All right, we're going to get started here. I'm Kelly Bania, Food Retail Analyst at BMO. Really excited to have Chefs here with us again. I got that for you. If you are not familiar with Chefs, they are a premier distributor and food marketing company with over $4 billion in sales and really specializing in kind of that top third of independent restaurants. Happy to have with us, to my left, Chris Pappas, founder, chairman, and CEO of Chefs, as well as Jim Letty, CFO. So I guess to start, we are not too far off of earnings a couple of weeks ago, or last week, whenever that was, and you really had a strong acceleration in trends, notwithstanding kind of some of the worries about the Middle East, but I guess the question that I wanted to have and talk about was just, what do you think's happening? How much of that is chef-specific or the end market for demand of those restaurants just accelerating, and how much is kind of chefs gaining even more share with those customers? Hard to measure from my seat, so.

Yeah. I think it's the Goldilocks where I think our customers overall are doing well. I think that all the investments, especially the last 10 years, getting these new facilities up, getting into new territories where we entered through acquisitions that we bought companies that were much, much less profitable, if profitable at all than us, and rehiring, giving them the technology, the right buildings to operate, and the, you know, we have over a thousand people in the sales force, and it's no accident. We have many new people in the last, you know, ten years that we had to train, and it's not easy. And I think if I had to give one area of of the acceleration and I'll get to category acceleration in a second, but it's putting all the time, effort, and investment in those people and the technology to help them that's really giving us a tailwind and it's mastering a lot of the new categories and learning how to sell those products, how to produce something that's different. Like you said, we're really a food marketing company that that distributes. So, you know, we take possession of products and we have to go out and make markets for them. And so to do that, you have lots of specialists. You have lots of people to support the regular sales force. You have key account representatives. So it takes a village to do this. And I do think there's a little tailwind, but I think a lot is just the team starting to gel and we're starting to get leverage on the overhead that we added the last 10 years.

Can you maybe just talk a little bit more about that training process? How different is that at Chef's? How extensive is that?

I think it's training for life because we're always adding categories and the world keeps changing, you know, how we buy, you know, So from, you know, I'm out the next few weeks visiting ranchers, visiting farmers. Our COO right now is in Europe visiting so many of our autism producers. So, you know, you're constantly learning, and then you've got to give that knowledge to, you know, to the Army. And with that, we make the investments of getting all the producers in front of them. And it's like constant. It's like going to culinary school and business school for us every week. It's just constant. And that does cost money. And it did cost us a lot of money over the last 10 years to build this. And we're starting to see the fruits of our labor.

I guess on that point, you know, your EBITDA margin last quarter, I guess if you go kind of trailing for quarters, was 6.4. I've been covering Shast for a long time, and we've always talked about getting to this 6% to 7% margin, and it feels like we're finally there. But I guess I think you've also commented that that's not necessarily the ceiling. So help us understand kind of that comment in a little more detail. Why is it not the ceiling? What is working? What is not? Where is there additional opportunity? Because it's a really good margin.

You also remember, I'll brief his down, and I said, we'll get to $5 billion. If we get to $5 billion sooner, we probably had a little bit more of M&A in, or the mix, you know, more expensive items. And we'll be a very profitable company, but maybe the EBITDA won't be 7% or 8%. If we get there much more with the ground force and organically, it might take a little longer, but the EBITDA might be higher because we're not moving as fast, we're not buying as many low-margin companies and having to, we call it, chef-a-size them, right? So the core business itself produces a much higher EBITDA. So it's really the investment that goes into building new territories, building new categories, that kind of is a drag. And a lot of our products that are inflated, like beef, you might not achieve the same margins that we do in our specialty foods. It's a very expensive box, but we love it because it's GP dollars. So, you know, I'd much rather sell a $200 box than make 20% or then make 30% on a $20 box, right? So the mix can confuse you if you're trying to study it and see it. And it's the way we grow territories. But when they're up and running, like New York, and you can load out of one facility and you can get on one system, the EBITDA starts to go a lot higher. I would say we have to make it easier and take the cost out. So for so many years while we were trying to build this company nationally and internationally, we were touching the boxes too many times. And that is self-inflicted, but it was necessary to get this thing to where it is now where we could start to leverage it. And the more leverage you get, you know, the more pounds and boxes on a route, you're going to make more money if you're doing it right. And we're starting, I still think we're only in the first, second inning of that.

I guess on that same note, you know, your analyst day, I think it was last year, last spring, you talked about a lot of different areas that would get you to this kind of margin. You kind of mentioned some operations right there, procurement and logistics, I guess. What has worked as you get to this margin? What areas are there in more opportunity to kind of, as you think about those buckets, that building block that you laid out?

About margin or about EBITDA?

Well, both.

Not the same.

Yeah, it sounds like we're...

Not the same, because it's, you know, with so much inflation in the last five years, it's GP dollars, right? So as long as we can grow, you know, Jim sings this every day, you know, the whole team. As long as we can grow the GP dollars faster than the overhead, we will have success. And we'll start to get that spread. Because a lot of the big overhead is kind of fixed, right? So, obviously, there's this variable overhead. As we hire more people, it takes time for them to really produce. So, they're more of a drag. And as we build new buildings, there's a timing. By the time we move everybody in, close down old buildings, and get the volume, there's a drag. But the increased EBITDA margin, sure, higher margin is great. but it's really the GP dollars because we've changed the business with all the categories that we sell, that some are lower margin, that margin gets a little fuzzy.

Okay. That's a good reminder. What about your Power BI tool? I think that was kind of very early. What has, you know, last year when you rolled that out, I guess, what is the feedback from the sales force on that? And how, I guess I would add to that, when you have these smaller companies that you're acquiring or even evaluating, how much technology and tools like the Power BI tool do they have? Or is that something that really come to chefs and go, okay, wow, we have these?

Yeah, the Power BI tool, it's been rolled out over the last year or so. It's really not just the sales force. What it really does is it really levels up our use of data. We're a very data-driven company. And analytics and data KPIs that we would regularly produce at the corporate level, sometimes fairly manually through aggregating all of our 32 operating companies through that process. Power BI has allowed us to really up the quality of our data and also to disseminate that to our operators, our logistics teams, our procurement teams, and the sales force. And it integrates with our digital platform. So providing our salespeople with real-time information combined with our digital platform on our customers' behavior. Are they inelastic towards this product pricing? Are they more elastic to help them upsell? But it also feeds information to our operators real time on everything in their operation regarding hours, cost, all the KPIs around inventory. It helps us better manage inventory. It's really just a leveling up, and just going back to your other question, it was one of the pillars that you talked about in that waterfall to our 2028 targets, and all of those things are contributing in many different ways to the march towards 7% and 5 billion, along with what Chris just talked about at a macro level, just driving volume through the investments that we've made, which we're in the early innings of what about can we talk about kind of dynamic pricing I think that was another thing on that that waterfall explain to us you

know what what does that mean what have you learned from that initiative so far you know so you know if I look into this room I see you know operations trying to get the trucks out, you know, sales and marketing, you know, you have all the day-to-day, and then we have, and that's what took so long to build, just put the talent, then, as you say, when we buy somebody, we see what they have, you know, you learn, even the smallest company you buy, you learn something, but we realize that we're light years ahead, you know, of the way we look at the business, that's why we're able to buy, you know, take a company like in New England or Texas that makes basically no money and start to get their march towards what I'd like is 10%. But it's giving them the tools, eliminating the excuses, the downtime of having to do so many things manually that gives them the time and that doesn't mean everybody makes it because now you're really exposed. What do you do? In my past world for 40 years, You had to take orders, you had to go collect the money, you ran around, you had to do specials, and you had excuses why you weren't growing at the rate you're growing. Now, we do everything for them. And the AI tools now in like 10 minutes can give them the information that used to take days. And now we're like, well, what's your excuse? Maybe you're lazy. Maybe it's not for you. because you have the time to go knock on the doors. We give you tons of leads. We have so much inbound people that are interested in our products because we are special, right? We're not for everybody, but for the people that are, you know, they have the right menus, they should be buying from our company. And as we enter markets and discover that, I think that's why, you know, growth's accelerating, that more people know about us, we're able to reach more, we do a lot of marketing, do a lot of shows, come to the National Restaurant Show this weekend in Chicago. You'll see a magnificent show of our people. We've got a dry aging room. So we know our customer base. We're really after it to build the moat more and more around it and the more tools we give them. And I'm the biggest fan of the technology. A lot of people will worry about it. Salespeople are worried it's going to replace them. And they're right. Unless you work, you will be replaced. But if you're good, you're going to make a lot more money, which they are, and you're going to have a better balance of life because you don't have to be working seven days a week, which a lot did. The phone rings Saturday, it rings Sunday. And from knowing where the truck is, from knowing what shorts there are, from customers being able to place their own orders, is now they have to step up and be real merchandisers and run their own P&L. And it's not easy, but that's the way we run the business, and I think it's proving more and more successful, and I still think we have lots and lots of improvement to do.

So you mentioned just kind of how much further you are along with technology than a lot of these small companies. Is there...

Even large ones. you know is that do you think it's starting to really you know drive a divide between these companies that have all these tools and these sales reps that have all these tools and how much easier it makes that I think it affects everything but I could tell you that there's still like small competitors that I would love for them to become part of Chef's Warehouse and they're almost pen and paper and they do fine because they're special and they have good relationships and a lot of customers still want to buy some of their offerings or some of their services so I think the technology is great from the larger customers, yes, they're going to put it all on a spreadsheet and RFPU and if you're efficient and you can figure out how to make a few nickels, I think that part of the business is going to be more driven by the data But I think that if you're going to go out to dinner tonight and you want a really good meal, you're not going to look from the most data-driven, metrically-driven restaurant in town. You want to go to where the food is great and the service is great. And a lot of customers feel that way, too. A lot of customers don't. They want this. They want that. But it's still the hospitality business.

Okay. What about the Route Consolidation Initiative? how far along.

She was on the loading dock every night.

Consolidating.

We love consolidation. Yeah, I mean, a big part of that is in many markets, as we add categories and buy companies, we eventually have to build a bigger facility like we've done in Florida and Southern California, Northern California, and consolidate the acquisitions that we've done to grow the categories and to grow the market into a true chef's warehouse and that's part of the just process of what Chris calls chef-a-sizing our market. You start out in Florida as a specialty company, you add center of the plate both fish and meat processing, you add produce, and you might have you know four or five facilities in that market and you build a brand new state-of-the-art facility like we did in in 2023 and you consolidate, you get everything on the same trucks, you get the operational synergies and you get a real marketing environment where you have state-of-the-art test kitchens where you're bringing customers in to see your dry age room and state-of-the-art center of the plate processing. Chris can speak into it better than myself, but it's also marketing as well as operationally efficient. And we're trying to do that in, we're in multiple phases in different markets, but that's really the end goal in almost all of our markets.

So, I guess going back to what you're seeing right now, are all of these geographies kind of, did they all kind of lift up? Or was there one, you know, that's getting more chef-a-sized to now that's kind of really growing fast?

The Middle East is definitely not helping right now, right? We'll get to that. Yeah. We're at different levels of maturization, I think, in the markets, right? So New York being our core market, and they're killing it. And then you have Texas was a huge undertaking. We wanted to be in Texas. We know Texas is going to be a great market. Didn't realize how far it was from everything else. So it was a logistical nightmare for us to, you know, get merchandise in. Obviously, perishables, you know, you don't sell them, they go bad. So you're going to have more losses. So everybody is getting better, right? So the better ones have gotten even better. And the ones that were still in training are starting to make contributions. And we still have a long way to go, but we're starting to get there. So no rest for the weary. It's just a lot of work, right? And that's why we have, you know, Chef's Warehouse University. And like Jim said, we're building, you know, we're making the investment in these facilities. And our new word is, like, we need to inspire our customers, right, to keep creating, you know, great food. and think of us as our partner, and we have to walk the walk, right? I mean, we don't have a lot of room for error. The customers that supply the best chefs in the world, and they're very demanding. So if you're going to sell them raspberries, they've got to be in perfect condition. You're going to sell them parmigiano. It's got to have age on it. It's got to have taste. Extremely demanding, and we like it that way Because we know how hard it is to do it, and we want to be the only ones that can really figure out how to do it because we put in the years and years of training. You're not going to wake up tomorrow and go run the marathon. We hear these people, oh, we're going to go into specialty foods. It's like, good luck. I mean, we've invested billions at this point and still invest millions into training and just getting people to, you know, to learn takes a long time.

Are you, historically, you've been kind of growing the sales force, I think, around that 10% pace. Is that still kind of the way you see things or?

It's not the way I look at it.

Each market, they need to hire enough people to meet the man and build a bench. so you know some some businesses are you know right there and you know right on key and other ones are still catching up you know so uh each market is different okay um i guess you mentioned um middle east so i guess that business you you noted it's running at about 75 percent of last year i think since about march um i think it had been growing or i guess maybe we estimate maybe double digits prior to that so it's had a it's had an impact on the growth um uh was that business

i guess around 240 million dollars last year is that the right ballpark a lot of questions on that from investors as they just size up what's happening now yeah we haven't disclosed an exact amount we put in our published financials our total international revenue in 2025 which includes Canada and the Middle East, but the best way to think about it, it's between five and ten percent of our business.

Yeah, and I guess, you know, this type of, you know, conflict had to be in the consideration when you kind of bought it years ago. What have you learned about how the organization and how they've responded so far with what's happening there?

Well, the only way, it took me five years to pull the trigger on the Middle East, and it was because it was the Middle least. But, you know, I also said many times, I was just there right before the bomb started dropping, that if I was 30 years younger, I would move there. I thought it was the most dynamic place I've seen. You know, new buildings, the most beautiful resorts, the most beautiful restaurant, demand for high-end products. I'm like, this is great. Right? What could go wrong? But the biggest reason I pulled the trigger is that I loved the management team. I knew that if we're going to buy something so far away, it had to be a standalone, have a great team, and then we would contribute. We would contribute technologically, expertise in all the categories. But they were the only company we've ever bought that had similar supply channels and a go-to-market as a large specialty company, right? So our goal there is we double their facilities because we're going to make them more like a chef warehouse where you're more of a one-stop shop. So it's not pretty, but honestly, it's a lot better than I thought. But, like, listen, we survived the first quarter, put up double-digit sales with two major snowstorms, right? Which, I mean, we lost millions of dollars and a war breaking out, right, in March. And that they're doing, whatever the number is, 60% or 70%, to me shows that that management team is one of the best in the world, that they can manage through this. obviously they have a lot of customers they're still selling lots of food the hotels aren't full that's why they're not at their numbers they were growing at a you know really strong organic pace but the real the real challenge the biggest challenge besides you don't have the tourists is getting getting product in yeah and they are fantastic at that you gotta truck it in I don't know if there's any trains, right? But, you know, the straits aren't open. You know, we got used to it from the problem with the Red Sea when the Hootsies were attacking our ships. So they are just, you know, they must have a room full of people like this in logistics. We realized that when we were looking to buy them that why do they have so many people? You have to figure out how to get the products in, especially when something like this happens. and then they're doing an unbelievable job.

Okay, that's good to hear. I don't know if I've ever asked this question, but given that you do have some exposure in Canada, I feel like I should ask, is that a potential growth market? Are we going to work with Canada, too? No, we're – I don't know.

But is that – Canada is a small business. It's not very big, but it's in good markets there. Right, right. It's very profitable. So what do you mean by exposure?

Well, no, I mean, like, is that an area that could be more of a growth opportunity, like a market that more?

You know, Canada is, it's very big.

Well, a couple of markets, one or two.

It's very big. You know, the distances, it's a good business. The team that, you know, the person in charge of is doing a great job. It's profitable. I think long-term there, that's one area I would love to do a sizable acquisition. We're sophisticated there. We have management, which took a long time to build. It is different. Doing business there is a lot different than doing business in the U.S. I think what fooled me a little bit there, if you go to Toronto, you stay at one of our customer hotel, you're like, yeah, this is great. but it's a lot different environment yeah Montreal is more like New York as far as the food scene but I don't speak French I don't know that's something I want to do right now especially when we have you know Texas to quadruple and Florida quadruple so we have enough on our plate okay yeah you kind of I guess along the lines of M&A you you kind of mentioned you're in a position you know to remain patient, which is a good thing, I suppose.

But as you do think about your priorities, obviously a lot of opportunity still in some of these markets like Texas and Florida, but what would the priorities be when you're ready for them?

Leverage is down. We went from a family business, no leverage, to buying back the third. We sold to private equity and leveraged that eight times. So being levered below two times is a really good feeling. I think we're patient. I think that there's deals out there. I think they're going to become more reasonable. I think coming out of COVID, everyone thought they were worth 15 times for whatever reason. Maybe some are. But the good thing is we really don't need anything right now. We'd like to get to the Carolinas. I think we can get there. We've already started to enter. I think we could do it smartly. I like being de-levered. I like building big cash, you know, balance. Eventually, you have to do something with the money, right? We're spending X amount on facilities right now, so good use of capital. It's going to really keep that hypercharged organic growth in all these markets. And I'm sure, like I said before, I would do a good fold-in every week because, you know, we're low risk. You could do them almost, depending on the size, in a week. And it's a creative, even if something goes wrong. So I could see a few of those coming down the pike. That's why we added extra space in a lot of these new facilities. And I think the phone will ring and something interesting. But if we could grow, you know, close to double-digit or double-digit organically, You really don't have to do much but keep investing in people and ideas and just keep feeding the machine that took so long to build. And if something good comes along, we tell them all the time, is it 10 deals on my desk? And it's like, if you're reasonable, come have coffee. We have good coffee.

I bet.

So, I mean, going back to some of the geographies, maybe can we just talk about Texas, Florida a lot of the different growth geographies where are they on this curve to chef a size with getting all the categories where you want them oh boy that's a loaded question I'd say Texas is in the second inning okay Florida will triple so they're killing it but I just see not that everybody's moving to Florida from New York and California, but you do have, you know, you have good population growth, a population that has come with money, and with money people want good food and they want to eat out, so that's really helped us. And, I mean, trees don't grow to the sky, but I don't see that slowing down any time, just like Texas, you know. You know, I never went to Texas because I thought everybody just ate barbecue. you. And I'm like, this is not a market for us. And Texas has been changed, you know, since COVID, you know, so many Californians, New Yorkers, and people are putting foie gras on top of their brisket. So it's, it's exciting, you know, to be part of it. It's going through like a transformation.

But I mean, to your point, Texas is so big. You've got Dallas, you've got Houston, You've got Austin.

San Antonio.

San Antonio. I mean, what's happening in those kind of four big parts of?

We're in different levels. The heart and soul is Dallas. We have a good business in Austin. We have a good business in Houston. We have a nice little business in San Antonio. We're going to build them a new facility in Dallas. hopefully we find something so it's not as much capex as usual. Houston will need a new building in a few years. Austin needs a new building right now. They've outgrown it. So high-class problems, but those are almost at the top of our list right now. Dallas is really the, you know, the highest in need, you know, because we want to consolidate. We're same in New England, same in Florida. We're in three, I think maybe even four different facilities, and in Dallas, we're in three different facilities, so you could just, you know, use your imagination how much more synergies there's going to be there and ease of selling, putting them under one roof, kind of like we did in other markets. You make it easy, and they just accelerate. That's a big word now, acceleration.

Acceleration, okay. Okay. I guess maybe just one more quick question on Hardee's and then a couple more other questions. So, you know, we're finally through that kind of attrition and the math that we kind of have been talking about. How happy are you with Hardee's just, you know, as the core business and what you've kind of retained and what that's doing in that market, I guess?

Yeah, so Hardee's was a hard one. Hardee's was a hard one. Great people, a business that, a great reputation for what they did. And I think 20 years ago, it was like a great business. And they, you know, the market just evolved differently. and we had to take it backwards. And, you know, see, I think we're finally, next quarter, we're out of that comparison to business that went away that really it's not our business. It was not profitable for us or a little profitable. And it has allowed us to rebuild them. And on a scale of happiness, I am ecstatic what's happening. You know, the team there has done a phenomenal job, and they're just in the first inning, the second inning. So they really, you know, we're putting that Shep Warehouse culture. We've brought in tons of products. We took our hits because you do that, you're going to have a lot of losses. We've been through that. We've gotten better operating out of three facilities in Dallas. So they're profitable. They're getting more profitable. and they're still probably in the first inning until we get these facilities up and get them on, you know, one system and one truck. It's going to be a very profitable territory. I think top three.

I guess switching gears a little bit, can you talk about just trends? It's something I guess we don't really talk about much. I mean, from the conference, everybody's talking about protein. You sell a lot of protein, so that's not new. But what are you seeing in terms of trends? Are you seeing chefs, hey, we want more of this. We want smaller portion sizes. Is there anything like how, you know, the alcohol consumption is affecting you guys?

Well, you know, I go to bed every night. All I get questions, you know, I'm like, okay, I get 20 e-mails. How is GLP-1 affecting you, right? How is, and I was just telling Jim, I took a walk. We had a break, and I ran into some old, old, old customers. And it's kind of a tale of two cities. You know, some are just, they didn't evolve, and they're not doing great, and they're complaining, and then we have so many customers, I mean, you see our numbers, that are accelerating, and their demands are, even for higher quality, more expensive product. so you know we have one you know when you're dealing with corporate banquets and that you know it's price it's it's value they want to keep her up and then our better customers which there's thousands and thousands um the protein is expensive yeah i'm like oh my god it's going to decimate demand and our demand is like through the roof yeah yeah so better hamburgers so you You know, if you feel like you can't charge, you know, $7, $80 for a really good steak, $28 hamburger seems like a bargain, right? So it's really in the better restaurants. Their overhead is pretty high. It's really the seat. You know, whenever I send somebody to a restaurant, they give me a reservation. They call up, my God, it was so expensive. I'm like, how long were you there? I'm like, oh, about three hours. I'm like, think about it. You sat there for three hours. Did you expect to spend $30 on them to make money? right so they kind of have to charge you for the seat the food is you know give or take ten dollars and i think the our better restaurants their clientele um if it's seventy dollars or seventy five is somebody not going to come right they're going to come so the good ones are and they know that you will not go back if it was not really good and we've been trying to coach some of our younger customers and all that oh we got to save money i'm like no one's going to remember they saved ten dollars right they will remember if it sucked right okay i said don't suck you know i mean make sure you know you're hospitable your people are trained and uh give them an experience and they will come back maybe they won't order the hundred dollar steak every day or maybe you know they'll we see we're selling more pasta we're selling more rice uh you could see you know more potatoes so they're filling up dishes a little more with less expensive products and maybe some are you know I think the portions are too big but I want to sell more products so I think the portions are too small right but it's smart ones are getting smarter with their portions and as far as the GLP ones I think people take it home so you go out and you know I'm around people on the shot you know sometimes I'm like three out of five are on the shot or the pill, right? I'm like, you're looking really good. And you see them, they just don't eat everything.

And they take it. They want the leftovers.

What's amazing is I still see them drinking, you know?

Yeah, they're really powerful. They like drink right through it.

No, kidding aside, they are drinking less. And I think that's where restaurants have to figure out how to, that's why you have mocktails.

Well, but that's an interesting point though, Well, because does that impact their total check and where they're getting their, like, you know, a lot of the restaurants make a lot of margin there.

You know what, the higher end people still drink, right? I think it's a treat, and, you know, maybe if you're not drinking as much, that's when you do drink. But, you know, I hear complaints, why is the mocktails $20? I'm like, they have to get, they have to make the profit on your beverage. They can't, the model doesn't work, right? And they're making really great mocktails. It's gotten more and more sophisticated. All these mixologists, we're selling superior types of tonic, club soda, ginger beers, fruit purees. They're not cheap to make in the labor. And I'm not a mocktail person, but when I do sip them, I'm like, wow, these are really good. Interesting. I just need the wine.

I hear you. Well, I think we have to wrap it up, unless there's anything else you wanted to add.

I think you thoroughly examined us.

Well, good. Thank you so much once again.

Thank you, Kelly.

Thanks, Kelly.