The Chefs' Warehouse, Inc.

Greetings and welcome to the Shep's Warehouse 3rd Quarter 2019 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Alex Aldous, General Counsel, Corporate Secretary, and Chief Government Relations Officer. Please go ahead, sir.

Thank you, Operator. Good afternoon, everyone. With me on today's call are Chris Pappas, Founder, Chairman, and CEO, and Jim Leddy, our CFO. By now, you should have access to our third quarter 2019 earnings press release. It can also be found at www.chefswarehouse.com under the Investor Relations section. Throughout this conference call, we will be presenting non-GAAP financial measures including, among others, historical and estimated EBITDA and adjusted EBITDA, as well as both historical and estimated adjusted net income and adjusted earnings per share. These measurements are not calculated in accordance with GAAP, and may be calculated differently in similarly titled non-GAAP financial measures used by other companies. Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release. Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements, including statements regarding our estimated financial performance. Such forward-looking statements are not guarantees of future performance. and therefore you should not put undue reliance on it. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Some of these risks are mentioned in today's release. Others are discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q, which are available on the SEC website. Today we are going to provide a business update, go over our third quarter results in detail and review our 2019 full year guidance. Then we will open up the call for questions. With that, I will turn the call over to Chris Pappas. Chris?

Thank you, Alex, and thank you all for joining our third quarter 2019 earnings call. Our team delivered solid third quarter revenue and gross profit performance. While year-over-year unit volume growth remained below our typical range due to changes in product mix and continued cycling out of lower margin, high volume placements, Organic revenue growth continued to meet expectations, and our team delivered a positive gross profit to adjusted operating expense spread in the quarter. During the quarter, we also continued to invest in growth. We added seasoned sales and category specialist talent to both our East Coast and West Coast regions. We also continued to invest in our brands, our customers, and supplier partners via targeted marketing events across our expanding geography. A few highlights from the third quarter include 4.5% organic growth in net sales. Specialty sales were up 5.8% organically over the prior year, which was driven by unique customer growth of approximately 3.9%, placement growth of 3.1%, and specialty case growth of 3.2%. Organic pound growth in center of the plate was approximately .9%. While sequentially higher than the second quarter of 2019, product mix changes continue to drive specialty case growth trends in the third quarter. On a year-over-year basis, as compared to the third quarter of 2018, this represents a shift from higher volume dairy category cases to lower volume, higher revenue per case categories, such as specialty oils and vinegars, as well as pastry and bakery products. Looking on a two-year basis, third quarter specialty case growth averaged approximately 4.6% and specialty organic revenue growth averaged 6.8%. Center of the play pound growth compares to a strong third quarter of 2018 and continues to cycle through attrition of some higher volume, lower margin placements. Gross profit margins increased approximately 25 basis points. Gross margin in the specialty category increased 24 basis points as compared to the third quarter of 2018, while gross margins in center of the play category increased 54 basis points year over year. In addition, gross profit dollars grew approximately 10.9% versus the prior year quarter. Jim will provide more detail on margin in a few moments. During the quarter, we continued to progress on several growth and integration priorities. The conversion of our Texas business onto our ERP platform was completed in August, and the team commenced preparations for integrating southern New Jersey, Philadelphia, which we expect to complete in the first half of 2020. In addition, our Southern California facility expansion continues to move forward, We've substantially completed the design phase and expect to commence construction in the first quarter of 2020. In terms of e-commerce, our digital and customer experience team continues to leverage customer feedback and input in creating value-add features and processes. During the third quarter, we implemented improved search functionality within our mobile app, and we expect to introduce enhancements related to product selection and menu design in the coming months. As of October, we estimate online sales represented approximately 14% of organic revenue. This included website, mobile, and electronic order applications linked directly to certain customer order systems. Approximately 20% of all specialty orders were placed on e-commerce platforms. Our off-truck scanning implementation continued to progress with our South Florida operation reaching completion in the third quarter. Portland, Seattle Operations will adopt this process in early 2020, followed by our West Coast Distribution Center's post-ERP conversion later in 2020. I would like to thank our team members, customers, and supplier partners for producing a successful third quarter. During the quarter, as we do every year in our major markets, we brought hundreds of our chef customers and artisan supplier partners together from around the globe in New York, San Francisco, and Texas. These events showcase innovative new products, ingredients, curate new relationships, and strengthen existing bonds. Help our customers continue to grow creatively and enhance the culinary experience for their customers. As we get ready for 2020, our 35th year building the Chefs' Warehouse, our team has never been stronger, more focused, or excited about our future as the leading national marketer and distributor to the chef-driven customer base that continues to grow with Chefs' Warehouse and its family of companies as its partner. With that, I'll turn it over to Jim to discuss more detailed financial information.