The Chefs' Warehouse, Inc.

Greetings and welcome to Chef's Warehouse Fourth Quarter 2022 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Alex Aldis, General Counsel, Corporate Secretary, and Chief Government Relations Officer.

Please go ahead, sir. Thank you, operator. Good morning, everyone. With me on today's call are Chris Pappas, founder, chairman, and CEO, and Jim Letty, our CFO. By now, you should have access to our fourth quarter 2022 earnings press release. It can also be found at www.chefswarehouse.com under the investor relations section. Throughout this conference call, we will be presenting non-GAAP financial measures, including, among others, historical and estimated EBITDA and adjusted EBITDA, as well as both historical and estimated adjusted net income and adjusted earnings per share. These measurements are not calculated in accordance with GAAP and may be calculated differently in similarly titled non-GAAP financial measures used by other companies. Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release. Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements. including statements regarding our estimated financial performance. Such forward-looking statements are not guarantees of future performance, and therefore you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Some of these risks are mentioned in today's release. Others are discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q, which are available on the SEC website. Today we are going to provide a business update and go over our fourth quarter results in detail. 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 fourth quarter 2022 earnings call. Fourth quarter business activity continued the return to more normal seasonality heading into the year-end period as celebrations and event-related business continued to build upon emerging third quarter trends. We are extremely proud of our team's execution during the fourth quarter, especially their ability to overcome challenging weather across our markets in mid to late December. Our people continue to drive the Chef Warehouse high quality product and high touch service model to our 40,000 plus customers and we are grateful to each and every one of them for contributing to a strong performance rounding out 2022. A few highlights from the fourth quarter as compared to the fourth quarter of 2021 include 22.7% organic growth in net sales. Specialty sales were up 34.2% organically over the prior year, which was driven by unique customer growth of approximately 18.9%, placement growth of 14.5%, and specialty case growth of 19.1%. Organic pounds and center of the plate were approximately 15.2% higher than the prior year fourth quarter. Gross profit margins increased approximately 116 basis points. Gross margin in the specialty category decreased 91 basis points as compared to the fourth quarter of 2021, while gross margin in the center of the play category increased 133 basis points year over year. Jim will provide more detail on gross profit margins in a few moments. As previously announced, during the fourth quarter, we are excited to enter the dynamic markets within the United Arab Emirates. Qatar and Oman with our acquisitions of Chef's Middle East. We look forward to supporting Steve Pyle and the CME team as we expand our capacity in the region, grow categorically, and leverage our combined strengths over the months and years to come. In addition to our expansion outside North America, during the quarter, we added a few key components to our East Coast markets with the addition of the Guaranteed Fresh Produce Company, and Down East Seafood. Guaranteed Fresh is a specialty produce company located in Cape Cod of New England serving primarily independent restaurants. We anticipate folding their operations into our new Bradford, Massachusetts produce and specialty operation in the coming months. Down East Seafood is a fresh seafood processing company located near our flagship chef warehouse facility in the Bronx, New York. Adding fresh seafood in the New York metro market provides us with another key step in building out our growing center of the plate capabilities as we continue to add categories and customers in these key markets. In the southern New Jersey and Philadelphia market, we recently signed a lease for a 175,000 square foot facility. This new building will consolidate service to the greater Philly area and the southern central New Jersey parts of our business. Once fully operational, this will allow for a more efficient distribution model in the region and will provide additional capacity for growth in our New York metro area and mid-Atlantic markets going forward. Our new facility in Florida is substantially complete, and we expect to move in by the end of the first quarter of 2023. 2022 was a stellar year for our company, for our people, and for our customers and supplier partners. During the pandemic years of 2020 and 2021, our teams continued to execute at a high level to ensure that we brought the highest quality products to the market and maintained a high-touch delivery for our customers. We kept the balance sheet strong. We got ahead of the labor constraints associated with the snapback in demand, and we restarted investment in talent and capital deployment to build out our LA and Florida expansion facilities In 2022, we started the process of mining these investments, and our teams delivered strong organic growth, complemented by adding key acquisitions to multiple domestic markets, as well as our foray into the global specialty food distribution arena. As we continue to grow, Chefs will remain the most unique food service partner to upscale independent establishments and the world's top artisan food producers. We will continue to enhance our business model as a family of brands and companies, laser focus on the high end with an unmatched hybrid sell and service model. We will continue to make investments in facilities and market expansion, operational technology, and our customer-facing digital platform to provide improving efficiency for all CW stakeholders. Our people remain our greatest asset and source of our differentiation from the rest of the food service industry. We are focused on adding, retaining, and developing the best culinary and operational talent in the markets we serve. Our teams have never been more excited to drive Chef's Warehouse growth into 2023 and beyond. With that, I'll turn it over to Jim to discuss more detailed financial information for the quarter and an update on our liquidity. Jim?

Thank you, Chris, and good morning, everyone. I'll now provide a comparison of our current quarter operating results versus the prior year quarter and provide an update on our balance sheet and liquidity. Our net sales for the quarter ended December 30th, 2022 increased approximately 41.8% to $791.3 million from $558.3 million in the fourth quarter of 2021. The growth in net sales was a result of an increase in organic sales of approximately 22.7% as well as the contribution of sales from acquisitions, which added approximately 19.1% to sales growth for the quarter. Approximately 6% of year-over-year sales was due to the 14-week fiscal quarter in 2022 versus a 13-week fourth quarter in 2021. Net inflation was 7.1% in the fourth quarter, consisting of 14.1% inflation in our specialty category and year-over-year inflation of 0.4% in our center of the plate category versus the prior year quarter. Gross profit increased 49% to $187.3 million for the fourth quarter of 2022 versus $125.7 million for the fourth quarter of 2021. Gross profit margins increased approximately 116 basis points to 23.7%. While year-over-year inflation was broad-based across most specialty categories, average pricing was up moderately at approximately 2% versus the third quarter of 2022. In aggregate, center-of-the-plate pricing was essentially flat versus the prior year quarter. Selling general and administrative expenses increased approximately 40.4% to 153.4 million for the fourth quarter of 2022, from $109.2 million for the fourth quarter of 2021. The primary drivers of higher expenses were higher compensation and benefits costs, facility costs, and distribution costs associated with year-over-year volume growth. Adjusted operating expenses increased 43.7% versus the prior year fourth quarter. As a percentage of net sales, adjusted operating expenses were 17.3% for the fourth quarter of 2022 compared to 17.1% for the fourth quarter of 2021. Operating income for the fourth quarter of 2022 was 29.8 million, compared to 15.8 million for the fourth quarter of 2021. The increase in operating income was driven primarily by higher gross profit, partially offset by higher operating costs. Income tax expense was 4.3 million for the fourth quarter of 2022, compared to 3.2 million for the fourth quarter of 2021. Please note that our fourth quarter effective tax rate was 78.6% due to the non-deductibility for tax purposes of the 14.1 million debt extinguishment loss associated with the refinancing of a portion of our $200 million convertible notes due in 2024. Our GAAP net income was 1.2 million or 3 cents per diluted share for the fourth quarter of 2022. compared to net income of 8.4 million or 22 cents per diluted share for the fourth quarter of 2021. On a non-GAAP basis, we had adjusted EBITDA of 50.1 million for the fourth quarter of 2022, compared to 30.2 million for the fourth quarter of the prior year. Adjusted net income was 18.8 million or 48 cents per diluted share for the fourth quarter of 2022, compared to 10.2 million or 26 cents per diluted share for the prior year fourth quarter. Turning to the balance sheet and an update on our liquidity. During the fourth quarter, we completed the issuance of 287.5 million convertible notes maturing in December of 2028. The proceeds of the notes were used to repay approximately 158 million of the 200 million convertible notes maturing in December of 2024, pay fees and expenses associated with the transaction, and we retained approximately $120 million in cash on the balance sheet. Interest expense for the fourth quarter of 2022 was $24.3 million compared to $4.2 million in the fourth quarter of 2021. The increase was driven primarily by the $14.1 million loss on debt extinguishment, higher levels of outstanding debt balances, and higher floating interest rates versus the prior year period. At the end of the fourth quarter, we had total liquidity of 294.6 million, comprised of 158.8 million in cash and 135.8 million of availability under our ABL facility. As of December 30th, 2022, net debt was approximately 507.1 million, inclusive of all cash and cash equivalents. Turning to our full year guidance for 2023, based on the current trends in the business, we are providing our full year guidance as follows. We estimate that net sales for the full year of 2023 will be in the range of $2.85 billion to $2.95 billion, gross profit to be between $684 million and $708 million, and adjusted EBITDA to be between $180 million and $190 million. Our full year estimated diluted share count is approximately 45.2 million shares. We currently expect our senior unsecured convertible notes to be diluted for the full year. And accordingly, those shares that could be issued upon conversion of the notes are included in the fully diluted share count. Thank you. And at this point, we'll open it up to questions. Operator?

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on the telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Our first question is from the line of Calibania with BMO Capital. Please go ahead.

Hi, good morning and congrats on a great year. Just first housekeeping question for the model. The 6% top line impact from the extra week, did that impact both organic and acquired sales by the same magnitude? And do you have an estimate on just the overall profit impact to EBITDA for the fourth quarter from the extra week?

Yeah. Hey, Kelly. Thanks for the question. Yeah, the 6% was just overall revenue. So in that was both organic and any acquisitions that we had that we didn't have in 2021. So it'd be a similar mix of that. And then in terms of the... The second question, in terms of the impact of profitability, I think the fourth quarter was pretty much how we expected it to play out. The first part of December, the holiday season and the event season was just as strong as we had kind of indicated on our third quarter call, where we had more visibility into the bookings, et cetera. So that played out. I think what was different was Generally, in a normal year, the 52nd week of the year, which is usually the week of Christmas, is generally weak. People are generally celebrating at home, and so we model that in. The 53rd week, we had two weeks of that at the end of the year, and so we did lose a little bit of operating leverage, but it was still a very strong fourth quarter for us, and a good December, except for that final 53rd week, which generally falls in the first quarter and is a fairly low volume week as well.

Okay, that's helpful. And I guess there was the comment in the release about seasonality and that seems to be maybe getting back to more normal. And I guess I just wanted to ask about the 2023 outlook and what you're thinking on seasonality because the way that we I think about 85% of the company EBITDA is generally generated in the last three quarters of the year. And just curious if you can comment at all on how you think about the seasonality today, if that historical pattern is maybe a good place to base expectation, or if there's anything that's really changed with seasonality, particularly with all the recent M&A that's flowing through.

Yeah, I would say, I'll let Chris comment as well. In terms of, you know, for your modeling purposes, you're right about, you know, 15 or high teams type of EBITDA is generated in the first quarter because it's usually our weakest quarter. And then you have, you know, the second quarter and the fourth quarter are generally our strongest and the third quarter is kind of the middle. And you get that kind of 80 to 85% of our EBITDA generation is in the final three quarters of the year. I'd say the only And it's not going to be a material change to that, is that Chef's Middle East has their strongest periods in the fourth quarter and first quarters. So basically our winter and our first quarter, which are the weakest, they have their strongest. And because of their summer being so extremely hot and people generally leave for a little while, their weakest periods are during our second quarter and our third quarter. So that's the only change, but I don't think it materially changes the percentage ranges that you just mentioned. Yeah.

Perfect. That's very helpful. Yeah. And Kelly, just a little color. I mean, I think you asked about, you know, coming into the first quarter, which is our weakest quarter, but we actually, except for the first week, of January, which is always, you know, one of our work week, you know, getting back to after the holidays. And as Jim said, even though we had that extra week, you know, in last year's numbers, you know, that week, you know, to us is almost like a throwaway week because it's a week of travel or it's a week of regrouping and it fell in the fourth quarter. So we really didn't get much out of it. First quarter going into the first January, going into February, pretty strong. You know, we're all looking at, you know, how does this year really start to shape up coming out of, you know, 22 and no big surges of, you know, Omicron. And we're really pleased to see that, you know, spending continued and, you know, A lot of events finally are happening. A lot of conferences are happening, and business travel is picking up. So we're very pleased to see how the new year started.

Perfect. That's helpful. And I just had one more that I wanted to go back to from the third quarter. And I believe, Chris, maybe it was you that had made a comment about how the business has changed from – a gross profit margin business to a gross profit dollar business. And I thought that was very interesting because I think there's some investors who are just broadly worried about the impact of a lower inflationary environment and how that could impact profitability. And I thought you could just maybe elaborate on that comment and how you're thinking about that. Obviously we have your guidance, but just any more color on that topic, I think might be helpful.

Yeah, sure. So, The way this industry works is that as prices are going up, sometimes you can't pass along the increase for many reasons as fast as you would like. So there's sometimes a lag. And then the opposite effect happens on the way down. You try to hold on to price as long as possible. If you have a big shift, if you have a deflationary environment, you're usually able to capture a little bit more margin. So, you know, my comment about, you know, look at gross profit, you know, in an inflationary environment, look at gross profit dollars versus margin, because that's really what counts, right, is how much gross profit dollars and you're getting your leverage on your overhead. And I think that's what we did see during, you know, as we're experiencing inflation, you know, excess inflation right usually you know two percent three percent was inflationary times in this industry never mind what we're seeing today um as long as you can capture those dollars uh the margin becomes a little less important so of course you would like that if you were at 25 and you can keep 25 you're making a lot of money because it's not really costing you more to move that box uh now that it went from 30 to 40 dollars And I think that's what we're seeing since we're really not a contract company. You know, we don't go out with long-term contracts to customers and get locked into a certain, you know, dollar per box. It's a different part of the industry. It's huge. You know, it's a gazillion billion dollar industry servicing a lot of the chains and doing a per box kind of contract. that's not who Chefs is, right? You know, we service mostly the independents and our prices move. So, you know, in a deflationary environment, if we started to see some deflation, I think you would see the opposite of what's happening now. You'd probably see margins going up and keeping those gross profit dollars kind of where they are right now. So if we were making, you know, we're making 25% and now we're making 24, I mean, we're making 27% on a less expensive box. That's kind of our hedge to keep our profitability kind of equal.

Very helpful. Thank you very much.

Thanks, Kelly.

Thank you. Our next question is from the line of Alex Legal with Jeffrey, please go ahead.

Thanks. Good morning, guys. I wondered if you could just follow up on previous questions, comment a little bit more on the demand environment and what you've observed to start the year out from a high-level perspective. It seems like the underlying traffic trends in the industry are holding up fairly well, but it's hard to read through all the weather and the Omicron lab cross-currents and If you could just offer a little bit more perspective there and maybe what you're hearing from customers, whether it's a sense of optimism or are they getting more cautious as they look out ahead?

You know, I think it's where you are and, you know, what markets you're in. You know, we're very pleased to what we've seen. You know, so I think the better weather you know, in parts of the country where usually have really cold weather. You know, I always say it can't hurt, but, you know, what we really realize it, you know, a major snowstorm is very disruptive to the numbers, obviously, but, you know, January is January. It's, you know, people going back, you know, kids going back to school and people really busy with a lot of other obligations. So even with good weather, It's not going to be a great quarter compared to the rest of the year, right? There's not as much celebratory events going on. I mean, there are conferences. You just had Valentine's Day. But we always say the first quarter is the first quarter, but we're very pleased so far what we're seeing. The consumer, the business traveler is spending. So we're optimistic that that does continue. I know in the press there's all this back and forth, you know, are we going into recession or are we? And we are, you know, we are blessed with, I always say, we service the top 10% of the earners in the world or the corporates that are, you know, traveling and entertaining. So, you know, we're not seeing anything, you know, as of this point, any change in behavior. So I think the good weather can't hurt. But, you know, January, February, no matter what it is, you know, it's not like it's the second quarter or the fourth quarter.

Okay. And on the food costs and inflation, I mean, it looks like your two and three year SPAC inflation levels have been very consistent all through 22. And Curious if the current cost levels are holding into the first quarter and if you have a best guess on what the year-over-year inflation might look like here in the first quarter, the outlook for the year.

Well, you know, as you can see that throughout 22, you know, the year-over-years just got sequentially lower. We started out the Q1 with 22% year-over-year aggregate inflation. And I think, you know, we're reporting 7%. I think sequentially versus the third quarter, you know, inflation was low single digits, you know, somewhere between, you know, 2% and 4%. So I think what we're, you know, what we're starting to see is that, you know, the deflation in center of the plate has kind of leveled off. I know that prime prime prices have come down, but that's more seasonal. You know, coming out of the holiday season when prime prices are high, generally you go into January and February, they come down and they follow more of a seasonal pattern. And, you know, certain parts of the specialty categories have been, you know, extremely inflated, like eggs and certain dairy products. Those have started to somewhat normalized. They're still much higher than they were in, say, 2019. So I think what you're starting to see is prices starting to level off. And when you compare the year-over-years, you're comparing to higher prices. So naturally, you would expect the year-over-years to start to moderate.

Okay. Thanks.

Thank you. Our next question is from the line of Peter Solly with BTIG. Please go ahead.

Great. Thanks and congrats on a great year. I wanted to ask about new restaurant formation or development and what you saw during calendar 22. And just if you could talk a little bit about your expectations for 23. And maybe, you know, how your growth is coming to be. Is it more from existing customers, you know, further penetration, or are you seeing just a lot more development that you're able to pick up a lot of new business?

Yeah. I think it's starting to normalize, you know, kind of, you know, I think you're seeing on numbers, you know, the organic growth, the case growth. is kind of, you know, I hate to use the word normalized because I don't know what normal is anymore, but, you know, our really good customers, we were really reviewing this morning, the good customers are really doing well, right? So, again, if you happen to be in a city that, in an area that just hasn't come back, unfortunately, you are suffering. But if you are in a good suburb or in Florida or parts of Texas or even San Francisco, a lot of the news is all about how many parts of San Francisco just haven't come back. People haven't come back to the office. So the business has kind of moved around But we're seeing major openings. I mean, we're seeing mega restaurants, you know, high volume restaurants, some of the highest grossing restaurants from now in the country are opening. So the appetite for, you know, consumers and businesses to always go to that, you know, new place, I think is stronger than ever, you know, especially coming out of COVID where there wasn't a lot going on. Um, a lot of them have been delayed and they're starting to open. I think they are opening as labor is coming back. I mean, it's, it's not an, you know, it's not ideal labor situation, but I think there's enough labor coming back into the market where we are starting to see a lot of openings and, uh, we're seeing, you know, small openings in, in neighborhoods and we're seeing the, the big ones, you know, where, uh, where the volume is, you know, Las Vegas and Miami and Texas, even New York and parts of California, it's starting to drive a lot of our growth.

Thank you for that. And then just on the freight costs, I think last year there was a lot of discussion around freight costs really skyrocketing and there was some waste associated with that. Can you talk a little bit about what you're seeing on the freight costs and your expectations for 23? Have those prices really come down significantly?

Yeah, they have definitely moderated. I think on the West Coast they started to come down really mid-year last year. It was more from Europe that you're still seeing in the back half of 22. You're still seeing some of the elevated prices. But what we're seeing now is that freight rates are coming back down towards pre-COVID levels. They're not completely there, but they definitely have moderated.

Thank you very much.

Thanks, Peter.

Thank you. Our next question is from the line of Andrew Wolfe with CL King. Please go ahead.

Thank you, and good morning. Chris, I think this is for you. I wanted to ask about the small acquisitions you just announced in, I guess, with Sid Wehner, joining Sid Wehner in produce with Cape, and then Seafood in the Bronx. Could you maybe give us a little... description of the strategic, not just the purpose, but also the evolution. You've done similar acquisitions over the last few years, particularly in seafood and more recently in produce. How are these working out strategically? Are they giving you the kind of synergies you wanted with getting the case on the truck that's already going to a customer, getting you new customers, expanding your penetration with existing just Is that sort of delivering kind of the impacts you had expected, you know, sort of on the deals you've done in the last few years?

Sure. Great question. You know, I think you've often heard me say that if we could do a tuck-in a day, I would do it because they're low risk, so creative, because basically what we're taking is, you know, the customer base, some of the sales team, and any, you know, if, if they have some really expertise, uh, obviously we're always looking for talent, but, you know, eliminating a lot of their trucks and facilities, uh, a lot of that drops to the, to the bottom line, even if you lose 20, 30% of the business. So, you know, we continue to hunt for those type of small businesses that we can fold in. So, uh, the case of new England, you know, uh, It's a great business. It serves an area that we have a lot of overlap, so it's not far-fetched to model and say we can eliminate many of the duplicate routes and consolidate them. We can leverage the sales staff. We can take their sales staff and now give them the 50,000 items that flow through Chef's Warehouse for them to sell and So, you know, it's a low risk acquisition with a tremendous upside. And, you know, so that would be a typical type of folding that we would do in a market, especially if we have the occupancy availability in the facility and YUC is building all these new buildings to accommodate what we think is gonna be a continued consolidation of the industry. You know, the little seafood companies and other companies that we're acquiring, You know, an area like New York, Metro New York, you know, I always said New York's going to be at least a billion-dollar business for Chef. We still don't have an actual Allen Brothers Steak and Seafood. So I think we're starting to take the steps of there's really nobody large for us to buy. So, you know, when the opportunity comes to acquire really good small businesses, we'll start to accumulate them. and then eventually put them either in a facility we own or build a new one and we'll consolidate them to give us enough volume where, you know, it makes sense to have the staff, the cutters, right, and part of the overhead to really attack a market. I think, you know, Allen Brothers Steak and Seafood in New York is a half a billion dollar business. So, you know, it's kind of the first steps to kind of get going because right now we're feeding markets like New York from facilities that are a little outside the area. We have facilities in Maryland, we have facilities now in New England, and it works fine. We ship stuff from Chicago that's more custom cut or from other parts of the country where we do have these processing facilities that do something special. But long-term, a lot of these markets need their own special processing centers. So I think you'll continue to see us accumulating small businesses and then consolidating them and getting the leverage and getting the synergies.

Thank you. That was really helpful. The other question I wanted to ask on the cost structure, you know, it did contract year over year. Obviously a lot of inflation in there. You would expect that, but to what extent did the extra week, you know, with, kind of low sales, kind of negatively impact operating expense, the expense ratio. I guess more generally, how are you feeling about your labor productivity trends and the metrics there as we head into 2023?

Yeah, thanks, Andy. Yeah, I mean, I think, yeah, I think our adjusted operating expense was maybe a couple of basis points higher than the prior year. Part of that was that, you know, 53rd week and the lack of leverage on it. Once again, I just go back to it was a very strong quarter and a strong December. It just happened that that fiscal week fell into there. We also had some kind of excess expenses related to our self insurance programs that are not, you know, usual. We've had that before. when you have self-insurance programs from a medium to long-term perspective, they're more economical than full insurance programs, but you have a little more volatility and lumpiness. And we had some of that in the fourth quarter. So you had those two things together. They were the main reason that our EBITDA margin wasn't closer to 7% and was more closer to 6.5%. And that flowed through mostly on the OpEx side. But overall, a very strong quarter. really good top line and, you know, a good year, good quarter to round out the year.

Okay. And just on the kind of the metric side, I mean, how are your operations people kind of, what kind of numbers are you seeing on the metrics in terms of, you know, sequential or however you guys are looking at, you know, kind of, you know, meat and potatoes, you know, picks per hour type of metrics and, That kind of thing. How do you think that's progressing as your new employees get trained up? And I guess you're adding new employees from acquisitions who may not know, you know, may not be as productive. I guess it's kind of maybe a little complex. But just overall, you know, how are the operations progressing as, you know, hopefully the supply chain is continuing to normalize?

Yeah, I think we've been progressing very well. I think you've seen a lot of productivity improvement from us and from other companies. in the industry throughout the comeback out of COVID. Everybody's doing more with less. I know we have a great operations team. We're constantly implementing new loading and picking and warehouse technology process. We're constantly improving our distribution software and technology. And so we have an operations team that travels around the country educating and implementing our operators on on these improvements we've already started to work with our our new partners in the Middle East on various pieces of their operations and then you know Chris talked about the facilities and building new facilities and doing tuck-in acquisitions we get we get leverage as we grow by consolidating companies into our facilities consolidating routes and And that allows us to leverage our fixed cost corporate infrastructure as we bring those companies onto our backbone from a systems perspective, from all of the support functions perspective. We get to leverage that as we grow as well.

Got it. Thank you.

Thank you, Andy.

Thank you. Our next question is from the line of Todd Brooks with Benchmark Company. Please go ahead.

Hey, thanks. Good morning to you both and congrats on a strong finish to a good year. Thank you. You're welcome, Chris. A couple quick questions on the M&A side, one for Jim and one for Chris. Jim, now that you guys announced guaranteed and downies with the call here, can you give us a sense for what you're carrying into fiscal 23 as far as incremental revenue growth from acquisitions that have already been completed?

Yeah, I think the wrap impact of the acquisitions are roughly about 200 million. That may not be exact, but that's kind of a rough number. I think the full annual impact of all the acquisitions that we did in 22 is That's including Capital Seaboard because we did them on the first fiscal day of 22 was roughly between 400 and 500 million. So it's not a little less than half of that.

Okay, great. Thank you. And then Chris, just your view on, I always love to hear your take on the M&A pipeline out there. And is there anything changing as far as pace of deals on sticking or maybe magnitudes of deals that are in the pipeline now, as you're looking ahead, maybe the next 12 months?

Um, yeah, I mean, as, as, as predicted coming out of COVID, um, it's, it's the wild West. Uh, you just have to, just have to make sure you don't walk into that, uh, the wrong little town where you get shot, you know, in the back. Um, it's, uh, it's a industry that's going to keep consolidating, you know, for many, many reasons, right? The cost of new warehousing is very expensive. A lot of these businesses, uh, you know, are second, sometimes third generation and, uh, you know, they don't see, you know, where they'll continue to grow. So, uh, they'd rather diversify, you know, their wealth and their selling. So, um, It's just really being very picky for us and, you know, companies that fit our culture and fit into our long-term, not just our short-term, you know, to get a spike. So it's extremely frothy. You just have to be very careful because, you know, coming out of COVID, the numbers are a little – are a little, you know, they're not typical, you know, where you see a company growing at 2% or 3%, you know, some companies have had tremendous growth for, for many reasons with inflation. So you, uh, you, you got to somehow see the, uh, forest through the trees and, um, thank God we have a tremendous amount of experience, you know, and having done over 40 plus, uh, acquisitions in the last, uh, 10 years. And, um, We're just being very diligent and careful, you know, who we bring into the chef family portfolio.

That's great. And then following up on that, you've owned Chef Middle East now for a number of months. You've been through a major event in the region, obviously, with the World Cup. Just excitement for maybe what the chef's warehouse is going to bring to that property as far as revenue growth synergies and unlocks and what you think that business can be. I think it was kind of at the midpoint, maybe around $150 million type of business when you bought it. But what's that asset worth now that you're getting to know it better and what you can bring to bear to really start to grow that business?

Yeah. Again, it was a very bold move for us to buy somebody so far away when we have so much opportunity and so many things to do here. in North America, but it really was one of a kind. It was a company that had great pedigree, great management culture that really fit, you know, right along with who CW is and an appetite to really grow. You know, we had a great management team that wanted to grow. They were set up for growth and they just needed, you know, the backing and I call it a partner that believed in their vision. They're not a processor. We think Allen Brothers Steak and Seafood is going to do great in that marketplace. We think there's lots of room for them to continue to grow and expand our portfolio of companies. We bring so many new suppliers to them. We bring a whole company that's been in this business for so long, so we think they do need space. They're kind of maxing out in their major facilities, so we're going to continue to add to their building, and we feel very confident that they will double that business in the not-so-distant future and be a great ship's warehouse.

Great. And one last one, and then I'll jump back in the queue. Jim, when you provided the initial guidance for fiscal 23 at during the ICR conference I think you said when you were contemplating the revenue guidance you were baking in an assumption for deflation of 5% given we've passed another quarter here given maybe some of the some of the news out about the herd sizes in the US and what it may mean for beef prices how are you feeling about that that 5% type of deflation are you feeling more confident potentially that the setup is there to maybe beat that in fiscal 23? Thanks.

You know, I don't know. I think, Todd, in this environment, it's very difficult to predict inflation. I think what we actually said, which kind of mirrors your comments at ICR, was that, you know, we had risk adjusted our range, you know, in case there was, you know, kind of that mid single digit type of deflation. I think right now where we see January and February playing out, I would say that while we're not changing our guidance, we're definitely trending towards the upper end of the guidance. Definitely too early in the year to update it based on that. But in terms of inflation, I'll just go back to my comments earlier. We kind of see it more normalizing as we go through 23. Now, what that means from the year-over-year comps all depends on, you know, what it's comparing to in 22. And you saw higher prices, you know, in the first half of 22 and then kind of moderating in the back half of 22. So the year-over-year numbers will depend on that, I think, more than significant changes in current pricing. I think you'll start to see you know, kind of more mid-single digit type of sequential or low single digit type of sequential changes in aggregate. I think there are certain categories, like I mentioned earlier, like eggs and dairy products that have recently gone, you know, through the roof because of things like the avian flu. I think those type of categories will start to moderate. But in general, I think we've seen a resetting higher and you'll start to see more normal inflation dynamics going forward.

That's super helpful. Thanks to you both. Thanks, Todd.

Thank you. As there are no further questions at this time, I would like to turn the floor back over to Chris for closing comments.

Sure. Well, we thank everybody for joining us today. On our earnings call, we are very excited about the opportunities in 2023 and couldn't be prouder of the Chef team. They really executed in 2022, and we look forward for them to continue to do great things for our shareholders and for many years into the future. Look forward to talking to you again on our next earning calls. Thank you.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.