The Chefs' Warehouse, Inc.

Greetings ladies and gentlemen and welcome to the Chef's Warehouse Third Quarter 2024 Earnings Conference call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Alex Aldust, General Counsel, Corporate Secretary and Chief Government Relations Officer. Please come 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 Third Quarter 2024 earnings press release. It can also be found at .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 measures 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 third quarter results in detail. For a portion of our discussion this morning, we will refer to a few slides posted on the Chef's Warehouse website under the investor relations section titled Third Quarter 2024 earnings presentation. Please note that these slides are disclosed at this time for illustration purposes only. 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 2024 earnings call. Business and demand trends improved sequentially through the third quarter. Continued seasonal increase in international travel among the higher income demographic led to a slightly softer season in July and early August. Customer activity accelerated into the later half of the quarter and momentum and demand continued into October. Our operating divisions across domestic and international markets delivered strong growth in gross profit dollars and margin, as well as continued progress, increasing relevance with our customer base with strong -over-year growth and unique item placements. I would like to thank the entire CW team for their dedication and commitment to delivering our diverse and high quality product and service in partnership with our suppliers and customers and the communities we serve. Please refer to slide three of the presentation. A few highlights from the third quarter include .6% organic growth in net sales. Specialty sales were up .5% organically over the prior year, which was driven by unique customer growth of approximately 4.7%. Placement growth of .8% and specialty case growth of 3.1%. Organic pounds in center of the plate were approximately 1% higher than the prior year third quarter. The -over-year percentage pounds growth was partially impacted by attrition related to non-core lower margin business in certain markets. Gross profit margins increased approximately 58 basis points. Gross margin in the specialty category increased approximately 50 basis points as compared to the third quarter of 2023, while gross margin in the center of the plate category increased approximately 45 basis points -over-year. Jim will provide more detail on gross profit margins in a few moments. As we progress in the growth and capital allocation plan announced during the fourth quarter of 2023, we wanted to take this opportunity to provide more detail on certain commercial and operational metrics that we expect to contribute to achieving our targeted range of financial goals by year-end 2028. In addition, we have engaged a global consulting firm to assist our teams in driving both top line and bottom line improvements as we target annual incremental margin gains. Please refer to slide 4. Chart 1 displays trailing 12-month gross profit dollars per route as of third quarter 2024 as compared to full year 2019. Chart 2 displays adjusted operating expense as a percentage of gross profit dollars as well as the progression of adjusted EBITDA per employee for full year 2023 and estimated 2024 based on the midpoint of our current full year guidance as compared to 2019. Across our locations, our teams continue work to improve distribution costs via multiple initiatives, which include route consolidation and internal transfer reductions in certain key markets. During 2024, we've eliminated routes and transfers in the southwest as we opened our Arizona facility. In northern California, as we integrated recent acquisitions with our specialty operations, and in the northwest with our Seattle facility coming online. The consolidation of four protein processing and distribution operations in northern California continues to progress and we expect completion by the first quarter of 2025. Now please refer to slide 5. The charts here display the progression of customer orders coming via our digital platforms, which include orders coming via mobile and website. Investments in our digital platform continue to contribute to margin enhancement as our team drives both online order adoption growth, enhancements to customer-facing functionality, and improve real-time data analytics supporting our sales teams. As of the third quarter of 2024, approximately 54% of customers ordering through our domestic specialty locations are online versus 48% in 2023 and 20% at the end of 2019. Now you could please refer to slide 6. This slide provides the five primary areas our teams are focused on in order to deliver our 2028 financial targets. While we will not go into detail of every initiative on the school, we do expect to provide more color during future presentations. In addition to the metrics just discussed, we have highlighted here a number of growth and efficiency-related areas of focus. One key focus to highlight is the ongoing integration of our specialty produce and protein businesses in Texas. We are taking steps to improve operational efficiency, merge our sales teams, and incrementally grow the cross-sell of our diverse and high-quality specialty produce and protein products across our platform. The -to-date 2024 EBITDA margin for our combined Texas operations has approved approximately 110 basis points versus the same period in 2023. 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. Please refer to slide 7. Our net sales for the quarter ended September 27, 2024, increased approximately 5.6 percent to 931.5 million from 881.8 million in the third quarter of 2023. We estimate that softer demand during July, including the impact of Hurricane Barrel, impacted third quarter revenue growth by approximately 1 percent. Net inflation was 3.2 percent in the third quarter, consisting of 4.3 percent inflation in our specialty category and inflation of 1.4 percent in our -the-plate category versus the prior year quarter. Aggregate specialty inflation was primarily driven by significant -over-year price increases in chocolate and certain dairy products. Excluding these products, remaining aggregate specialty product inflation was in the 2 percent to 3 percent range. Gross profit increased 8.2 percent to 224.7 million for the third quarter of 2024 versus 207.7 million for the third quarter of 2023. Gross profit margins increased approximately 58 basis points to 24.1 percent, and our procurement, sales, pricing, and operations teams delivered strong gross profit dollar growth across categories during the quarter. Selling general and administrative expenses increased approximately 7.4 percent to 192.9 million for the third quarter of 2024 from 179.6 million for the third quarter of 2023. The increase was primarily due to higher depreciation and amortization driven by facility investments and costs associated with compensation, facilities, and distribution to support sales growth in the current quarter. Adjusted operating expenses increased 8.2 percent versus the prior year third quarter, and as a percentage of net sales, adjusted operating expenses were 18.3 percent for the third quarter of 2024. Operating income for the third quarter of 2024 was 31.9 million compared to 25.5 million for the third quarter of 2023. The increase in operating income was driven primarily by higher gross profit, partially offset by higher selling general and administration expenses versus the prior year quarter. Our gap net income was 14.1 million, or 34 cents per diluted share for the third quarter of 2024, compared to net income of 7.3 million, or 19 cents per diluted share for the third quarter of 2023. On a non-gap basis, we had adjusted EBITDA of 54.5 million for the third quarter of 2024, compared to 50.3 million for the prior year third quarter. Adjusted net income was 15.4 million, or 36 cents per diluted share for the third quarter of 2024, compared to 13.7 million, or 33 cents per diluted share for the prior year third quarter. Turning to the balance sheet and an update on our liquidity, please refer to slide 8. At the end of the third quarter, we had total liquidity of 221.3 million, comprised of 50.7 million in cash and 170.6 million of availability under our ABL facility. During the third quarter, we continued to make progress toward achieving our year-end 2025 capital allocation goals of 2.5 to 3 times net debt leverage and repurchasing 25 to $100 million of equivalent outstanding shares. Timing of repurchases will continue to be dependent on share price, market conditions, and free cash flow generation. As of September 27, 2024, year to date, we have repurchased 10 million shares, dollars of our outstanding common shares, resulting in a reduction of approximately 264,000 shares outstanding, and repaid 18.5 million of outstanding debt. As of September 27, 2024, total net debt was approximately 651 million, inclusive of all cash and cash equivalents, and net debt to adjusted EBITDA was approximately 3.1 times as compared to approximately 3.4 times as of year-end 2023. Post-third quarter end, on October 22, 2024, we repriced our 262 million term loan maturing in 2029, reducing the coupon from SOFR plus a fixed spread of 4% to SOFR plus a fixed spread of 3.5%. Turning to our full-year guidance for 2024, based on the current trends in the business, we are updating our full-year financial guidance as follows. We estimate that net sales for the full year of 2024 will be in the range of 3.71 billion to 3.775 billion. Gross profit to be between 890 million and 906 million, and adjusted EBITDA to be between 210 million and 219 million. Please note, for the fourth quarter and full year of 2024, we expect the convertible notes maturing in 2028 to be dilutive, and therefore we expect the fully diluted share count to be approximately 45 million shares for the fourth quarter and full year reporting periods. Thank you, and at this point we will open it up to questions. Operator?

Thank you, sir. Ladies and gentlemen, we will now be conducting the question and answer session. If you would like to ask a question, please press star then 1 on your telephone keypad. A confirmation turn will indicate that your line is in the question queue. You may press star and then 2 to leave the question queue. For participants making use of speak equipment, it may be necessary to pick up the handset before pressing the star keys. Our third question comes from Mark Carden of UBS. Please go

ahead. Great, good morning and thanks so much for taking the questions. So to start, it sounds like trends improved as the quarter progressed, impacted by some of the summer travel at the beginning of the period. More broadly speaking though, it sounds like traffic challenges were a bit more intense for the industry as a whole. I just want to see if any additional pockets of stock misemerged for CHEP in 3Q or if it was pretty steady as what you guys have been seeing in recent quarters. Thank you.

Oh, hey, thanks Mark. Yeah, no, I think you kind of summarized it. We had a little bit of a blip in July. I think, you know, last year I think the industry thought that July was a bit of an anomaly early August with the level of international travel. That repeated again this year. That may be the new normal where you have a softer July than, you know, kind of pre-COVID periods and then you have a good strength going into the back half of the quarter and that's kind of how it played out. So I would say, you know, I think we mentioned in our prepared remarks that we think it costs us about 1% on top line in the quarter, but our teams did a really good job of driving, you know, really strong gross profit dollar growth, continued to take market share with unique item penetration to offset, you know, some of the softness in July. And as we mentioned, the trends which we're building into September, you know, kind of continued into October.

Okay, great. And then just have you guys seen any shifts in the salesperson hiring environment and by this just are you seeing any competition for top talent picking up at all or just any impact of applications just given from the industry that we're seeing even if your customers are holding up a bit better?

Yeah, I mean, we continue to hire. We're always looking, you know, to bring in the bench as we say it. You know, you have to have that bench to grow. I think that sometimes it's underestimated how long it takes to train qualified people. I always use the example of, you know, would you go see a doctor who just did one year medical school? I wouldn't, you know, I'd like them to see them graduate and do their residency. And it's the same with the sales team. It takes years to build, you know, really high qualified, I call them relationship manager at this point to understand, you know, especially us, more complicated product lines. So our people, you know, are good performers. It's a job almost for life. It takes years to build those relationships and the portfolio products that customers are relying on. So we don't have a lot of jumping around and we continue to hire.

Great, thanks so much. Good luck, guys.

Thank you.

Our next question comes from Alex Slagle of Jefferies. Thanks,

good morning. Congrats. I wanted to ask on Hardee's. You gave some color on your Texas business, the margin ramp there. And I was wondering if you could update us on how much Hardee's is diluting the overall even on margin at this point. And then just the progress, you talked about the progress integrating cross-selling. Maybe you could provide some examples of improvements you've seen in certain parts of the business as the early work there has been paying off.

Yeah, sure, I'll start, Alex. Thanks. Yeah, you know, I think we mentioned on one of the slides that we posted that, and most of that is Hardee's, but we expect, you know, kind of 20 to 30 basis points of improvement in our overall EBITDA margins as we further integrate, you know, some of the acquisitions. And Hardee's is a big part of that because it's a big revenue company. You know, it's given us a big footprint in Texas that we were looking for. And the team is making progress. I mean, we've gotten our operations team in there to help them get more efficient operationally. We've taken out some costs initially. And then, you know, building that business and integrating it with our CW specialty business and our Allen Brothers Pro Team business in Texas is underway. You know, it's going to take a couple of years to really ramp it up, but that's pretty normal when you're creating a true chef's warehouse in a market where you're small and you're going to grow fast. So what's the margin compression? Yeah, it hasn't really changed. You know, it dilutes us by about 20 to 25 basis points overall, and we look to get that back as we integrate the business over the next couple of years.

Yeah, Alex, you know, what you're seeing, you know, from our performance is all the investments we've made over the many, many years. We're just taking market share. It's all the cross-selling that's working in a market. I mean, you know, we kind of built our system for environments like today where you do have traffic slowdown in restaurants. So I think, you know, all your reports and all your data that's coming out is that it's a little soft compared to last year. And the only way really to grow, and the reason, you know, you see our numbers performing so well is we're just taking market share from all our investments in people and systems and in our warehouses. And it's a grind, and you've got to be able to win the grind right now. And thank God we're winning.

Yeah, that's helpful. And I guess a follow-up, just kind of wondering about churn levels and where they're tracking. I know it's still tough out there, like you've been saying, and, you know, the higher price levels. I'm sure more food service operators are shopping around looking for better prices. And, you know, you'd think maybe this churn level would pick up. I'm still impressed with net customer growth, mid-single digits. I'm kind of curious what you're seeing there.

Yeah, I mean, again, it's always been a very competitive industry, but you see that actually our margin is up. So I keep going back to, you know, people that are following our stock and have invested in us. We've been investing, you know, we've constantly been investing into the systems and into the model, and we're kind of built for this environment where things are not, you know, optimal. You don't have a giant tailwind and, you know, big customer growth. Actually, you know, we're winning with our customers. New customer acquisition is helping us, you know, with the headwind right now of a little softness at the customer level. But, you know, business is pretty good. I mean, you know, people still think that you're going to have COVID, you know, that COVID rush that we saw. And I think it's just more normalizing, you know. Our really good core customers are performing really well. A little softness maybe at the super high end, still in the steak houses. But, you know, we think that business has been coming back, and it'll get better. Unfortunately, customers are going to get used to higher prices. And, you know, the more it costs to go out, the more, you know, consumers are going to want that great experience. And you better have, you know, great service and great food, you know, when customers are going to spend, you know, $100, $150 a head. So I think that's where Shep Warehouse, you know, the reliability of what we sell and what we're able to deliver them. And I think that's driving, you know, that's driving our cross-selling.

Thank you.

Thanks,

Alex. Our next question comes from Andrew Wolfe of Sea Orking. Please come ahead.

Great. Thank you. Good morning. I might have missed this, but could you kind of give us a sense of the cadence? I know, you know, you gave it qualitatively, but how much better, you know, has September and October been versus, you know, the .3% or so case growth, especially case growth for the quarter?

Yeah, I mean, I would say that, you know, the best way to frame it is really, we think July and early August cost us about 1% on top line, and that was, you know, primarily demand-driven. And then it just progressed nicely through the quarter. We don't have a breakout month by month. And then, as I mentioned, trends continued into October coming out of September.

Okay. You know, Cisco yesterday said late October was better because beginning of October was, you know, impacted by hurricanes. It kind of suggested that late October even was better, maybe perhaps in September. Did you all see a similar kind of cadence?

You know, we don't operate a huge amount of business in a good portion of where the hurricane hit in Florida. It did impact us a little bit in early October, but nothing huge in the materials. So I don't have any commentary in October other than, you know, the trends were good coming out of September into October.

Got it. And, you know, thank you for the charts, you know, and the information on the bridge to the long-term guidance. You know, I just did some simple math. And with Hardee's, you know, it's about 25 basis points of EBITDA margin expansion a

year

between now and 2008. Without it, it's like 20. So you can tackle this either way. But, you know, it's kind of two questions. If we were building on a model to 08 in this way, would we look for margins to increase linearly, like 20 BIFs a year, or 25, including Hardee's getting better? Or is it something where the out years there's more improvement because, you know, you're adding digital, you're doing route expansion, facilities are getting increasingly productive? You know, how do you suggest the margin build is going to play out?

Yeah, I mean, you know, you can never predict exactly how it's going to play out. Nothing goes in a straight line. But, you know, I'll go back to, you know, the three or four years before COVID hit. You know, we were coming off a big investment period, and we were able to deliver, you know, kind of 20 to 25 basis points of EBITDA margin improvement, adjusted EBITDA margin improvement, you know, for a couple of years there. Then we got hit by the nuclear bomb. And I think we're coming off of a similar type of investment period, and we've talked about this before. And the goal will be to, you know, kind of get that 20, 25 basis points a year, whether it happens in a straight line, a lot of that will depend on the macroeconomic environment, obviously. So, you know, you can model it either way, I think, but that's our target.

Okay, so that's fair. So there's nothing in these plans that are, like, dependent on, you know, a lot of digital or internal, I wouldn't call it consolidation, like route, and all of this stuff is just meat and potato can be executed on a -to-day basis. There's no big investments or trainings that have to happen.

Yeah, I think that's already baked in, Andy. You know, we've made major, major investments, you know, in all departments. You know, we're not 100% there yet, but we've added a lot of capacity. There's some markets that do need a more modernized, consolidated setup. You know, we have multiple warehouses in multiple markets that one day probably will be consolidated, and you'll get a lot more efficiency, kind of what we're going through right now in San Francisco with protein. You know, we built it. Now we're consolidating it, and, you know, you should get the rewards over the next many years of the efficiencies of scale. Okay, and I think that, you know, besides some of the new markets that still need, you know, a little more consolidating, you know, as we, you know, I mean, you've been doing this a long time. You know, the business that, as we drive more volume into the capacity that we build, it should eat up more and more of the overhead. You know, a lot of the overhead is fixed, and you get more that drops to the bottom line, and that's kind of the phase, you know, we think that we're going through right now, and we're going to start to, you know, to get the rewards of those investments as the volume, as we drive those volumes. And like Jim said, you know, we are at the mercy of the economic environment, you know, good environment, you know, volume continues to tick up faster. We start to get more leverage faster, you know, a little slowdown, you get a little bit less. But I think the team has done an unbelievable job. If you really look at the numbers and you say you mentioned some of the reports coming out from other companies, the environment is more challenging and to put up the kind of numbers we're putting up, it's the grind and taking market share and all the investments in people to sell more products to the same customers. And that's what's driving the bottom line.

Great. Thank you. I'll get back in queue. Thanks, Andy.

Our next questions come from Kelly Bannier of BMO Capital Markets. Please go ahead.

Good morning. Thanks for taking our questions. I wanted to just talk about some of the initiatives you outlined here as you target these 2028 financial goals. And can you give us just any more color on, you know, the biggest contributors to the margin expansion? I guess I see here the Route Consolidation Initiative that I was hoping we could drill down on a little bit more within that because it might, maybe it's always been going on behind the scenes, but maybe you can just talk about framing up the opportunity there as well as some of the other big factors that contribute to that margin goal.

When you say margin goal, you're talking about gross margin or just bottom line margin, Kelly?

Yeah, the adjusted EBITDA margin goal of 6.5 to 7 by 2028. Yeah,

I think it's goldilocks. I think it's a little bit everywhere. You know, our digital teams and our pricing teams just continue to get better. So, you know, we're able to manage pricing in an environment where you do have more volatility or, you know, shortages and what climate change has been doing to a lot of our products. You know, when you look at what's happening in the chocolate market, you know, where you have this massive now inflation in it, you know, it's challenging. So I think it's part of the pricing teams, category management teams, and it's the operation team. Like you say, you know, there's always, we're always trying to get efficiencies and routing. But as now that we built out so many of these larger warehouses, you know, as the volume starts to increase, you're going to get more to the bottom line as long as, you know, your core business is strong and you have good customers. You know, you're not adding a ton of business just to fill up the warehouse at low margin. I mean, part of our top line softness, well, softness to, I guess, expectation is, you know, we continue to shed business that we think is, you know, long term is not core ship warehouse business. You know, sometimes we'll take on some of that business, you know, especially when we have the space. But as we start to grow into our space, we start to shed that business that we don't find very profitable. And I think we're very disciplined. You know, we've been doing that for years and we continue, you know, to give up that business. And that's why sometimes you see our top line, you know, a little softer than sometimes we, you know, we anticipate because we just finding a time and place that we're willing to raise prices on that business. And it goes away to somebody that, you know, maybe can try to figure out how to make profit on that business. So, you know, I mean, you've been following us for many years. You know, we're a margin profit company. It's built to not sell everybody. And you've got to be willing to let go of some of that business. And I think that's what you're starting to see. And, you know, as the economy starts to hopefully pick up, you know, with a little bit more tailwind, you know, more and more of that more and more of that GP drops to the bottom line because we're starting to get the leverage on the overhead.

And that's helpful. And then, Chris, you've talked in the past couple of quarters maybe just about new restaurant openings. What are you hearing from your kind of core customer base and particularly how, if at all, you know, a lower rate environment may impact their pace of openings or their plans for new openings?

Yeah, well, again, you know, our core business are the independents, right? I mean, we have great, great customers who have 20, 30, 50 restaurants. And, you know, we have a few that have a lot more. And, you know, they're opportunistic. And I think that, you know, coming out of COVID, I said, you know, there's going to be a lot of restaurants that close. But as leases come up, landlords need to put, you know, restaurants that could draw traffic into their buildings, you know, especially what they've been facing, getting people back to the office, a lot of new developments in the suburbs. And, you know, how COVID has changed the workplace, right, where people are working more remotely and going out in the neighborhoods that they live or have a local office. So we saw strong growth in openings. And I think you're going to continue to see that, you know. Obviously, interest rates can help, but restaurateurs build restaurants. That's what they do. So if they find a great location or a landlord that enticing them to come in and the economics make sense, they're going to open restaurants. And I think that's what we've been seeing. And I really don't see an end in sight.

Thank you.

Thanks,

Kelly.

The next question comes from Todd Brooks of Benchmark Company. Please go ahead.

Hey, thanks, and good morning to you both. Hey, Chris. You talked about in the presentation that Chef has engaged a global consulting firm. I'm just wondering what are you hoping that outside talent can unlock either from an efficiency standpoint or is this a revenue driving standpoint? Just what are you hoping that the outside viewpoints might bring to Chef?

Sure. So, you know, we've always ran the business almost kind of with the like a startup mentality. Like, you know, we develop great tools and great systems. And obviously, you can't replace the people. You know, I mean, we are in the people business, so we make sure that we're getting the best talent and keeping them. But, you know, technology has changed so much. You know, AI, obviously, you know, everybody's talking about AI. We're using AI. And obviously, we we see the future of more AI, you know, to help our people. So I think it's just a fresh pair of eyes, Todd, to, you know, help go through, you know, some of the projects and things that we're looking at to give us an outside perspective of we can always do better.

Okay, great. Thanks. Secondly, I know we get to the end of October and I'm usually asking you this question, Chris, on this conference call. But early reads, what are you hearing from customers about their their views on the holiday? I know the bookings tend to happen a little bit later than they did historically around that kind of peak holiday demand. But in the early reads or feedback that you're hearing from your customers on holiday?

Yeah, I think the overall tone is pretty positive. The one thing that has changed that you just hit on is that since COVID, people don't like they tend not to book far ahead. Yeah, sure. Conferences and stuff where you have to book. But so much is, you know, I wouldn't say last minute, though there is a lot of last minute. But, you know, they get a few weeks of customers. I was actually talking to one of our longtime customers the other day. And, you know, he goes, I'm going to send you something, Chris. These are the parties that booked in the last few days for next week. Normally they would book a month, two, three, four months ahead. And this is the new environment that we have to be ready for. You know, you look at it and say, OK, we're, you know, this is the kind of staff we'll probably need. This is what it looks like. And all of a sudden you get 30, 40 percent uptick in your booking. So, of course, we're very excited about that. But, you know, it creates a little bit more challenging environment. But they're adapting. They're getting used to that. And I think that's the business that was missing, you know, obviously during COVID the most. And I think that's the strongest part that we see coming back. Small parties booking for everything, for meetings, for celebrations, for planning, for just client dinners, lunches. And I think that's we've been very pleased with what we're hearing.

OK, great. And one final one. I'll jump back in queue. So, Jim, you talked about the inflation in the quarter and I think a little north of three percent. You highlighted a couple of categories that saw outsized inflation and then the rest of that kind of specialty basket being in that two to three percent range. Is that kind of the forward thinking for the fourth quarter and any early reads on how you're thinking about inflation and any sources of really easing and pricing as we go into the 25? Thank you.

Yeah, thanks, Todd. No, I think, you know, volume and price, you know, you can never predict exactly the mix because product mix, you know, impacts that. And then, you know, we highlighted the chocolate and dairy products because it really had a product mix impact on volume and price. You know, they're higher dollar boxes. And so they when you grow them a quarter over a quarter, you have a little bit lower volume, but you get really good gross profit dollar growth, which, you know, we definitely generated this past quarter. But I think, you know, you know, we guided to organic revenue growth of six to seven percent this year, you know, more heavily weighted to the first half of the year. And that's been kind of playing out. So as we go into the fourth quarter, I don't think we see anything on the horizon that's going to be materially different from, you know, getting to that six to seven percent on a full year basis. And so I think it'll be it'll be similar the way it plays out, at least right now. OK, thank you.

Sure.

Our next question comes from Peter Seller of BTIG. Please come ahead.

Great. Thanks for taking the question. I was hoping you could talk a little bit more about how your customers are using you in mature markets like New York and the Northeast versus some more the new markets areas of Texas and Florida and California. Are you just seeing do customers use you differently in those markets based on maturity? And then I have a follow up.

Thanks. Yeah. Yeah, I mean, our more mature markets, Peter, obviously we have, you know, we have protein divisions, we have produce divisions besides our specialty and broad lines. So, you know, we're kind of a one stop shop in many ways and more than mature markets. And really, that's our goal to be able to have that presence in all markets. So, yeah, the the young growing markets, people usually focus more on buying specialty from us. And then there's certain markets that really, you know, we entered as a protein company and, you know, we're selling protein and then some more specialty. And as those warehouses start to go up, like, you know, we have a small, you know, small facility now in Nashville and that business continues to grow, you know, from specialty and protein to more kind of like I always say, kind of like looking like New York, which is, you know, our benchmark, our most mature market, our biggest business. So we're really happy, you know, in all markets, they're all growing, you know, as fast as they as they can, as we say, you got to have that staff that's trained, you got to build that relationship team that, you know, becomes experts and protein and produce and specialty. And so that takes time. So I think I think we're we're in a really good place with with all our all our markets and they're growing, you know, as fast as they can with the ability of what their warehouse warehouse allows them to and their inventory allows them to grow.

Great. And then just my last question on the bridge to twenty twenty eight and the call twenty thirty basis points of EBITDA margin expansion are acquisitions contemplated at all in this in these financials or is this just strictly based on organic growth for the next call three years?

It's based on organic. We know, obviously, acquisitions are opportunistic, so we don't model them in.

OK, thank you very much.

Thanks, Peter.

Next question comes from Ben Cave of Lake Street Capital Markets.

All right. Thanks for taking my questions and congratulations on another nice quarter here. Got a couple around the dynamic we both have referred to around kind of rationalization of lower margin business. I'm wondering, first of all, Jim, if you're able to help quantify that, you know, the impact of this either from from the perspective of, you know, headwind revenue growth and or the degree to which gross margins have been expanded because of that initiative.

Yeah, thanks, Ben. We don't, you know, break it out exactly. But I mean, the way you think about it is, you know, some of our I think top line across the industry has been a little bit weaker this year because demand has been a little bit weaker. And then for us, you know, a part of that is I think we called it out, especially related to center of the plate attrition of some non core business. And so you see it in the gross profit margin expansion. There's a number of things that go into that. Part of it is attrition of lower margin business. A good portion of it is all of the work that our pricing and sales teams and operations teams have done around reducing damages and returns and waste and better inventory management, as well as some of the pricing models that we've started to integrate and work with our sales teams on. So there's a there's a lot of different components. And and, you know, as Chris mentioned, it's it's kind of a thing that naturally happens as we do some of the acquisitions that we've done. You do inherit some non core business and you you will a trade out of that over time. So nothing to really call out specifically in the quarter. But it's it's obviously a contributor to to some of the dynamics we did we have seen so far this year.

Yeah. And I think I could give you a little bit more color, you know, looking at it. And it's coming. So the margin improvement is coming from, I think, a little bit of from everywhere. So some of the business that naturally goes away, like Jim said, does help the overall margin go up because, you know, they're really low margin. And then part of the margin expansion is coming from just salespeople maturing and learning how to sell more of the book. And the more products you can sell, usually the margin tends to go up because you have more opportunities. So you're not just selling two, three items that you're kind of locked in. You get to sell a lot of the I call them long tail items that tend to have a higher margin. So it's a little bit from that natural attrition of especially the companies that we've bought the last few years. You know, the best example is I would say New England. We bought a great business that had too much low margin business and we kind of let go of maybe half of it. And as they continue to grow as a chef warehouse, their margin profile starts to look more like a chef warehouse. And, you know, that's obviously our goal. We're really so pleased with that business and how they continue to grow. And kind of we're running the same, you know, same playbook in Texas and other markets where, you know, we had to enter a market and we had to enter maybe at a little lower margin than what our model tends to give us. And as those markets start to mature, they start to look more and more like a chef warehouse.

Great. That's very helpful from both of you. And as a follow up, I'm curious about kind of how this thought process has evolved. You know, are you sharpening your pencils more on these kind of lower margin products or customers today than maybe, you know, than you did maybe pre-pandemic or has your philosophy on this really been unchanged and you're just calling it out more today?

Yeah, I mean, I don't think the philosophy hasn't changed, but I think the reality stresses more that you can't, you know, you can't lie to yourself. Labor cost you more. Building facilities cost you a lot more. Everything called, you know, you call a plumber, it costs you a lot more. Okay. So the reality is that it just costs you more, okay, to do the same job as it did pre-COVID. And you just have to get paid for it. You know, I suffered from that 20 years ago. Again, you know, I've been doing this long enough that we're really good psychologically saying, you know, we're going to figure it out. You know, we'll do the volume and eventually we'll make some money. And it just doesn't work that way. You know, you get tied into selling at a very low margin with high cost. You know, we're a high touch company. We get tremendous service. It's just not our model, you know, so it's kind of like going to a Four Seasons hotel. And, you know, you got great linens and you got great service and you can't do it at the price of a Motel 6. So that's why, you know, our model is not to sell everybody. You know, we know who we are and we want to stay on our mat and continue to grow because we think our clientele continues to grow. People love great, you know, great dining, good food. And we just don't need to, you know, try to be everything to everybody.

Very good. Appreciate that, Collor. Congratulations again on a nice quarter. Keep up the good work and I'll get back in queue. Thanks, Ben.

Thank you. It appears we've reached the end of our question and answer session. I will now hand over to the CEO, Chris Purpos, for closing remarks.

Sure. Well, we thank everybody for joining our call today. We're so proud of our team, you know, that they put up another great quarter and we're moving all our initiatives forward and continue to strive to become a better, better, as the leading specialty food supplier for, you know, the best chefs in the world. And we thank everybody and we look forward to our next call. Thank you.

Thank you, sir. Ladies and gentlemen, this concludes today's event. Thank you for joining us and you may now disconnect the lines.