Greetings, and welcome to the Chefs' Warehouse First Quarter 2025 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Alex Aldous, General Counsel, Corporate Secretary and Chief Government Relations Officer. Please go ahead, sir.

Thank you, operator. Good morning, everyone. With me on today's call are Chris Pappas, Founder, Chairman and CEO; and Jim Leddy, our CFO. By now, you should have access to our first quarter 2025 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 historical adjusted net income, adjusted earnings per share, adjusted operating expenses, adjusted operating expenses as a percentage of net sales and as a percentage of gross profit, net debt leverage and free cash flow. These measures 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 and first quarter 2025 earnings presentation. Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements, including statements regarding our estimated financial performance. Such forward-looking statements are not guarantees of future performance and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Some of these risks are mentioned in today's release. Others are discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q, which are available on the SEC website. Today, we are going to provide a business update and go over our first quarter results in detail. 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 First Quarter 2025 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 Chris Pappas. Chris?

Thank you, Alex. And thank you all for joining our first quarter 2025 earnings call. The first quarter of 2025 business activity displayed typical seasonal cadence as revenue trends coming out of January increased steadily into February and March. During the quarter, our business units, international and domestic, delivered strong growth in unique item placements and solid operating leverage versus the prior year first quarter. As we entered the second quarter, revenue builds during April continued to display typical seasonality. I'd like to thank all our Chefs' Warehouse teams from sales and operations to all the supporting functions for delivering a great start to 2025. I would also like to recognize our customer and supplier partners for their support and confidence in our people, the quality and diversity of products, and our high-touch flexible distribution platform. Now please refer to Slide 3 of the presentation. A few highlights from the first quarter include 8.7% growth in net sales. Specialty sales were up 10.7% over the prior year, which was driven by unique customer growth of approximately 4.5%, placement growth of 7.7%, and specialty case growth of 5.7%. Pounds in the center of the plate were approximately 1.3% lower than the prior first quarter. During the first quarter, we commenced the attrition of certain low-margin non-core customer business that had an impact of 0.7% lower year-over-year sales versus the prior year quarter. The primary driver of the attrition was a high-volume, low-dollar commodity poultry program acquired with an acquisition. Excluding this attrition, total center of the plate pounds grew with 3% higher than the prior year first quarter. Gross profit margins decreased approximately 18 basis points. Gross margin in the specialty category increased approximately 6 basis points as compared to the first quarter of 2024 while gross margins in the center of the plate category decreased approximately 83 basis points year-over-year. Jim will provide more detail on gross profit and margins in a few moments. Now please refer to Slide 4. Chart one provides the first quarter 2025 trailing 12-month update to gross profit dollars per route as compared to full year 2024 and 2019. Chart two provides the first quarter '25 trailing 12-month adjusted operating expense as a percentage of gross profit dollars improvements by 36 basis points versus full year 2024 and 127 basis points versus 2019. First quarter 2025 trailing 12-month adjusted EBITDA per employee increased 1% versus full year of 2024 and 19% versus 2019. Now please refer to Slide 5. The charts here display the progression of customer orders coming via our digital platform, which include orders coming via mobile and website. As of the first quarter of '25, approximately 58% of our customers ordering through our domestic specialty locations are online versus 56% at year-end 2024 and 48% at year-end 2023. Investments in our digital platform contribute to improved profitability over time as our teams drive online order adoption growth, enhancements to customer-facing functionality, and real-time data analytics supporting our sales team. In addition, we continue to expand our digital footprint within Chefs' Warehouse, bringing Chefs' Warehouse Middle East and Hardie's online during the last few months. 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. Please refer to Slide 6. Our net sales for the quarter ended March 28, 2025, increased approximately 8.7% to $950.7 million from $874.5 million in the first quarter of 2024. Net inflation was 5.2% in the first quarter consisting of 4.8% inflation in our specialty category and 5.9% inflation in our center of the plate category versus the prior year quarter. Reported inflation was impacted by two primary factors in the first quarter versus the prior year quarter. Prices in chocolate and egg category products remained elevated versus the prior year with double-digit year-over-year inflation. Specialty product cross-sell growth in Texas, as we combine our legacy specialty and protein sales with our Hardie's produce operation. Average revenue per case in Hardie's increased approximately 12% versus the first quarter of 2024 as the mix of lower volumes and higher revenue cases increased. Excluding the impact of the Texas cross-sell growth, aggregate specialty inflation was approximately 3.1% and overall inflation for the company was approximately 3%. Gross profit increased 7.9% to $226 million for the first quarter of 2025 versus $209.4 million for the first quarter of 2024. Gross profit margins decreased approximately 18 basis points to 23.8%. Selling, general, and administrative expenses increased approximately 6.5% to $202.8 million for the first quarter of 2025 from $190.3 million for the first quarter of 2024. The increase was primarily due to higher costs associated with compensation and benefits, facilities, and distribution to support sales growth and higher depreciation driven by facility investments. Adjusted operating expenses increased 5.5% versus the prior year first quarter. And as a percentage of net sales, adjusted operating expenses were 18.8% for the first quarter of 2025. Operating income for the first quarter of 2025 was $22.7 million compared to $16 million for the first quarter of 2024. The increase in operating income was driven primarily by higher gross profit, partially offset by higher selling, general, and administration expenses versus the prior year quarter. Our GAAP net income was $10.3 million or $0.25 per diluted share for the first quarter of 2025 compared to net income of $1.9 million or $0.05 per diluted share for the first quarter of 2024. On a non-GAAP basis, we had adjusted EBITDA of $47.5 million for the first quarter of 2025 compared to $40.2 million for the prior year first quarter. Adjusted net income was $10.2 million or $0.25 per diluted share for the first quarter of 2025 compared to $5.9 million or $0.15 per diluted share for the prior year first quarter. Turning to the balance sheet and an update on our liquidity. Please refer to Slide 7. At the end of the first quarter, we had total liquidity of $278.9 million comprised of $116.5 million in cash and $162.4 million of availability under our ABL facility. As of March 28, 2025, total net debt was approximately $535.2 million inclusive of all cash and cash equivalents. And net debt to adjusted EBITDA was approximately 2.4 times. Turning to our full year guidance for 2025. 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 2025 will be in the range of $3.96 billion to $4.04 billion, gross profit to be between $954 million and $976 million, and adjusted EBITDA to be between $234 million and $246 million. Please note that for the full year 2025, we expect the convertible notes maturing in 2028 to be dilutive, and therefore, we expect the fully diluted share count to be approximately 46.3 million to 47 million shares. Thank you. And at this point, we will open it up to questions.

The first question comes from Alex Slagle from Jefferies.

I wanted to ask a little bit more on the tariffs and inputs. I know we've discussed it before, but just as it becomes more real, I think maybe you can give some comfort there, kind of talk about the flexibility you have. Just to kind of give us the latest on what you're thinking on that front.

We believe there should be discussions about tariffs. We have been preparing for this situation, and there isn't much clarity on where it will ultimately lead. However, it remains a small percentage of our overall business. Although we import a variety of specialty foods, they constitute a minor part of our total operations. We generally pass on the costs, but some suppliers may absorb part of it if it persists. It's important to note that freight costs are also part of our expenses and are not subject to tariffs. Overall, I feel confident about our position. Our category management team has proactively addressed these issues, and suppliers are motivated to maintain their market share. We have many alternative sourcing options and have focused on diversifying our supply chain, especially after financial crises and events like 9/11. This is why we source from various locations, including a significant amount from the U.S. We have many artisan producers creating products for us that resemble our South American and European offerings. Therefore, I'm quite comfortable with our current situation.

And a follow-up. Your commentary on the demand environment seemed pretty early; your trends seemed pretty steady, and I know there's been some stock market volatility. And kind of curious if there's any sense this is impacting demand at all on the upscale end or from what you've heard or seen?

I think as we said in our opening remarks, April was what we expected. From our perspective, we haven't really seen anything, maybe a few spots around the country that depend on maybe more seasonal tourism, but look at a good restaurant and try to get a seat; their business seems strong. Weather is improving, and all our clubs are opening, all our outdoor cafes are opening. So I think our diversity in our customer base and what we focus on makes us optimistic that we may be in better shape for any sort of economic slowdown than maybe the overall market. Again, if you go from $5 to $6 for a meal, that's a tremendous increase. If your entree goes from $26 to $28, I don't think a lot of people are going to use that as a reason not to go to a good meal. So I'm hopeful, with our 40 years of experience in this business serving this type of clientele, that we're a little more insulated.

The next question comes from the line of Mark Carlin from UBS.

To start, we've seen some reports that international travel into the US has come down a bit. Would you expect for this to be a material headwind to your sales if it's sustained, or does it tend to be a pretty modest factor?

I'm trying to remember the last time we experienced this type of environment. Tourism plays a significant role in many major cities across the country, but I don't sense any panic among our clients. There might be a slight slowdown here and there, but apart from the top-tier restaurants, we conduct a lot of business in the suburbs and with local restaurants that aren't heavily reliant on tourism. There remains a considerable amount of activity around stadiums, sports, and entertainment, which continues to attract diners in many major cities. Our cruise ship business appears to be quite strong as well. So as of now, we are not observing or receiving any concerning feedback from our clients.

And then I know everything remains pretty fluid on the tariff front. But do you see much risk for tariffs having an impact on your facility growth plan? Just do your expansion activities get any tougher from a cost standpoint given the potential impacts on materials costs?

For the near future, we have adjusted our capital expenditures compared to the previous years, specifically in 2022 and 2023. Currently, we have a few ongoing projects that we anticipate will not be affected. Our project in the Northwest is expected to be completed by the end of this year or early 2026, and the New Jersey Philadelphia project is scheduled for completion in the late summer of this year. As we look ahead, we are actively planning and haven't noticed any significant impacts thus far. This situation reminds me of how COVID made us more efficient, as we learned to manage with fewer resources. In preparing for the next phase, we are exploring more technological solutions to construct smaller, more efficient buildings. Similarly, our SKU rationalization is focused on cost control, as both space and labor have become increasingly expensive. We have transitioned from a "yes" approach to a more careful evaluation of costs. Our clients are collaborating with us and understand the current market conditions, which encourages us to be more disciplined and strategic in our operations. This environment compels us to optimize our resources. By leveraging technology and the expertise within our company, we aim to ensure that the return on investment for our new buildings is viable.

The next question comes from the line of Peter Saleh from BTIG.

Just another question on the overall environment. Are you guys seeing any slowdown in new restaurant formation given the tariff uncertainty in the overall market? I know you need a fair amount of new restaurant formation or need to add some significant amount of gross new restaurants every year to continue this growth pace. So just curious if you're seeing any sort of slowdown on the construction and new restaurant formation?

No, not really. We always say restaurateurs open restaurants. A lot of new buildings, a lot of new developments, especially in areas where you have population growth, right? So when you look at West Palm and you look at parts of Texas, and places where the population is growing, you got lots of new customers. I think I always think sometimes the data that comes out for the independent restaurants is not accurate enough to say what's happening with a lot of the independents. A lot of it's for chains that you have so many new places opening since COVID that I think that affects sometimes the numbers of how many people are going in and out of the same restaurants. I think there's just so many that the business is getting more and more spread out. For us, really that's a tailwind. We benefit from new restaurants. So it's kind of a tailwind, and we really haven't seen a slowdown. I think the only place that maybe has a little slowdown is those heavy tourist spots, kind of like Vegas maybe during the week. I think they've been a little quiet and then the weekends are still booming. But right now, in April, we haven't seen anything.

And then just lastly, Chefs' Middle East, could you guys provide an update there? I believe last year at this time there was some weather, some flooding. Just curious to how that business is performing?

The business is performing great. We continue to see growth. I think we provided some of the demographic statistics at our Investor Day in terms of the number of hotels that are slated to come online between now and 2030. So it continues to perform. We opened our new facility at the end of December last year and the team continues to grow and they're performing better than our expectations.

The next question comes from the line of Andrew Wolf from CL King and Associates.

I wanted to ask if you might be able to comment on the relative performance within your customer segments. For example, how do you understand performance within fine dining or white tablecloth versus maybe upscale casual? I think, Chris, you mentioned the country clubs are opening well. I asked that because I think BlackRock had the fine dining not doing that great, but I mean, yes, white tablecloth. And I know it's not the biggest segment within Chefs'. But I'm just kind of trying to see where things queue up with some of the public information out there where obviously your performance speaks for itself?

You just need to look at the numbers. I still receive 100 calls each week. I'm actually at concierge trying to help people make reservations, and I keep reminding them that's not my role. It seems really difficult to get into any good restaurant, and there’s seasonality to consider. I’m not sure about the BlackRock comment. However, there are always complaints, and in the restaurant industry, everyone wants to visit a new, popular spot, so there’s always someone losing a few covers each night. I do think customer behavior is likely to change a bit. I've always had a desire to be in the wine business because I enjoy wine, but I’m actually relieved I haven't pursued it at this time, as I believe that's where much of the spending slowdown is occurring. In previous downturns, our business has generally performed well, although the mix might shift slightly. People tend to opt for skirt steak instead of filet mignon and choose a glass of wine instead of a bottle. Currently, mocktails are becoming increasingly popular, replacing those who prefer not to drink alcohol, which affects the demand for drinks like martinis. The industry continually adjusts, but we haven't really noticed any significant changes.

And the other question, maybe it's more for Jim. I'm not sure. But could you comment on your gross profit dollars per case? The trend obviously was up, but maybe between the two main product categories?

We are quite satisfied with nearly 8% year-over-year growth in gross profit dollars, and we achieved good operating leverage from that growth. On the specialty side, we continue to see an increase in gross profit dollars per case, as reflected in the chart. However, we faced some attrition from a significant non-core customer, which we mentioned earlier. Excluding that factor, we not only experienced decent growth in pounds, but also around 7% year-over-year growth in gross profit dollars per pound in our center of the plate category, which contributed to the overall gross profit dollar growth. Therefore, excluding the attrition, we observed strong growth in gross profit dollars per unit and overall for both categories.

The next question comes from the line of Kelly Bania from BMO Capital Markets.

Jim, I actually just wanted to follow-up on that point and how the attrition, the non-core customer exits, how that impacted the center of plate gross margin? And I guess we should assume that kind of flow through for the next couple of quarters. But just helping us kind of model here the gross margin impact of that attrition and if there's any more planned attrition for the year that we should think about modeling?

Well, it's a big commodity poultry program, a few million pounds of commodity program. So the biggest impact is on our reported volume growth. So we'll continue to kind of call it out, because it has an impact on the overall reported volume growth. But from a margin perspective, the biggest impact on year-over-year margin has been the fact that prices are 6% or 7% higher than they were in the first quarter of 2024, and then product mix changes. So it was really just a combination of we sold a greater volume of higher dollar center of the plate products and cases versus last year. And obviously, when you have that kind of inflation, price inflation, you're going to give up some margin to manage the customers' expectations and still get the gross profit dollar growth that you need. And so we're very pleased with our center of the plate contribution to that overall 7.9% year-over-year gross profit dollar growth. But I would say, more importantly, for our customers and for what we watch is sequential inflation. And so, during the first quarter, really from the beginning of the year, other than a little bit of volatility in February, sequential pricing in both specialty and center of the plate has been within pretty tight ranges. I mean, obviously, chocolate and eggs have been a little bit all over the place and very volatile at very high price levels. But other than that, inflation really hasn't been a sequential problem in the first quarter. So it will impact the year-over-year reporting. But really those are the two factors: just product mix and price changes versus last year.

I wanted to also just follow-up on the tourism question, and it sounds like you're not seeing any impact there, just pockets. But just curious if you can give some numbers or share some anecdotes about how much the business has changed maybe versus pre-COVID where you've had some business shift outside of the more dense urban markets into the suburbs? How does that shift look from pre-COVID to today?

I think they have such a shift. As you know, some industries, like banking, want employees back in the office five days a week, but I'm not sure that’s fully happening. However, we’ve noticed that more people are returning to work, even if it’s just one or two days a week, leading to less commuting and more local dining, even in the cities. If you live downtown, you can easily go uptown and see some demographic changes. It’s difficult to pinpoint exactly, but the business has definitely rebalanced to some extent. There’s still a surge in the cities during major events and conventions, but many suburban restaurants may not be achieving the same level of business as during COVID, mainly because fewer people are heading into the cities. Overall, the landscape has changed significantly.

Could you elaborate on the guidance? Q1 showed strong performance on the top line, but your guidance suggests slightly slower growth for the remainder of the year. I assume this is a conservative approach, but could you clarify if that’s the case? Are you intentionally being conservative in your planning given the current environment, or is there something else we should consider?

Kelly, we generally don't change our guidance materially after the first quarter, just in general. If you look back, it's because you're through a quarter and you got three quarters of the year left. So that's just a little bit of our normal practice. We did bring up very slightly the lower end just to reflect the strength of the first quarter. And I think there's obviously some uncertainty around the macroeconomic environment given the tariff situation and the volatility around that. So it's also comparison driven. So if you look at our full year guidance, the growth level is lower than the first quarter year-over-year, and that's just driven by comps and the fact that we're usually a little conservative coming out of the first quarter.

The next question comes from the line of Todd Brooks from The Benchmark Company.

A quick question, Chris. You talked about the normal April seasonality and kind of reopening…

Todd, we can't hear you.

Chris, you mentioned the typical April seasonality, along with the reopening of clubs and outdoor dining. I'm curious about the conversations you're having with customers regarding the May and June timeframe, which is an important period for many restaurants due to events like Mother's Day, Father's Day, and graduations. Is there any indication of booking activity for May that gives you confidence in continued engagement with your clients?

I haven’t really heard any negative news. Most of our clients seem quite confident. The only thing I’m hearing is some slowdowns in places like Las Vegas. When we look at year-over-year comparisons, it’s clear that after COVID, when no one was traveling and hotels were full, there was a surge in places like Las Vegas. Now it appears we’re just returning to normal, where there are many options available. I do hear complaints from those who experienced a business boom after COVID and expected that growth to persist. For instance, while our business in Florida is thriving and I’m very pleased with that growth, some people still express that things aren’t as busy as they were last year or the year before. However, Florida was one of the few destinations available, so that pace couldn’t be maintained indefinitely. People enjoy having choices and are exploring other destinations now. We remain cautiously optimistic. This isn’t a new business for us; we’ve been catering to this type of clientele for 40 years, and this marks our 40th anniversary. While some areas may slow down, others are picking up, keeping our operations balanced. Families on a budget might scale back a bit, but they are likely still going to book that cruise vacation, unless they lose their job. They’re going to celebrate those special occasions like birthdays, anniversaries, bar mitzvahs, weddings, or christenings. So, I remain cautiously optimistic.

And then, Jim, a follow-up question. You spoke to the inflation levels during the quarter and that there is an element of that affected by just the Hardie's business really getting in Christmas and starting to cross-sell more specialty product. Is there a way from a modeling standpoint that you could level-set assumptions for where your thoughts are on inflation right now for the balance of the year, either taking into account or backing out the tailwind from this improved cross-sell at Hardie's?

I would just kind of range around what we talked about in our prepared remarks. If you exclude the Hardie's cross-sell, just the increase in their average case price, because we're starting to grow the specialty part of the business as we integrate, inflation was around 3%. And then within that 3%, you still have chocolate prices, which are significantly higher than last year. Once again, sequentially, for the first quarter, they haven't changed that much; they've been trading within a range, a pretty tight range, but at much higher levels than a year ago. And then everybody's aware of what's happening with egg prices. They're down pretty significantly from where they were in the fourth quarter and last year, but they're still at an elevated level and they're pretty volatile. So that's all within that 3%. So once again, I just think you exclude those two things, and you're in that 2% to 3% range that we tend to model when we forecast out. And really no real commentary beyond that.

We take the next question from the line of Ben Klee from Lake Street Capital Markets.

I'm curious about the non-core exit that you have noted here. And specifically, I'm wondering about when that was decided to be exited and when that exit was first included in your guidance; if today is the first day or if that was included back when you first announced at ICR?

It's a program that we knew we would eventually exit, so we incorporated it into our guidance range. It's not a typical program for us; we inherited it through an acquisition. We tried to make it as profitable as possible, but such programs usually go out to bid, which requires a decision on profitability. The attrition began in the first quarter, and we had already accounted for it in our guidance. Timing these events is always challenging, but that's the general timing.

I think when we forecast, you don't know when things actually are going to be bid out, and you're going to give up. We don't fire customers, but it's not what we do. Some of these acquisitions we have come along with non-core business. So we kind of build in good guys and bad guys, knowing that you're probably going to lose something like this, and then you're probably going to pick up something else. That's why I think Jim does a pretty good job with the team helping build the forecast. The numbers go up and down a little bit, but kind of by the end of the year, they're evening out with the upside. Usually, when something like this happens, we have more capacity on trucks, so we aren't adding more routes. We're just filling the routes that left a little vacuum. It actually starts to become a much more profitable business. We did that in New England. We have a lot of experience doing this with all the past acquisitions; we call it Chefs' sizing their business and kind of changing it. One of our businesses that we bought that was making barely any money, and four years later, they got $10 million of EBITDA. So I think we're very confident in our strategy. Not that we want to fire customers, but I always say we're a for-profit business and it's just not what we do, and maybe they're better off with a different model. We don't run someone else's company, but we know what it costs to run a truck and make a delivery, and the numbers have to make sense. So I think it's going to be constant; it's a constant thing that we're going to experience forever.

And that totally makes sense. I mean, the strategic and financial rationale here is certainly appropriate. I guess, Jim, is it a fair characterization that maybe some part of this business was included in your initial guidance back in January, February, and now there's no part of this on a go-forward basis that's included? And so the effective reiteration of guidance that you have today is better than it looks because there's an exited business now that's no longer included?

I guess, I think Chris really framed it appropriately that when we're building our guidance suite, we factor in the potential loss of this type of stuff but also potential gains that we may not have factored into the guidance. So, net net, we raised the bottom end of our top-line guidance, which is just flowing through a little bit of the goodness from Q1. But like we said, we factored in knowing that this was probably going to go away.

But not knowing exactly the business. So in December, when we're doing our budgets in November for '25, we don't know that this account will tell us that they don’t want to pay the increase. But I think we just forecast on $4 billion of sales; you're going to have some of this that's going to happen and some good stuff coming, so balance. Maybe it gets a little squishy in a quarter or so. But like we always say, the Italians always say, you throw everything in the pot and somehow it makes broth. That's kind of our business when you're selling mostly independents and then you sprinkle in a few of these non-core customers. We look at it when we're buying companies; we know eventually this is going to go away. While we have it, we try to figure out the next stage of the strategy. The way I look at it is, if you've got clunky low-margin business inside an acquisition, we model it over four or five years. It'll go away, and those routes are going to be repurposed with more business that we do. It's a little headwind when it goes away at once, and then the rebuilding starts, and it looks much better over that four-year period.

Ladies and gentlemen, as there are no further questions, I will now hand the conference over to Chris Pappas for his closing comments. Chris?

Well, we thank everyone for joining us today. We're really proud of our team in turbulent times with a lot of noise in the air. We think the CW team does a tremendous job in delivering the kind of quarter we've delivered, and I think our shareholders are proud of them too. Thank you, everybody, for joining today, and I look forward to our next call.

Thank you. Ladies and gentlemen, the conference of The Chefs' Warehouse has now concluded. Thank you for your participation. You may now disconnect your lines.