UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 24, 2021
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from _________ to _________
Commission file number: 001-35249
THE CHEFS’ WAREHOUSE, INC.
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
(Address of principal executive offices)
Registrant’s telephone number, including area code: (203 ) 894-1345
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | ☒ | ||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Number of shares of common stock, par value $.01 per share, outstanding at October 25, 2021: 37,884,249
1
THE CHEFS’ WAREHOUSE, INC.
FORM 10-Q
Table of Contents
| Page | ||||||||
| PART I. FINANCIAL INFORMATION | ||||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| PART II. OTHER INFORMATION | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Statements in this report regarding the business of The Chefs’ Warehouse, Inc. (the “Company”) that are not historical facts are “forward-looking statements” that involve risks and uncertainties and are based on current expectations and management estimates; actual results may differ materially. Words such as “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and/or could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. The risks and uncertainties which could impact these statements include, but are not limited to the following: our sensitivity to general economic conditions, including disposable income levels and changes in consumer discretionary spending; our ability to expand our operations in our existing markets and to penetrate new markets through acquisitions; we may not achieve the benefits expected from our acquisitions, which could adversely impact our business and operating results; we may have difficulty managing and facilitating our future growth; conditions beyond our control could materially affect the cost and/or availability of our specialty food products or center-of-the-plate products and/or interrupt our distribution network; our increased distribution of center-of-the-plate products, like meat, poultry and seafood, involves increased exposure to price volatility experienced by those products; our business is a low-margin business and our profit margins may be sensitive to inflationary and deflationary pressures; because our foodservice distribution operations are concentrated in certain culinary markets, we are susceptible to economic and other developments, including adverse weather conditions, in these areas; fuel cost volatility may have a material adverse effect on our business, financial condition or results of operations; our ability to raise capital in the future may be limited; we may be unable to obtain debt or other financing, including financing necessary to execute on our acquisition strategy, on favorable terms or at all; interest charged on our outstanding debt may be adversely affected by changes in the method of determining London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with an alternative rate; our business operations and future development could be significantly disrupted if we lose key members of our management team; and significant public health epidemics or pandemics, including the COVID-19 pandemic, may adversely affect our business, results of operations and financial condition. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and, as such, speak only as of the date made. A more detailed description of these and other risk factors is contained in the Company’s most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 23, 2021 and other reports, including this Quarterly Report on Form 10-Q, filed by the Company with the SEC since that date. The Company is not undertaking to update any information in the foregoing report until the effective date of its future reports required by applicable laws.
3
PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
THE CHEFS’ WAREHOUSE, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
| September 24, 2021 (unaudited) | December 25, 2020 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net of allowance of $ | |||||||||||
| Inventories, net | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Equipment, leasehold improvements and software, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Deferred taxes, net | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued liabilities | |||||||||||
| Short-term operating lease liabilities | |||||||||||
| Accrued compensation | |||||||||||
| Current portion of long-term debt | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt, net of current portion | |||||||||||
| Operating lease liabilities | |||||||||||
| Other liabilities and deferred credits | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred Stock - $ | |||||||||||
Common Stock, - $ | |||||||||||
| Additional paid in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Retained earnings | |||||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See accompanying notes to the consolidated financial statements.
4
THE CHEFS’ WAREHOUSE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Amounts in thousands, except share and per share amounts)
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| September 24, 2021 | September 25, 2020 | September 24, 2021 | September 25, 2020 | ||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Other operating (income) expenses, net | ( | ( | ( | ||||||||||||||||||||
| Operating income (loss) | ( | ( | ( | ||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Income (loss) before income taxes | ( | ( | ( | ||||||||||||||||||||
| Provision for income tax expense (benefit) | ( | ( | ( | ||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | |||||||||||||||||||||
| Comprehensive income (loss) | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Net income (loss) per share: | |||||||||||||||||||||||
| Basic | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Diluted | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See accompanying notes to the consolidated financial statements.
5
THE CHEFS’ WAREHOUSE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
(Amounts in thousands, except share amounts)
| Common Stock | Additional Paid in Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance December 25, 2020 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Stock compensation | — | — | |||||||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | — | — | |||||||||||||||||||||||||||||||
| Shares surrendered to pay tax withholding | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Balance March 26, 2021 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Stock compensation | — | — | |||||||||||||||||||||||||||||||||
| Warrants issued for acquisitions | — | — | — | — | |||||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | — | — | |||||||||||||||||||||||||||||||
| Shares surrendered to pay tax withholding | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Balance June 25, 2021 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Stock compensation | ( | — | — | — | |||||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Shares surrendered to pay tax withholding | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Balance September 24, 2021 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Balance December 27, 2019 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Stock compensation | — | — | |||||||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Shares surrendered to pay tax withholding | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Balance March 27, 2020 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Stock compensation | — | — | |||||||||||||||||||||||||||||||||
| Public offering of common stock | — | — | |||||||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | — | — | |||||||||||||||||||||||||||||||
| Shares surrendered to pay tax withholding | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Balance June 26, 2020 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Stock compensation | ( | — | — | — | |||||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | — | — | |||||||||||||||||||||||||||||||
| Shares surrendered to pay tax withholding | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Balance September 25, 2020 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
See accompanying notes to the consolidated financial statements.
6
THE CHEFS’ WAREHOUSE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
| Thirty-Nine Weeks Ended | |||||||||||
| September 24, 2021 | September 25, 2020 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of intangible assets | |||||||||||
| (Benefit) provision for allowance for doubtful accounts | ( | ||||||||||
| Non-cash operating lease expense | |||||||||||
| Benefit for deferred income taxes | ( | ( | |||||||||
| Amortization of deferred financing fees | |||||||||||
| Stock compensation | |||||||||||
| Change in fair value of contingent earn-out liabilities | ( | ( | |||||||||
| Intangible asset impairment | |||||||||||
| Loss on asset disposal | |||||||||||
| Changes in assets and liabilities, net of acquisitions: | |||||||||||
| Accounts receivable | ( | ||||||||||
| Inventories | ( | ||||||||||
| Prepaid expenses and other current assets | ( | ( | |||||||||
| Accounts payable, accrued liabilities and accrued compensation | ( | ||||||||||
| Other assets and liabilities | ( | ||||||||||
| Net cash (used in) provided by operating activities | ( | ||||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Cash paid for acquisitions, net of cash received | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Payment of debt, finance lease and other financing obligations | ( | ( | |||||||||
| Proceeds from the issuance of common stock, net of issuance costs | |||||||||||
| Proceeds from debt issuance | |||||||||||
| Payment of deferred financing fees | ( | ( | |||||||||
| Surrender of shares to pay withholding taxes | ( | ( | |||||||||
| Cash paid for contingent earn-out liability | ( | ( | |||||||||
| Borrowings under asset-based loan facility | |||||||||||
| Payments under asset-based loan facility | ( | ( | |||||||||
| Net cash (used in) provided by financing activities | ( | ||||||||||
| Effect of foreign currency on cash and cash equivalents | ( | ( | |||||||||
| Net change in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents-beginning of period | |||||||||||
| Cash and cash equivalents-end of period | $ | $ | |||||||||
See accompanying notes to the consolidated financial statements.
7
THE CHEFS’ WAREHOUSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share amounts)
Note 1 - Operations and Basis of Presentation
Description of Business and Basis of Presentation
The financial statements include the consolidated accounts of The Chefs’ Warehouse, Inc. (the “Company”), and its wholly-owned subsidiaries. The Company’s quarterly periods end on the thirteenth Friday of each quarter. Every six to seven years, the Company will add a fourteenth week to its fourth quarter to more closely align its year-end to the calendar year. The Company’s business consists of three operating segments: East Coast, Midwest and West Coast that aggregate into one reportable segment, foodservice distribution, which is concentrated primarily in the United States. The Company’s customer base consists primarily of menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools, bakeries, patisseries, chocolateries, cruise lines, casinos, specialty food stores, grocers and warehouse clubs.
The COVID-19 Pandemic
Many of the Company’s customers have been adversely impacted by the COVID-19 pandemic (the “Pandemic”), however there has been sequential improvement in the Company’s business starting in the second quarter of fiscal 2021 and continuing throughout the third quarter of fiscal 2021 which has contributed to organic sales growth of $213,719 compared to the prior year quarter.
The future impact of the Pandemic on the Company’s business, operations and liquidity is difficult to predict at this time and is highly dependent on future developments including new information that may emerge on the severity of the disease, the extent of outbreaks, federal, state and local government responses, trends in infection rates, development of effective medical treatments for the disease, the pace of vaccination programs and future consumer spending behavior, among others.
Consolidation
Unaudited Interim Financial Statements
The accompanying unaudited consolidated financial statements and the related interim information contained within the notes to such unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the applicable rules of the Securities and Exchange Commission (“SEC”) for interim information and quarterly reports on Form 10-Q. Accordingly, they do not include all the information and disclosures required by GAAP for complete financial statements. These unaudited consolidated financial statements and related notes should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended December 25, 2020 filed as part of the Company’s Annual Report on Form 10-K, as filed with the SEC on February 23, 2021.
The unaudited consolidated financial statements appearing in this Form 10-Q have been prepared on the same basis as the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K, as filed with the SEC on February 23, 2021, and in the opinion of management, include all normal recurring adjustments that are necessary for the fair statement of the Company’s interim period results. The year-end consolidated balance sheet data was derived from the audited financial statements but does not include all disclosures required by GAAP. Due to seasonal fluctuations, the Pandemic and other factors, the results of operations for the thirteen and thirty-nine weeks ended September 24, 2021 are not necessarily indicative of the results to be expected for the full year.
8
Guidance Adopted in Fiscal 2021
Simplifying the Accounting for Income Taxes: In December 2019, the Financial Accounting Standards Board (the “FASB”) issued guidance that eliminates certain exceptions related to the approach for intraperiod tax allocations, the methodology for calculating income taxes in an interim period and other simplifications and clarifications. As a result of the new guidance, the Company may recognize additional income tax benefits during interim periods in which interim losses exceed full year projections due to provisions in the guidance that remove loss limitation rules. This guidance was adopted on December 26, 2020 and adoption had an immaterial impact on the Company’s consolidated financial statements.
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity: In August 2020, the FASB issued guidance that simplifies the accounting models for financial instruments with characteristics of debt and equity. The amendments in the guidance result in fewer instances in which an embedded conversion feature must be accounted for separately from its host contract. This guidance will be effective for fiscal years beginning after December 15, 2021. This guidance was adopted on December 26, 2020 and adoption did not impact the Company’s consolidated financial statements.
Note 2 – Summary of Significant Accounting Policies
Revenue Recognition
The following table presents the Company’s net sales disaggregated by principal product category:
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| September 24, 2021 | September 25, 2020 | September 24, 2021 | September 25, 2020 | ||||||||||||||||||||||||||||||||||||||||||||
| Center-of-the-Plate | $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||
| Dry Goods | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Pastry | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Cheese and Charcuterie | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Produce | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Dairy and Eggs | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Oils and Vinegars | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Kitchen Supplies | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Total | $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||
Food Processing Costs
9
Note 3 – Net Income (Loss) per Share
The following table sets forth the computation of basic and diluted net income (loss) per common share:
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| September 24, 2021 | September 25, 2020 | September 24, 2021 | September 25, 2020 | ||||||||||||||||||||
| Net income (loss) per share: | |||||||||||||||||||||||
| Basic | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Diluted | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Weighted average common shares: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
Reconciliation of net income (loss) per common share:
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| September 24, 2021 | September 25, 2020 | September 24, 2021 | September 25, 2020 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average basic common shares outstanding | |||||||||||||||||||||||
| Dilutive effect of stock options and unvested common shares | |||||||||||||||||||||||
| Weighted average diluted common shares outstanding | |||||||||||||||||||||||
Potentially dilutive securities that have been excluded from the calculation of diluted net income (loss) per common share because the effect is anti-dilutive are as follows:
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| September 24, 2021 | September 25, 2020 | September 24, 2021 | September 25, 2020 | ||||||||||||||||||||
| Restricted share awards (“RSAs”) | |||||||||||||||||||||||
| Stock options | |||||||||||||||||||||||
| Warrants | |||||||||||||||||||||||
| Convertible notes | |||||||||||||||||||||||
Note 4 – Fair Value Measurements
Assets and Liabilities Measured at Fair Value
The Company’s contingent earn-out liabilities are measured at fair value. These liabilities were estimated using Level 3 inputs. Long-term earn-out liabilities were $2,339 and $2,556 as of September 24, 2021 and December 25, 2020, respectively, and are reflected as other liabilities and deferred credits on the consolidated balance sheets. The remaining short-term earn-out liabilities are reflected as accrued liabilities on the consolidated balance sheets. The fair value of contingent consideration was determined based on a probability-based approach which includes projected results, percentage probability of occurrence and the application of a discount rate to present value the payments. A significant change in projected results, discount rate, or probabilities of occurrence could result in a significantly higher or lower fair value measurement. Changes in the fair value of contingent earn-out liabilities are reflected in other operating (income)expenses, net on the consolidated statements of operations.
10
The following table presents the changes in Level 3 contingent earn-out liabilities:
| Fells Point | Bassian | Sid Wainer | Other Acquisitions | Total | |||||||||||||||||||||||||
| Balance December 27, 2019 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Acquisition value | |||||||||||||||||||||||||||||
| Cash payments | ( | ( | ( | ||||||||||||||||||||||||||
| Changes in fair value | ( | ( | ( | ( | ( | ||||||||||||||||||||||||
| Balance December 25, 2020 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Acquisition value | |||||||||||||||||||||||||||||
| Cash payments | ( | ( | |||||||||||||||||||||||||||
| Changes in fair value | ( | ( | ( | ||||||||||||||||||||||||||
| Balance September 24, 2021 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Fair Value of Financial Instruments
| September 24, 2021 | December 25, 2020 | ||||||||||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||
| Convertible Senior Notes | $ | $ | $ | $ | |||||||||||||||||||
| Convertible Unsecured Note | $ | $ | $ | $ | |||||||||||||||||||
Note 5 – Acquisitions
During the second quarter of fiscal 2021, the Company completed two acquisitions for an aggregate purchase price of approximately $8,400 , consisting of $7,280 paid in cash, subject to customary working capital adjustments, and common stock warrants of $1,120 . The Company will also pay additional contingent consideration, if earned, in the form of earn-out amounts which could total $4,230 in aggregate. The Company is in the process of finalizing a valuation of the earn-out liabilities, and tangible and intangible assets as of the acquisition date. When applicable, these valuations require the use of Level 3 inputs. Goodwill for these acquisitions will be amortized over 15 years for tax purposes.
The Company reflected net sales and loss before taxes in its consolidated statement of operations related to the fiscal 2021 acquisitions as follows:
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||
| September 24, 2021 | September 24, 2021 | ||||||||||
| Net sales | $ | $ | |||||||||
| Loss before income taxes | $ | ( | $ | ( | |||||||
Pro forma financial information for these acquisitions are not presented because the effect of these acquisition are not material to the Company’s results of operations.
11
The table below sets forth the purchase price allocation of these acquisitions:
| Current assets | $ | ||||
| Customer relationships | |||||
| Trademarks | |||||
| Goodwill | |||||
| Fixed assets | |||||
| Right-of-use assets | |||||
| Lease liabilities | ( | ||||
| Current liabilities | ( | ||||
| Earn-out liability | ( | ||||
| Issuance of warrants | ( | ||||
| Total cash consideration | $ | ||||
The Company recognized professional fees of $86 in operating expenses related to acquisitions in the second quarter of fiscal 2021.
Note 6 – Inventories
Note 7 – Equipment, Leasehold Improvements and Software
Equipment, leasehold improvements and software as of September 24, 2021 and December 25, 2020 consisted of the following:
| Useful Lives | September 24, 2021 | December 25, 2020 | ||||||||||||||||||
| Land | Indefinite | $ | $ | |||||||||||||||||
| Buildings | ||||||||||||||||||||
| Machinery and equipment | ||||||||||||||||||||
| Computers, data processing and other equipment | ||||||||||||||||||||
| Software | ||||||||||||||||||||
| Leasehold improvements | ||||||||||||||||||||
| Furniture and fixtures | ||||||||||||||||||||
| Vehicles | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Construction-in-process | ||||||||||||||||||||
| Less: accumulated depreciation and amortization | ( | ( | ||||||||||||||||||
| Equipment, leasehold improvements and software, net | $ | $ | ||||||||||||||||||
Construction-in-process at September 24, 2021 related primarily to the build-outs of the Company’s Los Angeles and Miami distribution facilities. Construction-in-process at December 25, 2020 related primarily to the implementation of the Company’s Enterprise Resource Planning system. The net book value of equipment financed under finance leases at September 24, 2021 and December 25, 2020 was $12,489 and $14,705 , respectively.
12
The components of depreciation and amortization expense were as follows:
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| September 24, 2021 | September 25, 2020 | September 24, 2021 | September 25, 2020 | ||||||||||||||||||||
| Depreciation expense | $ | $ | $ | $ | |||||||||||||||||||
| Software amortization | $ | $ | $ | $ | |||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
Note 8 – Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill are presented as follows:
| Carrying amount as of December 25, 2020 | $ | ||||
| Acquisitions | |||||
| Foreign currency translation | |||||
| Carrying amount as of September 24, 2021 | $ | ||||
Other intangible assets as of September 24, 2021 and December 25, 2020 consisted of the following:
| September 24, 2021 | Weighted-Average Remaining Amortization Period | Gross Carrying Amount | Accumulated Amortization | Net Amount | ||||||||||||||||||||||
| Customer relationships | $ | $ | ( | $ | ||||||||||||||||||||||
| Non-compete agreements | ( | |||||||||||||||||||||||||
| Trademarks | ( | |||||||||||||||||||||||||
| Total | $ | $ | ( | $ | ||||||||||||||||||||||
| December 25, 2020 | Weighted-Average Remaining Amortization Period | Gross Carrying Amount | Accumulated Amortization | Net Amount | ||||||||||||||||||||||
| Customer relationships | $ | $ | ( | $ | ||||||||||||||||||||||
| Non-compete agreements | ( | |||||||||||||||||||||||||
| Trademarks | ( | |||||||||||||||||||||||||
| Total | $ | $ | ( | $ | ||||||||||||||||||||||
The Company occasionally makes small, tuck-in acquisitions that are immaterial, both individually and in the aggregate. Therefore, increases in goodwill and gross intangible assets per the above tables may not agree to the increases of these assets as shown for specific acquisitions in Note 5 “Acquisitions.”
Amortization expense for other intangibles was $3,135 and $3,391 for the thirteen weeks ended September 24, 2021 and September 25, 2020, respectively, and $9,778 and $10,111 for the thirty-nine weeks ended September 24, 2021 and September 25, 2020, respectively.
During the second quarter of fiscal 2021, the Company committed to a plan to shift its brand strategy to leverage its Allen Brothers brand in its New England region and determined its Cambridge trademark did not fit the Company’s long-term strategic objectives. As a result, the Company recognized a $597 impairment charge to fully write-down the net book value of its Cambridge trademark.
13
Estimated amortization expense for other intangible assets for the remainder of the fiscal year ending December 24, 2021 and each of the next four fiscal years and thereafter is as follows:
| 2021 | $ | ||||
| 2022 | |||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| Thereafter | |||||
| Total | $ | ||||
Note 9 – Debt Obligations
Debt obligations as of September 24, 2021 and December 25, 2020 consisted of the following:
| September 24, 2021 | December 25, 2020 | |||||||||||||
| Senior secured term loans | $ | $ | ||||||||||||
| Convertible senior notes | ||||||||||||||
| Asset-based loan facility | ||||||||||||||
| Finance lease and other financing obligations | ||||||||||||||
| Convertible unsecured note | ||||||||||||||
| Deferred finance fees and original issue premium (discount) | ( | ( | ||||||||||||
| Total debt obligations | ||||||||||||||
| Less: current installments | ( | ( | ||||||||||||
| Total debt obligations excluding current installments | $ | $ | ||||||||||||
On March 1, 2021, the Company issued $50,000 aggregate principal amount of 1.875 % Convertible Senior Notes at a premium which were offered as an additional issuance and under the same terms of the Company’s $150,000 Convertible Senior Notes due 2024 initially issued on November 22, 2019. Net proceeds were used to repay all outstanding borrowings under the Company's 2022 tranche of senior secured term loans of $31,166 and repay a portion of borrowings outstanding under the Company’s asset-based loan facility (“ABL Facility”). The Company incurred transaction costs of approximately $1,350 which were capitalized as deferred financing fees to be amortized over the term of the Convertible Senior Notes due 2024. At September 24, 2021, the effective interest rate charged on the Company’s Convertible Senior Notes was approximately 2.3 %.
The net carry value of the Company’s Convertible Senior Notes as of September 24, 2021 and December 25, 2020 was:
| September 24, 2021 | December 25, 2020 | |||||||||||||
| Principal amount outstanding | $ | $ | ||||||||||||
| Unamortized deferred financing fees and premium | ||||||||||||||
| Net carry value | $ | $ | ||||||||||||
The components of interest expense on the Company’s Convertible Senior Notes were as follows:
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| September 24, 2021 | September 25, 2020 | September 24, 2021 | September 25, 2020 | ||||||||||||||||||||
| Coupon interest | $ | $ | $ | $ | |||||||||||||||||||
| Amortization of deferred financing fees and premium | $ | $ | $ | $ | |||||||||||||||||||
| Total interest | $ | $ | $ | $ | |||||||||||||||||||
The Company’s senior secured term loan credit agreement requires the Company to maintain at least $35,000 of liquidity as of the last day of any fiscal quarter where EBITDA, as defined in the Credit Agreement, is less than $10,000 . The Company had minimum liquidity, as defined in the Credit Agreement, of $250,638 as of September 24, 2021.
14
Note 10 – Stockholders’ Equity
Warrants
In connection with an acquisition during the second quarter of fiscal 2021, the Company issued warrants with a fair value of $1,120 to purchase up to 150,000 shares of the Company’s common stock at an exercise price of $31.96 per share. These warrants expire on April 22, 2024.
Equity Awards
The following table reflects the activity of RSAs during the thirty-nine weeks ended September 24, 2021:
| Time-based | Performance-based | Market-based | ||||||||||||||||||||||||||||||||||||
| Shares | Weighted Average Grant Date Fair Value | Shares | Weighted Average Grant Date Fair Value | Shares | Weighted Average Grant Date Fair Value | |||||||||||||||||||||||||||||||||
| Unvested at December 25, 2020 | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||||||||||||||||
| Vested | ( | |||||||||||||||||||||||||||||||||||||
| Forfeited | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Unvested at September 24, 2021 | $ | $ | $ | |||||||||||||||||||||||||||||||||||
The Company granted 755,428 RSAs to its employees and directors at a weighted average grant date fair value of $31.72 during the thirty-nine weeks ended September 24, 2021. These awards are a mix of time-, market- and performance-based grants that generally vest over a range of periods up to five years . The Company recognized expense totaling $2,710 and $2,075 on its RSAs during the thirteen weeks ended September 24, 2021 and September 25, 2020, respectively, and $8,448 and $4,925 during the thirty-nine weeks ended September 24, 2021 and September 25, 2020, respectively.
At September 24, 2021, the total unrecognized compensation cost for unvested RSAs was $20,830 and the weighted-average remaining period was approximately 2.2 years. Of this total, $12,531 related to RSAs with time-based vesting provisions and $8,299 related to RSAs with performance-based vesting provisions. At September 24, 2021, the weighted-average remaining period for time-based vesting and performance-based vesting RSAs were approximately 2.1 years and 2.4 years, respectively.
Note 11 – Related Parties
15
Note 12 – Supplemental Disclosures of Cash Flow Information
| Thirty-Nine Weeks Ended | |||||||||||
| September 24, 2021 | September 25, 2020 | ||||||||||
| Supplemental cash flow disclosures: | |||||||||||
| Cash paid for income taxes, net of cash received | $ | ( | $ | ||||||||
| Cash paid for interest, net of cash received | $ | $ | |||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows from operating leases | $ | $ | |||||||||
| Operating cash flows from finance leases | $ | $ | |||||||||
| ROU assets obtained in exchange for lease liabilities: | |||||||||||
| Operating leases | $ | $ | |||||||||
| Finance leases | $ | $ | |||||||||
| Other non-cash investing and financing activities: | |||||||||||
| Warrants issued for acquisitions | $ | $ | |||||||||
| Contingent earn-out liabilities for acquisitions | $ | $ | |||||||||
Note 13 – Coronavirus Aid, Relief, and Economic Security Act
Note 14 – Subsequent Events
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided as a supplement to the accompanying consolidated financial statements and footnotes to help provide an understanding of our financial condition, changes in our financial condition and results of operations. The following discussion should be read in conjunction with information included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 23, 2021. Unless otherwise indicated, the terms “Company”, “Chefs’ Warehouse”, “we”, “us” and “our” refer to The Chefs’ Warehouse, Inc. and its subsidiaries.
Business Overview
We are a premier distributor of specialty foods in nine of the leading culinary markets in the United States. We offer more than 50,000 stock-keeping units (“SKUs”), ranging from high-quality specialty foods and ingredients to basic ingredients and staples and center-of-the-plate proteins. We serve more than 34,000 customer locations, primarily located in our sixteen geographic markets across the United States and Canada, and the majority of our customers are independent restaurants and fine dining establishments. As a result of our acquisition of Allen Brothers, Inc. (“Allen Brothers”) and our “Shop Like a Chef” online platform, we also sell certain of our products directly to consumers.
Effect of the COVID-19 Pandemic on our Business and Operations
Many of our customers have been adversely impacted by the COVID-19 pandemic (the “Pandemic”), however we have seen sequential improvement in our business throughout fiscal 2021 which has contributed to organic sales growth of $213.7 million during the third quarter of fiscal 2021 compared to the prior year quarter.
We closed the quarter with total cash and cash equivalents of $134.2 million, and approximately $109.5 million of remaining availability under our asset-based loan facility as of September 24, 2021.
The future impact of the Pandemic on our business, operations and liquidity is difficult to predict at this time and is highly dependent on future developments including new information that may emerge on the severity of the disease, the extent of outbreaks, federal, state and local government responses, trends in infection rates, development of effective medical treatments for the disease, the pace of vaccination programs and future consumer spending behavior, among others.
Recent Acquisitions
During the second quarter of fiscal 2021, we completed two acquisitions for an aggregate purchase price of approximately $8.4 million, consisting of $7.3 million paid in cash at closing, subject to customary working capital adjustments, and common stock warrants valued at approximately $1.1 million. We will also pay additional contingent consideration, if earned, in the form of earn-out amounts which could total $4.2 million in aggregate.
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RESULTS OF OPERATIONS
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| September 24, 2021 | September 25, 2020 | September 24, 2021 | September 25, 2020 | ||||||||||||||||||||
| Net sales | $ | 484,321 | $ | 254,030 | $ | 1,187,506 | $ | 829,957 | |||||||||||||||
| Cost of sales | 374,346 | 193,668 | 922,710 | 640,681 | |||||||||||||||||||
| Gross profit | 109,975 | 60,362 | 264,796 | 189,276 | |||||||||||||||||||
| Selling, general and administrative expenses | 99,431 | 76,433 | 270,034 | 253,480 | |||||||||||||||||||
| Other operating (income) expenses, net | 105 | (4,146) | (208) | (9,812) | |||||||||||||||||||
| Operating income (loss) | 10,439 | (11,925) | (5,030) | (54,392) | |||||||||||||||||||
| Interest expense | 4,191 | 4,706 | 13,362 | 15,602 | |||||||||||||||||||
| Income (loss) before income taxes | 6,248 | (16,631) | (18,392) | (69,994) | |||||||||||||||||||
| Provision for income tax expense (benefit) | 2,792 | (5,204) | (5,025) | (24,148) | |||||||||||||||||||
| Net income (loss) | $ | 3,456 | $ | (11,427) | $ | (13,367) | $ | (45,846) | |||||||||||||||
Management evaluates the results of operations and cash flows using a variety of key performance indicators, including net sales compared to prior periods and internal forecasts, costs of our products and results of our cost-control initiatives, and use of operating cash. These indicators are discussed throughout the “Results of Operations” and “Liquidity and Capital Resources” sections of this MD&A.
Thirteen Weeks Ended September 24, 2021 Compared to Thirteen Weeks Ended September 25, 2020
Net Sales
| 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||
| Net sales | $ | 484,321 | $ | 254,030 | $ | 230,291 | 90.7 | % | |||||||||||||||
Organic growth contributed $213.7 million, or 84.2%, to sales growth and the remaining sales growth of $16.6 million, or 6.5%, resulted from acquisitions. Organic case count increased approximately 57.5% in our specialty category. In addition, specialty unique customers and placements increased 36.9% and 50.4%, respectively, compared to the prior year period. Organic pounds sold in our center-of-the-plate category increased 56.9% compared to the prior year. Estimated inflation was 10.9% in our specialty category and 28.0% in our center-of-the-plate category compared to the prior year period.
Gross Profit
| 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||
| Gross profit | 109,975 | 60,362 | 49,613 | 82.2 | % | ||||||||||||||||||
| Gross profit margin | 22.7 | % | 23.8 | % | |||||||||||||||||||
Gross profit increased primarily as a result of increased sales. Gross profit margin decreased approximately 105 basis points. Gross profit margins increased 301 basis points in the Company’s specialty category due to higher estimated inventory losses due to the impacts of COVID-19 in the prior year quarter, partially offset by inflation. Gross profit margins decreased 488 basis points in the Company’s center-of-the-plate category due to inflation and higher retail sales in the prior year quarter.
Selling, General and Administrative Expenses
| 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||
| Selling, general and administrative expenses | 99,431 | 76,433 | 22,998 | 30.1 | % | ||||||||||||||||||
| Percentage of net sales | 20.5 | % | 30.1 | % | |||||||||||||||||||
The increase in selling, general and administrative expenses was primarily due to higher costs associated with compensation and benefits to support sales growth. Our ratio of selling, general and administrative expenses to net sales decreased predominately due to sales growth.
18
Other Operating (Income) Expenses, Net
| 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||
| Other operating (income) expenses, net | 105 | (4,146) | 4,251 | (102.5) | % | ||||||||||||||||||
The increase in net other operating expenses was primarily due to non-cash charges of $0.1 million for changes in the fair value of our contingent earn-out liabilities compared to non-cash credits of $4.6 million in the prior year period.
Interest Expense
| 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||
| Interest expense | 4,191 | 4,706 | (515) | (10.9) | % | ||||||||||||||||||
Interest expense decreased primarily due to lower effective interest rates on our outstanding debt as a result of the $50.0 million aggregate principal amount of Convertible Senior Notes issued on March 1, 2021 which were used to repay higher interest rate debt.
Provision for Income Taxes
| 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||
| Provision for income tax expense (benefit) | 2,792 | (5,204) | 7,996 | (153.7) | % | ||||||||||||||||||
| Effective tax rate | 44.7 | % | 31.3 | % | |||||||||||||||||||
The effective tax rate in the current period is driven by various discrete items. The Company’s effective tax rate excluding these discrete items was approximately 29.2%. The higher effective tax rate in fiscal 2020 is primarily related to our net loss forecast for fiscal 2020 which allowed us to claim tax refunds against taxes paid in fiscal 2015 and 2017, both of which were at statutory tax rates of 35%.
Thirty-Nine Weeks Ended September 24, 2021 Compared to Thirty-Nine Weeks Ended September 25, 2020
Net Sales
| 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||
| Net sales | $ | 1,187,506 | $ | 829,957 | $ | 357,549 | 43.1 | % | |||||||||||||||
Organic growth contributed $322.1 million, or 38.8%, to sales growth and the remaining sales growth of $35.5 million, or 4.3%, resulted from acquisitions. Organic case count increased approximately 22.9% in our specialty category. In addition, specialty unique customers and placements increased 23.0% and 23.8%, respectively, compared to the prior year period. Organic pounds sold in our center-of-the-plate category increased 21.2% compared to the prior year. Estimated inflation was 8.7% in our specialty category and 14.2% in our center-of-the-plate category compared to the prior year period.
Gross Profit
| 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||
| Gross profit | 264,796 | 189,276 | 75,520 | 39.9 | % | ||||||||||||||||||
| Gross profit margin | 22.3 | % | 22.8 | % | |||||||||||||||||||
Gross profit increased primarily as a result of sales growth. Gross profit margin decreased approximately 51 basis points. Gross profit margins increased 292 basis points in the Company’s specialty category due to higher estimated inventory losses due to the impacts of COVID-19 in the prior year quarter, partially offset by inflation. Gross profit margins decreased 376 basis points in the Company’s center-of-the-plate category due to inflation. Our prior year gross profit results include a charge of approximately $9.8 million related to estimated inventory losses from obsolescence at the onset of the Pandemic.
19
Selling, General and Administrative Expenses
| 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||
| Selling, general and administrative expenses | 270,034 | 253,480 | 16,554 | 6.5 | % | ||||||||||||||||||
| Percentage of net sales | 22.7 | % | 30.5 | % | |||||||||||||||||||
The increase in selling, general and administrative expense relates primarily to higher operating expenses in fiscal 2021 to support sales growth, partially offset by an estimated non-cash charge of approximately $15.8 million recorded in the prior year related to incremental bad debt expense. Our ratio of selling, general and administrative expenses to net sales was lower as a result of sales growth and of the Pandemic’s adverse impacts to our sales growth and a 104 basis point decrease in non-cash charges related to bad debt expense.
Other Operating (Income ) Expenses, Net
| 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||
| Other operating income, net | (208) | (9,812) | 9,604 | (97.9) | % | ||||||||||||||||||
The decrease in net other operating income relates primarily to non-cash credits of $1.4 million for changes in the fair value of our contingent earn-out liabilities in the fiscal 2021 period compared to non-cash credits of $11.2 million in the prior year period and a $0.6 million impairment of Cambridge trademarks as a result of a shift in brand strategy to leverage our Allen Brothers brand in our New England region during the second quarter of fiscal 2021.
Interest Expense
| 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||
| Interest expense | 13,362 | 15,602 | (2,240) | (14.4) | % | ||||||||||||||||||
Interest expense decreased primarily due to $1.2 million in one-time third-party costs incurred during the second quarter of 2020 in connection with the extension of a majority of our senior secured term loans and lower effective interest rates charged on our outstanding debt as a result of the $50.0 million aggregate principal amount of Convertible Senior Notes issued on March 1, 2021 which were used to repay higher interest rate debt.
Provision for Income Taxes
| 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||
| Provision for income tax benefit | (5,025) | (24,148) | 19,123 | (79.2) | % | ||||||||||||||||||
| Effective tax rate | 27.3 | % | 34.5 | % | |||||||||||||||||||
The higher effective tax rate in the prior period is primarily related to the carryback of a portion of our fiscal 2020 net loss which allowed us to claim tax refunds against taxes paid in fiscal 2015 and 2017, both of which were at statutory tax rates of 35%.
20
LIQUIDITY AND CAPITAL RESOURCES
We finance our day-to-day operations and growth primarily with cash flows from operations, borrowings under our senior secured credit facilities and other indebtedness, operating leases, trade payables and equity financing.
Indebtedness
The following table presents selected financial information on our indebtedness (in thousands):
| September 24, 2021 | December 25, 2020 | ||||||||||
| Senior secured term loan | $ | 169,103 | $ | 201,553 | |||||||
| Total convertible debt | 204,000 | 154,000 | |||||||||
| Borrowings outstanding on asset-based loan facility | 20,000 | 40,000 | |||||||||
| Finance leases and other financing obligations | 14,350 | 15,798 | |||||||||
| Total | $ | 407,453 | $ | 411,351 | |||||||
As of September 24, 2021, we have various floating- and fixed-rate debt instruments with varying maturities for an aggregate principal amount of $393.1 million.
On March 1, 2021, the we issued $50.0 million aggregate principal amount of 1.875% Convertible Senior Notes at a premium which were offered as an additional issuance of our $150.0 million Convertible Senior Notes due 2024 issued on November 22, 2019. Net proceeds were used to repay all outstanding borrowings under the our 2022 tranche of senior secured term loans of $31.2 million and repay a portion of borrowings outstanding under our asset-based loan facility. We incurred transaction costs of approximately $1.4 million which were capitalized as deferred financing fees to be amortized over the term of the underlying debt.
Liquidity
The following table presents selected financial information on liquidity (in thousands):
| September 24, 2021 | December 25, 2020 | ||||||||||
| Cash and cash equivalents | $ | 134,217 | $ | 193,281 | |||||||
Working capital, excluding cash and cash equivalents | 138,379 | 94,279 | |||||||||
| Availability under asset-based loan facility | 109,459 | 50,282 | |||||||||
| Total | $ | 382,055 | $ | 337,842 | |||||||
We are not providing guidance on our capital expenditures for fiscal 2021 due to the continued uncertainty with regards to the pace of the economic recovery and the duration of the Pandemic related restrictions on our customers. We believe our existing balances of cash and cash equivalents, working capital and the availability under our asset-based loan facility, are sufficient to satisfy our working capital needs, capital expenditures, debt service and other liquidity requirements associated with our current operations over the next 12 months.
Cash Flows
The following table presents selected financial information on cash flows (in thousands):
| Thirty-Nine Weeks Ended | |||||||||||
| September 24, 2021 | September 25, 2020 | ||||||||||
| Net loss | $ | (13,367) | $ | (45,846) | |||||||
| Non-cash charges | $ | 30,729 | $ | 35,259 | |||||||
| Changes in working capital | $ | (43,692) | $ | 64,456 | |||||||
| Cash (used in) provided by operating activities | $ | (26,330) | $ | 53,869 | |||||||
| Cash used in investing activities | $ | (25,152) | $ | (65,846) | |||||||
| Cash (used in) provided by financing activities | $ | (7,493) | $ | 80,457 | |||||||
21
Net cash used in operations was $26.3 million for the thirty-nine weeks ended September 24, 2021 consisting of a net loss of $13.4 million offset by $30.7 million of non-cash charges and investments in working capital growth of $43.7 million. Non-cash charges decreased $4.5 million primarily due to a $15.8 million charge incurred in the prior year related to incremental bad debt expense due to the onset of the Pandemic, partially offset by changes in the fair value of earn-out liabilities. The cash used for working capital growth of $108.1 million is primarily driven by the Company’s reinvestment in working capital to support sales growth.
Net cash used in investing activities was $25.2 million for the thirty-nine weeks ended September 24, 2021, driven by capital expenditures of $17.9 million which included the build-outs of our Los Angeles, New England and Miami distribution facilities and $7.3 million in cash paid for acquisitions.
Net cash used in financing activities was $7.5 million for the thirty-nine weeks ended September 24, 2021, driven by $35.9 million of payments made on senior term loans and finance lease obligations and a $20.0 million payment on our asset-based loan facility, partially offset by $51.8 million of proceeds from the issuance of additional convertible senior notes.
Seasonality
Excluding our direct-to-consumer business, we generally do not experience any material seasonality. However, our sales and operating results may vary from quarter to quarter due to factors such as changes in our operating expenses, management’s ability to execute our operating and growth strategies, personnel changes, demand for our products, supply shortages, weather patterns and general economic conditions.
Our direct-to-consumer business is subject to seasonal fluctuations, with direct-to-consumer center-of-the-plate protein sales typically higher during the holiday season in our fourth quarter; accordingly, a disproportionate amount of operating cash flows from this portion of our business is generated by our direct-to-consumer business in the fourth quarter of our fiscal year. Despite a significant portion of these sales occurring in the fourth quarter, there are operating expenses, principally advertising and promotional expenses, throughout the year.
The Pandemic has had a material impact on our business and operations and those of our customers. Our net sales were most significantly impacted during the second quarter of fiscal 2020 when, in an effort to limit the spread of the virus, federal, state and local governments began implementing various restrictions that resulted in the closure of non-essential businesses in many of the markets we serve, which forced our customers in those markets to either transition their establishments to take-out service, delivery service or temporarily cease operations.
Inflation
Our profitability is dependent on, among other things, our ability to anticipate and react to changes in the costs of key operating resources, including food and other raw materials, labor, energy and other supplies and services. Substantial increases in costs and expenses could impact our operating results to the extent that such increases cannot be passed along to our customers. The impact of inflation and deflation on food, labor, energy and occupancy costs can significantly affect the profitability of our operations.
Off-Balance Sheet Arrangements
As of September 24, 2021, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.
Critical Accounting Policies and Estimates
The preparation of the Company’s consolidated financial statements requires it to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The SEC has defined critical accounting policies as those that are both most important to the portrayal of the Company’s financial condition and results and require its most difficult, complex or subjective judgments or estimates. Based on this definition, we believe our critical accounting policies include the following: (i) determining our allowance for doubtful accounts, (ii) inventory valuation, with regard to determining inventory balance adjustments for excess and obsolete inventory, (iii) business combinations, (iv) valuing goodwill and intangible assets, (v) self-insurance reserves, (vi) accounting for income taxes and (vii) contingent earn-out liabilities. Our critical accounting policies and estimates are described in the Form 10-K filed with the SEC on February 23, 2021.
22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
As of September 24, 2021, we had an aggregate $189.1 million of indebtedness outstanding under the Term Loan and ABL Facility that bore interest at variable rates. A 100 basis point increase in market interest rates would decrease our after tax earnings by approximately $2.4 million per annum, holding other variables constant.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of September 24, 2021.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 24, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in legal proceedings, claims and litigation arising out of the ordinary conduct of our business. Although we cannot assure the outcome, management presently believes that the result of such legal proceedings, either individually or in the aggregate, will not have a material adverse effect on our consolidated financial statements, and no material amounts have been accrued in our consolidated financial statements with respect to these matters.
ITEM 1A. RISK FACTORS
Except as stated below, there have been no material changes to our risk factors as previously disclosed in Part I, Item 1A. included in our Annual Report on Form 10-K for the year ended December 25, 2020 filed with the SEC on February 23, 2021. In addition to the information contained herein, you should consider the risk factors disclosed in our Annual Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Total Number of Shares Repurchased(1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs | |||||||||||||||||||||||
| June 26, 2021 to July 23, 2021 | — | $ | — | — | — | |||||||||||||||||||||
| July 24, 2021 to August 20, 2021 | 1,732 | 29.62 | — | — | ||||||||||||||||||||||
| August 21, 2021 to September 24, 2021 | 285 | 27.42 | — | — | ||||||||||||||||||||||
| Total | 2,017 | $ | 29.31 | — | — | |||||||||||||||||||||
(1)During the thirteen weeks ended September 24, 2021, we withheld 2,017 shares of our common stock to satisfy tax withholding requirements related to restricted shares of our common stock awarded to our officers and key employees resulting from either elections under 83(b) of the Internal Revenue Code of 1986, as amended, or upon vesting of such awards.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
24
ITEM 6. EXHIBITS
| Exhibit No. | Description | |||||||
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||||||
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||||||
| Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||||||||
| Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||||||||
| 101.INS | XBRL Instance Document – the instance document does not appear on the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document. | |||||||
* Management Contract or Compensatory Plan or Arrangement
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on October 27, 2021.
| THE CHEFS’ WAREHOUSE, INC. | |||||||||||
| (Registrant) | |||||||||||
| Date: October 27, 2021 | /s/ James Leddy | ||||||||||
| James Leddy | |||||||||||
| Chief Financial Officer | |||||||||||
| (Principal Financial Officer) | |||||||||||
| Date: October 27, 2021 | /s/ Timothy McCauley | ||||||||||
| Timothy McCauley | |||||||||||
| Chief Accounting Officer | |||||||||||
| (Principal Accounting Officer) | |||||||||||
26
Exhibit 31.1
CERTIFICATIONS
I, Christopher Pappas, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Chefs’ Warehouse, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and Rule 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Dated: October 27, 2021 | /s/ Christopher Pappas | |||||||
| By: | Christopher Pappas | |||||||
| Chairman, President and Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
Exhibit 31.2
CERTIFICATIONS
I, James Leddy, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Chefs’ Warehouse, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and Rule 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Dated: October 27, 2021 | /s/ James Leddy | |||||||
| By: | James Leddy | |||||||
| Chief Financial Officer | ||||||||
| (Principal Financial Officer) | ||||||||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of The Chefs’ Warehouse, Inc. (the “Company”) on Form 10-Q for the quarter ended September 24, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christopher Pappas, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: October 27, 2021 | By: | /s/ Christopher Pappas | ||||||
| Christopher Pappas | ||||||||
| Chairman, President and Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of The Chefs’ Warehouse, Inc. (the “Company”) on Form 10-Q for the quarter ended September 24, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James Leddy, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: October 27, 2021 | By: | /s/ James Leddy | ||||||
| James Leddy | ||||||||
| Chief Financial Officer | ||||||||
| (Principal Financial Officer) | ||||||||
A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.