CHEF - Earnings call transcript Q4 2017 | The Chefs' Warehouse, Inc.

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Operator

Greetings and welcome to the Chefs' Warehouse Fourth Quarter 2017 Earnings Conference Call.

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Alex Aldous, General Counsel, Chief Government Relations Officer and Corporate Secretary. Please go ahead.

Alexandros Aldous

Thank you, operator. everyone. afternoon, Good today's CEO; on Chris Founder, Pappas, With Jim call Leddy, and and our Chairman me are CFO. By now, XXXX quarter our to you should earnings have press access fourth release. Relations found under also at can be the It Investor section. www.chefswarehouse.com Throughout share. this presenting measures, well and among and including forma as EBITDA pro will both historical earnings estimated estimated EBITDA, modified non-GAAP net modified and pro financial others, adjusted call, conference we be as per historical forma and income with accordance financial GAAP may measurements are in These Company's non-GAAP calculated differently calculated titled other measures. and in not be similarly Quantitative their appear reconciliations GAAP of in our directly measures non-GAAP financial measures financial most to today's release. press comparable

statements formal our financial performance. regarding Before performance. our on remarks, we reliance not of expect. need risks actual Such of forward-looking what materially that discussion put you to statements them. uncertainties to from begin These include remind therefore, are will results that part future not including numerous our are everyone could today cause subject guarantees estimated differ and I should statements, undue And to statements we forward-looking

are the risks we're to XX-K on mentioned and provide XX-Q over fourth Reports today's available are discussed call questions. Pappas. for release. Chris these a review business Today, turn in on our our Quarterly of With Some we Form the are to up update, that, go which detail quarter Form call and in SEC the Others Then results open website. Annual on Report over Chris? by our XXXX going will I'll guidance.

Christopher Pappas

business fourth we XXXX the to to momentum healthy the healthy customer fires Las those quarter. earnings in markets. you the and to organic unfortunate support Vegas, needs remained continue thank all and recovered challenges, our Despite in quickly, quarter. and Overall, we tragedy joining these devastating in a customer the for fourth Alex, continue positive you, continued quarter in business our our solid Thank and environments growth those into in our California base relatively supported and fourth Considering call.

reminder, the unique XX-week fiscal quarter, and basis the growth a include both by the fiscal California we X% few quarter over despite will on versus a rata specialty X% of case As quarter of up Specialty XX-week This growth of on XX-week are and pro fourth quarter, fourth driven sales reported organically a growth a as of highlights sales comparing results, year. the certain and to present wildfires. impact organic over fourth prior-year over customer the XXXX, placement of approximately as fourth net comparison. prorated the XXXX, in from A such, growth X.X% a prior X.X% were of was X%, quarter. the quarter

our a of planned case X.X% However, at impacted our growth approximately fell Fruits. by was as result Pounds negatively attrition by in X.X%. division MT protein growth slightly

point impact California basis represents specialty, basis decrease points fires protein the Gross This in improvement margin decreased basis XXXX. the excluding point versus third to However, of by offset of sequential quarter XX XX division. in is increases approximately our rose XXX X%.

on our improvement We the inflation. pleased despite X% team's with performance are over extremely specialty margin

XXXX. experienced As a contented rose in to of environment compares a in division points the profit This protein X% margins quarter. fourth and basis our same reminder, XX XXXX gross quarter the protein inflationary in throughout deflation

stocks fourth in Jim our existing term and to the we repricing via of our issuing share few more common shares X.X cost debt sheet our balance reduced our detail the quarter. million of structure, loan Turning minutes. will capital in strengthening by a

despite gross our ability growth, inflation. topline deliver to pleased with margins profit are especially We strong continuing with solid our continued pleased

United partner to States base that today. makes in We the Chefs' service high customer chef-driven high-value, the continue premier with model our the to restaurants provide independent

the on technology operations. and the technology we Moving to our continue to site. e-commerce arena, In enhance

platform, $XXX,XXX through internal our over run now Internet ramping platform, our via going per are our rate purchases up mobile and nicely. We week app are

example, through mobile came in the As an of January app. sales X% online

platform to been January, of basis quarter. protein our and point e-commerce all integrated during are ratio into XX the we pleased In locations. operation, reduction the OpEx specialty adjusted has As with in extremely regards the

through expansion We centers, made continue the and driving recent organic where our improvement locations on solid focus investments we both to distribution especially have growth in existing years.

process to operational And our in continue focusing and acquired we both in which In now we operating efficiencies. on addition, on quick Fells, improvements increasing implement a XXXX. technology update

We going. that, pleased financial portion-controlled information. very integration actually with And launched be we program late detailed and Jim? the discuss and over system with quarter, we building turn and is that up our are in I'll using markets. expertise scale brought and fourth Mid-Atlantic already to how on train to help forward the to to knowledge were our Jim look continued Leddy We They other more to in with XXXX. Northeast it are our ERP incredible

James Leddy

Thank you, Chris, and good afternoon, everyone.

Fells of Inflation to XX, a X.X% X.X%. sales as net of approximately as pro to for XX-week the rata from $XXX.X quarter. well weeks XX increase the XX fourth sales the versus from XXXX, of ability profit the Gross increased fourth fourth organic of approximately division quarter this of the points Net for XX $XXX.X to quarter sales for fourth gross which weeks to The consisting quarter, quarter, million despite prorated continues the the for versus profit pleased the XX.X% sales Inflation million margins in basis, to reported gross in $XX the specialty quarter our our XX.X% in ended profit net Gross a with weeks, basis acquisition, million, of inflation XX solid $XX.X was are our to increased and Our of on basis, compared division, XXXX prior a to in in profit in the protein sales reported especially XXXX. approximately increased inflation margins our of produce X.X% our the weeks, growth XXXX sales headwind. result for million we in decreased added December XX.X%. year a approximately outpace increased Point expectations XXXX. division X.X% net which X.X%. approximately X% specialty On comparing XX X.X% represents quarter. to quarter contribution was prorated approximately and

margins, despite We driving are our pleased higher by in with the inflation. team solid performance X% specialty

of division quarter As operating XX.X% driven the operating Monte of adjusted for the million XXXX to is in Fourth the Chris earn-out the primarily change liability, quarter driven expense the increase XX-week fourth fourth protein on compared as were the from XXXX, by additional recorded increased for increased XXXX. part million fourth $XX.X The the Total in pro year-over-year. quarter XXXX. fourth prior-year the as gain XXXX by in basis of approximately margins expense to fair the in quarter in a by operating offset X.X% mentioned, partially comparison. quarter lower our the relating XXXX value to quarter week to of fourth of compared Del the the in rata fourth $XX.X expense of of quarter

and approximately basis profit, was basis XX of company's million by transportation related year. The of $XX.X better of to improved million for related fourth distribution and XXXX fair is of gain prior platform to value earn-out expense adjusted for the compared points, was point fourth a in basis the of income quarter operating company's were company's year as approximately mentioned Del utilization the quarter. compensation $XX.X income the costs, earlier. decrease expenses, decreased the to liability quarter basis As to offset facilities, The driven by XX.X% and XX primarily operating sales, ratio decrease operating related offset expenses that change the quarter XXXX in the in increased the for fourth by XXXX compared XX.X% by points. of Operating higher higher XX fourth in Monte the adjusted recorded warehouse of which largely the fourth benefit prior overall part the costs net in points, for lower percentage the due which XX operating to gross

XXXX, expense $X.X of a outstanding fourth fourth prior-year percentage on income sales, primarily the of quarter a in to was million due the net million to versus Company's the $X.X Interest debt. in quarter quarter, the reduction in rates of compared fourth to in As charged XXXX. decreased operating X.X% X.X% interest

of As Chris spread our fixed mentioned repricing of savings annual a of portion XX million December, basis we in by reducing term-loan, generating executed expense going interest $X $XXX approximately the coupon points, thus the forward. million

XXXX, debt-to-adjusted fourth quarter million EBITDA On added Income In fourth our of of million tax This debt of is leverage the one-time compared act. the issued sheet. tax quarter an tax approximately to X.X of We addition, common basis, approximately $XX a quarter of recorded to income approximately - balance for reform expense impact approximately forma $X.X we a our further net profile. shares, net million in million was net $XX to XXXX. $X.X current pro due our improves our $X.X the cash which income of in times. for the leverage $X gain fourth million expense million

for compared $X.X year net quarter the the compared pro modified per of EBITDA was XXXX the a income $X.XX four basis, quarter. income income $X.XX $X.XX per for $XX prior $X.X was adjusted Modified for million quarter. to share or million fourth of modified million diluted the $X.X of $X.X share fourth On per million forma for fourth share per XXXX, million pro modified was year and net pro quarter XXXX. for income forma $XX.X million prior $X.XX pro forma income was net or XXXX, of fourth net Our compared of quarter million diluted GAAP $X.X and to share income fourth or non-GAAP quarter to of forma for was the

offering million to which of and strong XXXX the from raised equity continue sheet, ended was $XX.X with from on balance flow $XX cash cash in We December. the of benefit million

are Adjusted financial be share EBITDA, to to share expanding million and guidance full net $X.XX. to in year be $X.XX be sales million on to Based $X.XX the approximately and diluted billion, $X.XX business, $XXX Turning billion This modified $X.XX. that million million, XXXX. be $XX forma $X.X the tax we range reiterating of be follows: income between profit current expect be rate our guidance million $XXX for our the in on XX.X% XXXX the be between income and to between income million, estimate for based of net we to trends diluted between We in $XX will of $XX as guidance gross and XXXX, net to and between is to pro per $XX per effective GAAP and and net

for questions. dilutive will diluted full-year Currently, we in the it be share are Our outstanding estimated XX.X purposes. diluted point, shares for count these notes shares. million fully convertible included open Operator? at this modeling up you. approximately the to share is Thank and accordingly, we count expect your to And convertible

Operator

Thank first you. is [Operator Instructions] Ryan Please Our with Gilligan proceed Barclays. with your question. with question

Ryan Gilligan

for you which takes taking You the for weighing go Thanks was? the inflation gross the nice gross Hi. that margins the and you margin specialty, all puts higher have as in over actually on core margin, is questions. where Can inflation call gross but in quarter?

James Leddy

Ryan. This is Hey Sure. Jim.

bit XX strength. The over high seafood, a you continuing about we either And a with about obviously, inflation saw significant other prior we protein side, of points deflation. basis XX% two where have Napa, in less points or story of continued actually prime in the pretty on XX categories saw to and the worlds protein, We year the of - in specialty, protein was impact saw half whereas comp inflation. in a on of we business, was we is in of inflation versus terms really, other XX margin XXX So as of that in well. It categories prime, inflation saw inflation. inflation. X% actually basis protein, highlighted fact, The sorry,

So the headline is XX that. communicate doesn't basis really points inflation

takes puts on the those So and that. were

Ryan Gilligan

just customers? sales And can to of through then are increases about talk can to your you us your it. contracts? And what percent remind then you helpful. non-contract cost ability Got That's just pass

Christopher Pappas

a lump independent - and customer, the then include our business. We and kind our it's really Yes. of lot we hotels call XX% our of our in groups GPO it, are in core we about business, -

in did a job good headwind on a passing we the that of prime had inflation it even really a have some again. The - really So I really, was we was just headwind really incredible of the a most great could better quarter, think quarter. really been products,

James Leddy

X% on saw mix. quarter that actually protein driven also we fourth by growth of about Fells, and we XX-week basis of XXXX prior dollar the our of I think of driven customers' I some protein, fourth shift a would that quarter, some versus organic higher a X sold of add roughly revenue year amount in by The higher was mix. items our in

the And those margin, profit so offset gross tend lower leverage. there, improved saw where we to the slightly in operating offset saw leverage, and at be operating we

Ryan Gilligan

margins flattish That imply makes sense. does in guess, guys And I the you year, with for prime XXXX? those then that gross that guidance just headwinds go implying quarter will fourth away next saw in that

James Leddy

predict of we spikes then QX. to but stick the we issues that that saw we into of there was scale can't that, expect say We see mean, or don't predict are when can't likes level. to of expect little a a it. wouldn't We in there hangover and QX, the bit hockey that same I I the kind

Christopher Pappas

you experts that see of experts, you experiencing. will that cattle this the there' mean, saying kind that to they're The inflation be are this I should if we've enough listen been year crazy - not

Ryan Gilligan

Got it. That's helpful. Thank you. really

Christopher Pappas

Thanks.

Operator

question Our with Mandeville with question. with proceed is your Jefferies. Chris Please next

Christopher Mandeville

on or are think as to to leverage ability your of questions. how capability taking gap actually sales? you gap expand your two which or nice between actually line several I'm go facilities, just the about you your between further gross showing my the and quarters you Hey. profit dollar do guys curious last Chris, some really the and you growth. Thanks items bringing have these now growth been expense guys, incremental operating continue for

Christopher Pappas

up add following lot think facilities. know we've a lot It's a And for a that we're Yes. Chef its grows who now quarters, to up, our built Well, starting since We think operating our when great getting last the we quickly. - we our we dollars this we two acquisitions, think line. and have I all the us infrastructure, of the get we expenses. added volume more live that I crossed continue been customer we're platform expectation story growth, on to years leveraging - IPOs, eventually leveraged it's platform And continue. past through that and to got I and trucks to the and and said, to have people we've you starting of facilities categories, we going to all through the the overhead few to to I so on growth, build great real start the over that more added, grew to did expect people, flowing leverage the bottom and of should growth we're the

James Leddy

that's I it little on periods that, in midpoint extreme over quarters, you guidance well can imply XXXX. our XXXX of if look our inflationary Chris, just a would add would improves bumpy make that gap Yes, at

Christopher Mandeville

that some the or That's helpful. is in the relates And XXXX, any behind of now then incremental or press mentioned attrition it release, is planned even Chicago, there you expectations for attrition is in the us?

James Leddy

expect part lap related that of the QX move in of that in we attrition, XXXX. MT and attrition QX, maybe the kind early earlier Regarding to to

we was So we're QX, but X.X that until to looking back. building QX fully XXXX, this wrap it's quarter, negative The that probably so in obviously it's X.X won't declining. forward

Christopher Pappas

And year. grows, it it eat we experienced starts as up the Chicago obviously, last attrition which from that to is,

Christopher Mandeville

actually, on it one call Okay. missed CapEx but last expectations have may for And I just then the out me. maybe what your were XXXX? you did for

James Leddy

million planning at XXXX. close to $XX staying on now. what little be million that CapEx of range bit looking bit in We're a That's right higher, lower, little Yes. we're to might X% kind but $XX

Christopher Mandeville

guys. for it That's me. Okay. Thanks

James Leddy

you. Thank

Christopher Pappas

Thanks.

Operator

question. is Please proceed with Markets. Kelly question Capital BMO next Bania Our your with with

Kelly Bania

taking Thanks evening. questions. my good for Hi,

than really, to guidance on other plans wanted the there, expense, about interest any color any ask assuming would've thought over facility was that? you on interest a restructuring just your there little first I the Just debt just and you rates what are or did paydown for maybe but there,

James Leddy

reduction XX year. the in points, X modeled hikes and we modeled rates, of the basis we loan XX the term Fed points roughly obviously, So in in over basis the

component. in floating So XX averaging the to points about basis out

you million have that by still so us got balance delivered XXXX, in we level remember, we of So gets sheet overall, $XX about debt. to lower the plus a

the with was the predicting on market in combined the of repricing, we've that what Fed. So then modeled kind

Kelly Bania

out? out And peers just of your Great. calling the it way didn't higher inbound call then that on That's many helpful. some that are curious some different distributor managing if freight, your but mostly you're hear side, just experiencing third-party are

James Leddy

Yes. our pressure basis It's we little was in that of it quarter, bit or we XX and Where was really to few call pressure saw in less OpEx, bit it in outbound but decline wasn't anything bit to little little that require geography increase cost, on points in OpEx, from X% out. freight it. of sold some leases into would related or and than and of that us the a a shifting transportation was a of so and our really depreciation that

Kelly Bania

the just sales curious in and year about peers of your next force, feel of sales one of then maybe are And Great. kind years? on some and size of the the force coming last the that just XXXX you plans how this for couple growing other

Christopher Pappas

we I sales. to invest Yes, in mean continue

certain hopefully, entry out we order because which system that, experience. improves cross-sell. people behind out do start but get customer we're a sales salespeople, specialists our of sales continue that I production. will we force to more more do online, we're and the will be an to add you'll to add is time your kind we'll force, where more point, continue we especially product do point street, rolled think better the inflection on that it business the to and leverage their feel that as we rolled more in as you'll we up online to to and phone free desks, territories time And eliminates out in The make and their of underserved, to improve presentation, - app, more plan sales more get their able starting we app,

categories, So territories. to bringing of just it of introduce on as making and like we the more part categories the we in that DNA focus those really launching

gave now So anything unusual right say our of all-in change kind I nothing there we plan. or think really It's that would I in a and is guidance.

Kelly Bania

thank Great, you.

Operator

question. JPMorgan. your with with Our Ivankoe with proceed next question is John Please

John Ivankoe

thank Hi, on you. question The actually is e-commerce.

you that X% correct? it's prepared your is think currently, of said remarks I orders, that in

James Leddy

What X% in No. launched X% in said January, of online sales, run on late of the refers the we mobile $XXX,XXX app X% in we January that in mobile. to was January, rate November week, our our that came through and per which

John Ivankoe

Okay, all you I'm about right. that talk previously. Thank that getting you for sorry did clarification. for wrong. And

think broadly equally by the we're it, call I $XXX guess opposed of XXXX fiscal kind run you million it I e-commerce just of rate digital just like making as end let's word. so mobile, to their I'll call as something expect, that as

So longer-term that about think service-intensive of organization we should if what in Is what is Warehouse a digital mean, I mean versus really update sales Chefs' are The your digital? were a and I And an the as selling to terms think for just percentage platform? goals be is do selling number? what of professional with your a what that, number? for over Chefs' you it time on easy mix an conservative is right

Christopher Pappas

restaurants, so order they're - seeing that Yes, get modeled smaller is and many we're a an different to don't in either ever stages. early XXX%, additional distributors. question, little late I think big food everybody We're order good going are very we're to Serving still Customers to platform. getting John. national the

times. We So their to do with. of more we're We're flexible. orders past take cut much easier most business

number, could getting would XX% great customers, think our hotels So, them get into and if their EDI I online, be I that very or large through having large orders. our to a either

process our of So sales onto system. in we're the still enterprise our getting

the focus point. online. customers and big inflection push to getting taking there's more more an a So that's from I little think do away

orders. tremendous our in that starts the of point, a to start system. And screens our email younger right online, done, we again now, more but generation think I sales really, ordering coming are still coming to a over to But amount the migration the in seeing text. enter customers, we're as over their and enterprise they'll over think with own on certain it's take nice I once

acceleration. I think that we'll see an

this to is for million number $XXX the going up. eventually starts and So I then the think still we're that numbers year, pump it it

John Ivankoe

does when done - migrate And I'm the that's sounds screen like will to timeline so mean if system? quoting enterprise with that? When that that that that you when of a I sales correctly, effort. mean, be I back-end

Christopher Pappas

a started it while Well, ago.

want we've companies, go sometimes we right now we So been orders live get on to another go our update turning of - that get back because company-by-company we dates really where have amount as tremendous and into pushed you a late. do enter we to our bigger

right. we want So really to it get

the little but to I'd next really a wrong. hard year, is, by go push plan and on the So too have than it it it rather everybody but platform, right sales get get slower ERP let just and

John Ivankoe

Thank you.

Christopher Pappas

John. Thanks,

James Leddy

Thank you.

Operator

There to no Instructions] further seem questions. [Operator be

like So call over Chris remarks. turn Pappas for I'll to now closing back to the

Christopher Pappas

North call. make evening. I'm job, to leading Chefs' Great. next us and Well, for continue a on you proud the speaking throughout everybody good forward team, to push everybody for our restaurants have call. earnings and they earnings did a pervaded and really the thank independent high-end on And to America. much they to our great very I of Thank you our look joining

Operator

today's concludes This teleconference.

disconnect You time. Thank your may participation. this lines your at for you

The Chefs' Warehouse, Inc. (CHEF) 20 Feb 182017 Q4 Earnings call transcript