Chefs' Warehouse Inc (CHEF) 2013 Q4 法說會逐字稿

Greetings, and welcome to The Chefs' Warehouse fourth-quarter 2013 earnings conference call. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Alex Aldous, General Counsel and Corporate Secretary for The Chefs' Warehouse. Thank you, Mr. Aldous, you may begin.

Thank you, operator. Good afternoon, everyone. With me on today's call are Chris Pappas, Founder, Chairman and CEO; and John Austin, CFO.

By now, you should have access to our fourth-quarter 2013 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 modified pro forma net income and modified pro forma earnings per share. These measures are not calculated in accordance with GAAP, and may be calculated differently than other companies' similarly titled non-GAAP financial measures. 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 at www.SEC.com.

Today we're going to provide a business update, and go over our fourth-quarter results in detail, and review our 2014 guidance. Then we will open the call for questions.

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

Thanks, Alex. Welcome to all who are listening today. While the fourth quarter proved to be challenging on a number of fronts, we are very happy with our accomplishments in 2013. Despite the very difficult weather late in the year, 2013 was a year of significant growth, both in terms of meaningful acquisitions, but also in terms of investments in building our platform for the long term.

A few highlights for the quarter include the following: an increase in net sales of nearly 36% over the fourth quarter in 2012; a gross profit increase of approximately 36% over the fourth quarter of 2012; and an adjusted EBITDA increase of approximately 15% over the fourth quarter of 2012. Also during the quarter, we completed the acquisition of Allen Brothers, a processor and distributor of premium custom-cut steaks and other proteins based in Chicago, Illinois.

During the fourth quarter, our number of cases sold grew approximately 4% quarter over quarter, adjusted for acquisitions. In addition, our number of unique customers and placements also grew in the mid- to high-single digits year over year, approximately 7%, respectively, after adjusting for the estimated impact of acquisitions.

As you know from our updated call in January, weather did negatively impact our results in the fourth quarter, which John will go over in a few minutes. I would like to point out, though, that we had very strong results outside of the Northeast, Midwest and mid-Atlantic regions during the fourth quarter. I know we all are looking forward to the return of more moderate weather this Spring in these key markets.

Our growth strategies are focused on growing our current markets through increased penetration of our existing customers, adding new customers, and identifying new markets that we believe present opportunities for future expansion. We believe that making sure our sales force is well trained, that we have superior products, and run as effectively and efficiently as possible, will be the key to our continued success. For that reason, we expect to continue to invest in people and process and in products to ensure we preserve our brand as the elite distributor in food service.

In addition to the regional management and procurement infrastructure we added during 2013, given both the magnitude of recently completed deals, as well as the potential we see on the horizon, we're also implementing an integration team that is solely dedicated to on-boarding new acquisitions as quickly and efficiently as possible. We expect this to streamline the acquisition process, and enable us to achieve expected benefits and synergies more quickly. In addition, we want to be able to make sure that the people, processes and products are consistent with the rest of our Business.

We are also investing significantly into our finance and IT departments. All these investments will ultimately allow us to scale quickly, and manage our growing Business more efficiently.

Another near-term investment we are making is around upgrading and integrating the Allen Brothers' and Michael's technology platforms. This will also be the first step to enable us to leverage the Allen Brothers' eCommerce platform. We are excited to eventually begin to offer our high-quality Chefs' Warehouse products direct to the consumer. We should be able to give you more details around that project in the coming months, but we believe there is an attractive B2C opportunity.

Finally, we are also currently considering opening a new distribution center in the greater Chicago area. The Chicago and surrounding markets are one of the top markets in the US, and we believe this market presents significant long-term opportunity for us. This would allow us to offer a broader product offering to the clients we currently serve in the region, better service our existing clients, and over time, drive more significant penetration into this attractive market.

Depending on the timing of this initiative, this investment could be in the $1-million to $3-million range, which we have not included in our outlook due to the uncertainty of our timing. We are actively looking at options in that market; we will update you when appropriate. While we are still busy being selective in both the markets and the product specialties that we pursue, as well as how we structure each opportunity, we remain cautiously optimistic that there are enough additional attractive opportunities for us to capitalize on in 2014.

In closing, 2013 was a year of continued growth for the Company. We entered Cincinnati, Chicago, and Canada, as well as expanded our presence in the center of the plate in pastry offerings. As we move into 2014, we, like many other public restaurant companies that operate in the Northeast, mid-Atlantic and Midwest, are feeling the brunt of an unusually cold and harsh start to the year. Despite that, we continue to execute against our long-term business strategy by focusing on, and building out, our core markets, and entering new, attractive markets that we believe will hold long-term upside for growth.

And with that, I will turn it over to John Austin to discuss more detailed financial information. John?

Thank you, Chris, and good afternoon, everyone. Our net sales for the quarter ended December 27, 2013, increased approximately 35.6% to $193.4 million from $142.6 million in the fourth quarter ended December 28, 2012. The increase in net sales was the result of acquisitions of Queensgate Food Service, Qzina Specialty Foods and Allen Brothers during 2013, as well as organic growth. These acquisitions accounted for approximately $39.6 million of our sales growth for the quarter.

We also estimate that weather impacted us by approximately $4 million for the quarter, primarily in the Northeast, mid-Atlantic and Midwestern markets. The estimated impact of hurricane Sandy negatively impacted sales by approximately $3 million in the fourth quarter of 2012. Inflation increased somewhat from the third quarter, and was approximately 3.8%.

Gross profit increased approximately 36.5% to $49.3 million for the fourth quarter of 2013, versus $36.1 million for the fourth quarter of 2012. Gross profit margin increased approximately 16 basis points to 25.5% from 25.3%. Excluding the impact of the acquired businesses, gross margin increased nicely year over year in our core specialty distribution businesses. This increase was offset, in large part, by the previously disclosed decrease in gross profit margins, and the correction of the inventory overstatement in our Michael's Finer Meats subsidiary.

Total operating expenses increased approximately 38.4% to $39.1 million for the fourth quarter of 2013, from $28.2 million for the fourth quarter of 2012. As a percentage of net sales, operating expenses were 20.2% for the fourth quarter of 2013, compared to 19.8% in the prior-year quarter. The increase in our operating expense ratio is attributable to increased investments in management infrastructure; increased amortization expense related to the Company's acquisitions; duplicate rent related to the Company's Bronx, New York, facility; and the previously disclosed investigation costs at our Michael's subsidiary; and the third-party transaction costs related to various acquisitions, which were all offset, in part, by the prior-year impact of hurricane Sandy.

Warehouse distribution and selling costs increased approximately $8.3 million, due mainly to the Company's acquisitions and investments in regional management infrastructure. This also includes approximately $400,000 of duplicate occupancy costs related to the Bronx facility. As a percentage of net sales, warehouse distribution and selling expense increased 73 basis points, again, primarily related to the additional regional and sales management added over the past year, and duplicate rent.

G&A expenses increased approximately $2.6 million to $11.5 million for the fourth quarter of 2013, compared to $8.9 million in the prior-year fourth quarter. As a percentage of net sales, G&A costs decreased by 32 basis points to 5.9%, due, in large part, to the reduction in the earn-out liability related to one of the Company's prior acquisitions. Adjusted for amortization expense and the other usual items described in our press release, G&A expense increased from $7.6 million to $10.6 million in the fourth quarter of 2013, which is an increase of 14 basis points as a percent to sales.

Operating income for the fourth quarter of 2013 was $10.2 million, compared to $7.9 million for the fourth quarter of the prior year. Interest expense for the quarter increased to $2.2 million from $1.2 million in the fourth quarter of last year, due to the higher levels of debt related to the Company's acquisitions, as well as the higher interest rate associated with the Company's senior notes issued in early 2013.

Income tax expense was $3.2 million for the quarter, compared to $3.0 million in the 2012 fourth quarter. Our effective tax rate was approximately 39.6% for the quarter. Net income was $4.8 million, or $0.19 per diluted share, for the fourth quarter of 2013, compared to $3.6 million, or $0.17 per diluted share, for the fourth quarter of 2012.

On a non-GAAP basis, adjusted EBITDA increased approximately 15.2% to $13.4 million for the fourth quarter of 2013, compared to $11.6 million in the fourth quarter of 2012. Modified pro forma net income was $5.4 million and modified pro forma EPS was $0.22 for the fourth quarter of 2013, compared to modified pro forma net income of $4.9 million and modified pro forma EPS of $0.23 in the fourth quarter of 2012. The decrease in modified pro forma EPS was due largely to the increase in the number of shares outstanding related to the Company's offering completed in September 2013. Please refer to our press release for the quantitative reconciliation of these non-GAAP measures to their most comparable GAAP measures.

Now, on to the outlook for 2014. We expect revenue between $810 million and $840 million. Adjusted EBITDA between $50 million and $55.5 million, and net income between $16 million and $18.5 million. We now expect net income per diluted share to be between $0.64 and $0.74, and modified pro forma diluted EPS between $0.70 and $0.80. This guidance is based on an effective tax rate of approximately 41% for 2013,(sic-see press release "2014") and an estimated diluted share count of 25 million shares.

A few other comments about our outlook: First, as Chris stated, weather has continued to be unusually harsh in the Northeast, mid-Atlantic, and Midwestern markets. So, while we don't give quarterly guidance, for those of you modeling 2014, it's important for you to account for this disruption in the first quarter. In addition to the fact that the first quarter is historically our lightest quarter, the cadence of Allen Brothers' earnings is very weighted toward the fourth quarter. This is due to the promotional spend in the Company's B2C channel throughout the year, but also nearly 50% of the revenue in that B2C channel is generated in the holiday season.

Second, as Chris said earlier, we are currently considering opening a distribution center in Chicago. Depending on the timing of the signing of that lease, our staffing and other ramp-up costs, the start-up expenses related to this initiative could be between $1 million and $3 million for us to launch this. Our current 2014 guidance does not include any expenses related to, or any costs related to, this new distribution facility, but we will update you once we have a more definitive plan around that issue.

With that, operator, we will turn it over for questions.

(Operator Instructions)

Mark Wiltamuth, Jefferies.

If you could give us a little perspective on how big the impact is on the weather for the fourth quarter versus what you are seeing here in the first quarter is it comparable? Or maybe give us a little perspective so we can gauge how much disruption here is in the guidance?

Yes, I think, Mark, the one thing I would point out is the first quarter, as you know, is our seasonably lightest quarter. So, it's certainly the order of sales dollars are lighter, January and February are pretty slow months in the food service business. And so I think order of magnitude it should be less, although so far it has been two months instead of the month of December. The month of December was obviously expected to be a pretty strong month.

If you could also maybe step through the acquisitions and talk to us about where earnings accretion is likely to start showing up, now that you have digested some of these?

I'm not sure I truly follow your question, so earnings accretion on the acquisitions --

Well, you can probably point to how -- when does Allen Brothers really start to turn accretive and how big and some of the other ones you have done recently?

I think Allen Brothers in particularly, obviously it is a launch into the Chicago market -- our first foray into the Chicago market. We are hoping to leverage that, and there may be some investment spend, as we talked about on our prepared remarks, as we launch that facility. We think long-term that can be a fantastic market for us. Of course, on a relative size, I think it's maybe -- it's not as big as New York, but it is pretty close.

Particularly, Allen Brothers is a national -- has a national presence. And between Allen Brothers and Michael's, now we have actually a platform of two the best cut shops in the country that do business nationally, and we look to expand that on a national basis. When you say accretive, they are all accretive, it's -- if we were running just for the next quarter, they could be even more accretive.

But we are making an investment, we are hiring salespeople, we are improving their platforms. So, we are really building them to keep expanding them over the next 10 years. They are accretive, but we also are making big investments.

Actually, that is probably the right way to think about it, Mark, is most of these deals are -- we are happy with their performance. A couple are maybe a little slower than we had initially planned, but are accretive. I think where the --where you're seeing us spend money, though, is in building infrastructure, planning for future growth, which -- that is probably offsetting some of that accretion.

Right.

Okay, and when do you get -- when do you eliminate the duplicate rent from the Bronx facilities?

We are expecting to move in in a phased approach in 2014. It will probably start sometime in the second quarter. We probably won't be fully in that facility until the beginning or early 2015.

Right now, what we are doing is we -- it took a long time to get the existing tenant out. So, we were trying to built around the other tenant in that building, finalize all the permitting, which we've finally done now, and so we are full-bore ahead at this point. But it will be a phased approach, where we start to research utilize the facility midyear and then fully utilize it by 2015.

Yes, probably first quarter. So, if you wanted a best estimate, probably first quarter of 2015.

Okay, and lastly, in your preannouncement, you talked about margin pressure, I guess in meats. Any change in the color there, and what is your outlook there for the remainder of the year?

I think it is so far, January and February have been in accordance with plan. It is still softer than it was earlier in 2013, but it is performing according to plan now.

Karen Short, Deutsche Bank.

It's Shane Higgins on for Karen. Just looking at your topline guidance for the year, it looks like the $137 million to $167 million, how much of that is attributable to acquisitions? I'm thinking it is somewhere around $80 million, but just want to get your thoughts on that.

I think we did quantify for you, I haven't put the math to it, so maybe we can circle back offline. But we quantified for you the sales from acquisitions in each of the quarters so far this year, and then it is really just lapping that. When I think about the three acquisitions that we did in 2013, Queensgate, which was about $40 million in revenue, Qzina, which was about $60 million to $65 million in revenue, and then Allen Brothers, which was between $80 million and $85 million. So the pro forma piece of that is adding to sales in full year of 2014. We will circle back and go through that math, but that is really how you get there.

In terms of the organic growth, the breakdown between the organic and inflation on the balance of that, how should we think about that?

The organic -- I'm sorry, run that by me again?

The non-acquisition-related topline growth, is that broken down between organic and inflation? How much inflation do you guys have embedded in your topline growth?

Inflation for 2014 is -- I would plan on 3%, 2%, 2.5% to 3%.

Can you guys walk us through how you get from the high end -- from the low end to the high end of your guidance? What are the key variables?

Weather being one. (Multiple speakers).

Successful sales implementation, training.

Yes. Listen, again, we acquired three companies last year. Obviously, we expect to be acquisitive this year. I think the range is, one, weather. With power out taking it lately, weather has been something that does throw off the numbers, unfortunately.

The synergistic uptick in what we have been doing, so we have acquired these companies and now we're starting to cross-sell. We call it cross-pollination. I think three is the health of our customers. So, if they are a little slow, a little busier, that really changes the numbers. So I think giving a range is an honest outlook that -- obviously, we don't have a crystal ball. And we feel comfortable in that range, depending on all of those variables.

If I could just get one more in here, integration has obviously been a strength of you guys for a while. Could you help us better understand this new integration team you are bringing in, and what they bring to the organization and what they can do better?

Again, what we have been doing is we have been hiring. So, as we have been hiring, we have been looking to replace some of our experienced people that we're -- we have challenged them with a new opportunity in the Company. With the outlook for more acquisitions and seeing what we have done in the past, it is a learning experience.

As we go on, we think it is a very good idea to start paying more attention to how we do the acquisition, how we integrate to do a better job on-boarding people. And we think that investment and that team, paying more attention to the acquisitions, will be a better way to get a faster uptick once you do the acquisition and once you start to cross-pollinate.

I think that is a big art of it, the cross-pollination, and where we're starting to see as we do ultimately become more dense and look for cross-selling synergies as we end up with different product categories, there is a real learning curve and an education process around that.

We think it takes less stress off the team that has to operate day to day. Obviously, we want to grow and we are growing organically, and we want to put more of an emphasis on the day-to-day teams to execute the organic plan while now we have a team that is focusing on our new acquisitions. We are very excited about this.

Scott Van Winkle, Canaccord Genuity.

I'm doing the back of the envelope right here, and I don't -- I'm not 100% sure, I am not in my model, but it looks like you are assuming an operating margin of about 5% in the guidance for 2014. Do I have that math right? And second, what drives it down from, call it 5.8%, 5.9% or so, in fiscal 2013?

I think one of these things -- again, I have not gone through, I don't have each of your individual models, but I would generally tend to say that one of the places -- there's a couple of places where I think the current consensus in current models is maybe a little light, is amortization expense. While we have been investing in technology systems which impacts depreciation, but probably more importantly, the amortization expense related to our acquisitions. I think there's probably a little do -- because the models are probably a little light on that front.

Another area I thought that was probably a little light in the current models was interest expense. I think that's probably another -- anyway. I know that is below the operating profit line, but I think the impact that you're thinking about between the investment incentive infrastructure we've talked about a lot and amortization expense.

I would assume we're going to look to annualize that fourth quarter interest expense, that $2.2 million. That sounds right, doesn't it?

I think that is in the right order of magnitude, maybe a little higher than that, yes.

Really, the amortization is going to fall in your operating expense line, not much of that is going to flow through cost. Obviously, depreciation and facilities and stuff, but the amortization associated with acquisitions I assume is going to run through operating expenses?

All in operating expenses, correct.

Great, and then when we think about going from this fourth quarter into Q1, obviously a little less revenue impact on weather because of the volume, but we haven't seen a couple of these acquisitions in Q1. Is there any gross margin variance that we should think about? Obviously, I would assume the Allen Brothers margin is much higher in Q4 than it is in Q1, given the [Cigma] direct business.

That is correct, and that is part of the -- why I was emphasizing thinking about the quarterly cadence of Allen Brothers. The margin in the direct to consumer business is stronger than the wholesale component of the business, so the first three quarters has a much greater mix of wholesale versus direct to consumer, so margins will be a little bit lower. But there's also a lot of spend, advertising spend catalogues, and that kind of thing in that business, where a lot of the sales that are generated from that come in the fourth quarter.

And then lastly on Chicago, obviously you don't know the timing, and therefore are not putting it in the guidance. Is it 90% that you are going to have a facility in process construction in fiscal 2014? Is it just a matter of whether it is June or November?

I would say, Scott, that we are very optimistic that we will have a very strong presence in Chicago, and the sooner the better. It is something that we have been working on for a while and obviously, Allen Brothers gives us part of the paved road. And we're trying to put together the other pieces, and I would say we are optimistic that we will have a nice strong presence.

Scott, we're looking at a lot of different options there. From leasing a facility and greenfielding from scratch to acquisitions or things like that. There's a lot of moving parts there that we are currently reviewing.

I'm sorry, I said -- one more. On the Bronx facility, obviously you have been pulling out [dues] because of rent. Calling it out every quarter since the process began. When you go into starting to occupy in Q2 and it taking until the end of fiscal 2014 to fully occupy, have you built in the inefficiency, the relocation costs? Or are we going to expect to -- here Q3, the other [$700,000] that we had in relocation costs. And wondering what is in and what is not, or what should we assume as far as the costs beyond duplicative rents that we will see with the Bronx?

Yes, I think in the guidance we have given as far as the add-back for that duplicate rent, it has got a little bit of transition cost in there as well. Obviously, a phased approach, hopefully, will have less disruption and less one-time costs on that front, but.

Part of the thought process, Scott, when we decided to take this building and move into it, was it's only a few blocks away. So it is not your typical move where you would have a tremendous cost of hiring trucking companies. We think that doing it over a period of time, the cost has kind of built in. And we are not expecting this unexpected huge amount of expense to move in. I think we've got ourselves covered.

Okay, and if I could squeeze one more in, John, the inventory days, the last few quarters, and I probably know that's probably one of the acquisitions, but the inventory days have been up on a year over year basis. Is that because of the mix of business with your new acquisitions?

Yes, so Qzina, if you remember when we announced Qzina, their inventory turns, they had a lot of inventory in that business. And their inventory turns were very slow, so that started to impact us in second quarter, but certainly third and fourth quarter did most of the meat business as well, turns their inventory a little slower. Obviously, you've got timing of the acquisitions and not having all of the sales, and you have full inventory, so that obviously impacts things as well.

John Ivankoe, JPMorgan Chase.

A follow up on Chicago. You mentioned in your prepared remarks to potentially prepare for a $1 million to $3 million range. And that has been in the question I was going to ask was for you to go through the build versus buy decision. And it seems like in the previous question that you did allude to buying and making several acquisitions being at least part of the potential.

Can you walk us through and refresh us how you go through that exercise of build versus buy? What really encourages you to do one versus another, especially in such a large opportunity like Chicago?

Right, well, if it's a perfect fit and you have a willing seller, we do prefer to buy. It is obviously much faster to take a go into the market with somebody who already has 20 or 30 routes. But one of the most important filters we look at is culture, and what we are inheriting. Chicago is a market that we have been looking at for a few years in trying to find the perfect acquisition, and we have been in dialogue with various the ball over the past few years.

Obviously, we bought Allen Brothers in December, which is a piece of the puzzle, because their business is more on the national scale. A lot of expertise, but it does give us great -- part of the thinking behind it is that if you have enough introductions and enough relationships, you could greenfield it off of what we have. A little more costly upfront, but actually a better ROI over time.

Traditionally, what has happened is when we enter a market, you do start to get phone calls. San Francisco, it happened to us, I think three or four times where we think we have it, we have enough to go on our own, and then another company calls up and we are able to make a deal. I think to summarize the process is we look at it, we look for an acquisition, if not, we prepare to greenfield, and usually what happens is we end up doing one or two deals in the meantime.

Maybe this call serves as advertising to prospective sellers, just to let -- because you guys are obviously interested to going into that market.

You're not going to want a commission on this, are you?

I don't think I deserve one. Secondly, to come from a slightly different direction regarding Allen Brothers, I've obviously seen what the consumer sees, and what the retail consumer sees on business to consumer. How big of an opportunity is that for Chefs' Warehouse to really broaden out your online ordering platform for interested home chefs?

We think it is quite big. Part of the reasoning behind making this acquisition was we have always had a great interest, because of the phone calls we get, of people wanting to shop like a chef. We thought it was the perfect opportunity, a company that had a -- was the Rolls-Royce of prime beef in the country, with a great reputation. And part of the investment in 2014 and 2015 is building out that platform.

That is what we have been talking about, where our numbers -- obviously, where we can make more money, but having an opportunity to grow B2C and leverage the Allen Brothers relationship is part of our big plan over the next few years. We think it is quite a big opportunity.

I'm sorry, go ahead.

I was just good to say, John, just to remind you, about 25% of Allen Brothers' business goes through -- so roughly $20 million to $25 million, is in the B2C channels. So, that will give you a relative size of the existing platform.

And is that a scalable business to where the Chefs products, especially when you have the Chicago facility, could go to their existing retail distribution network? Or is that something that would have to be expanded outside of their existing facility?

I would say right now, we are in the first stage. We have great consultants, we have great people at Allen Brothers who have expertise in that. So we are evaluating multiple ways of actually growing that business. They all work, it is really getting the perfect formula right now that we are anticipating finding.

Andrew Wolf, BB&T Capital Markets.

I wanted to ask you on this -- you mentioned you are instituting a new department, I think it was transition, but basically to handle acquisitions and so forth.

To better integrate.

Okay, is that -- could you elaborate a little on the mandate there? I get the sense of it, are you hiring new people or re-staffing it? And also, is that pretty much -- are you doing this because you're not happy with the way things have gone or because you anticipate ramping up, and you just need to focus more on this side of the business?

We're a much bigger Company than we were two years ago when we went public. So in anticipation of continuing to do deals, which is part of our strategic plan, the business has gotten big enough now where it requires -- we have people doing two things at once, Andy. And we feel it's prudent right now to start separating and emphasizing the day to day, obviously, which is our bread and butter, and to do a better job.

I think we can do a better job getting the acquisitions done in a cleaner fashion and then a better job onboarding them. There's so much to learn. You have new computer systems to get used to, you've got the product lines to introduce to them, you have new management teams. So I think we've reached the size and anticipating getting even larger, that it makes a lot of sense.

So we have taken people and we have given them new challenges. A lot of people in the organization here many years that wanted the new challenge, and we have been backfilling them over a period of time. As we said, we have invested in regional vice presidents and specialists. It has been part of the plan and now it's -- we felt it was time to announce that we have made that investment and it is built into our forecast.

Okay. Wanted to switch to Cisco and ask two questions. One is on their announced merger with US Food Service. Any updates or thoughts on customer reaction and if you are getting -- to what degree you might be hearing from customers who are looking at this impending merger are thinking of making the change?

We felt from a few years back that the industry obviously was consolidating, that is what we are doing, consolidating more of the specialty side. So we thought the big guys would consolidate, and it looks like it is happening.

Again, part of the reason that we have started making these investments a while ago was anticipating that one of these deals would happen, and there would be some low-lying fruit. So we are pretty excited. We think they are two great companies merging, and they will do a great job and get efficiencies.

But traditionally when this happens, and our customers have voiced and new customers have voiced, there are not going to put all of their eggs in one basket. We think there will be some good business for us, and that is why we have been hiring and getting ready for anticipating some good things happening for us as well.

Lastly on Cisco, recently started rebranding its business in New York City, with the goal of trying to get some higher-end business. I just wanted to ask, from your vantage point, have you noticed anything that affects Chefs' Warehouse, whether it might be poaching of salespeople or pricing, or business situations, or anything in that regard?

Listen, Cisco is a great company, and they move boxes extremely efficiently, and the leader in the world, I believe. They're going to be a $60 billion company selling to everybody. That is not our mission, ad if they can take business from them -- from us, if they can do a better job, they deserve it.

I can tell you we get up every day extremely focused on the customers that we sell, and our people are extremely passionate and very focused. We're not trying to sell everybody and anything, so I think we have got a pretty good shot of having continued success.

Does that mean you haven't seen any effect from them so far in a month or two of being --

(Laughter) Andy, we get paid to grow our business and make sure our customers choose us. So I can't be concerned with what they're trying to do. I know that we are very optimistic that we will continue to do what we have been doing and have continued success.

Thank you. I'll now turn the call back over to management for closing comments.

We thank everybody for joining us. We are joyous that it is actually not snowing today here in the Northeast, and we look forward to speaking to everybody again on our next call. Thank you very much.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.