GlobeNewswire Inc | Feb 10, 2021 07:00AM EST

February 10, 2021

RIDGEFIELD, Conn., Feb. 10, 2021 (GLOBE NEWSWIRE) -- The Chefs Warehouse, Inc. (NASDAQ: CHEF) (the Company or Chefs), a premier distributor of specialty food products in the United States and Canada, today reported financial results for its fourth quarter ended December25, 2020.

Financial highlights for the fourth quarter of 2020:

-- Net sales decreased 34.0% to $281.7 million for the fourth quarter of 2020 from $426.5 million for the fourth quarter of 2019. On a sequential quarter basis, net sales grew 10.9% or $27.6 million compared to the third quarter of fiscal 2020. -- GAAP net loss was $37.1 million, or $(1.02) per diluted share, for the fourth quarter of 2020 compared to net income of $10.9 million, or $0.36 per diluted share, in the fourth quarter of 2019. -- Adjusted EPS1 was $(0.52) for the fourth quarter of 2020 compared to $0.39 for the fourth quarter of 2019. -- Adjusted EBITDA1 was $(10.5) million for the fourth quarter of 2020 compared to $28.2 million for the fourth quarter of 2019. -- The Company had approximately $193.6 million of cash and cash equivalents on the balance sheet and $38.6 million of availability on its asset-based loan facility as of February 5, 2021.

October and November sales trends remained relatively steady at approximately 70% of prior year, on a fiscal comparison basis, as sequential growth in certain markets was offset by declining outdoor dining in the Northeast and colder-weather regions. said Chris Pappas, Chairman and Chief Executive Officer of the Company. Post-Thanksgiving, sales trended lower as in-door dining restrictions were re-instated in a number of key markets. December sales remained above 60% of 2019 as customers pivoted to more take-out and delivery and limited outdoor dining continued despite the change in season. Pent-up demand was evident in markets with more favorable weather and restaurant capacity allowances such as Florida and Texas and we continue to be encouraged by our customer acquisition trends. Our balance sheet and liquidity positions us for future growth as COVID-related conditions improve.

Reclassifications

The Company has reclassified its food processing costs, previously included in operating expenses, to cost of sales and has split its historical presentation of operating expenses between selling, general and administrative expenses and other operating expenses. These reclassifications have no impact on the Companys net income, cash flows or EBITDA.

Transition of Trademarks

During the fourth quarter of fiscal 2020, the Company committed to a plan to shift its brand strategy to leverage its Allen Brothers brand in the west coast region and determined that its Del Monte, Ports Seafood and Bassian Farms trademarks did not fit its long-term strategic objectives. As a result, the Company recorded a $24.2 million non-cash charge to write-down the value of its Del Monte and Bassian Farms trademarks.

_______1EBITDA, Adjusted EBITDA, adjusted net income (loss) and adjusted EPS are non-GAAP measures. Please see the schedules accompanying this earnings release for a reconciliation of EBITDA, Adjusted EBITDA, adjusted net income (loss) and adjusted EPS to these measures most directly comparable GAAP measure.

Fourth Quarter Fiscal 2020 Results

Net sales for the quarter ended December25, 2020 decreased 34.0% to $281.7 million from $426.5 million for the quarter ended December27, 2019. Organic sales declined$177.4 million, or41.7%versus the prior year quarter. Sales growthof$32.6 million, or7.7%, resulted from acquisitions. Organic case count declined approximately47.4% in the Companys specialty category with unique customers and placements declines at29.2%and45.8%, respectively, compared to the prior year quarter. Pounds sold in the Companys center-of-the-plate category decreasedapproximately 41.4%compared to the prior year quarter. Estimated deflation was 0.4%in the Companys specialty categories andestimated inflation was 1.6% in the center-of-the-plate categories compared to the prior year quarter.

Gross profit decreased approximately 42.5% to $58.9 million for the fourth quarter of 2020 from $102.4 million for the fourth quarter of 2019. Gross profit margin decreased approximately 311 basis points to 20.9% from 24.0%. Gross margins in the Companys specialty category decreased 648 basis points and gross margins increased 87 basis points in the Companys center-of-the-plate category compared to the prior year quarter. Gross profit results include a charge of approximately $4.8 million related to estimated inventory losses from obsolescence due to impacts of the COVID-19 pandemic.

Selling, general and administrative expenses decreased by approximately 0.5% to $82.9 million for the fourth quarter of 2020 from $83.4 million for the fourth quarter of 2019. As a percentage of net sales, operating expenses were 29.4% in the fourth quarter of 2020 compared to 19.5% in the fourth quarter of 2019. Lower costs associated with compensation and benefits and lower general and administrative related costs, partially offset by impacts of recent acquisitions were the primary drivers of the decrease in operating expenses in the quarter.

Other operating expenses increased by approximately $23.6 million primarily due to a $24.2 million impairment of Del Monte and Bassian trademarks.

Operating loss for the fourth quarter of 2020 was $48.3 million compared to operating income of $18.4 million for the fourth quarter of 2019. The decrease in operating income was driven primarily by lower gross profit and higher other operating expenses, as discussed above. As a percentage of net sales, operating loss was 17.1% in the fourth quarter of 2020 as compared to operating income of 4.3% in the fourth quarter of 2019.

Total interest expense increased to $5.3 million for the fourth quarter of 2020 compared to $4.4 million for the fourth quarter of 2019. The increase was primarily due to higher average long-term debt balances, partially offset by lower effective interest rates charged on the Companys outstanding debt.

Net loss for the fourth quarter of 2020 was $37.1 million, or $(1.02) per diluted share, compared to net income of $10.9 million, or $0.36 per diluted share, for the fourth quarter of 2019.

Adjusted EBITDA1 was $(10.5) million for the fourth quarter of 2020 compared to $28.2 million for the fourth quarter of 2019. For the fourth quarter of 2020, adjusted net loss1 was $19.0 million, or $(0.52) per diluted share compared to adjusted net income of $12.1 million, or $0.39 per diluted share for the fourth quarter of 2019.

As of February 5, 2021, the Company had approximately $232.2 million of available liquidity comprised of $193.6 million in cash and cash equivalents and $38.6 million of availability under the Companys ABL Credit Facility. Net debt as of January 29, 2021 was approximately $210.2 million, inclusive of cash and cash equivalents.

Full Year 2021 Guidance

Due to the continued uncertainty regarding the pace of economic recovery and the lifting of in-door dining restrictions across our markets, the Company will not be providing guidance for 2021 at this time. The Company will look to provide guidance as it gains more clarity on the expected length of the economic downturn and the outlook for customer re-openings.

Fourth Quarter 2020 Earnings Conference Call

The Company will host a conference call to discuss fourth quarter 2020 financial results today at 8:30 a.m. EST. Hosting the call will be Chris Pappas, chairman and chief executive officer, and Jim Leddy, chief financial officer. The conference call will be webcast live from the Companys investor relations website at http://investors.chefswarehouse.com/. An online archive of the webcast will be available on the Companys investor relations website.

Forward-Looking Statements

Statements in this press release regarding the Companys business 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. 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, includingCOVID-19,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 and, as such, speak only as of the date made. A more detailed description of these and other risk factors is contained in the Companys most recent annual report on Form 10-K filed with the SEC on February24, 2020 and other reports filed by the Company with the SEC since that date. The Company is not undertaking to update any information until required by applicable laws. Any projections of future results of operations are based on a number of assumptions, many of which are outside the Companys control and should not be construed in any manner as a guarantee that such results will in fact occur. These projections are subject to change and could differ materially from final reported results. The Company may from time to time update these publicly announced projections, but it is not obligated to do so.

About The Chefs Warehouse

The Chefs Warehouse, Inc. ( http://www.chefswarehouse.com) is a premier distributor of specialty food products in the United States and Canada focused on serving the specific needs of chefs who own and/or operate some of the nations leading menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools, bakeries, patisseries, chocolateries, cruise lines, casinos and specialty food stores. The Chefs Warehouse, Inc. carries and distributes more than 50,000 products to more than 34,000 customer locations throughout the United States and Canada.

Contact:Investor Relations Jim Leddy, CFO, (718) 684-8415

THE CHEFS WAREHOUSE, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(unaudited, in thousands except share amounts and per share data)

Thirteen Weeks Ended Fifty-Two Weeks Ended December 25, December 27, December 25, December 27, 2020 2019 2020 2019Net sales $ 281,674 $ 426,507 $ 1,111,631 $ 1,591,834 Cost of sales 222,799 324,081 863,480 1,205,266 Gross profit 58,875 102,426 248,151 386,568 Selling,general and 82,914 83,351 336,394 329,542 administrativeexpensesOtheroperating 24,229 678 14,417 6,359 expensesOperating (48,268 ) 18,397 (102,660 ) 50,667 (loss) income Interest 5,344 4,351 20,946 18,264 expense(Loss) incomebefore income (53,612 ) 14,046 (123,606 ) 32,403 taxes Provision forincome tax (16,555 ) 3,158 (40,703 ) 8,210 (benefit)expense Net (loss) $ (37,057 ) $ 10,888 $ (82,903 ) $ 24,193 income Net (loss)income per share:Basic $ (1.02 ) $ 0.37 $ (2.46 ) $ 0.82 Diluted $ (1.02 ) $ 0.36 $ (2.46 ) $ 0.81 Weightedaverage common sharesoutstanding:Basic 36,281,698 29,595,723 33,716,157 29,532,342 Diluted 36,281,698 31,134,821 33,716,157 30,073,338

THE CHEFS WAREHOUSE, INC.CONDENSED CONSOLIDATED BALANCE SHEETAS OF DECEMBER25, 2020 AND DECEMBER27, 2019 (in thousands)

December 25, December 27, 2020 2019 (unaudited) Cash and cash equivalents $ 193,281 $ 140,233 Accounts receivable, net 96,383 175,044 Inventories, net 82,519 124,056 Prepaid expenses and other current assets 33,479 13,823 Total current assets 405,662 453,156 Equipment, leasehold improvements and 115,448 92,846 software, netOperating lease right-of-use assets 115,224 127,649 Goodwill 214,864 197,743 Intangible assets, net 111,717 138,751 Deferred taxes, net 7,535 ? Other assets 3,875 3,534 Total assets $ 974,325 $ 1,013,679 Accounts payable $ 57,515 $ 94,097 Accrued liabilities 27,924 29,847 Short-term operating lease liabilities 17,167 17,453 Accrued compensation 9,401 8,033 Current portion of long-term debt 6,095 721 Total current liabilities 118,102 150,151 Long-term debt, net of current portion 398,084 386,106 Operating lease liabilities 109,133 120,572 Deferred taxes, net ? 10,883 Other liabilities 4,416 10,034 Total liabilities 629,735 677,746 Preferred stock ? ? Common stock 373 304 Additional paid in capital 303,734 212,240 Cumulative foreign currency translation (2,051 ) (2,048 ) adjustmentRetained earnings 42,534 125,437 Stockholders? equity 344,590 335,933 Total liabilities and stockholders? equity $ 974,325 $ 1,013,679

THE CHEFS WAREHOUSE, INC.CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE FIFTY-TWO WEEKS ENDED DECEMBER25, 2020 AND DECEMBER27, 2019 (unaudited, in thousands)

December 25, December 27, 2020 2019Cash flows from operating activities: Net (loss) income $ (82,903 ) $ 24,193 Adjustments to reconcile net (loss) income to net cash provided by operating activities:Depreciation and amortization 19,774 13,328 Amortization of intangible assets 13,502 12,663 Provision for allowance for doubtful accounts 21,372 4,981 Non-cash operating lease expense 689 2,043 (Benefit) provision for deferred income taxes (18,418 ) 2,063 Amortization of deferred financing fees 3,426 2,168 Stock compensation 9,292 4,399 Change in fair value of contingent earn-out (11,479 ) 5,879 liabilitiesIntangible asset impairment 24,200 ? Loss on asset disposal 151 101 Changes in assets and liabilities, net of acquisitions:Accounts receivable 77,590 (13,213 ) Inventories 49,050 (9,439 ) Prepaid expenses and other current assets (18,240 ) (1,813 ) Accounts payable, accrued liabilities and accrued (46,442 ) 3,775 compensationOther assets and liabilities 1,317 (6,121 ) Net cash provided by operating activities 42,881 45,007 Cash flows from investing activities: Capital expenditures (7,036 ) (16,077 ) Cash paid for acquisitions, net of cash received (60,932 ) (28,077 ) Net cash used in investing activities (67,968 ) (44,154 ) Cash flows from financing activities: Payment of debt, finance lease and other (40,432 ) (1,894 ) financing obligationsProceeds from the issuance of common stock, net 85,941 ? of issuance costsProceeds from debt issuance ? 150,000 Payment of deferred financing fees (856 ) (5,082 ) Proceeds from exercise of stock options ? 1,541 Surrender of shares to pay withholding taxes (3,670 ) (1,022 ) Cash paid for contingent earn-out liabilities (2,927 ) (2,412 ) Borrowings under asset based loan facility 100,000 ? Payments under asset based loan facility (60,000 ) (44,184 ) Net cash provided by financing activities 78,056 96,947 Effect of foreign currency translation on cash 79 23 and cash equivalents Net increase in cash and cash equivalents 53,048 97,823 Cash and cash equivalents at beginning of period 140,233 42,410 Cash and cash equivalents at end of period $ 193,281 $ 140,233

THE CHEFS WAREHOUSE, INC.RECONCILIATION OF GAAP NET (LOSS) INCOME PER COMMON SHARE(unaudited; in thousands except share amounts and per share data)

Thirteen Weeks Ended Fifty-Two Weeks Ended December 25, December 27, December 25, December 27, 2020 2019 2020 2019Numerator: Net (loss) income $ (37,057 ) $ 10,888 $ (82,903 ) $ 24,193 Add effect of dilutive securities:Interest onconvertible notes, ? 215 ? 207 net of taxNet Income availableto common $ (37,057 ) $ 11,103 $ (82,903 ) $ 24,400 shareholdersDenominator: Weighted averagebasic common shares 36,281,698 29,595,723 33,716,157 29,532,342 outstandingDilutive effect ofunvested common ? 204,483 ? 211,050 sharesDilutive effect of ? 1,334,615 ? 329,946 convertible notesWeighted averagediluted common shares 36,281,698 31,134,821 33,716,157 30,073,338 outstanding Net (loss) income per share:Basic $ (1.02 ) $ 0.37 $ (2.46 ) $ 0.82 Diluted $ (1.02 ) $ 0.36 $ (2.46 ) $ 0.81

THE CHEFS WAREHOUSE, INC.RECONCILIATION OF EBITDA AND ADJUSTED EBITDA TO NET (LOSS) INCOME(unaudited; in thousands)

Thirteen Weeks Ended Fifty-Two Weeks Ended December December December December 25, 27, 25, 27, 2020 2019 2020 2019Net (loss) income $ (37,057 ) $ 10,888 $ (82,903 ) $ 24,193 Interest expense 5,344 4,351 20,946 18,264 Depreciation 5,060 3,789 19,774 13,328 Amortization 3,391 3,178 13,502 12,663 Provision for income tax (16,555 ) 3,158 (40,703 ) 8,210 (benefit) expenseEBITDA (1) (39,817 ) 25,364 (69,384 ) 76,658 Adjustments: Stock compensation (2) 4,367 1,488 9,292 4,399 Other operating expenses (3) 24,229 678 14,417 6,359 Duplicate rent (4) 700 698 2,795 1,503 Moving expenses (5) ? ? ? 61 Adjusted EBITDA (1) $ (10,521 ) $ 28,228 $ (42,880 ) $ 88,980

-- We are presenting EBITDA and Adjusted EBITDA, which are not measurements determined in accordance with the U.S. generally accepted accounting principles, or GAAP, because we believe these measures provide additional metrics to evaluate our operations and which we believe, when considered with both our GAAP results and the reconciliation to net income, provide a more complete understanding of our business than could be obtained absent this disclosure. We use EBITDA and Adjusted EBITDA, together with financial measures prepared in accordance with GAAP, such as revenue and cash flows from operations, to assess our historical and prospective operating performance and to enhance our understanding of our core operating performance. The use of EBITDA and Adjusted EBITDA as performance measures permits a comparative assessment of our operating performance relative to our performance based upon GAAP results while isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. -- Represents non-cash stock compensation expense associated with awards of restricted shares of our common stock and stock options to our key employees and our independent directors. -- Represents non-cash changes in the fair value of contingent earn-out liabilities related to our acquisitions, non-cash charges related to asset disposals, asset impairments, including intangible asset impairment charges, and certain third-party deal costs incurred in connection with our acquisitions or financing arrangements. -- Represents duplicate rent and occupancy costs for our Los Angeles, CA facility. -- Represents moving expenses for the consolidation and expansion of our Ridgefield, CT and Toronto, Canada facilities.

THE CHEFS WAREHOUSE, INC.RECONCILIATION OF ADJUSTED NET (LOSS) INCOME TO NET (LOSS) INCOME(unaudited; in thousands except share amounts and per share data)

Thirteen Weeks Ended Fifty-Two Weeks Ended December 25, December 27, December 25, December 27, 2020 2019 2020 2019Net (loss) income $ (37,057 ) $ 10,888 $ (82,903 ) $ 24,193 Adjustments toReconcile Net (Loss)Income to Adjusted Net (Loss) Income(1):Other operating 24,229 678 14,417 6,359 expenses (2)Duplicate rent (3) 700 698 2,795 1,503 Moving expenses (4) ? ? ? 61 Third party debt ? ? 1,233 ? modification fees (5)Tax effect of (6,855 ) (205 ) (5,072 ) (2,007 )adjustments (6) Total adjustments 18,074 1,171 13,373 5,916 Adjusted net (loss) $ (18,983 ) $ 12,059 $ (69,530 ) $ 30,109 income Diluted adjustedearnings (loss) per $ (0.52 ) $ 0.39 $ (2.06 ) $ 1.01 common share Diluted sharesoutstanding - 36,281,698 31,225,875 33,716,157 30,073,338 adjusted

-- We are presenting adjusted net income and adjusted earnings per common share (EPS), which are not measurements determined in accordance with U.S. generally accepted accounting principles, or GAAP, because we believe these measures provide additional metrics to evaluate our operations and which we believe, when considered with both our GAAP results and the reconciliation to net income available to common stockholders, provide a more complete understanding of our business than could be obtained absent this disclosure. We use adjusted net income available to common stockholders and adjusted EPS, together with financial measures prepared in accordance with GAAP, such as revenue and cash flows from operations, to assess our historical and prospective operating performance and to enhance our understanding of our core operating performance. The use of adjusted net income available to common stockholders and adjusted EPS as performance measures permits a comparative assessment of our operating performance relative to our performance based upon our GAAP results while isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. -- Represents non-cash changes in the fair value of contingent earn-out liabilities related to our acquisitions, non-cash charges related to asset disposals, asset impairments, including intangible asset impairments, and certain third-party deal costs incurred in connection with our acquisitions or financing arrangements. -- Represents duplicate rent and occupancy costs for our Los Angeles, CA facility. -- Represents moving expenses for the consolidation and expansion of our Ridgefield, CT and Toronto, Canada facilities. -- Represents interest expense related to investment banking fees paid in connection with the modification of our senior secured term loan. -- Represents the tax effect of items 2 through 5 above.

THE CHEFS WAREHOUSE, INC.RECONCILIATION OF ADJUSTED EARNINGS PER COMMON SHARE(unaudited; in thousands except share amounts and per share data)

Thirteen Weeks Ended Fifty-Two Weeks Ended December 25, December 27, December 25, December 27, 2020 2019 2020 2019Numerator: Adjusted net (loss) $ (18,983 ) $ 12,059 $ (69,530 ) $ 30,109 incomeAdd effect of dilutive securities:Interest onconvertible notes, ? 250 ? 207 net of taxAdjusted net income(loss) available to $ (18,983 ) $ 12,309 $ (69,530 ) $ 30,316 common shareholdersDenominator: Weighted averagebasic common shares 36,281,698 29,595,723 33,716,157 29,532,342 outstandingDilutive effect ofunvested common ? 204,483 ? 211,050 sharesDilutive effect of ? 1,425,669 ? 329,946 convertible notesWeighted averagediluted common shares 36,281,698 31,225,875 33,716,157 30,073,338 outstanding Adjusted earnings (loss) per share:Diluted $ (0.52 ) $ 0.39 $ (2.06 ) $ 1.01