Good day, and welcome to The Chefs' Warehouse First Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr. Alex Aldous, General Counsel. 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 2023 earnings press release. It can also be found on our website 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 and have 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 place 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 2023 earnings call. Customer demand was strong during the first quarter of 2023, despite several significant weather events, especially in our west coast markets. Revenue trends improved gradually from January into February and March, as dining away from home in the upscale casual to higher-end customer segments continued to grow, both in terms of new customer openings and placements per customer. In addition to our organic growth, we completed several acquisitions in important growth markets such as Texas and California, as we continue to enhance our strategy of expanding market share in the regions we serve. This category growth aims to grow relevance with our customers and drive synergies via facility investments, consolidation, and operational technological improvements. A few highlights from the first quarter as compared to the first quarter of 2022 include 17.1% organic growth in net sales. Specialty sales were up 15.9% organically over the prior year, driven by unique customer growth of approximately 21.2%, placement growth of 18.7%, and specialty case growth of 16.8%. Organic pounds in the center-of-the-plate were approximately 14.4% higher than the prior year's first quarter. Gross profit margins increased approximately 64 basis points. The gross margin in the specialty category increased 65 basis points compared to the first quarter of 2022, while the gross margin in the center-of-the-plate category decreased 68 basis points year-over-year. Jim will provide more detail on gross profit and margins in a few moments. As previously announced, we closed a number of key acquisitions during the first quarter and in the first few weeks of the second quarter of 2023. In late January, we added Mike Hudson Specialty Foods located in the Napa Valley region to our Northern California business. Additionally, during the second quarter, we acquired Greenleaf Produce & Specialty Foods. Greenleaf is located in Brisbane, California and provides chefs with a robust produce and specialty partner that complements and enhances our presence in the broader Bay Area. The addition of these companies and brands to our portfolio provides us with a great platform for category growth, cross-selling opportunities, and synergies across many of the vibrant markets in the region. In late March, we closed the acquisition of Hardie’s Fresh Foods, a premier fresh food distributor with deep local roots in Dallas, Houston, and Austin, Texas. The acquisition also includes Texas Harvest Company, a value-added processing division in Houston. The addition of Hardie’s comes at a great time in the Chefs' Warehouse growth story in the region. Our Specialty Broadline facility continues to grow at a fast pace, and we recently opened our brand new state-of-the-art Allen Brother's processing operations located in Dallas. Together, with a continuous focus on investing in people and facilities, the Chefs' Warehouse, Allen Brother's, and Hardie’s will be a triple force of unparalleled quality and uncompromised service, which will benefit our customers in Texas and accelerate growth throughout the region. The decision we made to invest in talent and facility expansion during the challenging years impacted by COVID, combined with strong local leadership, has allowed us to continue accelerating both organic and acquired growth in a very controlled manner across our platform and markets. During the first quarter, we began the phase move-in process into our new 200,000 square foot facility in Florida. Our specialty business is operational, and we expect center-of-the-plate processing for both meat and fresh seafood to start operations in the coming months. As part of this move, we are fully consolidating our specialty sales and operations, our protein processing plant located in Southern Florida, and portions of our fresh seafood processing operations located in the central region of the state. This new facility will provide ample capacity for category and customer expansion, synergistic growth with our key categories and processing operations in one location with ample room to add fold-in acquired growth for years to come. As we continue six months since Chefs' Middle East joined our family of companies and brands, we are pleased with every aspect of our integration. Our shared culture, vision, and go-to-market approach has provided a solid transition and a roadmap to our plan for growth in the region. CME's performance has exceeded our expectations, and the region continues to display significant growth, both demographically and economically. We are currently in the design phase of our planned facility expansion in Dubai, and we look forward to continued success and growth ahead. I would like to thank each of our 4,000-plus team members for their dedication and commitment to excellence that drives the Chefs' Warehouse high-quality and high-touch service model, providing an ever-evolving platform for growth for our customers and our supplier partners. We are thrilled to be certified as a great place to work for the second year in a row. This is the result of continuous efforts to place our talent at the epicenter of our operation and at the heart of who we are as a company. Whether it is in actions around our workplace environment, our employee benefits, talent development, and investing in our team members' career paths, we aim to excel and surpass expectations as a true employer of choice. 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 31, 2023, increased approximately 40.5% to $719.6 million from $512.1 million in the first quarter of 2022. Growth in net sales was a result of an increase in organic sales of approximately 17.1%, as well as the contribution of sales from acquisitions which added approximately 23.4% to sales growth for the quarter. Net inflation was 4.4% in the first quarter consisting of 5.5% inflation in our specialty category and inflation of 3.2% in our center-of-the-plate category versus the prior year quarter. Gross profit increased 44.4% to $169.7 million for the first quarter of 2023 compared to $117.5 million for the prior year quarter. Gross profit margins increased approximately 64 basis points to 23.6%. As price inflation in aggregate has continued to moderate, we remain focused on driving gross profit dollar growth, which allows us to improve operating leverage as we grow at scale within the Chefs' Warehouse. Selling, general and administrative expenses increased roughly 41.8% to $156.1 million for the first quarter of 2023 from $110.1 million for the first quarter of 2022. The primary driver of higher expenses were higher compensation and benefit costs, facility costs, and distribution costs associated with higher year-over-year volume growth. On an adjusted basis, operating expenses increased 42.6% versus the prior year first quarter, and as a percentage of net sales, adjusted operating expenses were 19% for the first quarter of 2023 compared to 18.8% for the first quarter of 2022. Operating income for the first quarter of 2023 was $11.9 million compared to $6.3 million for the first quarter of 2022. This increase in operating income was driven primarily by higher gross profit, partially offset by higher operating costs. Income tax expense was $0.5 million for the first quarter of 2023, relatively unchanged versus the first quarter of 2022. Our GAAP net income was $1.4 million or $0.04 per diluted share for the first quarter of 2023, unchanged compared to net income of $1.4 million or $0.04 per diluted share for the first quarter of 2022. On a non-GAAP basis, we had adjusted EBITDA of $32.8 million for the first quarter of 2023, compared to $21.5 million for the first quarter of the prior year. Adjusted net income was $4.6 million, or $0.12 per diluted share for the first quarter of 2023, compared to $3.6 million or $0.10 per diluted share for the prior year first quarter. Turning to the balance sheet and update on our liquidity. At the end of the first quarter, we had total liquidity of $227.5 million comprised of $91.7 million in cash and $135.8 million of availability under our ABL facility. As of March 31, 2023, net debt was approximately $576 million inclusive of all cash and cash equivalents. Regarding our full year guidance for 2023, based on the current trends in the business, we estimate that net sales for the full year of 2023 will be in the range of $3.2 billion to $3.3 billion. Gross profit to be between $768 million and $792 million, and adjusted EBITDA to be between $199 million and $207 million. As for our updated guidance, please make note of the following from modeling purposes. We currently expect interest expense for the remaining three quarters of 2023 to be approximately $11 million per quarter on average. Similarly, we expect depreciation and amortization to average approximately $11.8 million per quarter over the same period. While we do not provide guidance by quarter, please note that due to the uneven nature of the build-back of demand in 2022, combined with the non-core self-insurance related expenses recorded in the fourth quarter of 2022, we currently expect our 2023 second quarter and fourth quarter adjusted EBITDA margin performance to return to a pattern more consistent with pre-pandemic years. Our full year estimated diluted share count is approximately 45.7 million shares. For reporting purposes, we currently expect our senior unsecured convertible notes to be dilutive for the full year, and accordingly, those shares that could be issued upon conversion of the notes are included in the fully diluted share count for the full year. Thank you. And at this point, we will open it up to questions. Operator?

We will now begin the question and answer session. And the first question will come from Alex Slagle with Jefferies. Please go ahead.

Hey, good morning, congratulations. I wanted to ask on the acquisition, I wonder if you could talk a bit more on the synergies and how these acquisitions fit into your growth strategy. I mean, from the outside, these look like really great opportunities, a very good fit for Chefs. Just curious about the background on how these transactions came about, separately, if you could provide any thoughts on how much of the increase in the sales and EBITDA guide these contributed versus maybe the 1Q upside and 2Q quarter-to-date trends?

Yes. Sure. We'll break it up. I'll take the beginning of that one. So, Greenleaf in San Francisco, we know this company for over 14 years. They’ve kind of been growing side-by-side with us, more on the produce side, and they eventually got into selling more specialty. Ironically, we tried to acquire them, I think it was 14 years ago when they first traded to this group. They’ve done a marvelous job. Their reputation is as the high-end best produce in the San Francisco region. So we’ve always admired them, and the opportunity to have them join the Chefs Group aligns perfectly as we build out. They have a whole Bay area, which is a very big business for us between our Allen Brother's Steak and Seafood business there that’s over $200 million in our Chefs' Warehouse business. Our reach extends all the way to Tahoe to Sacramento. We service the whole Bay Area. San Francisco’s downtown still hasn't really come back, but we’ve been able to reach where the people are, from Silicon Valley, all the way out to Tahoe, down to San Luis Obispo and Monterey. Now being able to synergize with Greenleaf, we really think we can help grow their produce. We also anticipate that for the customers that don’t overlap, we could start to sell them a lot of our proteins and a lot of our specialty items. Long-term, we love the brand and can see extending the brand down into Arizona, Los Angeles, and Las Vegas, like we’re doing with a lot of our other category expansion. This creates a very dynamic selling environment and is similar to what we’re doing in other markets. And Jim, do you want to comment on Hardie's at all?

Sure. Yes. So overall, the combination of Hardie's and Greenleaf and the other small tuck-ins that we completed in the first quarter, added about 12% to our year-over-year top line growth. I think our prior guidance was 13% to 14% year-over-year top line growth. It's now 25% to 26%, with about 10% of that from M&A and an additional 2% from organic growth. So, on a full year basis, that 25% to 26% growth will include 18% from M&A wrapped from last year and the incremental additions from Q1 and the recent Q2 M&A, along with about 2% of incremental organic growth. So, we're moving from 6% to 8% organic growth for the year. In terms of adjusted EBITDA contribution, it’s about 70-30. So, the incremental adjusted EBITDA from our prior guidance to our updated guidance shows that about 70% of that contribution comes from M&A and the remaining 30% is the additional organic growth that includes the strength we saw in Q1 and adjustments for the remainder of the year.

Yes. Just switching to Texas, the Hardie's acquisition is something we’ve been looking at for quite a while. Our major hub is Dallas right now, and that business has been growing faster than our expectations. The team there is doing a phenomenal job. We think that Texas is one of our biggest opportunities to experience massive growth over the next 10 years. For many reasons: there’s population growth, a lot of companies are moving there, people are relocating, and there is significant wealth. Really, there isn’t anyone like Chefs' Warehouse. We opened our Allen Brother's facility where we're now cutting steaks, and we believe that business is going to grow exponentially. Hence, we were looking for a bigger platform to accelerate our growth because we need to establish another facility in Houston, while also looking at Austin and San Antonio. Hardie's provides us with that reach. They have a strong presence in all major markets with size, and they bring both people and routes to the table, which is what I was looking for. With their introduction into all the major cities and major accounts, we believe we can accelerate the growth of selling more specialty items and Allen Brother's products. Additionally, their processing capabilities provide a boutique type of service that we think will continue to grow, especially in today’s environment where a lot of hospitality is challenged with labor shortages. The outsourcing of food preparation allows us to become a much better partner to many of our major customers, and we think that division will experience significant growth as well.

That's very helpful. Thank you. And just a follow-up, if you could talk about some of the trends you saw through the quarter and how it looked into April? It sounds like it was a pretty gradual build through March based on your commentary. Any thoughts on how it trended into April regarding underlying traffic trends across your customer base, if anything changed?

Yes. The first quarter was kind of as expected, maybe a little bit stronger than anticipated. I think January and February were good months for us. You come out of December, the strongest month, and then you typically see a drop off into January which is normal. However, we experienced slightly higher strength than usual, but it was a very gradual build as anticipated. We did have some significant weather events in the northwest and our Northern California markets in late February and early March, which caused some delivery challenges, but this didn't materially impact the overall business strength and customer demand. April has been a positive month, continuing to build seasonally. There was some calendar noise with Easter and school vacations differing from previous years, but aside from that, April has appeared to be a solid month.

The next question will come from Peter Saleh with BTIG. Please go ahead.

Great. Good morning and congratulations on another great quarter. Given the news this morning of Darden buying Ruth, I was just curious if you guys care to comment on your business engagement with Ruth and your relationship with the fine dining division over at Darden?

Yes, I'm sorry. Who did Darden buy today?

Ruth's Hospitality.

Ruth's Chris.

Oh, they bought Ruth's Chris? I hadn't heard about that.

Yes, we weren't aware until this morning.

That was a bit before you guys came on. I mean, I don't know if you care to comment; if not, we can just move on.

Yes. Again, we really don't do much with Ruth. I mean, it's a great business, but our focus is on independent restaurants and smaller groups around North America. So Darden, we do business with them, quite possibly by chance, we do business with everybody. However, it's not our real focus, nor is it the growth market that we primarily target. We focus on over 1,000 salespeople, knocking on doors and doing what we excel at.

Understood. Okay. I also noticed that inflation has moderated a little bit here, 4.4% for the quarter. Any thoughts on the inflation outlook for the rest of the year? Also, if you could remind us how that impacts your overall gross margin? I think there are concerns among investors about how moderating inflation and/or potentially deflation can impact your margins. Any thoughts would be helpful. Thank you.

Yes, sure Peter. I think inflation has played out kind of the way that we expected and what I think a lot of the industry expected. Moderating from 20% last year and over 22% and then down to low-to-mid single digits this quarter. We expect the base effects of 2022 will continue to drive year-over-year comparisons. We expect continued moderation. We observed some sequential deflation in specialty prices from Q4 into Q1, but that’s normal seasonality. Center-of-the-plate prices were relatively flat sequentially. Overall, I believe we're returning to more normal inflation dynamics, and we will see how it plays out for the rest of the year. In terms of how it affects our margins, there are many impacts, including product mix, inflation, deflation, and seasonality. Our focus is on growing gross profit dollars above adjusted operating expenses. Therefore, you have to assess us on a full year basis, especially taking into account our comments regarding the corporate dynamics of 2022. On a full year basis, our guidance implies a favorable growth rate gap between gross profit dollars and effective management of our operating expenses.

The next question will come from Kelly Bania with BMO Capital Markets. Please go ahead.

Good morning. Good morning, Chris and Jim. Thanks for taking our questions. Jim, I just wanted to revisit your earlier comment about focusing on gross profit dollar growth. I think you made a similar comment several months ago about how the industry shifted, perhaps away from percentage growth towards a focus on gross profit dollars, especially as inflation moderates. I was curious if there are any processes or procedures that you've changed to support that focus across the organization, particularly regarding pricing or compensation. Or is this consistent with how you've historically managed the business?

Yes. Good question, Kelly. It’s pretty consistent with our approach. We have not previously encountered inflation of 25% overnight, so we find ourselves in uncharted territory. However, you have to respect competition, and it's crucial to handle passing on inflation to customers with care. While everyone desires increased profits, there can be substantial pain when passing on significant inflation. Suppose you were making 30% on a $30 box and now that box is $60. We still need to make 30% on the $60 box to maintain gross profit dollars and leverage our overhead. Each of our managers in every city we operate in is unique; each mix differs slightly. We are focused on margins, and you're correct to point out that we adjust how we incentivize our sales teams. Our approach encompasses a blend of margin, gross profit dollars, and gross profit dollars per drop. The delivery process comprises significant costs within the business. Our teams continuously analyze the business and improve the drop size and mix while aligning the sales focus with the company's goals effectively. Therefore, as deflation starts to materialize, which we have begun witnessing in certain categories, our focus could shift back toward gross profit margins. The emphasis on improving gross profit dollars captures attention and aids in managing the business's bottom line while preventing competition from gaining a foothold.

That's very helpful. Also, could you discuss Florida and the expansion there, including any near-term costs associated with the transition versus some of the longer-term savings as you build out that new facility?

Sure. We are consolidating our operations. We have multiple small facilities and have run out of space for some time. The opening of the building has experienced delays, approximately close to a year. We have been operating inefficiently for an extended period. We will consolidate the bulk of our Northern seafood processing into this major new Miami facility, integrate our meat processing operations in Pompano, and merge the Chefs and overstock warehouses into this location. Jim can share more precise numbers, but we aim to eliminate many inefficiencies. Although initially we may have higher occupancy costs, there is immense potential for accelerated growth and efficiency. I believe we will quickly absorb the associated costs and see significant benefits.

Yes, Kelly, just on the short-term costs, as Chris mentioned, we have modeled the incremental rent and operating costs into our full-year guidance. From a guidance perspective, it is already factored in, and it was included even in our original guidance. This facility in Florida is one of our inaugural locations, along with LA, where we are establishing a full center-of-the-plate cut shop for fish and meat and produce capabilities altogether. This is a long-term investment, and we expect to drive significant operating leverage over the next couple of years as we build our business.

Wonderful. I have one more question. Chris, you mentioned in the release the impact of new customer openings. What are you hearing from your restaurant customers about how new openings might evolve, especially considering a tighter credit environment?

I think that's a wait and see situation. We have numerous openings. Many of our core customers are looking to open new restaurants. They’re generally well-funded. The slowdown may occur in certain new real estate projects, where funding could be on hold, which would slow some openings. Interestingly enough, many new buildings are now incorporating more restaurants to draw people into office spaces. What we've observed for the past year or two is an increase in business driven by expanded customers, primarily in Texas and Florida, as well as in New York and California. In major markets, restaurants are being established where the people actually are. Unfortunately, some of our core city markets that rely on daily office traffic are still recovering to a degree. Those businesses are busy three to four days a week but haven't returned to pre-pandemic levels. Nonetheless, the places where people are not returning to the office are still dining where they live or travel, which is contributing to new volume for Chef's Warehouse. As of now, we have not detected any slowdown.

The next question will come from Andrew Wolf with C.L. King. Please go ahead.

Thank you. Good morning. Chris, regarding Hardie's, I want to revisit the value-added business they’ve acquired in Houston. It's intriguing that the high-end food service world is now requesting value-added services, which reflects something significant. Given that part of their differentiation is that Chefs perform their own work. Could you provide a bit more insight into that business and where you expect the trend towards outsourcing certain food preparation or other value-added services to go?

Yes. Again, when we refer to value-added services, their business caters to a broader customer base. Think about airline hubs requiring prepared food. Consider high-end retailers looking for convenient grab-and-go products. For the customers who seek something quick to serve at home, it’s a sale. Hotels and caterers are very much engaged and challenged by workforce constraints. This is primarily processing, cutting fruits and vegetables, and preparing products in a way that allows people to save time and manage labor costs. This trend has been evolving for quite a while but has certainly accelerated post-pandemic due to the hospitality industry being hit hardest and losing a significant portion of its workforce. While the situation has improved, it remains challenging. The need for skilled labor isn’t widespread, especially in food preparation like butchery. Hardie's represents a great footprint throughout all of Texas, which is exciting for us. It is a well-run organization and has a longstanding history of excellence. The biggest challenge when entering a new market is establishing relationships, so having a reputable entity like Hardie's become part of Chefs provides us with access to thousands of customers, including opportunities to build our specialty department to support their existing sales staff. We anticipate great success in the coming years.

Thank you, Chris. That ties in nicely with my follow-up question on the strategy behind Hardie's and other customer-focused acquisitions. Can you provide insights into how the sales synergy between protein, specifically Allen Brother's, and specialty has been developing, both in terms of cross-selling and consolidating deliveries—given that delivery is a significant cost driver?

Sure. It's a balancing act; every market has its uniqueness. Our major cities present more challenges than suburbs or smaller cities. Our original model focused on delivering to major cities where restaurants typically have limited storage spaces. For instance, a restaurant with a $14 million build-out will have minimal storage capacity. Our business evolved into being their warehouse, offering daily deliveries. Redirecting to current logistics, as we're combining categories, we recognize that delivery is costly, and customers are becoming more accepting of hybrid models today that they may not have accepted in the past. Our new facilities support this hybrid, allowing us to serve larger orders at a lower cost. Our growth rate prior to pandemic disruptions showed trends of mid to high single digits, while the pandemic has accelerated our growth. We attribute this success to effective cross-selling strategies, and while it is challenging, we believe we have built a strong dataset to help us refine our operations. Being owner-operators, we maintain flexibility typically lost by larger organizations, allowing us to adapt quickly while ensuring safety remains a core focus.

Chris, thank you for those insights. I will jump back into the queue.

Thanks, Andrew.

Our next question will come from Todd Brooks with The Benchmark Company. Please go ahead.

Hey, thanks. Good morning, guys. Two quick questions for you. First, regarding the acquisitions announced, is there any discussion or color you can provide around multiples or deal structures regarding cash upfront versus earn-outs or equity? Also, how do you plan to fund this level of acquisition activity?

Thanks, Todd. The purchase price and related details will be disclosed in our 10-Q, which we will file in the next week or so. At a high level, both acquisitions were structured with cash upfront. One included an earn-out, while the other involved a note. The multiples are within our preferred range of approximately six to eight times, with a portion deferred through earn-out structures. I'm sorry, what was the second part of your question?

Just if this acquisition activity can be funded through existing availability or if you'll need to explore additional avenues of liquidity.

As you recall, we upsized our convertible security in December, which added approximately $120 million of cash to our balance sheet. This was specifically allocated to support these two major acquisitions, Hardie's and Greenleaf. We funded the purchase price out of that cash, along with a moderate draw on our ABL to bolster our cash position in the second quarter.

That's great, Jim. One more question for either of you. I was pleased to see the update to forward guidance, which incorporates a significant amount of acquired revenue without impacting margin structure as guided on both the gross and EBITDA levels. Historically, acquisitions have required time to integrate and realize margins at corporate averages. However, here there was no change. Does that speak to the quality of the companies acquired or to a higher-margin specialty produce vertical?

Actually, just to clarify, there’s a slight dilution to our initial guidance of about five to 10 basis points, which stems from these businesses being slightly below our average adjusted EBITDA margins. However, they are structured in ways that optimize gross profit margins while leading to increased operating expenses. Overall, it doesn't vary significantly from our averages.

Yes. Todd, you're absolutely right. We acquire businesses to grow and that’s the intent behind every acquisition. Those will always be long-term propositions. Proper integration is key, and management is dedicated to enhancing profitability over time. These businesses are great with solid margins, but we always plan for improvement. As we grow our operations, we look for synergies, efficiency enhancements, and we intend to leverage our core competencies. We have a great platform, but our growth stems from continually working towards aligning these acquisitions with Chefs’ practices and standards. Ultimately, we are optimistic about integrating these companies and fully realizing the benefits of their extraordinary potential.

Okay, great. Thank you both, and congratulations again.

Thank you.

Thanks, Todd.

Our next question will come from Ben Klieve with Lake Street. Please go ahead.

All right. Thanks for taking my question and great quarter, guys. Just one question in the context of these acquisitions. You’ve been quite vocal about your intention to expand geographically into the regions of these acquisitions and by category. With these now secured, do you still see California, Texas, and Florida as underserved in terms of your current capabilities in produce, or do you think these acquisitions sufficiently address those markets such that you may now consider other locations for future expansion?

Yes. We will always be opportunistic. We aren’t your standard foodservice company; we don’t follow the typical model of expanding into contiguous markets. The uniqueness of Chefs is both a benefit and a challenge when seeking acquisitions. Our goal is to find businesses that align with our clientele while expanding our market reach, which typically requires time. If another great opportunity arises in Texas, we will pursue it. We do already have a significant presence in California with a large new facility in Southern California, which offers capacity for organic growth and provides room for smaller tuck-ins. Texas is a potential $1 billion market for Chefs, and we see enough prospects for organic and opportunistic growth. California, too, could see substantial growth, given its over $1 billion market size currently. The Southern California footprint alone could easily double or triple.

Got it. That’s helpful. Great work this quarter again. I will get back in line.

Thank you.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Christopher Pappas for any closing remarks. Please go ahead, sir.

Yes. We thank everyone for joining our call today and we appreciate the questions. It was a great quarter, and I congratulate the team at Chefs for their hard work. It’s been a busy quarter of acquisitions and moving into new facilities, and the numbers reflect their tremendous efforts. We are grateful for such a dedicated team. We look forward to everyone's participation on our next call. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.