The Chefs' Warehouse, Inc.

Greetings, and welcome to the CHESS Warehouse third quarter 2023 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.

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 third quarter 2023 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 discussions 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 third 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 third quarter 2023 earnings call. The third quarter business activity improves sequentially within the quarter, following a softer than expected July and August, primarily due to the placement of the Fourth of July holiday observed higher than anticipated overseas travel. Coming out of the summer season, the demand and pricing environment improved as more typical seasonal trends emerged. As we moved into September, we saw significant sequential improvement in gross profit margins across our markets and we expect this trend to continue as we move into the fourth quarter and new year. I would like to thank our teams across Chef's Warehouse for delivering strong growth in customer acquisition, placement growth, and volume growth during the quarter. We remain focused on providing our customers with the highest quality product and high-touch service as we continue to grow categories, integrate our recent acquisitions, and drive organic growth across domestic and international markets. A few highlights from the third quarter as compared to the third quarter of 22 include 7.1 percent organic growth in net sales. Specialty sales were up 8.2 percent organically over the prior year, which was driven by unique customer growth of approximately 10.8 percent, placement growth of 14.2 percent and specialty case growth of 9.1%. Organic pounds in center of the plate were approximately 6.6% higher than the prior year third quarter. Gross profit margins decreased approximately 29 basis points. Gross margins in the specialty category decreased 84 basis points as compared to the third quarter of 2022. while gross margins in the center of the play category decreased 104 basis points year over year. Jim will provide more detail on gross profit margins in a few moments. During our second quarter call, we highlighted the near-term growth-related operating cost increases associated with the significant investments we have made in infrastructure capacity to facilitate future organic growth as well as the elevated level of acquisitions we have made over the last few years. These expenses relate primarily to operating costs associated with facility expansion, higher acquisition-related transition costs, and insurance expense associated with our significant growth over the past 12 months. Our expenses related to our core warehouse distribution and sales operation Excluding these growth-related investment costs remain in line with our expectations and historical trends. We expect the impact of the near-term elevated expense to lessen as we move into 2024 and 2025. While not a complete list of cost reduction and operational efficiency-related efforts currently underway, I would like to highlight a few of the more impactful projects and work streams aimed at contributing to expected operating leverage in 2024 and 2025. These include our anticipated opening and consolidation of multiple protein processing plants into the Northern California facility we expect to open in the first half of 2024. We expect to consolidate trucks, routes, and operating more efficient operations utilizing an optimized labor force and technology platform with increased capacity for future growth. We expect to continue to grow our digital capabilities and have recently added our processed protein products to our online ordering platform. This adds to improving efficiencies in our customer support and sales operations. We expect to reduce acquired growth transition and integration costs going forward, and we expect to begin to see the organic growth leveraging our recently added capacity in Southern California, in Florida, Philadelphia, and other fast-growing regions where we have recently expanded distribution capabilities. Our overall strategy for growth going forward has not changed. Rooted in the three primary pillars of our unique growth model, which includes the integration of recently acquired companies cross-category and cross-platform selling, and driving future operating leverage through the capacity investments we have made as we grow and scale. As we target to average 4% to 6% organic growth over the next few years, we are adapting our capital allocation models as follows. We expect to gradually reduce capital expenditures to approximately 1% of revenue over the next two years to facilitate higher free cash flow conversion. We are targeting two and a half times to three times net debt leverage by year-end 2025. And our board of directors has authorized a two-year share repurchase program up to $100 million of shares. We are targeting $25 million to $100 million share repurchase by year-end 2025. The ultimate total repurchase, if any, will depend on our success in expanding our ability to allocate cash towards repurchase via amendment to our term loan maturing in 2029, which is currently underway, market conditions, and free cash flow generation over the time frame. In terms of acquired growth going forward, we expect to take advantage of potential accretive opportunities that may present themselves within this two-year targeted capital allocation framework. 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?