Greetings, and welcome to The Chefs' Warehouse First Quarter 2021 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Alex Aldous, General Counsel, Corporate Secretary, and Chief Government Relations Officer. Please go ahead, sir.

Thank you, operator. Good morning, everyone. With me on today's call are Chris Pappas, Founder, Chairman and CEO; and Jim Leddy, our CFO. By now, you should have access to our first quarter 2021 earnings press release. It can also be found at www.chefswarehouse.com, under the Investor Relations section. Throughout this conference call, we will be presenting non-GAAP financial measures, including, among others, historical and estimated EBITDA and adjusted EBITDA, as well as both historical and estimated adjusted net income and adjusted earnings per share. These measurements are not calculated in accordance with GAAP, and may be calculated differently in similarly titled non-GAAP financial measures used by other companies. Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release. Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements, including statements regarding our estimated financial performance. Such forward-looking statements are not guarantees of future performance. And therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Some of these risks are mentioned in today's release. Others are discussed in our Annual Report on Form 10-K and quarterly reports on Form 10-Q, which are available on the SEC website. Today, we are going to provide a business update and go over our first quarter results in detail. Then we will open up the call for questions. With that, I will turn the call over to Chris Pappas. Chris?

Thank you, Alex, and thank you all for joining our first quarter 2021 earnings call. As expected, January and February business activity were significantly impacted by the COVID-related restrictions implemented during the fourth quarter of 2020. Severe weather, especially in the Northeast, as well as continued customer menu compression due to the COVID environment, contributed to lower volumes during the quarter. Progress on vaccinations combined with easing restrictions in March led to a gradual weekly build in revenue, and we exited the quarter trending at approximately 75% of 2019 sales, inclusive of acquisitions added in 2020. Similar to our previous reporting, I will compare the sales and gross margin results of the current quarter sequentially to the fourth quarter of 2020. Jim will provide the comparison to the prior year in his comments later in the call. During the quarter, net sales were essentially flat versus the fourth quarter of 2020, while specialty sales decreased approximately 2% sequentially versus the fourth quarter of 2020. Average unique customers increased 0.8% and we saw higher placements, approximately 4.7%. Specialty cases decreased 3.1% versus the fourth quarter of 2020, while center-of-the-plate pounds sold were approximately 1.6% higher sequentially versus the fourth quarter of 2020. Gross profit margins increased approximately 13 basis points compared to the fourth quarter of 2020. Gross margin in the specialty category increased 358 basis points as compared to the fourth quarter of 2020, while gross margin in the center-of-the-plate category decreased 330 basis points. Jim will provide more detail on gross margin and inflation in a few minutes. On April 23rd, we completed the acquisition of Foley Fish located in New Bedford, Massachusetts. Foley distributes premium cut-to-order, fresh and frozen seafood products to restaurants and hotels in the Boston metro area and maintains a national distribution business, similar in nature to Allen Brothers. We are extremely excited to add Laura Ramsden and her team to the CW family of brands and operations. This acquisition introduces key talent, expertise, and premium brands to our growing seafood portfolio and categories. We look forward to further integrating our specialty produce and center-of-the-plate offerings from the New England and national markets going forward. During the first quarter, our team completed the implementation of our ERP front-end order entry system at our West Coast operating centers, including Southern and Northern California and Las Vegas. We now have 100% of our legacy specialty business units live on the system, and the team will look to integrate Sid Wainer over the coming months. In addition, we rolled out mobile truck scanning to our L.A. and Northwest locations and completed an upgrade to our warehouse management systems company-wide. Now, to move on to an update on recent business activity. Recent sales have been trending at approximately 79% of 2019 sales, inclusive of the acquisitions completed in the first quarter of 2020. Easing capacity restrictions combined with increasing outdoor dining and customer openings have led to a steady weekly improvement in business activity across our markets. Certain urban market segments where foot traffic is driven by office occupancy, events and tourism continue to improve but at a slower pace than urban neighborhood segments and our broader regional markets. As we move towards further reopenings, capacity increases, events and celebrations and more normalcy around social interaction, our team of chefs have engaged in supporting our customers and supplier partners in re-energizing the culinary world. Our recently announced Welcome Back campaign is just one example of utilizing the Chefs' Warehouse platform to promote reintroduction of the amazing dining experiences our industry provides. While the environment remains challenging, we are focused on delivering the high-touch service and premium quality ingredients to our chef customers as the world comes back. With that, I'll turn it over to Jim to discuss more detailed financial information for the quarter and an update on our liquidity. Jim?

Thank you, Chris. And good morning everyone. I'll now provide a comparison of our current quarter operating results versus the prior year quarter and provide an update on our balance sheet and liquidity. Our net sales for the quarter ended March 26, 2021 decreased approximately 25.4% to $282.2 million from $375.4 million in the first quarter of 2020. The decrease in net sales was a result of a decline in organic sales of approximately 28%, as well as the contribution of sales from acquisitions, which added approximately 2.6% to sales growth for the quarter. Net inflation was 6.2% in the first quarter, consisting of 6.4% inflation in our specialty category and inflation of 6.1% in our center-of-the-plate category versus the prior year quarter. Gross profit decreased 31% to $58.9 million for the first quarter of 2021 versus $85.5 million for the first quarter of 2020. Gross profit margins decreased approximately 173 basis points to 21%. Significant year-over-year inflation, especially in the center-of-the-plate categories, as well as product mix, were the primary drivers of lower gross profit margin. As a reminder, net inflation during the first quarter of 2020 was essentially flat. The primary driver of net specialty inflation was significant price increases in cheese, dairy and chocolate categories, accompanied by more moderate broad-based inflation in most specialty product lines. Inflation in the center-of-the-plate category was driven by higher pricing across most beef categories, as well as product mix changes attributed to strong growth in our Allen Brothers direct-to-consumer business. Total operating expense decreased approximately 22.8% to $79.1 million for the first quarter of 2021, from $102.5 million for the first quarter of 2020. On an adjusted basis, operating expense decreased 30.9% year-over-year. The primary drivers of lower adjusted operating expense were lower volume-related operational costs, the cost actions taken during 2020 and the one-time reserve increase on receivables booked during the first quarter of 2020, partially offset by the impact of acquisitions. Excluding the impact of the 2020 reserve comparison and acquisitions, adjusted operating expense decreased approximately 20% versus the prior year quarter. As a percentage of net sales, adjusted operating expenses were 24.5% for the first quarter of 2021, compared to 26.4% for the first quarter of 2020. Operating loss for the first quarter of 2021 was $20.1 million, compared to operating loss of $17.1 million for the first quarter of 2020. The increase in operating losses was driven primarily by lower gross profit partially offset by lower operating expenses versus the prior year quarter. Income tax benefit was $7 million for the first quarter of 2021, compared to income tax benefit of $8.1 million for the first quarter of 2020. Our GAAP net loss was $17.9 million, or $0.49 loss per diluted share, for the first quarter of 2021, compared to a net loss of $14.1 million or $0.48 loss per diluted share for the first quarter of 2020. On a non-GAAP basis, we had negative adjusted EBITDA of $9.5 million for the first quarter of 2021, compared to negative adjusted EBITDA of $13.8 million for the prior year first quarter. Adjusted net loss was $18.3 million or $0.50 loss per diluted share for the first quarter of 2021, compared to adjusted net loss of $17.7 million or $0.60 loss per diluted share for the first quarter of the prior year. Turning to the balance sheet and an update on our liquidity. On March 1, 2021, we completed the reopening of our 1.875% convertible notes maturing in December of 2024, with proceeds of approximately $50.4 million net of issuance costs. Proceeds were used to prepay $30.2 million of outstanding term loans due in June of 2022 and pay down $20 million of borrowings under our ABL credit facility. As of March 26, 2021, we had total liquidity of $228.8 million comprised of $175 million in cash and $53.8 million of availability under the ABL facility. Net debt as of March 26, 2021 was approximately $227.5 million, inclusive of all cash and cash equivalents. At this time, due to the continued uncertainty regarding the pace of broader economic recovery, lifting of in-room dining restrictions across key markets, and the timing of event and travel-related business activity, we will not be providing guidance for 2021. We hope to provide more color as we gain more clarity on the pace of recovery, outlook and the broader pandemic related environment. Thank you. And at this point, we'll open it up to questions. Operator?

Thank you. Our first question is from Alex Slagle of Jefferies. Please proceed.

Thanks. Good morning.

Good morning, Alex.

Just wondering if we could talk a little bit more about the commodity inflation and elevated freight costs. I guess what's out there. Any thoughts on your outlook and kind of the ability to pass along this pricing? Any additional commentary you have would be helpful.

Yes, sure. So I think the quarter was a very interesting one. You can bifurcate the quarter really into the first two months, which were extremely impacted by COVID and the weather, and then you had the back half of the quarter with a pretty accelerated ramp-up in business activity going into April. I think inflation was definitely impacted by that. You have supply chains that aren't catching up to the extreme, almost artificial demand destruction that happened in 2020. So I think it's a unique period where we saw pretty extreme inflation. While we reported 6% to 7% overall average inflation, certain categories in proteins, especially, as well as certain specialty categories had double-digit inflation that we haven't really seen in a very short period of time. So I think we're going to go through this period of catching up both the supply chains and the labor market dynamics. As we look forward, we expect it to gradually normalize as we get to the back half of 2021. I think the other thing that impacted us during the quarter was a continuation of product mix changes that brought down our average gross profit margin—selling more proteins, which come at lower average gross profit margins than some of our specialty product lines. That combined with the really extreme inflation—we view it as transitory. As supply chains catch up, things should start to normalize toward the back half of the year.

Makes sense. And on labor, maybe just a little more there—challenges finding drivers and staffing warehouses. How much more hiring do you think you need to do to meet the expected demand? Any thoughts on that?

It was challenging before COVID. We're looking at some data this morning. The conversation is not that there is an availability of excess labor—there was never an easy day trying to find drivers and night crews. These are hard jobs, and when you have full employment it was hard before, so it's extremely challenging now. We knew the recovery was coming, but it's been unprecedented trying to prepare for when business exploded. As the weather started turning and vaccines ramped up, our customers started to see their customers returning and there was explosive growth coming out of March into April. So we knew it was going to be difficult. Our customers are having a really hard time getting labor right now. We think it's going to probably continue at least through September—when some of the unemployment and stimulus effects taper. Right now, it's very hard to get people to want to come to work in some of these jobs. Managers are chipping in and everybody is helping on the front line. It's a good problem in many ways—business is coming back and menus are starting to normalize, which is increasing our order size and items sold, and that's how we make money. At the same time, it's extremely challenging. You almost feel like going back to the gym: you'll benefit in a few months, but the first few months are really hard. I think that's what we're going through.

Got it. Well, good to see things accelerating. Thank you. I'll pass it on.

Thanks, Alex.

Thank you. Our next question is from Peter Saleh of BTIG. Please proceed.

Great. Thanks. And thanks for taking the question. Chris, I think you mentioned recent sales are at 79% of 2019 levels. Are you suggesting that's April? Or is that kind of the end of April? And then, could you just comment a little bit about what you're seeing out of some of the key markets on the West Coast and in New York, please?

Sure. I'll let Jim opine a little more on the acceleration, but obviously every day gets better. I think it's just a matter of days before we start going into the 80s. For us, I didn't think we'd get back to 80-plus until later, maybe in the summer going into the fall. The pent-up demand is exploding, which brings its own issues right now with staffing and supply chains. Supply chains are tight everywhere—Europe, trailers backed up, longshoremen issues unloading trailers. It will be tight until I think September or October. New York and LA—all major markets—demand differs by submarket. Downtown offices and tourism areas are slower because office occupancy and events are not fully back. Where you have good weather and outdoor seating, we're seeing stronger activity—places like Texas are sometimes better than pre-COVID numbers because people want to socialize. The trend should continue; it gets better every day. Midtowns of major cities will likely lag until fall, which we expected, while other types of customers have exceeded expectations, showing how much pent-up demand exists. We're following our customers' customers and trying to ramp up as fast as we can to meet demand.

And just about the cadence, Peter—the 79% is kind of the average of the last two weeks. To give you a sense of cadence: I talked about the first quarter being bifurcated into a really horrible January and February and then March exploding into April. We were operating at 55% to 60% of 2019 pro forma for the acquisitions earlier in the quarter and then coming out of April we're just under 80%. That gives you a sense of the acceleration over a matter of weeks.

No, that's very helpful. Can I ask one more on acquisitions and the M&A environment? Given how tough the environment is overall right now with inflation and demand coming back, does it make the acquisition market more attractive to you guys? I know you just made another small acquisition recently. Should we expect more? How are you thinking about more tuck-in acquisitions at this point? Thanks.

Pre-COVID the market was extremely frothy. The industry is consolidating—there are still thousands of small companies that do something unique, and part of what Chefs' has done the past 10 years is consolidate this part of the industry. Many deals that were lingering pre-COVID will get done. Right now, the labor market is a headwind; companies have been struggling and nobody is immune. But as we go into the fourth quarter, especially as stimulus incentives taper, I think we'll see many deals announced. It does come down to forecasting. Foley Fish was a great fit culturally, with ownership history, commitment to quality and service that fit our service model. I think we'll continue to pursue deals like that and you will likely see a lot of M&A going into 2022 and 2023 as deals that were backed up get completed.

Excellent. Thank you very much.

Thank you. Our next question is from Kelly Bania of BMO Capital. Please proceed.

Hi, good morning. This is Kelly Bania. Thanks for taking our questions. Chris and Jim, just wanted to see if you had a sense—it's very difficult to measure market share for Chefs' Warehouse given your unique customer focus—but curious what you're seeing broadly across your customer base. How do you think you're faring in terms of market share with your core customer group?

A lot of things—every day we hear about new customer acquisition. We reported even last quarter—what was amazing was the number of new customers we were acquiring in a very challenging period. I would say we're net positive even though many historical customers have not reopened. The amount of new customers coming to us fits our strategy. We knew this year would be extremely challenging, so strategically we asked how we could be a true partner given the common challenges of inflation, logistics, supply chain and labor. We're running extra trucks, running courier services, salespeople are going out of their way to assist. Many competitors have limited service in some areas because they don't have labor to make deliveries. We're by far not perfect, but we've been able to do a much better job than many competitors and we're being rewarded for that. Being able to access alternate supply to fill orders, even if it's not exactly what customers were buying, has been key. Our model was just-in-time from the beginning—Chefs does the hard things, imports a lot, services smaller markets and customers with later cutoffs, and that has positioned us better in this volatile market where demand is unpredictable. We're operating 24/7 and have had to get out of our comfort zone to help customers. We're writing a new playbook to get through the next six months, and I think Chefs' does that better than most.

Thank you, that's very helpful. You mentioned menu compression and that it's starting to come back—could you elaborate on that a little and maybe how much you estimate that's impacting you now, and whether you think there's any sustained impact from menu compression?

If you're a diner like myself, you see menus expanding as labor comes back—people want choices. Depending on their labor pool, that limits menus; to expand menus you need bodies. I'm starting to see menus come back—our sales reports show customers asking us to help with new menus. Supply chain challenges remain, but we have over a thousand suppliers in 40 countries and many channels to source product, so we are scrambling to meet demand. I think 2021 is about getting through, being a great partner and setting up 2022 to gain market share and recover from what's happened over the last 14 months. We're focused on the long ball—day-to-day execution is intense but there's finally light at the end of the tunnel.

Thanks. One more—looking back, you mentioned reaching possibly around 75% to 80% of pro forma 2019 sales this year and it sounds like you're already there with acceleration in recent weeks. Any thoughts on where the full year could end up?

So the acceleration in March and April on a weekly revenue basis has exceeded our expectations. January and February were worse than we expected, given severe weather and COVID impact. We had said our goal is to exit 2021 around 85% to 90% of 2019 pro forma for acquisitions. I think we're on that path. We expect a leveling off through the summer months of the acceleration. Revenue continues to outperform, though we have gross profit margin challenges driven by inflation and other dynamics, which we think will start to normalize toward the end of the year. If we can exit the year at 85% to 90% and then build gradually back to 100%-plus in the back half of 2022, that would be an ideal situation for us.

The hardest part in forecasting is the supply chain—getting adequate supply, filling containers, and getting shipping lanes efficient. Freight costs are high; containers are like an auction right now. Supply will eventually catch up with demand and prices will normalize, but we still have facilities that can't produce at pre-COVID levels, especially in protein, so prices are elevated and pushing up menu prices. There's only so much you can pass along. We're taking a short-term hit and it's hard to forecast given the volatility. But there's excitement and enthusiasm—restaurants are filling up and customers are coming back. It's largely driven by vaccinations; as more people get vaccinated they become more comfortable and we're seeing record nights for customers. It's exciting.

Great. Thank you.

Thanks, Kelly.

Thank you. Our next question is from Todd Brooks of C.L. King & Associates. Please proceed.

Hey, good morning, guys. Couple of questions. It sounds like with the challenges to keep up with demand, will the peak summer season bring more demand for event business? What are you hearing from your customer base—key country club customers, hotel customers—as far as upcoming event demand?

It's state by state. For example, Florida never really closed; if cruise ship business returned, Florida would be exceeding 2019. Theme parks and local tourism are starting campaigns, especially for local visitors who can drive there. We're hearing from hotel operators that leisure travel is starting to come back and weddings are being booked. Large, large events are not yet broadly booked, but we're seeing more activity. Even Las Vegas has strong business with no major conventions. Major events will be dictated by states and corporate comfort around gatherings. I'm hearing great optimism from many customers; it's all we can handle right now. The only constraint will be labor. I'd encourage policymakers to understand how hard it is for small businesses to get labor back—it's causing issues in recovery. Overall, I expect step-up month-to-month through the summer, while labor constraints remain.

Fair enough. Second question—about new restaurant creation. What are you seeing on the front end about new doors opening? Will you be positioned to take advantage of door growth as downtown city centers start to open this fall?

Restaurant owners do what they do—if prime real estate becomes available, it's a land grab. Strong customers with PPP and balance sheets will be in a good position to take advantage. We get many calls advising customers on market decisions, and we're seeing leases being signed, but many owners delay openings because they don't yet have labor. Some will open in the fall or first quarter next year. How many people return to offices will change demand around office districts, which is still uncertain. We're starting to see recovery and traffic; it's bifurcated. Many are making bets for 2022 and 2023 and will gobble up locations that closed, especially in business districts.

That's very helpful. Thanks, Chris.

Thanks, Todd.

Thank you. Our next question comes from Ben Klieve of Lake Street Capital Markets. Please proceed.

All right. Thanks for taking my questions. Curious about what we saw last year around this time in major urban areas where regulations allowed for expanded outdoor seating and closed-off streets. With warm weather on the horizon again, are you seeing this? Are your customers shifting capacity from indoor to outdoor? Or with indoor restrictions lifting does this result in a net increase in capacity, especially for your urban core customers?

Again, it's neighborhood by neighborhood. Outdoor seating helps but not every restaurant has outdoor space. You're seeing the 'vaccine effect'—people starting to go back inside and in places where outdoor seating is available you do have more capacity. Some areas are moving toward higher allowed indoor capacity in certain phases. We've seen some restaurants doing more covers than pre-COVID because they have outdoor and indoor seating and customers are cooperative with limits like two-hour stays. People know the industry is short-staffed and are forgiving. So overall, outdoor and expanded seating helps, but labor availability will be the main constraint over the next few months.

Got it. That's very encouraging. That does it for me. Best of luck navigating everything in the coming weeks as everything reopens. Thanks much. I'll jump back in queue.

Thanks, Ben.

Ladies and gentlemen, this concludes our question-and-answer session and also concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Thank you.