The Chefs' Warehouse, Inc. (CHEF) Q1 2025 Earnings Report, Transcript and Summary

Greetings, and welcome to the Chefs' Warehouse First Quarter 2025 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the call 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 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 first 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 Web site. 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 Web site under the Investor Relations section titled First 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 first quarter 2025 earnings call. First quarter of 2025 business activity displayed typical seasonal cadence as revenue trends coming out of January increased steadily into February and March. During the quarter, our business units, international and domestic, delivered strong growth in unique item placements, solid operating leverage versus the prior year first quarter. As we entered the second quarter, revenue builds during the April continued to display typical seasonality. I'd like to thank all our Chefs' Warehouse teams from sales and operations to all the supporting functions for delivering a great start to 2025. I would also like to recognize our customer and supplier partners for their support and confidence in our people, quality and diversity of products and our high touch flexible distribution platform. Now please refer to Slide 3 of the presentation. A few highlights from the first quarter include 8.7% growth in net sales. Specialty sales were up 10.7% over the prior year, which was driven by unique customer growth of approximately 4.5%, placement growth of 7.7% and specialty case growth of 5.7%. Pounds in the center of the plate were approximately 1.3% lower than the prior first quarter. During the first quarter, we commenced attrition of certain low margin non-core customer business that had an impact of 0.7% lower year-over-year sales versus prior year quarter. The primary driver of the attrition was a high volume, low dollar commodity poultry program acquired with an acquisition. Excluding this attrition, total center of the plate pounds grew growth with 3% higher than prior year first quarter. Gross profit margins decreased approximately 18 basis points. Gross margin in the specialty category increased approximately 6 basis points as compared to the first quarter of 2024 while gross margins in the center of the plate category decreased approximately 83 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. Chart one provides first quarter 2025 trailing 12 month update to gross profit dollars per route as compared to full year 2024 and 2019. Chart two provides first quarter '25 trailing 12 month adjusted operating expense as a percentage of gross profit dollars improvements by 36 basis points versus full year 2024 and 127 basis points versus 2019. First quarter 2025 trailing 12 month adjusted EBITDA per employee increased 1% versus full year of 2024 and 19% versus 2019. Now please refer to Slide 5. The charts here display the progression of customer orders coming via our digital platform, which include orders coming via mobile and Web site. As of the first quarter of '25, approximately 58% of our customers ordering through our domestic specialty locations are online versus 56% at year end 2024 and 48% at year end 2023. Investments in our digital platform contribute to improved profitability over time as our teams drive online order adoption growth, enhancements to customer facing functionality and real time data analytics supporting our sales team. In addition, we continue to expand our digital footprint within Chefs' Warehouse, bringing Chefs' Warehouse Middle East and Hardie's online during the last few months. 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 6. Our net sales for the quarter ended March 28, 2025 increased approximately 8.7% to $950.7 million from $874.5 million in the first quarter of 2024. Net inflation was 5.2% in the first quarter consisting of 4.8% inflation in our specialty category and 5.9% inflation in our center of the plate category versus the prior year quarter. Reported inflation was impacted by two primary factors in the first quarter versus the prior year quarter. Prices in chocolate and egg category products remained elevated versus prior year with double digit year-over-year inflation. Specialty product cross sell growth in Texas, as we combine our legacy specialty and protein sales with our Hardie's produce operation. Average revenue per case in Hardie's increased approximately 12% versus the first quarter of 2024 as the mix of lower volumes higher revenue cases increased. Excluding the impact of the Texas cross sale growth, aggregate specialty inflation was approximately 3.1% and overall inflation for the company was approximately 3%. Gross profit increased 7.9% to $226 million for the first quarter of 2025 versus $209.4 million for the first quarter of 2024. Gross profit margins decreased approximately 18 basis points to 23.8%. Selling, general and administrative expenses increased approximately 6.5% to $202.8 million for the first quarter of 2025 from $190.3 million for the first quarter of 2024. The increase was primarily due to higher costs associated with compensation and benefits, facilities and distribution to support sales growth and higher depreciation, driven by facility investments. Adjusted operating expenses increased 5.5% versus the prior year first quarter. And as a percentage of net sales adjusted operating expenses were 18.8% for the first quarter of 2025. Operating income for the first quarter of 2025 was $22.7 million compared to $16 million for the first quarter of 2024. The increase in operating income was driven primarily by higher gross profit, partially offset by higher selling, general and administration expenses versus the prior year quarter. Our GAAP net income was $10.3 million or $0.25 per diluted share for the first quarter of 2025 compared to net income of $1.9 million or $0.05 per diluted share for the first quarter of 2024. On a non-GAAP basis, we had adjusted EBITDA of $47.5 million for the first quarter of 2025 compared to $40.2 million for the prior year first quarter. Adjusted net income was $10.2 million or $0.25 per diluted share for the first quarter of 2025 compared to $5.9 million or $0.15 per diluted share for the prior year first quarter. Turning to the balance sheet and an update on our liquidity. Please refer to Slide 7. At the end of the first quarter, we had total liquidity of $278.9 million comprised of $116.5 million in cash and $162.4 million of availability under our ABL facility. As of March 28, 2025, total net debt was approximately $535.2 million inclusive of all cash and cash equivalents. And net debt to adjusted EBITDA was approximately 2.4 times. Turning to our full year guidance for 2025. Based on the current trends in the business, we are providing our full year financial guidance as follows. We estimate that net sales for the full year of 2025 will be in the range of $3.96 billion to $4.04 billion, gross profit to be between $954 million and $976 million and adjusted EBITDA to be between $234 million and $246 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 46.3 million to 47 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.

I wanted to ask a little bit more on the tariffs and inputs. I know we've discussed it before. But just as it becomes more real, I think, maybe you can give some comfort there, kind of talk about the flexibility you have. Just to kind of give us the latest on what you're thinking on that front.

We think there should be a tariffs peace talk. Obviously, we've been getting ready for this and I don't think anybody has clarity really where it's going to affect -- where it will end up. But it's still a small percentage. A lot of the products -- even though we import a lot of specialty foods, it's still a small percentage of our overall business. So I think that -- I mean, we always pass it on. Some of the suppliers, I think, if it really sticks, are probably going to eat some of it and there'll be some pass on. You got to remember, the freight as well is part of the cost, so that's not getting tariffs. So I think we feel we're okay. Our category management team has gotten ahead. And all suppliers want to sell products, so they're finding a way to make sure that their market share stays pretty steady. And we have many alternative sources for a lot of our products. I think we've prided ourselves especially after financial crashes and 9/11, really diversify our supply chain. That's why we buy from so many different places and obviously we buy tremendous amount in the US. We have a lot of artisan producers producing products for us that kind of mimic our South American and European supplies. So I'm pretty comfortable where we are.

And a follow-up. Your commentary on the demand environment seemed pretty early, your trends seemed pretty steady and I know there's been some stock market volatility. And kind of curious if there's any sense this is impacting demand at all on the upscale end or from what you've heard or seen?

I think as we said in our opening remarks, April was what we expected. It's -- from our chairs, we haven't really seen anything, maybe a few spots around the country that depend on maybe more seasonal tourism, but look at a good restaurant and try to get a seat, their business seems strong. Weather is improving and all our clubs are opening, all our outdoor cafes are opening. So I think our diversity in our customer base and what we focus on I would like to think that we're in better shape for any sort of economic slowdown than maybe the overall market. Again, if you go from $5 to $6 for a meal, that's a tremendous increase. If your entree goes from $26 to $28, I don't think a lot of people are going to use that as a reason not to go to a good meal. So I'm hopeful like our 40 years of experience in this business serving this type of clientele that we're a little more insulated.

The next question comes from the line of Mark Carlin from UBS.

To start, we've seen some reports that international travel into the US has come down a bit. Would you expect for this to be a material headwind to your sales if it's sustained or does it tend to be a pretty modest factor?

I'm trying to think of last time we had an environment like this. But obviously, tourism is a big part of a lot of the major cities, I guess, around the country. But I don't see a panic in any of our -- hearing from any of our clientele. Again, a modest slowdown here or there. I guess, besides the very best restaurants, there's I guess -- we do so much business in the suburbs and local restaurants that really don't depend on tourism. There's still so much action around stadiums and sports and entertainment that bring people in to eat in a lot of the major cities. Our cruise ship business seems really solid. So as of today, we don't -- we're not really seeing anything or hearing anything from our clients.

And then I know everything remains pretty fluid on the tariff front. But do you see much risk for tariffs having an impact on your facility growth plan? Just do your expansion activities get any tougher from an [RSC] standpoint and just given the potential impacts on materials costs?

I think for the immediate future, for the projects that we have in place right now, we've got a -- we've moderated our CapEx versus the prior years in '22 and '23. So we have a couple of projects that are underway right now. We don't see really any impact to those. That's our project in the Northwest, we expect to complete at the end of the year or early '26 and our New Jersey Philadelphia project, we expect to complete sometime towards the end of the summer of this year. In terms of going forward, we're making plans right now. We haven't really seen any kind of impacts at this time. So I think that's still TBD. But it just reminds me kind of COVID, it made us smarter, we had to do less with more. And I think in planning for the next, next stage, we're looking at more technology, ways to actually build smaller buildings and make them more efficient. And the same way we look at our SKU rationalization plans to really -- space is so expensive, labor is so expensive that finding new ways to service our clients but have a better handle on the cost of inventory. We always say we are the company that said yes and now we're the company that says let's look at it. We'd like to but it's going to cost more to do it this way. And our clients have been working with us, they understand the environment. So I think it just makes us more disciplined and smart -- it forces you to be smarter because the costs have gone up. So you have to do less with more is the way we've looked at it. And using technology really and all the AI we have and the experience in the company, we're just going to find a way to have that ROI work for us in these new buildings.

The next question comes from the line of Peter Saleh from BTIG.

Just another question on the overall environment. Are you guys seeing any slowdown in new restaurant formation, given the tariff uncertainty in the overall market? I know you need a fair amount of new restaurant formation or need to add some significant amount of gross new restaurants every year to continue this growth pace. So just curious if you're seeing any sort of slowdown on the construction and new restaurant formation?

No, not really. We always say restaurant tours open restaurants, a lot of new buildings, a lot of new developments, especially in areas that you have population growth, right? So when you look at West Palm and you look at parts of Texas and places where the population is growing, you got lots of new customers. I think I always think sometimes the data that comes out of -- for the independent restaurants, I don't think the data is accurate enough to say what's happening with a lot of the independents. So a lot of it's for chains that you have so many new places opening since COVID that I think that affects sometimes the numbers of the -- how many people are going in and out of the same restaurants. I think there's just so many that the business is getting more and more spread out. And for us, really that's a tailwind. We benefit from new restaurants. So it's kind of a tailwind and we really haven't seen a slowdown. I think the only place that maybe has a little slowdown is those heavy, heavy tourist spots kind of like Vegas maybe during the week. I think they've been a little quiet and then the weekends are still boomed. But right now, in April, we haven't seen anything.

And then just lastly, Chefs' Middle East, could you guys provide an update there? I believe last year at this time there was some weather, some flooding. Just curious to how that business is performing?

The business is performing great. We continue to see growth. I think we provided some of the demographic statistics at our Investor Day in terms of the number of hotels that are slated to come online between now and 2030. So it continues to perform. We opened our new facility at the end of December last year and the team is -- continues to grow and they're performing better than our expectations.

The next question comes from the line of Andrew Wolf from CL King and Associates.

I wanted to ask if you might be able to comment on the relative performance within your customer segments. For example, how your understanding is like fine dining or white tablecloth versus maybe upscale casual. I think, Chris, you mentioned the country clubs are opening well. I asked that because I think BlackRock had the fine dining not doing that great but I mean, yes, white tablecloth. And I know it's not the -- may not be the biggest segment within Chefs'. But I'm just kind of trying to see where how how things queue up with some of the public information out there where obviously your performance speaks for itself?

I think you just have to look at the numbers. I mean, I still -- I get 100 calls a week. I'm actually at concierge to get people reservations and I keep reminding them that that's not what I do. It feels really hard to get into any good restaurant. There's seasonality. There's -- yes, I don't know what -- I haven't seen that BlackRock comment. But there's always people complaining and there's always -- there's -- restaurant business, everybody wants to go to a good new restaurant. So there's always someone that's losing a few covers a night. But I think behavior, I expect it to change somewhat. Again, I always wanted to be in the wine business. I'm a wine lover. But I'm kind of glad I'm not at this point, because I think that's where some of the slowdown is on the spend of beverage. In past slowdowns, what we experienced is our business always did pretty well. Maybe the mix changes a little bit. I always say people go to a skirt steak versus a filet mignon and then they go to a glass of wine versus a bottle. Right now, you have mocktails growing like crazy so they're taking the place for people that are choosing not to drink versus drinking a martini. So there's always a lot of adjustments in the industry but we haven't really seen anything, Andy.

And the other question, maybe it's more for Jim. I'm not sure. But just could you comment on your gross profit dollars per case? The trend obviously was up, but maybe between the two main product categories?

I mean, I think we're really pleased with just under 8% year-over-year gross profit dollar growth and we got good operating leverage on that growth. The one thing is, as we called out in the -- on the specialty side, we continue to grow gross profit dollars per case and you see that on the chart. But the one thing was on the attrition from a big noncore customer that we kind of called out in our prepared remarks. So excluding that, we had not only good -- pretty good pounds growth but we had about 7% year-over-year gross profit dollar growth, revenue per pound on our center of the plate and that contributed to that overall gross profit dollar growth. So just excluding that attrition really good gross profit dollar growth per unit and overall for both categories.

The next question comes from the line of Kelly Bania from BMO Capital Markets.

Jim, I actually just wanted to follow-up on that point and how the attrition, the non-core customer exits, how that impacted the center of plate gross margin? And I guess, we should assume that kind of flow through for the next couple of quarters. But just helping us kind of model here the gross margin impact of that attrition and if there's any more planned attrition for the year that we should think about modeling?

Well, it's a big commodity poultry program, a few million pounds of commodity program. So the biggest impact is on our reported volume growth. So we'll continue to kind of call it out, because it has an impact on the overall reported volume growth. But from a margin perspective, the biggest impact on year-over-year margin has been the fact that prices are 6% or 7% higher than they were in the first quarter of 2024 and then product mix changes. So it was really just a combination of we sold a greater volume of higher dollar center of the plate products and cases versus last year. And obviously, when you have that kind of inflation, price inflation, you're going to give up some margin to manage the customers' expectations and still get the gross profit dollar growth that you need. And so we're very pleased with our center of the plate contribution to that overall 7.9% year-over-year gross profit dollar growth. But I would say, more importantly, for our customers and for what we watch is sequential inflation. And so, during the first quarter, really from the beginning of the year, other than a little bit of volatility in February, sequential pricing in both specialty and center of the plate has been within pretty tight ranges. I mean, obviously, chocolate and eggs have been a little bit all over the place and very volatile at very high price levels. But other than that, inflation really hasn't been a sequential problem in the first quarter. So it will impact the year-over-year reporting. But really those are the two factors, just product mix and price changes versus last year.

I wanted to also just follow-up on the tourism question and sounds like you're definitely not seeing any impact there, maybe pockets. But just curious if you can give some numbers or share some anecdotes about how much the business has changed maybe versus pre-COVID where you've had some business shift outside of the more dense urban markets into the suburbs? How does that shift look from pre-COVID to today?

I think they have such a -- and as you know, I mean, I know some industries, the banking wants people back in the office five days a week. I don't know if that's really happening. But we saw a boom that maybe people are going back in more. But there's definitely more people working one to two days, not commuting and eating more local where they live even in the cities. You live downtown, you're over to the uptown, you still see some demographic changes. So it's hard to really throw a dart at it, Kelly, but it's definitely rebalanced the business somewhat. There's still that boom in the cities when you have big events, shows, obviously, conventions. But the suburban restaurants, I would say many maybe are not doing the COVID numbers, because nobody was going into the cities but it definitely has changed the landscape.

Maybe just another one here on the guidance. Obviously, the Q1 was strong here on the top line. And if you look at the -- your guidance, it would kind of imply a little slower growth for the rest of the year. I'm assuming that's conservatism. But maybe you can just talk about how you think about that -- is that conservatism? Do you want to just be conservative planning in this environment or anything else that we should be thinking about?

Kelly, we generally don't change our guidance materially after the first quarter. Just in general, if you look back, just because you're through a quarter and you got three quarters of the year left. So that's just a little bit of our normal practice. We did bring up very slightly the lower end just to reflect the strength of the first quarter. And I think there's obviously some uncertainty around the macroeconomic environment given the tariff situation and the volatility around that. So it's also comparison driven. So if you -- we had very strong second half of the year in '24. So if you look at our full year guidance, the growth level is lower than the first quarter year-over-year and that's just driven by comps and the fact that we're usually a little conservative coming out of the first quarter.

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

A quick question Chris. You talked about the normal April seasonality and kind of reopening…

Todd, we can't hear you.

Chris, you talked about the -- that normal April seasonality, clubs reopening, outdoor dining reopening. Just wondering as you're talking to customers and looking at kind of that May, June window and obviously, this is a big season for a lot of restaurants with moms, dads and grads. So just wondering if there's any sort of booking activity going on into that May time frame that you're getting kind of confidence in continuing activity when you talk to the clients?

Again, I haven't really heard any doom and gloom. I think, most of our clientele is pretty confident. I think the only kind of noise I'm hearing is maybe some slowdowns in like Las Vegas. But comparing year-to-year comps, obviously, coming out of COVID when nobody was traveling and then you couldn't get a room and then everybody was going to places like Las Vegas. So I'm thinking maybe it's more normality at this point that there's a lot of choices. I think it's the only place I hear a lot of noise is people that had a business boom, boom coming out of COVID and they kind of expected it to stay. Kind of like when I hear some -- from areas of Florida, our business from Florida is doing great, couldn't be happier with it and the growth. But you hear people still complain that it's not as busy as last year or the year before. And I'm like, well, Florida was one of the only places you can go to. So those -- that was not a pace that could continue, right? People like choices, people go other places now. So we remain cautiously optimistic. Again, this is not a new business. We've been serving this type of clientele for 40 years, actually -- exactly 40 year anniversary. And there are spots that do slow down and there's other spots that kind of pick up, so kind of gives us a balance. I would say maybe you're giving up -- maybe you're -- if you're a family on a budget and you're going to cut back a little bit but you still book that cruise vacation for your family, you're probably going to go on that -- unless you lose your job, you're going to go on that vacation or you're going to go on that birthday or anniversary event or you're going to have that bar mitzvah or wedding or christening party. So I remain cautiously optimistic.

And then, Jim, a follow-up question. You spoke to the inflation levels during the quarter and that there's an element of that that was impacted from just the Hardie's business really getting in Christmas [43.49] [Indiscernible] and starting to cross sell more specialty product. Is there a way from a modeling standpoint that you could level set assumptions for where your thoughts are on inflation right now for the balance of the year, either taking into account or backing out the tailwind from this improved cross sell at Hardie's?

I would just kind of range around what we talked about on our prepared remarks. If you exclude the Hardie's cross sell, just the increase in their average case price, because we're starting to grow the specialty part of the business as we integrate, inflation was around 3%. And then within that 3%, you still have chocolate prices, which are significantly higher than last year. Once again, sequentially, for the first quarter, they haven't changed that much. They've been trading within a range, a pretty tight range, but at much higher levels than a year ago. And then everybody's aware of what's happening with egg prices. They're down pretty significantly from where they were in the fourth quarter and last year but they're still at an elevated level and they're pretty volatile. So that's all within that 3%. So once again, I just think you exclude those two things and you're in that 2% to 3% range that we tend to model when we forecast out. And really no real commentary beyond that.

We take the next question from the line of Ben Klee from Lake Street Capital Markets.

I'm curious about the non-core exit that you have noted here. And specifically, I'm wondering about when that was decided to be exited and when that exit was first included in your guidance, if today is the first day or if that was included back when you first announced at ICR?

It's a program that we knew we would attrid out of at some point. So we factored it into the range of our guidance. We didn't -- it's a kind of program that is not typical for us. We inherited it with an acquisition. And we work to make it as profitable as possible. But these kind of programs go out to bid and then you decide whether you can make it profitable or not. And so it just happened that the attrition started in the first quarter and we had already kind of built it into our guidance. And so the timing from those things, you can never time them perfectly but that's really the cadence.

And I think when we forecast, I mean, you don't know when things actually are going to be bid out and you're going to give up. We don't fire customers but it's not what we do. Some of these acquisitions we have, they come along with, I call it, non-core business. So we kind of build in good guy, bad guys. So you know that something -- you'll probably going to lose something like this and then you're probably going to pick up something else. And that's why I think Jim does a pretty good job with the team helping build the forecast. And the numbers go up and down a little bit but kind of by the end of the year, they're kind of evening out with the upside. Usually, when something like this happens, we have more capacity on trucks so now we're not adding more routes. We're just filling up the routes that left a little vacuum. So it actually starts to become a much more profitable business. We did that in New England. So we have a lot of experience having done this with all the past acquisitions, and we call it Chefs' sizing their business and kind of changing it. I mean, one of our business that we bought that was making barely any money and four years later, they got $10 million of EBITDA. So I think we're very confident in our strategy. And not that we want to fire customers but I always say we're a for profit business and it's just not what we do, and maybe they're better off with a different model. We don't run someone else's company but we know what it costs to run a truck and make a delivery and numbers have to make sense. So I think it's going to be constant -- it's a constant thing that we're going to experience forever.

And that totally makes sense. I mean, the strategic and financial rationale here is certainly appropriate. I guess, Jim, is it a fair characterization then that maybe some part of this business was included in your initial guidance back in January, February and now there's no part of this on a go forward basis that's included? And so the kind of effective reiteration of guidance that you have today is kind of better than it looks, because there's an exited business now that's no longer included?

I guess, I think, Chris, really kind of framed it appropriately that when we're building our guidance suite, we factor in the potential loss of this type of stuff but also potential gains that we may not have factored into the guidance. So I mean, net net, we raised the bottom end of our top line guidance, which is really just flowing through a little bit of the goodness from Q1. But this, like we said, we factored in knowing that this was probably going to go away.

But not knowing exactly the business. So December, when we're doing our budgets in November for '25, we don't know that this will -- this account will tell us that they don't want to pay the increase. But I think we just forecast on, say, $4 billion of sales, you're going to have some of this that's going to happen and you're going to have some good stuff coming, so balance. So maybe it gets a little squishy in a quarter or so. But like we always say, the Italians always say, you throw everything in the pot and somehow it makes broth. And that's kind of our business when you're selling mostly independents and then you just sprinkle in a few of these, I call it, non-core customers. And we look at it when we're buying companies. We're like, you know what, we know eventually this is going to go away. It's not what we do. So while we have it, we try to figure out the next stage of the strategy. The way I look at it is, if you got clunky low margin business inside of an acquisition, we model it over four or five years. It'll go away and those routes are going to be repurposed with more business that we do. So it's a little headwind when it goes away at once and then the rebuilding starts and it looks really much, much better over that four year period.

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

Well, we thank everyone for joining us today. We're really proud of our team in turbulent times with a lot of noise in the air. We think the CW team does a tremendous job in delivering the kind of quarter we've delivered and I think our shareholders are proud of them too. So thank you everybody for joining today, and look forward to our next call.

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.