The Chefs' Warehouse, Inc.

Greetings and welcome to the Chef Warehouse First Quarter 2025 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Alex Alders, 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 first quarter 2025 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 historical adjusted net income, adjusted earnings per share, adjusted operating expenses, adjusted operating expenses as a percentage of net sales, and as a percentage of gross profit, net debt leverage and free cash flow. These measures are not calculated in accordance with GAAP and may be calculated differently and 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 and first quarter 2025 earnings presentation. 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 first 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 First Quarter 2025 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 first quarter 2025 earnings call. First quarter of 2025 business activity displayed typical seasonal cadence as revenue trends coming out of January increased steadily into February and March. During the quarter, our business units, international and domestic, delivered strong growth in unique item placements, solid operating leverage versus the prior year first quarter. As we enter the second quarter, revenue bills during the first few weeks of April continue to display typical seasonality. I'd like to thank all our Chef's Warehouse teams, from sales and operations to all the supporting functions, for delivering a great start to 2025. I would also like to recognize our customer and supplier partners for their support and confidence in our people, quality and diversity of products, and our high-touch, flexible distribution platform. Now please refer to slide three of the presentation. A few highlights from the first quarter include 8.7% growth in net sales. Specialty sales were up 10.7% over the prior year, which was driven by unique customer growth of approximately 4.5%, placement growth of 7.7%, and specialty case growth of 5.7%. Pounds in the center of the plate were approximately 1.3% lower than the prior year first quarter. During the first quarter, we commenced attrition of certain low-margin, non-core customer business that had an impact of 0.7% lower year-over-year sales versus prior year quarter. The primary driver of the attrition was a high-volume, low-dollar commodity poultry program acquired with an acquisition. Excluding this attrition, total center-of-the-plate pounds grew growth with 3% higher than prior year first quarter. Gross profit margins decreased approximately 18 basis points. Gross margin in the specialty category increased approximately six basis points as compared to the first quarter of 2024, while gross margins in the center of the plate category decreased approximately 83 basis points year over year. Jim will provide more detail on gross profit and margins in a few moments. Now please refer to slide four. Chart 1 provides first quarter 2025 trailing 12-month update to gross profit dollars per route as compared to full year 2024 and 2019. Chart 2 provides first quarter 2025 trailing 12-month adjusted operating expense as a percentage of gross profit dollars improvements by 36 basis points versus full year 2024 and 127 basis points versus 2019. First quarter 2025 trailing 12-month adjusted EBITDA per employee increased 1% versus full year of 2024 and 19% versus 2019. Now please refer to slide five. The charts here display the progression of customer orders coming via our digital platform which include orders coming via mobile and website. As of the first quarter of 25, approximately 58% of our customers ordering through our domestic specialty locations are online versus 56% a year in 2024 and 48% a year in 2023. Investments and our digital platform contribute to improved profitability over time as our teams drive online order adoption growth, enhancements to customer-facing functionality, and real-time data analytics supporting our sales team. In addition, we continue to expand our digital footprint within Chef's Warehouse, bringing Chef's Warehouse, Middle East, and Hardee's online during the last few months. 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 six. Our net sales for the quarter ended March 28, 2025, increased approximately 8.7% to $950.7 million, from 874.5 million in the first quarter of 2024. Net inflation was 5.2 percent in the first quarter, consisting of 4.8 percent inflation in our specialty category and 5.9 percent inflation in our center of the plate category versus the prior year quarter. Reported inflation was impacted by two primary factors in the first quarter versus the prior year quarter. Prices in chocolate and egg category products remained elevated versus prior year with double-digit year-over-year inflation. Specialty product cross-sell growth in Texas. As we combine our legacy specialty and protein sales with our Hardee's produce operation, average revenue per case in Hardee's increased approximately 12% versus the first quarter of 2024 as the mix of lower volume, higher revenue cases increased. Excluding the impact of the Texas cross-sell growth, aggregate specialty inflation was approximately 3.1%, and overall inflation for the company was approximately 3%. Gross profit increased 7.9% to $226 million for the first quarter of 2025 versus $209.4 million for the first quarter of 2024. Gross profit margins decreased approximately 18 basis points to 23.8%. Selling general and administrative expenses increased approximately 6.5% to $202.8 million for the first quarter of 2025, from $190.3 million for the first quarter of 2024. The increase was primarily due to higher costs associated with compensation and benefits, facilities and distribution to support sales growth, and higher depreciation driven by facility investments. Adjusted operating expenses increased 5.5% versus the prior year first quarter. And as a percentage of net sales, adjusted operating expenses were 18.8% for the first quarter of 2025. Operating income for the first quarter of 2025 was $22.7 million compared to $16 million for the first quarter of 2024. 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 GAAP net income was $10.3 million, or $0.25 per diluted share for the first quarter of 2025, compared to net income of $1.9 million, or $0.05 per diluted share for the first quarter of 2024. On a non-GAAP basis, we had adjusted EBITDA of $47.5 million for the first quarter of 2025, compared to $40.2 million for the prior year first quarter. Adjusted net income was 10.2 million or 25 cents per diluted share for the first quarter of 2025 compared to 5.9 million or 15 cents per diluted share for the prior year first quarter. Turning to the balance sheet and an update on our liquidity. Please refer to slide seven. At the end of the first quarter, we had total liquidity of 278.9 million comprised of $116.5 million in cash and $162.4 million of availability under our ABL facility. As of March 28, 2025, total net debt was approximately $535.2 million, inclusive of all cash and cash equivalents, and net debt to adjusted EBITDA was approximately 2.4 times. Turning to our full-year guidance for 2025, based on the current trends in the business, we are providing our full-year financial guidance as follows. We estimate that net sales for the full year of 2025 will be in the range of $3.96 billion to $4.04 billion, gross profit to be between $954 million and $976 million, and adjusted EBITDA to be between $234 million and $246 million. Please note, for the full year 2025, we expect the convertible notes maturing in 2028 to be dilutive, and therefore we expect the fully dilutive share count to be approximately 46.3 to 47 million shares. Thank you, and at this point we will open it up to questions. Operator?

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you'd 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 keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. The first question comes from the line of Alex Slagle from Jefferies. Please go ahead.

Thanks. Good morning. Congrats on the quarter. I wanted to ask a little bit more on the tariffs and inputs. I know we've discussed it before, but just as it becomes more real, I think, maybe you could give some comfort there, kind of talk about the flexibility you have, just to kind of give us the latest on what you're thinking on that front.

We think there should be a terrorist peace talk. Good morning, Alex. You know, obviously we've been getting ready for this, and I don't think anybody has clarity really where it's going to affect where it will end up, but it's still a small percentage. A lot of the products, even though we import a lot of specialty products, foods. It's still a small percentage of our overall business. So I think that, you know, I mean, we always pass it on. You know, some of the suppliers, I think, if it really sticks, are probably going to eat some of it, and there'll be some pass on. You know, you got to remember, you know, the freight as well is part of the cost. So, you know, that's not getting tariffed. So I think we feel we're okay. You know, our category management team has has gotten ahead, and all suppliers want to sell products, so they're finding a way to make sure that their market share stays pretty steady. And we have many alternative sources for a lot of our products. I think we've prided ourselves on, especially after financial crashes and 9-11, really diversify Our supply chain, that's why we buy from so many different places, and obviously we buy a tremendous amount in the U.S. We have a lot of artisan producers producing products for us that kind of mimic our South American and European supplies. So I'm pretty comfortable where we are.

Great. And a follow-up. your, your commentary on the demand environment seemed pretty, or at least your trends seem pretty steady. And I know there's been some stock market volatility and kind of curious if there's any sense this is impacting demand at all on the upscale end or from what you've heard or seen.

We, um, you know, I think we say in our opening remarks, you know, April, April was, uh, what we expected. Um, You know, from our chairs, you know, we haven't really seen anything. Maybe a few spots, you know, around the country that depend on, you know, maybe more seasonal tourism. But, you know, look at a good restaurant and try to get a seat. You know, their business seems strong. You know, weather's improving. And, you know, all our clubs are opening. All our outdoor cafes are opening. So I think our diversity... in our customer base and what we focus on, I would like to think that we're in better shape for any sort of economic slowdown than maybe the overall market. Again, if you go from $5 to $6 for a meal, that's a tremendous increase. If your entree goes from $26 to $28 a I don't think a lot of people are going to use that as a reason not to go to a good meal. So I'm hopeful for our 40 years of experience in this business, serving this type of clientele, that we're a little more insulated.

Thanks for the color.

Thanks, Alex. Thank you. The next question comes from the line of Mark Cardin from UBS. Please go ahead.

Good morning. Thanks so much for taking the questions in this quarter, guys. To start, we've seen some reports that international travel into the U.S. has come down a bit. Would you expect for this to be a material headwind to your sales if it's sustained, or does it tend to be a pretty modest factor?

Yeah, you know, I'm trying to think of the last time we had a an environment like this, but obviously, you know, tourism's a big part of a lot of the major cities, I guess, around the country, but I don't see a panic, you know, in hearing from any of our clientele. Again, you know, a modest slowdown here or there. I guess, you know, besides the very best restaurants, We do so much business in the suburbs and local restaurants that really don't depend on tourism. There's still so much action around stadiums and sports and entertainment that bring people in to eat in a lot of the major cities. Our cruise ship business seems really solid. So, as of today, we're not really seeing anything or hearing anything from our clients.

Great. That's helpful. And then I know everything remains pretty fluid on the tariff front, but do you see much risk for tariffs having an impact on your facility growth plans? Just do your expansion activities get any tougher from an ROC standpoint, just given the potential impacts on materials costs?

I think for the immediate future, for the projects that we have in place right now, we've moderated our CapEx versus the prior years in 22 and 23. So we have a couple of projects that are underway right now. We don't see really any impact to those. That's our project in the Northwest we expect to complete at the end of the year or early 26th. And our New Jersey-Philadelphia project, we expect to complete sometime towards the end of the summer of this year. In terms of going forward, you know, we're making plans right now. We haven't really seen any kind of impacts at this time. So I think that's still TBD.

Yeah, but, you know, this reminds me kind of COVID. It made us smarter. You know, we had to do less with more. And I think in planning for the next, next stage, we're looking at more technology. ways to actually build smaller buildings and make them more efficient. And the same way we look at our SKU rationalization plans to really, you know, space is so expensive, labor is so expensive that, you know, finding new ways to service our clients but have a better handle on the cost of inventory. You know, we always say we have a company that said yes And now we're the company that says, let's look at it. We'd like to, but it's going to cost more to do it this way. And our clients have been working with us. They understand the environment. So I think it just makes us more disciplined and it forces you to be smarter because the costs have gone up. So you have to do less with more is the way we've looked at it. And using technology really And all the AI we have and the experience in the company, we're just going to find a way to have that ROI work for us in these new buildings.

Great. Thanks so much. Good luck, guys.

Thank you. The next question comes from the line of Peter Saleh from BTIG.

Please go ahead. Great. Thanks for taking the question and congrats on the quarter. Just another question on the overall environment. Are you guys seeing any slowdown in new restaurant formation given the tariff uncertainty in the overall market? I know you need a fair amount of new restaurant formation or need to add a significant amount of gross new restaurants. restaurants every year to continue this growth pace. So just curious if you're seeing any sort of slowdown on construction and new restaurant formation.

Thanks, Peter. No, not really. We always say restaurateurs, open restaurants, a lot of new buildings, a lot of new developments, especially in areas that you have population growth, right? So when you look at West Palm and you look at parts of Texas and places where, you know, the population's growing, you know, you got lots of new customers. I think, you know, I always think sometimes the data, you know, that comes out of, you know, for the independent restaurants, I don't think the data is, you know, is accurate enough, you know, to say what's happening with a lot of the independents. A lot of it's for chains that, you you have so many new places, you know, opening since COVID that, uh, I think that affects some, sometimes the numbers of, you know, the, uh, how many people are going in and out of, out of the same restaurants. Uh, I think there's just so many that the, the business is getting more and more spread out. And for us really, that's, uh, that's a tailwind, you know, we, we, we benefit from, from new restaurants. So, um, it's, uh, It's kind of a tailwind, and we really haven't seen a slowdown. I think the only place that maybe has a little slowdown is those heavy, heavy tourist spots, kind of like Vegas maybe during the week. I think they've been a little quiet, and then the weekends are still boomed. But right now, in April, we haven't seen anything.

Great. And then just lastly, Chef Middle East, can you guys provide an update there? I believe last year at this time there was some weather, some flooding. Just curious how that business is performing. Thanks.

Yeah, the business is performing great. We continue to see growth. I think we provided some of the demographic statistics at our investor day. in terms of the number of hotels that are slated to come online between now and 2030. So it continues to perform. We opened our new facility at the end of December of last year, and the team continues to grow, and they're performing better than our expectations.

Thank you very much.

Thanks, Peter. Thanks. The next question comes from the line of Andrew Wolf from CL King & Associates. Please go ahead.

Hi, good morning. Hey, Andy.

Good morning.

I wanted to ask if you might be able to comment on the relative performance within your customer segments. For example, how your understanding is like fine dining or tablecloth versus maybe upscale casual. I think, Chris, you mentioned the country clubs are opening well. I asked that because I think black box had the fine dining, you know, not doing that great. I mean, yeah, but the white tablecloth and I know it's not the bit may not be the biggest segment within chefs, but I'm just kind of try to see where, you know, how things queue up with some of the public information out there where, you know, obviously your performance speaks for itself.

Yeah. I think you just have to look at the numbers. I mean, Uh, I still, you know, I get, um, I get a hundred calls a week. Like I, I'm actually a concierge to get people reservations and I keep reminding them. That's not what I do. Um, it's still really hard to get into, uh, into any, any good restaurant. Um, you know, there's seasonality. There's, um, yeah, I, I don't know what the, I haven't seen that black rock, uh, comment, but, um, You know, there's always people complaining and there's always, you know, the restaurant business, you know, everybody wants to go to a good new restaurant. So there's always someone that's losing a few covers a night. But, you know, I think behavior, I expect it to change somewhat. You know, again, I always wanted to be in the wine business. I'm a wine lover, but I'm kind of glad I'm not at this point because I think that's where some of the slowdown is on the spend the beverage. In past slowdowns, what we experienced is our business always did pretty well. Maybe the mix changes a little bit. I always say people go to a skirt steak versus a filet mignon, and then they go to a glass of wine versus a bottle. Right now you have mocktails growing like crazy, so they're taking the the place for people that are choosing not to drink versus, uh, drinking a martini. So there's always a lot of adjustments, uh, in the industry, but, um, we, we haven't, uh, we haven't really seen anything, Andy.

Got it. And the other question, uh, maybe it's more for Jim. I'm not sure, but, um, just could you comment on your gross profit dollars per case? The trend obviously was up, but, uh, maybe between the two main, you know, main, um, you know, um, product categories?

Yeah, I mean, I think we're really pleased with, you know, just under 8% year-over-year gross profit dollar growth, and we got good operating leverage on that growth. You know, the one thing is we called out in the, you know, on the specialty side, we continue to grow gross profit dollars per case, and you see that on the chart. But, you know, the one thing was on the on the attrition, you know, from a big non-core customer that we kind of called out in our prepared remarks. So, you know, excluding that, we had not only good, you know, pretty good pounds growth, but we had, you know, about 7% year-over-year gross profit dollar growth revenue per pound on our center of the plate. And that's, you know, that contributed to that overall gross profit dollar growth. So just you know, excluding that attrition, you know, really good gross profit dollar growth per unit and overall for both categories.

Good. All right. Thank you. Thanks.

Thank you. The next question comes from the line of Kelly Banya from BMO Capital Markets. Please go ahead.

Hi. Good morning, Chris and Jim. Thanks for taking our questions. Good morning, Jim. I actually just wanted to follow up on that point and how the attrition of the non-core customer exits, how that impacted the center of plate gross margin. And I guess we should assume that kind of flows through for the next couple of quarters. But Just helping us kind of model here the gross margin impact of that attrition and if there's any more planned attrition for the year that we should think about modeling.

Well, you know, it's a big commodity poultry program, you know, a few million pounds of commodity program. So, you know, the biggest impact is on, you know, our reported volume growth. So we'll continue to kind of call it out. because it has an impact on the overall reported volume growth. But from a margin perspective, the biggest impact on year-over-year margin has been the fact that prices are 6% or 7% higher than they were in the first quarter of 2024, and then product mix changes. So it was really just a combination of we sold a greater volume of higher dollar center-of-the-plate products and cases versus last year. And obviously, when you have that kind of inflation, price inflation, you're going to give up some margin to manage the customer's expectations and still get the gross profit dollar growth that you need. And so we're very pleased with our center-of-the-plate's contribution to that overall 7.9% year-over-year growth. gross profit dollar growth. But I would say more importantly, you know, for our customers and for what we watch is sequential inflation. And so during the first quarter, really from the beginning of the year, other than, you know, a little bit of volatility in February, sequential pricing in both specialty and center of the plate has been within pretty tight ranges. I mean, obviously, you know, chocolate and eggs have been a little bit all over the place and, you know, very volatile at very high price levels. But other than that, um, inflation really hasn't been a sequential problem in the first quarter. So it'll impact the year over year reporting. Um, but, uh, really those are the two factors, just product mix and, uh, you know, price changes versus last year.

Okay. Very helpful. Um, I wanted to also just follow up on, on the tourism question and, and, um, Sounds like you're definitely not seeing any impact there, maybe pockets, but just curious if you can give some numbers or share some anecdotes about how much the business has changed maybe versus pre-COVID where you've had some business shift outside of the more dense urban markets into the suburbs. How does that shift look from pre-COVID to today?

Oh, I think, you know, there was such a As you know, I know some industries, the banking wants people back in the office five days a week. I don't know if that's really happening, but we saw a boom that maybe people are going back in more, but there's definitely more people working one to two days, not commuting and eating more local where they live. even in the cities. You live downtown, your office is uptown, you still see some demographic changes. It's hard to really throw a dart at it, Kelly, but it's definitely rebalanced the business somewhat. There's still that boom in the cities when you have big events, shows, obviously conventions. but the suburban restaurants, you know, I would say many maybe are not doing the COVID numbers because nobody was going into the cities, but it definitely has changed the landscape.

Okay, that is helpful. Maybe just another one here on the guidance. Obviously, the Q1 was strong here on the top line and If you look at your guidance, it would kind of imply a little slower growth for the rest of the year. I'm assuming that's conservatism, but maybe you can just talk about how you think about that. Is that conservatism? Do you want to just be conservative planning in this environment or anything else that we should be thinking about?

Yeah, Kelly, we generally don't change our guidance materially after the first quarter. Just in general, if you look back, just because you're through a quarter and you've got three quarters of the year left. So that's just a little bit of our normal practice. We did bring up very slightly the lower end just to reflect the strength of the first quarter. And I think there's obviously some uncertainty around the macroeconomic environment, given the tariff situation and the volatility around that. So it's also comparison-driven. So if you... You know, we had a very strong second half of the year in 24. So if you look at our full-year guidance, the growth level is lower than the first quarter, year over year. And that's just driven by comps and the fact that we're usually a little conservative coming out of the first quarter.

Makes sense. Thank you.

Thank you. Thank you. The next question comes from the line of Todd Brooks from the Benchmark Company. Please go ahead.

Hey, thanks, and good morning to you both.

Morning.

Thanks. Quick question, Chris. You talked about the normal April seasonality and kind of reopening.

Todd, we can't hear you. Todd, we can't hear you. Can you hear me now? Yeah, much better.

Yeah, sorry about that. Chris, you talked about that normal April seasonality, clubs reopening, outdoor dining reopening. Just wondering, as you're talking to customers and looking at kind of that May-June window, and obviously this is a big season for a lot of restaurants with moms, dads, and grads, so just wondering if if there's any sort of booking activity going on into that May timeframe that you're getting kind of confidence and continuing activity when you talk to the clients?

Yeah. I mean, you know, again, I haven't, I haven't really heard any, uh, you know, doom and gloom. Um, I think, uh, I think most of our, our clientele is, uh, is, you know, is, is, is pretty confident. I think the only, the only kind of noise I'm hearing is maybe it's some slowdowns in like Las Vegas, you know, but, you know, comparing year to year comps, obviously coming out of COVID when nobody was traveling and then, then you couldn't get a room and then everybody was, was going to places like Las Vegas. So I'm thinking maybe it's more normality at this point. you know, that there's a lot of choices, you know, I think it's the only place I hear a lot of noise is people that had, um, you know, a business boom, boom, uh, coming out of COVID and, uh, they kind of expected it to, to stay kind of like when I hear some, you know, from areas of Florida, you know, our, our business in Florida is, is, is doing great, you know, couldn't be happier with it and the growth, but you hear people still complain that, uh, It's not as busy as last year or the year before. And I'm like, well, Florida was one of the only places you can go to. So that was not a pace that could continue, right? People like choices. People go other places now. So, you know, we remain cautiously optimistic. You know, again, this is not a new business. We've been serving this type of clientele for 40 years. Actually, exactly 40-year anniversary. Um, and there, there's spots that, that, that do slow down and there's other spots that kind of pick up. So kind of, kind of gives us a balance, you know, I would say maybe you're giving up, uh, you know, maybe you're, if you're a family on a budget and you're going to cut back a little bit, but you still book that, uh, that cruise, uh, vacation for your family, you're, you're, you're probably going to go on that unless you lose your job, you're going to go on that vacation or, you're going to go on that birthday or anniversary event or you're going to have that bar mitzvah or wedding or christening party. So I remain cautiously optimistic.

Perfect. Thanks. And then, Jim, a follow-up question. You spoke to the inflation levels during the quarter and that there's an element of that that was impacted from just the Hardee's business really getting, in Chris's parlance, chefetized. and starting to cross-sell more specialty product. Is there a way from a modeling standpoint that you could level set assumptions for where your thoughts are on inflation right now for the balance of the year, either taking into account or backing out the tailwind from this improved cross-sell at Hardee's?

Yeah, I would just kind of range around, you know, what we talked about on our prepared remarks and You know, if you exclude the Hardee's cross-sell, just the increase in their average case price, because we're starting to grow the specialty part of the business as we integrate, you know, inflation was around 3%. And then within that 3%, you still have chocolate prices, which are significantly higher than last year. Once again, sequentially, for the first quarter, they haven't changed that much. They've been trading within a range, a pretty tight range, but at much higher levels than a year ago. And then everybody's aware of what's happening with egg prices. They're down pretty significantly from where they were in the fourth quarter and last year, but they're still at an elevated level and they're pretty volatile. So that's all within that 3%. So once again, I just think you exclude those two things and you're in that 2% to 3% range that we tend to model when we forecast out. And really, no real commentary beyond that.

Okay, perfect. Thank you both.

Thanks.

We take the next question from the line of Ben Cleave from Lake Street Capital Market. Please go ahead.

All right, thanks for taking my questions. I'm curious about the non-core exit that you have noted here. And specifically, I'm wondering about when that was decided to be exited and when that exit was first included in your guidance, if today is the first day or if that was included, you know, back when you first announced, you know, at ICR.

Yeah, it's a program that we knew we would have tripped out of at some point, so we factored it into the range of our guidance. we didn't, you know, it's, it's a kind of program that is not typical for us. We, we inherited it with an acquisition. Um, and we work to, uh, you know, make it as profitable as possible, but these kinds of programs go out to bid and then, uh, you decide whether you can make it profitable or not. Um, and so it just happened that the attrition started in the first quarter. Um, and, uh, we had already kind of built it into our guidance, um, And, you know, so the timing from those things, you can never time them perfectly, but that's really the cadence.

And I think when we forecast, I mean, you don't know when, you know, things actually, you know, are going to be bid out and you're going to give up. Like I said, we don't fire customers, but, you know, it's not what we do. Some of these acquisitions we have, they come along with, I call it non-core business. We kind of build in good guys, bad guys. You know that you're probably going to lose something like this, and then you're probably going to pick up something else. That's why I think Jim does a pretty good job with the team, helping build the forecast. The numbers go up and down a little bit, but at You know, kind of by the end of the year, they're kind of evening out with, you know, the upside. You know, usually when something like this happens, we have more capacity on trucks. So now we're not adding more routes. We're just filling up the routes that left a little vacuum. So it actually starts to become a much more profitable business. You know, we did that in New England. So we have a lot of experience, you know, having done this with all the past acquisitions. And, you know, we call it chef-icizing their business and kind of changing it. You know, I mean, one of our business that we bought that was making, you know, barely any money. And, you know, four years later, you know, they've got $10 million of EBITDA. So I think we're very confident in our strategy. And not that we want to fire customers, but, you know, I always say we're a for-profit business and it's just not what we do. And maybe they're better off with a different model. We don't run someone else's company, but we know what it costs to run a truck and make a delivery, and numbers have to make sense. So I think it's a constant thing that we're going to experience forever.

And that totally makes sense. I mean, the strategic and financial rationale here is certainly appropriate. I guess, Jim, is it a fair characterization then that maybe some part of this business was included in your initial guidance, you know, back in January, February, and now there's, you know, no part of this on a go-forward basis that's included. And so the, you know, kind of, you know, effective reiteration of guidance that you have today is, is kind of better than it looks because there's an exited business now that's no longer included?

I guess I think Chris really kind of framed it appropriately that when we're building our guidance, we factor in the potential loss of this type of stuff, but also the potential gains that we may not have factored into the guidance. So, I mean, net-net, we raise the bottom end of our top-line guidance which is really just flowing through a little bit of the goodness from Q1. But, you know, this, like we said, we factored in knowing that this was probably going to go away.

But not knowing exactly, you know, the business. You know, so December, you know, when we're doing our budgets, you know, in November for $25 million, We don't know that this will, you know, this account will, you know, tell us that they don't want to pay the increase. But I think we just forecast, you know, on, you know, say $4 billion of sales, you're going to have some of this that's going to happen, and you're going to have some good stuff coming, so balance, so maybe it gets a little squishy. Okay. in a quarter or so, but we always say, the Italians always say, you throw everything in a pot and somehow it makes broth. And that's kind of our business when you're selling mostly independents. And then you sprinkle in a few of these, I call it non-core customers. And we look at it when we're buying companies. We're like, you know what? We know eventually this is going to go away. It's not what we do. So while we have it, we try to figure out the next stage of the strategy. The way I look at it is if you've got clunky, low-margin business inside of an acquisition, we model it over four or five years, it'll go away, and those routes are going to be repurposed with more business that we do. So it's a little headwind when it goes away at once, and then The rebuilding starts, and it looks really much, much better over that four-year period.

Got it. That makes perfect sense. I appreciate the caller. Congratulations. Really good start to the year. I'll get back with you.

Thank you.

Thanks, Ben.

Thank you. Ladies and gentlemen, as there are no further questions, I will now hand the conference over to Chris Pappas for his closing comments. Chris?

Well, we thank everyone for joining us today. We're really proud of our team in turbulent times with a lot of noise in the air. We think the CW team does a tremendous job in delivering the kind of quarter we've delivered, and I think our shareholders are proud of them, too. So thank you, everybody, for joining today, and look forward to our next call.

Thank you. Ladies and gentlemen, the conference of the Chef Warehouse has now concluded. Thank you for your participation. You may now disconnect your lines.