Greetings, and welcome to the Chefs' Warehouse Third Quarter 2024 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 Christopher Pappas, Founder, Chairman and CEO, and James Leddy, our CFO. By now, you should have access to our third quarter 2024 earnings press release. It can also be found at www.chefswarehouse.com under the Investor Relations section. Throughout this conference call, we will be presenting non-GAAP financial measures, including, among others, historical and estimated EBITDA and adjusted EBITDA as well as both historical and estimated adjusted net income and adjusted earnings per share. These measurements are not calculated in accordance with GAAP and may be calculated differently in similarly titled non-GAAP financial measures used by other companies. Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release. Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements, including statements regarding our estimated financial performance. Such forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Some of these risks are mentioned in today's release. Others are discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q, which are available on the SEC website. Today, we are going to provide a business update and go over our second quarter results in detail. For a portion of our discussion this morning, we will refer to a few slides posted on The Chefs' Warehouse website under the Investor Relations section titled Q3 2024 Earnings Presentation. Please note that these slides are disclosed at this time for illustration purposes only. Then we will open up the call for questions. With that, I will turn the call over to Christopher Pappas. Chris?

Thank you, Alex, and thank you all for joining our third quarter 2024 earnings call. Business and demand trends improved sequentially through the third quarter. Continued seasonal increase in international travel among the higher income demographic led to a slightly softer season in July and early August. Customer activity accelerated into the latter half of the quarter, and momentum in demand continued into October. Our operating divisions across domestic and international markets delivered strong growth in gross profit dollars and margin, as well as continued progress increasing relevance with our customer base with strong year-over-year growth and unique item placements. I would like to thank the entire CW team for their dedication and commitment to delivering our diverse and high-quality product and service in partnership with our suppliers, customers, and the communities we serve. A few highlights from the third quarter include 5.6% organic growth in net sales. Specialty sales were up 7.5% organically over the prior year, which was driven by unique customer growth of approximately 4.7%, placement growth of 10.8%, and specialty case growth of 3.1%. Organic pounds in center-of-the-plate were approximately 1% higher than the prior year third quarter. The year-over-year percentage pounds growth was partially impacted by attrition related to non-core lower-margin business in certain markets. Gross profit margins increased approximately 58 basis points. Gross margin in the specialty category increased approximately 50 basis points as compared to the third quarter of 2023, while gross margin in the center-of-the-plate category increased approximately 45 basis points year-over-year. As we progress in the growth and capital allocation plan announced during the fourth quarter of 2023, we wanted to take this opportunity to provide more detail on certain commercial and operational metrics that we expect will contribute to achieving our targeted range of financial goals by year-end 2028. In addition, we have engaged a global consulting firm to assist our teams in driving both top-line and bottom-line improvements as we target annual incremental margin gains. Across our locations, our teams continue to work to improve distribution costs via multiple initiatives, which include route consolidation and internal transfer reductions in certain key markets. During 2024, we've eliminated routes and transfers in the Southwest as we opened our Arizona facility, in Northern California, as we integrated recent acquisitions with our specialty operations and in the Northwest with our Seattle facility coming online. The consolidation of four protein processing and distribution operations in Northern California continues to progress, and we expect completion by the first quarter of 2025. The charts here display the progression of customer orders coming via our digital platforms, which include orders from mobile and website. Investments in our digital platform continue to contribute to margin enhancement as our team drives online order adoption growth, enhancements to customer-facing functionality, and improved real-time data analytics supporting our sales teams. As of the third quarter of 2024, approximately 54% of customers ordering through our domestic specialty locations are online versus 48% in 2023 and 20% at the end of 2019. In addition to the metrics just discussed, we have highlighted here a number of growth and efficiency related areas of focus. One key focus to highlight is the ongoing integration of our specialty produce and protein businesses in Texas. We are taking steps to improve operational efficiency, merge our sales teams, and incrementally grow the cross-sell of our diverse and high-quality specialty produce and protein products across our platform. Year-to-date, 2024 adjusted EBITDA margin for our combined Texas operations has improved approximately 110 basis points versus the same period in 2023. With that, I'll turn it over to Jim to discuss more detailed financial information for the quarter and an update on our liquidity.

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 27, 2024, increased approximately 5.6% to $931.5 million from $881.8 million in the third quarter of 2023. We estimate that softer demand during July, including the impact of Hurricane Beryl, impacted third quarter revenue growth by approximately 1%. Net inflation was 3.2% in the third quarter, consisting of 4.3% inflation in our specialty category and inflation of 1.4% in our center-of-the-plate category versus the prior year quarter. Aggregate specialty inflation was primarily driven by significant year-over-year price increases in chocolate and certain dairy products. Excluding these products, remaining aggregate specialty product inflation was in the 2% to 3% range. Gross profit increased 8.2% to $224.7 million for the third quarter of 2024 versus $207.7 million for the third quarter of 2023. Gross profit margins increased approximately 58 basis points to 24.1%, and our procurement, sales, pricing, and operations teams delivered strong gross profit dollar growth across categories during the quarter. Operating income for the third quarter of 2024 was $31.9 million compared to $25.5 million for the third quarter of 2023. The increase in operating income was driven primarily by higher gross profit, partially offset by higher selling, general and administrative expenses versus the prior year quarter. Our GAAP net income was $14.1 million or $0.34 per diluted share for the third quarter of 2024 compared to net income of $7.3 million or $0.19 per diluted share for the third quarter of 2023. Adjusted net income was $15.4 million or $0.36 per diluted share for the third quarter of 2024 compared to $13.7 million or $0.33 per diluted share for the prior year third quarter. At the end of the third quarter, we had total liquidity of $221.3 million comprised of $50.7 million in cash and $170.6 million of availability under our ABL facility. During the third quarter, we continued to make progress toward achieving our year-end 2025 capital allocation goals of 2.5 times to 3 times net debt leverage and repurchasing $25 million to $100 million of outstanding shares. As of September 27, 2024, total net debt was approximately $651 million inclusive of all cash and cash equivalents, and net debt to adjusted EBITDA was approximately 3.1 times as compared to approximately 3.4 times as of year-end 2023. We updated our full-year financial guidance as follows. We estimate that net sales for the full year of 2024 will be in the range of $3.710 billion to $3.775 billion, gross profit to be between $890 million and $906 million, and adjusted EBITDA to be between $210 million and $219 million. Thank you, and at this point, we will open it up to questions.

Thank you. Please proceed with questions.

Great. Good morning and thanks so much for taking the question. So to start, it sounds like trends improved as the quarter progressed, impacted by some of the summer travel at the beginning of the period. More broadly speaking though, it sounds like traffic challenges were a bit more intense for the industry as a whole. I just want to see if any additional pockets of softness emerged for Chef in 3Q or if it was pretty steady to what you guys have been seeing in recent quarters. Thank you.

Hey, thanks, Mark. Yes, no, I think you kind of summarized it. We had a little bit of a blip in July. I think last year, the industry thought that July was a bit of an anomaly, early August, with the level of international travel. That repeated again this year. That may be the new normal, where you have a softer July than kind of pre-COVID periods and then you have a good strength going into the back half of the quarter. Our teams did a really good job of driving strong gross profit dollar growth, continuing to take market share with unique item penetration to offset some of the softness in July, and as we mentioned, the trends building into September continued into October.

Okay, great. And then just have you guys seen any shifts in the salesperson hiring environment? And by this, just are you seeing any competition for top talent picking up at all or just any impact of applications just given the industry-wide declining traffic that we're seeing even if your customers are holding them a bit better?

Yes. I mean, we continue to hire. We're always looking to bring in the bench, as we say it. You have to have that bench to grow. I think that sometimes it's underestimated how long it takes to train qualified people. I always use the example of would you go see a doctor who just did one year of medical school? I wouldn't. I'd like to see him graduate and do their residency, and it's the same with the sales team. It takes years to build really high-qualified, I call them relationship managers at this point. Our people are good performers. It's a job almost for life. It takes years to build those relationships and the portfolio of products that customers are relying on. So we don't have a lot of jumping around, and we continue to hire.

Great. Thanks so much. Good luck, guys.

Thanks. Good morning. Congrats. I wanted to ask on Hardee's. You gave some color on your Texas business, the margin ramp there, and just wondering if you could update us on how much Hardee's is diluting the overall EBITDA margin at this point?

Yes. Sure. I'll start, Alex. Thanks. Yes, I think we mentioned on one of the slides that we posted that most of that is Hardee's, but we expect kind of 20 basis points to 30 basis points of improvement in our overall EBITDA margins as we further integrate some of the acquisitions, and Hardee's is a big part of that because it's a big revenue company. It's given us a big footprint in Texas that we were looking for, and the team is making progress. We've gotten our operations team in there to help them get more efficient operationally. We've taken out some costs initially, and then building that business and integrating it with our CW Specialty business and our Allen Brothers Protein business in Texas is underway. It's going to take a couple of years to really ramp it up, but that's pretty normal when you're creating a true Chefs' Warehouse in a market where you're small and you're going to grow fast. It hasn't really changed. It dilutes us by about 20 basis points to 25 basis points overall, and we look to get that back as we integrate the business over the next couple of years.

Yes. Alex, what you're seeing from our performance is all the investments we've made over the many years. We're just taking market share. It's all the cross-selling that's working, and in a market where you have traffic slowdown in restaurants, the reason you see our numbers performing so well is that we're just taking market share from all our investments in people, in systems, in our warehouses. It’s a grind, and you got to be able to win the grind right now, and thankfully, we're winning.

Yes, that's helpful. And I guess a follow-up, just kind of wondering about churn levels and where they're tracking. I know it's still tough out there like you've been saying, and the higher price levels, I'm sure more foodservice operators are shopping around looking for better prices. Do you think maybe this churn level would pick up? Still impressive net customer growth mid-single digits, but kind of curious what you're seeing there?

Yes. I mean, again, it's always been a very competitive industry, but you see that our margins are up. We've been investing constantly into the systems and into the model, and we're built for this environment where things are not optimal. You don't have a giant tailwind and big customer growth. Our really good core customers are performing really well. A little softness maybe at the super high end, still in the steakhouses, but we think that business has been coming back and it'll get better. Customers are going to get used to higher prices and the more it costs to go out, the more consumers are going to want that great experience. You better have great service and great food when customers are going to spend $100, $150 a head. So I think that's where Chefs' Warehouse, the reliability of what we sell and what we're able to deliver them, and I think that's driving our cross-selling.

Great. Thank you. Good morning. I might have missed this, but could you kind of give us a sense of the cadence? I know you gave it qualitatively, but how much better has September and October been versus the 3.3% or so case growth specialty case growth for the quarter?

Yes. I mean, I would say that the best way to frame it is really we think July and early August cost us about 1% on top line, and that was primarily demand driven, and then it just progressed nicely through the quarter. We don't have a breakout month by month. We see trends continued into October coming out of September.

Okay. And just Cisco yesterday said late October was better because the beginning of October was impacted by hurricanes. It kind of suggested that late October is even better than perhaps in September. Did you all see a similar kind of cadence?

We don't operate a huge amount of business in a good portion of where the hurricane hit in Florida. It did impact us a little bit in early October, but nothing hugely material. So I don't have any commentary in October other than the trends were good coming out of September into October.

Good morning. Thanks for taking our questions. Wanted to just talk about some of the initiatives you outlined here, as you target these 2028 financial goals. Can you give us just any more color on the biggest contributors to the margin expansion?

Yes. I think it's a little bit everywhere. Our digital teams and our pricing teams just continue to improve. We're able to manage pricing in an environment where you do have more volatility or shortages. I think it's part of the pricing teams, category management teams, and it's the operation team. We're always trying to get efficiencies in routing, but as now that we've built out so many of these larger warehouses, as the volume starts to increase, you're going to get more to the bottom line. As long as your core business is strong and you have good customers, you're not adding a ton of business just to fill up the warehouse at low margins. So we're a margin profit company. It's built to not sell everybody, and you've got to be willing to let go of some of that business.

Hey, thanks and good morning to you both. A few quick questions, if I may. Hey, Chris. You talked about in the presentation that Chefs has engaged a global consulting firm. I'm just wondering what are you hoping that outside talent can unlock either from an efficiency standpoint or is this a revenue driving standpoint? Just what are you hoping that the outside viewpoints might bring to Chef?

Sure. So we've always run the business almost with a startup mentality, like we develop great tools and systems, and obviously, you can't replace the people. I mean, we are in the people business, so we make sure that we're getting the best talent and keeping them, but technology has changed so much. AI, obviously, everybody is talking about AI. We're using AI and see the future of more AI to help our people. I think it's just a fresh pair of eyes to help go through some of the projects and things that we're looking at to give us an outside perspective of how we can always do better.

Okay, great. Thanks. Secondly, early reads, what are you hearing from customers about their views on the holiday?

Yes. I think the overall tone is pretty positive. The one thing that has changed is that since COVID, people tend to not book far ahead. Yes, sure, conferences and stuff where you have to book, but so much is last minute now. I think that's the strongest part that we see coming back, small parties booking for everything for meetings, celebrations, client dinners, lunches, and we’ve been very pleased with what we're hearing.

Yes. I think volume and price you can never predict exactly because product mix impacts that, but I think we guided to organic revenue growth of 6% to 7% this year, more heavily weighted to the first half of the year, and that's been kind of playing out. I don't think we see anything on the horizon that's going to be materially different from getting to that 6% to 7% on a full-year basis.

Great. Thanks for taking my question. I was hoping you could talk a little bit more about how your customers are using you in mature markets like New York and the Northeast versus some more of the new markets, areas of Texas and Florida and California? Are you just seeing customers use you differently in those markets based on maturity?

Yes. In our more mature markets, we obviously have protein divisions. We have produce divisions besides our specialty and broad line, and that's our goal, to have that presence in all markets. The young growing markets focus more on buying specialty, and as those warehouses start to go up, that business continues to grow. We're in a really good place with all our markets, and they're growing as fast as they can with the ability of what their warehouse allows them to and their inventory allows them to grow.

All right. Thanks for taking my questions and congratulations on another nice quarter here. I've got a couple around the dynamics you both have referred to around kind of rationalization of lower-margin business. I'm wondering, first of all, if you're able to help quantify the impact of this either from a headwind to revenue growth and or the degree to which gross margins have been expanded because of that initiative?

Yes. We don't break it out exactly, but some of our top line across the industry has been a little weaker this year because demand has been a little bit weaker. Part of that is related to center-of-the-plate, attrition of some non-core business and you see it in gross profit margin expansion. There's a lot of different components, and as Chris mentioned, it's a natural progression. We do inherit some non-core business during acquisitions, and you will trade out of that over time.

I think I could give you a little more color. Looking at it, the margin improvement is coming from a little bit from everywhere. Some of the business that naturally goes away does help the overall margin because they're really low margin. Part of the margin expansion is coming from salespeople maturing and learning how to sell a broader portfolio of products. So it's a little bit from that natural attrition and we're really pleased with how our newer markets are maturing. We thank everybody for joining our call today. We're so proud of our team that they put up another great quarter, and we're moving all our initiatives forward and continue to strive to become better as the leading specialty food supplier for the best chefs in the world. Thank you.

Ladies and gentlemen, this concludes today's event.