CHEF - Earnings call transcript Q3 2018 | The Chefs' Warehouse, Inc.

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Operator

Greetings, and welcome to The Chefs' Warehouse Third Quarter 2018 Earnings Conference Call. [Operator Instructions].

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Alex Aldous, General Counsel and Corporate Secretary and Chief Government Relations Officer, for The Chefs' Warehouse. Thank you, Alex, you may now 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, Third 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

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

Christopher Pappas

continued XXXX line revenue quarter, all summer sales; growth of third season. environment, entire center-of-the-plate organic X.X%; you and thank category margin third specialty our quarter the momentum include: XX a and center-of-the-plate the highlights points X% customer basis Alex, experienced margin X.X%; organic to declined year, wet A a the as challenging from the X.X% gross the dollar the in in performance gross approximately producing organic unseasonably across XXX and execution for team by were gross compared of in placement while unique XX like up In which call. weather basis strong growth, weather and profit our would both third in amidst the especially deflationary I the Northeast. over points. quarter specialty-case Thank you, prior case we driven pounds basis earnings price category solid increased to of approximately third joining was growth growth by of and growth organically the increased in year-over-year. for network, top profit CW in X.X%; and thank XXXX, growth, for specialty growth margins X%; sales points quarter Gross net few

profit the approximately sales in more gross amongst and strong on year deflationary customer to dollars drive I In some and in a base. our to pricing, prior operating margins we improvement technology, relation dollar our continue driving Jim our grew would XX.X% versus detail organic minutes. to addition, thank third quarter. like to growth, gross will teams and provide the of of advantage drive platform quarter. third growth taking margin environment app mobile e-commerce In and profit to adoption few

quarter of which XX% our ERP completed in markets. sales quarter, specialty a App. business Valley mobile of Ohio through in revenue of Internet Approximately third our came are going our through implementation. In number fastest-growing implementation our all We have the week rate sales $X.X and now million online over completed represents we module entry the run XX% platform order per the roughly region,

systems, efficiency-related with labor. regards forward pleased distribution performance Texas, In the to Coast, operating to the data continue internal quarter optimize we amidst XXXX. fourth be teams' of operations, from process West and the continue provides. enhance We in costs, will and our including and look our locations, specialty primary integration standardization XXXX this industry-wide improvements into benefits, pressure follow on customer and continuing in remaining Pennsylvania Our both facing and starting to to

safety During the third focused reducing initiatives incidents. lost damages quarter, and on accidents, we completed several time avoidable

of to these addition productivity the our efficiency In enhancing initiatives begun in improved safety and to environment have team, provide operations.

substantially for New future focus. certified AA our now a best-in-class Also in that the quarter, safety during center we proud BRC expansion are in growth Texas is the the in facility new distribution and move new food Toronto, continuing support to began the into our also We process York completed facility, the third our facility and Southwest.

leading to I drive in team we team our growth the execution of center-of-the-plate with categories. like as once in over for quarter, during momentum. their turning the enter Jim, again CW and industry-leading The efforts quarter third XXXX building final and management the the line, mature is continues thank to specialty growth sequentially great would broad CW in to Before entire case

its to both cross-selling primarily independent and as more than geographically to of Meat including addition talent acquisitions Point Specialty through CW talent, have evolve others. expand to In BK opportunities. a unique service and category companies, additions continues Fells food internal family and These to our Warehouse partner expertise restaurants. XX,XXX us growing The amongst allow recent of Chefs' to added we both the Foods customers,

our unique a category this being last America's and Complementing service food dynamic continue leverage marketing distribution nimble, and industry's solution operating into most North of leading continues to culinary touch teams to Warehouse high to distribution by teams in and Chefs' the mile efficiencies ingredient drive sales footprint. world. our leading new better food the ideas agency, a is our As sales The minds. are grow execution service to dedication model bringing expert driving

two truly are We companies in one.

local to consumer the to and financial over eat. wants information sell voice delivery and the cooking and hundreds more small, discuss And to talents, Jim? fine the international with the turn Jim modern food detailed are creative I'll are We information. we and to source it producers their of partner ingredients, allow the to culinary that,

John Austin

Thank everyone. good afternoon, Chris, you, and

to driving of the quarter the $XXX.X by from million center-of-the-plate for deflation $XXX.X contribution prior approximately increased mentioned, net expenses XX.X% third added an acquisitions, consisting and $XX.X Net XXXX deflation in X% approximately compared a sales of quarter great September the of versus our X.X% sales expense for third for the profit improvement operating third to X.X% the the sales million percentage in prior strong category the year X.X% job third the XX.X%. of quarter increase $XX.X of to specialty in as million net was XX.X% for teams was the growth third Total of third $XX.X ended approximately approximately versus primarily to XX from the quarter, XXXX, driven and of quarter. basis profit sales, growth The approximately of profit inflation in XXXX increased in our margins for of from Our XX.X% points Fells which in million as of deflation a to as XXXX, year were On adjusted Gross to the The quarter. for quarter. sales X.X% category in $XX by million quarter organic third for quarter certain XXXX. third center-of-the-plate basis, net XX.X% both as margin well XX, for XXXX. the increased of quarter in our million operating gross inclusive categories, of increase Chris of result was Gross quarter XX.X% growth. and margin Point, dollar increased XXXX.

and earn-out the of a We impacted estimate impact year-over-year in partially comparison distribution the the drivers fair expense expense offset the of Excluding operating of were mix the primary of valuation deflation product operating on by corporate labor leverage warehouse points. basis costs year-over-year by growth, revenue XX and our metric as percentage increases adjustment, combined infrastructure.

third drive expenses, of team's positive $XX.X year expense very earn-out, in adjusted as $XX.X The of We income driven are gross of operating million third growth for higher XX profit impact full compared remain the relates to part of inclusive gross operating quarter for was our track the profit. to in leverage. of pleased was the growth offset execute it with to by operating income to We points. guidance, dollar improving our basis primarily to XXXX. Operating roughly on higher XXXX by operating to the quarter million decrease ability

operating charged primarily lower $XX.XX million to year X.X% for the rates was of of and interest in income is the to rates. floating third interest X.X% in a debt quarter by expense decreased the income the convertible due passed of in effective of of XXXX for As the the compared net to third to the of the the for $X.X from XXXX. million $X company's in on XXXX. of notes maturing quarter, offset tax conversion part tax million Interest sales, third compared in in third higher the outstanding The quarter versus was to $X.X market rate, quarter, third quarter XXXX effective the of quarter during tax reform XXXX. expense quarter third XXXX due our prior percentage in expense income fourth Income tax resulting decrease million $X.X million reduction

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

Pro XXXX. debt XXXX adjusted the continue strong third million the on end third the of X.Xx was as net of of cash and the EBITDA of quarter ended We of balance $XX.X with forma flow sheet. quarter from benefit cash to to

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

you. Thank is shares, diluted notes. count up we year diluted year of questions. it And Our full this share XX.X point, estimated at convertible open the approximately the to million full will includes which Operator? impact subordinated

Operator

[Operator Instructions].

question Sean first Our from is Barclays. Kras with

Sean Kras

the It know, bit quarter, to case basis the I growth puts particularly for some your quarter, just but in a decelerated takes maybe quarter? was it to you speak the and strong looks prior can of like stacked this in and

James Leddy

is we were There this growth broad across We weren't pockets Sean, see particular Jim. particularly didn't stronger network. really than -- that Hey, pretty our any had case others.

that especially we actually And of in his as Chris remarks, weather, bit the I wet expected. think we Northeast. prepared performed in mentioned quite as a despite, was

in So about quarter felt of we terms good growth. organic the pretty

Sean Kras

that, particularly makes on weather. follow-up also, then Thanks And the for just to it sense. sales. just then, Yes, on

it is bit But I picking driver that sales, fourth at for little is? a you And looking I of a little help seems may what in there. better terms midpoint that like a us like could that Just at guess, be implied up. a deflation seems understand quarter bit of know, guidance slowdown the

James Leddy

-- lower We really slightly. just pretty We very top product a guidance. mix significant on this just upper and of end we just brought up And through deflation the the flowing line. on and end the impact down, quarter really tightened had guidance it's

flowing it's through so that And really and just tightening guidance. the

Sean Kras

then I maybe can. just And if one more, Okay.

based module on on drive experience gross gross thoughts markets. will in just profit top other dollars ERP line sales how just the margin, early Just new help and

Christopher Pappas

I says it it think Yes, before well, last will we I and -- don't -- did said forever. that

and I let's orders tools. people online telephone. the a items think, little we better more by, everybody than But take is usually developing -- who margin actually, do customers that come say, is better the online, order

does free -- So come that's to more, they besides consuming. service what online, to and do do But allowing really -- time encouraging. shop other process customers it customer right things orders, sales department really tend which to and is that's up the

go are items actually new free and time and the salespeople really out show So it's the new to benefiting what encouraging and call benefits from, we customers, business. open more that see, on

Operator

Andrew comes Capital question Loop next Markets. Wolf with Our from

Andrew Wolf

placements of the are be customers growth case that same-store too sequentially. much Does mean maybe and closing? of are interesting Is that take some interpret actually the there slowing slowing into Yes, noise that or in to the accelerated that out how unique we that? that? that? or to is Is was read is anything something that Or independents the there should that -- sales in

James Leddy

Andy. No,

X% new pretty our we're customer growth mean, driving customer case with X% and happy center-of-the-plate. I organic growth think, year-over-year placement think, Happy aligns nicely growth, with growth, penetration. we're and growth both over pounds I growth. it the I new constantly with in

comps just line noise. overall, quarter. it's to There's a during going takes puts the kind every of organic You're year-over-year some pleased add be there's to seasonality have quarter. we're -- growth straight and the pretty But to with not then that and going

Christopher Pappas

Chris. due Northeast. Yes, in is XX business rain days excessive to club about We Andy, lost in the probably our this the

So X.X%, our up extremely protein specialty with division. happy growing see finally And pounds overall, to in are I'm sales the that.

I entering said quarter. earlier, as the So fourth we're

We have momentum.

team. maturing doing what all the think -- sales great a job. team management that We I'm really team I We're are at have and the excited operations see. I a

Andrew Wolf

Okay, wanted of side. of some the It in quarter tough good. coming think you you just about -- compare. to specialty said acquisitions specialty, or at do in had contraction it gross expand? starts you the to on, half was going margins? think you get lower product a gross Then or And about is -- specialty when last was do I quarter? ask and mix the What quarter, last this margin Was think you margin I it improve

James Leddy

Yes, for than some it But call of in to points pretty profit nothing I really I year, on track close did actually of guidance. category have -- pacing for year track there. out and think it a very the of XXXX, gross and total pastry. XX inflation company some to happy mean, we're to big which some double-digit other is drive the with tracking is bakery -- better look, level we're per and -- that full than That year-to-date of full we're on mix. ours, we're we're product margins we our to that to improvement the and basis

Operator

[Operator Instructions].

Kelly Markets. comes question Our from Capital next Bania with BMO

Kelly Bania

Just wanted bit operating and first distribution the this out just about guess, little expenses, quarter, I you to accelerated And there. you even a when warehouse adjustment and ask out adjust that you cost called mentioned.

if So and should think that we maybe just curious going how could of forward? kind about elaborate what's you changed there

James Leddy

Sure.

year-over-year. the that, the XX% and actually this just year out deflation biggest we of us metric, XX% valuation. versus headwind year to the So this had that's taking significant comp for really as quarter, percent price I was mentioned, inflation fuel last what drove on earn-out ex-acquisitions is But fair revenue the

prices, we last of it's fuel this the And was high estimate summer QX, the year. to low of look end. end summer the be If this at you going kind of

going we QX. don't So to that, think repeat that's in

they if last look fuel given QX. now. again Just QX, that don't ramped right in in at of QX you we we prices, -- at peaked up as cadence look the in see They and year happening

of terms is other added offsets a And line we comp warehouse eases, So to the lapped and costs. QX production but we in really -- warehouse, in fully last haven't that, had see fuel. headwind It's geography. year, that of our I did in we we think, most Fells

really geography just really the -- just So was there. it out calling

Kelly Bania

EBITDA it's seeing your helpful. in top on next or is no either there cost for early anything that I reach anything that that's expansion the that you're know but can't 'XX, business line modest well? as think you Okay, year that you -- guess, makes side I And reason there's margin some

James Leddy

No.

on I we're think, look, track.

either to potentially or out basis will If continue next improve able would or And points we our be QX OpEx guidance, year think dollar you see make goal achieve adjusted gap. XXX gap. be even next that And we're us that we don't to to the at year now, further to than into that. right our look wouldn't into midpoint in better gross looking to so, anything improve on that track profit that of

Christopher Pappas

we we're excited mean, I Yes. really at Kelly. see, what

of year. next and got distraction geography. and excited maturing. growing a is team the continue it matter Our that on we're in was we We've mostly the new through And major pretty and shore some finally a We make ERP, way conversion sell. what, about lot pounds we're have which sales the better, right to protein, in -- as was up team it cross no

Kelly Bania

Perfect, very think, casual last it other just one is that's quarter. But this was your that the had comment restaurant one, quarter maybe you market helpful. some with very backdrop there especially from weather helpful. for would volatility And and you're upscale healthy is last then we've me, Any there the or all characterized the in I different month? hearing seeing just curious, customers, be if that from noise anything

Christopher Pappas

we're Yes, spread out. pretty

goes from, you like said, upscale business season coming. casual. Our Party is

So It's go like you It's spending a an I affordable have people to think, are mortgage. luxury. get money. not

not have that outlooks that changing, we've the had. anything tell is but we seen positive us anything to So

Kelly Bania

deflation. then maybe on Got the outlook inflation just it. And comment any for and

some categories different the or some have like Sounds different two the trends. divisions very trends really have

should So going think just any forward? about how on comment that we

James Leddy

seems inflation, to look but similar the it given -- mean, we the QX comp of at now, of Sure. I the would in level Yes. of quarter, specialty moderation path on I slight kind it's early way in XXXX. the

probably center-of-the-plate, ease. the then spikes but some so X% through price slight we year, with I comp think, last still going roughly versus then, the does we're moderation. inflation normalization had specialty And

of deflation kind kind type more So inflation moderate flattish of, say, I of to outlook. would

Operator

There back questions no Instructions]. time. I at [Operator floor like closing would for remarks. the over to turn are this further Pappas Chris to

Christopher Pappas

us our having season. you joining on forward third And you the to fourth very for look great quarter Thank a So on quarter. everybody everybody thank thank holiday to hope has We on much. you. our call. We -- you

James Leddy

you. Thank

Operator

today's teleconference. concludes This

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

The Chefs' Warehouse, Inc. (CHEF) 3 Nov 182018 Q3 Earnings call transcript