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CHEFS’ WAREHOUSE, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is provided as a supplement to the accompanying consolidated
financial statements and footnotes to help provide an understanding of our
financial condition, changes in our financial condition and results of
operations. The following discussion should be read in conjunction with
information included in our Annual Report on Form 10-K filed with the Securities
and Exchange Commission ("SEC") on February 22, 2022. Unless otherwise
indicated, the terms "Company", "Chefs' Warehouse", "we", "us" and "our" refer
to The Chefs' Warehouse, Inc. and its subsidiaries.

Company overview

We are a premier distributor of specialty foods in nine of the leading culinary
markets in the United States. We offer more than 50,000 stock-keeping units
("SKUs"), ranging from high-quality specialty foods and ingredients to basic
ingredients and staples and center-of-the-plate proteins. We serve more than
35,000 customer locations, primarily located in our nineteen geographic markets
across the United States and Canada, and the majority of our customers are
independent restaurants and fine dining establishments. We also sell certain of
our products directly to consumers through our Allen Brothers and "Shop Like a
Chef" retail channels.

Effect of the COVID-19 pandemic on our business and operations

The COVID-19 pandemic ("Pandemic") had an adverse impact on numerous aspects of
our business and those of our customers including, but not limited to, demand
for our products, cost inflation and labor shortages. Despite these challenges,
we continued to provide our core customers with high touch service, executed on
our cost control measures and returned to profitability beginning in the second
quarter of fiscal 2021. We continue to experience sequential improvement in our
business which has contributed to organic sales growth of $107.2 million
compared to the prior year quarter.

The extent to which the Pandemic may impact our financial condition or results
of operations is uncertain and will depend on future developments including new
information that may emerge on the severity or transmissibility of the disease,
new variants, government responses, trends in infection rates, development and
distribution of effective medical treatments and vaccines, and future consumer
spending behavior, among others.

Recent acquisitions

On December 28, 2021, pursuant to an asset purchase agreement, we acquired
substantially all of the assets of CGC Holdings, Inc. ("Capital Seaboard"), a
specialty seafood and produce distributor in Maryland. The purchase price was
approximately $31.0 million consisting of $28.0 million paid in cash at closing,
common stock warrants of $1.7 million , and $1.3 million paid upon settlement of
a net working capital true-up.

During the thirty-nine weeks ended September 23, 2022, the Company completed
three other acquisitions for an aggregate purchase price of approximately $32.5
million, paid in cash, subject to customary working capital adjustments. The
Company will also pay additional contingent consideration, if earned, in the
form of earn-out amounts which could total $2.0 million in the aggregate.

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                             RESULTS OF OPERATIONS
                                                    Thirteen Weeks Ended                                Thirty-Nine Weeks Ended
                                                                                                                           September 24,
                                       September 23, 2022          September 24, 2021          September 23, 2022              2021
Net sales                            $           661,856          $          484,321          $        1,822,063          $  1,187,506
Cost of sales                                    504,068                     374,346                   1,390,758               922,710
Gross profit                                     157,788                     109,975                     431,305               264,796
Selling, general and administrative
expenses                                         130,255                      99,431                     364,828               270,034
Other operating expenses (income),
net                                                5,458                         105                      10,504                  (208)
Operating income (loss)                           22,075                      10,439                      55,973                (5,030)

Interest expense                                  10,737                       4,191                      19,567                13,362
Income (loss) before income taxes                 11,338                       6,248                      36,406               (18,392)
Provision for income tax expense
(benefit)                                          3,061                       2,792                       9,829                (5,025)
Net income (loss)                    $             8,277          $            3,456          $           26,577          $    (13,367)



Management evaluates the results of operations and cash flows using a variety of
key performance indicators, including net sales compared to prior periods and
internal forecasts, costs of our products and results of our cost-control
initiatives, and use of operating cash. These indicators are discussed
throughout the "Results of Operations" and "Liquidity and Capital Resources"
sections of this MD&A.

Thirteen Weeks Ended September 23, 2022 Compared to Thirteen Weeks Ended
September 24, 2021

Net Sales

                                 2022           2021         $ Change       % Change
                  Net sales   $ 661,856      $ 484,321      $ 177,535         36.7  %



Organic growth contributed $107.2 million, or 22.2%, to sales growth and the
remaining sales growth of $70.3 million, or 14.5%, resulted from acquisitions.
Organic case count increased approximately 18.3% in our specialty category. In
addition, specialty unique customers and placements increased 25.9% and 42.1%,
respectively, compared to the prior year period. Organic pounds sold in our
center-of-the-plate category increased 11.6% compared to the prior year.
Estimated inflation was 15.0% in our specialty category and 2.2% in our
center-of-the-plate category compared to the prior year period.

Gross Profit

                                       2022            2021         $ Change      % Change
           Gross profit            $ 157,788       $ 109,975       $ 47,813         43.5  %
           Gross profit margin          23.8  %         22.7  %



Gross profit dollars increased primarily as a result of increased sales and
price inflation. Gross profit margin increased approximately 113 basis points.
Gross profit margins decreased 133 basis points in the Company's specialty
category and increased 238 basis points in the Company's center-of-the-plate
category. Estimated inflation was 15.0% in the Company's specialty category and
2.2% in the center-of-the-plate category compared to the prior year period.
Specialty margins decreased primarily due to significant year-over-year product
cost inflation. Margin rates in the center-of-the-plate category increased as a
result of the reopening of favorable margin markets versus the same period in
2021 and year-over-year deflation in certain protein categories.

Selling, general and administrative expenses

                                                    2022              2021            $ Change             % Change

Selling, general and administrative expenses $130,255 $99,431

         $ 30,824                    31.0  %
Percentage of net sales                              19.7  %           20.5  %



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The increase in selling, general and administrative expenses was primarily due
to higher costs associated with compensation and benefits, facilities costs, and
fuel costs to support sales growth. Our ratio of selling, general and
administrative expenses to net sales decreased predominately due to sales growth
which contributed to improved fixed cost leverage in the quarter.

Other operating expenses, net

                                             2022        2021       $ 

Change % Change

          Other operating expenses, net    $ 5,458      $ 105      $  5,353       5,098.1  %


The increase in other net operating expenses is mainly explained by non-cash expenses of $4.7 million for changes in the fair value of our contingent earn-out liabilities against non-monetary credits of $0.1 million in the period of the previous year.

Interest Expense

                                       2022         2021        $ Change      % Change
               Interest expense     $ 10,737      $ 4,191      $  6,546        156.2  %



Interest expense increased primarily due to incurred arrangement and third-party
transaction fees of $4.5 million and a $0.1 million loss on debit extinguishment
from the refinancing of our term loan. Additionally, we had higher amounts of
debt outstanding as a result our $300.0 million term loan issuance in August
2022 and increases in the variable portion of interest rates charged on our
outstanding debt.

Provision for Income Taxes

                                                  2022          2021        $ Change       % Change
  Provision for income tax expense (benefit)   $ 3,061       $ 2,792       $     269          9.6  %
  Effective tax rate                              27.0  %       44.7  %


The effective tax rate for the prior period was determined by various discrete elements. The Company’s effective tax rate excluding these separate items was approximately 29.2%.

Thirty-Nine Weeks Ended September 23, 2022 Compared to Thirty-Nine Weeks Ended
September 24, 2021

Net Sales

                                2022             2021          $ Change       % Change
                Net sales   $ 1,822,063      $ 1,187,506      $ 634,557         53.4  %



Organic growth contributed $435.8 million, or 36.7%, to sales growth and the
remaining sales growth of $198.8 million, or 16.7%, resulted from acquisitions.
Organic case count increased approximately 31.3% in our specialty category. In
addition, specialty unique customers and placements increased 30.3% and 46.4%,
respectively, compared to the prior year period. Organic pounds sold in our
center-of-the-plate category increased 16.4% compared to the prior year.
Estimated inflation was 15.5% in our specialty category and 11.6% in our
center-of-the-plate category compared to the prior year period.

Gross Profit

                                      2022           2021          $ Change        % Change
           Gross profit             431,305        264,796        166,509            62.9  %
           Gross profit margin         23.7  %        22.3  %



Gross profit dollars increased primarily as a result of sales growth and price
inflation. Gross profit margin increased approximately 137 basis points. Gross
profit margins decreased 31 basis points in the Company's specialty category and
increased 202 basis points in the Company's center-of-the-plate category.
Estimated inflation was 15.5% in our specialty category and 11.6% in our
center-of-the-plate category compared to the prior year period. Higher inflation
compressed margin rates in the specialty categories, while margin rates in the
center-of-the-plate category were buoyed primarily by the reopening of favorable
margin markets in the 2022 period.

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Selling, general and administrative expenses

                                                       2022                     2021                  $ Change               % Change
Selling, general and administrative expenses            364,828                  270,034               94,794                      35.1  %
Percentage of net sales                                    20.0  %                  22.7  %



The increase in selling, general and administrative expenses was primarily due
to higher costs associated with compensation and benefits, facilities costs, and
fuel costs to support sales growth. Our ratio of selling, general and
administrative expenses to net sales decreased predominately due to sales growth
which contributing to improved fixed cost leverage in the quarter.

Other operating expenses (income), net

                                                 2022        2021        $ 

Change % Change

Other operating expenses (income), net 10,504 (208) 10,712 (5,150.0)%



The increase in net other operating expense relates primarily to non-cash
charges of $8.4 million for changes in the fair value of our contingent earn-out
liabilities in the fiscal 2022 period compared to non-cash credits of $1.4
million in the prior year period. The prior year period also includes a $0.6
million impairment of Cambridge trademarks as a result of a shift in brand
strategy to leverage our Allen Brothers brand in our New England region during
the second quarter of fiscal 2021.

Interest charges

                                      2022          2021        $ Change       % Change
              Interest expense       19,567        13,362       6,205            46.4  %



Interest expense increased primarily due to incurred arrangement and third-party
transaction fees of $4.5 million and a $0.1 million loss on debit extinguishment
from the refinancing of our term loan. Additionally, we had higher amounts of
debt outstanding as a result our $300.0 million term loan issuance in August
2022 and increases in the variable portion of interest rates charged on our
outstanding debt.

Provision for Income Taxes

                                                 2022          2021         $ Change       % Change

Provision for income tax expense (profit) 9,829 (5,025) 14,854 (295.6)%

  Effective tax rate                             27.0  %       27.3  %



The increase in income tax expense is due to the current period’s pre-tax profit compared to a pre-tax loss in the prior year period.

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                        LIQUIDITY AND CAPITAL RESOURCES

We fund our ongoing operations and our growth primarily through operating cash flow, borrowings under our senior secured credit facilities and other indebtedness, operating leases, trade and equity financing.

Debt

The following table presents selected financial information about our indebtedness (in thousands):

                                                          September 23, 2022           December 24, 2021
Senior secured term loan                                 $          300,000          $          168,675
Total convertible debt                                              204,000                     204,000
Borrowings outstanding on asset-based loan facility                       -                      20,000
Finance leases and other financing obligations                        9,732                      11,602
Total                                                    $          513,732          $          404,277


From September 23, 2022we have various floating and fixed rate debt securities with varying maturities for an aggregate principal amount of $504.0 million.

On August 23, 2022, we entered into an eighth amendment to its senior secured
term loan credit agreement in which we borrowed $300.0 million maturing on
August 23, 2029. See Note 9 "Debt Obligations" to our consolidated financial
statements for a full description.

On March 11, 2022, we entered into a third amendment to our asset-based loan
facility ABL Facility which increased the aggregate commitments from $150.0
million to $200.0 million. See Note 9 "Debt Obligations" to our consolidated
financial statements for a full description.

Liquidity

The following table presents selected financial information on liquidity (in
thousands):

                                                           September 23, 2022           December 24, 2021
Cash and cash equivalents                                 $          145,425          $          115,155
Working capital, excluding cash and cash equivalents                 209,181                     157,787
Availability under asset-based loan facility                         176,820                     109,459
Total                                                     $          531,426          $          382,401



We expect our capital expenditures, excluding cash paid for acquisitions, for
fiscal 2022 will be approximately $36.0 million to $45.0 million. We believe our
existing balances of cash and cash equivalents, working capital and the
availability under our asset-based loan facility, are sufficient to satisfy our
working capital needs, capital expenditures, debt service and other liquidity
requirements associated with our current operations over the next 12 months.

Cash flow

The following table presents selected financial information on cash flows (in
thousands):
                                                                     Thirty-Nine Weeks Ended
                                                         September 23, 2022          September 24, 2021
Net income (loss)                                       $       26,577              $          (13,367)
Non-cash charges                                        $       58,763              $           30,729
Changes in working capital                              $      (53,593)             $          (43,692)
Net cash provided by (used in) operating activities     $       31,747              $          (26,330)
Net cash used in investing activities                   $      (93,673)             $          (25,152)
Net cash provided by (used in) financing activities     $       92,255              $           (7,493)



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Net cash provided by operations was $31.7 million for the thirty-nine weeks
ended September 23, 2022 compared to net cash used in operating activities of
consisting of $13.4 million for the thirty-nine weeks ended September 24, 2021.
The increase in cash provided by operating activities was primarily due to the
increased net income, net of non-cash charges, in the current year of $85.3
million compared to $17.4 million in the prior year period. This improvement in
cash-based profitability is primarily due to a 53.4% increase in sales compared
to the prior year period. The sales growth also resulted in higher working
capital (increased accounts receivable and inventory partially offset by higher
accounts payable). The working capital growth of $9.9 million versus the prior
year period partially offset the favorable impact of increased cash-based
profitability. The Company's increased working capital investment in the current
year is the result of rapid sales growth driven by our recovery from the
pandemic. We expect working capital growth to moderate in the future as sales
growth normalizes.

Net cash used in investing activities was $93.7 million for the thirty-nine
weeks ended September 23, 2022, driven by capital expenditures of $31.7 million
which includes the purchase of our distribution facility in Columbus, Ohio and
$62.0 million in cash paid for acquisitions.

Net cash provided financing activities was $92.3 million for the thirty-nine
weeks ended September 23, 2022 driven by the $300.0 million issuance of senior
secured term loans maturing in 2029 ("2029 Term Loans"). This was partially
offset by $171.4 million of principal payments predominately driven by the pay
off our 2025 tranche of senior secured term loans and $11.3 million of deferred
financing fees paid in connection with the 2029 Term Loans. We paid $20.0
million to pay down all borrowings outstanding on our asset based loan facility.
We also paid $2.6 million for shares surrendered to pay tax withholding related
to the vesting of equity incentive plan awards and $2.5 million of earn-out
liability payments classified as financing activities.

Seasonality

Excluding our direct-to-consumer business, we generally do not experience any
material seasonality. However, our sales and operating results may vary from
quarter to quarter due to factors such as changes in our operating expenses,
management's ability to execute our operating and growth strategies, personnel
changes, demand for our products, supply shortages, weather patterns and general
economic conditions.

Our direct-to-consumer business is subject to seasonal fluctuations, with
direct-to-consumer center-of-the-plate protein sales typically higher during the
holiday season in our fourth quarter; accordingly, a disproportionate amount of
operating cash flows from this portion of our business is generated by our
direct-to-consumer business in the fourth quarter of our fiscal year. Despite a
significant portion of these sales occurring in the fourth quarter, there are
operating expenses, principally advertising and promotional expenses, throughout
the year.

The Pandemic has had a material impact on our business and operations and those
of our customers. Our net sales were most significantly impacted during the
second quarter of fiscal 2020 when, in an effort to limit the spread of the
virus, federal, state and local governments began implementing various
restrictions that resulted in the closure of non-essential businesses in many of
the markets we serve, which forced our customers in those markets to either
transition their establishments to take-out service, delivery service or
temporarily cease operations.

Inflation

Our profitability is dependent on, among other things, our ability to anticipate
and react to changes in the costs of key operating resources, including food and
other raw materials, labor, energy and other supplies and services. Substantial
increases in costs and expenses could impact our operating results to the extent
that such increases cannot be passed along to our customers. The impact of
inflation and deflation on food, labor, energy and occupancy costs can
significantly affect the profitability of our operations.

Significant Accounting Policies and Estimates

The preparation of the Company's consolidated financial statements requires it
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. The SEC has defined critical accounting policies as those that
are both most important to the portrayal of the Company's financial condition
and results and require its most difficult, complex or subjective judgments or
estimates. Based on this definition, we believe our critical accounting policies
include the following: (i) determining our allowance for doubtful accounts, (ii)
inventory valuation, with regard to determining inventory balance adjustments
for excess and obsolete inventory, (iii) business combinations, (iv) valuing
goodwill and intangible assets, (v) self-insurance reserves, (vi) accounting for
income taxes and (vii)
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liabilities related to any price supplements. Our significant accounting policies and estimates are described in Form 10-K filed with the SECOND on February 22, 2022.

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