Chefs' Warehouse, Inc. Q3 FY2022 Earnings Call

Greetings, and welcome to The Chefs' Warehouse Third Quarter 2022 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 third quarter 2022 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. Those 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 third 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 third quarter 2022 earnings call. Customer demand was strong throughout the third quarter and the cadence of business activity returned to seasonal shifts more typical of the pre-pandemic environment. Seasonal September strength due to return from vacations was complemented by a moderate increase in return to office activity in many of our larger markets. While product cost, in aggregate, remained relatively unchanged versus the second quarter of 2022, pricing continues to be firm in most categories. We continue to see new openings and gradual increases in hotel, catering and event-related business. A few highlights from the third quarter as compared to the third quarter of 2021 include 22.2% organic growth in net sales. Specialty sales were up 31.6% organically over the prior year, which was driven by unique customer growth of approximately 25.9%, placement growth of 42.1% and specialty case growth of 18.3%. Organic pounds in center-of-the-plate were approximately 11.6% higher than the prior year third quarter. Gross profit margins increased approximately 113 basis points. Gross margin in the specialty category decreased 133 basis points as compared to the third quarter of 2021, while gross margin in the center-of-the-plate category increased 238 basis points year-over-year. Jim will provide more detail on gross profit and margins in a few moments. During the third quarter our team made progress on a number of key initiatives aimed at further integrating recent acquisitions and leveraging the CW platform to provide our sales teams and customers with a continually growing and diverse product portfolio while creating operational cost efficiencies in our delivery model. In New England, we have ramped up the cross sell of Allen Brothers Northeast premium protein products on our specialty and produce trucks. This process reduces distribution costs and puts higher gross profit dollar boxes on our key Northeast routes. On the West Coast we completed the fold-in of University Foods into our Los Angeles distribution center, and have begun the process of expanding our distribution platform in the Northwest. We have signed the lease for a new facility in Portland, Oregon, and we expect to combine our legacy CW specialty operations with recently acquired Alexis Specialty Foods within the next two years. We look forward to accelerating growth in the region while creating operating leverage once the project is complete. In the mid-Atlantic region we have recently completed the retrofit of our Capital Seaboard distribution center with the capability to offer customers in the region more of Chefs' Warehouse specialty and premium protein products along with produce and seafood. In Texas, where our specialty business continues to grow rapidly, we are in the final stages of the build-out of our new Allen Brothers protein processing facility located in Dallas. We expect to begin operations in early 2023, bringing us closer to our Texas customer base and adding to our growth in the Lone Star State. I would like to thank all of our team members for their hard work, expertise, and dedication, delivering value for our supplier partners, customers, and colleagues during a successful third quarter. Our people are Chefs' Warehouse's greatest assets and together we look forward to continued growth for the remainder of 2022, as well as into 2023 and beyond. And 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 September 23, 2022 increased approximately 36.7% to $661.9 million from $484.3 million in the third quarter of 2021. The growth in net sales was a result of an increase in organic sales of approximately 22.2%, as well as the contribution of sales from acquisitions, which added approximately 14.5% to sales growth for the quarter. Net inflation was 8.7% in the third quarter consisting of 15% inflation in our specialty category and inflation of 2.2% in our center-of-the-plate category versus the prior year quarter. Gross profit increased 43.5% to $157.8 million for the third quarter of 2022 versus $110 million for the third quarter of 2021. Gross profit margins increased approximately 113 basis points to 23.8%. Year-over-year inflation was broad-based across specialty categories, while slightly inflationary on a year-over-year basis in aggregate, certain center-of-the-plate categories were moderately deflationary compared to the prior year quarter. Selling, general, and administrative expenses increased approximately 31% to $130.3 million for the third quarter of 2022 from $99.4 million for the third quarter of 2021. The primary drivers of higher expenses were higher compensation and distribution costs associated with higher year-over-year volume growth, route expansion, and increased fuel costs. Adjusted operating expenses increased 33.9% versus the prior year third quarter, and as a percentage of net sales adjusted operating expenses were 17.6% for the third quarter of 2022 compared to 18% for the third quarter of 2021. Operating income for the third quarter of 2022 was $22.1 million compared to $10.4 million for the third quarter of 2021. The increase in operating income was driven primarily by higher gross profit, partially offset by higher operating costs. Income tax expense was $3.1 million for the third quarter of 2022 compared to $2.8 million for the third quarter of 2021. Our GAAP net income was $8.3 million or $0.21 income per diluted share for the third quarter of 2022 compared to net income of $3.5 million or $0.9 income per diluted share for the third quarter of 2021. On a non-GAAP basis, we had adjusted EBITDA of $41 million for the third quarter of 2022 compared to $23.4 million for the third quarter of the prior year. Adjusted net income was $16.4 million or $0.41 income per diluted share for the third quarter of 2022 compared to $4.5 million or $0.12 income per diluted share for the prior year third quarter. Turning to the balance sheet and an update on our liquidity, during the third quarter, we completed the issuance of a $300 million term loan maturing in August of 2029. The proceeds of the loan were used to repay the $167 million term loan maturing in June of 2025, pay fees and expenses associated with the transaction and retain approximately $118 million in cash on the balance sheet. More detail on the transaction is available in our 10-Q filed this morning. Interest expense for the third quarter of 2022 was $10.7 million compared to $4.2 million in the third quarter of 2021. The increase was driven primarily by approximately $4.5 million of third party transaction fees associated with the refinancing. At the end of the third quarter, we had total liquidity of $322.2 million, comprised of $145.4 million in cash and $176.8 million of availability under our ABL facility. As of September 23, 2022, net debt was approximately $349 million inclusive of all cash and cash equivalents. Turning to our full year guidance for 2022, based on the current trends in the business, we are updating and raising our full year guidance as follows. We estimate that net sales for the full year of 2022 will be in the range of $2.45 billion to $2.55 billion, gross profit to be between $575 million and $599 million, and adjusted EBITDA to be between $145 million and $155 million. Our full year estimated diluted share count is approximately 42.5 million shares. We currently expect our senior unsecured convertible notes to be diluted for the full year and accordingly, those shares that could be issued upon conversion of the notes are included in the fully dilutive share count. Thank you. And at this point, we will open up to questions.

Thank you. The first question we have is from Alex Slagle from Jefferies. Please go ahead.

Hey, thanks. Good morning and congrats to all of you. Hard work paying off. Clearly, a very strong 3Q and I guess also helped by the favorable summer demand backdrop. So as we shift to more normal seasonality ahead, can you help us think through what the expectations are implied in the 4Q? I guess what the implied EBITDA fairly similar I think to the reported 3Q number, and the gross margin at the midpoint, I guess expected to be up year-over-year, but track somewhat versus recent 3Q levels or maybe you could kind of talk through some of the drivers there?

Hey, Alex, you kind of trailed off your question at the end there. Could you repeat the second part of your question?

Oh, sorry. That was, I missed that. On the gross margin expectations for the fourth quarter, I mean, I guess it looks like at the midpoint it's expected to be up year-over-year, but contract somewhat versus the recent 3Q levels. So if you could kind of talk through some of the drivers there, whether that's pricing changes or some conservatism or what?

Yes, I think it's just a little bit of continued conservatism maybe just on the gross margin side. I think the fourth quarter is typically our strongest gross margin quarter. There's nothing that would indicate that we would expect anything different, but I think it's reflected in the updated adjusted EBITDA guidance. I think from a guidance perspective, we came into the year with a fairly gradual build type of conservative view, and we've adjusted the guidance throughout the year to reflect the strength that we've seen. The cadence in the third quarter to your point was really a return to typical seasonality. July and August were slightly weaker than May and June, and that's typical, although there was an underlying strength to that. And then as Chris mentioned in his prepared remarks, September we really saw some good seasonality strength come back and specialty with some return to the office in some of our business urban markets starting to come back. And we had expected that to come back towards the back half of the year and it's kind of playing out.

Got it. That's helpful. Thank you. And then just stepping back, bigger picture, I mean, any kinds of high-level goals you have as you get towards year-end here and think about what you want to accomplish in 2023 and whether that's growth, operations or people and sort of what you think needs to happen to get there?

Well, I mean, you know this business, you don't just flip on the switch. So our people are prepared. We anticipate a great fourth quarter, a record fourth quarter. We get to see the bookings. We see all the parties that are booked by a lot of our major clients. So, everybody is geared up for it. You have to have the inventory. We have to have the trucks, drivers, and all the people available to meet the expectation of the volume. So, we've been building since coming out of COVID in February, and we're very blessed that it continues to build. I think we said back in the second quarter going into the third quarter that we really haven't had a season. I don't know if in the two-plus years that we actually had a season, right? I think at the end of 2021 we got that last Omicron and things didn't open and nobody came back to the office. So this is really the first one that, do I think it's a 100%, I don't think it's a 100% in every market and every office setting, but it's 120%, 150% in many of our other markets in our businesses. Our caterers are back, cruise ships are coming back, hotels and events are coming back. So, I think when we kind of gave guidance, we were hedging that even if there was a slowdown and the so-called recession, we would get the big uptick with all that volume that was missing in our business. And I think what we're seeing now is our customers are still doing great, and now we're starting to get all that event activity that was not there before. We're getting cross selling. So we're anticipating and we are anticipating a really busy fourth quarter and we're hoping especially for all our team members that have gone through two years of challenges that they can really celebrate in a great fourth quarter.

Great. Good to see it all paying off. Thanks.

Thank you, Alex.

The next question we have is from Peter Saleh from BTIG.

Great. Thank you and congrats on the quarter and the year. I want to ask just maybe more specifically on the hospitality business. It sounds like that is starting to come back based on your comments. Can you give us a sense on where that is trending today versus where it was pre-pandemic?

Well, I mean, it's really hard. We can't remember 2019, it seems like ages ago. But what I am hearing from a lot of our major clients, and I've been traveling extensively, visiting many markets. There's just no real sign of any slowdown, which is what I was apprehensive about, right? Because we got to plan inventory, we got to plan the labor to get us through that. So we just keep seeing acceleration. So I can't remember back to 2019. I mean, I'm sure we can get back to you and do a lot of those comps, but we're seeing the bookings, we're seeing corporate events that we haven't seen in a while. It just seems like it's normal and even more celebratory than 2019.

Great. And then just on the inflation and the outlook, I think in your prepared remarks, you guys mentioned certain center-of-the-plate items are deflationary. Can you just give us a little bit more color around that? And then is there any reason to believe that the fourth quarter EBITDA margin won't be the strongest of the year?

Yes, thanks Peter, for the question. In terms of center-of-the-plate deflation, yes I think we had mentioned a couple of times on earlier calls that we had expected some of the real strong price increases in the back half of last year, were mainly center-of-the-plate. And what we've seen is specialty prices continue to rise through 2022, whereas in aggregate, excuse me, center-of-the-plate prices have been fairly flat and slightly, excuse me, slightly deflationary. Sequentially versus the second quarter, basically flat. Specialty prices were up 1% to 2%, sequentially in the third quarter versus Q2 and center-of-the-plate prices were about flat to maybe 1% deflationary in aggregate. Obviously different categories behaved a little bit differently, had slight inflation, maybe some slight deflation, but it's all kind of evening out. It feels like pricing has reset higher and then kind of leveled off, and that's why you've seen the year-over-year come down from kind of 15% to 16% in Q2 to below 10% now single digits in Q3. And then, I'm sorry could you repeat the second part of your question?

Yes, I was just curious on your outlook for the EBITDA margin, maybe for the fourth quarter. I mean, historically, I think the fourth quarter is the strongest EBITDA margin. Is that how we should be planning it as well or what is your outlook there?

Yes, I mean, we don't see anything right now that the fourth quarter won't be our strongest quarter from a margin perspective, from an EBITDA margin perspective, revenue and EBITDA. So at the moment we don't see anything that would change that.

And again, you know the fourth quarter Peter, the margins are so strong because of all the pastry products that we sell, those are high margin, right? They're difficult categories to manage. We've been working on this for over 20 years becoming better at it, having the right inventories, right? I mean, you buy too many Santas, you're taking Santa to 2024. So you try to right size your inventory, but those are usually the higher margin items. A lot of the catering items are better margin items. So what we're seeing now, input costs, everyone keeps asking about inflation, deflation, a lot of the input costs we don't see those resetting down, right? I don't think labor, once you go to $20 an hour from $17, I don't see that changing in our manufacturers. You know costs, they can get a little more efficient and have more technology and I guess robotics. But gas is still expensive. Diesel is expensive. Our transportation costs crossed the pounds, all our containers coming in, we are seeing some relief, but it looks like they've all reset higher. So I was wrong. I thought a lot of it was going to be more transitory, and now I'm starting to think that a lot of it is just reset because of energy costs, labor costs, real estate costs. Warehousing is much more expensive than it was three, four, or five years ago. I still think that that effect of online, the demand of warehousing closer to cities has pushed up a lot of warehousing costs. So, in a sense also, I think it's built more of a moat around our businesses. It's really hard to come into this industry now. It was a lot easier years ago, but the cost of facilities, the cost of building our facilities, the cost of debt is more expensive. So it's kind of a Yin and a Yang as well as much as there's headwinds. It's also I think, protecting a lot of us who are strong and are set up with facilities and labor and the expertise to manage through this. I think that's why we're seeing such a tailwind.

Great color. Thank you very much.

Thanks, Peter.

The next question we have is from Andrew Wolf from C.L. King.

Thanks. Good morning. I think I'll start with a sort of follow-on to what you were just talking about, Chris. So I hear what you're saying about cost being up and the industry because of its capitalization and other reasons has a lot of pricing power. So as you kind of look next year, and I'm not asking you to get in front of your guidance, but, or even the next few years, it sounds like profitability expansion as the EBITDA margin goes up should more be driven by gross profit margin than the expense ratio, contracting given, I mean, there's an obviously volume has a positive impact on the expense ratio. But let's say relative to history, it's going to be a little more of a gross margin situation just given what you're talking about with overall inflation being so sticky on the cost side?

Yes, you know, Andy so much has changed, it's kind of like a reset in our industry. When you used to look at margin, I mean obviously we look at margin, but I call it the spread right now, it's really leveraging your overhead. So, there's been so much inflation and we're not trying to be a giant broad liner. There's enough of those and they do a phenomenal job at what they do. What we do and what we sell is a lot of expensive products and it's changed from gross, gross profit margins to gross profit dollar business. So when chocolate is now $300 to $400 a case, and prime beef is, a center cut filet prime today is, I don't even know, $50, $60, the business has changed. It's managing your overhead, it's managing your drop size, and it's getting that spread. So the crystal ball for next year, when we just, we always look at the trend, right? The trend is business is strong. Our clientele, their clientele is spending, God willing, we don't get another crazy variant or something that disrupts the industry again. And it's really about selling the expensive boxes. I think I've been saying this for the last few years coming out of COVID that the pipeline was always faulty. The industry is continuing to consolidate for many, many, many reasons. A lot of it is that it's just so much more expensive today to expand for a lot of the smaller businesses, right? It's healthcare, it's facilities, it's labor, it's technology. So we continue to see that the industry will consolidate. We think we'll be one of the winners as a consolidator. We're building these new facilities to be able to consolidate. So you know, this is not a new business, but it is a new way to manage the business. And I think Chef is really prepared for it, and we're making those investments and we're putting the cash back into the business, and we have a talent officer and nothing, as every day we focus on more, more and more, you know, acquiring talent, adding to our bench and really we're on that trajectory to be $4 billion and $5 billion and way beyond that and the team is really focused and doing a great job.

Okay, thank you. That's really helpful color on your kind of vision. I wanted to ask a kind of a specific question, maybe more for Jim on the gross margin contraction on the specialty side. Is that kind of like what's going on with eggs and just hitting the margins and not really the profit dollars or is there something else that beyond certain hyperinflation in some of the categories you sell in specialty?

It's really, that's the year, that's the year-over-year comp, and it's really just what I said earlier, specialty prices continued to rise through Q1, through Q2 and then through Q3, although sequentially kind of flattened out versus Q3, but when you compare it to last year inflation in specialty was 15% year-over-year, whereas in center-of-the-plate it was essentially flat. So that's just going back to what Chris said, we're getting more gross profit dollars, really strong gross profit dollar growth. If it comes at the expense of a few basis points of compression on margin, that's just managing price effectively. So we're getting the gross profit dollar growth to drive EBITDA growth and that's just, that's really just a year-over-year comp given what specialty prices have done.

Got it. My last question is a follow-up regarding whether pricing in specialty is beginning to stabilize or increase at a slower pace. What do you think is causing this shift? We aren't hearing as much about supply chain disruptions as we did a year ago, but you are a significant importer. Are factors like overseas freight starting to normalize in terms of pricing? I believe availability has been steady, but what is your perspective on this? It's challenging to assess your cost outlook, but your buyers deal with this daily.

Yes. I believe we are far from a normal situation. Although things have improved, it remains quite challenging. Our logistics and category teams have never worked harder, and conditions are still not typical. Margins are in a completely different place compared to 2019. This industry is clearly very competitive, and there has been a significant consolidation among various specialty distributors. Additionally, we are familiar with all the major players. Labor is a critical factor at this stage. Often, when dealing with large accounts, the competition can lead to aggressive bidding, resulting in taking on business with minimal or no margin for several reasons. Currently, our priority is that if we can't make a profit, we are not interested in taking on that business because labor availability is a challenge. We are working towards specific financial targets, with each division having goals for generating gross profit while managing their expenses. While it's impossible to predict exactly what will happen next year, we feel prepared to achieve the numbers we are aiming for. Thus, if we have a specific revenue target for next year, that's what we are focused on.

Great, thanks. And like everyone else congratulations on how the business is trending. Take care.

Thanks, Andy.

Thank you. The next question we have is from Kelly Bania from BMO Capital.

Hi, good morning. Kristen Dim, and congrats on another strong quarter here. I guess I just wanted to ask about long-term EBITDA margins. So this year going to come in very strong, I guess, at least on a, at least 6%. And with the high end of your goal, long-term at 7%, just curious if there's any puts and takes from a margin perspective or I guess factors that maybe were tailwinds this year that might not be as repeatable. Just trying to think if we could moderate as we go forward, either from investments or tailwinds that are not repeatable before we go back to that 7% goal, or just how do you think about that long-term goal in any different way, given how the year has played out?

Yes, thanks for the question, Kelly. I think we don't want to get too far ahead of January when we give guidance for 2023 and then kind of update our medium to long-term growth algorithm. But I'll let Chris jump in as well. But overall, given the dynamic changes that Chris mentioned in the industry, et cetera, at its basic core, I don't think it's changed. We'll continue to target mid-single-digit organic growth. We'll continue to be a consolidator from an M&A and acquired growth perspective. And then, as Chris mentioned in his prepared remarks, a number of fold-in type of activities that are happening right now and will continue to happen as we build facilities in places like New England and consolidate the businesses that we've acquired over the past few years and started to grow as we grow Texas and, and as we consolidate our operations in Northern California under a project that's already underway. Our goal will be to continue to generate operating leverage as we grow, strengthen the balance sheet, as we grow and that's a pretty powerful combination. So I'll ask Chris to add whatever his thoughts are.

Yes, Kelly, I believe it comes down to our goal of achieving a 7% or higher margin, even if our growth slows. The only factor that might impede us from reaching that margin is if we acquire more companies that we see significant value in and plan to scale, which can take a few years. If we maintain our current course and make no changes, reaching that target seems feasible. However, if we pivot toward an entrepreneurial approach, seizing market opportunities and rapidly moving towards becoming a $5 billion company, our EBITDA margin could be impacted if we acquire lower-margin businesses. The real work would then begin with consolidating these businesses, integrating them into our operations, implementing technology, and adding our Chef products. Therefore, if we grow quickly to $5 billion, our margins may be lower, but if we grow at a slower pace by integrating more traditional businesses, achieving that margin is quite attainable.

Thank you. That's very helpful. Also, just curious, if you could just touch on availability of labor what you're seeing on the wage front and just how that's progressed relative to your expectations?

This is not a new business, so we have a very experienced team. We thought we had seen it all before COVID, but labor has always been a challenge for us. Since we started the company 35 or 36 years ago, we have always been short-staffed across every division. Coming out of COVID was especially tough for the team as the demand returned quickly. However, we are managing the labor situation now. The labor market has adjusted to a higher level, and we are competitive because our numbers reflect it. This indicates that we have the necessary labor. We are certainly not overstaffed, and our customers are finally reporting improved conditions, especially in areas like New York where some couldn't even open for lunch due to labor shortages. Almost everywhere we operate, things are getting better compared to the initial crisis. More people are entering the labor market, and I am hopeful that this trend will persist, though there will be challenges along the way. I wish policymakers would collaborate to help us find labor and provide enough options to meet the rising demand because our industry is in desperate need of workers.

Okay. That's very helpful. And maybe just one last one from me, just on Allen Brothers. Chris, I think you mentioned broadening that out to the East Coast. May be just an update on which regions Allen Brothers is in today? Where it could go? What could be their potential long-term cross-selling opportunity there? And what is the impact if they cannibalize some of your other center-of-the-plate business? Just maybe help us think about the strategy overall there with Allen Brothers?

Yes, so you know, we bought Allen Brothers, I forget what year and we went through a really, very long, tough learning curve, but we bought Allen Brothers because it's one of the only brands in food service, in a business that there's not a lot of brands, right? And it took us a while, but Allen Brothers right now is just becoming a world-class brand in food service. And the team now is doing an unbelievable job in a very tough market. And I believe that it's going to double, I don't want to give you two or three years, but the potential and how it's accelerating and the people that are joining us and the clients that are rewarding us. I think that business is going to highly accelerate over the next few years.

Thank you.

Thanks, Kelly.

The next question we have is from Todd Brooks from The Benchmark Company.

Good morning to both of you, and congratulations as well. I have a couple of questions. Chris, you mentioned the momentum with cross-selling, which relates to Kelly's question about Allen Brothers. You're expanding the specialty produce and seafood categories, and I'm reflecting on the organic growth target of mid-single digits that was established before the pandemic. Could you discuss how cross-selling contributes to organic growth and how your customers' appetite is affected by your service levels? Given how well you've serviced them during the pandemic, are they likely to increase their orders with Chef as they access produce, seafood, and other products from you? Specifically, within your organic growth expectations, how much is fueled by cross-selling, and how much control do you have over that success?

Sure. Great, great question. And the major driver of the new facilities, Florida is delayed, but hopefully sooner than later we're able to get in that building and that's a master cross-sell building, right? The same in LA. Most of that building is built, but the outlook for labor, never mind traffic that's in all the major city anyone's traveling is seeing how bad traffic is. You have to figure out how to get efficiencies in your transportation. And I think the companies that figure it out the best, because you don't want to homogenize the business. We've watched a lot of competitors do that. So I always go back to it's a hybrid model. We're here to service the client any way that they want, but my prediction is that they want quality, but they also want savings and the savings come by allowing companies like ourselves, I call that share the truck, right? So when that CW truck leaves, I think over the next 10 years it will transport seafood. It will transport meats and other proteins and produce with specialty and all the frozen products. So that's why I always say, CW is a specialty broad liner. We're not a regular broad liner. Nothing we do besides maybe some of the technology is typical of a broad liner, but there is so much that goes on behind the scenes to do what we do at the quality level. And I always say that Chef does the hard stuff. So we're not trying to do $60 billion, but we think that we are going to be a much, much bigger company. And a lot of it is that cross-selling and you've got to have the talent and you've got to have the expertise to handle those products, because a lot of them are perishable. A lot of them require expertise in buying and moving around and shipping from 40 countries and over 1500 probably now are suppliers. So I think that's our moat. A lot of companies come after us in certain pieces of our own business, but it's so hard to replace us because of the moats I think we've built around our business. And it's not easy, every day we struggle and obviously we fail ourselves best, but handling seafood and handling a lot of the cut shop proteins and produce now. And I think our hybrid approach and the investments in the new buildings, you know there's at least two a year major buildings going up, and I think that is going to drive that mid-to-high single level organic growth that you're seeing is coming because of the ability to execute that hybrid sell.

That's great. Thanks, Chris. That's helpful. And then just a final question from me. And Chris, you touched on this in your comments, but I was wondering if we could get more color on the nature of kind of that building enthusiasm about the event holiday business this year, what you're hearing from customers? How those events are maybe manifesting themselves this year versus obviously maybe a little bit of activity last year as far as, are we getting back to bigger events? Are we seeing more corporate events? Just where is this excitement that you're seeing year-over-year? And is there a way to gauge how much progress back towards pre-pandemic levels that event business is tracking towards? Thanks.

Yes, when you talk to all the hotel operators and, of course, the casinos, cruise ships, and after my recent trip where I saw tents set up for 500 to 1000 people, it's very encouraging to see that coming back. It appears we are headed for a solid season. Anything can happen; there are ongoing concerns like the war in Ukraine and the virus is still present. We could even face multiple blizzards like we've seen before around the holiday season. It's tough to make predictions, but from my perspective right now, the outlook for the fourth quarter seems very positive.

That's great. Thanks and congrats.

Thanks, Scott.

Thank you. The next question we have is from an unidentified individual from Lake Street Capital Markets.

All right. Thanks for taking my questions and congratulations to you all for a great quarter. Chris, I'd like to ask a kind of a follow-up to your comments around the moat that you have long established. I'm wondering if you can talk about how you've observed your broad line peers, viewing the independent space as a potential source of growth over the past few quarters as conditions have improved? Are you seeing that these peers are increasingly looking to your market as a source of growth or has that been relatively static here over the past few quarters as conditions have improved?

Yes, I think whenever you listen to the earnings calls of major broad liners, they always mention their independence. I often return to Jim and ask about our numbers because it feels like they have taken a lot of our business. He reassures me that we are fine and that those numbers are accurate. The industry is vast, encompassing everything from small stores to fast food chains, and there are many independent operations. For instance, there are private taco chains with multiple facilities. So, it’s challenging to understand what people mean when they refer to independence. I know from my experience over the past 35 years that competing with the broad liners for large contracts is tough, as they are better equipped for it. It's difficult to manage two different approaches. Our method of loading trucks and how we operate is distinct. You can manage a small event with excellent service, but it becomes harder with larger crowds. That’s why our focus is on core customers with over 100 seats, where the chef and owner are involved in delivering outstanding hospitality. Pursuing business with large chains is a different challenge; it requires different warehouse operations and can feel less nimble, as we prefer to keep our facilities from becoming excessively large or deeply indebted. What makes us unique is how specialized and difficult our work is. While we occasionally reach out to larger clients and explore opportunities nationwide, our uniqueness is both a strength and a challenge when it comes to acquisitions. We aim to acquire businesses that we can transform into Chef Warehouses over time. This strategy allows us to quickly establish routes, which can take a long time to develop otherwise. We're committed to the long process of rebuilding these acquired businesses, and our team's success demonstrates that we are effective at it. However, this is not an easy endeavor; what we do is complex and requires a specific approach.

Yes, very good. Yes, I hear that loud and clear. Very good, we'll again, congratulations on a great quarter. Thanks for taking my questions, and I'll get back in queue.

Thank you.

Thank you, Ben.

Thank you, sir. Gentlemen, at this stage, there are no further questions. Would you like to make any closing comments?

Sure. So we'd like to thank everybody and all our analysts and the questions, and couldn’t be prouder of what this team at CW, it goes all the way down the chain. It takes such a big team to produce these kinds of numbers and service our customers and we're so proud of the numbers that they're putting up and their ability to really rebound coming out of COVID. So a big thanks to them and we look forward for everyone joining us in our fourth quarter call. Thank you very much.

Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.