CHEF - Earnings call transcript Q2 2018 | The Chefs' Warehouse, Inc.

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Operator

Greetings, and welcome to The Chefs' Warehouse Second Quarter 2018 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 and Corporate Secretary. Thank you.

You may begin.

Alexandros Aldous

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

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

are the in we're to these on risks go and over call up provide call XX-Q, reports the discussed available on for Form the mentioned Pappas. annual over in detail that, And Today, open will of will and Chris today's quarter XX-K turn update, our quarterly are release. Form business results are Chris? guidance. questions. second we which update in our SEC then XXXX to Some website. our on I Others report a going With

Christopher Pappas

our XXXX solid all second second you thank saw our network Alex. across in We call. the quarter Thank you, quarter. growth earnings joining And for

important X.X% continued sales few the X.X%; placement profit margins year, the and quarter. two like results Chefs' growth made entire growth organic increased as thank business in basis in would model their for center-of-the-plate to emerging over case growth strength investments two markets driven our of A points contributions was X.X%; Texas of growth margin highlights in pounds points second in gross X.X% placements, growth second of declined In for compared quarter category we basis basis quarter and Chefs’ for customer team I customers the XXX Gross Pennsylvania, approximately executing was include, from organically to of Warehouse. sales; center-of-the-plate addition small and strong acquisitions were approximately to specialty strategic the growth XX gross organic while for specialty specialty Warehouse in the this new in up year-over-year. X.X%; points. XXXX, which and in by XX X.X%; prior the increased margin in category net unique

more a Jim provide addition, In second XX% versus detail grew dollars few profit gross quarter. prior on will margins minutes. in year approximately

We with performance. team's on focus to delivering solid are robust dollar our while drive to profit pleased ability continuing revenue gross growth

new markets. investments. We those and bit grow continue our people, operations growth made A technology, in leveraging and the little improve and are and in in both technology drive our we have resources investments facilities to to existing about

adoption We of our our continue platform and drive base. customer to mobile app amongst e-commerce

in purchases XX% of per million came the at Roughly going through online up. the mobile mobile run our revenue $X.X quarter ramp We via to week platform, Internet are second app. continue about now through rate app and our of sales our

quickly number for tool is becoming the customers. growing of of platform online Our communication preferred a

their sales by operations customer efficiencies allowing In service addition, base to on the sales in in orders. versus our our focus customer teams our drives growing and and platform servicing keying

in sales markets. and our of entry module largest ERP We the also York implementation recently X New Mid-Atlantic order the completed regions,

important this extremely preparation rollout. and team's step our our are pleased of execution with company-wide We in

adoption our quarter business third XX% in will implementation. the region, planned our Ohio approximately have our of completed specialty Following

Coast follow in efficiencies integration multiple enhances quarter XXXX. implementation fourth our tools in the growth our our This will ability forward. and mobile of teams driving to to Our to region digital assist going In start and plan provides and regards with platform West to leverage operations.

Midwest to driving continue Warehouse implemented expense business leverage Coast a to operating distribution across well with number including East pleased our We our West in operations focus our has recent facilities, compared adjusted of dollar growth as operating centers. operations been number and gross profit Coast a our on of growth. are as and as scanning

and rollout management. development, We are Truck the seeing we begin improvement of in accuracy is to end year. inventory scanning by and in expect shipping, labor, the

recent the capacity our the East New in Coast and acquisition distribution region addition, Jersey, provide benefits Southern Pennsylvania of markets. In will

I'd Before with that to to performance. happy reiterate quarter Jim, resulting over we turning it execution team's this solid and our like are the financial

marketing with to be our enhancing as Our and product supplier to business goal at growing, diverse customer And information. detailed the of and that, and our internationally discuss Jim? for continue company dining more partners chef-driven I'll over food turn financial it to distribution upscale is Chefs' both Jim specialty our base premier gourmet and establishments. growing unique model restaurants to

James Leddy

Thank you, everyone. Chris, and afternoon, good

in of certain margin by our year-over-year by and in categories, million of the quarter for approximately net the increase result second approximately XX was by X.X% The Our basis inclusive second deflation XXXX. of and net of profit center-of-the-plate categories, in inflation as growth to quarter category partially increased including Total million The with eggs. primarily margin XXXX. of well Gross certain offset XXXX acquisitions, of quarter to for the expense operating approximately deflation effective from sales quarter, of XXXX, organic in increased points sales inflation the Gross was the from for a of second million the team increase for basis our XX.X%. approximately year of year from Net second XXXX. expense sales, as sales $XX.X Point, June margins of approximately $XXX.X specialty sales contribution to dairy XXXX combined which million was of in quarter the Fells $XX.X net driven management in second prior operating quarter our $XX.X versus increased basis XX.X%, X.X% second points XX.X% XX, as for quarter for consisting and adjusted approximately $XXX.X in versus ended for X.X% million to of of XXXX increased XX.X% added center-of-the-plate quarter. to second XX.X% versus in the profit prior a an On category quarter. X.X% inflation X percentage second quarter. the the X.X% quarter the $XX.X the growth was specialty million improvement and the

million offset to driven leveraging business. to we for increased profit, operating the with Operating of trend primarily We XXXX pleased quarter expenses be our of for operating second continue the as higher of expenses, million income was gross The by by $XX.X income our earlier. quarter $XX.X was increase in XXXX. operating grow compared second mentioned part in the as

offset of charged prior versus sales, by in for net of the As part quarter $X.X X.X% was interest in higher quarter, income rates second on XXXX $X.X in decreased XXXX. market to to a the reduction the million X% interest debt, due year in primarily second to second million compared operating company's floating Interest rates. of outstanding percentage the the expense quarter

on million potential new an $XXX During well increase loan facility entered that than lower from for same to our provides prepaid Subsequent $XX asset-based pro a funded the availability a the for the million second in term of spread arrangement. million company's end, expense we new rate amount, facility quarter, the interest we loan the second component as lowering to and as to $XX quarter approximately fixed basis. into of interest LIBOR forma the previous our thus fixed

shares was pretax second notes in interest increase second million offset were the X.XX XXXX income, reduction XXXX. and to our $X.X expense of the of tax effective guidance. XXXX fully quarter our diluted reform from the of XXXX. our already Income the partially were on tax resulting is share for fourth the income passed within quarter quarter included by due into million tax convertible of company. million to common compared subsequent $X.X expense the rate for higher converted maturing to income our of tax million accrued The in the in end, addition, note, count second In Please XXXX shares approximately XX.XX quarter related these in

basis, to share $X.XX GAAP compared diluted was million per to quarter non-GAAP for adjusted quarter Our was the XXXX. the diluted second for quarter. second a the adjusted year million year EBITDA Adjusted to year or XXXX of diluted for the for XXXX $X.XX million of the second $XX.X quarter -- per per net share income prior second or quarter. diluted prior or XXXX compared million the net prior share or for $X.X million second $X.XX $XX income $X.X of of quarter of On $X.X for share income of the compared second per second income million was for net $X quarter $X.XX

adjusted cash balance to forma the continue sheet. cash debt notes conversion from Pro quarter million XXXX second We our ended the convertible the EBITDA Xx X.Xx. and to debt flow was post for benefit outstanding reduction quarter the quarter of pro of of on the second at EBITDA strong due to debt with adjusted $XX end, net end net XXXX. forma is of the of to of Factoring in

expect to to financial trends guidance in $XXX on range diluted This adjusted be between the for Turning be and tax net full and $X.XX; income income diluted as $X.XX to share XX.X% $XX.X estimate to in rate gross $XX.X on net follows, be the to be our and our million $XXX of an adjusted GAAP business, for million; between guidance of net and is EBITDA, we per the that billion the XXXX XXXX. and profit $X.XX to million; Based sales for updating current between approximately of net $X.XX be we be million $X.XX. are between year million; effective first billion; and -- XXXX. $XX share to for between based be million will per we $X.XX and income guidance the $XX to

million estimated is this XX.X approximately year point, to Operator? we And Our full count questions. open you. will diluted at Thank up shares. it share

Operator

Instructions]. [Operator

question Jefferies. Our is from first from Chris Mandeville

Christopher Mandeville

If it I Really then, trending X.X% off in top Jim, on number the on little relates QX deflation, bit to But things year's a on has as could XX%. And growth. quickly that last pronounced quarter-to-date? versus start solid more center-of-the-plate just become how are organic QX? of really

James Leddy

deflation really question then in cadence Just is clear. about, QX? your in QX so far, QX, and in center-of-the-plate in So I'm so

Christopher Mandeville

yes. Correct,

James Leddy

we end while Yes. haven't recall, And of growth. QX organic I QX in seen I the early the anything it's organic and you if specifically growth, going we terms of out in then terms would that think of seeing summer, terms categories. and of in into mean, versus in call more we of very quarter, in prime we in see categories. we significant a really -- last are at certain inflation did we deflation, year say the I QX, normalized And the early although definitely last are pricing prime not would saw in we -- we lot that of saw are as QX. kind spikes that QX, in

Christopher Mandeville

All do on long-term the how any XX term, right. capital that to sense opportunity Texas, next opportunity is months. thinking that's over that idea longer in there? to in about XX just if what there's And the helpful. a then, if can Maybe give scale And you if Chris, us you really, expect market? requirements you of will,

Christopher Pappas

for was Texas to maybe into Yes. of companies. the Well, mean, unique we're that of I family really XXXX. specialty kind horizon company And a got on opportunity the we fit really really Chefs' buy the just early.

-- San top was in is putting which and think market Really, was small. Chefs'. we're it plan, we It X Texas together I The and being the data very So market opportunistic. have for the long-term for many every how are out, that moving the unbelievable frequency the very, exciting very people opportunity and it's Texas Austin, amount Antonio, us. Dallas, to restaurants a of people Houston, eat seeing -- day,

in saying, years, and and the of I going opportunity So Again, think company, really go but stages each of we very Jim acquisition into there's we at putting that, as of looking I specialty can CapEx, further in small far early still the think early, a a front. really think, just acquisition. a acquired over the flag kind as real growth much be next much to markets. organic major for definitely And X be it's is to becomes Chefs'. X but through the future X now vehicle Texas big looking for how will how it,

James Leddy

year you'll add for a notice Chris, facility I'll that that million just in and slated Texas. investments we up some a the later re-guided couple Q that is just part of of dollars, CapEx

Christopher Mandeville

me. for one Last that. appreciate Really Okay.

terms markets in the we center-of-the-plate cross-selling like with stand Chris, the Monte Del the of to with Just various right opportunities, offering? with now ability where service do

Christopher Pappas

in just year, still converting onto same was go our the which finished a Again, the It converting sales the of at a New process, major Mid-Atlantic progress. order work it's had -- to Oracle concern. was York it's the one Yes. time. This big actually, of New York -- right. and We've the system, projects major,

great. team an that I did A happy lot job. bumps expected. So say than The went to unbelievable less

up Del San in So focusing Allen growth us, in go of a always our in with Brothers I with when the markets and together. the X.X%, cross-selling, attribute brand Chefs' look brand to at organic Francisco, teaming behind successes and over in lot -- we that having the tremendous that Chris. focused of way market on we're because many the But especially cross-sell, specialty -- Monte the case on of Michael's you

would I to be offerings. grow years. I go next X.X% quarter, XX way I of with a the the comes to can our I diverse happy plus think of And say, we extremely it because growth market every So case if the would lot

Operator

from is Ryan Barclays. question next from Our Gilligan

Ryan Gilligan

how up following and ordering? the get markets Mid-Atlantic Just that, York one-screen soon can New on

Christopher Pappas

to the available our which -- York, now, have really go capabilities The into the our ship so They closest Point, is it's New one Ryan, Fells market. ability screen. for screen really of Internet and having to have right through

we're what right really, now inventories. So is doing duplicating

that's going all screen. one is the if the late stocking companies are ability to I quarter. we and on to we're products We sell, you probably of say, lot And access both would had that know to next a

it's off. So not far that

Ryan Gilligan

Got it.

sales ordering ERP with guys available fair given force you next it the is have some So will to roll-up? them one-screen time year, are that to of say where most just the

Christopher Pappas

say to safe it's think I yes.

Ryan Gilligan

with on the should more Okay. fair? that accelerate sense. pounds York. then that should about into And going the cycled. fill being just Fells then [indiscernible] think shipping to we start that that sold, guessing That that of I'm how just makes guessing And just rest Is New also, Point, for I'm year? you're custom

Christopher Pappas

fair think team. making fronts building say on that to that are all progress I it's we

work as wins. ramp We to optimistically, of And that, have few next lot a business going have to We up we of do. as definitely years, over still think a lot far pounds. that the is

day, and term, to it's think short get start ball now, we forward. better, I move right every -- a we little the

would I you'll continue say see to So incremental improvement. that

Ryan Gilligan

decelerating gross leverage That's helpful. to margin And operating and just able and expenses the lastly, on half? in of half basis comparisons, them expect the margins second expenses, to given XX your of to in be XX still expansion do points and kind get operating harder gross second inflation leverage you ability to

James Leddy

about good Yes. I guidance. feel mean, we our

just versus different mentioned year also last XX be to on going a on but the OpEx I for leverage. bit improvement So through basis still have a for margins pace on given profit of on implies the guidance the year, cadence our -- to quarter in comp [indiscernible]. of And guidance. a midpoint QX, on as little we're it's And call, our XX points tougher comp full the and gross first up then the we

Operator

Instructions]. our Capital And Bania from question [Operator from next is Markets. Kelly BMO

Kelly Bania

curious of was little you're some maybe a bit trends seeing you in specialty. I about the if talk could

there. strong growth case really the are Just

or category with trends can regional any you Just us? trends share that

Christopher Pappas

sauces. Not to away all give our secret

The have that do again, has lots add restaurant we're We that, of that market we great openings. think robust in I customers sales gaining healthy share business think a to customers. continues force really open.

of local, specialty, really use, quality. be you share telling have, good it are growth when and at again, of a opening you they to is are basically to it's products countries. in what then higher want restaurants blend suppliers little have, greater And case healthy. a last very ingredients sourcing and boutique, The a it, we of feet where XX Brooklyns then call that in delivery. international grow you great the So X,XXX the to Again, which of with end, organic the getting -- job who's we continue and call casual, menus. it, and, think that lot for great with Pittsburghs high I I of do we look X.X% our you menus restaurants upscale stocking a have world, the X,XXX continues casual lots the local mile upscale I on still And

grow. I as wonderfully food. So be steaks. trends think choices everything as healthy we're want the seeing to continue interesting well people want They marbleized

So we're we're where really at. with pleased

James Leddy

we're specialty protein which are our nice Ohio And, of our a just region, markets especially we in in of -- that kind about Kelly, what the cross-sell, I'll into fastest-growing back to point add number Midwest Valley. sales going Chris' really customers, seeing there the call

that's growth, of And our of just seeing customers. off center-of-the-plate leveraging specialty we're so an example where

Kelly Bania

you been seeing able any some challenges helpful. seeing vendors. going and your talking of appear curious maybe some there's guys you're to just That's you're And about fill you mitigate you're just but that Okay. I'm all that, others have if on help I challenging some that markets. if can rates. of from kind just late deliveries Doesn't at guess rather immune you're if us or in hearing what of it. But freight the to

Christopher Pappas

it's an environment. easy I think not that

have we at compliment difficulties. is I Chefs' think overcoming a the of that to great results the have that a team we these lot are

Freight Labor we is have headwind. really headwind. is not So a weather. a great

way and have every we're and to tool you you really out what you the figure have doing. So a it, to use that's have to people basically overcome

environment. And times. We ahead. best. we come to companies with hire tougher try to through And no secret. work So it can we is the tough hire There's try a in that

you with deal to tight earnings labor heard you how have to some learn other is on. freight, too. the it, calls that focused and think that's And from we're and really what just I of

James Leddy

Yes, bigger third are on less than the Kelly, we reliant parties a of the little guys. some

in environment. helps that us So this

Kelly Bania

couple I of But ago, just then a months new stand I with to starting business, the and about pricing think if you of due back tools or tools in maybe helping on that wondering in overall. some protein if And performance half. earlier where Okay. the part you deflation that's just came maybe those in talked the there, was the strong

Christopher Pappas

we're still in think game, and I seven a series. a first Yes. of inning baseball the it's

do upside we much team. so implement tools, the as us there's So for build these

We I call build. continues them and best-in-class the putting have recruiting. to it to and programs the Daily, leadership, training new to that teaching market we're to go does. team the a way specialty people, we're how and

So improvement. -- see we did of we nice margin sort a

from came had market much we that the last headwind. adjusting. of which a Some is big market favorable We did year, prime better than a

You in deflation had choice. some

So of both, it's I management a and little market. a bit overall, good think friendlier

Kelly Bania

online the And Great. comment are on really that how and maybe reps you the can then embracing tools you're efficiencies some ordering seeing some with that? are maybe that the maybe reps of just utilizing good

Christopher Pappas

I game. the very early think still that's in Yes. again,

I run think million. about now $X.X is our rate Jim...

James Leddy

annual... to an on million Close $XX

Christopher Pappas

Run rate.

is goal million. $XXX our So

more future. always more the give point the They of of the embrace, be people spending the go that and seeing give bit improvement, every think when people really can is gain the And more we confidence. their And seeing physically, and customers and think some wants the be to stage margins of customers they're big going to grow of online. think jump So -- get -- of in to that's sales improvements gain when But the think that and the improving, confidence, last know the going more customer it. lot understanding able that online you the their next are a online. I inflection that more the we see people salespeople the really time And streets, maybe now I what -- day, reluctant to is every I big that system I their use up. the -- day, they I so mean, tool, and to are more last starting next the that's more bit. more use go to

going next what to sell, capabilities. add we not a that be it's think, I the So hard the improvements to online

Kelly Bania

to lighter, guidance year, had maybe raising the last just a for for a With it just think about at in you case of maybe environment one half still it? the the -- strong? we think me. suggesting little thought. but sales looks that guidance the came growth little very that a Is inflation weaker the for like least with bit Should inflation And way remaining about back than we the

James Leddy

Yes.

us QX in think that And points have terms X.X deflation if I of ex growth impacted center-of-the-plate or X the would organic we I growth. higher, point about think in really been organic deflation.

couple to guidance, expense were the of takes. terms and in the half parts of of interest the acquisitions of of really the a And performance that puts and a the balance rest the good moving terms and GP revenue the and but did Pennsylvania guidance, ABL year the and the of we sheet in that there seen work we we've other coming we just Texas a that reflect impact half In also the on first with in and as the off on the acquisitions well. upped to second convert couple smaller did up specialty not different of the small then the

Christopher Pappas

Yes.

of think for second your Kelly half also year. the inflation, expectation is Jim, the deflation I of asking,

James Leddy

Oh, Kelly. sorry, Yes.

last kind last inflation, -- the had in inflation deflation, you we year. look the side, would that of pretty inflation year, of we're if the that terms of terms In on the comp at seeing versus third quarter say in And significant right center-of-the-plate normalized specialty then of kind I of range now. in at we're expecting

more expect of flattish inflation would or inflation at to kind we center-of-the-plate. moderate So see

Operator

next Capital Wolf from Andrew from is Loop question Our Markets.

Andrew Wolf

even either kind customers the I'm between Is of going gross acceleration little call up I territory side? a margin not organic it are any some so you've the case pricing in by inherently customers -- else? some over Is joined there the issues, much Or covered. pricing linkage profitable here little any linkage? hopefully, too something or there late, Or not was is there? the there a contracting picked in less but specialty you margin and on was growth, new there the the gross

James Leddy

is X inflation, in double-digit that pretty you significant have generally, kind eggs little all to have saw bit kind to cheese inflation -- There's have margin specialty such this you Andrew, broad-based you components Jim. -- a then specialty as really close that. compression. of we when No. dairy, year-over-year very We saw inflation the always across and of a also across in categories margins. of And of our well, categories. more moderate And

So usually, deflationary. that categories inflationary a or in typical across maybe saw are category we X every might and inflation. quarter, a we year-over-year specialty, X X X or But have categories

little was And against actually profit last bit margin comping it a that in then think of strong as year. pretty I So of well. gross XXXX a we're QX versus

year margin actually a full we're from we're with pleased perspective. where overall, pacing So really

within quarter. our good was we And I it the still about noise just think feel guidance. really some

Andrew Wolf

either, Okay. is helpful. and to what's the the old to broach, availability and just on or up other in the And there plain Great. you've labor to people for in That's I sales I labor, market cost? people don't get wanted terms warehouse How drivers. good the or need supply to you inflation keep train just cost of that from if you going guys brought to which know is question

Christopher Pappas

XX XX you is Andy. don't a you to it's great I very you I creative market And I'm easy, so think I years got got -- be be ever in know business, it's It's through been say you think live been since to just employer. tough and the in, and got this to -- --

people. It's attracting are We hard.

and at sell a people and need think you see it, people constantly, positions specialty, you could pick I You need to new staff on you And it, business but it. X.X% need to Chefs' growth, deliver talent getting case filling I have to hard you the with people work to great job into it. especially recruiting the think does

So and easier. don't it's much to it tough, expect I get

have be just good You on how you to creative attract talent.

Andrew Wolf

obviously that per Are you you know case obviously, something all pretty were you're -- metrics, fixed controlling structure. the the you're you And those Because, said that you type costs, track that. Okay. I sure cost cost in don't I'm fixed of Looks is but report leveraging business, like the like... -- well?

Christopher Pappas

Yes.

We've we're the past we've world-class a department, scanning. really acquisitive. continuing We to for in lot now. we're the I grow made so started years in I we all put as to and tools get operational would reward many lot think still investments invested be of team in. that inning of IT third world-class software, continue the We game. the implement to say, we -- And a

better So get upside We more efficient, damages, still. less lots of control. dumps and inventory

to more this, executing. I technology, people OpEx that's the implementing work. all the and really using and do is it from think we're less leverage key So correctly coming to having -- having people And able be

Operator

[Operator back to the floor comments. there like Instructions]. any closing over questions, no for I'd further to If turn Pappas are Mr.

Christopher Pappas

them had and Well, I and very we summer all forward our speaking great Great. it's congratulate their for of second call. a a happy we to a at year very healthy, the team the Hopefully, of summer And happy to everybody. Thank look listeners. to accomplishments. you proud great And everybody Chefs', much. on quarter. next half earnings

James Leddy

you. Thank

Operator

teleconference. concludes This today's

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

The Chefs' Warehouse, Inc. (CHEF) 1 Aug 182018 Q2 Earnings call transcript