I am the center- of- the- plate products. I think the latest numbers—correct me where I'm wrong—you service over 44,000 customer locations, almost 50 DCs, 88,000 SKUs, 4,000 suppliers, and we have you tracking just over $4 billion in revenue for this year. Despite being the smallest of the public food service distributors, the company's EBITDA margins are historically among the highest in the peer group, really due to their mix of customers and this disciplined focus on the more profitable menu-driven independent restaurants. Happy to have Chris Pappas, founder, president, CEO, and chairman, as well as Jim Leddy, CFO. Thanks again for coming. I want to kick it off with a question on market share, something we try to do a lot of work on across our coverage, but it's a little harder for Chefs' Warehouse. We know you came off a very strong quarter to start the year, but how much of that quarter and that growth do you contribute to the underlying health of your customer versus market share gains, and how do you kind of think about that as you measure it and look at what you're hearing across the street? Yeah. You definitely hear a lot of chatter, right? The first quarter is always a little wonky because of the weather and coming out of the holidays. We have the team really focused on penetration and new customer acquisition. You hear that it's a little slow, there's negativity in headcount at restaurants, and yet you saw our numbers for the first quarter. That real population growth, we discuss this daily. It's like the numbers team comes in and they give me their forecast. I'm like, "Where is it going to come from?" You can't eat the same meal twice, right? If we're not really growing population, you really got to grow market share. I think a lot of the success that you're seeing with us is I think we're really winning in gaining market share and gaining new customers constantly. That is due to our technology, our sales force, our over $1 billion investment over the last 10 years into facilities, technology, and salespeople. You have been following us since our IPO. We are not a new business. We are celebrating our 40th year. Hard to believe. Starting with a big garage and a lot of debt and to see how we are progressing. Really, we are just starting to hit, I think, our groove in becoming the one-stop shop for chefs in the marketplace that we focus on, which is good, better, best, right? We are not chasing the big volume, though we do have great volume customers. We are chasing independents, smaller groups, and people that want a better quality product, right? I guess it's harder for us to have visibility into your competitors, your kind of smaller specialty competitors. I guess number one is, what are you seeing from them? How many of them have the customer focus that you have, which continues to be very focused on and disciplined on the kind of customers you want to service and that value your service levels and your expertise? Yeah. Many people that work for us, they think we're a cult. We're a little cultish because really the name Chefs' Warehouse came from we graduated. We started with Dairyland. We were in the cheese business originally and more specialty food. As we grew, we realized that we were the warehouse for all these independents. You go through New York where we started, nobody has any storage space. You had to give almost daily deliveries, and you had to be on time, and you had to have the products or else they almost couldn't open, right, because they didn't have the inventory. We had to build a different mousetrap than your typical Big Three who are really, I mean, we're all focused on getting cost out, efficiencies, being better at everything. We're in the hospitality bit. We're servicing people that, yes, of course, we have upscale casual where you can go in and grab and go for $15, $20, $30, all the way up to your Michelin three-star restaurants where it costs you $1,000 to eat. It better be good, and they better have it, and it better be what they want. There is a lot of pressure on our team to execute. That is why you have to create almost that cult kind of attitude in the company of, "We have to be better. We have to be right on point." There is not a lot of room for error where you could say, "Yeah, go down the block, pick up a case of this or that." A lot of the products we carry, they cannot find them anywhere. It is really about building that culture into the team and the training. We have what we call Chefs' Warehouse University. We have a lot of chefs. Part of the name came from we realized so much of our team were chefs at this point, and that's continued over 40 years. I mean, we hire front of the house. We hire back of the house. We hire experts in hospitality, in food, in mixology. Of course, we train people that just want to be, they're foodies, and we make them into business people because we are much more entrepreneurial the way we allow them to price, the way we allow them to interact with the customers and build the inventory. Obviously, we have the systems and the algorithms and the teams watching. We are a for-profit business, but it's a very high-demanding, high-touch business. That's really part of our moat, what makes Chefs' Warehouse, the Chefs' Warehouse. We do not sell a lot of chains. We do not chase really low-end business. That is our comfort zone. Today, that is who we are. I know you get this question over and over, but we do have some of the bigger distributors developing higher service models so they can go after more specialty accounts, I guess. I do not know if this is happening broadly across the competitors, but. Haven't we been talking about this? I know. Yeah. We talk about it every year. There's always somebody chasing you. Right. It does not ever seem to have an impact. I think I know what you are going to say, but is anything different on that front? How do you. What was our growth rate the first quarter? Yeah. There's always going to be competition. Competition Competition makes you better. I'm an ex-professional athlete, and it's all about you got to train. There's no day off. Everybody's coming. You got to get better and better. They just make us better. We look at what they're doing, and we keep curating our business plan and our strategy. We just have to be better at what we do. It's a big universe. I mean, when you think about how small we are in food away from home, it's what, over $300 billion-$400 billion today? Nobody really wants to cook. Even when they're cooking, they're really assembling more. We do a lot of the—we service a lot of the people doing meal kits and food away from home. They're growing pretty nicely as customer base. Everybody wants to service. This is hard. I mean, the rules of running a giant opCo, like people that just presented, doing $1 billion out of a facility. I do not know if I ever want a single facility to be that big because you are going to get a little clumsier. You are going to have to put in a lot more rules, and you will lose a lot of your flexibility. I think it is easy to say. It is such a big market. I am sure they will do fine. We know who we are. We are really good at it. I just think that we are just starting with all the technology and the people that have joined Chef. I think that is driving a lot of efficiency. It has really made us so much better as an operator. We continue to be higher pick rates, less mistakes, which makes life a lot easier and allows everybody to focus more on servicing our customers. From where I sit today, I think our strategy is really working. We're constantly going to keep improving it. We're in the people business. I hear everybody talking about AI. We've always had AI. We just called it something else. You got to have it. You got to have that. I mean, it's really excited me at this point in my career with the information that we have. We're able to see how the customer is shopping. We can educate them a lot better than almost any rep when you have so many products. You have to have that stuff. I mean, I do not think you can exist and compete unless you have great technology today and keep implementing it. It is making the reps more productive. A lot of the sales reps were nervous they are going to get replaced. The people that are embracing it, especially the newer people coming into the industry, they know how to use it. They are adopting quicker. Even the real experienced reps are seeing that their quality of life is a lot better. Before, they were working Sunday nights, taking all their own orders. Now customers could come online, place their own orders. They could check it on an hourly basis while they are watching a game or playing with their family or children or out boating in the summertime. It has given them a much better quality of life, gives them a lot more information, solves a lot of the problems customers would normally have to call and ask them. It is a win-win. Is that making that dynamic, making that job a little easier? Is that changing who you can attract in terms of potential sales reps? Nothing's getting easier. I mean, there's just less people, right? So we're attracting great people, but we got a re-energized HR department that we have a new director for the last few years that's really put in a complete new team and way of going to attract people because you're really competing for the people looking for jobs. You have to be more attractive than your competition today. When I started the business, people were begging for jobs. Now you're begging for people. I think Musk was right. We need the robots. Kidding aside, we are attracting great people. They're usually foodies, right? You want them to be interested in the products because they have to have a passion. They have to be storytellers. Over 50% probably of what we sell is in our box. People call it private label. We call it, it's under the Chefs' umbrella. It could be an exclusive, semi-exclusive, one of our companies, an Allen Brothers box or a Foley box or a Dairyland box. It is the way we differentiate ourselves. A lot of the products that, when I grew up in the industry, you private label the products because you sold them cheaper. We private label them because we sell them for more in most cases because they're super premium. We go to the grower. We go to the manufacturer. They work with our team. They're made for our spec. That is the way we differentiate ourselves from the typical box movers. We're more of a, you heard me say, we're more of a marketing company, almost a grower at this point. We're so close to it. We distribute. Distribution is hard. Distribution is where you lose all your profit. I always tell them, we make the money when we sell it. You try to hold on to as much as possible by the time you deliver it and get paid because that's where all your cost comes, right? It's getting more expensive, right? Insurance and you name it. It's much more expensive to operate than it was five years ago before COVID. You have to be a lot more efficient. It's funny you say that. I remember you said a comment a couple of years ago that really stuck with me. I think it was maybe you, Chris, that said, "The business has changed from a gross profit margin to a gross profit dollar because you have to think about that overhead, the insurance, and the cost." Is that more true today? Or how do you think about managing that versus the dollar versus the rate? It's really not more true today, but it's what drives EBITDA growth. The product mix changes, and especially for us because we've done so many acquisitions over the last couple of years where we've added categories. We started building center- of- the- plate about 10 years ago, and then we started building produce. As you integrate those businesses and your category mix changes, your gross profit margins are going to change because you may be selling more expensive protein boxes on your trucks at a lower margin, but you're getting really good gross profit dollar growth. We incentivize our opCos, our salespeople, and our teams on gross profit dollar growth, the gap above adjusted OpEx growth. That's what drives EBITDA growth. We may have a period where we're selling more expensive boxes and our margins are lower, but we're getting the appropriate gross profit dollar growth. Right. Yeah. That's why it's a little tricky. I've grown up with margin, margin, margin. We do look at margin every day. We have the margin patrol. It's really how many gross profit dollars are on those trucks, right? If you see our truck delivering to this hotel, once it backs in, after it's gotten its ticket out front, which in New York is no matter how great the drivers are, they're going to give you tickets. I mean, it's really obnoxious what's going on, but it's part of what we do. Yeah. It's every day. As soon as they roll in, tickets, you don't even know the city. You don't even know the amount. Yeah. The city needs the money. So we incentivize our customers and our reps that get more boxes on the delivery. Even though we've given them high-touch service, we have to have the volume because it's gotten so expensive between drivers and the cost of a truck and you name it. It's about the gross profit dollars they're delivering, right, versus the expense. Because once they pull in to have one more hand truck, it doesn't really cost anything. That's really what's driving a lot of our success now is penetration. If this number is right, I wanted to talk about SKUs because I think you are up to 88,000. A lot of that is acquisitions and new categories. But if you're a sales rep, I mean, how do you have expertise across 88,000 SKUs? Artificial intelligence. Okay. Yeah. You know the core, so it's an 80/20 rule, so most menus, it's 80% of what they're buying is 20% of our product lines, right? It's steaks, it's seafood, it's olive oil, and all that. It's really the long tail because our customer base is so diverse that we have a tremendous just-in-time team. That's where the technology is helping, is getting products in and through the system without having to actually stock 88,000 SKUs. New York might stock 5,000, 6,000, 7,000 products at one time, but there's so many SKUs coming in and out. That's kind of what makes Chefs' Chefs is our ability to manage that long tail. It does cost us more, okay, than typical distribution where you say, "This is what we carry. This is how we manage it." You keep driving our costs. We have the SKU rationalization team that's constantly looking to get rid of stuff. We do have a higher level of donations and products that are not going to sell. You bring in, and for whatever reason, it dies. It makes it harder to manage. After 40 years, we kind of understand that's part of what we do. I think there's two other things that really support our sales reps with the problem that you mentioned is our team sale approach. In almost all of our markets now, we have protein specialists, produce specialists, and different category specialists, French pastry chefs that travel around the country and support our reps. They can't know all those products and have that expertise. They ride with them. They support them with the customer. The other thing is the digital platform provides a window for our customers into our 88,000 SKUs online that a rep could never possibly communicate. When they're online and they're saying, "Oh, I'm buying this and this, I didn't realize Chef had this. I'm going to buy that." That's part of what's driving that penetration growth. That's offsetting a slightly softer traffic or customer demand, whatever you're seeing in the market. I think you did mention SKU rationalization. You said it right there. Is that something that is a new initiative, or is there an opportunity? Is it just a constant? There is no change. That is just always. It's always the fight between sales and category manager purchasing. Salespeople want more. The reason that they have to get this product to get this customer, it's a very important customer. I would say seven out of 10 times, it's a product that we have identical, but they just want a brand. Or they think they want it. It comes in, and then it doesn't go out. That's why it's so hard to manage. You constantly have a team that's, and you're educating. Once reps, two, three, four, five years under their belt, they kind of start to learn better. We're always going to import olive oil, and we're always going to import French cheeses and products like that. 10%, it's not going to change much. Everyone's going to complain. Our clientele base, if an entree is $37 and it goes to $39, I do not think anybody is canceling dinner. I mean, the dinner place is really what drives the prices, really, the beverages. I think they are feeling it. A slowed-down beverage always feels it. Instead of drinking a $200- $300 bottle of wine, people start ordering wines by the glass. It hurts our operators. For us, the food, they want really good quality food. You are always going to remember a bad steak, a bad piece of fish, a bad pasta more than you are going to remember saving $2. I wanted to talk about cross-selling because it sounds like there's a lot of progress on the cross-selling in Texas. I guess as we step back, how many facilities that Chefs' Warehouse are doing cross-selling the way that you would like them to do? What's the potential as you get more facilities up to the Chefs' Warehouse offering? It's a long runway. Texas is in the first inning. We have to help them with we're still operating out of multiple facilities. We're making space right now in Houston to really get it up and growing. Florida's killing it. We built them a new facility. We gave them the categories. And we were small. Obviously, it's a huge state. A lot of people are moving to Florida. They have the growth. They actually have the growth in population, but they also have the growth in categories. There it's a whole integrated team of cross-sellers. Produce, protein, specialty, dry, commodity. When you look at our size, we don't break it out by territory. I could say that New York's our most mature business, our biggest business. I am pleasantly surprised of how high their growth rate is. It just shows you how big the market is because we are giving them new categories. We have new facilities in South Jersey. We are pulling out of New England. We are able to take some of the pressure off of our major facility here in the Bronx, which is allowing them to go deeper, add more categories. I think that they are going to continue to grow. They have a real healthy runway, even though they are such a mature business. Every market has a tremendous runway for growth. I think you gave some good disclosures on that at your analyst day with some of the higher growth markets kind of growing in that 10%-15% range. I'm sure there's a range there, but Florida, Texas, SoCal, Middle East. I think you talked about New York and California, Northern California growing 5%-10%, which is still pretty. Healthy growth. Yeah. Yeah. I mean, we have markets growing 40%, right, because we're still, we're building. We're adding categories. And then we have businesses. I mean, we are fixers, right? We buy a lot of companies for not a lot of money. And then we have to Chefs-ize them. So we have a lot of those going on right now where we're still building the teams. We're building technology, either renovating or moving them into better facilities. I think there's a tremendous amount of growth. Once we've proven over the years and years, it takes some time. But once we get everybody in there, we know how to get them going. Up to they become more like Chefs' Warehouse. Obviously, Texas is a big example of that. We bought a company that had routes. It's probably the most difficult business to Chefs-ize because of their customer mix. There was nobody to buy in Texas, which told us that it's a market waiting for us. It's just we had to get the routes. We are in that. We are making money. There is a long runway to become a real Chefs' Warehouse. The market is huge. I guess on that point with respect to M&A, we've been on a little bit of a pause or a break here for the past couple of quarters. What kind of goalposts should we think about or catalysts when you might return to being more active on that front? Yeah. Money got more expensive, right? It was a much better use of capital to focus inward. The last few years coming out of COVID, we did a lot, right? Because like Jim said before, it was backed up. We did not do anything, obviously, during COVID. We have been busy integrating those businesses and upgrading the technology and the facilities. We are constantly looking. I think fold-ins make a lot of sense for us because they are low risk. They are usually once we have the facilities, which we did not have before, I think I have said over the last year, once we get all these new facilities, it is easier to do the fold-ins, someone in the territory that we could just take the sales. A lot of times, we do not even take many of the trucks, which are very expensive, and we could fold them in. It's a great flow-through to the bottom line. There's a few markets that we're not in yet to be really national. Obviously, we're looking at that. It's kind of like we're doing acquisitions, even though we're not writing checks because we're hiring so many people. We're hiring a lot of salespeople. We're putting in the new categories. It's almost like we're in acquisition mode, but it's internal. We're really enjoying it. Tomorrow, the phone rings, and there's something really interesting. I'm going to say, "This is really interesting." I think also multiples had to become more realistic. I think with all the cheap money that came out of COVID, we're up against PEs that were paying what we thought was very high multiples. I think that they probably, some of them, might have way overpaid stuff. I think we're really disciplined. We know the business. We know that if you pay a high multiple, it's either a great, great business, or it's got to be something that you could take a tremendous amount of cost out and fold in. It's always harder than it looks. We like where we are. Our debt levels are down. We have cash. It's easy to move if we see something really great. If we could grow at the rate we're growing organically, we're making really good bottom line. With respect to salespeople, we get a lot of questions just about how competitive it's getting to hire the right sales reps. Are you seeing a change? Do you feel like you could still get the quality and the expertise that you want in that level? It's been hard for 40 years. I wish we would have, I wish we had recordings when we started. It's hard to find salespeople. It's hard to find drivers. It's hard to find night crews. I don't think anything's changed. We're a great place to work. We got voted again as a great place to work. We really focus on that to make it fun. Obviously, we give the ability. Salespeople, I think we have some of the highest-paid salespeople in the industry because we give them so many expensive products to sell. It's usually, I mean, we get a lot of people coming. We don't like to hire too many people from the competition because it's usually a different culture. As we get bigger, we are attracting more that knock on the door that say, "I want to work for you." I think we have a mix of that. Most of them are coming from hospitality that they know the food. We just have to train them on the business and the 88,000 SKUs coming into the system. I think we're in a pretty good spot attracting talent. Okay. Obviously, independent restaurants is your focus. You do do some cruise line business. We've been getting some questions, maybe some softness there. I don't know if that will last. Are you seeing that, or are you still adding more accounts there? You're not really seeing it show through, or? No. The only thing with the cruise ships that I would say is on my radar was that they buy a lot of imported products. So dealing with that, seeing how substitutions or creating another warehouse, that everything's in bond, right? So they do not pay the tariffs. So it is more sensitive. I have not heard really a slowdown in our cruise business. Again, it is a good business, but it is not a huge part of the $4 billion itself. It's not overly material. Yeah. But what about, I know this question came up on the last earnings call, just what you're seeing in terms of tourism. It sounds like Vegas might be having a little bit of softness. Who knows if that's? You know, Vegas, our numbers are good. But we always want better. What we're hearing from our team there is January and March is, I mean, it's winter too. The pools are all closed out. But I think maybe they were spoiled coming out of COVID. Everybody wanted to go to Vegas. I don't think they're getting as many of the Canadian tourists and the Mexican tourists as we're in this tariff tussle. But they're going to have conferences. The weekends are really strong still. I'm not seeing a lot of concern. Okay. As we think about just longer-term managing costs, and you talked about the cost of just distributing, where are you in terms of supply chain automation? Are the facilities big enough to really kind of look at that? Is that? We talk about it. We talk about it We talk about it every day. We are looking. We are adding automation where it makes sense. I still think that giant jump I'm always confessing to Jim. It's like, I really don't want to build another facility without a major change in robotics, automation. When we do the math on the ROI, it still wasn't there. Yeah. Yeah. So it's coming. Every week, we're probably going to see somebody to look at the automation. It works for a lot of other distributors a lot better than for us. We pick so much by the piece. We break so many cases. We're selling 10 lemons and limes and a basket. For loading and unloading, for moving a lot of the pallets and stuff like that, I mean, we've put in a lot of technology, which has made us a lot more efficient. I still think the big jump is coming as the prices come down, technology improves. I think right now, we have a few warehouses budgeted over the next two years. Maybe we are going a little slower to see really what's coming up the pipeline in automation to implement. We just built a new protein cut shop in Northern California. A lot of the automation there is in really the production of what we're able to do now with much better laser cutters and packing machinery for our, we do a big hamburger business, so even seafood. That's where we really see automation helping us more than any place. The ROI on those investments in the center- of-the- plate processing automation is like, in terms of the labor savings, is a payback in like a year, a year and a half. We are kind of focusing on the incremental technology improvements that will help us make us more efficient in production and warehouse, as well as distribution, and even in back office. We have not seen that leap change that Chris was talking about where we have robots jumping around the warehouse. The ROI is not there yet. They do not exist. Right. Is it harder to do because Chefs' is still in that growth phase where you're consolidating warehouses or maybe moving and expanding? You don't want to put too much into one space and one location if you have to move that, or is that part of the consideration? Again, we just built Florida. We just built L.A. We just built Northern California. Dubai. We just doubled the size of Dubai, Oman. Qatar. Qatar. The team's been really busy. We don't feel like we're at a disadvantage right now because we don't have, and I've walked so many modern warehouses. I see all their problems. I mean, one of our, I want to call them a friendly competitor, but they were in an area that we didn't distribute, almost put them out of business. The automation was just, it wasn't perfect. They had to close for a while. It happened to a retail distributor here in this market. I think we're wise enough to say, let's take it a step at a time. Let's prove it, maybe put it into one warehouse and test it. Then we'll have more confidence to roll it out. Okay. You mentioned Chefs' Middle East. We had a lot of questions on that. That was a very unique situation. Maybe just help us learn more about that market. Maybe we should go for a tasting over there at some of the restaurants. It's a long trip. A lot of restaurants. We looked at that for five years. It took a lot to get me to pull the trigger on that because it was far away. You've heard me say the great thing about being Chefs' Warehouse, there's nobody like us. The hard thing is there's nobody like us to buy. We buy all these companies, and we have to Chefs'ize them. We found one. It was very far away. They had similar supply chain, similar customer base, focused on high-end casual to fine dining. You have tremendous population growth, right? They're going to double their population still. It kind of checked off all the filters. We got a great, great management team. That was the last bit of it. I needed to know that the team was going to be on board. As we obviously groom more and more people into that business, we really loved the management team. When they said that they were on board for the long term, it gave us the confidence to invest. It is probably one of the best investments we've ever made. They've been outperforming our original model and our expectations pretty much since we've owned them. Every time a bomb goes off in the Middle East, we all jump. It seems that the crazier the world gets, the busier they get there. It looks like it attracts more capital. They're building tons of condos, hotels. It seems like a safe haven, almost like the Switzerland of the Middle East. Yeah. I'm trying to finish up our conversations today with this question. And I get this a lot from investors, too. So I think this will be good. But why should an investor think about Chefs' today? You've made a lot of progress. You've had a lot of good growth. I guess some investors say, Kelly, I missed it." So. We're $4 billion. I mean, we will double the business. To say that, oh, we're going to go be $40 billion-$50 billion, we love our space. We love what we do. We see the growth. We realize we're just getting better. We have a much broader audience now because we've gotten bigger. Our categories, all our new categories are just in their infant stage. They should be interested because we're a growth company, and we're going to grow. Great. I hear the kitchen behind us. I think we're ready to head to lunch. Thank you so much for taking the time to come to Frankfurt. Thanks for having us. Yeah. That was great. Yeah. That was great.