The Chefs’ Warehouse, Inc. (NASDAQ:CHEF) Q3 2022 Earnings Conference Call October 26, 2022 8:30 AM ET
Company Participants
Alexandros Aldous – General Counsel, Corporate Secretary, Chief Government Relations Officer, and Chief Administrative Officer
Christopher Pappas – Founder, Chairman, President and Chief Executive Officer
James Leddy – Chief Financial Officer
Conference Call Participants
Alexander Slagle – Jefferies
Peter Saleh – BTIG
Andrew Wolf – C.L. King
Todd Brooks – The Benchmark Company
Operator
Greetings, and welcome to The Chefs’ Warehouse Third Quarter 2022 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.
Alexandros Aldous
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 2022 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 both historical and estimated adjusted net income and adjusted earnings per share. Those measurements 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.
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. Then we will open up the call for questions.
With that, I will turn the call over to Chris Pappas. Chris?
Christopher Pappas
Thank you, Alex, and thank you all for joining our third quarter 2022 earnings call. Customer demand was strong throughout the third quarter and the cadence of business activity returned to seasonal shifts more typical of the pre-pandemic environment. Seasonal September strength due to return from vacations was complimented by a moderate increase in return to office activity in many of our larger markets. While product cost, in aggregate, remained relatively unchanged versus the second quarter of 2022, pricing continues to be firm in most categories. We continue to see new openings and gradual increases in hotel, catering and event related business.
A few highlights from the third quarter as compared to the third quarter of 2021 include 22.2% organic growth in net sales. Specialty sales were up 31.6% organically over the prior year, which was driven by unique customer growth of approximately 25.9%, placement growth of 42.1% and specialty case growth of 18.3%. Organic pounds and center-of-the-plate were approximately 11.6% higher than the prior year third quarter.
Gross profit margins increased approximately 113 basis points. Gross margin in the specialty category decreased 133 basis points as compared to the third quarter of 2021, while gross margin in the center-of-the-plate category increased 238 basis points year-over-year. Jim will provide more detail on gross profit and margins in a few moments.
During the third quarter our team made progress on a number of key initiatives aimed at further integrating recent acquisitions and leveraging the CW platform to provide our sales teams and customers with a continually growing and diverse product portfolio while creating operational cost efficiencies in our delivery model. In New England, we have ramped up the cross sell of Allen Brothers Northeast premium protein products on our specialty and produce trucks. This product — this process reduces distribution costs and puts higher gross profit dollar boxes on our key Northeast routes.
On the West Coast we completed the fold-in of University Foods into our Los Angeles distribution center, and have begun the process of expanding our distribution platform in the Northwest. We have signed the lease for a new facility in Portland, Oregon, and we expect to combine our legacy CW specialty operations with recently acquired Alexis Specialty Foods within the next two years. We look forward to accelerate growth in the region while creating operating leverage once the project is complete.
In the mid-Atlantic region we have recently completed the retrofit of our Capital Seaboard distribution center with the capability to offer customers in the region more of Chefs’ Warehouse specialty and premium protein products along with produce and seafood. In Texas, where our specialty business continues to grow rapidly, we are in the final stages of the build out of our new Allen Brothers protein processing facility located in Dallas. We expect to begin operations in early 2023, bringing us closer to our Texas customer base and adding to our growth in the Lone Star State.
I would like to thank all of our team members for their hard work, expertise and dedication, delivering value for our supplier partners, customers, and colleagues during a successful third quarter. Our people are Chefs’ Warehouse greatest assets and together we look forward to continued growth for the remainder of 2022, as well as into 2023 and beyond.
And 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?
James Leddy
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.
Our net sales for the quarter ended September 23, 2022 increased approximately 36.7% to $661.9 million from $484.3 million in the third quarter of 2021. The growth in net sales was a result of an increase in organic sales of approximately 22.2%, as well as the contribution of sales from acquisitions, which added approximately 14.5% to sales growth for the quarter. Net inflation was 8.7% in the third quarter consisting of 15% inflation in our specialty category and inflation of 2.2% in our center-of-the-plate category versus the prior year quarter.
Gross profit increased 43.5% to $157.8 million for the third quarter of 2022 versus $110 million for the third quarter of 2021. Gross profit margins increased approximately $113 basis points to 23.8%. Year-over-year inflation was broad based across specialty categories, while slightly inflationary on a year-over-year basis in aggregate, certain center-of-the-plate categories were moderately deflationary compared to the prior year quarter.
Selling, general, and administrative expenses increased approximately 31% to $130.3 million for the third quarter of 2022 from $99.4 million for the third quarter of 2021. The primary drivers of higher expenses were higher compensation and distribution costs associated with higher year-over-year volume growth, route expansion, and increased fuel costs. Adjusted operating expenses increased 33.9% versus the prior year third quarter, and as a percentage of net sales adjusted operating expenses were 17.6% for the third quarter of 2022 compared to 18% for the third quarter of 2021.
Operating income for the third quarter of 2022 was $22.1 million compared to $10.4 million for the third quarter of 2021. The increase in operating income was driven primarily by higher gross profit, partially offset by higher operating costs.
Income tax expense was $3.1 million for the third quarter of 2022 compared to $2.8 million for the third quarter of 2021. Our GAAP net income was $8.3 million or $0.21 income per diluted share for the third quarter of 2022 compared to net income of $3.5 million or $0.9 income per diluted share for the third quarter of 2021.
On a non-GAAP basis, we had adjusted EBITDA of $41 million for the third quarter of 2022 compared to $23.4 million for the third quarter of the prior year. Adjusted net income was $16.4 million or $0.41 income per diluted share for the third quarter of 2022 compared to $4.5 million or $0.12 income per diluted share for the prior year third quarter.
Turning to the balance sheet and an update on our liquidity, during the third quarter, we completed the issuance of a $300 million term loan maturing in August of 2029. The proceeds of the loan were used to repay the $167 million term loan maturing in June of 2025, pay fees and expenses associated with the transaction and retain approximately $118 million in cash on the balance sheet. More detail on the transaction is available in our 10-Q filed this morning.
Interest expense for the third quarter of 2022 was $10.7 million compared to $4.2 million in the third quarter of 2021. The increase was driven primarily by approximately $4.5 million of third party transaction fees associated with the refinancing. At the end of the third quarter, we had total liquidity of $322.2 million, comprised of $145.4 million in cash and $176.8 million of availability under our ABL facility. As of September 23, 2022, net debt was approximately $349 million inclusive of all cash and cash equivalents.
Turning to our full year guidance for 2022, based on the current trends in the business, we are updating and raising our full year guidance as follows. We estimate that net sales for the full year of 2022 will be in the range of $2.45 billion to $2.55 billion, gross profit to be between $575 million and $599 million, and adjusted EBITDA to be between $145 million and $155 million.
Our full year estimated diluted share count is approximately 42.5 million shares. We currently expect our senior unsecured convertible notes to be diluted for the full year and accordingly, those shares that could be issued upon conversion of the notes are included in the fully dilutive share count.
Thank you. And at this point we will open up to questions. Operator?
Question-and-Answer Session
Operator
Thank you, sir. [Operator Instructions] The first question we have is from Alex Slagle from Jefferies. Please go ahead.
Alexander Slagle
Hey, thanks. Good morning and congrats to all of you. Hard work paying off. Clearly, a very strong 3Q and I guess also helped by the favorable summer demand backdrop. So as we shift to more normal seasonality ahead, can you help us kind of think through what the expectations are implied in the 4Q? I guess what the implied EBITDA fairly similar I think to the reported 3Q number and the gross margin at the midpoint, I guess expected to be up year-over-year, but track somewhat versus recent 3Q levels or maybe you could kind of talk through some of the drivers there [indiscernible]?
Christopher Pappas
Hey, Alex, you kind of trailed off your question at the end there. Could you repeat the second part of your question?
Alexander Slagle
Oh, sorry. That was, I missed that. On the gross margin expectations for the fourth quarter, I mean, I guess it looks like at the midpoint it’s to be up year-over-year, but contract somewhat versus the recent 3Q levels. So if you could kind of talk through some of the drivers there, whether that’s pricing changes or some conservatism or what?
James Leddy
Yes, I think it’s, it’s just a little bit of continued conservatism maybe just on the gross margin side. I think the fourth quarter is typically our strongest gross margin quarter. There’s nothing that would indicate that we would expect anything different, but I think it’s reflected in the updated adjusted EBITDA guidance. I think from a guidance perspective we came into the year with a fairly gradual build type of conservative view, and we’ve adjusted the guidance throughout the year to reflect the strength that we’ve seen.
The cadence in the third quarter to your point was really a return to typical seasonality, august — July and August were slightly weaker than May and June, and that’s typical, although there was an underlying strength to that. And then as Chris mentioned in his prepared remarks, September we really saw some good seasonality strength come back and specialty with some return to the office in some of our business urban markets starting to come back. And we had expected that to come back towards the back half of the year and it’s kind of playing out.
Alexander Slagle
Got it. That’s helpful. Thank you. And then just stepping back, bigger picture, I mean, any kinds of high level goals you have as you get towards year end here and think about what you want to accomplish in 2023 and whether that’s growth, the operations or people and sort of what you think needs to happen to get there?
Christopher Pappas
Well, I mean, you know this business you don’t just flip on the switch. So, our people are prepared. We anticipate a great fourth quarter, a record fourth quarter. We get to see the bookings. We see all the parties that are booked by a lot of our major clients. So, everybody is geared up for it. You have to have the inventory. We have to have the trucks, drivers and all the people available to meet the expectation of the volume. So, we’ve been building since coming out of COVID in February and we’re very blessed that it continues to build.
I think we said back in second quarter and going into the third quarter that we really haven’t had a season. I don’t know if in two plus years that we actually had a season, right? I think in 20 — at the end of 2021 we got that last Omicron and things didn’t open and nobody came back to the office. So this is really the first one that, do I think it’s a 100%, I don’t think it’s a 100% in every market and every office setting, but it’s 120%, 150% in in many of our other markets in our businesses. Our caterers are back, cruise ships are coming back, hotels and events are coming back.
So, I think when we kind of gave guidance, we were hedging that if, even if there was a slowdown and the so-called recession, we would get the big uptick with all that volume that was missing in our business. And I think what we’re seeing now is our customers are still doing great, and now we’re starting to get all that event activity that was not there before. We’re getting cross selling. So we’re anticipating and we are anticipating a really busy fourth quarter and we’re hoping especially for all our team members that have gone through two years of hell that they can really celebrate in a great fourth quarter.
Alexander Slagle
Great. Good to see it all paying off. Thanks.
Christopher Pappas
Thank you, Alex.
Operator
The next question we have is from Peter Saleh from BTIG.
Peter Saleh
Great. Thank you and congrats on the quarter and the year. I want to ask just maybe more specifically on the hospitality business. It sounds like that is starting to come back based on your comments. Can you give us a sense on where that is trending today versus where it was pre-pandemic?
Christopher Pappas
Well, I mean, it’s really hard. We can’t remember 2019, it seems like ages ago. But what I am hearing from a lot of our major clients, and I’ve been traveling extensively, visiting many markets. It’s — there’s just no real sign of any slowdown, which is, what I was trepidacious about, right? Because we got to plan inventory, we got to plan the labor to get us through that. So we just keep seeing acceleration. So I can’t remember back to 2019. I mean, I’m sure we can get back to you and do a lot of those comps, but we’re seeing the bookings, we’re seeing corporate events that we haven’t seen in a while. It just seems like it’s normal and even more celebratory than 2019.
Peter Saleh
Great. And then just on the inflation and the outlook, I think in your prepared remarks, you guys mentioned certain center-of-the-plate items are deflationary. Can you just give us a little bit more color around that? And then is there any reason to believe that the fourth quarter EBITDA margin won’t be the strongest of the year?
Christopher Pappas
Yes, thanks Peter, for the question. In terms of center-of-the-plate deflation, yes I think we had mentioned a couple times on earlier calls that we had expected some of the real strong price increases in the back half of year, last year, were mainly center-of-the-plate. And what we’ve seen is specialty prices continue to rise through 2022, whereas in aggregate, excuse me, center-of-the-plate prices have been fairly flat and slightly, excuse me, slightly deflationary. Sequentially versus the second quarter, basically flat.
Specialty prices were up 1% to 2% sequentially in the third quarter versus Q2 and center-of-the-plate prices were about flat to maybe 1% deflationary in aggregate. Obviously different categories behaved a little bit differently, had slight inflation, maybe some slight deflation, but it’s all kind of evening out. It feels like pricing have reset higher and then kind of leveled off, and that’s why you’ve seen the year-over-year come down from kind of 15% to 16% in Q2 to below 10% now single digits in Q3. And then, I’m sorry could you repeat the second part of your question?
Peter Saleh
Yes, I was just curious on your outlook for the EBITDA margin, maybe for the fourth quarter. I mean, historically, I think fourth quarter is the strongest EBITDA margin. Is that how we should be planning it as well or what is your outlook there?
James Leddy
Yes, I mean, we don’t see anything right now that the fourth quarter won’t be our strongest quarter from a margin perspective, from an EBITDA margin perspective, revenue and EBITDA. So at the moment we don’t see anything that would that would change that.
Christopher Pappas
And again, you know the fourth quarter peter, the margins are so strong because of all the pastry products that we sell, those are high margin, right? They’re, they’re difficult categories to manage. We’ve been working on this for over 20 years becoming better at it, having the right inventories, right? I mean, you buy too many Santas, you’re taking Santa to 2024. So you try to right size your inventory, but those are usually the higher margin items. A lot of the catering items are better margin items. So what we’re seeing now, input costs, everyone keeps asking about inflation, deflation, a lot of the input costs we don’t see those resetting down, right?
I don’t think labor, once you go to $20 an hour from $17, I don’t see that changing in our manufacturers. You know costs, they can get a little more efficient and have more technology and I guess robotics. But gas is still expensive. Diesel is expensive. Our transportation costs crossed the pounds, all our containers coming in, we are seeing some relief, but it looks like they’ve all reset higher. So I was wrong. I thought a lot of it was going to be more transitory, and now I’m starting to think that a lot of it is just re-setup because of energy costs, labor costs, real estate costs. Warehousing is much more expensive than it was three, four, or five years ago. I still think that that effect of online, the demand of warehousing closer to cities has pushed up a lot of warehousing costs.
So, in a sense also, I think it’s built more of a moat around our businesses. It’s really hard to come into this industry now. It was a lot easier years ago, but the cost of facilities, the cost of building our facilities, the cost of debt is more expensive. So it’s kind of a Ying and a Yang as well as much as there’s headwinds. It’s also I think, protecting a lot of us who are strong and are set up with facilities and labor and the expertise to manage through this. I think that’s why we’re seeing such a tailwind.
Peter Saleh
Great color. Thank you very much.
Christopher Pappas
Thanks Peter.
Operator
The next question we have is from Andrew Wolf from C.L. King.
Andrew Wolf
Thanks. Good morning. I think I’ll ask a — start with a sort of follow on to what you were just talking about, Chris. So I hear what you’re saying about cost being up and the industry because of its capitalization and other reasons has a lot of pricing power. So as you kind of look next year, and I’m not asking you to get in front of your guidance, but, or even the next few years, it sounds like profitability expansion as the EBITDA margin goes up should more be driven by gross profit margin than the expense ratio, contracting given, I mean, there’s an obviously volume has a positive impact on the expense ratio. But let’s say relative to history, it’s going to be a little more of a gross margin situation just given what you’re talking about with overall inflation being so sticky on the cost side?
Christopher Pappas
Yes, you know, Andy so much has changed, it’s kind of like a reset in our industry. When you used to look at margin, I mean obviously we look at margin, but I call it the spread right now, it’s really leveraging your overhead. So, there’s been so much inflation and we’re not trying to be a giant broad liner. There’s enough of those and they do a phenomenal job at what they do. What we do and what we sell is a lot of expensive products and it’s changed from gross, gross profit margins to gross profit dollar business. So when chocolate is now $300 to $400 a case, and prime beef is, a center cut filet prime today is, I don’t even know, $50, $60, the business has changed. It’s managing your overhead, it’s managing your drop size, and it’s getting that spread.
So the crystal ball for next year, when we just, we always look at the trend, right? The trend is business is strong. Our clientele, their clientele is spending, God willing, we don’t get another crazy variant or something that disrupts the industry again. And it’s really about selling the expensive boxes. I think I’ve been saying this for the last few years coming out of COVID that the pipeline the pipeline was always faulty. The industry is continuing to consolidate for many, many, many reasons. A lot of it is that it’s just so much more expensive today to expand for a lot of the smaller businesses, right?
It’s healthcare, it’s facilities, it’s labor, it’s technology. So we continue to see that the industry will consolidate. We think we’ll be one of the winners as a consolidator. We’re building these new facilities to be able to consolidate. So you know, this is not a new business, but it is a new way to manage the business. And I think Chef is really prepared for it, and we’re making those investments and we’re putting the cash back into the business, and we have a talent officer and nothing, as every day we focus on more, more and more, you know, acquiring talent, add to our bench and really we’re on that trajectory to be $4 billion and $5 billion and way beyond that and the team is really focused and doing a great job.
Andrew Wolf
Okay, thank you. That’s really helpful color on your kind of vision. I wanted to ask a kind of a specific question, maybe more for Jim on the gross margin contraction on the specialty side. Is that kind of like what’s going on with eggs and just hitting the margins and not really the profit dollars or is there something else that beyond certain hyperinflation in some of the categories you sell in specialty?
James Leddy
It’s really, that’s the year, that’s the year-over-year comp, and it’s really just what I said earlier, specialty prices continued to rise through the Q1, through Q2 and then through Q3, although sequentially kind of flattened out versus Q3, but when you compare it to last year inflation in specialty was 15% year-over-year, whereas in center-of-the-plate it was essentially flat. So that’s just going back to what Chris said, we’re getting more gross profit dollars, really strong gross profit dollar growth. If it comes at the expense of a few basis points of compression on margin, that’s just managing price effectively. So we’re getting the gross profit dollar growth to drive EBITDA growth and that’s just, that’s really just a year-over-year comp given what specialty prices have done.
Andrew Wolf
Got it. So the last thing is, for me is a kind of a follow up on that is, if you’re — if pricing and specialty is starting to sequentially normalize or stop going up that much, what do you think the driver there is? We’re not talking much about supply the chain disruptions as we were a year ago and so on, but you are a big importer. Are things like overseas freight and other things come, starting to normalize in terms of pricing and I think availability has been okay, but I guess, what do you see there for — it’s hard to see your cost outlook, but obviously your buyers are doing this every day. So…?
Christopher Pappas
Yes. I think the word normal is, we are far from normal. So it’s better, but it’s still a monster to deal with. I mean our logistics teams and category teams, it’s — never worked harder and it’s far from normal. So margins, we’re in such a different world than we were in 2019. This industry is obviously highly competitive. Right? And it’s consolidated a lot of specialty little distributors. And then obviously we know all the big players. And it’s about really your labor at this point too. I mean, a lot of the times in big accounts it’d be very competitive bidding and maybe you took business at very low and no margin for various reason.
And today, our focus is, if we can’t make money we really don’t want the business. So, because you just can’t get the labor. And we’re managing to a number. We’re managing to every division, you know, has a goal to produce an amount of GP, manage their expenses. So there is no crystal ball that can give you exactly what may happen next year, but it’s I think we’re pretty set up to handle and get the kind of number we’re looking at. So if we’re looking to make X dollars next year, that’s our target and that’s what we’re managing too.
Andrew Wolf
Great, thanks. And like everyone else congratulations on how the business is trending. Take care.
Christopher Pappas
Thanks, Andy.
Operator
Thank you. [Operator Instructions] The next question we have is from Kelly Bania from BMO Capital.
Unidentified Analyst
Hi, good morning. Kristen Dim, and congrats on another strong quarter here. I guess I just wanted to ask about long-term EBITDA margins. So this year going to come in very strong, I guess, at least on a, at least 6%. And with the high end of your goal, long-term at 7%, just curious if there’s any puts and takes from a margin perspective or I guess factors that maybe were tailwinds this year that might not be as repeatable. Just trying to think if we could moderate as we go forward, either from investments or tailwinds that are not repeatable before we go back to that 7% goal, or just how do you think about that long-term goal in any different way, given how the year has played out?
James Leddy
Yes, thanks for the question, Kelly. I think, you know, I think we don’t want to get too far ahead of January when we give guidance for 2023 and then kind of update our medium to long-term growth algorithm. But I’ll let Chris jump in as well. But overall, given the dynamic changes that Chris mentioned in the industry, et cetera, at its basic core, I don’t think it’s changed. We’ll continue to target mid-single-digit organic growth. We’ll continue to be a consolidator from M&A and acquired growth perspective.
And then, as Chris mentioned in his prepared remarks, a number of fold-in type of activities that are happening right now and will continue to happen as we build facilities in places like New England and consolidate the businesses that we’ve acquired over the past few years and started to grow as we grow Texas and, and as we consolidate our operations in Northern California under a project that’s already underway. Our goal will be to continue to generate operating leverage as we grow, strengthen the balance sheet, as we grow and that’s a pretty powerful combination. So I’ll ask Chris to add whatever his thoughts are.
Christopher Pappas
Yes. Kelly, I think it goes back to I said we’re going to be a 7% or higher company if we’re growing slower. And the only thing that would I think, deter us from achieving that type of margin is that, if we’re buying more companies that we think we get really good value and we can set or size them, and sometimes that takes a few years. So if we continue to do — if we went on our track right now and did nothing, I think that’s an easy target. If we take — we’re entrepreneurial, which we always have been, and we take advantage of the market and what’s happening in the industry, and all of a sudden we’re on a really fast track to be a $5 billion company, the EBITDA margin might be lower because we bought companies that are much lower margin, EBITDA margins than us and the work begins, right? Consolidating them, putting them into our facilities, putting the technology in, adding all the Chef products. So I would say if we grow faster to $5 billion, we might be lower than that. And if it goes slower and more traditional businesses are added, that’s a pretty easy target.
Unidentified Analyst
Thank you. That’s very helpful. Also, just curious, if you could just touch on availability of labor what you’re seeing on the wage front and just how that’s progressed relative to your expectations?
Christopher Pappas
You know, again, I go back to, this is not a new business, so I think it’s a very experienced team and we’ve seen, we thought we saw it all before COVID, but labor has always been a battle. Since we started the company, 35 or 36 years ago labor is a battle. We’re always shorthanded. Every division is shorthanded. So it’s obviously coming out if COVID it was a monstrous challenge for the team to gear back up, because the volume came back so quickly. But I think labor is — we’re getting a handle on it.
It’s reset at a higher number. I think we’re really competitive because we’re able to — you see the numbers. So the business is doing well. So that means we do have labor. Excessive labor, I think we’re far from that. And even hearing from our customers, we’re finally seeing customers in parts of New York that couldn’t open for lunch because the predictability of people coming back in is part of it, but they just didn’t have the labor. And I’m starting to hear from just about every area we are doing business that it’s better.
So better from where we started, which was horrific. So I think it continues to be figured out. I think more and more people are coming back into the labor market and I’m optimistic that that trend is going to continue, not without a fight. And I wish the politicians will get together and figure out really how to allow us to find labor, right? And give us enough choices to get labor to meet the demand because the demand is there and now it’s — we have to really figure out, I don’t want to get political, but all our immigration policies and where’s the balance because our industry is starving for labor.
Unidentified Analyst
Okay. That’s very helpful. And maybe just one last one from me, just on Allen Brothers. Chris, I think you mentioned broadening that out to the East Coast. May be just an update on which regions Allen Brothers is in today? Where it could go? What could be their potential long-term cross selling opportunity there? And what is the impact if they cannibalize some of your other center-of-the-plate business? Just maybe help us think about the strategy overall there with Allen Brothers?
Christopher Pappas
Yes, so you know, we bought Allen Brothers, I forget what year and we went through a really, very long, tough learning curve, but we bought Allen Brothers because it’s one of the only brands in food service, in a business that there’s not a lot of brands, right? And it took us a while, but Allen Brothers right now is just becoming a world class brand in food service. And the team now is doing an unbelievable job in a very tough market. And I believe that it’s going to double, I don’t want to give you a two years or three years, but the potential and how it’s accelerating and the people that are joining us and the clients that are rewarding us. I think that business is going to highly accelerate over the next few years.
Unidentified Analyst
Thank you.
Christopher Pappas
Thanks, Kelly.
Operator
The next question we have is from Todd Brooks from The Benchmark Company.
Todd Brooks
Hey, good morning to you both and congratulations as well. A couple of questions here. Chris, you talked about kind of momentum with cross sell and I mean, Kelly’s question on Allen Brothers is part of that. But you’re building out the specialty produce category, you’re building out the seafood category as well, and as I think about the organic growth target, that mid-single digits, that was in place pre-pandemic as well. But I want — I’m hoping you could talk about kind of cross sell as a driver of organic growth and just the appetite of your customers, given your service levels, the fact that you serviced them so well over the pandemic as you have new offerings to provide them with the uptake for customers to just grow into bigger drop sizes with Chef as they’re able to get produce or seafood or other products from you. So I guess within the organic growth outlook, how much of that’s driven by cross sell, but you guys really kind of control the success with?
Christopher Pappas
Sure. Great, great question. And the major driver of the new facilities, Florida is delayed, but hopefully sooner than later we’re able to get in that building and that’s a master cross sell building, right? The same in LA. Most of that building is built, but the outlook for labor, never mind traffic that’s in all the major city anyone’s traveling is seeing how bad traffic is. You have to figure out how to get efficiencies in your transportation. And I think the companies that figure it out the best, because you don’t want to homogenize the business. We’ve watched a lot of competitors do that. So I always go back to it’s a hybrid model. We’re here to service the client any way that they want, but my prediction is that, they want quality, but they also want savings and the savings come by allowing companies like ourselves, I call that share the truck, right?
So when that CW truck leaves, I think over the next 10 years it will transport seafood. It will transport meats and other proteins and produce with specialty and all the frozen products. So that’s why I always say, CW is a specialty broad liner. We we’re not a regular broad liner. Nothing we do besides maybe some of the technology is typical of a broad liner, but there is so much that goes on behind the scenes to do what we do at the quality level. And I always say that Chef does the hard stuff.
So we’re not trying to do $60 billion, but we think that we are going to be a much, much bigger company. And a lot of it is that cross selling and you’ve got to have the talent and you’ve got to have the expertise to handle those products, because a lot of them are perishable. A lot of them require expertise in buying and moving around and shipping from 40 countries and over 1500 probably now are suppliers. So I think that’s our moat.
A lot of companies come after us in certain pieces of our own business, but it’s so hard to replace us because of the moats I think we’ve built around our business. And it’s not easy, every day we struggle and obviously we fail ourselves best, but handling seafood and handling a lot of the cut shop proteins and produce now. And I think our hybrid approach and the investments in the new buildings, you know there’s at least two a year major buildings going up, and I think that is going to drive that mid-to-high single level organic growth that you’re seeing is coming because of the ability to execute that hybrid sell.
Todd Brooks
That’s great. Thanks, Chris. That’s helpful. And then just a final question from me. And Chris, you touched on this in your comments, but I was wondering if we could get more color on the nature of kind of that building enthusiasm about the event holiday business this year, what you’re hearing from customers? How those events are maybe manifesting themselves this year versus obviously maybe a little bit of activity last year as far as, are we getting back to bigger events? Are we seeing more corporate events? Just where is this excitement that you’re seeing year-over-year? And is there a way to gauge how much progress back towards pre-pandemic levels that event business is tracking towards? Thanks.
Christopher Pappas
Yes. You know, again, when you speak to all the hotel operators and obviously casinos on one side, cruise ships, and then, I just finished a trip and when you see tents out for 500 people or 1000 people, it makes you very, very happy to see that coming back. So it seems like it’s going to be a pretty strong season. Anything can happen. God forbid something horrible happens, you’ve got a war going on in Ukraine, you have — still the virus is out there. We might get five blizzards, we’ve had that before right through the party season. So it’s hard to predict, but from my seat right now, it looks like a great fourth quarter.
Todd Brooks
That’s great. Thanks and congrats.
Christopher Pappas
Thanks, Scott.
Operator
Thank you. [Operator Instructions] The next question we have is from [indiscernible] from Lake Street Capital Markets.
Unidentified Analyst
All right. Thanks for taking my questions and congratulations to you all for a great quarter. Chris, I’d like to ask kind of a follow up to your comments around the moat that you have long established. I’m wondering if you can talk about how you’ve observed your broad line peers, viewing the independent space as potential source of growth over the past few quarters as conditions have improved? Are you seeing that these peers are increasingly looking to your market as a source of growth or has that been relatively static here over the past few quarters as conditions have improved?
Christopher Pappas
Yes. I mean, I think if you hear every last earnings call from the big major broad liners everyone always talks about their independence. I always go back into Jim’s office and say, our number is, right, because it seems like they’ve taken all our business. And he goes, no, we’re fine. Those numbers are real. You know, it’s just a such a giant industry, when you think about from bodegas to fast food, independence from all different type of independence, there’s taco chains that are private, that are independent. They have 20 facilities. So it’s really hard to identify what everybody is talking about when they say independence, right? So I just know that to do what we do day in and day out is extremely difficult.
And I’ve learned over my 35 plus years, I’ve tried to go after some of the very large business that the broad liners, they’re much better at it. They’re set up at it, and it’s just hard to have two masters. The way we load trucks, the way we go about the street, our sales people, it’s — you can do it, but to do it well, I’d say, you can go to a party and if it’s 30 people and there’s five people on top of you and servicing you, you are going to get unbelievable service. It is hard to do that when you go to a setting that is a 1000 people coming in, right? So that’s why I always say, our core customer, a 100 plus seats, the Chef is there, probably an owner, everybody is out to give you unbelievable hospitality, I kind of think that’s who Chef is.
And I think when we look at going after giant chain business, it’s just a different animal. You have to run your warehouses differently. The way you go about it, it’s, you’re operating a facility that might be five football fields, like you’re just not as nimble. So we build our facilities. We don’t like to get them too big. Not to go too much in debt. What makes Chef, Chef, right? Because we have so many competitors, but what we do is really hard, and it’s specific, and it’s geared towards a certain industry. And I always say we kind of stay on our own mat. I mean, we kind of go off it a little bit. We’ll play with larger customers, and we’re looking at opportunities around the country right now that, I always say the great thing about Chef is there’s nobody like us, and the bad thing is there’s nobody exactly like us to buy.
So we’re always taking some business, buying a business that we can convert into a Chef Warehouse over time. And the reason to buy someone like that is because it gives you routes, which takes a very long time to get. And we’ll take those opportunities and we’ll take that long road over four or five, or even six, seven years of rebuilding it as a Chef Warehouse. And I think you could see from the success our team has been able to produce that we’re pretty good at it. And it’s just not plug and play. It’s really hard to do what we do.
Unidentified Analyst
Yes, very good. Yes, I hear that loud and clear. Very good, we’ll again, congratulations on a great quarter. Thanks for taking my questions, and I’ll get back in queue.
Christopher Pappas
Thank you.
James Leddy
Thank you, Ben.
Operator
Thank you, sir. Gentlemen, at this stage there are no further questions. Would you like to make any closing comments?
Christopher Pappas
Sure. So we’d like to thank everybody and all our analysts and the questions, and couldn’t be prouder of what this team at CW, it goes all the way down the chain. It takes such a big team to produce these kind of numbers and service our customers and we’re so proud of the numbers that they’re putting up and their ability to really rebound coming out of COVID. So a big thanks to them and we look forward for everyone joining us in our fourth quarter call. Thank you very much.
Operator
Thank you, sir. Ladies and gentlemen, that then concludes today’s conference. Thank you for joining us. You may now disconnect your lines.
Be the first to comment