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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 24, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number: 001-35249
THE CHEFS’ WAREHOUSE, INC.
(Exact name of registrant as specified in its charter)
Delaware   20-3031526
(State or other jurisdiction of
incorporation or organization)		   (I.R.S. Employer
Identification No.)
100 East Ridge Road
Ridgefield, Connecticut 06877
(Address of principal executive offices)

Registrant’s telephone number, including area code: (203) 894-1345

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.01 CHEF The NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒   Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐    No  ☒
Number of shares of common stock, par value $.01 per share, outstanding at July 25, 2022: 38,260,862
1



THE CHEFS’ WAREHOUSE, INC.
FORM 10-Q
Table of Contents
    Page
PART I. FINANCIAL INFORMATION  
     
Item 1.
4
     
 
4
     
 
5
     
6
7
     
 
8
     
Item 2.
     
Item 3.
     
Item 4.
     
PART II. OTHER INFORMATION  
     
Item 1.
     
Item 1A.
     
Item 2.
     
Item 3.
Defaults Upon Senior Securities
     
Item 4.
     
Item 5.
     
Item 6.
     

 

2



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Statements in this report regarding the business of The Chefs’ Warehouse, Inc. (the “Company”) that are not historical facts are “forward-looking statements” that involve risks and uncertainties and are based on current expectations and management estimates; actual results may differ materially. Words such as “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and/or could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. The risks and uncertainties which could impact these statements include, but are not limited to the following: our sensitivity to general economic conditions, including disposable income levels and changes in consumer discretionary spending; our ability to expand our operations in our existing markets and to penetrate new markets through acquisitions; we may not achieve the benefits expected from our acquisitions, which could adversely impact our business and operating results; we may have difficulty managing and facilitating our future growth; conditions beyond our control could materially affect the cost and/or availability of our specialty food products or center-of-the-plate products and/or interrupt our distribution network; our increased distribution of center-of-the-plate products, like meat, poultry and seafood, involves increased exposure to price volatility experienced by those products; our business is a low-margin business and our profit margins may be sensitive to inflationary and deflationary pressures; because our foodservice distribution operations are concentrated in certain culinary markets, we are susceptible to economic and other developments, including adverse weather conditions, in these areas; fuel cost volatility may have a material adverse effect on our business, financial condition or results of operations; our ability to raise capital in the future may be limited; we may be unable to obtain debt or other financing, including financing necessary to execute on our acquisition strategy, on favorable terms or at all; interest charged on our outstanding debt may be adversely affected by changes in the method of determining London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with an alternative rate; our business operations and future development could be significantly disrupted if we lose key members of our management team; and significant public health epidemics or pandemics, including the COVID-19 pandemic, may adversely affect our business, results of operations and financial condition. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and, as such, speak only as of the date made. A more detailed description of these and other risk factors is contained in the Company’s most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 22, 2022 and other reports, including this Quarterly Report on Form 10-Q, filed by the Company with the SEC since that date. The Company is not undertaking to update any information in the foregoing report until the effective date of its future reports required by applicable laws.


3



PART I FINANCIAL INFORMATION

ITEM 1.            CONSOLIDATED FINANCIAL STATEMENTS

THE CHEFS’ WAREHOUSE, INC.
CONSOLIDATED BALANCE SHEETS 
(Amounts in thousands, except share data)
June 24, 2022 (unaudited) December 24, 2021
ASSETS    
Current assets:    
Cash and cash equivalents $ 51,806  $ 115,155 
Accounts receivable, net of allowance of $19,798 in 2022 and $20,260 in 2021
 208,229  172,540 
Inventories, net 181,594  144,491 
Prepaid expenses and other current assets 36,323  37,774 
Total current assets 477,952  469,960 
Equipment, leasehold improvements and software, net 155,564  133,622 
Operating lease right-of-use assets 138,591  130,701 
Goodwill 237,788  221,775 
Intangible assets, net 118,526  104,743 
Deferred taxes, net 4,376  9,380 
Other assets 4,081  3,614 
Total assets $ 1,136,878  $ 1,073,795 
LIABILITIES AND STOCKHOLDERS’ EQUITY    
Current liabilities:    
Accounts payable $ 144,547  $ 118,284 
Accrued liabilities 44,817  35,390 
Short-term operating lease liabilities 17,430  15,882 
Accrued compensation 19,292  22,321 
Current portion of long-term debt 4,843  5,141 
Total current liabilities 230,929  197,018 
Long-term debt, net of current portion 392,980  394,160 
Operating lease liabilities 134,714  127,296 
Other liabilities and deferred credits 4,568  5,110 
Total liabilities 763,191  723,584 
Commitments and contingencies
Stockholders’ equity:    
Preferred Stock - $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding at June 24, 2022 and December 24, 2021
 —  — 
Common Stock - $0.01 par value, 100,000,000 shares authorized, 38,257,455 and 37,887,675 shares issued and outstanding at June 24, 2022 and December 24, 2021, respectively
 383  380 
Additional paid-in capital 319,364  314,242 
Accumulated other comprehensive loss (1,971) (2,022)
Retained earnings 55,911  37,611 
Total stockholders’ equity 373,687  350,211 
Total liabilities and stockholders’ equity $ 1,136,878  $ 1,073,795 

See accompanying notes to the consolidated financial statements
4



THE CHEFS’ WAREHOUSE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Amounts in thousands, except share and per share amounts)
Thirteen Weeks Ended Twenty-Six Weeks Ended
June 24,
2022		 June 25,
2021		 June 24,
2022		 June 25,
2021
Net sales $ 648,104  $ 422,968  $ 1,160,207  $ 703,185 
Cost of sales 492,100  327,094  886,690  548,364 
Gross profit 156,004  95,874  273,517  154,821 
Selling, general and administrative expenses 124,487  90,358  234,573  170,603 
Other operating expenses (income), net 3,883  857  5,046  (313)
Operating income (loss) 27,634  4,659  33,898  (15,469)
Interest expense 4,465  4,408  8,830  9,171 
Income (loss) before income taxes 23,169  251  25,068  (24,640)
Provision for income tax expense (benefit) 6,254  (847) 6,768  (7,817)
Net income (loss) $ 16,915  $ 1,098  $ 18,300  $ (16,823)
Other comprehensive income:    
Foreign currency translation adjustments (74) 76  51  157 
Comprehensive income (loss) $ 16,841  $ 1,174  $ 18,351  $ (16,666)
Net income (loss) per share:      
Basic $ 0.46  $ 0.03  $ 0.49  $ (0.46)
Diluted $ 0.42  $ 0.03  $ 0.47  $ (0.46)
Weighted average common shares outstanding:    
Basic 37,100,968  36,831,054  37,018,044  36,615,463 
Diluted 42,053,453  37,081,186  41,896,379  36,615,463 
 
See accompanying notes to the consolidated financial statements.
5



THE CHEFS’ WAREHOUSE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
(Amounts in thousands, except share amounts)
  Common Stock Additional
Paid-in
Capital		 Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
 Total
  Shares Amount
Balance December 24, 2021 37,887,675  $ 380  $ 314,242  $ (2,022) $ 37,611  $ 350,211 
Net income —  —  —  —  1,385  1,385 
Stock compensation 433,115  4  3,039  —  —  3,043 
Warrants issued for acquisition —  —  1,701  —  —  1,701 
Cumulative translation adjustment —  —  —  125  —  125 
Shares surrendered to pay tax withholding (64,329) (1) (2,039) —  —  (2,040)
Balance March 25, 2022 38,256,461  $ 383  $ 316,943  $ (1,897) $ 38,996  $ 354,425 
Net income —  —  —  —  16,915  16,915 
Stock compensation 16,131  —  2,939  —  —  2,939 
Cumulative translation adjustment —  —  —  (74) —  (74)
Shares surrendered to pay tax withholding (15,137) —  (518) —  —  (518)
Balance June 24, 2022 38,257,455  $ 383  $ 319,364  $ (1,971) $ 55,911  $ 373,687 

Balance December 25, 2020 37,274,768  $ 373  $ 303,734  $ (2,051) $ 42,534  $ 344,590 
Net loss —  —  —  —  (17,921) (17,921)
Stock compensation 673,430  6  2,452  —  —  2,458 
Cumulative translation adjustment —  —  —  81  —  81 
Shares surrendered to pay tax withholding (38,503) —  (1,192) —  —  (1,192)
Balance March 26, 2021 37,909,695  $ 379  $ 304,994  $ (1,970) $ 24,613  $ 328,016 
Net income —  —  —  —  1,098  1,098 
Stock compensation 69,245  1  3,279  —  —  3,280 
Warrants issued for acquisition —  —  1,120  —  —  1,120 
Cumulative translation adjustment —  —  —  76  —  76 
Shares surrendered to pay tax withholding (17,077) —  (541) —  —  (541)
Balance June 25, 2021 37,961,863  $ 380  $ 308,852  $ (1,894) $ 25,711  $ 333,049 

See accompanying notes to the consolidated financial statements.
6



THE CHEFS’ WAREHOUSE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Twenty-Six Weeks Ended
June 24, 2022 June 25, 2021
Cash flows from operating activities:    
Net income (loss) $ 18,300  $ (16,823)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:    
Depreciation and amortization 11,755  10,660 
Amortization of intangible assets 6,819  6,643 
Benefit for allowance for doubtful accounts 1,817  488 
Non-cash operating lease expense 1,076  209 
Provision (benefit) for deferred income taxes 5,004  (7,755)
Amortization of deferred financing fees 1,009  1,364 
Stock compensation 5,982  5,738 
Change in fair value of contingent earn-out liabilities 3,628  (1,420)
Intangible asset impairment —  597 
Loss on asset disposal 17  224 
Changes in assets and liabilities, net of acquisitions:    
Accounts receivable (24,659) (37,107)
Inventories (30,569) (39,347)
Prepaid expenses and other current assets 106  (101)
Accounts payable, accrued liabilities and accrued compensation 19,733  52,541 
Other assets and liabilities (237) 167 
Net cash provided by (used in) operating activities 19,781  (23,922)
Cash flows from investing activities:    
Capital expenditures (23,490) (9,574)
Cash paid for acquisitions, net of cash received (52,007) (7,165)
Net cash used in investing activities (75,497) (16,739)
Cash flows from financing activities:    
Payment of debt, finance lease and other financing obligations (2,769) (34,372)
Proceeds from debt issuance —  51,750 
Payment of deferred financing fees (406) (1,450)
Surrender of shares to pay withholding taxes (2,558) (1,487)
Cash paid for contingent earn-out liability (2,000) (83)
Payments under asset-based loan facility —  (20,000)
Net cash used in financing activities (7,733) (5,642)
Effect of foreign currency on cash and cash equivalents 100  (58)
Net change in cash and cash equivalents (63,349) (46,361)
Cash and cash equivalents-beginning of period 115,155  193,281 
Cash and cash equivalents-end of period $ 51,806  $ 146,920 

See accompanying notes to the consolidated financial statements.
7



THE CHEFS’ WAREHOUSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share amounts)

Note 1 - Operations and Basis of Presentation
 
Description of Business and Basis of Presentation
 
The financial statements include the consolidated accounts of The Chefs’ Warehouse, Inc. (the “Company”), and its wholly-owned subsidiaries. The Company’s quarterly periods end on the thirteenth Friday of each quarter. Fiscal 2022 will include a fourteenth week in the fourth quarter. Every six to seven years, the Company will add a fourteenth week to its fourth quarter to more closely align its year-end to the calendar year. The Company’s business consists of three operating segments: East Coast, Midwest and West Coast that aggregate into one reportable segment, foodservice distribution, which is concentrated primarily in the United States. The Company’s customer base consists primarily of menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools, bakeries, patisseries, chocolateries, cruise lines, casinos, specialty food stores, grocers and warehouse clubs.

Consolidation

The consolidated financial statements include all the accounts of the Company and its direct and indirect wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Unaudited Interim Financial Statements

The accompanying unaudited consolidated financial statements and the related interim information contained within the notes to such unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the applicable rules of the Securities and Exchange Commission (“SEC”) for interim information and quarterly reports on Form 10-Q. Accordingly, they do not include all the information and disclosures required by GAAP for complete financial statements. These unaudited consolidated financial statements and related notes should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended December 24, 2021 filed as part of the Company’s Annual Report on Form 10-K, as filed with the SEC on February 22, 2022.

The unaudited consolidated financial statements appearing in this Form 10-Q have been prepared on the same basis as the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K, as filed with the SEC on February 22, 2022, and in the opinion of management, include all normal recurring adjustments that are necessary for the fair statement of the Company’s interim period results. The year-end consolidated balance sheet data was derived from the audited financial statements but does not include all disclosures required by GAAP. Due to seasonal fluctuations, the COVID-19 pandemic and other factors, the results of operations for the thirteen and twenty-six weeks ended June 24, 2022 are not necessarily indicative of the results to be expected for the full year.

The preparation of financial statements in conformity with GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from management’s estimates.













8




Note 2 – Summary of Significant Accounting Policies

Revenue Recognition
 
Revenues from product sales are recognized at the point at which control of each product is transferred to the customer. The Company’s contracts contain performance obligations which are satisfied when customers have physical possession of each product. The majority of customer orders are fulfilled within a day and customer payment terms are typically 14 to 60 days from delivery. Shipping and handling activities are costs to fulfill the Company’s performance obligations. These costs are expensed as incurred and presented within selling, general and administrative expenses on the consolidated statements of operations. The Company offers certain sales incentives to customers in the form of rebates or discounts. These sales incentives are accounted as variable consideration. The Company estimates these amounts based on the expected amount to be provided to customers and records a corresponding reduction in revenue. The Company does not expect a significant reversal in the amount of cumulative revenue recognized. Sales tax billed to customers is not included in revenue but rather recorded as a liability owed to the respective taxing authorities at the time the sale is recognized.

The following table presents the Company’s net sales disaggregated by principal product category:
Thirteen Weeks Ended Twenty-Six Weeks Ended
June 24, 2022 June 25, 2021 June 24, 2022 June 25, 2021
Center-of-the-Plate $ 284,286  43.9  % $ 215,089  50.9  % $ 523,062  45.1  % $ 354,934  50.5  %
Dry Goods 103,597  16.0  % 57,117  13.5  % 182,112  15.7  % 96,897  13.8  %
Pastry 76,320  11.8  % 41,312  9.8  % 134,071  11.6  % 70,110  10.0  %
Cheese and Charcuterie 59,109  9.1  % 34,303  8.1  % 102,597  8.8  % 57,402  8.2  %
Produce 37,214  5.7  % 30,558  7.2  % 65,111  5.6  % 51,149  7.3  %
Dairy and Eggs 39,846  6.1  % 18,902  4.5  % 69,266  6.0  % 31,483  4.5  %
Oils and Vinegars 31,517  4.9  % 16,881  4.0  % 55,604  4.8  % 26,355  3.7  %
Kitchen Supplies 16,215  2.5  % 8,806  2.0  % 28,384  2.4  % 14,855  2.0  %
Total $ 648,104  100  % $ 422,968  100  % $ 1,160,207  100  % $ 703,185  100  %

The Company determines its product category classification based on how the Company currently markets its products to its customers. The Company’s definition of its principal product categories may differ from the way in which other companies present similar information.

Food Processing Costs

Food processing costs include but are not limited to direct labor and benefits, applicable overhead and depreciation of equipment and facilities used in food processing activities. Food processing costs included in cost of sales were $9,398 and $6,679 for the thirteen weeks ended June 24, 2022 and June 25, 2021, respectively, and $18,434 and $12,075 for the twenty-six weeks ended June 24, 2022 and June 25, 2021, respectively.
















9




Note 3 – Net Income (Loss) per Share
 
The following table sets forth the computation of basic and diluted net income (loss) per common share:
  Thirteen Weeks Ended Twenty-Six Weeks Ended
  June 24, 2022 June 25, 2021 June 24, 2022 June 25, 2021
Net income (loss) per share:      
Basic $ 0.46  $ 0.03  $ 0.49  $ (0.46)
Diluted $ 0.42  $ 0.03  $ 0.47  $ (0.46)
Weighted average common shares:      
Basic 37,100,968  36,831,054  37,018,044  36,615,463 
Diluted 42,053,453  37,081,186  41,896,379  36,615,463 

Reconciliation of net income (loss) per common share:
  Thirteen Weeks Ended Twenty-Six Weeks Ended
  June 24, 2022 June 25, 2021 June 24, 2022 June 25, 2021
Numerator:      
Net income (loss) $ 16,915  $ 1,098  $ 18,300  $ (16,823)
Add effect of dilutive securities      
Interest on convertible notes, net of tax 719  —  1,365  — 
Net income (loss) available to common shareholders $ 17,634  $ 1,098  $ 19,665  $ (16,823)
Denominator:      
Weighted average basic common shares outstanding 37,100,968  36,831,054  37,018,044  36,615,463 
Dilutive effect of unvested common shares 263,071  250,132  296,538  — 
Dilutive effect of stock options and warrants 73,381  —  56,817  — 
Dilutive effect of convertible notes 4,616,033  —  4,524,980  — 
Weighted average diluted common shares outstanding 42,053,453  37,081,186  41,896,379  36,615,463 
 
Potentially dilutive securities that have been excluded from the calculation of diluted net income (loss) per common share because the effect is anti-dilutive are as follows:
  Thirteen Weeks Ended Twenty-Six Weeks Ended
  June 24, 2022 June 25, 2021 June 24, 2022 June 25, 2021
Restricted share awards (“RSAs”) 106,571  —  83,001  349,389 
Stock options and warrants —  103,226  —  91,779 
Convertible notes —  4,616,033  91,053  4,205,246 

Note 4 – Fair Value Measurements
 
Assets and Liabilities Measured at Fair Value
 
The Company’s contingent earn-out liabilities are measured at fair value. These liabilities were estimated using Level 3 inputs. Long-term earn-out liabilities were $2,793 and $3,252 as of June 24, 2022 and December 24, 2021, respectively, and are reflected as other liabilities and deferred credits on the consolidated balance sheets. The remaining short-term earn-out liabilities are reflected as accrued liabilities on the consolidated balance sheets. The fair value of contingent consideration was determined based on a probability-based approach which includes projected results, percentage probability of occurrence and the application of a discount rate to present value the payments. A significant change in projected results, discount rate, or probabilities of occurrence could result in a significantly higher or lower fair value measurement.
10



Changes in the fair value of contingent earn-out liabilities are reflected in other operating expenses (income), net on the consolidated statements of operations.

The following table presents the changes in Level 3 contingent earn-out liabilities:
Total
Balance December 24, 2021 $ 6,877 
Acquisition value 1,200 
Cash payments (2,000)
Changes in fair value 3,628 
Balance June 24, 2022 $ 9,705 

Fair Value of Financial Instruments

The following table presents the carrying value and fair value of the Company’s convertible notes. In estimating the fair value of the convertible notes, the Company utilized Level 3 inputs including prevailing market interest rates to estimate the debt portion of the instrument and a Black Scholes valuation model to estimate the fair value of the conversion option. The Black Scholes model utilizes the market price of the Company’s common stock, estimates of the stock’s volatility and the prevailing risk-free interest rate in calculating the fair value estimate.
  June 24, 2022 December 24, 2021
Carrying Value Fair Value Carrying Value Fair Value
Convertible Senior Notes $ 200,000  $ 223,854  $ 200,000  $ 206,182 
Convertible Unsecured Note $ 4,000  $ 4,474  $ 4,000  $ 4,102 
 
Note 5 – Acquisitions
 
During the second quarter of fiscal 2022, the Company completed two acquisitions for an aggregate purchase price of approximately $22,500, paid in cash, subject to customary working capital adjustments. The Company will also pay additional contingent consideration, if earned, in the form of earn-out amounts which could total $2,000 in the aggregate. The Company is in the process of finalizing a valuation of the tangible and intangible assets as of the acquisition date. When applicable, these valuations require the use of Level 3 inputs. Goodwill of $3,947 will be amortized over 15 years for tax purposes.

Capital Seaboard

On December 28, 2021, pursuant to an asset purchase agreement, the Company acquired substantially all of the assets of CGC Holdings, Inc. (“Capital Seaboard”), a specialty seafood and produce distributor in Maryland. The purchase price was approximately $31,036, consisting of $28,000 paid in cash at closing, common stock warrants valued at $1,701, and $1,335 paid upon settlement of a net working capital true-up. The Company is in the process of finalizing a valuation of tangible and intangible assets of Capital Seaboard as of the acquisition date. When applicable, these valuations require the use of Level 3 inputs. Goodwill for the Capital Seaboard acquisition will be amortized over 15 years for tax purposes. The goodwill recorded primarily reflects the value of acquiring an established specialty seafood and produce distributor to leverage the Company’s existing products in the markets served by Capital Seaboard, to supply Capital Seaboard’s product offerings to our East Coast markets and any intangible assets that do not qualify for separate recognition.

The Company reflected net sales and income before taxes in its consolidated statement of operations related to the Capital Seaboard acquisition as follows:
  Thirteen Weeks Ended Twenty-Six Weeks Ended
  June 24, 2022 June 24, 2022
Net sales $ 38,671  $ 70,353 
Income before income taxes $ 1,759  $ 2,892 




11



The table below presents unaudited pro forma consolidated income statement information of the Company as if the acquisitions had occurred on December 26, 2020. The pro forma results were prepared from financial information obtained from the sellers of the business, as well as information obtained during the due diligence process associated with the acquisitions. The pro forma information is not necessarily indicative of the Company’s results of operations had the acquisitions been completed on the above date, nor is it necessarily indicative of the Company’s future results. The pro forma information does not reflect any cost savings from operating efficiencies or synergies that could result from the acquisitions, any incremental costs for transitioning to become a public company, and also does not reflect additional revenue opportunities following the acquisitions. The pro forma information reflects amortization and depreciation of the acquisitions at their respective fair values.

  Thirteen Weeks Ended Twenty-Six Weeks Ended
  June 24, 2022 June 25, 2021 June 24, 2022 June 25, 2021
Net sales $ 667,413  $ 477,733  $ 1,179,516  $ 801,188 
Income (loss) before income taxes $ 23,169  $ 1,077  $ 25,068  $ (24,450)

The table below sets forth the preliminary purchase price allocation for these acquisitions:
Capital Seaboard Other Acquisitions
Current assets $ 10,130  $ 8,834 
Customer relationships 7,250  10,410 
Trademarks 2,280  620 
Goodwill 8,334  8,537 
Fixed assets 9,552  197 
Other assets 122  17 
Current liabilities (6,632) (4,915)
Earn-out liability —  (1,200)
Issuance of warrants (1,701) — 
Total cash consideration $ 29,335  $ 22,500 
The Company recognized professional fees of $1,019 in operating expenses related to acquisition related activities in the second quarter of fiscal 2022.

Note 6 – Inventories
 
Inventories consist primarily of finished product and are reflected net of adjustments for shrinkage, excess and obsolescence totaling $9,315 and $8,312 at June 24, 2022 and December 24, 2021, respectively.

12



Note 7 – Equipment, Leasehold Improvements and Software
 
Equipment, leasehold improvements and software as of June 24, 2022 and December 24, 2021 consisted of the following:
  Useful Lives June 24, 2022 December 24, 2021
Land Indefinite $ 5,542  $ 5,020 
Buildings 20 years 23,443  18,406 
Machinery and equipment
5 - 10 years
 30,067  28,099 
Computers, data processing and other equipment
3 - 7 years
 16,386  15,480 
Software
3 - 7 years
 40,098  39,799 
Leasehold improvements
1 - 40 years
 92,552  69,105 
Furniture and fixtures 7 years 3,671  3,582 
Vehicles
5 - 10 years
 28,007  29,632 
Construction-in-process   23,870  24,355 
    263,636  233,478 
Less: accumulated depreciation and amortization   (108,072) (99,856)
Equipment, leasehold improvements and software, net   $ 155,564  $ 133,622 

Construction-in-process at June 24, 2022 related primarily to the implementation of the Company’s Enterprise Resource Planning (“ERP”) system and the build-out of the Company’s Miami distribution facility and at December 24, 2021 related primarily to the build-outs of the Company’s Miami and Los Angeles distribution facilities. The net book value of equipment financed under finance leases at June 24, 2022 and December 24, 2021 was $9,774 and $10,874, respectively.

The components of depreciation and amortization expense were as follows:
  Thirteen Weeks Ended Twenty-Six Weeks Ended
  June 24, 2022 June 25, 2021 June 24, 2022 June 25, 2021
Depreciation expense $ 4,385  $ 3,841  $ 8,800  $ 7,776 
Software amortization $ 1,481  $ 1,712  $ 2,955  $ 2,884 
$ 5,866  $ 5,553  $ 11,755  $ 10,660 

Note 8 – Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill are presented as follows:
Carrying amount as of December 24, 2021 $ 221,775 
Goodwill adjustments (1)
 (792)
Acquisitions 16,871 
Foreign currency translation (66)
Carrying amount as of June 24, 2022 $ 237,788 
(1) The goodwill adjustments represent measurement period adjustments related to certain acquisitions completed in the prior year.

Other intangible assets as of June 24, 2022 and December 24, 2021 consisted of the following:

June 24, 2022 Weighted-Average
Remaining
Amortization Period		 Gross Carrying Amount Accumulated Amortization Net Amount
Customer relationships 120 months $ 173,387  $ (79,952) $ 93,435 
Non-compete agreements 20 months 8,579  (8,151) 428 
Trademarks 163 months 39,407  (14,744) 24,663 
Total $ 221,373  $ (102,847) $ 118,526 
13



December 24, 2021 Weighted-Average
Remaining
Amortization Period		 Gross Carrying Amount Accumulated Amortization Net Amount
Customer relationships 120 months $ 155,678  $ (74,644) $ 81,034 
Non-compete agreements 26 months 8,579  (8,018) 561 
Trademarks 179 months 36,514  (13,366) 23,148 
Total $ 200,771  $ (96,028) $ 104,743 

Amortization expense for other intangibles was $3,463 and $3,104 for the thirteen weeks ended June 24, 2022 and June 25, 2021, respectively, and $6,819 and $6,643 for the twenty-six weeks ended June 24, 2022 and June 25, 2021, respectively.

Estimated amortization expense for other intangible assets for the remainder of the fiscal year ending December 30, 2022 and each of the next four fiscal years and thereafter is as follows:
2022 $ 6,784 
2023 13,058 
2024 12,200 
2025 11,784 
2026 11,784 
Thereafter 62,916 
Total $ 118,526 

Note 9 – Debt Obligations
 
Debt obligations as of June 24, 2022 and December 24, 2021 consisted of the following:
June 24, 2022 December 24, 2021
Senior secured term loans $ 167,819  $ 168,675 
Convertible senior notes 200,000  200,000 
Asset-based loan facility 20,000  20,000 
Finance lease and other financing obligations 10,201  11,602 
Convertible unsecured note 4,000  4,000 
Deferred finance fees and original issue premium (discount) (4,197) (4,976)
Total debt obligations 397,823  399,301 
Less: current installments (4,843) (5,141)
Total debt obligations excluding current installments $ 392,980  $ 394,160 

On March 11, 2022, the Company entered into a third amendment to its asset-based loan facility (“ABL Facility”) which increased the aggregate commitments from $150,000 to $200,000. The interest rate charged on borrowings under the ABL Facility is equal to a spread plus, at the Company’s option, either the Base Rate (as defined in the ABL Credit Agreement) or a forward-looking term rate based on the secured overnight financing rate term (except for swingline loans) for one-, three-, or six-month interest periods chosen by the Company. The ABL Facility matures on March 11, 2027 subject to a springing maturity date of March 24, 2025 should the Company’s term loan not have been extended to at least March 11, 2027 or March 24, 2024 if the Company’s 1.875% Convertible Senior Notes due 2024 in an aggregate principal amount in excess of $40,000 remain outstanding having a maturity date not earlier than six months after March 11, 2027.

The ABL Credit Agreement contains customary affirmative covenants, negative covenants and events of default as more particularly described in the ABL Credit Agreement. The Company is required to comply with a minimum consolidated fixed charge coverage ratio of 1:1 if the amount of availability under the ABL Facility falls below $14,000, or 10%, of the lesser of the aggregate commitments and the borrowing base then in effect.

The third amendment was accounted for as a debt modification. The Company incurred transaction costs of $406 which were capitalized as deferred financing fees, presented in other assets on the Company’s consolidated balance sheets, to be amortized over the term of the ABL Facility.
14




The net carry value of the Company’s Convertible Senior Notes as of June 24, 2022 and December 24, 2021 was:

June 24, 2022 December 24, 2021
Principal amount outstanding $ 200,000  $ 200,000 
Unamortized deferred financing fees and premium (2,238) (2,686)
Net carry value $ 197,762  $ 197,314 

The components of interest expense on the Company’s Convertible Senior Notes were as follows:
  Thirteen Weeks Ended Twenty-Six Weeks Ended
  June 24, 2022 June 25, 2021 June 24, 2022 June 25, 2021
Coupon interest $ 938  $ 938  $ 1,875  $ 1,719 
Amortization of deferred financing fees and premium $ 224  $ 224  $ 448  $ 465 
Total interest $ 1,162  $ 1,162  $ 2,323  $ 2,184 

The Company’s senior secured term loan credit agreement requires the Company to maintain at least $35,000 of liquidity as of the last day of any fiscal quarter where EBITDA, as defined in the Credit Agreement, is less than $10,000. The Company had minimum liquidity, as defined in the Credit Agreement, of $222,514 as of June 24, 2022.

As of June 24, 2022, the Company had reserved $20,541 of the ABL Facility for the issuance of letters of credit. As of June 24, 2022, funds totaling $159,460 were available for borrowing under the ABL Facility. At June 24, 2022, the interest rate charged on the Company’s senior secured term loan was approximately 6.6% and the interest rate charged on the Company’s ABL Facility was approximately 4.5%.

Note 10 – Stockholders’ Equity

Equity Awards

The following table reflects the activity of RSAs during the twenty-six weeks ended June 24, 2022:
Time-based Performance-based Market-based
Shares Weighted Average
Grant Date Fair Value		 Shares Weighted Average
Grant Date Fair Value		 Shares Weighted Average
Grant Date Fair Value
Unvested at December 24, 2021 617,996  $ 28.33  187,437  $ 32.04  185,129  $ 31.44 
Granted 154,822  27.32  167,261  32.44  167,261  29.12 
Vested (313,174) 26.38  —  —  —  — 
Forfeited (12,094) 29.13  (14,001) 32.14  (14,003) 30.82 
Unvested at June 24, 2022 447,550  $ 29.32  340,697  $ 32.23  338,387  $ 30.32 

The Company granted 489,344 RSAs to its employees and directors at a weighted average grant date fair value of $30.50 during the twenty-six weeks ended June 24, 2022. These awards are a mix of time-, market- and performance-based grants that generally vest over a range of periods up to four years. The Company recognized expense totaling $2,939 and $3,280 on its RSAs during the thirteen weeks ended June 24, 2022 and June 25, 2021, respectively, and $5,982 and $5,738 during the twenty-six weeks ended June 24, 2022 and June 25, 2021, respectively.

At June 24, 2022, the total unrecognized compensation cost for unvested RSAs was $23,850 and the weighted-average remaining period was approximately 2.2 years. Of this total, $11,916 related to RSAs with time-based vesting provisions and $11,934 related to RSAs with performance-based vesting provisions. At June 24, 2022, the weighted-average remaining period for time-based vesting and performance-based vesting RSAs were approximately 2.1 years and 2.2 years, respectively.

No share-based compensation expense related to the Company’s RSAs or stock options has been capitalized. As of June 24, 2022, there were 2,088,866 shares available for grant under the 2019 Omnibus Equity Incentive Plan.
15




Note 11 – Related Parties
 
The Chefs’ Warehouse Mid-Atlantic, LLC, a subsidiary of the Company, leases a distribution facility that is 100% owned by entities controlled by Christopher Pappas, the Company’s chairman, president and chief executive officer, and John Pappas, the Company’s vice chairman and one of its directors, and are deemed to be affiliates of these individuals. Expense related to this facility totaled $123 during the thirteen weeks ended June 24, 2022 and June 25, 2021, and $246 during the twenty-six weeks ended June 24, 2022 and June 25, 2021.

Note 12 – Supplemental Disclosures of Cash Flow Information
Twenty-Six Weeks Ended
June 24, 2022 June 25, 2021
Supplemental cash flow disclosures:
Cash received for income taxes $ (239) $ (208)
Cash paid for interest, net of cash received $ 7,718  $ 7,766 
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 13,837  $ 12,752 
Operating cash flows from finance leases $ 223  $ 282 
ROU assets obtained in exchange for lease liabilities:
Operating leases $ 20,116  $ 1,625 
Finance leases $ 411  $ 162 
Other non-cash investing and financing activities:
Warrants issued for acquisitions $ 1,701  $ 1,120 
Contingent earn-out liabilities for acquisitions $ 1,200  $ 3,400 

Note 13 – Subsequent Events

On July 25, 2022, the Company entered into a stock purchase agreement to acquire substantially all of the shares of a center-of-the-plate distributor in Florida. The purchase price was $10,000 paid in cash at closing and is subject to a customary working capital true-up. The Company has not provided the preliminary purchase price allocation for this acquisition as the initial accounting is incomplete.
16



ITEM 2.         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided as a supplement to the accompanying consolidated financial statements and footnotes to help provide an understanding of our financial condition, changes in our financial condition and results of operations. The following discussion should be read in conjunction with information included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 22, 2022. Unless otherwise indicated, the terms “Company”, “Chefs’ Warehouse”, “we”, “us” and “our” refer to The Chefs’ Warehouse, Inc. and its subsidiaries.

Business Overview

We are a premier distributor of specialty foods in nine of the leading culinary markets in the United States. We offer more than 50,000 stock-keeping units (“SKUs”), ranging from high-quality specialty foods and ingredients to basic ingredients and staples and center-of-the-plate proteins. We serve more than 35,000 customer locations, primarily located in our nineteen geographic markets across the United States and Canada, and the majority of our customers are independent restaurants and fine dining establishments. We also sell certain of our products directly to consumers through our Allen Brothers and “Shop Like a Chef” retail channels.

Effect of the COVID-19 Pandemic on our Business and Operations

The COVID-19 pandemic (“Pandemic”) has had an adverse impact on numerous aspects of our business and those of our customers including, but not limited to, demand for our products, cost inflation and labor shortages. Despite these challenges, we’ve continued to provide our core customers with high touch service, executed on our cost control measures and have returned to profitability since the second quarter of fiscal 2021. We continue to experience sequential improvement in our business which has contributed to organic sales growth of $152.3 million compared to the prior year quarter.

The extent to which the Pandemic will impact our financial condition or results of operations is uncertain and will depend on future developments including new information that may emerge on the severity or transmissibility of the disease, new variants, government responses, trends in infection rates, development and distribution of effective medical treatments and vaccines, and future consumer spending behavior, among others.

Recent Acquisitions

During the second quarter of fiscal 2022, the Company completed two acquisitions for an aggregate purchase price of approximately $22.5 million, paid in cash, subject to customary working capital adjustments. The Company will also pay additional contingent consideration, if earned, in the form of earn-out amounts which could total $2 million in the aggregate.

On December 28, 2021, pursuant to an asset purchase agreement, we acquired substantially all of the assets of CGC Holdings, Inc. (“Capital Seaboard”), a specialty seafood and produce distributor in Maryland. The purchase price was approximately $31.0 million consisting of $28.0 million paid in cash at closing, common stock warrants of $1.7 million , and $1.3 million paid upon settlement of a net working capital true-up.

17



RESULTS OF OPERATIONS
Thirteen Weeks Ended Twenty-Six Weeks Ended
June 24, 2022 June 25, 2021 June 24, 2022 June 25, 2021
Net sales $ 648,104  $ 422,968  $ 1,160,207  $ 703,185 
Cost of sales 492,100  327,094  886,690  548,364 
Gross profit 156,004  95,874  273,517  154,821 
Selling, general and administrative expenses 124,487  90,358  234,573  170,603 
Other operating expenses (income), net 3,883  857  5,046  (313)
Operating income (loss) 27,634  4,659  33,898  (15,469)
Interest expense 4,465  4,408  8,830  9,171 
Income (loss) before income taxes 23,169  251  25,068  (24,640)
Provision for income tax expense (benefit) 6,254  (847) 6,768  (7,817)
Net income (loss) $ 16,915  $ 1,098  $ 18,300  $ (16,823)

Management evaluates the results of operations and cash flows using a variety of key performance indicators, including net sales compared to prior periods and internal forecasts, costs of our products and results of our cost-control initiatives, and use of operating cash. These indicators are discussed throughout the “Results of Operations” and “Liquidity and Capital Resources” sections of this MD&A.

Thirteen Weeks Ended June 24, 2022 Compared to Thirteen Weeks Ended June 25, 2021

Net Sales
2022 2021 $ Change % Change
Net sales $ 648,104  $ 422,968  $ 225,136  53.2  %

Organic growth contributed $152.3 million, or 36.0%, to sales growth and the remaining sales growth of $72.9 million, or 17.2%, resulted from acquisitions. Organic case count increased approximately 34.8% in our specialty category. In addition, specialty unique customers and placements increased 35.9% and 54.6%, respectively, compared to the prior year period. Organic pounds sold in our center-of-the-plate category increased 14.2% compared to the prior year. Estimated inflation was 16.4% in our specialty category and 10.9% in our center-of-the-plate category compared to the prior year period.

Gross Profit
2022 2021 $ Change % Change
Gross profit $ 156,004  $ 95,874  $ 60,130  62.7  %
Gross profit margin 24.1  % 22.7  %

Gross profit increased primarily as a result of increased sales and price inflation. Gross profit margin increased approximately 140 basis points. Gross profit margins decreased 70 basis points in the Company’s specialty category and increased 230 basis points in the Company’s center-of-the-plate category.

Selling, General and Administrative Expenses
2022 2021 $ Change % Change
Selling, general and administrative expenses $ 124,487  $ 90,358  $ 34,129  37.8  %
Percentage of net sales 19.2  % 21.4  %

The increase in selling, general and administrative expenses was primarily due to higher costs associated with compensation and benefits to support sales growth. Our ratio of selling, general and administrative expenses to net sales decreased predominately due to sales growth which contributed to improved fixed cost leverage in the quarter.


18




Other Operating Expenses, Net
2022 2021 $ Change % Change
Other operating expenses, net $ 3,883  $ 857  $ 3,026  353.1  %

The increase in net other operating expenses was primarily due to non-cash charges of $3.3 million for changes in the fair value of our contingent earn-out liabilities compared to non-cash credits of $0.1 million in the prior year period. The prior year period also includes a $0.6 million impairment of Cambridge trademarks as a result of a shift in brand strategy to leverage our Allen Brothers brand in our New England region during the second quarter of fiscal 2021.

Interest Expense
2022 2021 $ Change % Change
Interest expense $ 4,465  $ 4,408  $ 57  1.3  %

Interest expense was relatively unchanged compared to the prior year period.

Provision for Income Taxes
2022 2021 $ Change % Change
Provision for income tax expense (benefit) $ 6,254  $ (847) $ 7,101  (838.4) %
Effective tax rate 27.0  % (337.5) %

The negative effective tax rate in the prior year period was driven by a $1.5 million discrete permanent difference related to stock compensation expense.

Twenty-Six Weeks Ended June 24, 2022 Compared to Twenty-Six Weeks Ended June 25, 2021

Net Sales
2022 2021 $ Change % Change
Net sales $ 1,160,207  $ 703,185  $ 457,022  65.0  %

Organic growth contributed $328.5 million, or 46.7%, to sales growth and the remaining sales growth of $128.5 million, or 18.3%, resulted from acquisitions. Organic case count increased approximately 40.0% in our specialty category. In addition, specialty unique customers and placements increased 33.0% and 49.1%, respectively, compared to the prior year period. Organic pounds sold in our center-of-the-plate category increased 19.3% compared to the prior year. Estimated inflation was 15.8% in our specialty category and 17.8% in our center-of-the-plate category compared to the prior year period.

Gross Profit
2022 2021 $ Change % Change
Gross profit 273,517  154,821  118,696  76.7  %
Gross profit margin 23.6  % 22.0  %

Gross profit increased primarily as a result of sales growth and price inflation. Gross profit margin increased approximately 156 basis points. Gross profit margins increased 42 basis points in the Company’s specialty category and increased 175 basis points in the Company’s center-of-the-plate category.

Selling, General and Administrative Expenses
2022 2021 $ Change % Change
Selling, general and administrative expenses 234,573  170,603  63,970  37.5  %
Percentage of net sales 20.2  % 24.3  %

19



The increase in selling, general and administrative expenses was primarily due to higher costs associated with compensation and benefits to support sales growth. Our ratio of selling, general and administrative expenses to net sales decreased predominately due to sales growth which contributing to improved fixed cost leverage in the quarter..

Other Operating Expenses (Income ), Net
2022 2021 $ Change % Change
Other operating expenses (income), net 5,046  (313) 5,359  (1,712.1) %

The increase in net other operating expense relates primarily to non-cash charges of $3.6 million for changes in the fair value of our contingent earn-out liabilities in the fiscal 2022 period compared to non-cash credits of $(1.4) million in the prior year period. The prior year period also includes a $0.6 million impairment of Cambridge trademarks as a result of a shift in brand strategy to leverage our Allen Brothers brand in our New England region during the second quarter of fiscal 2021.

Interest Expense
2022 2021 $ Change % Change
Interest expense 8,830  9,171  (341) (3.7) %

Interest expense decreased primarily due to lower effective interest rates charged on our outstanding debt as a result of the $50.0 million aggregate principal amount of Convertible Senior Notes issued on March 1, 2021 which were used to repay higher interest rate debt.

Provision for Income Taxes
2022 2021 $ Change % Change
Provision for income tax expense (benefit) 6,768  (7,817) 14,585  (186.6) %
Effective tax rate 27.0  % 31.7  %

The higher effective tax rate in the prior period includes the impact of a $1.5 million discrete permanent difference related to stock compensation expense.

20



LIQUIDITY AND CAPITAL RESOURCES

We finance our day-to-day operations and growth primarily with cash flows from operations, borrowings under our senior secured credit facilities and other indebtedness, operating leases, trade payables and equity financing.

Indebtedness

The following table presents selected financial information on our indebtedness (in thousands):
June 24, 2022 December 24, 2021
Senior secured term loan $ 167,819  $ 168,675 
Total convertible debt 204,000  204,000 
Borrowings outstanding on asset-based loan facility 20,000  20,000 
Finance leases and other financing obligations 10,201  11,602 
Total $ 402,020  $ 404,277 

As of June 24, 2022, we have various floating- and fixed-rate debt instruments with varying maturities for an aggregate principal amount of $391.8 million.

On March 11, 2022, we entered into a third amendment to our asset-based loan facility ABL Facility which increased the aggregate commitments from $150.0 million to $200.0 million. See Note 9 “Debt Obligations” to our consolidated financial statements for a full description.


Liquidity

The following table presents selected financial information on liquidity (in thousands):
June 24, 2022 December 24, 2021
Cash and cash equivalents $ 51,806  $ 115,155 
Working capital, excluding cash and cash equivalents
 195,217  157,787 
Availability under asset-based loan facility 159,460  109,459 
Total $ 406,483  $ 382,401 

We expect our capital expenditures, excluding cash paid for acquisitions, for fiscal 2022 will be approximately $36.0 million to $45.0 million. We believe our existing balances of cash and cash equivalents, working capital and the availability under our asset-based loan facility, are sufficient to satisfy our working capital needs, capital expenditures, debt service and other liquidity requirements associated with our current operations over the next 12 months.

Cash Flows

The following table presents selected financial information on cash flows (in thousands):
Twenty-Six Weeks Ended
June 24, 2022 June 25, 2021
Net income (loss) $ 18,300  $ (16,823)
Non-cash charges $ 37,107  $ 16,748 
Changes in working capital $ (35,626) $ (23,847)
Net cash provided by (used in) operating activities $ 19,781  $ (23,922)
Net cash used in investing activities $ (75,497) $ (16,739)
Net cash used in financing activities $ (7,733) $ (5,642)

Net cash provided by operations was $19.8 million for the twenty-six weeks ended June 24, 2022 consisting of a net income of $18.3 million and $37.1 million of non-cash charges, partially offset by investments in working capital growth of $35.6 million. Non-cash charges increased $20.4 million primarily due to a $12.8 million change in deferred tax expenses and a $5.0 million
21



increase in changes in the fair value of earn-out liabilities. The cash used for working capital growth of $11.8 million is primarily driven by the Company’s reinvestment in working capital to support sales growth.

Net cash used in investing activities was $75.5 million for the twenty-six weeks ended June 24, 2022, driven by capital expenditures of $23.5 million which includes the purchase of our distribution facility in Columbus, Ohio and $52.0 million in cash paid for acquisitions.

Net cash used in financing activities was $7.7 million for the twenty-six weeks ended June 24, 2022 driven by $2.8 million of payments made on senior term loans and finance lease obligations, $2.6 million of shares surrendered to pay tax withholding related to the vesting of equity incentive plan awards and $2.0 million of earn-out liability payments classified as financing activities.

Seasonality

Excluding our direct-to-consumer business, we generally do not experience any material seasonality. However, our sales and operating results may vary from quarter to quarter due to factors such as changes in our operating expenses, management’s ability to execute our operating and growth strategies, personnel changes, demand for our products, supply shortages, weather patterns and general economic conditions.

Our direct-to-consumer business is subject to seasonal fluctuations, with direct-to-consumer center-of-the-plate protein sales typically higher during the holiday season in our fourth quarter; accordingly, a disproportionate amount of operating cash flows from this portion of our business is generated by our direct-to-consumer business in the fourth quarter of our fiscal year. Despite a significant portion of these sales occurring in the fourth quarter, there are operating expenses, principally advertising and promotional expenses, throughout the year.

The Pandemic has had a material impact on our business and operations and those of our customers. Our net sales were most significantly impacted during the second quarter of fiscal 2020 when, in an effort to limit the spread of the virus, federal, state and local governments began implementing various restrictions that resulted in the closure of non-essential businesses in many of the markets we serve, which forced our customers in those markets to either transition their establishments to take-out service, delivery service or temporarily cease operations.

Inflation

Our profitability is dependent on, among other things, our ability to anticipate and react to changes in the costs of key operating resources, including food and other raw materials, labor, energy and other supplies and services. Substantial increases in costs and expenses could impact our operating results to the extent that such increases cannot be passed along to our customers. The impact of inflation and deflation on food, labor, energy and occupancy costs can significantly affect the profitability of our operations.

Off-Balance Sheet Arrangements

As of June 24, 2022, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

Critical Accounting Policies and Estimates

The preparation of the Company’s consolidated financial statements requires it to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The SEC has defined critical accounting policies as those that are both most important to the portrayal of the Company’s financial condition and results and require its most difficult, complex or subjective judgments or estimates. Based on this definition, we believe our critical accounting policies include the following: (i) determining our allowance for doubtful accounts, (ii) inventory valuation, with regard to determining inventory balance adjustments for excess and obsolete inventory, (iii) business combinations, (iv) valuing goodwill and intangible assets, (v) self-insurance reserves, (vi) accounting for income taxes and (vii) contingent earn-out liabilities. Our critical accounting policies and estimates are described in the Form 10-K filed with the SEC on February 22, 2022.

22



ITEM 3.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

As of June 24, 2022, we had an aggregate $187.8 million of indebtedness outstanding under the Term Loan and ABL Facility that bore interest at variable rates. A 100 basis point increase in market interest rates would decrease our after tax earnings by approximately $1.4 million per annum, holding other variables constant.

ITEM 4.         CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of June 24, 2022.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 24, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.         LEGAL PROCEEDINGS

We are involved in legal proceedings, claims and litigation arising out of the ordinary conduct of our business. Although we cannot assure the outcome, management presently believes that the result of such legal proceedings, either individually or in the aggregate, will not have a material adverse effect on our consolidated financial statements, and no material amounts have been accrued in our consolidated financial statements with respect to these matters.

ITEM 1A.         RISK FACTORS

There have been no material changes to our risk factors as previously disclosed in Part I, Item 1A. included in our Annual Report on Form 10-K for the year ended December 24, 2021 filed with the SEC on February 22, 2022. In addition to the information contained herein, you should consider the risk factors disclosed in our Annual Report on Form 10-K.

ITEM 2.         UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Total Number
of Shares
Repurchased(1)
 Average
Price
Paid Per Share		 Total
Number of Shares
Purchased as Part
of Publicly
Announced Plans
or Programs		 Maximum
Number (or
Approximate
Dollar Value) of
Shares That May
Yet Be Purchased
Under the Plans
or Programs
March 26, 2021 to April 22, 2022 4,877  $ 33.14  —  — 
April 23, 2022 to May 20, 2022 3,941  36.97  —  — 
May 21, 2022 to June 24, 2022 6,319  33.24  —  — 
Total 15,137  $ 34.18  —  — 

(1)During the twenty-six weeks ended June 24, 2022, we withheld 15,137 shares of our common stock to satisfy tax withholding requirements related to restricted shares of our common stock awarded to our officers and key employees resulting from either elections under 83(b) of the Internal Revenue Code of 1986, as amended, or upon vesting of such awards.

23




ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.         MINE SAFETY DISCLOSURES

None.

ITEM 5.         OTHER INFORMATION

None.

24



ITEM 7.         EXHIBITS
Exhibit No.   Description
  Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
  Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
  Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
  Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS   XBRL Instance Document – the instance document does not appear on the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
   
101.SCH   XBRL Taxonomy Extension Schema Document
   
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.

  † Filed herewith
25



SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on July 27, 2022.
  THE CHEFS’ WAREHOUSE, INC.
  (Registrant)
   
Date: July 27, 2022     /s/ James Leddy
James Leddy
  Chief Financial Officer
  (Principal Financial Officer)
 
Date: July 27, 2022     /s/ Timothy McCauley
Timothy McCauley
  Chief Accounting Officer
  (Principal Accounting Officer)

26
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