Chefs' Warehouse, Inc. Aktie

Greetings, and welcome to the Chefs' Warehouse First Quarter 2026 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Alex Aldous, General Counsel, Corporate Secretary, and Chief Government Relations Officer. Please go ahead, sir.

Thank you, operator. Good morning, everyone. With me on today's call are Chris Pappas, Founder, Chairman, and CEO; and Jim Leddy, our CFO.

By now, you should have access to our first quarter 2026 earnings press release. It can also be found at www.chefswarehouse.com under the Investor Relations section. Throughout this conference call, we will be presenting non-GAAP financial measures, including, among others, historical and estimated EBITDA and adjusted EBITDA as well as historical adjusted net income, adjusted earnings per share, adjusted operating expenses, adjusted operating expenses as a percentage of net sales and as a percentage of gross profit, net debt, net debt leverage and free cash flow. These measures are not calculated in accordance with GAAP and may be calculated differently in similarly titled non-GAAP financial measures used by other companies. Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release and first quarter 2026 earnings presentation.

Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements, including statements regarding our estimated financial performance. Such forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Some of these risks are mentioned in today's release. Others are discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q, which are available on the SEC website.

Today, we are going to provide a business update and go over our first quarter results in detail. For a portion of our discussion this morning, we will refer to a few slides posted on the Chefs' Warehouse website under the Investor Relations section titled First Quarter 2026 Earnings Presentation. Please note that these slides are disclosed at this time for illustration purposes only. Then we will open up the call for questions. With that, I will turn the call over to Chris Pappas. Chris?

Thank you, Alex, and thank you all for joining our first quarter 2026 earnings call. First quarter 2026 business activity displayed typical seasonal cadence as revenue trends coming out of January increased steadily into February and March. Despite some volatility in business due to extreme weather events and the start of the conflict in the Middle East later in the quarter -- our team's exceptional execution and the strength of our North American business allowed us to continue to grow market share, delivering strong year-over-year growth in volume, product penetration, unique customer growth, revenue growth and profitability growth. Momentum continued into April, and we currently expect double-digit top line growth to start the second quarter.

Regarding the current situation in the Middle East, our teams and operations in the region, the immediate focus has been the safety and security of our people. We have followed safety protocols instituted by governing bodies and are effectively navigating volatility in supply chains and customer demand. Our leadership and team members have done an amazing job managing both personally and professionally through the volatility and uncertainty and we hope for a resolution to the conflict soon. Jim will provide more color on the financial impact in a few moments. I would like to thank all of the Chefs' Warehouse from sales and operations to all the supporting functions for delivering a great start to 2026.

Our regional leadership and their teams continue to execute our strategy to leverage our investments and train the next generation of sales and operational talent. They are accelerating our long-term plan as they grow deeper understanding of our customer base and become the ultimate specialty ingredient professionals, marrying technology with industry know-how to become trusted advisers to the best chefs in the world. With that, please refer to Slide 3 of the presentation. A few highlights from the first quarter include organic net sales grew 10.4%. Organic specialty sales were up 6.8% over the prior year, which was driven primarily by unique placement growth of 6.2%, specialty case growth of 5.7% and price inflation. Unique customers grew 1.9% year-over-year.

Reported unique customer growth was impacted by the attrition related to our transition out of noncore customer business in Texas. We fully lapped this impact starting in the second quarter this year. Excluding this impact, first quarter year-over-year unique customer growth was approximately 4.3%. Pounds in center-of-the-plate were approximately 6.2% higher than the prior year first quarter. Gross profit margins increased approximately 53 basis points. Gross margin in the specialty category increased approximately 43 basis points as compared to the first quarter of 2025, while gross margin in the center-of-the-plate category increased approximately 110 basis points year-over-year.

Jim will provide more detail on gross profit and margins in a few moments. For an update on certain of our operating metrics, including continued improvement in year-over-year gross profit per route and adjusted EBITDA per employee, please refer to the slide provided in the appendix of our first quarter 2026 earnings presentation. With that, I'll turn it over to Jim to discuss more detailed financial information for the quarter and an update on our liquidity. Jim?

Thank you, Chris, and good morning, everyone. I'll now provide a comparison of our current quarter operating results versus the prior year quarter and provide an update on our balance sheet and liquidity. Please refer to Slide 4. Our net sales for the quarter ended March 27, 2026, increased approximately 11.4% to $1.059 billion from $950.7 million in the first quarter of 2025. The growth in net sales was a result of an increase in organic sales of approximately 10.4% as well as the contribution of sales from acquisitions, which added approximately 1% to sales growth for the quarter.

Given the start of the conflict in Iran occurred in the last month of the first quarter, the impact to our first quarter aggregate year-over-year revenue growth was not material. We estimate it reduced overall organic growth by approximately 50 basis points. Prior to the start of the conflict, our Middle East business grew approximately 11% in January and February versus the prior year. While there remains variability in demand and customer buying patterns week-to-week, these past few weeks, our business located in the region has been operating at approximately 75% of prior year. The primary impact has come from low occupancy in hotels and resorts. Our operations in Qatar and Oman are performing much closer to plan than prior year as they are less reliant on tourism than Dubai and Abu Dhabi.

As I just discussed, our North American operations, which represent over 90% of the Chefs' Warehouse continues to grow well above our guidance while generating operating leverage and compelling year-over-year adjusted EBITDA growth. As the situation in the Middle East currently remains uncertain, we have run multiple scenarios of performance and factored in a range of possibilities as it relates to our forward guidance. At this time, we are keeping our full year guidance unchanged with the potential for upward revision should the situation in the region normalize.

Net inflation was 4.1% in the first quarter, consisting of 1.5% inflation in our specialty category and 8.2% inflation in our center-of-the-plate category versus the prior year quarter. Center-of-the-plate inflation when adjusted for the impact of the Texas attrition was approximately 4.5% versus the prior year quarter. Gross profit increased 13.9% to $257.4 million for the first quarter of 2026 versus $226 million for the first quarter of 2025. Gross profit margins increased approximately 53 basis points to 24.3%. Selling, general and administrative expenses increased approximately 10.5% to $224.1 million for the first quarter of 2026 from $202.8 million for the first quarter of 2025.

The increase was primarily due to higher costs associated with compensation and benefits to support sales growth, higher depreciation driven by facility and fleet investments and higher self-insurance-related costs. Adjusted operating expenses increased 10.5% versus the prior year first quarter. And as a percentage of net sales, adjusted operating expenses were 18.6% for the first quarter of 2026. Operating income for the first quarter of 2026 was $33.1 million compared to $22.7 million for the first quarter of 2025.

The increase in operating income was driven primarily by higher gross profit, partially offset by higher selling, general and administrative expenses. Our GAAP net income was $17.4 million or $0.40 per diluted share for the first quarter of 2026 compared to net income of $10.3 million or $0.25 per diluted share for the first quarter of 2025. On a non-GAAP basis, we had adjusted EBITDA of $60.1 million for the first quarter of 2026 compared to $47.5 million for the prior year first quarter. Adjusted net income was $17.2 million or $0.40 per diluted share for the first quarter of 2026 compared to $10.2 million or $0.25 per diluted share for the prior year first quarter.

Turning to the balance sheet and an update on our liquidity. Please refer to Slide 5. At the end of the first quarter, we had total liquidity of $278.3 million, comprised of $122.7 million in cash and $155.6 million of availability under our ABL facility. During the first quarter, we made prepayments of $5 million on our term loan maturing in 2029 and purchased $10 million equivalent shares under our share repurchase program. As of March 27, 2026, total net debt was approximately $522 million, inclusive of all cash and cash equivalents, and net debt to adjusted EBITDA was approximately 1.9x.

As noted earlier, we maintain our previously provided full year guidance for 2026 as follows: we estimate that net sales for the full year 2026 will be in the range of $4.35 billion to $4.45 billion, gross profit to be between $1.053 billion and $1.076 billion and adjusted EBITDA to be between $276 million and $286 million. Please note, for the full year 2026, we expect the convertible notes maturing in 2028 to be dilutive, and therefore, we expect the fully diluted share count to be between approximately 46 million and 46.7 million shares. Thank you. And at this point, we'll open it up to questions. Operator?

[Operator Instructions]

The first question is from Alex Slagle from Jefferies.

Yes. I know, like, the Middle East is always -- it's hard for us to figure out everything that's going on. So I appreciate everything you provided. I guess, kind of, curious on -- you gave some color on the top line. What else can you tell us about sort of the profitability implications for the Middle East business specifically and kind of what's baked into the outlook, I guess, sizing it up, also, I guess, it sounds like the top line is less than 10%. And I'm not sure on the EBITDA side, if you could provide some color.

Yes. We don't necessarily disclose the percent of EBITDA that they contribute. But just to go back to what we said, it's less than 10% of our overall business. It's a very profitable company. We've made some pretty significant investments, and we feel really good about the medium- to long-term prospects of the market and our business there. Obviously, there's a little bit of a short-term bump in the road right now. But as I mentioned in our prepared remarks, we haven't adjusted our top line or our adjusted EBITDA guidance as a result.

So like I said, we've modeled in a bunch of different scenarios. We generally don't change guidance after the first quarter, but the first quarter was so strong and the trends are continuing that, obviously, if the Middle East thing wasn't happening, I believe we would have adjusted our guidance this quarter. But I think given the uncertainty, we're just going to wait a little longer and see how things play out.

Okay. In terms of the scenario, it sort of assume recent trends continue through the rest of the year or several months? Or what's the kind of rough time frame?

I'm sorry. Basically, we would adjust guidance as things materialize. But I think the key point that we made in our prepared remarks was that over 90% of our business is more than making up for the minimal impact that we're seeing so far from the Middle East.

Okay. And just a second question on expectations for the summer and maybe potential for more domestic travel. I don't know maybe that will be a positive tailwind for Chefs' and sort of how you're looking at that important time period as we get up to the -- some of the celebration holidays and then the travel.

I mean, Alex, I mean, it looks really strong. Again, I mean, we didn't really see the war coming, but things start settling down in the Middle East. I mean, the -- I think all our investments for the last 15 years are starting to bear fruit, and we're getting that acceleration of sales and leverage with the massive investments we've made to build this thing and a little up or down with travel or more people going out, but we just see a very, very strong field ahead of us. And I think we're taking market share, and we're just continuing to mature as obviously the small public company in foodservice, dominating, really, the good, better, best part of it. So we don't see a slowdown.

The next question is from Mark Carden from UBS.

To start, just another follow-up on the Middle East. Glad to hear your team is holding up okay out there. For the 75% number, it sounds like that's stabilized over the course of the past few weeks. Is that correct? And then just as you think about the course of March, that build in a meaningful acceleration post-ceasefire?

Yes. I think the best way to put it, Mark, is, yes, we mentioned that the last few weeks, our business has been trending at about 75% of prior year. We've factored that into multiple scenarios going forward, different levels of percentage should the bombing start to re-escalate and they're sending drones into Dubai. We understand that there might be a downward impact. There could be an upward impact if things settle down. So I think we've modeled that in and decided to leave the guidance unchanged. That's probably the best way to think about it.

Got it. That's helpful. And then any shifts to how you're thinking about inflation over the course of the next few quarters just on the back of some of the recent commodity price fluctuations and then, of course, changes in the price of oil?

No. I think our teams have done an incredible job really the last couple of years, but especially with our team maturing and the collaboration between our sales and operations, procurement and pricing, the work that we've done with our diverse portfolio of suppliers. And as Chris mentioned, a lot of that is just that maturity and training and experience is all coming to fruition. And they've become very good at managing through inflationary and deflationary environments.

And I'll just go back to the diversity of our product portfolio. When you have 90,000 products flowing through your distribution centers for a company our size and our customer base that demands quality and diversity of product sourced from all around the world, you've become very good at managing through dairy is deflationary year-over-year. But sequentially, the prices in dairy and eggs and other dairy products have been within a range that's very manageable that you can provide your customer with high-quality products at a good value and still manage the gross profit dollars to what we need to meet our targets.

So I think it's just -- I'll go back to what Chris said, the investments that we've made in talent, systems, technology and infrastructure are all continuing to pay off and allowing us to manage through those type of price environments.

The next question is from Kelly Bania from BMO Capital Markets.

Just to follow up a little bit on the CME business, if I'm just doing the math right here, you said it was a 50 basis point drag on top line for Q1. And if I'm doing the math right, I think it's around a 200 to 300 basis point drag into April so far. But for your sales to be tracking at double digit, I'm not sure if they've accelerated or stayed kind of steady in total. Obviously, your North American businesses is kind of more than offsetting that. Just can you just clarify that math for us? Just trying to make sure we're thinking about that right so far.

Thanks, Kelly. Yes, look, I think we're growing well above our guidance and actually double digits with the impact of -- in the first quarter, both the 2 storm events as well as the 1-month impact of the Middle East. Those 3 things combined cost us about 150 basis points on the quarter. So if you look at our organic growth at 10.5%, you have the 1% ramp of mainly Italco. You could add 150 basis points to that if we didn't have those 3 events in the quarter. So I don't know where you got to 200 or 300 basis points that's not what is happening right now.

I think about it, if they continue to operate at 75% as we mentioned in April, we're still growing double digits with the impact of the Middle East. Obviously, we didn't have any storms that hit us in April. But so I think you can just get from that, that our North American business is so strong. The team is executing at a very high level. I think you look at the Amex data that comes out, the high-end consumer is still spending. So what's happening in the Middle East, we're overcoming. But obviously, we're hoping that the conflict is resolved soon and they can get back to some sort of normality.

Okay. Very helpful, Jim. Can you also just elaborate a little bit more color on kind of your different markets, your more mature markets and then some of the earlier stage growth markets? And if anything is changing on how they're contributing to the really strong North America top line, whether it be Florida or Texas or New York or California? Just any color on kind of how that split is contributing to the strong North America growth?

Yes. I think, Kelly, we've been kind of consistent with our observations that all our markets are growing. And I think the obvious are growing even faster, new markets like Florida, which, still, we're pretty -- we're not new here, but we built our new facility. I think it's 3 years ago, and that has been over 20-plus percent growth, and we expect that to continue for many years to come as we continue to add salespeople and expand throughout all of Florida and become more of a specialty broadliner. It will start to mimic our classic business, which is New York. And the West Coast continues to mature towards that New York model. We still think that it's going to double even though we're getting to a pretty good size out there.

Texas, we think, is going to be a top 3 that's starting to have great growth and becoming more of a Chef Warehouse, the same in New England. So the smaller markets, even though they can grow 20%, 30%, 40% a year, they're still smaller markets. And the big markets are still going to drive our march towards our next goal is $10 billion. And we see a lot of that coming from the major, major markets, Texas, California, all of New York, New England, Florida, where the density of, obviously, the populations are.

Very helpful. And can I just add one more on just the gross margin. You touched on it a little bit, but I guess, the center of plate margin seemed quite strong in light of the magnitude of inflation. Maybe you can just help us understand what drove that, how you're thinking about that going forward? And just inflation overall, how your customers are handling that? It sounds like the sales force is managing that very well, but just any color that you're getting from your customers?

Yes. Look, I don't think -- I'll just go back to what I said to an earlier question that the diversity of our product portfolio, the expertise of -- and maturity of our teams that are collaborating to manage through that. They've done an amazing job. I mean center-of-the plate year-over-year had some inflationary.

But during the first quarter, the sequential changes in prices are actually deflationary coming out of December into January, February and March. It's just a seasonal impact that happens every year. So that played out and is actually a little more pronounced. So I think the improvement in margin was really our teams really managing very effectively through that environment, through that sequential pricing environment. And it's just a testament to how they've been managing their business.

Yes. And Kelly, it's a little confusing just to look at margin. You get some deflation. We expect margin to go up just because of the volatility. Usually when prices really shoot up, we're managing towards gross profit dollars versus margin because really, our basic overhead is kind of fixed. So it's really the gross profit dollars we take to the bank. And the mix starts to change. And this is why the way the protein team manages again, is towards figuring out how they can hit the gross profit dollars they need to run their businesses and the profitability that we need.

So it gets a little fuzzy because the mix starts to change a lot when you have a lot of inflation. We always say people start to eat more premium hamburgers than steaks, maybe at the non-steakhouse kind of dining out, you sell more chicken, you sell more sausage. So it's a big mix of products. But again, the demand for the premium products that we sell, even to -- I don't want to say to my surprise, but it kind of plays into what we're seeing with the higher-end consumers are not going to not order a great steak because it's $5 more.

So I've always thought that, that consumer base, I think it's my 41st year. I have not seen that trend change, right? So gas prices going up $0.30, $0.40, $0.50 a gallon doesn't change a lot of that behavior. And I think we're just consistently seeing that.

The next question is from Peter Saleh from BTIG.

Great. Congrats on a great quarter. I did want to come back to the conversation around margin. Your EBITDA margin this quarter was exceptionally high and much higher than what we were modeling, highest on record. Just I know you guys have talked about maybe 20 basis points or so of EBITDA margin expansion every year.

But if you flow through these numbers to the year, you kind of get there without any more expansion. Just can you help us out a little bit in terms of -- do you think that 20 basis point number is kind of still the good number going forward? Or have we hit kind of an inflection point where we should start to see a little bit more EBITDA margin flow through to the bottom line?

Yes. Thanks for the question, Peter. Yes, look, I'll go back to what I said. If we didn't have the uncertainty in the Middle East right now, I think we would -- we usually don't this early in the year, update our guidance, but I think we would have. If we had some sort of certainty around what's going to happen in the Middle East. Once again, it's less than 10% of our business, but we don't know how it could play out the rest of the year.

If it stays where it is or gets better, I would imagine we would be adjusting up. And '25 over '24, we delivered more than 20 or 25 basis points of EBITDA margin improvement. And I think to what Chris mentioned earlier, we're really starting to see the operating leverage from all the investments that we've made. So there's certainly a really strong possibility that we will -- we can deliver more. It's just early in the year and the uncertainty around the Middle East is preventing us from adjusting that up right now.

Yes. And then can I just ask on the capital structure and share repurchase? You guys repurchased $10 million in the first quarter. Your leverage is just naturally delevering. Should we expect more share repurchase as we go through the year? I mean, how do we think about that for the balance of '26?

Yes. I think we haven't really changed our outlook. We want to remain with some dry powder to take advantage of some potential acquired growth that may present itself that could be strategic and accretive important for our growth plan. We want to continue to repurchase some shares opportunistically. And we may continue to very gradually pay down some debt. So I think we're going to continue kind of the way that we've been operating in the last year or two. I don't see a major change, but we certainly could allocate more towards share repurchase should the opportunity present itself.

The next question is from Brian Harbour from Morgan Stanley.

This is Hilary Lee on for Brian Harbour. Congrats on the quarter, guys. Just wondering, outside of the Middle East improving, do you guys see any other potential tailwinds for the consumer?

We're really happy with what we're seeing at this point. I think a real possibility uptick right now is what we're hearing with the World Cup, right, being in the United States and a lot of our major markets. So we don't build these things in, but I think with -- I forget how many millions of people coming in for the cup in our major cities, I think it's going to be really good for our customers.

So we think the consumer of our -- the restaurants and hotels that we supply, the spending, what we see is strong, and we have not heard of anything really changing. We think bookings are strong and our customers are optimistic. So we like the way the year is -- besides the Middle East, we are really enjoying what we have set up to supply for the next X amount of years really lining up in our favor.

Got it. And kind of just a follow-up on that. Like have you guys ever seen or are you able to quantify any impact that you've seen from any other major events like the Olympics a couple of years ago?

We don't really quantify it. Obviously, when there are events, whether it's F1 or something like the World Cup or the Olympics or other types of events, we do see a temporary bump, but it's not something we model in for the long term.

The next question is from Todd Brooks from Benchmark Company.

Obviously, strong results in Q1 in the U.S. And Chris, you talked to the typical seasonal acceleration. Jim, you pointed to kind of normalizing maybe kind of 12% organic growth if you take out weather and CME. You talked about double digits in April.

I know we're also going into a strong period here with graduations, Mother's Day, return of outdoor dining and then you just pointed out the World Cup. Are we still accelerating as we go into Q2? And Chris, when you're talking to clients, just what's their outlook on kind of the -- how the table is being set for them for the next couple of quarters here?

Cautiously very cautiously optimistic, Todd. I mean the Middle East, obviously, was not in our plans because, I mean, the business is really strong. Nobody has a crystal ball, but we don't really see a change in behavior. I think that we've invested for more -- to take more market share and be the premier high-end partner for the world's greatest chefs. And there's been a shift, and it's I don't see that shift of consumers willing to give other things up, except for they're extremely affluent that nothing really is going to change their behavior as far as dining out and travel.

I just think it's -- the acceleration is, I think, more consumers are choosing to -- for the experience for the travel, for the dining out for those sports experiences versus other things in the past, maybe things they would have bought or spent more money on. So I don't see that changing. And I think our customers are benefiting for it. We see a consistent investment in more restaurants, more hotels opening, more parties, lots of catering and more people visiting the United States on the high end, obviously plays in our favor.

That's great. And then, Jim, just a question for you. And Peter was asking the question about the EBITDA margin expansion and the profitability of the business. How much of this now is kind of related to the existing facilities that you've stood up just putting more volume through those facilities versus how much is due to the investments that you've made around technology and process and people that you guys highlighted at the Investor Day. If you were attributing the gains that we're seeing in EBITDA margin, how would you kind of parse it between the 2?

Goldilocks.

Todd, we don't necessarily put a dollar amount or percent of our accretion of either adjusted EBITDA dollars or margin to a particular bucket. But what I would just go back to kind of what Chris has talked about in his prepared remarks and also what we talked about earlier in the call, and that is all of these things coming together. I think the investment in training in our salespeople, especially in the nascent high-growth markets that we've put infrastructure in to give them capacity and folded in acquisitions.

And then you start off with a young maturing sales force and as they grow with the leadership team that we have regionally, very experienced leaders that have run distribution businesses, food distribution businesses themselves before joining us and know every area of the business from sales, operations to procurement to pricing, they benefit from that. And as Chris mentioned, just marrying technology with knowing our customers better, that together with the infrastructure investments and just the experience and growth of our teams that are managing pricing and procurement and operations, it's all coming together.

It's all -- there's not one thing that we would point out that says this is driving our EBITDA margin higher. So I would say that, and I'd ask Chris to add anything that he might want to add.

Yes. I think, Todd, when I look back, I think it's what we -- it's a 15th year being public. I thought it would be easier at that point. But I think lessons learned is that to build something like Chefs' Warehouse, it just doesn't get built overnight. You got to have all the technology in the world. And of course, it really helps, but it's just so much more complicated. Like as you just said, it takes the buildings. It takes the maturity. It takes years to develop a team to win the Super Bowl. It's not put up overnight, even though you might have the talent, it just takes that long. So I think it's really Goldilocks.

If I wrote a book, it just takes -- it takes a lot longer every time we go on a new path to build a new territory, it always takes a lot longer to master a new category, it takes a lot longer. So I think what we're seeing, obviously, the consumer is -- our customer is able to spend for the better things in life, we sell good, better, best, right? So I think people are really appreciating the mastery of these great restaurants and their talented chefs that are putting the food together.

And I think it's like an orchestra, right? It has to learn how to play together and just get better and better. And I think the Chefs' Warehouse complete business, whether it's produce, whether it's groceries, whether it's dairy, protein, I think it's just getting better and better, and I think we're seeing the results.

Congrats to you and the whole team.

[Operator Instructions]

The next question is from Margaret-May Binshtok from Wolfe Research.

I just wanted to ask on the placement growth, the 6.2% you guys saw seems to be accelerating. I guess which lever is doing the most work here from your sales force and new hires or digital penetration?

I think, again, it's all the levers that are contributing. So I think it's a little bit of everything, getting leverage on the new facilities, right? The more volume, more profitable volume we pump in, you get a bigger bottom line. The technology adding placements is giving us an uptick, growing into facilities in new territories. we're getting leverage. So it's a little bit from a lot of different parts of the business that is giving us that bigger bottom line at the end of the day.

Super helpful. And then I just wanted to ask on the M&A environment. Given what we were seeing with the macro and some volatility, has that changed valuations that you guys are seeing out there at all or the pipeline or sellers more motivated?

The pipeline is frothy, but again, years ago, we had to do more M&A to get into the markets faster to build a national business and now an international business. So we're just -- we're not in need of a lot of M&A. So we're just very patient. And we've seen some multiples come down in some deals that have hit our table. But we think that at a certain point, we'll have some good M&A to add to what we're building, but we're just very, very patient at this point.

There are no further questions at this time. I would like to turn the floor back over to Chris Pappas for closing comments.

We'd like to thank everybody who joined the call today and take time to learn a little bit more about Chefs' Warehouse, and we're really proud of the last quarter and what the team was able to accomplish. And we remain very optimistic about the future. And, hopefully, this conflict in the Middle East settles down. And we look forward to everybody joining our next earnings call. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time.

Well, good morning, everyone. I'm Mark Carden, the North American food retail and food distribution analyst at UBS. Thanks so joining us today. We are thrilled to have the team from Chefs' Warehouse with us. We have Chris Pappas, the company's Founder, Chairman, President and CEO; and Jim Leddy, the company's CFO.

And we're going to dive into questions. And appreciate you guys joining us today. If you guys do have any questions throughout the presentation, please feel free to use iPad, and we can read them into the conversation.

But maybe to start, obviously, there's a lot that's going on right now with the consumer, and we'll get into the Middle East in a little bit, but we'll start more high level with the overall business.

And you guys have operated a really resilient business. That's been holding up better for you guys than it has been for the broader food away-from-home industry at large. Just what's the latest on the state of your consumer?

So our customers' customer seems -- I've always thought that when we started the business 40 years ago, we went into different types of customer base, food service, trying to find our path. And obviously, we followed our passion, which was great food, selling to great chefs.

And not a lot has changed in 40 years that customer's customer is very resilient. There's always conferences, there's always business dinners and luncheon. There's always high-end travel. There's always birthdays, bar mitzvahs, holiday parties.

So it continues to be extremely resilient sector of food away from home. And it's -- I think we said -- we saw last year was a great year, and we said coming into this year, we just saw the momentum continuing.

Then at the end of the quarter, there was some talk about disinflation coming into play, and that has been a bit of a shift. But obviously, there's been a lot going on in the world today. Any shifts to how you're thinking about the inflation outlook over the course of the year ahead? And just how it could impact your broader margin structure?

Yes. It's a good question. We're very diversified not just regionally and categorically, but we have 90,000 SKUs going through our distribution centers around the country and in Canada and the Middle East. And within those, we might have hundreds of different products that we're a solutions company, we provide our customers with solutions, we import from over 40 countries around the world.

So having that diversification allows you to really manage inflation and deflation very effectively. And if you have a weather event in Spain, you can use your private-label olive oil in Turkey or somewhere else to provide a customer with a really good solution.

So things like tariffs, significant inflation, we saw pretty significant volatility in protein this last year. And then also on the deflation side, we saw dairy products highly inflationary last year and then deflationary this year. And yet we continue to manage that very effectively.

And you may have significant inflation in certain products deflation. But if you look back in history, we always land in this kind of aggregate inflation environment of kind of 1% to 4%. And that's what you saw last year saw about 3% to 3.5% inflation company-wide despite tariffs, despite significant volatility and in some of those products like protein. And so I think our team has just become very effective at managing that.

And you touched on the point of tariffs. Obviously, we've seen a shift recently just with the courts tariffs, 10% to 15% global tariffs potentially going into place. How does this impact your sourcing strategy with some of the specialty products that you guys import? And just talk a bit about your detail approach your assortment and the degree of flexibility that gives you.

Yes. I mean it really doesn't change the way we go about -- we offer good, better, best, right? That's what Chef's Warehouse is known for, selling upscale casual to 4-, 5-star best restaurants, hotels in the world, right?

And we leave it up to our customers. I mean we have over 1,000 people in our sales department. So of course, they're pitching what we'd like to sell. But ultimately, the customer makes the choice. And I think when you're dealing with $20, $30, $40, $50, $60, $70, $100 entrees that we're talking about, no one's not going to order something for a dollar.

So that's why I really like our sector, and we continue to get better at every part of the business. So yes, nobody likes to see prices go up. Like Jim said, I'm amazed when I look at it because you hear the news, it's either massive inflation or it sounds like massive deflation. And then we look at it and like, it's like 2% overall because we sell such a giant mix of products.

But the tariffs, I think the first round, our manufacturers, our farmers, growers; I think they passed on some, ate some of it. I think this time, it's -- we -- I think we're getting so used to it, we're like, okay, what does this mean now? And I think that we really don't know because the new tariffs replace the old tariffs, but a lot of products had tariffs anyway. So I think the difference is not something that is significant.

And none of our departments, our category managers are panicking. Like Jim said, we offer -- olive is a great example. We import olive oil from Spain, from Italy, from France, from Greece, maybe from Tunisia, even from Argentina, from Australia.

So we have lots of different options. And we leave it up to the customers, what profile they want. Do they want to save a dollar? They want to stay where they are? And I think after 40 years of building this thing, it works because we do have the solutions and the options for customers to make their choices.

Interesting. Was the customer as nimble as you would have expected, call it, a year ago just in terms of switching from maybe that olive oil that was maybe going from Italy to product from Italy to a product from Greece, that product from Tunisia?

I think the -- again, our group of customers goes from a really good takeout coffee shop that wants better croissant than a better assortment of things to sell. That's not $100 an entree, right? So customers like that may choose to change more of our middle- to higher-end customers. I think they play with their menus more than anything else. They're really good at it. A lot of our customers for -- we've been serving for 40 years.

So if you start to pay attention to menus, they start to adapt, they'll go to market price on certain entrees, and they'll mix the menu up where they don't have to raise prices, even though some of their costs have increased on some of their entrees, and they'll have other appetizers, entrees, beverages that they can make back the $1 or $2.

And they're really smart, they're entrepreneurial. Most of them are independent, and they find a way to make it work and keep their customers coming back and still make their profits.

Got you. And then another big event this year, of course, is the potential for higher tax refunds, potentially some more cash in consumers' pockets overall just from one big beautiful bill, solve reform. What's your take? Would you expect for that to have a material impact?

We don't -- I think we've gotten this question about the potential tax refund bump and also the World Cup. did we build that into our guidance? And the answer is no. We think it will be some upside. We saw that with some other events that happened. We see it when F1 comes to Vegas or to Miami, you'll see a bump, but they're temporary. So it will be good. It will be good for us, but we don't actually build it in.

Yes. I think until the war or whatever you want to call what's happening in the Middle East, I think we're cautiously optimistic. And like Jim says, we don't build it in, but we thought it could be a big bump because of the amount of people that were coming and they were going to need to stay in hotels or -- and they were going to need to eat and a lot of these people are celebrating, some more than others, depending on how your team is doing.

But just from other World Cups and reading about the uptick where the games were, you would have to expect there was going to be a good uptick. So now TBD, I guess, we'll see how everything is playing out.

And maybe on that, obviously, a big subject with everything that's going on in the Middle East. You guys have a very successful business in the Middle East. I guess about 9% of your overall sales are international, with the Middle East being obviously a component of that. How should we think about the impact of recent events on your Middle Eastern business?

Good question. I just came back. I came back right before the bombs started falling. And I'm like, wow, if I was 30 years younger, I'd move here. It was so dynamic, the feeling, the amount of [ frame ] and building and new customers. Again, it's a small part of our business, but it's a very exciting part of our business.

And it's amazing how resilient it was. Obviously, there was days that business was really impacted and then even during this, we saw really good days of business. So still a lot of people live there. Obviously, if they're hitting the airport with drones, it's not going to be a good day. But I think it's resilient.

I think -- I mean, who has the tarot cards, but the amount of infrastructure and commitment in Saudi and Dubai and Qatar, again, we just finished some new facilities, I think that who knows how long this goes on. But I think there's so much money there committed to people that want to live there. It's clean, it's safe, it's got an unbelievable airport.

I mean I get it. It took me a while to really understand like how is this city just blossoming and continuing to grow. And it finally made sense before the drones started coming, why so many people were putting their money there becoming a financial capital, tourism, obviously, clean, safe place, good schools, great medical. So I'm still very bullish on it.

Got you. It sounds like demand has fluctuated kind of on a day-to-day basis that.

Yes. I mean it was a lot better than I expected.

Interesting.

Yes. And now it's, of course, we'll see how this thing is playing out, hopefully, in the next week or so.

Got you. And then outside of the direct impact to your Middle Eastern business, obviously, big issues and implications from oil. How do you think about any incremental risk to your supply chain? And would you expect this to be material to your expense structure? How are you thinking about that?

We have some challenges on the supply chain, obviously, in the Middle East right now. But our team navigated that really well a couple of years ago when you had the issue with the Red Sea and you had to bring them around Africa, and they navigated that really well. And so we're in contact with them every day and assisting them in any way we can.

But overall, our supply chain, we don't really see major issues. I mean, during COVID, you had a container coming across the Atlantic go from $1,500 to $13,000. That obviously came way back down. So that was temporary. We think -- I mean, we estimate that if there's anything, it's going to be somewhat temporary, but we don't see a macro impact to our supply chain right now.

Got you. Are you expecting any material implications to inflation from fuel costs going up?

Not really. I mean diesel prices kind of spiked up. They've leveled off a little bit. It's not our biggest cost, and we manage it centrally by managing through contracts with fuel suppliers. So we're obviously on top of it and our team -- our operating teams are working on it, but we don't see a huge impact right now.

Got you. Is a large percentage of the fuel price simply passed through? Or how does that structure tend to work for you guys?

We do -- in certain circumstances, we'll put a fuel surcharge on the invoice. It really depends on the market, the region, the customer. And it's something that we don't do lightly. It will be in a situation like maybe you had a few years ago where you had a spike in a -- significant spike for an elongated period of time.

We don't have a lot of contracts, but the ones that we do, there is a trigger where diesel passes a certain point, there's an upcharge on the invoice. So like Jim said, our drives, our trucks go 20, 30 miles -- you're looking at them all around New York. They're not going very long distances.

It's really what the supply channels, what triggers the -- they'll look to see if they could put a surcharge on our deliveries for product. Again, we sell expensive boxes. So $0.20 surcharge on a $100 box is not going to be tremendously impactful.

Let's pivot over quickly to your sales force. You guys made a lot of progress pursuing a hybrid selling model with more customers using digital tools as well in recent years to kind of complement the face-to-face interactions from your sales force. Can you walk through a bit on just how this has changed your selling strategy and the extent to which it can impact how you think about headcount growth over time?

Yes. So again, we are celebrating our 41st year now, hard to believe. But the way we envisioned this business, because I guess we've been in it so long, and we speak to customers. We monitor our customer base. We see the interaction, and we see how the industry is constantly going to change, right? Technology is always going to change industries.

But we saw how to use -- we've been using AI. We just called it something different. And obviously, our digital team is getting more and more of our customer base online. We saw that evolution coming. And we also saw -- I wanted to have an option where as we grew, because remember, we were mostly a Northeast company and then we started to stretch out and then stretch out all over the country and then went to east; how are we going to sell all these products?

And watching all these other companies do it wrong in a way, gave us a map of if we're going to sell more categories and especially to the best chefs in the world, we have to be experts, we have to have the best of all offerings. And the people that we send there have to know what they're talking about.

So we started putting together this puzzle a long time ago. So when people see our success right now in -- population growth is really not there, right? So you look at us growing round numbers close to 10%.

You're saying, well, where is the growth coming from? It's not a surprise for us. I mean, we're happy about it, but it's come from a lot of tactical strategic investments over the past x amount of years, building our cut shops, so they were closer to the busy market. So we had the service, adding experts. We call it team selling.

I think we started calling team selling before people knew what team selling was. Even I didn't know what it was, but I know it sounded good and I wanted to build the team. But having people that my experience growing up in the industry that nobody knows 20,000, 30,000, 80,000 items.

I used to watch salespeople come into our accounts and especially from big broad liners, and they're selling at gas station, convenience stores, and they're selling at prison, they're selling hospitals, they're selling -- and then how do you walk in there and start talking about caviar and foie gras and some of the high-end ingredients, I'm like I don't think it's going to work.

And I think for us to be successful, to be where the chef shop, we're going to have to have real departments with expertise and walk the walk. And it's more expensive, right? So you got to build the department, you got to acquire the talent. We had to buy certain businesses to get the talent, to get the expertise.

And then we had to get the technology, the computer systems to integrate. Maybe they won't integrate 100% overall, but we have tremendous now ability to make it easier for the team to be able to sell and for the category managers to watch the inventory because it's not just making the sale, it's making sure that you have it. A lot of it is perishable. Is it going to make the truck? Is it going to slow up the truck?

So every -- even my daughters say, "It sounds easy, Dad. You bring product and you sell it." I'm like really simple. I just snap your finger, the stuff comes in. And again, a lot of products are simple. But what we do is really hard, and that's why I wanted to make sure we built this moat around the business with all these categories and expertise. And it's not easy.

And we like it that way because it makes it more difficult for anyone really to disrupt us. I mean we always have competition. There's always somebody selling something, and you're never going to sell everything. But I think our team, the more mature they get, the better trained they get, we have our Chefs' Warehouse University. We're upping that investment into better curriculums, how do you turn somebody into a Chefs' Warehouse expert? Not easy. No matter what your background, it takes time.

So first year, second year, I always say, I don't want to talk to you to you being in 5 years, right? Because you're really not going to know what you're talking about. You'll know enough to make me upset, okay? Because it just to understand it all and the logistics side and the customer side, it just takes time.

And that's why when I hear, well, people were adding reps. And yes, we're adding -- we're always adding reps. You don't want to lose mature reps. It takes too long to teach them.

It's interesting you bring up that 5-year point. Just as you think about that ramp from a maturity standpoint, I mean, is the biggest gain we hear from others could be from your 1 to 2? Is it 2 to 3? Is it not until you get to 5? How do you think about that curve, so to speak?

I think that it's -- I have a future [ son ] as a doctor watching them go through medical school and now residency and all that. I'm like -- they're not becoming doctors, but I mean, I would not want to go to a doctor who had 1 year medical school. I mean they know enough to be dangerous, right? They're smart, they're learning. But every year, they're going to learn more.

And it's kind of the same when you're selling these many products and the complexity of logistics, supply chains. Things are constantly changing. Is it free range? Is it organic? Is it almost organic? Is it really organic? And on and on and on.

So yes, the technology we have right now and with AI and building the information for customers, it makes their job so much more efficient and easier from back in the day when we wrote on a little card information for them and say, just read this to your customer and tell them all about this.

Now you can go online, you can watch our videos. You can come to our shows. Our shows -- our New York show had, I think, 3,000 customers who came, and we had hundreds of vendors. So that's part of the education. But it's kind of like medical school. There's people that they finish the fourth year, then they go on to do a specialty.

And that's kind of like our specialists. They're going further, they're going really deep in our cut plants. We want them on the floor. We want them to really learn how we cut the stakes or cut the seafood fillets. We have a tremendous amount of trips all over the world for them to go visit our farmers, our producers. So to become -- I say I want to give my lapel thing that said, you know what, I'm here for 5 years. I actually can go see Chris.

That's a big step. Maybe one more on the sales force before we pivot on. But just in terms of as you think about those AI tools that you guys have been rolling out and how they help salespeople understand your more complex assortment. You also talked about team selling.

I guess the first part would be, how has uptake been on the AI tools relative to your expectations? Have people embrace them as quickly as you had hoped for? Has it been faster than expected?

And then the second part is just when you think about team-based selling, is it still the same number of people on the team? Is it smaller team, so you just have more of them and you can reach more? How do you think about that interplay?

I think -- I mean, the goal is to do more with less, right? So that's why you're watching our EBITDA percentage -- EBITDA start to climb, climb, climb, we're getting leverage on our overhead. I mean it's not -- this is not brain surgery. The more money that's on a truck and the same amount of hours, you'll make more money, right? The more boxes they can pick on a shift, you'll make more money.

So I think all the tools are to make every department more efficient, and we are seeing that. It just gets -- it's getting better and better. How many less people will you have, say, per dollar spent is the question. Maybe I thought it would be more rapid, but what we're still seeing is quality people produce. And so we're not slowing down on hiring, but I think we're able to get more with less. And I think that's the goal.

So Hardie's, obviously, gave you guys scale in Texas. You've been making a lot of changes within that organization. Can you walk through essentially where you stand with Hardie's today?

Well, with Hardie's, we're in the process of integrating our kind of legacy CW specialty business. We built an Allen Brothers protein cut shop in Dallas, located very closely to our Hardie's business there as well as CW. We're in the process of securing a new facility to consolidate similar to what we've done in New England.

We also have presence in Houston, San Antonio and Austin. But the focus right now is to consolidate in Dallas. And it's going incredibly well. It's process of combining the sales force, gradually integrating the cultures. And then we'll really get the aha once we get the facility in place where you have everything going on the same truck.

Our produce business, which is Hardie's; our specialty legacy specialty business, which we've already integrated from a commercial perspective, we are getting a lot of those boxes cross-selling on the trucks.

We bought Hardie's not because they were making a lot of money or they were a specialty company. They just had a really good customer base for a portion of their business. There was a smaller portion that I think you're aware, we've been trading out of over time. And those are kind of some big, what we call big chunky corporate business that didn't make a lot of money, didn't make sense to point our resources at.

And so we've traded out of most of that. And now it's a process of kind of doing what we did in New England, taking -- combining our companies and over time, turning it into a true Chefs' Warehouse. And we're in the second inning of doing that. And we've already started to get their EBITDA margin up on a combined basis. And it's really -- the goal is just to get it to higher than our average as a company.

Yes. Beginning to look a lot like Christmas in ways. So yes, we're really proud. The team there is starting to really find their legs and not easy, multiple warehouse, multiple computer systems, different customer base. So we knew it would take 5 years when we bought it. We bought it, we thought for the right price. It wasn't a company that was exponentially growing.

Like Jim said, they had a great base. great. They were great at what they did in deliveries and logistics, handling produce. So our experience from before, having done this is once we get people trained, which is the hardest part, I forget what year we're on now, but you could start to see it happening.

You're starting to see all the new items going to customers. You're seeing -- starting to see the EBITDA margins rising. You're starting to see people get confidence and to sell more and more products that they never sold before. So I think Hardie's over the next 5, 6, 7 years could be top 3 markets for Chefs'. Top 3. Yes, I...

What are the other 2 for you?

I don't want to upset anyone listening, but because we love all our children. But we really love Florida right now. I mean, Texas and Florida, obviously, have population growth. It's no secret. A lot of companies moving there. Money is growing.

Everyone likes to make fun of California. We do unbelievable in California. Every time I go out there, I expect to see like a line of people leaving. And like there's a lot of people here. And they're eating really well. A lot of money. The same in New York. The -- you're seeing in news like everyone is leaving New York. Jim look at our numbers every day. I'm like New York is doing really well.

Jim, you pointed out just in terms of some of the attrition you guys have done with Hardie's. Just can you talk about the capacity that maybe has freed up, how quickly you can essentially use that to help [ cheopsized ] the business?

Yes. Yes. It's created some capacity in the near term. I think like I mentioned, the real aha will be when we secure a new building and then really consolidate. That's where you get the operating leverage, and that's where you get all the categories in one building. It's a place where you bring customers to see how it works.

They see a cut shop, they see us cutting fresh fish, proteins, they see produce, they see specialty. And we have state-of-the-art test kitchens where they'll test their products, and that's a great networking tool and a marketing tool.

So yes, it's similar to what we've done on the West Coast, we've created some capacity on the West Coast with some attrition out of some noncore business there. We've done that in Texas, and that allows us to grow the -- what Chris talked about in the whole sales discussion and how that works. So yes, it's...

Just the fact that we're growing and the EBITDA margins are going up is just a testament to the team. I mean, we couldn't make it more difficult for them right now. Multiple facilities, they're touching things 3, 4x, multiple computer systems. So it's just a testament to that the market is there. The market loves our product, and we're able to do business and grow it.

So we started in Florida. We had 1, 2, 3, I think, 4 outside storage facilities, 2 other cut shop facilities. Once we consolidated in Florida, it just exploded. And it just continues to grow exponentially because it's -- I always believe as a salesperson, selling it has to be easy, right? Easy is going to win. You have to make it easy for the customer, easy for the salesperson.

And once these facilities are retrofitted in Texas, it's going to be so much easier. And it's going to be like lifting a weight off their back that all they have to do now is focus on selling. And we know the market is there. We just see the sales coming in, the inquiries, the amount of new customers and they're growing even in this environment. So we're really excited about Texas.

And then you guys point to a lot as a parallel with the Texas conversion, just the operation you guys bought and really [ cheopsized ] it over time. How long did that process take, I guess, when you got in there at [ Sid Wainer ] from when you bought them to like when you were happy with them? And is Texas...

More I really want to go back in history. So we bought [ Sid Wainer ]. We got hacked. So after surviving the hack, somebody lit explosives in the parking lot and blew up trucks and part of the building. And then COVID hit.

A month later...

So it was -- I'm like, I don't know if this was a good idea. But yes, so then we put humpty dumpty back together again and -- as we started letting go of nonprofitable business. So [ Sid Wainer ] was a great brand. Historically, it's been around, I think, three generations, was not really making any money for many reasons. So we knew that we were going to have to go backwards before we went forward.

And today, even without the right facility, we're still touching products in multiple buildings. They're making really good money. But -- and it's again, a testament to the team. We have great leadership, the product mix, the customer base, you're going through Vermont, New Hampshire, all the way up to Maine, all the islands.

Boston is actually -- it's a small town overall compared to some of the other big cities. So it's logistically challenging. We're great at that. And the leadership there now has figured out the balance. I mean the best is yet to come there. We're building them a new facility. So we think it's going to be exactly like Florida. They're doing great. But once they're in that new facility, they're just going to explode.

Let's pivot over to M&A, area that you guys took a little bit of a breather from after doing the spate of M&A post-COVID.

We're getting a lot of good deals right now on the border of Iran. There's going to be a lot of opportunity. I couldn't help that one.

We've been really patient. We did a lot of M&A for a lot of reasons. We had to just to get the footprint. And then coming out of COVID, it was all the deals that were in the hopper were so backed up. So it just -- we did one after the other, and it was extremely challenging.

Kind of took a break to get everything more organized, and I think the numbers are showing the efficiencies gave the team time to catch up. And we're open for business. Like I tell all the brokers that want to sell us something, you just got to bring us something that's priced correctly or something that we really need and except for a few little deals.

We look at it and like we're growing organically at such a high rate. It has to be something compelling because I think we have a lot of our pieces. We still have that white space in the South to connect Virginia to Florida.

But other than that, we want to do tuck-ins because they're very low risk as we build facilities that have a lot of excess space, tuck-ins are extremely accretive. And we'd love to buy something great. We're a growth company, that's something that we think is going to grow. But it just has to be compelling at the right price. And right now, we're just focused on growing the business and being disciplined. And usually opportunity will show up.

Fair enough. And when you think about that area and the white space opportunity you guys have in the Southeast, how do you think about the balance between -- do you have to acquire to get scale there? Can you see yourselves growing organically and reaching into those regions?

Organic is hard. We're starting -- what we do normally is we start to send trucks to a depot and then we start to grow an area. We are doing that already. And we know they want chef down there. So we're starting to hire people. And at a certain point, we'll find somebody that we can acquire that gives us routes and then we could fold out from there. Yes.

So just like Texas, there was nobody to buy really, I mean there was no -- which told us the market was open for us. There was -- I would say the good thing about Chefs' is nobody like us. The bad thing is there's no one exactly like us to buy. So we have to buy somebody to get us into the market, and then we start to bring the teams in and the inventory and the experts, and we start all over. It's a rebirth all over again.

So we'll get there. We're patient. We've been talking to a lot of people. We're seeing ways that we can get into that market. But again, what's going to drive a lot of to the bottom line right now is our big core markets, right? Growing New York, growing California, growing Florida, growing Texas, continuing to grow the Midwest. Obviously, all our small markets.

The Pacific Northwest is doing great. They're moving into a new facility up in Portland. We have a new facility in Seattle. L.A. has got a beautiful big new facility. They can triple their business. So we have a new facility up in Richmond, California for Allen Brothers.

So it's not like we have nothing to do. So we have lots of ways to really drive growth. And it's where the people are, right? So we get really excited. We go into Nashville. Nashville is doing great, still a small market. It will grow, but we really need to continue to grow our big markets. We can grow 7%, 8%, 9%, 10% in a big market. Those are numbers that move our needle.

And building on that point, you guys have added obviously a lot of capacity in some of these growth regions over the course of the past few years and you still have some that's underway. Just how has the ramp on in these regions relative to your original expectations?

I think they've gone better than our expectations in a number of them. I mean, Chris already talked about Florida. Texas is still early innings. Dubai has been amazing. We've expanded 3 of our facilities in Dubai, Qatar and Oman, all over the last couple of years. So we've made that investment. They're investing in people. Obviously, you've got the short-term issue with the war, but that's still a big growth market for us.

And Chris mentioned some of the smaller markets, even like the Northwest is growing really high single digits, sometimes double digits. So I would say that they've gone as expected or even better.

Great. [indiscernible] gave you scale in the Rocky Mountain region. How has that gone so far?

I don't know if we'd say scale.

Maybe not scale.

We're excited building.

Eventually, it will start snowing as well. We're retrofitting. We got lucky We found a building that doesn't require a huge amount of CapEx that will allow us to move them into that and quadruple and more of the business. So we think it will scale pretty fast.

Again, it's small. It's a great market. Our team loves seeing our trucks in Aspen and getting stuck in the snow -- when the snow up in Breckenridge or Vail. So it's a great customer -- it's our customers' customer base that gets excited.

There's a lot of money, a lot of upscale tourism. A lot of people with second homes there now. Denver is growing. It's sunny 300 days a year, okay? People forget that. We're excited about it, but it's still -- it's a small market, but it will scale.

Got you. Drop ship model, something you guys talked about briefly at the Analyst Day. Just curious how initial uptake has gone on that front in terms of customers starting to utilize that service.

We've always had some sort of drop ship. I think we called it something else. I think it complements the business well. But the driver of our business is build the demand, have it, have it for next day. I like it when it's on our truck. It makes me feel much more in control.

But it definitely complements and gives our customer base, we call it, the magical sale. We look at what comes in from not in the warehouse and not on our trucks a lot of times, and it just goes to the bottom line. So it's a good addition.

Maybe pivoting to some broader topics, just obviously, artificial intelligence is a big source of discussion really across the consumer industry. Talk a bit about how you guys are able to use it with your sales force. How do you think about artificial intelligence and your ability to deploy it to the broader organization?

And then related, just conceptually, how do you think about that balance in that there's all sorts of opportunities to save money. But if we do see unemployment go up, potential demand implications, I think it's something that a lot of people are really grappling with trying to figure that out.

Yes. I mean I think for our industry, whenever we have a lot of our corporate meetings discuss our challenges, when I hear that it's hard to find drivers, I wish I would have saved like recordings of our first meeting 41 years ago; it's impossible to find drivers.

So really, it's a challenging job. It's a hard job because it's not just driving, you're going downstairs, heavy boxes. So we take care of our people, we try to pay as much as possible.

So any technology to make their job easier is welcome, but I don't see the robust that can replace people that can deliver products and go downstairs in New York yet. So I think that's still a bit away. Back office, I mean, we've been using AI for a while now. I mean we must have systemized so many of the back-office functions.

Yes. I mean, in corporate, a lot of our -- we use a lot of third-party providers, software providers, and they're all integrating AI. I would say where it's been most impactful for us is with our digital team and also our operations team. We're starting to use drones to improve inventory management.

On the digital side, we put in a really dynamic team over the last couple of years, and they've really exponentially grown our digital platform. And so Elements of AI help our sales reps have more real-time information on our customers' behavior, and it gives our customers, our chefs and their buyers a better buying experience. It gives them a window into inventory.

Chris talked about how a sales rep could never know 90,000 products, right? But our search engine is so much more improved through AI that they'll buy things and see things that they never knew we had. And that's been a real differentiator on the sales side, the gross -- I would say that's the most impactful.

In operations, I think we're still in the second inning of integrating AI and robotics. I think it will be bigger 5 or 6 years down the road, but where we've started the process.

Fantastic. Well, I think that just about brings us up on time. Please thank you, everyone, and please join me in thanking both Chris and Jim today. This is awesome. Thank you.

Thank you. Thank you for having us. Thank you.

Greetings, and welcome to the Chefs' Warehouse Fourth Quarter 2025 Earnings Conference Call. As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Alex Aldous, General Counsel, Corporate Secretary and Chief Government Relations Officer. Thank you. Please go ahead.

Thank you, operator. Good morning, everyone. With me on today's call are Chris Pappas, Founder, Chairman and CEO; and Jim Leddy, our CFO.

By now, you should have access to our fourth quarter 2025 earnings press release. It can also be found at www.chefswarehouse.com under the Investor Relations section. Throughout the conference call, we will be presenting non-GAAP financial measures, including, among others, historical and estimated EBITDA and adjusted EBITDA as well as historical adjusted net income, adjusted earnings per share, adjusted operating expenses, adjusted operating expenses as a percentage of net sales and as a percentage of gross profit, net debt, net debt leverage and free cash flow. These measures are not calculated in accordance with GAAP and may be calculated differently in similarly titled non-GAAP financial measures used by other companies. Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release and fourth quarter 2025 earnings presentation.

Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements, including statements regarding our estimated financial performance. Such forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Some of these risks are mentioned in today's release. Others are discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q, which are available on the SEC website.

Today, we are going to provide a business update and go over our fourth quarter results in detail. For a portion of our discussion this morning, we will refer to a few slides posted on the Chefs' Warehouse website under the Investor Relations section titled Fourth Quarter 2025 Earnings Presentation. Please note that these slides are disclosed at this time for illustration purposes only. Then we will open up the call for questions.

With that, I will turn the call over to Chris Pappas. Chris?

Thank you, Alex, and thank you all for joining our fourth quarter 2025 earnings call. Business activity and demand remained consistently strong through the fourth quarter amidst a healthy environment for our core upscale casual to higher-end dining customer base. Our teams across domestic and international markets provided excellent product and service amidst a busy holiday season. During the quarter, we continued growing market share, closing the year with strong year-over-year organic volume growth, unique item placements and new customer acquisition.

I'd like to thank the entire Chefs' Warehouse team for their dedication and commitment in delivering a strong 2025 for our team members, our customers and supplier partners and our shareholders.

As a reminder, earlier in 2025, we eliminated 2 noncore programs in Texas that came with the acquisition of Hardie's in 2023. These programs, one protein program focused on high-volume, low dollar poultry and other a produce processing and packaging program together only represented approximately 1% of our full year revenue. As such, until we lap this attrition in the second quarter of 2026, we will present price and volume metric as reported and also excluding the impact of these changes to present more representative year-over-year price inflation and volume changes for our business overall.

With that, please refer to Slide 3 of the presentation. A few highlights from the fourth quarter include organic net sales grew 9.7%. Organic specialty sales were up 6.4% over the prior year, which was driven primarily by unique placement growth of 4.2%, reported specialty case growth of 3.3% and price inflation. Excluding the elimination of the Texas produce processing and packaging program, specialty case growth was 5.4%, up versus the prior year quarter. Unique customers grew 1.2% year-over-year. Reported unique customer growth was impacted by the Texas commodity poultry attrition. Excluding this impact, fourth quarter year-over-year unique customer growth was approximately 3.5%. Pounds and center-of-the-plate were approximately 2.4% lower than the prior year fourth quarter. Excluding the attrition related to the Texas commodity poultry program, center-of-the-plate pounds growth was 7.5% higher than prior year fourth quarter.

Gross profit margins decreased approximately 8 basis points. Gross margin in specialty category increased approximately 45 basis points as compared to the fourth quarter of 2024, while gross margin in the center-of-the-plate category decreased approximately 50 basis points year-over-year. Jim will provide more detail on gross profit and margins in a few moments.

Now please refer to Slide 4 for an update on certain of our operating metric improvements. Chart 1 shows continued improvement in gross profit dollars per route. Fourth quarter 2025 trailing 12 month was 6.2% higher than full year 2024 and 7.4% higher than 2023. Chart 2 shows fourth quarter 2025 trailing 12-month adjusted EBITDA per employee increased 13% versus full year 2024 and 27% versus 2023. Fourth quarter 2025 trailing 12-month adjusted operating expenses as a percentage of gross profit dollars improvement by 176 basis points versus full year 2024 and 200 basis points better versus 2023.

Before I turn it over to Jim, I'd like to highlight some of the accomplishments our teams across all divisions of Chefs' Warehouse delivered in 2025. They delivered 9.1% full year organic revenue growth, exceeding $4 billion in revenue for the first time in our history. Approximately 18% increase adjusted EBITDA growth, adjusted EBITDA margin of 6.2% and adjusted EPS growth of 29% versus 2024. Strong free cash flow generation, providing for continued investment in regional growth with the acquisition of Italco Specialty Foods in Colorado, with continued investment in distribution center capacity expansion and facility consolidation, strengthening our balance sheet with net debt to adjusted EBITDA approaching 2x leverage. And the return of cash to shareholders via our share buyback program.

Once again, I thank all of our teams across Chefs' Warehouse for their continued investment in talent, technology, category growth and operational efficiency. All these areas and many more allow our businesses to continue to provide our growing customer base with the highest quality product and service, supplier partners with market share expansion and our team members with opportunities for career enhancement.

With that, I'll turn it over to Jim to discuss more detailed financial information for the quarter and an update on our liquidity. Jim?

Thank you, Chris, and good morning, everyone. I'll now provide a comparison of our current quarter operating results versus the prior year quarter and provide an update on our balance sheet and liquidity.

Please refer to Slide 5. Our net sales for the quarter ended December 26, 2025, increased approximately 10.5% to $1.143 billion from $1.034 billion in the fourth quarter of 2024. The growth in net sales was a result of an increase in organic sales of approximately 9.7% as well as the contribution of sales from acquisitions, which added approximately 0.8% to sales growth for the quarter. Net inflation was 8.3% in the fourth quarter, consisting of 3.4% inflation in our specialty category and 16.1% inflation in our center-of-the-plate category versus the prior year quarter. Reported inflation was impacted by 2 primary factors in the fourth quarter versus the prior year quarter. Center-of-the-plate inflation was impacted by the commodity poultry program attrition in 2025. Excluding this attrition impact, net inflation in center-of-the-plate was 9.5% versus the reported 16.1%. Continued growth in specialty cross-sell as we further integrate CW and Hardie's causes elevated reported specialty inflation for the fourth quarter.

Excluding this impact, specialty inflation was approximately 0.8% and overall inflation for the company was approximately 4.3% versus the prior year quarter. Gross profit increased 10.2% to $276.6 million for the fourth quarter of 2025 versus $251 million for the fourth quarter of 2024. Gross profit margins decreased approximately 8 basis points to 24.2%.

Selling, general and administrative expenses increased approximately 8.9% to $225.2 million for the fourth quarter of 2025 from $206.8 million for the fourth quarter of 2024. The increase was primarily due to higher costs associated with compensation and benefits to support sales growth, higher depreciation driven by facility and fleet investments and higher self-insurance related costs. Adjusted operating expenses increased 7.4% versus the prior year fourth quarter. And as a percentage of net sales, adjusted operating expenses were 17.2% for the fourth quarter of 2025.

Operating income for the fourth quarter of 2025 was $43.2 million compared to $46.5 million for the fourth quarter of 2024. The decrease in operating income was driven primarily by a $10.5 million increase in other operating expenses, which reflects an impairment charge on a noncore customer relationship intangible asset of $8 million, partially offset by higher gross profit versus the prior year quarter. Our GAAP net income was $21.7 million or $0.50 per diluted share for the fourth quarter of 2025 compared to net income of $23.9 million or $0.55 per diluted share for the fourth quarter of 2024.

On a non-GAAP basis, we had adjusted EBITDA of $80.3 million for the fourth quarter of 2025 compared to $68.2 million for the prior year fourth quarter. Adjusted net income was $29.9 million or $0.68 per diluted share for the fourth quarter of 2025 compared to $23.9 million or $0.55 per diluted share for the prior year fourth quarter.

Turning to the balance sheet and an update on our liquidity. Please refer to Slide 6. At the end of the fourth quarter, we had total liquidity of $280.5 million, comprised of $121 million in cash and $159.5 million of availability under our ABL facility. Subsequent to the close of the fourth quarter of 2025, on January 20, 2026, we completed the repricing of our term loan maturing in 2029. The fixed spread above SOFR was reduced from 3% to 2.5%. As of December 26, 2025, total net debt was approximately $529.5 million, inclusive of all cash and cash equivalents and net debt to adjusted EBITDA was approximately 2.1x.

Turning to our full year guidance for 2026. Based on current trends in the business, we are providing the full financial guidance as follows. We estimate that net sales for the full year of 2026 will be in the range of $4.35 billion to $4.45 billion, gross profit to be between $1.053 billion and $1.076 billion and adjusted EBITDA to be between $276 million and $286 million. Please note, for the full year of 2026, we expect the convertible notes maturing in 2028 to be dilutive, and therefore, we expect the fully diluted share count to be between approximately 46 million and 46.7 million shares.

Thank you. And at this point, we'll open up to questions. Operator?

[Operator Instructions] Our first question is coming from Mark Carden of UBS.

This is Mat Rothway on for Mark Carden. So with the extreme winter weather that we saw at the end of January and early February, how have your year-to-date sales tracked versus your expectations?

Thanks for the question. January was -- obviously, January is seasonally the slowest or weakest month of the year in the industry. But our January was actually very, very good, very strong. The storm impacted the first fiscal week of February, and it will be a temporary impact. It really impacted that 1 week and the second week of February bounced back really nicely.

Great. And then as a follow-up, at the midpoint of your guidance, it implies a flat gross margin for the year and some healthy operating expense leverage. Can you talk about some of the drivers of that operating expense leverage?

Yes. We -- if you look at us, we tend to keep gross profit margin fairly flattish when we guide forward versus the prior quarter or the prior year because product mix and changes in category growth in different products through our markets that have various levels of maturity always tend to move margin around. So we will -- basically, we're focused on growing gross profit dollars higher than our adjusted OpEx year-over-year and ideally quarter-over-quarter and month-over-month. So that's really the only reason. The range reflects various levels of volume, product mix changes and market factors that could change gross profit margin through the year, but we still expect to generate pretty good operating leverage.

The next question is coming from Alex Slagle of Jefferies.

Congrats on 2025. It was certainly a year of uncertainties with the tariffs and commodity volatility and choppy consumer. So I guess just stepping back, as you look ahead, I mean, what do you think are going to be some of the bigger challenges or uncertainties to overcome in 2026, if you had to sort of rank what keeps you up at night or might impact your business more than others?

Yes. Well, I mean, besides the storm that hit us, what we saw, as Jim said, we had a really strong January. And besides the storm, the next follow after the storm, February was really strong. So I mean, we're seeing our customers doing really well, the continued growth. Our -- the numbers we saw from hotels coming out, strong bookings. They had a good season. So -- as always, Alex, I mean, we're cautiously optimistic. I mean, after COVID, nothing seems like an insurmountable headwind to deal with. So some inflation, deflation, some tariff noise. Our focus again is upscale casual to the finest dining in the world from our collection of customer base. So we're so diversified now that I think we have a really good balance to have more and more customers and we're cautiously optimistic. I mean the little tariff noise, a little this, our diversified portfolio of thousands of suppliers from over 45 countries, I think gives us a really good base that at least we sleep with one eye close. So hopefully, that answers your question.

Yes. Got it. As a follow-up, I wonder if you could talk about capital allocation priorities. I know buybacks have been pretty measured and the debt leverage now at the lower end of your target range. It looks like another strong year of free cash flow generation that you're looking for. Just how much are you focused on like keeping dry powder for potential acquisitions? Or what's the thought process heading into '26?

Alex, I think you put it really nicely, all of the above. I think we definitely want to keep dry powder to take advantage of some acquired growth that could be accretive and strategic. We definitely want to continue to strengthen the balance sheet gradually. And we expect to continue to return some cash to shareholders opportunistically. We don't have a scheduled program in place or an ASR or anything like that. So we do it when we can and when the market provides a good opportunity to. So I just think we're going to continue on the path that we've been for right now until something would change that.

The next question is coming from Brian Harbour of Morgan Stanley.

Maybe just on that point quickly, Jim. I mean, you are down to 2x levered. Do you think that -- or I guess, within your guidance, do you think that there will be more buyback this year, for example?

Yes. I mean there definitely could be. But once again, we look at it opportunistically. We take a look at what's the return estimate on share buyback versus doing an acquisition that has presented itself and could be a possibility versus continuing to delever. And as we delever, we put us in an even better position to take advantage of market opportunities. So I think I don't think we're going to send a message today that we're going to drastically increase our buyback. We do have to get the renewal of our program in place, and we'll do that at our Board meeting coming up. We expect to. So yes, more to come on that.

Okay. And as you think about your guidance for this year, I guess, is there any notable shape you'd call out to kind of the sales growth cadence or the margin cadence? I know you'll lap some of those business exits in 2Q. Could you sort of just talk about how you've kind of thought about that? And also maybe how inflation factors into that, if you expect that to be sort of steady through the year or fading perhaps?

Yes. Thanks for the question. No, I think the guidance is pretty consistent with what we've done historically. We tend to, I think, be a little conservative. We're coming off a very strong 2025. I think we feel pretty good about '26. But the guidance implies year-over-year revenue growth of between 6% to 8%. That's the higher end and even a little bit higher than our long-term algorithm that we put out to 2028. Obviously, we had higher growth in '25, but we tend to add a little bit of risk adjustment. We just think that, that's prudent. In terms of inflation, we assume kind of a normal level of kind of, call it, 2% to 4% and the remainder being product mix changes and volume growth. And we'll adapt and adjust that as we pace through the year. But being just through the first month of 2026, we tend to not adjust the guidance significantly.

The next question is coming from Peter Saleh of BTIG.

Congrats on a great quarter. I was hoping you guys could comment a little bit on any regional variances in performance that you're seeing? Any notable callouts, particularly in your large growth markets, California, Texas, Florida, anything to note there?

Yes. Peter, I really don't have any bad news. I mean it was a great quarter. The team did a great job. They're really focused. Again, we've built some new facilities, and we're getting great returns on them. We continue to hire more and more salespeople in those markets that we see a lot of growth opportunity. We continue to hire into our digital team, right, to reinforce our presence online where a lot of our customers are going and more and more orders are coming through, and we're able to communicate with the customer between our outside sales force, our inside sales support and our digital presence. I think you see that our strategy is working, right? We're able to sell more items to more customers. That's our job. And as we get better and better, I call it our family of companies from our protein division to our fresh produce division to our specialty it's all working, I think, as planned.

And the goal for 2026 is to keep getting better and better at that and to keep increasing our share of wallet and keep taking market share and winning new customer openings and expanding our territories. So it's a playbook that we put in place as we continue to get more and more synergies, more products on the same trucks, I think you're seeing the results.

Great. And anything you can comment on the Middle East business? I know that business has been rather strong past several quarters, year or so. Any update you can provide on that trajectory as well?

Yes. So again, we've made large investments there. We've had a lot of the CapEx cost from last year is done and the business continues to perform. We think the region will continue to grow. I actually just did a trip out there and was very pleased with what I saw, strong management team, continue to expand the sales force. And we see a very, very long road of positive growth. So it's an exciting territory for us.

The next question is coming from Margaret-May Binshtok of Wolfe Research.

I just wanted to ask, I know you guys have talked a little bit about AI deployment with the opportunities for dynamic pricing, some customer behavior analysis. I just want to know, going into '26, how do you expect, I guess, the ramp of some of these potential initiatives? And I guess, like what inning are we in, in terms of realizing some of the benefits here?

Yes. I mean that's a great question. And we've used AI. We used to just not call it AI. We've had a lot of focus on improving the insights into our customer behavior and the way we look at all our business and continue to improve our functions and our capabilities and efficiencies. So it's -- I think it's ingrained now into our daily lives. Those departments report in -- and we continue to measure the information we get. Sometimes it's overload. At the end of the day, we can only look at a customer and speak to a customer so much. I think they have the same tools now looking at their business.

But it's -- I would say what inning are we in? I think we're always back at inning 1 because the technology just continues to evolve. It's how do we use the information. And at a certain point, it's -- my speech is to -- when I'm addressing our sales teams is you have the information, use the technology, it's improving your life, quality of life, too. It's doing a lot of the work that used to have to spend hours and hours doing your own summary reports and research and utilize that time to go see more customers and sell more items. And I don't think that's ever going to change.

Awesome. And just a follow-up. Jim, I think previously, you had kind of described the M&A environment as being frothy. I just wanted to know heading to '26, would you say -- would you have like a similar comment?

I don't think anything has changed in terms of the market or outlook on M&A. As Chris often says, he has a pile of opportunities on his desk really consistently. We're just being very cautious and looking for the right opportunities. I don't know, Chris, if there's anything you want to add around M&A.

Yes. I mean we're in such a great spot right now that we've done so much M&A. And when your organic growth can be -- my goal is always to try to hit 10%. Things have to make a lot more sense now than when we were trying to grab new territory or build categories. So cautiously optimistic that we will get some really good M&A deals that are synergistic and give us something that we're missing or enhance the territory. I always say that a good fold in, I would do it every week because they're low risk and they just supercharge our organic growth in most cases. So we're constantly looking and constantly speaking to a lot of people that I'm sure there'll be some really good M&A, but I really love where we're sitting right now, and it has to be something that makes great sense. So we continue to talk. And I think eventually, there will be some good deals done. But right now, we're really happy where we sit.

The next question is coming from Kelly Bania of BMO Capital Markets.

Congrats also on a strong year and a strong finish to the year. I was curious, as you kind of think about your 2026 guidance outlook, just how much new market investment is built into there? And maybe you can just kind of fold in with that, just an update on Italco and if Denver is a market that is going to get some more investment? Or what are the priority investment regions for this coming year?

Yes. Well, thanks, Kelly. Obviously, we've made a lot of investments in a lot of territories from the Middle East to California to Portland, Oregon to Florida. So we're expecting to continue to get an ROI on all those investments, and we are. The team is doing an unbelievable job, and you're seeing the results. Colorado is a long-term investment. We're get ready to move that business into a much bigger facility and really go after that market. So we're really excited about that, but we're in the really early innings. I would say Texas is the investments that we're continuing to make. We have to synergize a lot of those businesses. We have multiple warehouses, and we're probably in the second inning of that business. It continues to grow, continues to do well. It continues to be profitable. So I think that's a big, big opportunity as we continue to chef-erize the businesses that we bought in Texas.

But what's driving a lot of the positive momentum that you're seeing is Florida, is New York, it's California, Chicago is doing really well. So we really don't have too many spots that we're at that beginning where we're just getting our arms around it. We still have to synergize New England. We have to synergize what we do in the Mid-Atlantic. And we're looking at even New York, we're so successful, how do we double that, right? So I think we continue to invest in all our businesses.

And what we're seeing now is the opportunities, yes, we still have to go into more into the South, right? We're small in Tennessee, tiny in the Carolinas, connect the dots from Florida all the way up to Virginia to make sure that we are able to service all our customers who are growing nationally and look for opportunities overseas. We see the success we have in the Middle East, and we think that we can have success. We think the chef model works in more and more places. So we're keeping our eyes open and the phone line is going.

That was helpful. And just in terms of the sales force, are you able to share just a figure on what you're targeting for headcount? Or maybe you're not targeting maybe that's more kind of a bottoms-up culmination of the different markets, but just kind of wondering how that looks in '26 versus '25.

I think the strategy is the same. If you find really, really good people, hire them. It's -- they're hard to find and takes time to develop somebody into -- someone that could sell the chef book, right? We're selling to the best chefs in the world. So you've got to be knowledgeable when you do go out or knowledgeable when you're on the phone, and that takes time. So job one is to make sure that great people stay. We often say that I think once you get past year 2 or 3, a lot of people are here for -- I don't want to say for the rest of their lives, but it's one of the best jobs you can get in the food industry, right? You're talking to great chefs, you're around great ingredients, you're talking to great farmers. So people that enjoy that environment, it's a great place to be, and they rarely leave. So Chefs' Warehouse is hiring. If we could find -- if you're great, we want to hire you. So we go as fast -- we're hiring as fast as possible.

The next question is coming from Todd Brooks of Benchmark StoneX.

I'll add my congratulations on a really great year. So a couple of questions. If I look at the kind of the KPI chart in the deck around the gross profit dollars per route and the adjusted EBITDA per employee, what strikes me as kind of the consistent improvement you've seen annually over the 2-year basis that you present. As you start to look forward, are we far enough into the wave of some of the bigger facility consolidations that maybe should we be thinking about that same level of contribution from a gross profit per route standpoint? Or is that something that just moderates as some of these bigger investments in Southern California and Florida mature over time? And then the rate of average EBITDA per employee improvement, how much of that is facility related versus technology versus scale?

That's a good question, Todd. But I think I'll let Chris add. I'll just say that in terms of the go forward, it's really going to align with our execution against our guidance. If we continue to execute with operating leverage of 150 to 200 basis points a year kind of in the range that we delivered the last 2 years, then you'll continue to see those metrics improve. I think Chris mentioned that we're in the early innings in terms of a lot of the investments that we made in facility expansion, facility consolidations. Most of those are in the last 2 years. As we came out of COVID and we started to leverage those.

So I think we're in the early innings. We're going to continue to improve on those metrics. We still have some more. We're going to consolidate our specialty facilities in Portland this year. We'll be -- we're working on the expansion of our Las Vegas processing center. We're expanding freezers in a number of markets. So we're continuing to -- Chris talked about Denver and what we have to do in some of the other markets like New England. So we're going to continue to have a moderate pace of investments that involve not only route consolidation, facility consolidations as well as expansion for growth. So I think those metrics will continue to improve.

Yes. I don't think there's a ceiling, Todd, to how much better we can get and how much more to the bottom line percentage-wise, we can deliver. I think we're realizing when we went public in 2011, we had a mountain to climb, right, trying to open up new facilities, buy companies, put technology in, we had tremendous headwind in trying to deliver on the numbers, I think, and the expectations. But we stayed true to our strategy and the course and the belief that what we do and building moats around our model at a certain point, we would start to get that leverage.

And I think we're starting to see. We're delivering on our expectations that incrementally, we would get better year in keep that EBITDA margin would continue to improve. So obviously, we want to be competitive. We don't want to slow growth down by pushing it too high. We're really comfortable where we are right now, but we still have a good road of synergistic improvement as we consolidate facilities, as we consolidate sales force, more and more technology goes in and gives us that efficiency, right, to scale more efficiently. So we're really excited about the possibilities of how much better we can get.

That's great. And then just one more quick one, and I'll hop back in queue. As you're talking to your customers, Chris, are you seeing -- it seems like the consumer, and it feels maybe beyond fattish at this point, there's focus around protein consumption and the whole kind of food pyramid and how people are eating. Are you seeing menus change? Or I'm just trying to think within the concept of the center-of-the-plate protein part of the business, are menus maybe coming your way to kind of drive that piece of the business in '26 with more proteins focused on your clients' menus?

Yes. I think the right way to look at it is you've had so many fads and so -- it's always about how is the shot affecting the business, how the -- we went through that everybody was going to become a vegan, everyone's gluten-free, everybody is now high protein. What I think it's just normalizing. You have great options now on most menus. If you're a vegetarian, you have great options. You don't have to go to a vegetarian restaurant. I'm out just about every day. And if I don't really feel like eating a high animal fat protein dinner, there's great options on the menu to satisfy you. If you want a steak, most menus have a great steak or a great piece of fish or chicken. We sell great Indian type restaurants and great Asian type restaurants.

So I think that chefs are very creative and restaurant tours are very entrepreneurial. And I think you're starting to see that blend in menus that can -- if you're a party of 4, everybody can get what they want. And I think it's really evolved in a very positive way. And I think a lot of that -- The Chefs' Warehouse, the way we go to market and our portfolio of ingredients and the way we come in with all our experts and that team sell, I'm very excited of what I'm seeing and the growth, and I think we can keep that up for many, many years.

At this time, I'd like to turn the floor back over to Mr. Pappas for closing comments.

Sure. Well, we thank everybody for joining our first quarter (sic) [ fourth quarter ] call. We're really proud of what our team was able to accomplish in '25 and in the fourth quarter. And besides mother nature giving us some challenges, we are really excited about what we saw in January and continue to see in February. And I think our team is just doing an unbelievable job, and we look forward to having a great year. And thank everybody for joining today's call and look forward to our next call. Thank you.

Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.

Okay. Good morning, everyone. I'm Brian Harbour. I cover restaurants and food distributors at Morgan Stanley. Thank you for joining us here at the conference. Just real quick. For important disclosures, please see morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative.

So first, today, we're going to talk Chefs' Warehouse. So I'm happy to have Chris Pappas, Founder, Chairman, CEO, with us; and Jim Leddy, the CFO. Thank you guys for being here. We appreciate it.

Great to be here. Thank you.

So I usually like to start this is kind of bigger picture. I think -- you're unique at this conference just in your focus on the upper end of the dining market, certainly. So maybe kind of tell us what you're seeing from a demand perspective here and how you see that evolving with your customer base?

Yes. Well, I think we said on our last earnings call, really -- we actually saw, surprisingly, some acceleration that our customer -- customers' customer was spending in a normal way and maybe even a little bit better than I had anticipated. I mean we're always cautiously optimistic. This is our 40th year in business, servicing pretty much the upscale casual to the French laundry and the best chefs in the world, right, in Dubai to California, to New York. We're covering almost every state now in the U.S.

And it's a business that I've seen the consistency, a few times, we saw our dips in the financial crash and obviously, 9/11 and COVID. But other than that, it's kind of fascinating to watch that our sector really has always pretty much performed. I always like to say to our team, there always seems that there's enough money to go out for lunch and for bar mitzvahs and christenings and weddings and all the celebratory type of spending plus, of course, a la carte and just enjoying life. It just seems like something that there's always enough money for our customers' customers.

Yes. And to that point, you have seen many cycles in this business, right? How cyclical is that occasion in your experience? How do you weather that compared to some other segments of the market? What do you usually see over time there?

Yes. Well, I mean our model -- I mean, we have a certain amount of fixed overhead, right, our warehouse, our trucks, but the sales team is over 1,000 strong is mainly a commission-based job, right? So the more they sell, the more they make. And business is a little soft. They make it a little less. So that kind of flexes itself. And our operations teams are pretty sophisticated at this point, anticipating how much labor they're going to need to flex up and down a little bit.

So I think the model after 40 years, it's a pretty seasoned management team. And we can manage a little bit less. And obviously, like right now, we're going into our really busy season. So we have to make sure we have enough labor to meet the demand for our clients going into the busy season. So I think there's always a [ type ] of Goldilocks and a little bit here, a little bit there. We've kind of mastered being able to service our segment.

And by its nature, your customers are mostly not chains, they're independent restaurants. And it's a bit hard to get data on those, but do you think they're more resilient today relative to some of the chains? And I guess, maybe also just comment on some of the non-restaurant segments that you serve.

Sure. So again, we go from upscale bakeries. When I say an upscale bakery, it's not a chain. It's not that they're making everything from scratch, which many of our customers still do, but this is why we are building bigger and bigger freezers in our facilities because there's so much high-quality product that's labor saving that we really specialize in being the leader in that department.

But I think that upscale casual is probably the biggest volume of our business. I mean we do the cruise ships, right? We do airlines. We do food away from home, home replacement, meal companies, again, all the way up to the hotel that we're in today, and super fine dining. And it does seem like it's the most resilient, I would say, of the foodservice sector besides maybe health care, which hospitals always need food and some education, much more resilient than what we're seeing in the chain business, lower tiers, fast casual. It always has been more resilient, and I think it just continues to keep that resiliency.

What's been kind of the key to driving market share in your business over time? You talked recently, even some of these markets that are a little bit weaker right now, you're still seeing share gains. I mean what's driven that with your model?

What do we think is driving our share gain?

What's kind of secret to continually driving share gains?

Well, I can't tell you all the secrets, but I think the 40 years-plus experience in servicing this segment and -- we went public in 2011, right? We were more regional at that point, and we thought what we do would work nationally and internationally. And I'm glad we guessed correctly. It's been a fun ride. And I think that it's still -- it's a fragmented industry. I mean there's the 3 big public companies. But underneath that, there's not a lot of us left of size. So I think we're dominating the segment that we're in. A lot of the companies we bought early on were smaller specialty companies and we continue to seek those out.

And then it's very fragmented when you get to like more subspecialties or categories like produce distributors and protein distributors, meat, seafood. So I think there's a lot left in the fragmentation for us to continue to acquire when the time is right. We haven't been as acquisitive the last year or 2 coming out of COVID. We were very acquisitive.

But we anticipated that we would continue to take market share from our smaller competitors. And then we also anticipated that we would continue to nibble away underneath the belly of the giants in the segment that we wanted to dominate. And I think our focus has allowed us to really dominate the market that we want and to continue to build moats around our business the way we have been with our team sell, our hybrid sell that -- we're using salespeople and cross-training them to sell more categories. And I think that's really driving our high organic growth that you continue to see quarter after quarter.

And has that changed significantly in the last 5 years out of COVID? I mean part of it is that you have acquired so much. So maybe you're just much more of a one-stop shop than you were even 10 years ago. Is that fair?

That is fair, but I think what's really driving the organic growth is the investments that we made and have been making for many years in the facilities to get more efficient and to be able to have better service, all our new trucks. And really the sales force, the training, the experts. We really invested a lot into making sure that if we put out an army, it's got to be well trained, and you don't want these people to leave.

So the biggest strain on capital is to train people that leave, and you're not getting the ROI. So we made a conscious decision of -- we changed HR. We brought in a different thought process of who and where we're going to find these people. And we're going to spend the money to highly train them, and we have to make sure we get the people that are going to stay 5, 10 years or -- our best people have been with me for 30, 40 years.

So it's a job really that people don't want to give up, especially on the sales end. A lot of people are coming out of culinary and they're working 6, 7 days a week. They're working nights. They're working holidays. Now they could make -- they could still stay in food, and they have a career that they continuously make more money, get lots of benefits and not have to be on your feet at 60-plus years old, working the night shift in a resort.

Yes. And to that point, are you seeing sort of better retention lately with some of those changes you've made?

We are. We are. I think it's starting to pay dividends.

Yes. What -- to the point you just made, I guess, how would you describe kind of competition in your slice of the market? The big 3 do compete in some areas, and I think they've -- they like this business generally. And then, of course, you have many, many local players, some of which you've acquired over time. But how would you characterize that? Or how has it changed recently?

There always seems to be competition. Sometimes we go into a smaller market and we acquire and -- we are the dominant force in that market for the customer base we want, but there's always green shoots. There's always new entrepreneurs coming in and more specialty. They're picking a segment, they're specializing in x. And I always considered my uncompetitive nature, anybody that has a truck is a competitor, that can deliver food. So we do go at it very seriously.

The big guys are really good at certain things, right? And it's a huge market, $300-plus billion food away from home. So it's a huge market. I think everybody has their place in the market. So they're always going to come after what they can to take from our business. And I think we're always going to go after segments of where we think that we can dominate even certain types of accounts that they are the dominant player, we'll still grab a piece. So when I look at the puzzle, it's dominating where we should dominate, and it's participating in overall much bigger market. And I think that drives a lot of our success.

You -- earlier this year, you had laid out kind of a growth plan through 2028. You're running a bit ahead of that on top line growth. A little bit of that is inflation, right, but you've still had good performance through the course of this year. What are kind of the key -- what would continue to run ahead of that? What are some of the key drivers to getting to that plan?

Yes. I think the way to think about it is -- and we talked about this at our Investor Day, it's continue to execute the business model that Chris just so eloquently described, to continue to grow the portfolio of unique distribution centers and operations that we have in very unique markets, not all markets are the same. And all of our markets and distribution centers are in different phases of maturity. So we have a place like Florida, where we started out like a small pastry company selling to the cruise lines and hotels. And now we're in a state-of-the-art facility that we invested in coming out of COVID, and we're processing center of the plate, fish and meat. We sell produce and we sell all the specialty products. And that's a market where we're a couple of hundred million dollars, and we can be $1 billion someday. So that's just an example. But we have multiple phases of maturity.

And then Chris mentioned leveraging the significant investments that we made coming out of COVID, both in infrastructure and in M&A. And we're still in the process of integrating that M&A. Texas is a good example, where we bought a company that's really not a Chefs' Warehouse, but gave us all the routes. And so we're going to leverage that going forward.

And then the last thing is really -- if you take a look at a slide we put up at our Investor Day, it's a waterfall to 2028. And kind of -- we wanted to highlight all the different things that our teams are doing within all the different segments of the company behind that kind of macro perspective. Everything our procurement and pricing team is doing around dynamic pricing and using AI, our digital team's growth, improving our customers' experience and arming our sales reps with real-time data to better understand our customers' behavior. Systems to make operations more efficient. So those are all the things that kind of come together for a lot of base hits and doubles. It's not one home run that's going to help us to continue to achieve the 2028 goals or even exceed them.

Right. You just gave the example of Florida where you think you could still be 3 or 4x the size there. I mean, remind us what are the other markets where you think you could be kind of...

Continue to grow? I mean -- so it's almost a fun time budgets where our small markets come in and they're going to grow 100% and I'm like, well, that's great, but you're growing from a very small base. So I would say overall, all markets are growing kind of to expectation. It's where the people are, right? I mean, Southern California, Northern California, you hear all the numbers. Everybody is leaving. Not everybody is leaving. Those markets are growing exponentially for us can continue to grow.

Jim mentioned Texas, we think Texas will be a top 3 market for us in 5 years. Florida, Florida has been very, very good to us. We made the bet there to invest and it continues to even surprise me sometimes, how fast it continues to grow. New England, we're going to put up a new facility, consolidate. We have multiple businesses there. It's a solid market.

So I think it's pretty much everywhere. I mean there's -- like I said, there are some pockets that it seems that we have to extend the areas in the Midwest in certain areas that we're growing really well in Nashville and Detroit, Illinois does. It's a good market. It's growing, I would guess, 8%, 10%. We think that market has a long runway. It's not growing as fast as, say, New York or Florida or California. So the Middle East has been a great market for us, and we've invested heavily into different facilities and more sales staff, and they continue to really execute. So we're pretty happy with our investments.

Okay. Great. Great. I do have an M&A question later, but I'll save that. Maybe just if we could talk about kind of the margin side a little bit. So obviously, EBITDA margin expansion is part of your multiyear plan as well. What are sort of the key drivers of that on the gross margin side? And then maybe also just talk about the SG&A and the OpEx side, what could help deliver on that improvement over time?

Well, with gross margins, I know the -- a lot of the Street and investors tend to focus on that. We focus on gross profit dollars per unit, per drop, per truck. Really, that's how we measure our operators. And so with our business, because we sell all the categories. You take Texas, for example, we're growing a protein business that we were shipping in from Chicago. We built a facility. Now we're getting all those protein boxes on Hardie's and CW trucks, and we're combining those businesses. So their average gross profit dollars and revenue per case or per unit is growing really fast. But because protein is a very expensive box with a little growth -- lower gross profit margin, you might have flattish or lower margins, but you're making more money from a gross profit dollar perspective.

So I think for us, it's really about when we go into a market, our goal is to get enough scale over time and bring in all the categories enough critical mass where we can bring in full containers and remove some of the expensive truck lanes where you're shipping in from New York or from one of our other big distribution centers that's closer regionally. And that allows us to be more competitive on the gross profit margin side.

And then on the EBITDA margin side, it's really just more of doing what we've been doing. Chris mentioned leveraging all of the infrastructure investments. We do -- we're going to continue to make investments where we need capacity, but not at the level we were when we delayed everything coming out of COVID and we were spending 2% of revenue on CapEx. Now we're focusing on more -- closer to 1%, but still put in enough capacity to continue to drive that fixed cost leverage.

Yes. So just to add a little bit to what Jim said. So I mean, it's a pretty exciting time for myself, having built this from the ground up. You always wonder, is your core business, is your core strategy going to continue to work? And the answer is, yes, and it's actually accelerating.

Going public in 2011, what we didn't realize was the amount of expectation from the Street to grow exponentially and keep the EBITDA margins where they were when you had to build facilities, you had to hire a ton of people, you had to invest in technology. And I think it kind of got lost that nothing had changed.

When our EBITDA margin percentage had dropped as we were growing, some investor would with sort of panic like what's wrong? And I'm like, well, there's nothing wrong. We're just investing into so many new markets that it's an EBITDA drag, right? So the core businesses are performing and accelerating. And it's really about how does the EBITDA margin continue to expand as we get better and better in our new markets, as we start to get that level of enough box moving dollars moving through the warehouse and through the trucks. And we manage our expenses. There, EBITDA margins will start coming up. And that will -- quarter-by-quarter, we have been showing increases in our percentage of EBITDA to the bottom line. And unless we -- God forbid, we get another COVID, that threw us for a little loop. We think we can continue at a moderate pace to continue to drive that EBITDA percentage margin up as we grow.

Yes. And -- are we still in the midst of some of those newer -- are we still in the midst of those benefits for newer facilities or newer companies? Because as you said, you're probably about 1.5 years past some of the heavier acquisition periods. Are you starting to see some of the synergies come through? Are you starting to see some of the procurement benefits come through? We're still in the midst of that right now.

Yes. We lapped the big kind of OpEx costs that were associated with the significant facility investments we made in '22 and '23 coming out of COVID. We lapped them in the second half of '24. So that's when you really -- and we talked about that. We knew we were going to lap it. And so that's where you've seen kind of -- so it's still early innings. You've seen a little bit of an acceleration of the operating leverage as we lap those costs.

Okay. Where do you see inflation running typically? And I guess the derivative question is, this is -- this is mostly a pass-through business, obviously, with regards to the price of the underlying product, also tariffs. You probably have more goods that -- well, this is changing by the day, but that might be subject to tariffs. How have you -- you get -- you passed that through, obviously, but how have you helped some of your customers manage through all of that?

Yes. So our model is -- we carry a very long tail, right? And that's why you see our overall overhead higher than, say, the big 3. And it's purposely designed understanding our customer base that we are -- we're a solutions company. We have to have lots of different solutions. We service the best chefs in the world. They're very creative, very demanding and all want to differentiate themselves.

So from really the inner strategy and the culture of the company as a solution company, it's really played well in crazy times where you don't know what the hell the price is predictive. Trying to predict is like, I guess, like being the weather man, right? I mean, you got a 50-50 chance of being right. So the tariffs have actually forced us to really dig deep and become even better, better at managing the business, managing the inventory and coming up with solutions.

So we've done pretty well with the craziness, and it's I think because we have so many options. So if you really can't absorb the price point that say, Italian olive oil went up, I think last year, went up like 50%, 60%. We had a lot of different solutions. And the same went through whether it was frozen [ croissants ] or canned tomatoes or -- beef is an issue. We do have other solutions. We do carry beef from Australia and other places, but it's predominantly American beef, and that's been a real headwind for restauranteurs. And we manage that by trying to get creative. We have processing centers. So we can eliminate a lot of labor. And we can get really creative giving them different solutions on their cuts and sizes and helping them meet their price point to where they think they can -- they have to be. Not everybody could sell $125 New York Strip.

You were talking about the salespeople, Chris. This has been sort of topical with the big 3, but how are you -- talking about how your salespeople are compensated, have you ever changed that through the years or has it been consistent? And any issues with kind of hiring or you're very happy with where your sales force is?

We're never happy, but it's -- I would say that we're satiated at this point that -- we think we're compensating our team correctly, right? We want to create that incentive for them to always sell more. And we're constantly tweaking it. So with the amount of inflation that we have seen and the plethora of categories that we allow them to sell, I think it's a unique model. I'm not going to go into it completely, but it's a salesperson by nature and always trying to think how do I incentivize them? How do I -- to maximize their desire to want to sell more?

Because it's tough. Salespeople go out every day and they're competing and they have to juggle helping to collect the accounts receivable and watch their inventory. And so everybody is after them. They're bringing in items they're not selling. Some customers are hard to collect. So to keep them motivated, we're constantly tweaking it to overcome the tough part of the job. And the good part of the job is they're getting to meet with the best chefs in the world, they eat really well, and they're in an atmosphere that they really enjoy. So I think it's a great job for the right person.

Okay. So this is the year I have to ask this question of everyone. But how are you using AI to -- both in a customer-facing capacity and maybe also internally? Can you talk about your use cases for that?

Yes. The 2 I would highlight would be in procurement and pricing. We're using AI to optimize pricing. We always had a traditional kind of attribution type of model, and now we're using more predictive type of AI products. They are a commodity now. You can get a third party to work with you in a pretty economical manner to build this stuff.

The most impactful so far has been in our digital platform. We're using it to really better understand our customers' behavior to the point where if they're on our site and they're hovering and they're looking at something 2 days in a row and not buying it, we're communicating with them automatically. And then building -- the model builds itself to understand their behavior. What are they sensitive to from a price standpoint? What are they not sensitive to? What's their elasticity? And that's where it's proving to be very valuable for us right now.

Any other kind of like technology areas or specific areas of focus? Have you looked at any sort of like automation solutions in your facilities or anything like that?

I mean it's a constant improvement that we challenge our operations team. I mean, eventually, I think it's going to go robotic at a certain point. Right now, the ROI is just not there. We've been -- we study it daily. And it's very expensive. We have automation. We're using tons of different types of automation in our processes. Humans still go faster for what we do. We pick a lot of pieces, right? We break a lot of cases. We're very much just in time. So we have great technology, but we still feel that it's really important to have the right people. Even when you're replacing it with automation, now you need more engineering. So you still have -- you still have the cost of -- that's going into labor.

And I think that from the sales side as well, like Jim was saying, a lot of the AI, it's really to make them better. I think a lot of the sales team thought that we were trying to eventually replace them. And it's really the opposite. The AI now, it's actually making them better. It's a quality of life improvement, right, because they don't have to search so much. They don't have to work a lot of the late nights they were working. And it's driving -- it's really giving them the ability to actually do a lot more than they were before.

I'll just add that Chris mentioned the automation we're putting in our processing facilities. That's something where we look at the ROI. And when we put those -- that automation in our processing facilities, the payback's in 1 year and 1.5 years. And so those are no-brainers, and we'll put that into the CapEx budget because we know that we can save 4 or 5 butchers as a result of that, and that's going to pay back really quickly.

Yes. Okay. When I look at sort of your capital budget for the next -- just generally for the next year, I mean how much is new capacity? How much is technology? How much is other things? Are you -- it seems like you're past some of the heavier investment in new capacity, but how much would you typically add in a year?

Our typical CapEx budget is somewhere between 60% to 80% retrofitting facilities because we're still a high-growth company. We're growing organically, industry-leading 8%, 9%, and our long-term growth algorithm is even a little bit less than that. So I would say, given the cost of retrofitting a facility since COVID has gone up, we'll do a little bit less, but you're still -- it's still -- the ROI is still there. And then the other, call it, 30% to 20% is mainly technology investment and then your typical maintenance CapEx.

Yes. Okay. What is typically the right pace of M&A? I mean, how do you -- what new markets do you want to add in the U.S. perhaps? I mean, what kind of meets the hurdle for, hey, we'd like to put a facility here. And then also maybe just -- you're in the Middle East, but what other international markets can be attractive?

So traditional distribution expansion, which we're not a traditional distributor. I always think we're more of a sales and marketing company that also distributes because of our relationships and who we distribute for, right, thousands of -- besides our larger manufacturers or farmers, it's tons of small artisan companies that we pretty much take -- we're buying 80%, 90% of what they produce, right? So we have that responsibility, as almost as a manufacturer. And then we are processing.

But the way we go to market, and I'm kind of lost now -- I'm so lost in thought I forgot your question.

What new markets would you want to be in and how would you think about adding new markets?

So we're very opportunistic. So typical distribution, yes. You annex the next market next to you, it's the easiest, right? We didn't have that luxury. We had to acquire where companies fit in to grow. So now we're at a really good stage where we're much more selective. We can continue to feed small fold-ins into the capacity that we've built, which is extremely -- the return on that could be 1 or 2 years, right, depending on how successful we are. We're really good at executing it, right? So we eliminate a lot of the cost. We're really keeping the sales. So we continuously hunt for that.

In the Middle East, we've really set them up for success to continue to grow organically. And if something really good comes along, again, it's more of a fold-in that I see.

We're constantly looking at certain international markets. I think, again, we're opportunistic to see if something really, really makes sense. I would say that more of a focus right now is to continue executing on the organic level, to do fold-ins where we have capacity. And the markets that we're really not in is the South at this point. We have so much to do in Texas really to grow that business, but we'd like to get into the Carolinas. We'd like to get into Georgia, connect the dots right now to make us completely a complete national distributor. So I think that's more of the focus. And every time I say that, the phone rings, and I'm like, well, this is really interesting. Yes.

So -- but I think we've learned going from a private company for so long and being public, how to balance it. So I think we're just in a really good place where we don't have to do anything. And it's really nice to have. And I think we've learned to be more patient now when something comes up. We probably walked away from 90% of what we looked at. We're saying it just doesn't fit in. We've learned our lesson too in our growth stages that what is too difficult. We are up for the challenge, but now I think we really know who we are and what really makes sense. So if we're going to go after something, it's got to make a lot of sense.

Okay. Makes sense. And maybe, Jim, just remind us your leverage range and then if you're within that is buyback sort of the use of additional cash?

Yes. I mean -- so the way we look at it is it's flexible. If we have an M&A transaction that we think we're going to complete, we'll preserve some cash to fund as much of that with cash. And we usually only have to borrow if it's a fairly decent-sized deal. So sans, that we'll continue to moderately pay down some debt and buy back shares opportunistically really depending on the market and where the share price is, things like that.

So it's a very flexible capital allocation model. I think we've gotten net debt leverage right where we want it towards the lower end of our defined range. So we feel good about the balance sheet right now.

Okay. Maybe I'll finish with my lightning round questions. These are standard for everyone. Demand outlook, just relative to recent trends, how do you expect demand over the next 12 months? Accelerate, remain stable, decelerate?

My crystal ball, I would take what we've been experiencing now for the next 20 years would be really happy.

Okay. I'll say stable. Margins over the next 12 months. Margins to face more tailwinds, balance of tailwinds and headwinds or more headwinds?

Are you talking EBITDA margins or gross profit margins?

Probably EBITDA margins.

EBITDA margins. Well, I mean, we'll guide in January. But I think -- just going back to what we talked about earlier, we're still in the early innings of getting the operating leverage from all those investments. So I think we feel pretty good about getting to the range that we set for 2028.

Okay. And just on capital, we know how you sort of prioritize capital allocation. But I guess CapEx intensity related to technology over the next 12 months, do you expect that to increase, stable, decrease?

I think it's increasing a little bit for everybody. I think, especially with AI becoming more of a commodity, you're going to see companies, including us, apply it in other areas over time. So I would say increasing, but not materially.

Okay. And then how about like a focus on portfolio optimization, whether that's acquisitions or it could just be footprint rationalization or anything like that, increase, stable, decrease?

I think it's stable. And I think, again, it's opportunistic. The market right now, there was a lot of roll-ups coming out of COVID or that started before COVID. I think some of the sponsors are kind of stuck. So we are patient, and I think there could be some really good opportunities down the road.

Okay. Great. With that, right out of time. We'll leave it there. Thank you very much.

Thank you.

Thank you, Brian. Thanks for having us.

Greetings, and welcome to The Chefs' Warehouse Third Quarter 2025 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Alex Aldous, General Counsel, Corporate Secretary, and Chief Government Relations Officer. Please go ahead, sir.

Thank you, operator. Good morning, everyone. With me on today's call are Chris Pappas, Founder, Chairman, and CEO; and Jim Leddy, our CFO. By now, you should have access to our third quarter 2025 earnings press release. It can also be found at www.chefswarehouse.com under the Investor Relations section.

Throughout this conference call, we will be presenting non-GAAP financial measures, including, among others, historical and estimated EBITDA and adjusted EBITDA as well as historical adjusted net income, adjusted earnings per share, adjusted operating expenses, adjusted operating expenses as a percentage of net sales and as a percentage of gross profit, net debt, net debt leverage, and free cash flow. These measures are not calculated in accordance with GAAP and may be calculated differently in similarly titled non-GAAP financial measures used by other companies. Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release and third quarter 2025 earnings presentation.

Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements, including statements regarding our estimated financial performance. Such forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Some of these risks are mentioned in today's release. Others are discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q, which are available on the SEC website.

Today, we are going to provide a business update and go over our third quarter results in detail. For a portion of our discussion this morning, we will refer to a few slides posted on The Chefs' Warehouse website under Investor Relations section titled Third Quarter 2025 Earnings Presentation. Please note that these slides are disclosed at this time for illustration purposes only. Then we will open up the call for questions.

With that I will turn the call over to Chris Pappas. Chris?

Thank you, Alex, and thank you all for joining our third quarter 2025 earnings call. Business and demand trends improved sequentially through the third quarter and momentum in demand and market share gains continued into October. Our operating divisions across domestic and international markets delivered strong growth in revenue and gross profit dollars as well as continued progress, increasing relevance with our customer base with strong year-over-year growth in unique item placements.

As we head into the busy holiday season, I would like to thank all our Chefs' Warehouse teams from sales and procurement operations to all the supporting functions for their dedication and commitment to delivering our diverse and high-quality product, service in partnership with our suppliers and customers and the communities we serve.

As a reminder, earlier in 2025, we eliminated 2 noncore programs in Texas that came with the acquisition of Hardie's in 2023. These programs -- one protein program focused on high-volume, low-dollar poultry, and another produce processing and packaging program -- together only represented approximately 1% of our revenue. As such, until we lap this attrition in the second quarter of 2026, we will present price and volume metrics as reported and also excluding the impact of these changes to present more representative year-over-year price inflation and volume changes for our business overall.

With that, please refer to Slide 3 of the presentation. A few highlights from the third quarter include 9.6% growth in net sales. Specialty sales were up 7.7% over prior year, which was driven primarily by unique placement growth of 5.3%, reported specialty case growth of 3.2%, and price inflation. Excluding the elimination of the Texas produce processing and packaging program, specialty case growth was 5.4% versus the prior year quarter.

Unique customer growth, 2.6% year-over-year. Reported unique customer growth was impacted by the Texas commodity poultry attrition and the temporary impact of the heightened conflict in the Middle East during the summer months. Despite the temporary summer impact, our Chefs' Middle East business continued to grow and exceed our expectations. Excluding these impacts, third quarter year-over-year unique customer growth was approximately 5.8%. Pounds in center-of-the-plate were approximately 1.1% lower than the prior year third quarter. Excluding the attrition related to the Texas commodity poultry program, center-of-the-plate pounds growth was 9.6% higher than prior year third quarter.

Gross profit margins increased approximately 7 basis points. Gross margins in the specialty category increased approximately 59 basis points as compared to the third quarter of 2024, while gross margin in the center-of-the-plate category decreased approximately 49 basis points year-over-year. Jim will provide more detail on gross profit and margins in a few moments.

Please refer to Slide 4 for an update on certain of our operating metric improvements. In summary, Chart 1 shows continued improvement in gross profit dollars per route. Third quarter 2025 trailing 12 months was 4% higher versus full year 2024 and 37.8% higher than 2019. Chart 2 shows third quarter 2025 trailing 12-month adjusted EBITDA per employee increased 9% versus full year 2024 and 28% versus 2019. Third quarter 2025 trailing 12-month adjusted operating expense as a percentage of gross profit dollars improvement by 114 basis points versus full year 2024 and 206 basis points versus 2019.

Subsequent to the close of our fiscal third quarter on October 1, 2025, we completed the acquisition of Italco Food Products, a small specialty food and ingredient distributor located in Denver, Colorado. We are excited for the Italco team to join The Chefs' Warehouse family of companies and brands. We look forward to leveraging our unique CW go-to-market and supply chain model as we grow into the dynamic urban and resort markets in the Centennial State.

With that, I'll turn it over to Jim to discuss more detailed financial information for the quarter and an update on our liquidity. Jim?

Thank you, Chris, and good morning, everyone. I'll now provide a comparison of our current quarter operating results versus the prior year quarter and provide an update on our balance sheet and liquidity. Please refer to Slide #5. Our net sales for the quarter ended September 26, 2025, increased approximately 9.6% to $1.021 billion from $931.5 million in the third quarter of 2024. Net inflation was 7.4% in the third quarter, consisting of 4.4% inflation in our specialty category and 12.3% inflation in our center-of-the-plate category versus the prior year quarter.

Reported inflation was impacted by 2 primary factors in the third quarter versus the prior year quarter. Center-of-the-plate inflation was impacted by the commodity poultry program attrition in 2025. Excluding this attrition impact, net inflation in the center-of-the-plate category was 5% versus the reported 12.3%. Continued growth in specialty cross-sell, as we further integrate CW and Hardie's results in elevated reported specialty third quarter inflation. Excluding this impact, specialty inflation was approximately 2.1% and overall inflation for the company was approximately 3.3% versus the prior year quarter.

Gross profit increased 10% to $247.2 million for the third quarter of 2025 versus $224.7 million for the third quarter of 2024. Gross profit margins increased approximately 7 basis points to 24.2%. Selling, general, and administrative expenses increased approximately 7.9% to $208.1 million for the third quarter of 2025 from $192.9 million for the third quarter of 2024. The increase was primarily due to higher costs associated with compensation and benefits to support sales growth, higher depreciation driven by facility and fleet investments, and higher self-insurance-related costs. Adjusted operating expenses increased 7% versus the prior year third quarter. And as a percentage of net sales, adjusted operating expenses were 17.8% for the third quarter of 2025.

Operating income for the third quarter of 2025 was $38.9 million compared to $31.9 million for the third quarter of 2024. The increase in operating income was driven primarily by higher gross profit, partially offset by higher selling, general, and administrative expenses versus the prior year quarter. Our GAAP net income was $19.1 million, or $0.44 per diluted share, for the third quarter of 2025, compared to net income of $14.1 million, or $0.34 per diluted share, for the third quarter of 2024. On a non-GAAP basis, we had adjusted EBITDA of $65.1 million for the third quarter of 2025 compared to $54.5 million for the prior year third quarter. Adjusted net income was $21.5 million, or $0.50 per diluted share, for the third quarter of 2025, compared to $15.4 million, or $0.36 per diluted share, for the prior year third quarter.

Turning to the balance sheet and an update on our liquidity. Please refer to Slide #6. At the end of the third quarter we had total liquidity of $224.6 million, comprised of $65.1 million in cash and $159.5 million in availability under our ABL facility. As of September 26, 2025, total net debt was approximately $575.2 million, inclusive of all cash and cash equivalents, and net debt to adjusted EBITDA was approximately 2.3x.

Turning to our full year guidance for 2025. Based on the current trends in the business, we are updating and raising our full year financial guidance as follows. We estimate that net sales for the full year of 2025 will be in the range of $4.085 billion to $4.115 billion, gross profit to be between $987 million and $995 million, and adjusted EBITDA to be between $247 million and $253 million. Please note, for the full year 2025, we expect the convertible notes maturing in 2028 to be dilutive, and therefore, we expect the fully diluted share count to be approximately 46 million shares.

Thank you. And at this point, we will open it up to questions. Operator?

[Operator Instructions] The first question comes from the line of Alex Slagle from Jefferies.

It sounds like case growth trends and [ volume backdrop ] improved sequentially through the 3Q and [Technical Difficulty] just given some of the choppiness we've heard elsewhere in the industry. And I know you're also lapping some tougher results. So just curious if you could expand on these trends [Technical Difficulty].

I think from a Q3 standpoint, the last couple of years, we've mentioned that July and August were a little weaker than we expected, given all the international travel. I think we didn't really see that impact this year. So while July and August are seasonally some of the weaker months in the food distribution industry in general, we actually saw a very good summer results. And then September was strong. And as we mentioned in our prepared remarks, trends continued into October. So the fourth quarter is looking pretty good at this point.

Any thoughts on the potential impact of the government shutdown as you look ahead and I know you mentioned the Middle East. Maybe you can give an update on [Technical Difficulty].

Yes, you're breaking up a little bit, Alex. But right now, where we sit, we're always cautiously optimistic. The fourth quarter, we think it's going to perform pretty well. The Middle East is performing. I think Qatar took a little hit, but the Dubai and Abu Dhabi, Oman, I think our business is really strong. Our major markets are all performing well. And I think a lot -- again, it comes down to we got way ahead of it a long time ago, started to invest in the facilities for capacity and invest in the sales force, invest in the technology. And I just think that whatever headwinds are out there, the team is just doing a phenomenal job of gaining market share and winning in a lot of categories. And I think that's why you see such great numbers.

And the first part of the question was on the government shutdown in the U.S. and just whether you expected any impact...

I think there might be a little effect maybe in D.C. or something. But our customers' customer base is skewed to obviously a lot of business meals and upper casual to high end. We've lived through a bunch of government shutdowns. We never saw a real big impact.

We haven't seen a material impact to date, Alex.

We take the next question from the line of Mark Carden from UBS.

So to start, just building on the 4Q commentary a bit. So the midpoint of your updated guidance, it implies a notable slowdown in adjusted EBITDA growth and little-to-no margin expansion. Just curious if this reflects some conservatism. I know the compare is a bit tougher, but is there anything else that we should be keeping in mind there?

No, Mark, I don't think so. I think we raised the full year revenue guidance by $50 million to $70 million from the midpoint to the higher end. I think we feel pretty good about the mid-to-higher end of the guidance at this point given what we've seen in October. As you know, we're always a little bit on the conservative side in terms of guidance. And we raised adjusted EBITDA by $5 million to $7 million from the mid-to-higher point. So it implies a pretty healthy 7% to 7.5% year-over-year Q4 revenue growth and full year 8% to 8.5%, which would be slightly lower than what we've seen year-to-date. But I think it implies a really healthy 10% flowthrough on that revenue growth to adjusted EBITDA. And so, yes, I think that's where we ended up.

And then you guys talked about the acquisition of Italco in Colorado. I know that Rockies are a growth geography for you guys. Does this solve a lot of your capacity desires there? Would you need to do more? And then just more broadly, with some of the economic uncertainty that's out there, have you noticed any shifts in M&A backdrop?

Yes. Well, listen, I 100% agree, the Rockies is a great -- it's going to be a great market for us. You have all the resorts and Denver is a dynamic town and they've had good population growth from, I'd say, from the higher end. Obviously, Aspen has always been pretty higher end. But we've been talking with the company that we just acquired for many, many years. We were very familiar with them, very similar product catalog. Obviously, it's a small business, but we think it's going to be a great, great market for us.

And the M&A market, I mean, it's pretty frothy. It's been like that for a while. We've been really, really conservative because we just have so much positive momentum going on with all the facilities that we've just opened and all the people we've hired in the last 5 years. So we've just been really, really picky and careful and just pick spots that really make sense for us because I just think we have so much momentum in the organic growth. And it's just -- it's a good time to be able to sit back and just be really picky.

Thank you. We take the next question from the line of Brian Harbour from Morgan Stanley.

I was curious, have you actually seen accelerating share gains perhaps recently? Or could you talk about how your market share has trended lately?

Well, Brian, we have -- given the investments that we've made coming out of COVID the last couple of years in capacity expansion in markets like the Middle East and the Northwest and Florida and Southern California and even in the New York metro area, we have a number of markets that are growing at different phases.

We have -- our high-growth markets are growing low double digits to anywhere between 10% and 20%, and we have our mature markets still growing very healthily. And as we add categories in those high-growth markets that are maybe underpenetrated from in terms of the opportunity, we're obviously taking market share, growing penetration, and adding a lot of new customers, and then doing things the same but maybe on a slightly smaller scale in our more mature markets as we continue to add categories and grow. So it's different in every region, but that's part of our model is to grow that way.

And could you maybe talk a little bit more just by types of customers that you serve? You're seeing this acceleration here. Is that true with nonrestaurant customers? Is it true with the different types of restaurants that you serve? Could you just dig into that a bit?

Yes. Well, again, we're obviously the smallest of the public companies. And I always say we are really a marketing company that also distributes. So we're really very differentiated from the big 3 broadliners -- public broadliners. So I think it is a little confusing when you really look at who Chefs' Warehouse is, we are servicing -- obviously, there's overlap. We always have competition.

Our motto is anybody that has a truck is a competitor. So we have that competitive nature. But we really do beat to a different drum. It's a much more complicated logistical business that we've put together over 40 years. And the way we go to market and the customer base, it's very diverse, purposely that way because I've lived through all the past recessions and things that can go wrong, obviously, COVID. So it's pretty diverse, and it was strategically created that way. So we do have a balance. And no one is immune to a big headwind. But we like the position -- where we're positioned in the market, and we're cautiously optimistic that our customer base is more resilient than the overall food-away-from-home market.

We take the next question from the line of Peter Saleh from BTIG.

Congrats on a great quarter. Maybe I just wanted to ask on inflation and beef costs. There's been a lot of discussion. There's been a lot of inflation in beef. What are you guys seeing? It doesn't seem like it's impacting your margins, at least not in the third quarter. Any thoughts on the go forward and the overall beef market and the impact on financials?

Yes. I think what you saw in the third quarter, Pete, was an elevated level of inflation year-over-year. I think protein prices have been pretty firm the entire year. So some of it is the year-over-year comparisons. But when you exclude the Texas transition, it's around 5% year-over-year. So definitely elevated.

Our year-over-year protein margins were down versus prior year, but we got really good gross profit dollar growth because when you have that level of inflation, you're not going to pass all of it on to your customer, and you're going to get it back over time as you hold prices a little bit and drag them down a little slower when the market comes down. So I think our team has done a good job of managing through this inflationary environment in terms of securing the supply chain. We sell the highest quality proteins in the industry to the best restaurants and steakhouses. So I think they've done a good job of navigating this inflationary environment.

And then just on the Chefs' Middle East business, I think you mentioned there was maybe a little bit of a step back, which makes sense. Has that started to recover again as we head into the fourth quarter here? Just curious as to the trajectory on that business.

Yes. We just highlighted that our unique customer growth, which is usually in the mid- to high mid-single-digit year-over-year type of growth, consistent with our placement growth and volume growth. It was impacted by obviously the attrition in Texas, the Texas transition of those low-margin customers. And then in the Middle East, during the summer when you had the Qatar conflict, we had some customers shut down for a couple of months, but they've started to come back online, and those 2 things impacted our unique customer growth. We really just highlighted The Chefs' Middle East just for that temporary impact. Overall, the business continues to grow really nicely.

As you know, we've expanded not only our Dubai facility, but we've also recently expanded our facility in Qatar, and then we're pretty close to finishing our facility in Oman. So we're expanding our capacity in all 3 of those markets, and we're seeing really nice double-digit growth, and they continue to improve -- a good amount of our elevated protein volume growth in the quarter year-over-year was driven by our nascent but really well-growing protein program that we've started to enhance in the region.

We take the next question from the line of Kelly Bania from BMO Capital Markets.

I wanted to just go back a little bit to the acceleration in the past couple of months. Just curious if you can talk about that a little bit more in terms of how that played out between your mature markets and maybe your higher growth markets, if that's more broad-based, or if there's any particular categories or regions that are standing out in terms of how that played out through the quarter in terms of the growth rates.

Yes. I think you got to look at it, Kelly, that obviously, the bigger markets have more impact on our numbers, and they're doing great. The smaller markets, obviously, their percentage growth is higher, but it's from a smaller number. So I think that -- I know it's hard to look at from your seat -- it's so diverse now, Chefs' Warehouse that we're pretty much -- I mean, there's a few exceptions, and they're minor in the total volume. But we're accelerating growth in so many different categories and in smaller markets that it's hard to really give you a total picture. But from my desk, obviously, I look at categories, I look at subcategories, I look at the major territories, outer territories. And I just think the team has done such a great job executing the vision that we want to be the partner of the chef in that mid-to-high casual all the way up to super-fine dining. And I just think they're really executing.

And obviously, they're taking market share, and they're also winning on a lot of what's opening, , which is really important for us because just our natural attrition is, say, 7% to 10%. So it's so important for us to keep growing the account base and the category base, especially when you have negative news all over the news that some customer accounts are [ down ]. I just think our customer base -- again, we're small compared to if you're going to put us in the distribution world, we're really boutique. And we like being boutique, and we like where we are, and I just think it's hard to compare us to everything else and all the noise that's out there.

Just to follow- up on that, and then wanted to ask about the acquisition. But how much do you, Chris, attribute this to just the training that you've been investing in with the sales force and some of the education and tools that you're giving the sales force?

Yes. I think a lot. Again, we're celebrating our 40th year, and I've been looking at these numbers for probably 42 years, even while we were trying to get going. So it takes so much to train the team to -- especially to sell the premium products that we sell. It's not overnight. You got to invest way ahead of time. And I just think the team is doing such a fabulous job executing, and you have to be at this level.

And our digital team, our IT team, we're giving them all the tools that you need today. And everyone talks about AI. Of course, we're using AI and investing in AI. And I think everybody is going to have good AI. I don't think that's going to be the differentiator at the end of the day. You have to have it, but the customer needs to want to do business with you. We always say, Chefs' not for everyone. And of course, we want to sell more and more products, but we're really disciplined on who we are, and we're not for everyone. So I think the AI tools are making us better. I think we're right there, world-class, with everybody else and where we're investing, and we're getting a great return on those tools. But at the end of the day, you still have to satisfy the customer in every way. You have to have the service and you have to be likable. And I think our laser focus on our customer base and who we are and not trying to be someone else, I think that's what I see -- I think you're seeing the results from that.

Can I just ask one more about the acquisition, I think Italco? Just maybe what stood out about that acquisition? It's been a while. I'm sure there's a lot of potential targets on your desk. What stood out? Why does this make sense for Chefs' now? And can you just talk a little bit about the margin structure and the quality of their book of business and how much it aligns with Chefs' philosophy on the quality customer?

Great question. And again, it is a small acquisition. It's really a super-high-quality company, great people. We've known them for years and years and years. We just were so busy with so many other markets and all the facilities that we're putting up, getting going, and all the categories we've invested in that, thank God, they were very patient and waited for us because it's one of the -- I would say, one of the last, I'd call like really pure specialty businesses. We bought a bunch of these early on when we went public, and we were getting our foot into all the states. We said we're going to be in just about every -- in every NFL city, except maybe Green Bay.

And they were really one of the last small boutique companies that for us, it was like a no-brainer. They have a similar catalog of high-end products. They service a ton of customers. Their offerings are much more narrow than us. So that's why we're really excited about this because with Chefs' Warehouse, catalogs, and all our teams going in there, doing training, hiring, we're going to hire a lot of salespeople throughout Colorado, and obviously, boutique places like New Mexico, and they're going to all the mountains and resorts. And we just are really excited that this is going to be a great Chefs' Warehouse over the next 10 years.

We take the next question from the line of Margaret-May Binshtok from Wolfe Research.

I just wanted to ask if you guys continue to see progress with digital penetration, trying to get towards your long-term goal through the quarter and if there's anything to call out in terms of how digital penetration is helping you guys gain relevance with your existing customers?

Yes. The digital team has done a great job, and it's making the sales force more and more efficient. I think the whole goal of this is to be able to do more with less. And I think we're having great success. But we continue to really rely on our tremendous sales force really to push penetration. I think the digital tools are great support, and it's giving us that last extra -- I always say it gives you that last extra yard getting into the -- to score a touchdown. So we continue to invest in it. It continues to give us a great ROI, and it's just part of what I call the go-to sales strategy of Chefs' Warehouse.

And Margaret, on adoption, we didn't have it in the presentation this quarter, but we're a little bit over 60%. So it continues -- on the specialty side, we continue to drive adoption.

And then just one more. Anything to call out in terms of business-related travel? Are you seeing any weakness there?

I mean, we hear a lot of complaints. We hear complaints, especially like in Las Vegas. The Canadians aren't coming. We hear that in Florida as well. But in so many of our major cities, there's someone eating all this food. So I think there's lots of domestic tourism still. And in the Middle East, they continue to have great tourism. So we hear noise, but we look at our results, and we're really happy with them. So it'd be great if there was a big boom again with our friendly neighbors. I think that would obviously juice the returns even more. But we hear a lot, but we see the numbers, and we say someone is traveling.

We take the next question from the line of Todd Brooks from The Benchmark Company.

A couple of questions. First, and Jim, you talked about when you were thinking about the updated guidance and being comfortable with the mid-to-upper end of the revenue guidance. And Chris, you've been doing this a long time. When you're through October and you're talking to your customers now, what's the sense of trend being locked in for a good holiday season based on the momentum that you've seen build across September and October?

I'm always cautiously optimistic. We just did -- we just had a bunch of big shows in a lot of our markets. So I was fortunate enough to get out and attend and speak to a lot of customers. And it can always change. We live in really interesting times. A few tweets and the sentiment changes, but we're hearing good holiday bookings. So I was really enthused to hear that a lot of the holiday bookings are pretty strong. So we're really cautiously optimistic it's going to be a good quarter..

And then my last question. You've seen a lot, Chris. You've been doing this for over 40 years, like you said. So I get a lot of incoming calls about, well, if Performance and U.S. Foods get together, isn't that bad for Chefs'. Can you talk about just historically when you've seen big consolidations in the industry, what it's meant for the Chefs' Warehouse as far as maybe customers to be had, sales force talent to be had, I think that might clear up some of the maybe trepidation that some people think about the combination potentially happening.

Great question. And I could just go by historically, what we've seen -- and even when we do an acquisition, when we look at an acquisition, we're looking at it for long term. Obviously, fold-ins are very synergistic, because you usually just take in the sales force and you're getting the efficiency on trucks and customer service and the back office and all that wonderful stuff.

But we always model going backwards in most acquisitions. Not all. Colorado, we think, it's really small, but we think because it's so small, once we get everything squared out, it's just going to be an explosive market for us. But historically, we go backwards when we do an acquisition because customers usually want to hedge their bet, they're not sure, and all that wonderful stuff. And when we've seen big acquisitions from in territories, we usually get a nice uptick.

And again, a lot of it is customers want to hedge their bet or salespeople are nervous and there's a lot of integration and a lot going on. So if this big deal goes through, we are cautiously optimistic that it could be really, really good for CW just from the fact that customers are going to want to hedge their bet, and we'll pick up a lot of new business.

We take the next question from the line of Ben Klieve from Lake Street Capital Market.

Congratulations on a really good quarter here. I've got a question about your organic growth initiatives over the last year or 2. They're really starting to, I would expect, fill in. And I'm wondering if there's anything to call out operationally out of Texas, Florida, California that has maybe been a surprise or an operational challenge as you go into the holiday season. Have those organic investments continued to hum as expected? Or has there been any issues to call out?

Yes. I don't think I've woken up one day in 42 years where there [ isn't ] an issue. It's the nature of a service company. But yes, I mean, we have such a great team at this point. We're never satisfied. Obviously, every day we're trying to get better. Most markets, again, we're really cautiously optimistic they're going to have a great fourth quarter and a great 2026. The biggest opportunities for us are places like Texas, where we're just -- we're really new, even though we bought a company that's historically been in the market, but as Chefs' Warehouse, we're still in the first inning. So we're just so excited about the opportunity for that growth over the next 10 years.

Florida, we made the big investment. We're getting a great ROI. We've got an incredible team, and we still think that we're in the first inning there, but we're really excited. L.A. has got a new facility, and they're having great growth. So we're really excited about that. We got our new protein facility up and running in Richmond, and they're having a great year. And we have great hopes for '26 and beyond. So I don't think there's a market that I'm not really -- I have any complaints about and couldn't be more proud of what they're doing. But the big opportunity in a market that we're just really new in, like Texas, I think, is really exciting.

Well, congratulations again to both of you and the whole team on a good quarter and a good outlook here for the fourth quarter.

Thank you. Ladies and gentlemen, as there are no further questions, I would now hand the conference over to Chris Pappas for his closing comments.

Yes. Well, once again, I want to thank the team at CW. They've done a phenomenal job and really excited what they're going to do in '26 and beyond. And we thank all our investors and analysts for joining our call, and we look forward to the next call. And thank you again for joining.

Thank you. Ladies and gentlemen, the conference of The Chefs' Warehouse has now concluded. Thank you for your participation. You may now disconnect your lines.

Greetings, and welcome to the Chefs' Warehouse Second Quarter 2025 Earnings Conference Call. As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Alex Aldous, General Counsel, Corporate Secretary and Chief Government Relations Officer. Please go ahead, sir.

Thank you, operator. Good morning, everyone. With me on today's call are Chris Pappas, Founder, Chairman and CEO; and Jim Leddy, our CFO.

By now, you should have access to our second quarter 2025 earnings press release. It can also be found at www.chefswarehouse.com under the Investor Relations section. Throughout this conference call, we will be presenting non-GAAP financial measures, including, among others, historical and estimated EBITDA and adjusted EBITDA as well as historical adjusted net income, adjusted earnings per share, adjusted operating expenses, adjusted operating expenses as a percentage of net sales and as a percentage of gross profit, net debt leverage and free cash flow. These measures are not calculated in accordance with GAAP and may be calculated differently in similarly titled non-GAAP financial measures used by other companies. Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release and second quarter 2025 earnings presentation.

Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements, including statements regarding our estimated financial performance. Such forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Some of these risks are mentioned in today's release. Others are discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q, which are available on the SEC website.

Today, we are going to provide a business update and go over our second quarter results in detail. For a portion of our discussion this morning, we will refer to a few slides posted on the Chefs' Warehouse website under the Investor Relations section titled Second Quarter 2025 Earnings Presentation. Please note that these slides are disclosed at this time for illustration purposes only. Then we will open up the call for questions.

With that, I will turn the call over to Chris Pappas. Chris?

Thank you, Alex, and thank you all for joining our second quarter 2025 earnings call. Second quarter business activity displayed typical seasonality as revenue and profitability improved across our network. Our operating divisions, domestic and international delivered strong unit volume and unique item placement growth and managed pricing effectively while providing our customers with high-quality product and high-value service during the quarter.

I'd like to thank all the Chefs' Warehouse teams from sales, procurement, operations to all the supporting functions for their dedication and contribution to a strong second quarter and first half of 2025.

During the second quarter, Chefs' Warehouse achieved the Great Place to Work certification for the fourth consecutive year. We view this certification as recognition of our unique culture and our focus on people as our greatest asset in dynamic and competitive food-away-from-home industry. All of us at Chefs' Warehouse recognize and give thanks to our customers and supplier partners. Their support and confidence in our people, quality and diversity of products, a high-touch flexible distribution platforms continues to drive our company forward.

As discussed on our first quarter call, as part of the process of integrating our Hardie's operation in Texas with our legacy CW specialty and protein operations, we have taken a number of actions to merge our culture, streamline operations and drive both top-line and bottom-line improvements as we make progress creating the Chefs' Warehouse model in Texas.

This has included the attrition of a noncore commodity protein program during the first quarter and the subsequent elimination of a noncore specialty produce processing and packaging program early in the second quarter. These actions are aimed at creating distribution capacity for specialty category and customer growth, operating cost efficiency and improved profitability as we continue to scale in the Lone Star State.

As such, given these noncore programs were high in case and pounds volumes, we will present price and volume metrics as reported and also excluding the impact of these changes to present more representative year-over-year price inflation and volume change for our business overall.

With that, please refer to Slide 3 of the presentation. A few highlights from the second quarter include: 8.4% growth in net sales, specialty sales were up 8.7% over the prior year, which was driven by unique customer growth of approximately 3.6%, placement growth of 8.7% and reported specialty case growth of 3.5%. Excluding the elimination of the Texas produce processing and packaging program, specialty case growth was 5.8% versus the prior year quarter.

Pounds in center-of-the-plate were approximately 4.0% lower than the prior year second quarter. Excluding the attrition related to the Texas Commodity Protein program, center-of-the-plate pounds growth was 5.8% higher than prior year second quarter.

Gross profit margins increased approximately 59 basis points. Gross margin in the specialty category increased approximately 59 basis points as compared to the second quarter of 2024, while gross margin in the center-of-the-plate category increased approximately 56 basis points year-over-year. Jim will provide more details on gross profit and margins in a few moments.

Now please refer to Slide 4 for an update on certain of our operating metric improvements. In summary, Chart 1 shows continued improvement in gross profit dollars per route. Second quarter 2025 trailing 12 months was 2.8% higher versus full year 2024 and 36.2% higher than 2019.

Chart 2 shows second quarter 2025 trailing 12-month adjusted operating expense as a percentage of gross profit dollars improvement by 69 basis points versus full year 2024 and 160 basis points versus 2019. Second quarter 2025 trailing 12-month adjusted EBITDA per employee increased 7% versus full year of 2024 and 26% versus 2019.

With that, I'll turn it over to Jim to discuss more detailed financial information for the quarter and an update on our liquidity. Jim?

Thank you, Chris. Good morning, everyone. I'll now provide a comparison of our current quarter operating results versus the prior year quarter and provide an update on our balance sheet and liquidity.

Please refer to Slide 5. Our net sales for the quarter ended June 27, 2025, increased approximately 8.4% to $1.035 billion from $954.7 million in the second quarter of 2024.yNet inflation was 7.2% in the second quarter, consisting of 5% inflation in our specialty category and 10.8% inflation in our center-of-the-plate category versus the prior year quarter.

Reported inflation was impacted by 2 primary factors in the second quarter versus the prior year quarter. Center-of-the-plate inflation was impacted by the commodity poultry program attrition in 2025. Excluding this attrition impact, net inflation in center-of-the-plate category was 4.1% versus the reported 10.8%. Continued growth in specialty cross-sell as we further integrate CW and Hardie's results in elevated reported specialty second quarter inflation. Excluding this impact, specialty inflation was approximately 2.3% and overall inflation for the company was approximately 3% versus the prior year quarter.

Gross profit increased 11.1% to $254.3 million for the second quarter of 2025 versus $229 million for the second quarter of 2024. Gross profit margins increased approximately 59 basis points to 24.6%.

Selling, general and administrative expenses increased approximately 9.7% to $213.8 million for the second quarter of 2025 from $194.8 million for the second quarter of 2024. The increase was primarily due to higher costs associated with compensation and benefits to support sales growth, higher depreciation driven by facility and fleet investments and higher self-insurance-related costs. Adjusted operating expenses increased 9.3% versus the prior year second quarter. And as a percentage of net sales, adjusted operating expenses were 18.25% for the second quarter of 2025.

Operating income for the second quarter of 2025 was $40.2 million compared to $33.9 million for the second quarter of 2024. The increase in operating income was driven primarily by higher gross profit, partially offset by higher selling, general and administrative expenses versus the prior year quarter.

Our GAAP net income was $21.2 million or $0.49 per diluted share for the second quarter of 2025 compared to net income of $15.5 million or $0.37 per diluted share for the second quarter of 2024.

On a non-GAAP basis, we had adjusted EBITDA of $65.4 million for the second quarter of 2025 compared to $56.2 million for the prior year second quarter. Adjusted net income was $22.5 million or $0.52 per diluted share for the second quarter of 2025 compared to $17 million or $0.40 per diluted share for the prior year second quarter.

Turning to the balance sheet and an update on our liquidity. Please refer to Slide number 6. At the end of the second quarter, we had total liquidity of $260.3 million, comprised of $96.9 million in cash and $163.4 million of availability under our ABL facility.

During the second quarter, we repriced our $253.5 million term loan maturing in 2029, reducing the coupon from term SOFR plus a fixed spread of 3.5% to term SOFR plus a fixed spread of 3%. In addition, during the quarter, we repurchased approximately 160,000 shares under our $100 million authorized buyback program. To date, repurchases totaled approximately $27 million of equivalent shares, inclusive of shares repurchased in 2024 and 2025.

As of June 27, 2025, total net debt was approximately $544.1 million, inclusive of all cash and cash equivalents, and net debt to adjusted EBITDA was approximately 2.3x.

Turning to our full year guidance for 2025. Based on the current trends in the business, we are raising our full year guidance as follows: We estimate the net sales for full year 2025 will be in the range of $4 billion to $4.06 billion. Gross profit to be between $964 million and $979 million and adjusted EBITDA to be between $240 million and $250 million.

Please note, for the full year 2025, we expect the convertible notes maturing in 2028 to be dilutive, and therefore, we expect the fully diluted share count to be approximately 46 million to 47 million shares. Thank you.

And at this point, we will open it up to questions. Operator?

[Operator Instructions] The first question that we have is from Mark Carden of UBS.

So I want to start on the underlying health at the restaurant level. You continue to see solid growth despite some of the traffic challenges the broader industry continues to face. Your end market demographic, of course, it's a little bit different from the industry. But are you seeing any pockets of weakness or elevated restaurant closures within really any of the channels in which you operate? Or has it been pretty resilient across the board?

Yes. I mean I think there's always a little choppiness somewhere. But overall, we're really pleased with what we're seeing. And our team's ability to continually take more market share in our markets that we've invested heavily over the past 10 years in infrastructure and our salespeople and technology. So I think it's Goldilocks for us. I think overall, our customer is doing pretty well, and we have a constant new customer base that brings in a lot of volume and our customers that like to use all parts of Chefs' Warehouse, all our divisions, which is really our mission right now. We want to be where the chef shops, and we're offering more and more categories. And I think that we're benefiting from -- I think our customer base is a little more resilient. So I think it's like the Goldilocks from customers are doing pretty well. We're taking more market share, and we continue to harvest our investments.

Makes sense. And then we continue to see a greater push for return to the office policies really across the country. Have you guys seen much of a corresponding uplift yet on business dining at this stage?

I think to me, I think it's a net add, but I always say you can't eat the same meal twice. So if you're going to the office, you're not eating locally where you were working or living or getting your food from before. So I think the back to the office is helping with more of the lunch business in the major cities and I think bringing people out more Friday dinners that we were seeing. But I think it's still balanced. To us, it's -- if you're commuting to the city, you're taking away cash from your local markets. So it's -- I don't think it's a big thing that we're focused on.

The next question we have is from Alex Slagle of Jefferies.

How is the -- like, the summer travel changes and then to the degree anything has changed, how is that impacting demand? And I know that the foreign travel to New York and maybe tourism to some of the other big cities is reportedly down, but kind of curious what you're seeing on that front.

Yes. Thanks for the question, Alex. Yes, I would say that the last couple of years, July, especially maybe a little bit in early August, surprised us a little bit to the downside based on what appeared to be the extreme over tourism happening in Europe. People were spending their restaurant dollars in Lisbon, Paris and Madrid and not in New York City and San Francisco. But I think we had a pretty good July this year, coming in really close to what we expected, maybe even a little bit better. So I don't know whether that is changing a little bit. But the summer is -- July and August are seasonally slow, especially in the big cities. You get the shore business that pumps up, and we are seeing that. But I don't know whether it's a change or whether maybe a little bit of that over tourism is getting a little tired.

Yes. I think it's getting back to -- I call it normality, Alex. I think coming out of COVID, I said we probably need 4 or 5 years to see what's the new normal. The craziness with travel and the Amalfi Coast and Barcelona signs, tourists go home. I think it's getting a little more balanced. We're cautiously optimistic going into the summer, and I think we're pretty pleased with what we saw. I think from my seat, I was really pleased. I was a little more nervous about June, July. And I think it's coming in pretty strong. So we're cautiously optimistic that our higher-level customer price points a little more insulated. And tourism is down for sure, places like Vegas, and some other parts that we hear. But other areas, they're up 120%. So I think it's a rebalancing.

Got it. And I had a follow-up on the Hardie's planned attrition. Just trying to get an idea of what magnitude we should think about in terms of the headwind on reported case growth in pounds as we look ahead to the third quarter, just should it be similar to what we saw in the second quarter? And I know you said the specialty attrition, the produce piece had started during the 2Q. So I didn't know if that was early on in the 2Q or midway or just trying to get a feel for that.

Yes. I would expect -- so the protein, the large commodity poultry program, that kind of started midway through the first quarter. So the impact was less -- we did call it out when we reported first quarter, but it was less than the impact on the -- in the second quarter. So our reported center-of-the-plate pounds down 4%, but excluding that program, up almost 6%. So that was a very high-volume program, almost 10% of our total pounds for the quarter and for the year. So we'll continue to call that out until we lap it, which with both programs, we won't fully lap them until the second half of next year. So we'll continue to just call it out as these are highly transactional, high-volume, low dollar, low-margin programs that getting rid of them will make us a more profitable company. It already -- we're already starting to see some of the benefits in taking some of the cost out and the distribution and operational benefits. So -- but it will continue to impact the reported volume numbers and price numbers. We'll have to adjust both.

Yes, Alex, I mean, the way we look at it, and I think it's the way you should look at it, trying to analyze the strength of the business is it's just carving out a chunk, and we've done this over the last -- we've done it over 40 years. But since we had a lot of acquisitions over that period of time, and I've called out that we're buying companies because we think they're really good companies and they got great people and they give us a territory or a category, but there's chunks of it that it's not what Chefs' Warehouse done, and it's a matter of time before we could cycle it out. And we did that.

New England was the best example, I think, with what we saw and happened at Sid Wainer, we shrunk them almost 50%, and then we regrew them and they have the profit levels of a typical Chefs' Warehouse. And that's what's happening in Texas. It's a small part of our business. So I don't like to spend that much time on it. But just to give you the insights, the team is performing there. It's a long-term business plan we have there. They're meeting our expectations. They are profitable. They continue to become more profitable. And this is a natural shedding of business that doesn't really fit into Chefs' Warehouse. So as we continue to grow that market, and we look to see our facilities and how to get more of the blend of Chefs' Warehouse into Hardie's. Over time, it's going to look more and more like New England. And I would say now we're probably in the second inning. We were in the first inning. Tremendous upside is coming.

That's great. And just the specialty cases, that impact -- that was sort of the full quarter impact that we saw in the second quarter. So maybe see similar magnitude.

Yes. We exited that program in April. So it covered almost the entire quarter.

The next question we have is from Todd Brooks of Benchmark Company.

Congrats on really strong results even accounting for the Hardie's exits. And I have a question on Hardie's kind of following up on what Alex was asking about. Is the right way to think about this? It looks like with the pricing benefits from an inflation standpoint, one being just the kind of Hardie's cross-sell that you sized, it seems like from a profitability standpoint, or a pricing net volume standpoint, it's flattish to slightly positive in specialty and probably a 300-basis point drag from a sales standpoint for center-of-the-plate. Part of that obviously requires the inflation outlook to kind of hold with what you've seen in the first half.

So Jim, I was wondering about second half inflation outlook in general. And are these the type of drags if we're modeling both case impacts and pricing impacts for the Hardie's exit for the next couple of quarters to frame it up with?

I think the best way to answer that is really just to point to the aggregate inflation environment, excluding these product mix changes that are happening because of the transition that Chris just very nicely articulated. Our reported aggregate inflation was 7.2%. But if you exclude the 2 programs that we're trading out of, it's 3%. And it's 2.3% on the specialty side and 4% on the center-of-the-plate side, the year-over-years. And so that's the environment that we're seeing for 95% of our business when you're excluding these 2 programs that are just highly transactional and not part of what we really do.

So I would just say that, that's what we expect really for the remainder of the year. I don't think there's anything we see other than potential unforeseen impacts from tariffs that nobody really knows what the impact will be yet. I mean we've modeled what we think, and we think it's going to be at most low single-digit impact on aggregate year-over-year inflation. But I would just mention that sequential inflation has been very moderate. Actually, specialty and produce have been slightly deflationary sequentially versus the first quarter and center-of-the-plate has been slightly inflationary versus the first quarter. So I think that's the best way to frame how we're thinking about price and inflation for the remainder of the year.

The next question we have is from Peter Saleh of BTIG.

Congrats on a good quarter. I wanted to ask about the gross margin. I know there's a lot of moving parts here, but I think gross margin was 50 basis points stronger than what we anticipated, and I think the best number that you guys have posted in about 6 years. So just trying to understand, is this the new level of gross margin? Or is there a lot of moving parts here with some of this inflation noise and the Hardie's business? If you could just help us parse that out, that would be helpful.

Yes. Thanks for the question, Pete. Yes, I think you're saying that it's a lot of moving parts is a good way to characterize it. There's the noise from the Hardie's transformation, which are very low-margin type of businesses. So that's bringing up a little bit of the year-over-year. But I would say the major part of it is if you were to go to that -- the waterfall we put out on our 2028 goals and the initiatives under each of those areas in terms of pricing and procurement, our digital platform growth and how that's contributing, our operating units and they're implementing the Select Prime technology to reduce inventory damages and returns, et cetera. We're in the early innings, a lot of the benefits from those things, but we're starting to see them. And all of those things coming together have started to contribute to the gross profit dollar growth and margin improvement.

I will remind you that gross profit margins are an output. So in a different inflationary or deflationary environment, if you're -- as long as you're focusing on gross profit dollars per unit, per pound, per drop, per truck, et cetera, you can get the gross profit dollar growth that you need to drive EBITDA growth and the margins will move around within a range, and that's pretty typical.

Got it. Okay. And then just -- I know you mentioned tariffs. Have you -- is it fair to say that you haven't seen any impact yet from tariffs, but are expecting something in the back end of the year?

No. We've seen impact. Remember, I mean, he hit the -- most of what we import is from the EU, and that was slapped with 10% months ago, right? So announcing now it's 15%, and we still don't know what the exclusions are going to be. We're expecting exclusions, products that don't grow here. We think they're probably not going to get as tariff or tariff. So we definitely saw an increase in certain categories.

And like Jim says, it's not on -- you're not tariffing the freight, you're not tariffing a lot of the other input costs that go into the total price. So we did see a few points of inflation. So I think we took that hit, and there's probably a little bit more, but we've also had a lot of deflation in product lines. So something like chocolate that went through the roof has come down some. Olive oil went through the roof. That price has come down. Produce has been deflationary. The whole bird flu as that thing figures itself out, you have deflation. So at the end of the day, it's kind of moderate -- we're modeling in the moderate inflation sequentially that we're reporting right now. We don't see anything big on the horizon.

I would just add, Pete, that we have a bit of a natural advantage given our business model. We have 130-plus different types of olive oils in our distribution centers. So our diversity of product and the amount of SKUs that we carry for each category give us a little bit of an advantage from a substitution and alternative perspective. So I just wanted to add that.

[Operator Instructions] The next question we have is from Kelly Bania of BMO Capital Markets.

I wanted to just ask about your outlook here for the second half. And the first half has been quite strong. It seems like the momentum, the seasonality all continues. But I guess the guidance kind of assumes a slowdown in the top-line and the EBITDA growth. So I was just wondering if you can help us understand if that's just conservatism? Or is there anything to call out specifically that we should [ thinking ] about modeling for the second half?

Thanks, Kelly. Now most of it is based on the strength of the second half last year. So as we got into September and the fourth quarter of last year, we had really strong performance. So as we went in, we built our guidance and our plan for this year, we understood that there was going to be a little bit of imbalance between the first half of the year and the second half of the year. But what I would say is it's really not a commentary on what we expect for the second half or the full year guidance, if you take the mid to the top end of the range, which we feel pretty good about, you're talking about a typical type of percent of revenue or percent of EBITDA based -- comparing the second half to the first half that we would have in a typical Chefs' Warehouse year based on seasonality.

So I think it implies 6% revenue growth in the second half on top-line, EBITDA growth of close to 14%. And that gets us to a full year 6.5% to 7%, which is top-line growth implied, which is the top end of our medium- to long-term growth algorithm. So -- and it implies really strong operating leverage. I think our operating leverage in the first half was about 200 basis points, and it implies full year similar. So no, I think it's just more about the comp to last year than it is anything about what we expect this year.

Okay. That's helpful. Fair enough. Also I wanted to ask, I know there's been a lot of questions about the Hardie's and the planned attrition. But I guess the placement growth is one item that I don't think would be negatively impacted by that, it would seem that's indicative of kind of some really strong cross-selling and some success with that. Can you elaborate on that and just what you're learning as you do that cross-selling with the Hardie's business in the Texas region?

Yes. Well, again, so turn the clock back a little bit. We bought Hardie's, great people, great run company, not a Chefs' Warehouse. So we knew that we were going to use it a base to really expand and ultimately build a $500-plus million CW business across Texas. And it was all based on cross-selling, right? So we took a produce provider with lots of routes -- and we took some specialty businesses. We opened up in Allen Brothers in Texas, which was a tremendous feat by our team to get a greenfield going. And all that is feeding -- so CW Specialty.

So the growth, if I laid out the 5-year plan -- I mean, we have a 10-year plan is to continue to grow Hardie's like a Chefs' Warehouse. So negativity part in dropping certain clientele that lots of volume, but not the kind of business Chefs' Warehouse does, right? And then refilling up those routes with more Chefs' Warehouse type accounts, more of the independents, more of the higher-quality restaurants throughout Texas, all the groups that we serve. So the mix is going to come in waves, Kelly, with protein boxes, produce boxes and specialty and broadline. So it's going to be a little muddy -- but again, I think I said earlier, we're probably in the second inning. We've made the business more profitable. It continues to become more profitable every day. And the mix is going to be muddy.

I don't know if we have a lot more shedding to do of, we call it, non-CW business, right? We've done a lot. So at this point, it's really turning on the faucet. We continue to hire salespeople, and we're selling more and more of the Chefs' Warehouse boxes. But the exact numbers, it is going to be a little muddy.

Okay. No, that's helpful. Also, just starting to get the question from more investors just about M&A. Obviously, you've been kind of on pause here for, I believe, about maybe 2 years. But are you thinking of restarting that? Is there anything in the pipeline? Maybe just help us understand where the thought process is on future M&A at this point?

Yes. I mean I think we've always been opportunistic, right? Except for CME in the Middle East, there's been nobody really like a Chefs' Warehouse to buy. So we're always having to buy someone who we think we can [ chef-a-size ] and maybe gives us a category we need or a territory, right, like Hardie's, it was the way to get into Texas. So we're constantly looking at deals. I mean my desk has 20 deals on it all the time. It's just a matter of valuations. We thought valuations were too high for a while coming out of COVID for the type of businesses that they were. And there's always an outlier. There might be something that's really great and interesting that we haven't seen. So we'd be interested in that. But right now, I think there's small things we can do, some tuck-in acquisitions to the facilities that we've built that have lots of capacity because we don't want to eat up all that capacity as soon as we've invested all that money to be able to organically grow the market.

So I think the crystal ball would say there's going to be a few points a year of fold-in, right, to feed our -- I think we're having tremendous organic growth right now from all our investments. So I think you're going to see a combination of that over the next few years. And like Jim said, we feel really good and strong about the plan we put out until 2028, which gets us EBITDA percentage way over 6% and just filling up the capacity that we've had and also finishing a few of the markets that we've entered. While we look at some of the markets to complete us as a national footprint, there's a few markets that we're still looking to get into.

The last question that we have is from Elle Niebuhr of Lake Street Capital Markets.

Congrats on the quarter. I was wondering if you could touch base on your 2028 goals and relate them to the strong results you've seen in the first half of the year. Are any of the catalysts that you've laid out in your 2028 goals contributing to the positive results today? Or do you still kind of view them as ambitions?

Thanks for the question. Yes, I think I mentioned earlier when we were talking about the gross profit margin and gross profit dollar improvement that if you go to that -- if you just go to some of the initiatives we laid out in that waterfall, it's actually in the appendix of the presentation that we posted for today's call on our website, everything from what our procurement and pricing teams and category management teams are doing on predictive demand forecasting, working with our suppliers through issues like tariffs and all of the route consolidation that we're doing. I talked about Select Prime and that technology process that our operators have implemented to improve our inventory management.

And then I can't say enough about our digital growth. We're at right around 60% of our specialty orders and sales are coming through our digital platform. We have roughly 40% growth in orders versus the prior year. So all of that is contributing as well as the continued progress on acquisition integration and growth. Our Chefs' Middle East business is firing on all pistons and doing really well. We've talked a lot about Texas and some of the things we're doing there. So we're in the early innings in a lot of those initiatives, but they -- many of them have definitely contributed to the success in the first half.

At this time, there are no further questions. And I would like to turn the call back over to Chris Pappas, CEO, for closing comments.

Sure. Well, we thank everyone for joining us today, and congratulations again to our team for a great quarter and all their hard work. And as core New York is too, we -- I'd like to say that our hearts and prayers are out to the devastating nightmare insane loss of life that New Yorkers have seen this week with the attack in the office building in New York. So our prayers are out for those families. And we look forward for everybody joining us on our next earnings call. Thank you very much.

Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.