Chefs' Warehouse, Inc. Q4 FY2023 Earnings Call

Greeting, and welcome to The Chefs' Warehouse Fourth Quarter of 2023 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 fourth quarter 2023 earnings press release. It can also be found at www.chefswarehouse.com under the Investor Relations section. Throughout this conference call, we'll 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 fourth 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 fourth quarter 2023 earnings call. Business activity coming out of September strengthened into the fourth quarter as seasonal customer demand and volume trends progressed through November and December to close out 2023. Price inflation continued to moderate, and our Chefs' Warehouse teams across our North American and international markets delivered strong organic growth and margin improvement. As we move into 2024, I would like to thank all of our CW teammates for their dedication and passion for our mission to discover and deliver the finest specialty foods, fresh produce, and center-of-the-plate protein that inspire culinary creativity and feed the success of our customer and supplier partners, as we strive for excellence and impeccable service. As a reminder, we are comparing the fourth quarter of 2023, a 13-week fiscal quarter, with the fourth quarter of 2022, a 14-week fiscal quarter, and as such we will present certain results both as reported and on a prorated 13-week comparison. A few highlights from the fourth quarter on a prorated basis include 11.3% organic growth in net sales, specialty sales were up 11.2% organically over the prior year, which was driven by unique customer growth of approximately 12.4%, placement growth of 6.5%, and specialty case growth of 11.3%. Organic pounds in the center-of-the-plate were approximately 8.4% higher than the prior year’s fourth quarter. Gross profit margins increased approximately 38 basis points. Gross margin in the specialty category decreased 76 basis points compared to the fourth quarter of 2022, while gross margin in the center-of-the-plate category increased 71 basis points year-over-year. Specialty gross profit margins were lower primarily due to the addition of Hardie's. Excluding Hardie's, specialty gross profit margins increased approximately 35 basis points versus the prior year quarter. Jim will provide more details on gross profit and margins in a few moments. During the Q4, we completed multiple steps as part of our ongoing focus on harvesting our investments in warehouse and distribution capacity in recent acquisitions. These projects involve both consolidation of distribution center routes and operations in certain markets, as well as further integration of acquired sales teams, distribution, and cross-selling with our existing specialty and protein businesses in key markets across our network. A few highlights are; in Florida, we completed the consolidation of three facilities into our new distribution center located in Opa-Locka. We now have meat and seafood processing, specialty, and produce distribution operating under one roof with significant room to grow over the years to come. We initiated operations in our new distribution center located in Southern New Jersey, serving the Philadelphia and Pennsylvania market. This facility provides expanded capacity in a region, as well as creates additional room for growth in the New York Metro and Mid Atlantic markets. In Dallas and Austin, Texas, we have begun the process of cross-selling our specialty and Allen Brothers protein distribution with Hardie's facilitated by a combined sales force and route consolidation in the initial stages. We have reduced facility-related costs in Houston and are working on future distribution plans in the state's largest market. Our expansion in Dubai continues to progress, and we anticipate commencing operations out of the additional capacity in the second half of this year. Our consolidation of protein processing in Northern California is on track to begin a phased-in move starting in the second quarter of 2024 and progressing through the end of the year. For 2024 and beyond, we expect to leverage our expanding infrastructure further, integrate recent acquisitions while strengthening the balance sheet, focusing on free cash flow generation, and delivering our two-year capital allocation plan. As we enter this next phase of our growth, we expect Chefs' Warehouse to remain rooted in our DNA as the leading specialty food marketer and distributor to the upscale casual and higher-end dining establishments in the markets we serve. 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 December 29, 2023, increased approximately 29.3% to $950.5 million from $734.8 million in the fourth quarter of 2022, which represents a prorated 13-week net sales for the fourth quarter of 2022. Net sales on a reported basis, comparing 13 weeks to 14 weeks, increased 20.1%. The prorated growth in net sales resulted from an increase in organic sales of 11.3% as well as the contribution of sales from acquisitions, which added approximately 18% to the sales growth for the quarter. Net inflation was 1.8% in the fourth quarter, consisting of 0.6% inflation in our specialty category and inflation of 3.4% in our center-of-the-plate category versus the prior year quarter. Gross profit increased 31.4% to $228.6 million for the fourth quarter of 2023 versus a prorated $173.9 million for the fourth quarter of 2022. On a reported basis, comparing 13 weeks to 14 weeks, gross profit increased 22%. Gross profit margins increased approximately 38 basis points to 24.1%. As mentioned on our third quarter call, gross profit dollar growth and margin trends improved significantly coming out of the softer summer months. These trends continued as the quarter progressed into the holiday season, and our teams across our regions, including sales, operations, procurement, and all supporting functions, delivered a strong margin performance, while providing the premium quality product and service our customers have come to expect from The Chefs' Warehouse. Selling, general and administrative expenses increased approximately 23.8% to $190 million for the fourth quarter of 2023 from $153.4 million for the fourth quarter of 2022. The increase was primarily due to higher costs associated with compensation, including benefits, facility costs, and distribution costs to support sales growth in the current quarter. On a prorated basis, adjusted operating expenses increased 33% versus the prior year fourth quarter and as a percentage of net sales, adjusted operating expenses were 17.8% for the fourth quarter of 2023 compared to 17.3% for the fourth quarter of 2022. Operating income for the fourth quarter of 2023 was $38.2 million compared to $29.8 million for the fourth quarter of 2022. The increase in operating income was driven primarily by higher gross profit and lower other operating expenses, partially offset by higher selling, general, and administrative expenses versus the prior year quarter. Income tax expense was $10.1 million for the fourth quarter of 2023, compared to a $4.3 million expense for the fourth quarter of 2022. Our GAAP net income was $16 million or $0.38 per diluted share for the fourth quarter of 2023, compared to net income of $1.2 million or $0.03 per diluted share for the fourth quarter of 2022. On a non-GAAP basis, we had adjusted EBITDA of $59 million for the fourth quarter of 2023 compared to $50.1 million for the prior year fourth quarter. Adjusted net income was $20.2 million or $0.47 per diluted share for the fourth quarter of 2023, compared to $18.2 million or $0.46 per diluted share for the prior year fourth quarter. Turning to the balance sheet and an update on our liquidity. At the end of the fourth quarter, we had total liquidity of $221.9 million comprised of $49.9 million in cash and $172 million of availability under our ABL facility. Total net debt was approximately $662.5 million, inclusive of all cash and cash equivalents. Net debt-to-adjusted EBITDA was approximately 3.4x as compared to approximately 3.6x as of the end of the third quarter of 2023. Turning to our full-year guidance for 2024. Based on the current trends in the business, we are providing our full-year financial guidance as follows; we estimate that net sales for the full year of 2024 will be in a range of $3.625 billion to $3.775 billion. Gross profit is expected to be between $865 million and $900 million and adjusted EBITDA to be between $205 million and $218 million. Our full-year estimated diluted share count is approximately 44.9 million shares. For reporting purposes, we currently expect our senior unsecured convertible notes maturing in 2028 to be dilutive for the full year, and accordingly, those shares that could be issued upon conversion of the notes are included in our fully diluted share count.

Thank you. Before we start the Q&A, we would like to remind everyone that a reconciliation of the non-GAAP financial measures to the most comparable GAAP financial measures is available in the Investor Relations section of the company's website and in today's press release. Thank you. We will now begin the question-and-answer session. Our first question comes from Alex Slagle of Jefferies.

I wanted to ask about the outlook for '24 and maybe I guess first, if you can provide some expectations on the magnitude of impact related to acquisitions that are rolling over into '24, and get any sense for the cadence, what that looks like, assuming no other transactions?

Yes, in terms of the acquisition wrap impact. We had sized that previously right around 2.5% to 3%. And then in terms of the outlook for 2024, was that the first part of your question?

Yes.

We started off with January. It's a pretty good month. Obviously, there was some weather impact that we saw in some of our markets, but actually January is relatively always the worst month in the industry, really for our company and the entire industry. But actually, our teams executed very well during the month and we had a pretty good January, and it feels like the usual build coming out of January into February is taking place. So right now, we're sticking with our guidance and go from there.

The expectation for the elevated operating expenses continuing through the first half, as we think about the typical first quarter, second quarter cadence of EBITDA. I mean, the first quarter is usually only 14% to 15% of your annual EBITDA. Are we kind of getting back to that normal seasonal cadence or should we expect that to be more elevated?

Yes. We wrapped the increased rent from Florida and kind of midway through the year, and then we'll wrap the impact of the additional New Jersey rent in the third quarter. There are some elevated expenses continuing in the first half of the year. But the percentages in terms of EBITDA are returning to more normal than they have in the past three or four years for sure.

Our next question comes from Todd Brooks of Benchmark Company.

Thanks for the questions and congrats on the Q4 results. Couple of quick questions for you. One, I know as part of the new two-year capital allocation plan, you guys did put a share repurchase in place and did some work with your lending partners to be able to execute against that. Just not much evidence of it in what the full quarter share count was, but were you active on the plan at all in the fourth quarter?

No. We actually put it into place well through the fourth quarter, about almost halfway through, and we hadn't executed any of it as of the end of the fourth quarter.

Okay. But I think in your full year guidance, what you pointed to for fully diluted 44.9 million does that imply some repurchase anticipated over the course of '24?

No. What it really implies is that we expect to cash settle the '24 converts to $39 million that mature at the end of 2024, and so we don't expect them to be fully dilutive for the entire year. The previous estimate, as you know, was 45.7 million. You just pretty much take out those 900,000 shares associated with the 2024 converts and that gets you to the 44.9 million.

Another one, Chris. I'd love to hear, I'm just looking at the unique customer growth and it seems to be accelerating nicely on a year-over-year basis over the past several quarters. What are the drivers there? And what's the tail to the ability for Chefs' to go out and add new customers to the fold as you look into '24?

Yes, great question, Todd. We are continuing to hire and train new salespeople, which has been our key growth driver for almost 40 years. While we are leveraging digital channels to increase awareness and receive more orders, the actual customer orders that come in allow our sales team to focus on acquiring new customers. This is a crucial aspect of our growth strategy, as we experience some natural turnover, even with our loyal customer base, many of whom we’ve served for over 30 years. We constantly need to bring in new customers; it’s just the nature of our market. We cater to independent restaurants, and as they develop, their leases can expire, among other reasons that lead to turnover. Customers enjoy trying new restaurants, and restaurant owners tend to open new locations. We believe that is where we excel. Chefs’ is the leading partner in most of the areas where we sell, and I think that is what is driving our customer growth.

Our next question comes from Mark Cullen of UBS.

It sounds like sales got stronger sequentially as the quarter progressed, reflecting some seasonality. Just to clarify, did you guys also see the rate of growth pick up in each month when you adjusted for that extra week? And then any specific callouts with respect to demand and the amount of trade down you're seeing? Is it more or less than you guys might have expected? Thanks so much.

Thanks, Mark. No, the cadence in the quarter, I think, as you pointed out was pretty typical of a normal season prior to the many years that COVID volatility impacted seasonality. We talked about on our Q3 call. We saw strength in demand and margin in September coming out of the weaker summer months. I think October and November were kind of very typical October and November from a seasonal perspective. And then December was, I think the 1st of December, the three weeks between Thanksgiving and Christmas, that you really saw the corporate parties come back, the level of events come back to pre-COVID levels. I think in '22, you saw a little bit of that but it wasn't completely back, and so I think those were three very strong weeks, and that I think that really helped the quarter get back to what we would call a normal fourth quarter.

And then you guys mentioned inflation moderated in 4Q. Do you think it's bottomed out at this point? And just how do you see it shaping up in '24 at this point?

I would say we don't really predict inflation, but what we expect right now and what we see is, in aggregate, I mean, we have 70,000 products going through our distribution centers. Some are inflationary, some are deflationary, but in aggregate, what we've seen so far in the beginning of the year is kind of a continuation of what we saw in the fourth quarter, which was moderate, kind of low to mid-single digit type of sequential and year-over-year inflation with a little bit of a mix on certain products. Right now, you have things that are cocoa-based like chocolate, you have olive oil affected by droughts. You have a couple of dairy products that are inflationary. But overall, you're kind of seeing moderate inflation so far this year, and we expect that to continue.

Our next question comes from Kelly Bania of BMO Capital Markets.

Just wanted to talk about some of the acquisitions. Obviously, several have been flowing in for the last couple of quarters. But maybe can you just talk a little bit more in detail about how they're performing? It seems like, there might be some top-line upside coming in from one or more, but correct me if I'm wrong. And maybe just help us understand how you're finding those acquisitions getting integrated into the broader Chefs' Warehouse network?

I think things are going very well, Kelly. I think the team has their arms around the acquisitions from the past two years, and you could see from our growth, we call it hybrid growth. I call it right now. As companies become comfortable as part of The Chefs' Warehouse family of companies, we sought to share best practices. In many of the acquisitions, we've already put them on our computer systems. They could start to see other warehouses and what products are available, and the sales team starts to meld together. I think that's really what's been the driving force behind our continued growth for the past many years. We are not at anywhere near the finish line of what our expectations are, but every day we get better and I think that shows in the numbers. We continue to cross-sell each other's customers, and that's really the focus, right? We built these new warehouses and continue to build the warehouses and markets that we have three, four independent businesses. We are here in Florida today, and this is one of our newest facilities, where we are able to sell proteins and dairy and some produce and all our specialty and dry goods and combine them on the same trucks, and we'll continue to get the synergies, and that's what's going to drive the bottom line over the next many years.

Just wanted to follow-up on a couple more questions. You mentioned the sales force and growth there. It seems as though some of the big broadliners are maybe also increasing sales force headcount more than in recent years. I guess the question is, are you seeing that same dynamic across many of the private and specialty competitors that you compete more directly with on a day-to-day basis? And maybe just remind us of the size of your sales force and the growth in headcount this year and in coming years that you expect?

From the street perspective, I think we always see some new people. What we hear from all our leaders is, again, everything is so expensive today. When you hire people, the benefits are really expensive. If you put them on the road, car expenses are very expensive. I think our view, as you know, is to continue to use technology to free our team up. I think that it's going more and more into what I call a team sell. I think I've been saying this for the past five to seven years that my vision is there are over 1,000 people in the sales department with all our companies. It's quite a big group in sales, but it's really leveraging them and having them do more calls on new customers, more calls to their existing customers, and introducing new products, as we continue to integrate in all the regions that we have Chefs' Warehouse protein businesses now with our other businesses and produce. So it's really doing more with less. I think that's the key, and I think every company is facing that and is trying to do the same thing whether you're one of the giant $70 billion public companies or you're a small independent in the marketplace. You're going to have to get leverage because everything is more expensive. Everything is inflated, especially in the last five years. It's so important to get more efficient and larger drops to get the leverage on your overhead.

And just maybe last one. Doesn't sound like there are any issues here, but maybe just talk about your ability and cost in getting some of the products that you import over from Europe in today's market conditions and just remind us what percent of your products are coming from there?

So there hasn't been any impact from what's happening in the Red Sea to our U.S. or North American businesses. So logistics prices have obviously come way down since the crazy COVID prices, and kind of settled in a range that are a little bit higher than before but not insane. So, we haven't really had much difficulty coming from Europe. We don't really disclose the percentage that comes from Europe. We have had a little bit of some bumps with our Chef's Middle East business with some of the products that come via the Red Sea, but they've done a great job of mitigating that, and it seems that the price impacts are being felt really by the entire market there and being passed on. Customers and restaurants are adapting their menus and adjusting just like they would during any kind of supply chain disruption. But it hasn't been material to date, and the team over there is doing a great job of managing substitutions and working with customers, etc. So, I would just say, overall, the logistics environment hasn't had a lot of volatility over the last six months or year that we experienced over the first two or three years post-COVID.

Yes. Kelly, to provide more insight on that, since COVID, our partners from over 2,000 suppliers across 40 countries have adapted. Everyone is maintaining more inventory now due to the volatile global situation, including ongoing wars and climate change impacts. As a result, people are preparing in advance. In the U.S., as Jim mentioned, there is always an expectation of some sort of disruption, so we are well-prepared. Our inventory is adequate, and the team is on top of it. In Dubai, our primary warehouse had a strong December with robust business. Any pressure we faced was due to high demand. Our team there is experienced and knows how to handle logistical challenges, often anticipating issues before they arise. Overall, I believe we are in a good position.

Our next question comes from Andrew Wolf of C.L. King.

I wanted to ask about the guidance regarding margins, specifically the EBITDA margin. At the midpoint, sales and EBITDA are expected to expand by about 10 basis points in 2024 compared to 2023. The gross margin at this midpoint is projected to be over 20%. It seems, based on Alex's question, that you anticipate the first half to be relatively heavy on operating expenses, with improvements starting later on. Could you provide more insight into the progression of margins throughout the year? How do you see the leverage on operating expenses being re-established? Will it increase progressively once you start to establish it? Is that your perspective on reaching the long-term margin goal of 6% to 7%?

Thank you, Andy. Regarding our guidance and the progression throughout the year, we are providing a range. Our EBITDA guidance is between $205 million and $218 million. The midpoint for the adjusted EBITDA margin percentage seems conservative, and there may be room for improvement. In the near term, we are still facing some cost challenges due to our growth investments, which we previously discussed during the ICR and third quarter calls. These challenges will mainly affect the first half of the year. In the latter half, we anticipate gaining more leverage, with a focus on 2025 and 2026. Going back to Chris' comments, we expect to drive organic volume through the significant capacity we’ve invested in key growth markets over the next couple of years. This will begin in 2024, but we still have some larger rent investments and other growth-related costs to address. Many of the transition costs associated with our substantial M&A activity over the past two years will gradually decline. We expect this to be a slow process. Along with improving adjusted EBITDA margins, we are making key investments like Hardie's in Texas, which is a strategic decision to boost our growth platform in this major market. Initially, this investment is dilutive. For the full year of 2023, we expect to be just above 5.6%. If we exclude the initial dilutive effects of Hardie's, we would be close to what we achieved in 2022, around 5.9%. In 2022, our delivery was 6%. Our focus remains on driving organic volume through these large capacity investments and gradually improving adjusted EBITDA margins as we integrate this portion of our revenue that currently operates at a lower margin percentage.

Just speaking of Hardie's, and I know you had other acquisitions that were similar, smaller I think, but similar where you're able to margin them up, I think 300 basis points into the Boston acquisition. Could you just give us a sense of that, like is it more rightsizing the business or is it more the cross-sell, which I guess it is more the latter, but what percent of the customers are you kind of is the right goal either based on experience or how you're modeling it that you want to cross-sell to and what kind of penetration? And how does, just give us a sense of what needs to happen for that acquisition to really move the right way?

Yes, every market has its own characteristics. New York remains our initial and largest market, and it's our biggest operation. San Francisco is also significant when considering all the businesses we own. We approach acquisitions with a lot of care. To establish our footprint effectively, it’s usually more beneficial unless you’re expanding into a neighboring market, which is common in distribution. We're not just typical distributors; we identify ourselves as a marketing company that also engages in distribution, and that’s our advantage with over a thousand vehicles on the road daily. This allows us to effectively control our destiny and deliver excellent products to the market. Focusing on Texas, we recognize it's set to become a major market as many people have relocated there over the past five to six years. More of our customers are opening operations in Texas and expect our support. We’ve established an Allen Brothers cut shop that’s performing exceptionally well, and we’ve developed a Chefs’ Warehouse with smaller acquisitions to gain enough business to get the warehouse operational. We realized there was an enormous opportunity because there weren't any comparable companies in Texas. Chefs’ Warehouse uniquely accommodates around 2,000 artists and vendors from around the globe in one location, equipped with the logistical know-how and training resources for a sales force, which does take time to develop. Hardie's, which wasn’t part of Chefs' Warehouse, didn’t have comparable margins or bottom lines. Over the next five to ten years, we plan to enhance their market approach and increase sales to independent restaurants while integrating Chefs' Warehouse products into their offerings. You’ve seen us implement similar strategies over the years, like in New England. There, we acquired Sid Wainer, a solid company, and transformed their operations to resemble Chefs’ Warehouse, introducing more of our products and enabling them to reach our expected EBITDA margins over time. We anticipate seeing similar developments in Texas and other markets where we’ve invested. It’s an exciting period for us. I view our situation as owning several stadiums. These stadiums are thriving, but to increase business, we need to add more seats, which incurs costs and can initially decrease overall percentages. However, as those additional seats fill up, we will see significant returns on our investments, and that’s our perspective moving forward.

Our next question comes from Peter Saleh of BTIG.

Congrats on a strong quarter. I didn't want to ask about, I think in the past we were talking about how some of the less mature markets like Texas and/or Florida, your customer buys less of their needs from Chefs' versus some of the more mature markets like New York City. Are you starting to see some evidence now that given the investments you guys have made and some of the organic growth that you're seeing, some of these customers are starting to tick up their purchases from you in terms of their needs? Is that percentage of their needs ticking up? Are you seeing any evidence of that?

Thanks for the question, Peter. Yes, absolutely. I couldn't be more optimistic than I am right now that things are going as planned. Everything takes a little time, right? You got to get your systems in, the warehouse set up, and we are still in the first inning. But Florida is growing at a very rapid pace, and every day we are selling more and more items to the customers that we had as we start to fill up the warehouse. Florida is going to be a top four market over the next five years, and so is Texas. Texas is taking a little longer because we didn't have the facilities. We're operating at multiple facilities right now, as we're starting to figure it out. You got Austin, you got San Antonio, you got Dallas, you got Houston. It's a very large place; it's a country in itself. But every day the team is making headway as salespeople start to get comfortable with the thousands of items. Even though we hire a lot of chefs who understand food, it's really understanding how to go-to-market, sell against your competition. But the reason we've made these investments is we are so encouraged to see the reception we get when we start to enter a market and you're hitting on two probably of our big long-term growth markets, Texas and Florida. And absolutely we're starting to sell more items to these customers.

And then just, Jim, are there any calendar shifts or anything that we should be aware of in the first quarter that might be beneficial or detrimental to the business? And then just on the inflation, I think you guys said maybe a low to mid-single digit expectation for this year. Is there any sort of change in the cadence first half versus second half? I know you guys don't like to really forecast out the inflation. I'm just trying to understand if there's anything that we should be thinking about higher or lower in the first half on inflation? Thanks, Pete. In terms of the first quarter, there are no significant calendar shifts that really come to mind right now, so nothing to really call out there. In terms of inflation, once again, we build it into the range of our guidance. The range of our guidance incorporates potential variability on volume due to macro demand, which we don't control, and due to price, which we don't control as well, but we adapt to as we move through the year, whether it's trying to hold price in a deflationary environment or managing the customer and the price in an inflationary environment. So, I think again, it's just incorporated into that range of the guidance, and we adapt and manage as we move along.

Our next question comes from Ben Klieve of Lake Street Capital Markets.

Just one question for me. Throughout the call, I appreciate your comments about focusing on the integration of your legacy investments and acquisitions throughout '24. And my question to you, Jim, is again, in this context where you're really focusing on what you have already done and integrating these investments, what remains compelling to you in a potential acquisition that you could potentially still make in 2024? Are there kind of high-level characteristics of an acquisition you could look to make in 2024? Or do you feel really kind of off the gas here for the balance of this year?

Thank you for the question. As the smaller player among the public companies we compare ourselves to, we needed to make acquisitions to establish our presence. Now, our focus is on significantly increasing our capacity by the end of the year, which should grow by about 60%. We are dedicated to driving organic growth and remain open to opportunities as they arise. However, we do not plan to make any major moves into new markets and have already laid out our capital expenditures forecast. Our aim is to generate more cash, reduce some debt, and potentially buy back shares. While we want to strategically utilize our increased capacity, smaller acquisitions could be very beneficial in helping us achieve our EBITDA targets. We are regularly approached with opportunities, but our primary focus right now is on enhancing organic growth, particularly with the strong capacity we have in key markets such as Florida and Los Angeles. We anticipate opening our new processing facility in San Francisco this quarter, which will allow us to streamline multiple businesses into a modern facility. We have a lot of exciting developments ahead in the next year or two.

We have reached the end of our question-and-answer session. We'd like to take a question from Ben Klieve.

Yes. Thank you for everybody for joining our call. I couldn't be prouder of the team at Chefs' and what they're accomplishing. We look forward to many, many great things from this team and look forward to everyone joining our next call. Thank you very much. Have a great day.

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