||||||||||||||||||||||||
| Balance March 25, 2022 |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
||||||||||||||||||||||||
| Net income | — | — | — | — |
|
|
|||||||||||||||||||||||||||||
| Stock compensation |
|
— |
|
— | — |
|
|||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | — |
(
|
— |
(
|
|||||||||||||||||||||||||||||
| Shares surrendered to pay tax withholding |
(
|
— |
(
|
— | — |
(
|
|||||||||||||||||||||||||||||
| Balance June 24, 2022 |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
||||||||||||||||||||||||
| Balance December 25, 2020 |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
||||||||||||||||||||||||
| Net loss | — | — | — | — |
(
|
(
|
|||||||||||||||||||||||||||||
| Stock compensation |
|
|
|
— | — |
|
|||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | — |
|
— |
|
|||||||||||||||||||||||||||||
| Shares surrendered to pay tax withholding |
(
|
— |
(
|
— | — |
(
|
|||||||||||||||||||||||||||||
| Balance March 26, 2021 |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
||||||||||||||||||||||||
| Net income | — | — | — | — |
|
|
|||||||||||||||||||||||||||||
| Stock compensation |
|
|
|
— | — |
|
|||||||||||||||||||||||||||||
| Warrants issued for acquisition | — | — |
|
— | — |
|
|||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | — |
|
— |
|
|||||||||||||||||||||||||||||
| Shares surrendered to pay tax withholding |
(
|
— |
(
|
— | — |
(
|
|||||||||||||||||||||||||||||
| Balance June 25, 2021 |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
||||||||||||||||||||||||
See accompanying notes to the consolidated financial statements.
6
THE CHEFS’ WAREHOUSE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
| Twenty-Six Weeks Ended | |||||||||||
| June 24, 2022 | June 25, 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ |
|
$ |
(
|
|||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation and amortization |
|
|
|||||||||
| Amortization of intangible assets |
|
|
|||||||||
| Benefit for allowance for doubtful accounts |
|
|
|||||||||
| Non-cash operating lease expense |
|
|
|||||||||
| Provision (benefit) for deferred income taxes |
|
(
|
|||||||||
| Amortization of deferred financing fees |
|
|
|||||||||
| Stock compensation |
|
|
|||||||||
| Change in fair value of contingent earn-out liabilities |
|
(
|
|||||||||
| Intangible asset impairment |
|
|
|||||||||
| Loss on asset disposal |
|
|
|||||||||
| Changes in assets and liabilities, net of acquisitions: | |||||||||||
| Accounts receivable |
(
|
(
|
|||||||||
| Inventories |
(
|
(
|
|||||||||
| Prepaid expenses and other current assets |
|
(
|
|||||||||
| Accounts payable, accrued liabilities and accrued compensation |
|
|
|||||||||
| Other assets and liabilities |
(
|
|
|||||||||
| Net cash provided by (used in) operating activities |
|
(
|
|||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures |
(
|
(
|
|||||||||
| Cash paid for acquisitions, net of cash received |
(
|
(
|
|||||||||
| Net cash used in investing activities |
(
|
(
|
|||||||||
| Cash flows from financing activities: | |||||||||||
| Payment of debt, finance lease and other financing obligations |
(
|
(
|
|||||||||
| Proceeds from debt issuance |
|
|
|||||||||
| Payment of deferred financing fees |
(
|
(
|
|||||||||
| Surrender of shares to pay withholding taxes |
(
|
(
|
|||||||||
| Cash paid for contingent earn-out liability |
(
|
(
|
|||||||||
| Payments under asset-based loan facility |
|
(
|
|||||||||
| Net cash used in financing activities |
(
|
(
|
|||||||||
| Effect of foreign currency on cash and cash equivalents |
|
(
|
|||||||||
| Net change in cash and cash equivalents |
(
|
(
|
|||||||||
| Cash and cash equivalents-beginning of period |
|
|
|||||||||
| Cash and cash equivalents-end of period | $ |
|
$ |
|
|||||||
See accompanying notes to the consolidated financial statements.
7
THE CHEFS’ WAREHOUSE, INC.
NOTES TO 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 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. Fiscal 2022 will include a fourteenth week in the fourth 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.
The Company’s business consists of
three
operating segments: East Coast, Midwest and West Coast 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
Unaudited Interim Financial Statements
The accompanying unaudited consolidated financial statements and the related interim information contained within the notes to such unaudited 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 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 24, 2021 filed as part of the Company’s Annual Report on Form 10-K, as filed with the SEC on February 22, 2022.
The unaudited 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 22, 2022, 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, the COVID-19 pandemic and other factors, the results of operations for the thirteen and twenty-six weeks ended June 24, 2022 are not necessarily indicative of the results to be expected for the full year.
8
Note 2 –
Summary of Significant Accounting Policies
Revenue Recognition
The following table presents the Company’s net sales disaggregated by principal product category:
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| June 24, 2022 | June 25, 2021 | June 24, 2022 | June 25, 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| Center-of-the-Plate | $ |
|
|
% | $ |
|
|
% | $ |
|
|
% | $ |
|
|
% | |||||||||||||||||||||||||||||||
| Dry Goods |
|
|
% |
|
|
% |
|
|
% |
|
|
% | |||||||||||||||||||||||||||||||||||
| Pastry |
|
|
% |
|
|
% |
|
|
% |
|
|
% | |||||||||||||||||||||||||||||||||||
| Cheese and Charcuterie |
|
|
% |
|
|
% |
|
|
% |
|
|
% | |||||||||||||||||||||||||||||||||||
| Produce |
|
|
% |
|
|
% |
|
|
% |
|
|
% | |||||||||||||||||||||||||||||||||||
| Dairy and Eggs |
|
|
% |
|
|
% |
|
|
% |
|
|
% | |||||||||||||||||||||||||||||||||||
| Oils and Vinegars |
|
|
% |
|
|
% |
|
|
% |
|
|
% | |||||||||||||||||||||||||||||||||||
| Kitchen Supplies |
|
|
% |
|
|
% |
|
|
% |
|
|
% | |||||||||||||||||||||||||||||||||||
| Total | $ |
|
|
% | $ |
|
|
% | $ |
|
|
% | $ |
|
|
% | |||||||||||||||||||||||||||||||
Food Processing Costs
9
Note 3 –
Net Income (Loss) per Share
The following table sets forth the computation of basic and diluted net income (loss) per common share:
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||||||||
| June 24, 2022 | June 25, 2021 | June 24, 2022 | June 25, 2021 | ||||||||||||||||||||
| Net income (loss) per share: | |||||||||||||||||||||||
| Basic | $ |
|
$ |
|
$ |
|
$ |
(
|
|||||||||||||||
| Diluted | $ |
|
$ |
|
$ |
|
$ |
(
|
|||||||||||||||
| Weighted average common shares: | |||||||||||||||||||||||
| Basic |
|
|
|
|
|||||||||||||||||||
| Diluted |
|
|
|
|
|||||||||||||||||||
Reconciliation of net income (loss) per common share:
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||||||||
| June 24, 2022 | June 25, 2021 | June 24, 2022 | June 25, 2021 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income (loss) | $ |
|
$ |
|
$ |
|
$ |
(
|
|||||||||||||||
| Add effect of dilutive securities | |||||||||||||||||||||||
| Interest on convertible notes, net of tax |
|
|
|
|
|||||||||||||||||||
| Net income (loss) available to common shareholders | $ |
|
$ |
|
$ |
|
$ |
(
|
|||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average basic common shares outstanding |
|
|
|
|
|||||||||||||||||||
| Dilutive effect of unvested common shares |
|
|
|
|
|||||||||||||||||||
| Dilutive effect of stock options and warrants |
|
|
|
|
|||||||||||||||||||
| Dilutive effect of convertible notes |
|
|
|
|
|||||||||||||||||||
| Weighted average diluted common shares outstanding |
|
|
|
|
|||||||||||||||||||
Potentially dilutive securities that have been excluded from the calculation of diluted net income (loss) per common share because the effect is anti-dilutive are as follows:
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||||||||
| June 24, 2022 | June 25, 2021 | June 24, 2022 | June 25, 2021 | ||||||||||||||||||||
| Restricted share awards (“RSAs”) |
|
|
|
|
|||||||||||||||||||
| Stock options and warrants |
|
|
|
|
|||||||||||||||||||
| Convertible notes |
|
|
|
|
|||||||||||||||||||
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 $
2,793
and $
3,252
as of June 24, 2022 and December 24, 2021, respectively, and are reflected as
other liabilities and deferred credits
on the consolidated balance sheets. The remaining short-term earn-out liabilities are reflected as
accrued liabilities
on the 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.
10
Changes in the fair value of contingent earn-out liabilities are reflected in
other operating expenses (income), net
on the consolidated statements of operations.
The following table presents the changes in Level 3 contingent earn-out liabilities:
| Total | ||||||||
| Balance December 24, 2021 | $ |
|
||||||
| Acquisition value |
|
|||||||
| Cash payments |
(
|
|||||||
| Changes in fair value |
|
|||||||
| Balance June 24, 2022 | $ |
|
||||||
Fair Value of Financial Instruments
The following table presents the carrying value and fair value of the Company’s convertible notes. In estimating the fair value of the convertible notes, 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.
| June 24, 2022 | December 24, 2021 | ||||||||||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||
| Convertible Senior Notes | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Convertible Unsecured Note | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
Note 5 –
Acquisitions
During the second quarter of fiscal 2022, the Company completed
two
acquisitions for an aggregate purchase price of approximately $
22,500
, paid in cash, subject to customary working capital adjustments. The Company will also pay additional contingent consideration, if earned, in the form of earn-out amounts which could total $
2,000
in the aggregate. The Company is in the process of finalizing a valuation of the tangible and intangible assets as of the acquisition date. When applicable, these valuations require the use of Level 3 inputs. Goodwill of $
3,947
will be amortized over 15 years for tax purposes.
Capital Seaboard
On December 28, 2021, pursuant to an asset purchase agreement, the Company acquired substantially all of the assets of CGC Holdings, Inc. (“Capital Seaboard”), a specialty seafood and produce distributor in Maryland. The purchase price was approximately $
31,036
, consisting of $
28,000
paid in cash at closing, common stock warrants valued at $
1,701
, and $
1,335
paid upon settlement of a net working capital true-up. The Company is in the process of finalizing a valuation of tangible and intangible assets of Capital Seaboard as of the acquisition date. When applicable, these valuations require the use of Level 3 inputs. Goodwill for the Capital Seaboard acquisition will be amortized over 15 years for tax purposes. The goodwill recorded primarily reflects the value of acquiring an established specialty seafood and produce distributor to leverage the Company’s existing products in the markets served by Capital Seaboard, to supply Capital Seaboard’s product offerings to our East Coast markets and any intangible assets that do not qualify for separate recognition.
The Company reflected net sales and income before taxes in its consolidated statement of operations related to the Capital Seaboard acquisition as follows:
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||
| June 24, 2022 | June 24, 2022 | |||||||||||||
| Net sales | $ |
|
$ |
|
||||||||||
| Income before income taxes | $ |
|
$ |
|
||||||||||
11
The table below presents unaudited pro forma consolidated income statement information of the Company as if the acquisitions 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 values.
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||||||||
| June 24, 2022 | June 25, 2021 | June 24, 2022 | June 25, 2021 | ||||||||||||||||||||
| Net sales | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Income (loss) before income taxes | $ |
|
$ |
|
$ |
|
$ |
(
|
|||||||||||||||
The table below sets forth the preliminary purchase price allocation for these acquisitions:
| Capital Seaboard | Other Acquisitions | |||||||
| Current assets | $ |
|
$ |
|
||||
| Customer relationships |
|
|
||||||
| Trademarks |
|
|
||||||
| Goodwill |
|
|
||||||
| Fixed assets |
|
|
||||||
| Other assets |
|
|
||||||
| Current liabilities |
(
|
(
|
||||||
| Earn-out liability |
|
(
|
||||||
| Issuance of warrants |
(
|
|
||||||
| Total cash consideration | $ |
|
$ |
|
||||
The Company recognized professional fees of $
1,019
in operating expenses related to acquisition related activities in the second quarter of fiscal 2022.
Note 6 –
Inventories
12
Note 7 –
Equipment, Leasehold Improvements and Software
Equipment, leasehold improvements and software as of June 24, 2022 and December 24, 2021 consisted of the following:
| Useful Lives | June 24, 2022 | December 24, 2021 | ||||||||||||||||||
| Land | Indefinite | $ |
|
$ |
|
|||||||||||||||
| Buildings |
|
|
|
|||||||||||||||||
| Machinery and equipment |
|
|
|
|||||||||||||||||
| Computers, data processing and other equipment |
|
|
|
|||||||||||||||||
| Software |
|
|
|
|||||||||||||||||
| Leasehold improvements |
|
|
|
|||||||||||||||||
| Furniture and fixtures |
|
|
|
|||||||||||||||||
| Vehicles |
|
|
|
|||||||||||||||||
| Construction-in-process |
|
|
||||||||||||||||||
|
|
|
|||||||||||||||||||
| Less: accumulated depreciation and amortization |
(
|
(
|
||||||||||||||||||
| Equipment, leasehold improvements and software, net | $ |
|
$ |
|
||||||||||||||||
Construction-in-process at June 24, 2022 related primarily to the implementation of the Company’s Enterprise Resource Planning (“ERP”) system and the build-out of the Company’s Miami distribution facility and at December 24, 2021 related primarily to the build-outs of the Company’s Miami and Los Angeles distribution facilities. The net book value of equipment financed under finance leases at June 24, 2022 and December 24, 2021 was $
9,774
and $
10,874
, respectively.
The components of depreciation and amortization expense were as follows:
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||||||||
| June 24, 2022 | June 25, 2021 | June 24, 2022 | June 25, 2021 | ||||||||||||||||||||
| Depreciation expense | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Software amortization | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||
Note 8 –
Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill are presented as follows:
| Carrying amount as of December 24, 2021 | $ |
|
|||
|
Goodwill adjustments
(1)
|
(
|
||||
| Acquisitions |
|
||||
| Foreign currency translation |
(
|
||||
| Carrying amount as of June 24, 2022 | $ |
|
|||
Other intangible assets as of June 24, 2022 and December 24, 2021 consisted of the following:
| June 24, 2022 |
Weighted-Average
Remaining Amortization Period |
Gross Carrying Amount | Accumulated Amortization | Net Amount | ||||||||||||||||||||||
| Customer relationships |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Non-compete agreements |
|
|
(
|
|
||||||||||||||||||||||
| Trademarks |
|
|
(
|
|
||||||||||||||||||||||
| Total | $ |
|
$ |
(
|
$ |
|
||||||||||||||||||||
13
| December 24, 2021 |
Weighted-Average
Remaining Amortization Period |
Gross Carrying Amount | Accumulated Amortization | Net Amount | ||||||||||||||||||||||
| Customer relationships |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Non-compete agreements |
|
|
(
|
|
||||||||||||||||||||||
| Trademarks |
|
|
(
|
|
||||||||||||||||||||||
| Total | $ |
|
$ |
(
|
$ |
|
||||||||||||||||||||
Amortization expense for other intangibles was $
3,463
and $
3,104
for the thirteen weeks ended June 24, 2022 and June 25, 2021, respectively, and $
6,819
and $
6,643
for the twenty-six weeks ended June 24, 2022 and June 25, 2021, respectively.
Estimated amortization expense for other intangible assets for the remainder of the fiscal year ending December 30, 2022 and each of the next four fiscal years and thereafter is as follows:
| 2022 | $ |
|
|||
| 2023 |
|
||||
| 2024 |
|
||||
| 2025 |
|
||||
| 2026 |
|
||||
| Thereafter |
|
||||
| Total | $ |
|
|||
Note 9 –
Debt Obligations
Debt obligations as of June 24, 2022 and December 24, 2021 consisted of the following:
| June 24, 2022 | December 24, 2021 | |||||||||||||
| Senior secured term loans | $ |
|
$ |
|
||||||||||
| Convertible senior notes |
|
|
||||||||||||
| Asset-based loan facility |
|
|
||||||||||||
| Finance lease and other financing obligations |
|
|
||||||||||||
| Convertible unsecured note |
|
|
||||||||||||
| Deferred finance fees and original issue premium (discount) |
(
|
(
|
||||||||||||
| Total debt obligations |
|
|
||||||||||||
| Less: current installments |
(
|
(
|
||||||||||||
| Total debt obligations excluding current installments | $ |
|
$ |
|
||||||||||
On March 11, 2022, the Company entered into a third amendment to its asset-based loan facility (“ABL Facility”) which increased the aggregate commitments from $
150,000
to $
200,000
. The interest rate charged on borrowings under the ABL Facility is equal to a spread plus, at the Company’s option, either the Base Rate (as defined in the ABL Credit Agreement) or a forward-looking term rate based on the secured overnight financing rate term (except for swingline loans) for one-, three-, or six-month interest periods chosen by the Company. The ABL Facility matures on March 11, 2027 subject to a springing maturity date of March 24, 2025 should the Company’s term loan not have been extended to at least March 11, 2027 or March 24, 2024 if the Company’s
1.875
% Convertible Senior Notes due 2024 in an aggregate principal amount in excess of $
40,000
remain outstanding having a maturity date not earlier than six months after March 11, 2027.
The ABL Credit Agreement contains customary affirmative covenants, negative covenants and events of default as more particularly described in the ABL Credit Agreement. The Company is required to comply with a minimum consolidated fixed charge coverage ratio of
1
:1 if the amount of availability under the ABL Facility falls below $
14,000
, or
10
%, of the lesser of the aggregate commitments and the borrowing base then in effect.
The third amendment was accounted for as a debt modification. The Company incurred transaction costs of $
406
which were capitalized as deferred financing fees, presented in o
ther assets
on the Company’s consolidated balance sheets
,
to be amortized over the term of the ABL Facility.
14
The net carry value of the Company’s Convertible Senior Notes as of June 24, 2022 and December 24, 2021 was:
| June 24, 2022 | December 24, 2021 | |||||||||||||
| Principal amount outstanding | $ |
|
$ |
|
||||||||||
| Unamortized deferred financing fees and premium |
(
|
(
|
||||||||||||
| Net carry value | $ |
|
$ |
|
||||||||||
The components of interest expense on the Company’s Convertible Senior Notes were as follows:
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||||||||
| June 24, 2022 | June 25, 2021 | June 24, 2022 | June 25, 2021 | ||||||||||||||||||||
| Coupon interest | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Amortization of deferred financing fees and premium | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Total interest | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
The Company’s senior secured term loan credit agreement requires the Company to maintain at least $
35,000
of liquidity as of the last day of any fiscal quarter where EBITDA, as defined in the Credit Agreement, is less than $
10,000
. The Company had minimum liquidity, as defined in the Credit Agreement, of $
222,514
as of June 24, 2022.
As of June 24, 2022, the Company had reserved $
20,541
of the ABL Facility for the issuance of letters of credit. As of June 24, 2022, funds totaling $
159,460
were available for borrowing under the ABL Facility. At June 24, 2022, the interest rate charged on the Company’s senior secured term loan was approximately
6.6
% and the interest rate charged on the Company’s ABL Facility was approximately
4.5
%.
Note 10 –
Stockholders’ Equity
Equity Awards
The following table reflects the activity of RSAs during the twenty-six weeks ended June 24, 2022:
| 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 24, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||||||||||||||||||||||
| Granted |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Vested |
(
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Forfeited |
(
|
|
(
|
|
(
|
|
||||||||||||||||||||||||||||||||
| Unvested at June 24, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||||||||||||||||||||||
The Company granted
489,344
RSAs to its employees and directors at a weighted average grant date fair value of $
30.50
during the twenty-six weeks ended June 24, 2022. These awards are a mix of time-, market- and performance-based grants that generally vest over a range of periods up to
four years
. The Company recognized expense totaling $
2,939
and $
3,280
on its RSAs during the thirteen weeks ended June 24, 2022 and June 25, 2021, respectively, and $
5,982
and $
5,738
during the twenty-six weeks ended June 24, 2022 and June 25, 2021, respectively.
At June 24, 2022, the total unrecognized compensation cost for unvested RSAs was $
23,850
and the weighted-average remaining period was approximately
2.2
years. Of this total, $
11,916
related to RSAs with time-based vesting provisions and $
11,934
related to RSAs with performance-based vesting provisions. At June 24, 2022, the weighted-average remaining period for time-based vesting and performance-based vesting RSAs were approximately
2.1
years and
2.2
years, respectively.
15
Note 11 –
Related Parties
Note 12 –
Supplemental Disclosures of Cash Flow Information
| Twenty-Six Weeks Ended | |||||||||||
| June 24, 2022 | June 25, 2021 | ||||||||||
| Supplemental cash flow disclosures: | |||||||||||
| Cash received for income taxes | $ |
(
|
$ |
(
|
|||||||
| Cash paid for interest, net of cash received | $ |
|
$ |
|
|||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows from operating leases | $ |
|
$ |
|
|||||||
| Operating cash flows from finance leases | $ |
|
$ |
|
|||||||
| ROU assets obtained in exchange for lease liabilities: | |||||||||||
| Operating leases | $ |
|
$ |
|
|||||||
| Finance leases | $ |
|
$ |
|
|||||||
| Other non-cash investing and financing activities: | |||||||||||
| Warrants issued for acquisitions | $ |
|
$ |
|
|||||||
| Contingent earn-out liabilities for acquisitions | $ |
|
$ |
|
|||||||
Note 13 –
Subsequent Events
16
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 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 22, 2022. 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 nine of the leading culinary markets in the United States. We offer more than 50,000 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 35,000 customer locations, primarily located in our nineteen geographic markets across the United States 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.
Effect of the COVID-19 Pandemic on our Business and Operations
The COVID-19 pandemic (“Pandemic”) has had an adverse impact on numerous aspects of our business and those of our customers including, but not limited to, demand for our products, cost inflation and labor shortages. Despite these challenges, we’ve continued to provide our core customers with high touch service, executed on our cost control measures and have returned to profitability since the second quarter of fiscal 2021. We continue to experience sequential improvement in our business which has contributed to organic sales growth of $152.3 million compared to the prior year quarter.
The extent to which the Pandemic will impact our financial condition or results of operations is uncertain and will depend on future developments including new information that may emerge on the severity or transmissibility of the disease, new variants, government responses, trends in infection rates, development and distribution of effective medical treatments and vaccines, and future consumer spending behavior, among others.
Recent Acquisitions
During the second quarter of fiscal 2022, the Company completed two acquisitions for an aggregate purchase price of approximately $22.5 million, paid in cash, subject to customary working capital adjustments. The Company will also pay additional contingent consideration, if earned, in the form of earn-out amounts which could total $2 million in the aggregate.
On December 28, 2021, pursuant to an asset purchase agreement, we acquired substantially all of the assets of CGC Holdings, Inc. (“Capital Seaboard”), a specialty seafood and produce distributor in Maryland. The purchase price was approximately $31.0 million consisting of $28.0 million paid in cash at closing, common stock warrants of $1.7 million , and $1.3 million paid upon settlement of a net working capital true-up.
17
RESULTS OF OPERATIONS
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||||||||
| June 24, 2022 | June 25, 2021 | June 24, 2022 | June 25, 2021 | ||||||||||||||||||||
| Net sales | $ | 648,104 | $ | 422,968 | $ | 1,160,207 | $ | 703,185 | |||||||||||||||
| Cost of sales | 492,100 | 327,094 | 886,690 | 548,364 | |||||||||||||||||||
| Gross profit | 156,004 | 95,874 | 273,517 | 154,821 | |||||||||||||||||||
| Selling, general and administrative expenses | 124,487 | 90,358 | 234,573 | 170,603 | |||||||||||||||||||
| Other operating expenses (income), net | 3,883 | 857 | 5,046 | (313) | |||||||||||||||||||
| Operating income (loss) | 27,634 | 4,659 | 33,898 | (15,469) | |||||||||||||||||||
| Interest expense | 4,465 | 4,408 | 8,830 | 9,171 | |||||||||||||||||||
| Income (loss) before income taxes | 23,169 | 251 | 25,068 | (24,640) | |||||||||||||||||||
| Provision for income tax expense (benefit) | 6,254 | (847) | 6,768 | (7,817) | |||||||||||||||||||
| Net income (loss) | $ | 16,915 | $ | 1,098 | $ | 18,300 | $ | (16,823) | |||||||||||||||
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.
Thirteen Weeks Ended June 24, 2022 Compared to Thirteen Weeks Ended June 25, 2021
Net Sales
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| Net sales | $ | 648,104 | $ | 422,968 | $ | 225,136 | 53.2 | % | |||||||||||||||
Organic growth contributed $152.3 million, or 36.0%, to sales growth and the remaining sales growth of $72.9 million, or 17.2%, resulted from acquisitions. Organic case count increased approximately 34.8% in our specialty category. In addition, specialty unique customers and placements increased 35.9% and 54.6%, respectively, compared to the prior year period. Organic pounds sold in our center-of-the-plate category increased 14.2% compared to the prior year. Estimated inflation was 16.4% in our specialty category and 10.9% in our center-of-the-plate category compared to the prior year period.
Gross Profit
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| Gross profit | $ | 156,004 | $ | 95,874 | $ | 60,130 | 62.7 | % | |||||||||||||||
| Gross profit margin | 24.1 | % | 22.7 | % | |||||||||||||||||||
Gross profit increased primarily as a result of increased sales and price inflation. Gross profit margin increased approximately 140 basis points. Gross profit margins decreased 70 basis points in the Company’s specialty category and increased 230 basis points in the Company’s center-of-the-plate category.
Selling, General and Administrative Expenses
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| Selling, general and administrative expenses | $ | 124,487 | $ | 90,358 | $ | 34,129 | 37.8 | % | |||||||||||||||
| Percentage of net sales | 19.2 | % | 21.4 | % | |||||||||||||||||||
The increase in selling, general and administrative expenses was primarily due to higher costs associated with compensation and benefits to support sales growth. Our ratio of selling, general and administrative expenses to net sales decreased predominately due to sales growth which contributed to improved fixed cost leverage in the quarter.
18
Other Operating Expenses, Net
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| Other operating expenses, net | $ | 3,883 | $ | 857 | $ | 3,026 | 353.1 | % | |||||||||||||||
The increase in net other operating expenses was primarily due to non-cash charges of $3.3 million for changes in the fair value of our contingent earn-out liabilities compared to non-cash credits of $0.1 million in the prior year period. The prior year period also includes a $0.6 million impairment of Cambridge trademarks as a result of a shift in brand strategy to leverage our Allen Brothers brand in our New England region during the second quarter of fiscal 2021.
Interest Expense
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| Interest expense | $ | 4,465 | $ | 4,408 | $ | 57 | 1.3 | % | |||||||||||||||
Interest expense was relatively unchanged compared to the prior year period.
Provision for Income Taxes
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| Provision for income tax expense (benefit) | $ | 6,254 | $ | (847) | $ | 7,101 | (838.4) | % | |||||||||||||||
| Effective tax rate | 27.0 | % | (337.5) | % | |||||||||||||||||||
The negative effective tax rate in the prior year period was driven by a $1.5 million discrete permanent difference related to stock compensation expense.
Twenty-Six Weeks Ended June 24, 2022 Compared to Twenty-Six Weeks Ended June 25, 2021
Net Sales
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| Net sales | $ | 1,160,207 | $ | 703,185 | $ | 457,022 | 65.0 | % | |||||||||||||||
Organic growth contributed $328.5 million, or 46.7%, to sales growth and the remaining sales growth of $128.5 million, or 18.3%, resulted from acquisitions. Organic case count increased approximately 40.0% in our specialty category. In addition, specialty unique customers and placements increased 33.0% and 49.1%, respectively, compared to the prior year period. Organic pounds sold in our center-of-the-plate category increased 19.3% compared to the prior year. Estimated inflation was 15.8% in our specialty category and 17.8% in our center-of-the-plate category compared to the prior year period.
Gross Profit
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| Gross profit | 273,517 | 154,821 | 118,696 | 76.7 | % | ||||||||||||||||||
| Gross profit margin | 23.6 | % | 22.0 | % | |||||||||||||||||||
Gross profit increased primarily as a result of sales growth and price inflation. Gross profit margin increased approximately 156 basis points. Gross profit margins increased 42 basis points in the Company’s specialty category and increased 175 basis points in the Company’s center-of-the-plate category.
Selling, General and Administrative Expenses
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| Selling, general and administrative expenses | 234,573 | 170,603 | 63,970 | 37.5 | % | ||||||||||||||||||
| Percentage of net sales | 20.2 | % | 24.3 | % | |||||||||||||||||||
19
The increase in selling, general and administrative expenses was primarily due to higher costs associated with compensation and benefits to support sales growth. Our ratio of selling, general and administrative expenses to net sales decreased predominately due to sales growth which contributing to improved fixed cost leverage in the quarter..
Other Operating Expenses (Income ), Net
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| Other operating expenses (income), net | 5,046 | (313) | 5,359 | (1,712.1) | % | ||||||||||||||||||
The increase in net other operating expense relates primarily to non-cash charges of $3.6 million for changes in the fair value of our contingent earn-out liabilities in the fiscal 2022 period compared to non-cash credits of $(1.4) million in the prior year period. The prior year period also includes a $0.6 million impairment of Cambridge trademarks as a result of a shift in brand strategy to leverage our Allen Brothers brand in our New England region during the second quarter of fiscal 2021.
Interest Expense
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| Interest expense | 8,830 | 9,171 | (341) | (3.7) | % | ||||||||||||||||||
Interest expense decreased primarily due to lower effective interest rates charged on our outstanding debt as a result of the $50.0 million aggregate principal amount of Convertible Senior Notes issued on March 1, 2021 which were used to repay higher interest rate debt.
Provision for Income Taxes
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| Provision for income tax expense (benefit) | 6,768 | (7,817) | 14,585 | (186.6) | % | ||||||||||||||||||
| Effective tax rate | 27.0 | % | 31.7 | % | |||||||||||||||||||
The higher effective tax rate in the prior period includes the impact of a $1.5 million discrete permanent difference related to stock compensation expense.
20
LIQUIDITY AND CAPITAL RESOURCES
We finance our day-to-day operations and growth primarily with cash flows from operations, borrowings under our senior secured credit facilities and other indebtedness, operating leases, trade payables and equity financing.
Indebtedness
The following table presents selected financial information on our indebtedness (in thousands):
| June 24, 2022 | December 24, 2021 | ||||||||||
| Senior secured term loan | $ | 167,819 | $ | 168,675 | |||||||
| Total convertible debt | 204,000 | 204,000 | |||||||||
| Borrowings outstanding on asset-based loan facility | 20,000 | 20,000 | |||||||||
| Finance leases and other financing obligations | 10,201 | 11,602 | |||||||||
| Total | $ | 402,020 | $ | 404,277 | |||||||
As of June 24, 2022, we have various floating- and fixed-rate debt instruments with varying maturities for an aggregate principal amount of $391.8 million.
On March 11, 2022, we entered into a third amendment to our asset-based loan facility ABL Facility which increased the aggregate commitments from $150.0 million to $200.0 million. See Note 9 “Debt Obligations” to our consolidated financial statements for a full description.
Liquidity
The following table presents selected financial information on liquidity (in thousands):
| June 24, 2022 | December 24, 2021 | ||||||||||
| Cash and cash equivalents | $ | 51,806 | $ | 115,155 | |||||||
|
Working capital,
excluding cash and cash equivalents
|
195,217 | 157,787 | |||||||||
| Availability under asset-based loan facility | 159,460 | 109,459 | |||||||||
| Total | $ | 406,483 | $ | 382,401 | |||||||
We expect our capital expenditures, excluding cash paid for acquisitions, for fiscal 2022 will be approximately $36.0 million to $45.0 million. We believe our existing balances of cash and cash equivalents, working capital and the availability under our asset-based loan facility, are sufficient to satisfy our working capital needs, capital expenditures, debt service and other liquidity requirements associated with our current operations over the next 12 months.
Cash Flows
The following table presents selected financial information on cash flows (in thousands):
| Twenty-Six Weeks Ended | |||||||||||
| June 24, 2022 | June 25, 2021 | ||||||||||
| Net income (loss) | $ | 18,300 | $ | (16,823) | |||||||
| Non-cash charges | $ | 37,107 | $ | 16,748 | |||||||
| Changes in working capital | $ | (35,626) | $ | (23,847) | |||||||
| Net cash provided by (used in) operating activities | $ | 19,781 | $ | (23,922) | |||||||
| Net cash used in investing activities | $ | (75,497) | $ | (16,739) | |||||||
| Net cash used in financing activities | $ | (7,733) | $ | (5,642) | |||||||
Net cash provided by operations was $19.8 million for the twenty-six weeks ended June 24, 2022 consisting of a net income of $18.3 million and $37.1 million of non-cash charges, partially offset by investments in working capital growth of $35.6 million. Non-cash charges increased $20.4 million primarily due to a $12.8 million change in deferred tax expenses and a $5.0 million
21
increase in changes in the fair value of earn-out liabilities. The cash used for working capital growth of $11.8 million is primarily driven by the Company’s reinvestment in working capital to support sales growth.
Net cash used in investing activities was $75.5 million for the twenty-six weeks ended June 24, 2022, driven by capital expenditures of $23.5 million which includes the purchase of our distribution facility in Columbus, Ohio and $52.0 million in cash paid for acquisitions.
Net cash used in financing activities was $7.7 million for the twenty-six weeks ended June 24, 2022 driven by $2.8 million of payments made on senior term loans and finance lease obligations, $2.6 million of shares surrendered to pay tax withholding related to the vesting of equity incentive plan awards and $2.0 million of earn-out liability payments classified as financing activities.
Seasonality
Excluding our direct-to-consumer business, we generally do not experience any material seasonality. However, our sales and operating results may vary from quarter to quarter due to factors such as changes in our operating expenses, management’s ability to execute our operating and growth strategies, personnel changes, demand for our products, supply shortages, weather patterns and general economic conditions.
Our direct-to-consumer business is subject to seasonal fluctuations, with direct-to-consumer center-of-the-plate protein sales typically higher during the holiday season in our fourth quarter; accordingly, a disproportionate amount of operating cash flows from this portion of our business is generated by our direct-to-consumer business in the fourth quarter of our fiscal year. Despite a significant portion of these sales occurring in the fourth quarter, there are operating expenses, principally advertising and promotional expenses, throughout the year.
The Pandemic has had a material impact on our business and operations and those of our customers. Our net sales were most significantly impacted during the second quarter of fiscal 2020 when, in an effort to limit the spread of the virus, federal, state and local governments began implementing various restrictions that resulted in the closure of non-essential businesses in many of the markets we serve, which forced our customers in those markets to either transition their establishments to take-out service, delivery service or temporarily cease operations.
Inflation
Our profitability is dependent on, among other things, our ability to anticipate and react to changes in the costs of key operating resources, including food and other raw materials, labor, energy and other supplies and services. Substantial increases in costs and expenses could impact our operating results to the extent that such increases cannot be passed along to our customers. The impact of inflation and deflation on food, labor, energy and occupancy costs can significantly affect the profitability of our operations.
Off-Balance Sheet Arrangements
As of June 24, 2022, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.
Critical Accounting Policies and Estimates
The preparation of the Company’s consolidated financial statements requires it to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The SEC has defined critical accounting policies as those that are both most important to the portrayal of the Company’s financial condition and results and require its most difficult, complex or subjective judgments or estimates. Based on this definition, we believe our critical accounting policies include the following: (i) determining our allowance for doubtful accounts, (ii) inventory valuation, with regard to determining inventory balance adjustments for excess and obsolete inventory, (iii) business combinations, (iv) valuing goodwill and intangible assets, (v) self-insurance reserves, (vi) accounting for income taxes and (vii) contingent earn-out liabilities. Our critical accounting policies and estimates are described in the Form 10-K filed with the SEC on February 22, 2022.
22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
As of June 24, 2022, we had an aggregate $187.8 million of indebtedness outstanding under the Term Loan and ABL Facility that bore interest at variable rates. A 100 basis point increase in market interest rates would decrease our after tax earnings by approximately $1.4 million per annum, holding other variables constant.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of June 24, 2022.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended June 24, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in legal proceedings, claims and litigation arising out of the ordinary conduct of our business. Although we cannot assure the outcome, management presently believes that the result of such legal proceedings, either individually or in the aggregate, will not have a material adverse effect on our consolidated financial statements, and no material amounts have been accrued in our consolidated financial statements with respect to these matters.
ITEM 1A. RISK FACTORS
There have been no material changes to our risk factors as previously disclosed in Part I, Item 1A. included in our Annual Report on Form 10-K for the year ended December 24, 2021 filed with the SEC on February 22, 2022. In addition to the information contained herein, you should consider the risk factors disclosed in our Annual Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
Total Number
of Shares
Repurchased
(1)
|
Average
Price Paid Per Share |
Total
Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum
Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs |
|||||||||||||||||||||||
| March 26, 2021 to April 22, 2022 | 4,877 | $ | 33.14 | — | — | |||||||||||||||||||||
| April 23, 2022 to May 20, 2022 | 3,941 | 36.97 | — | — | ||||||||||||||||||||||
| May 21, 2022 to June 24, 2022 | 6,319 | 33.24 | — | — | ||||||||||||||||||||||
| Total | 15,137 | $ | 34.18 | — | — | |||||||||||||||||||||
(1)
During the twenty-six weeks ended June 24, 2022, we withheld 15,137 shares of our common stock to satisfy tax withholding requirements related to restricted shares of our common stock awarded to our officers and key employees resulting from either elections under 83(b) of the Internal Revenue Code of 1986, as amended, or upon vesting of such awards.
23
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
24
ITEM 7. EXHIBITS
| Exhibit No. | Description | |||||||
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||||||
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||||||
| Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||||||||
| Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||||||||
| 101.INS | XBRL Instance Document – the instance document does not appear on the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document. | |||||||
| † | Filed herewith | |||||||
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on July 27, 2022.
| THE CHEFS’ WAREHOUSE, INC. | |||||||||||
| (Registrant) | |||||||||||
| Date: July 27, 2022 | /s/ James Leddy | ||||||||||
| James Leddy | |||||||||||
| Chief Financial Officer | |||||||||||
| (Principal Financial Officer) | |||||||||||
| Date: July 27, 2022 | /s/ Timothy McCauley | ||||||||||
| Timothy McCauley | |||||||||||
| Chief Accounting Officer | |||||||||||
| (Principal Accounting Officer) | |||||||||||
26
TABLE OF CONTENTS
Part I Financial InformationItem 1. Consolidated Financial StatementsNote 1 - Operations and Basis Of PresentationNote 2 Summary Of Significant Accounting PoliciesNote 3 Net Income (loss) Per ShareNote 4 Fair Value MeasurementsNote 5 AcquisitionsNote 6 InventoriesNote 7 Equipment, Leasehold Improvements and SoftwareNote 8 Goodwill and Other Intangible AssetsNote 9 Debt ObligationsNote 10 Stockholders EquityNote 11 Related PartiesNote 12 Supplemental Disclosures Of Cash Flow InformationNote 13 Subsequent EventsItem 2. Management's Discussion and Analysis Of Financial Condition andItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 7. Exhibits