The Chefs’ Warehouse Reports Fourth Quarter 2018 Financial Results

Wall Street Business News

Net Sales Growth of 10.3%

RIDGEFIELD, Conn., Feb. 13, 2019 (GLOBE NEWSWIRE) — The Chefs’ Warehouse, Inc. (NASDAQ: CHEF) (the “Company”), a premier distributor of specialty food products in the United States and Canada, today reported financial results for its fourth quarter ended December 28, 2018.

Financial highlights for the fourth quarter of 2018 compared to the fourth quarter of 2017:

  • Net sales increased 10.3% to $394.1 million for the fourth quarter of 2018 from $357.1 million for the fourth quarter of 2017.
  • GAAP net income was $8.9 million, or $0.30 per diluted share, for the fourth quarter of 2018 compared to net income of $9.5 million, or $0.35 per diluted share, in the fourth quarter of 2017.
  • Adjusted net income per diluted share1 was $0.32 for the fourth quarter of 2018 compared to $0.23 for the fourth quarter of 2017.
  • Adjusted EBITDA was $24.6 million for the fourth quarter of 2018 compared to $22.0 million for the fourth quarter of 2017.

“We are pleased with our performance in the fourth quarter which included solid revenue, new customer and gross profit growth,” said Chris Pappas, chairman and chief executive officer of The Chefs’ Warehouse, Inc. “In 2019 and beyond, we will look to continue to grow existing and new markets, expand product categories and implement technology focused on improving efficiency in our operations and enhancing customer experience. We believe we are well positioned to continue to be the food industry’s most nimble and dynamic last-mile source of fine ingredients to chef-driven independent restaurants.”

Fourth Quarter Fiscal 2018 Results

Net sales for the quarter ended December 28, 2018 increased 10.3% to $394.1 million from $357.1 million for the quarter ended December 29, 2017. Organic growth contributed $19.5 million, or 5.4%, to sales growth in the quarter. The remaining sales growth of $17.5 million, or 4.9%, resulted from acquisitions. Organic case count grew approximately 6.5% in the Company’s specialty category with unique customers and placements growth at 5.9% and 4.4%, respectively, compared to the prior year quarter. Pounds sold in the Company’s center-of-the-plate category increased 4.9% compared to the prior year quarter. Estimated inflation was 0.2% in the Company’s specialty categories and estimated inflation was 0.9% in the center-of-the-plate categories compared to the prior year quarter.

Gross profit increased approximately 11.2% to $102.3 million for the fourth quarter of 2018 from $92.0 million for the fourth quarter of 2017. Gross profit margin increased approximately 20 basis points to 26.0% from 25.8%, due in large part to deflation in certain center-of-the-plate categories. Gross margins in the Company’s specialty category decreased 93 basis points and gross margins increased 135 basis points in the Company’s center-of-the-plate category compared to the prior year quarter.

Total operating expenses increased by approximately 10.3% to $84.5 million for the fourth quarter of 2018 from $76.6 million for the fourth quarter of 2017.  As a percentage of net sales, operating expenses were relatively unchanged at 21.4% in the fourth quarter of 2018 compared to 21.5% in the fourth quarter of 2017.

Operating income for the fourth quarter of 2018 was $17.8 million compared to $15.3 million for the fourth quarter of 2017. The increase in operating income was driven primarily by increased gross profit, offset in part by higher operating expenses, as discussed above. As a percentage of net sales, operating income was 4.5% in the fourth quarter of 2018 compared to 4.3% in the fourth quarter of 2017.

Total interest expense increased to $5.7 million for the fourth quarter of 2018 compared to $5.3 million for the fourth quarter of 2017 due primarily to the write off of $1.1 million in deferred financing fees associated with the re-pricing of our Term Loan, partially offset by lower effective interest rates charged on the Company’s outstanding debt and the conversion of the 36.8 million of convertible subordinated notes during the third quarter of 2018.

Net income for the fourth quarter of 2018 was $8.9 million, or $0.30 per diluted share, compared to net income of $9.5 million, or $0.35 per diluted share, for the fourth quarter of 2017.

Adjusted EBITDA1 was $24.6 million for the fourth quarter of 2018 compared to $22.0 million for the fourth quarter of 2017.  For the fourth quarter of 2018, adjusted net income1 was $9.6 million and adjusted EPS1 was $0.32 compared to adjusted net income of $6.2 million and adjusted EPS of $0.23 for the fourth quarter of 2017.

1Please see the Consolidated Statements of Operations at the end of this earnings release for a reconciliation of EBITDA, Adjusted EBITDA, adjusted net income and adjusted EPS to these measures’ most directly comparable GAAP measure.

Full Year 2019 Guidance

Based on current trends in the business, the Company is providing the following financial guidance for fiscal year 2019:

  • Net sales between $1.52 billion and $1.57 billion
  • Gross profit between $390.0 million and $400.0 million
  • Net income between $27.2 million and $30.0 million
  • Net income per diluted share between $0.90 and $1.00
  • Adjusted EBITDA between $86.0 million and $90.0 million
  • Adjusted net income per diluted share between $0.91 and $1.01

This guidance is based on an effective tax rate of approximately 27.5% and approximately 30.0 million shares, on a fully diluted basis.

Fourth Quarter 2018 Earnings Conference Call

The Company will host a conference call to discuss fourth quarter 2018 financial results today at 5:00 p.m. EST. Hosting the call will be Chris Pappas, chairman and chief executive officer, and Jim Leddy, chief financial officer. The conference call will be webcast live from the Company’s investor relations website at http://investors.chefswarehouse.com/. The call can also be accessed live over the phone by dialing (877) 407-4018, or for international callers (201) 689-8471. A replay will be available one hour after the call and can be accessed by dialing (844) 512-2921 or (412) 317-6671 for international callers; the conference ID is 13687350. The replay will be available until Wednesday, February 20, 2019, and an online archive of the webcast will be available on the Company’s investor relations website for 30 days.

Forward-Looking Statements

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding the Company’s business that are not historical facts are “forward-looking statements” that involve risks and uncertainties and are based on current expectations and management estimates; actual results may differ materially. The risks and uncertainties which could impact these statements include, but are not limited to, the Company’s ability to successfully deploy its operational initiatives to achieve synergies from its acquisitions; the Company’s sensitivity to general economic conditions, changes in disposable income levels and consumer discretionary spending on food-away-from-home purchases; the Company’s vulnerability to economic and other developments in the geographic markets in which it operates; the risks of supply chain interruptions due to a lack of long-term contracts, severe weather or more prolonged climate change, work stoppages or otherwise; the risks of loss of revenue or reductions in operating margins in the Company’s center-of-the-plate category as a result of competitive pressures; changes in the availability or cost of the Company’s specialty food products; the ability to effectively price the Company’s specialty food products and reduce the Company’s expenses; the relatively low margins of the foodservice distribution industry and the Company’s and its customers’ sensitivity to inflationary and deflationary pressures; the Company’s ability to successfully identify, obtain financing for and complete acquisitions of other foodservice distributors and to integrate and realize expected synergies from those acquisitions; increased fuel cost volatility and expectations regarding the use of fuel surcharges; fluctuations in the wholesale prices of beef, poultry and seafood, including increases in these prices as a result of increases in the cost of feeding and caring for livestock; the loss of key members of the Company’s management team and the Company’s ability to replace such personnel; and the strain on the Company’s infrastructure and resources caused by its growth. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. A more detailed description of these and other risk factors is contained in the Company’s most recent annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 9, 2018  and other reports filed by the Company with the SEC since that date. The Company is not undertaking to update any information in the foregoing report until the effective date of its future reports required by applicable laws. Any projections of future results of operations are based on a number of assumptions, many of which are outside the Company’s control and should not be construed in any manner as a guarantee that such results will in fact occur. These projections are subject to change and could differ materially from final reported results. The Company may from time to time update these publicly announced projections, but it is not obligated to do so.

About The Chefs’ Warehouse

The Chefs’ Warehouse, Inc. (http://www.chefswarehouse.com) is a premier distributor of specialty food products in the United States and Canada focused on serving the specific needs of chefs who own and/or operate some of the nation’s leading menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools, bakeries, patisseries, chocolatiers, cruise lines, casinos and specialty food stores. The Chefs’ Warehouse, Inc. carries and distributes more than 55,000 products to more than 34,000 customer locations throughout the United States and Canada.

Contact:
Investor Relations
Jim Leddy, CFO, (718) 684-8415

 
THE CHEFS’ WAREHOUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL QUARTERS AND YEARS ENDED DECEMBER 28, 2018 AND DECEMBER 29, 2017
(in thousands except share amounts and per share data)
       
  Fiscal Quarter Ended   Fiscal Year Ended
  December 28,   December 29,   December 28,   December 29,
  2018   2017   2018   2017
  (unaudited)   (unaudited)   (unaudited)    
Net sales $ 394,056     $ 357,098     $ 1,444,609     $ 1,301,520  
Cost of sales 291,764     265,125     1,077,562     972,142  
Gross profit 102,292     91,973     367,047     329,378  
               
Operating expenses 84,490     76,624     318,289     288,251  
Operating income 17,802     15,349     48,758     41,127  
               
Interest expense 5,709     5,303     20,745     22,709  
Loss on asset disposal 139         169     10  
Income before income taxes 11,954     10,046     27,844     18,408  
               
Provision for income taxes 3,072     563     7,442     4,042  
               
Net income $ 8,882     $ 9,483     $ 20,402     $ 14,366  
               
Net income per share:              
Basic $ 0.30     $ 0.36     $ 0.71     $ 0.55  
Diluted $ 0.30     $ 0.35     $ 0.70     $ 0.54  
               
Weighted average common shares outstanding:              
Basic 29,438,806     26,436,840     28,703,265     26,118,482  
Diluted 29,828,252     27,805,849     29,678,919     27,424,526  
                       

THE CHEFS’ WAREHOUSE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 28, 2018 AND DECEMBER 29, 2017
(in thousands)
       
  December 28, 2018    
  (unaudited)   December 29, 2017
Cash $ 42,410     $ 41,504  
Accounts receivable, net 161,758     142,170  
Inventories, net 112,614     102,083  
Prepaid expenses and other current assets 11,953     11,083  
Total current assets 328,735     296,840  
       
Equipment and leasehold improvements, net 72,807     68,378  
Software costs, net 12,469     6,034  
Goodwill 184,280     173,202  
Intangible assets, net 130,033     140,320  
Other assets 4,074     2,975  
Total assets $ 732,398     $ 687,749  
       
Accounts payable $ 87,799     $ 70,019  
Accrued liabilities 24,810     21,871  
Accrued compensation 12,872     12,556  
Current portion of long-term debt 61     3,827  
Total current liabilities 125,542     108,273  
       
Long-term debt, net of current portion 278,169     313,995  
Deferred taxes, net 9,601     6,015  
Other liabilities 10,410     10,865  
Total liabilities 423,722     439,148  
       
Preferred stock      
Common stock 300     284  
Additional paid in capital 207,326     166,997  
Accumulated other comprehensive loss (2,221 )   (1,549 )
Retained earnings 103,271     82,869  
Stockholders’ equity 308,676     248,601  
       
Total liabilities and stockholders’ equity $ 732,398     $ 687,749  
               

THE CHEFS’ WAREHOUSE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FISCAL YEARS ENDED DECEMBER 28, 2018 AND DECEMBER 29, 2017
(in thousands)
       
  December 28, 2018    
  (unaudited)   December 29, 2017
Cash flows from operating activities:      
Net income $ 20,402     $ 14,366  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 10,296     8,516  
Amortization of intangible assets 11,910     12,033  
Provision for allowance for doubtful accounts 3,790     4,061  
Deferred rent 770     285  
Deferred taxes 2,554     (703 )
Amortization of deferred financing fees 3,155     2,084  
Stock compensation 4,094     3,018  
Change in fair value of earn-outs 1,448     (579 )
Loss on asset disposal 169     10  
Changes in assets and liabilities, net of acquisitions:      
Accounts receivable (19,466 )   (13,611 )
Inventories (6,330 )   (11,783 )
Prepaid expenses and other current assets 120     4,762  
Accounts payable and accrued liabilities 13,677     10,406  
Other liabilities (911 )   (1,130 )
Other assets (596 )   (238 )
Net cash provided by operating activities 45,082     31,497  
       
Cash flows from investing activities:      
Capital expenditures (19,817 )   (12,311 )
Cash paid for acquisitions, net of cash received (13,901 )   (30,095 )
Proceeds from asset disposals 30      
Net cash used in investing activities (33,688 )   (42,406 )
       
Cash flows from financing activities:      
Proceeds from the issuance of common stock, net of issuance costs     34,020  
Payment of debt, capital lease and other financing obligations (49,360 )   (12,830 )
Net change in asset based loan facility 44,184      
Payment of deferred financing fees (1,502 )   (761 )
Cash paid for contingent earn-out obligation (3,000 )   (500 )
Surrender of shares to pay withholding taxes (764 )   (500 )
Net cash (used in) provided by financing activities (10,442 )   19,429  
       
Effect of foreign currency translation on cash and cash equivalents (46 )   122  
       
Net change in cash and cash equivalents 906     8,642  
Cash and cash equivalents at beginning of period 41,504     32,862  
Cash and cash equivalents at end of period $ 42,410     $ 41,504  
               

THE CHEFS’ WAREHOUSE, INC.
CALCULATION OF GAAP NET INCOME PER COMMON SHARE
FOR THE FISCAL QUARTERS AND YEARS ENDED DECEMBER 28, 2018 AND DECEMBER 29, 2017
(in thousands except share amounts and per share data)
       
  Fiscal Quarter Ended   Fiscal Year Ended
  December 28,   December 29,   December 28,   December 29,
  2018   2017   2018   2017
  (unaudited)   (unaudited)   (unaudited)    
Numerator:              
Net income $ 8,882     $ 9,483     $ 20,402     $ 14,366  
Add effect of dilutive securities:              
Interest on convertible notes, net of tax     134     362     536  
Net income available to common shareholders $ 8,882     $ 9,617     $ 20,764     $ 14,902  
Denominator:              
Weighted average basic common shares outstanding 29,438,806     26,436,840     28,703,265     26,118,482  
Dilutive effect of stock options and unvested common shares 389,446     131,635     270,520     68,670  
Dilutive effect of convertible notes     1,237,374     705,134     1,237,374  
Weighted average diluted common shares outstanding 29,828,252     27,805,849     29,678,919     27,424,526  
               
Net income per share:              
Basic $ 0.30     $ 0.36     $ 0.71     $ 0.55  
Diluted $ 0.30     $ 0.35     $ 0.70     $ 0.54  
                               

THE CHEFS’ WAREHOUSE, INC.
RECONCILIATION OF NET INCOME TO EBITDA AND ADJUSTED EBITDA
FOR THE FISCAL QUARTERS AND YEARS ENDED DECEMBER 28, 2018 AND DECEMBER 29, 2017
(unaudited; in thousands)
       
  Fiscal Quarter Ended   Fiscal Year Ended
  December 28,   December 29,   December 28,   December 29,
  2018   2017   2018   2017
Net income $ 8,882     $ 9,483     $ 20,402     $ 14,366  
Interest expense 5,709     5,303     20,745     22,709  
Depreciation 3,062     2,194     10,296     8,516  
Amortization 2,961     3,321     11,910     12,033  
Provision for income taxes 3,072     563     7,442     4,042  
EBITDA (1) 23,686     20,864     70,795     61,666  
               
Adjustments:              
Stock compensation (2) 1,095     635     4,094     3,018  
Duplicate rent (3)         14     86  
Integration and deal costs/third party transaction costs (4) 277     286     608     286  
Change in fair value of earn-out obligation (5) (578 )   (651 )   1,448     (579 )
Loss on asset disposal (6) 139         169     10  
One-time executive management costs (7)     915         915  
Moving expenses (8) 28         49     438  
Adjusted EBITDA (1) $ 24,647     $ 22,049     $ 77,177     $ 65,841  
                               

1.     We are presenting EBITDA and Adjusted EBITDA, which are not measurements determined in accordance with the U.S. generally accepted accounting principles, or GAAP, because we believe these measures provide additional metrics to evaluate our operations and which we believe, when considered with both our GAAP results and the reconciliation to net income, provide a more complete understanding of our business than could be obtained absent this disclosure.  We use EBITDA and Adjusted EBITDA, together with financial measures prepared in accordance with GAAP, such as revenue and cash flows from operations, to assess our historical and prospective operating performance and to enhance our understanding of our core operating performance. The use of EBITDA and Adjusted EBITDA as performance measures permits a comparative assessment of our operating performance relative to our performance based upon GAAP results while isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies.
       
2.     Represents non-cash stock compensation expense associated with awards of restricted shares of our common stock and stock options to our key employees and our independent directors.
       
3.     Represents duplicate rent expense for our Bronx, NY, Chicago, IL and Toronto, Canada distribution facilities.
       
4.     Represents transaction related costs incurred to complete and integrate acquisitions, including due diligence, legal and integration.
       
5.     Represents the non-cash change in fair value of contingent earn-out liabilities related to our acquisitions.
       
6.     Represents the non-cash charge related to the disposal of certain equipment.
       
7.     Represents costs associated with changing a member of our executive management team.
       
8.     Represents moving expenses for the consolidation of our Bronx, NY, Chicago, IL, Miami, FL and Toronto, Canada facilities.
       

THE CHEFS’ WAREHOUSE, INC.
RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME
FOR THE FISCAL QUARTERS AND YEARS ENDED DECEMBER 28, 2018 AND DECEMBER 29, 2017
(unaudited; in thousands except share amounts and per share data)
       
  Fiscal Quarter Ended   Fiscal Year Ended
  December 28,   December 29,   December 28,   December 29,
  2018   2017   2018   2017
Net income $ 8,882     $ 9,483     $ 20,402     $ 14,366  
Adjustments to reconcile net income to adjusted net income (1):              
Duplicate rent (2)         14     86  
Integration and deal costs/third party transaction costs (3) 277     286     608     286  
Moving expenses (4) 28         49     438  
Change in fair value of earn-out obligations (5) (578 )   (651 )   1,448     (579 )
One-time executive management costs (6)     915         915  
Loss on asset disposal (7) 139         169     10  
Write-off of unamortized deferred financing fees (8) 1,081         1,081      
Tax effect of adjustments (9) (253 )   (229 )   (900 )   (477 )
Tax impact of regulation change (10)     (3,573 )       (3,573 )
Total adjustments 694     (3,252 )   2,469     (2,894 )
               
Adjusted net income $ 9,576     $ 6,231     $ 22,871     $ 11,472  
               
Diluted earnings per share – Adjusted $ 0.32     $ 0.23     $ 0.78     $ 0.44  
               
Diluted shares outstanding – Adjusted 29,828,252     27,805,849     29,678,919     27,424,526  
                       

1.     We are presenting adjusted net income and adjusted earnings per share (EPS), which are not measurements determined in accordance with GAAP, because we believe these measures provide additional metrics to evaluate our operations and which we believe, when considered with both our GAAP results and the reconciliation to net income available to common stockholders, provide a more complete understanding of our business than could be obtained absent this disclosure. We use adjusted net income available to common stockholders and adjusted EPS, together with financial measures prepared in accordance with GAAP, such as revenue and cash flows from operations, to assess our historical and prospective operating performance and to enhance our understanding of our core operating performance.  The use of adjusted net income available to common stockholders and modified adjusted EPS as performance measures permits a comparative assessment of our operating performance relative to our performance based upon our GAAP results while isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies.
       
2.     Represents duplicate rent expense for our Bronx, NY, Chicago, IL and Toronto, Canada distribution facilities.
       
3.     Represents transaction related costs incurred to complete and integrate acquisitions, including due diligence, legal and integration.
       
4.     Represents moving expenses for the consolidation of our Bronx, NY, Chicago, IL, Miami, FL and Toronto, Canada facilities.
       
5.     Represents the non-cash change in fair value of contingent earn-out liabilities related to our acquisitions.
       
6.     Represents costs associated with changing a member of our executive management team.
       
7.     Represents the non-cash charge related to the disposal of certain equipment.
       
8.     Represents the write-off of unamortized deferred financing fees as a result of the repricing of our term loan during the fourth quarter of 2018.
       
9.     Represents the tax effect of items 2 through 8 above.
       
10.     Represents an income tax benefit resulting from the enactment of H.R. 1, originally known as the Tax Cuts and Jobs Act.
       

THE CHEFS’ WAREHOUSE, INC.
CALCULATION OF ADJUSTED NET INCOME PER COMMON SHARE
FOR THE FISCAL QUARTERS AND YEARS ENDED DECEMBER 28, 2018 AND DECEMBER 29, 2017
(unaudited; in thousands except share amounts and per share data)
       
  Fiscal Quarter Ended   Fiscal Year Ended
  December 28,   December 29,   December 28,   December 29,
  2018   2017   2018   2017
Numerator:              
Adjusted net income $ 9,576     $ 6,231     $ 22,871     $ 11,472  
Add effect of dilutive securities:              
Interest on convertible notes, net of tax     134     362     536  
Adjusted net income available to common shareholders $ 9,576     $ 6,365     $ 23,233     $ 12,008  
Denominator:              
Weighted average basic common shares outstanding 29,438,806     26,436,840     28,703,265     26,118,482  
Dilutive effect of stock options and unvested common shares 389,446     131,635     270,520     68,670  
Dilutive effect of convertible notes     1,237,374     705,134     1,237,374  
Weighted average diluted common shares outstanding 29,828,252     27,805,849     29,678,919     27,424,526  
               
Adjusted net income per share:              
Diluted $ 0.32     $ 0.23     $ 0.78     $ 0.44  
                               

THE CHEFS’ WAREHOUSE, INC.
RECONCILIATION OF ADJUSTED EBITDA GUIDANCE FOR FISCAL 2019
(unaudited; in thousands)
       
  Low-End   High-End
  Guidance   Guidance
Net income: $ 27,150     $ 29,950  
Provision for income tax expense 10,200     11,400  
Depreciation & amortization 24,500     24,500  
Interest expense 19,250     19,250  
EBITDA (1) 81,100     85,100  
       
Adjustments:      
Stock compensation (2) 4,500     4,500  
Change in fair value of earn-out obligation (3) 400     400  
       
Adjusted EBITDA (1) $ 86,000     $ 90,000  
               

1.     We are presenting estimated EBITDA and Adjusted EBITDA, which are not measurements determined in accordance with GAAP, because we believe these measures provide additional metrics to evaluate our currently estimated results  and which we believe, when considered with both our estimated GAAP results and the reconciliation to our estimated net income, provide a more complete understanding of our business than could be obtained absent this disclosure. We use EBITDA and Adjusted EBITDA, together with financial measures prepared in accordance with GAAP, such as revenue and cash flows from operations, to assess our historical and prospective operating performance and to enhance our understanding of our performance relative to our performance based upon GAAP results while isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies.
       
2.     Represents non-cash stock compensation expense expected to be associated with awards of restricted shares of our common stock and stock options to our key employees and our independent directors.
       
3.     Represents the non-cash change in fair value of contingent earn-out liabilities related to our acquisitions.
       

THE CHEFS’ WAREHOUSE, INC.
2019 FULLY DILUTED EPS GUIDANCE RECONCILIATION TO 2019 ADJUSTED FULLY DILUTED EPS GUIDANCE (1)(2)
       
  Low-End   High-End
  Guidance   Guidance
Net income per diluted share $ 0.90     $ 1.00  
               
Change in fair value of earn-out obligations (3)   0.01       0.01  
               
Adjusted net income per diluted share $ 0.91     $ 1.01  
               

1.     We are presenting estimated adjusted EPS, which is not a measurement determined in accordance with GAAP, because we believe this measure provides an additional metric to evaluate our currently estimated results and which we believe, when considered with both our estimated GAAP results and the reconciliation to estimated net income per diluted share, provides a more complete understanding of our expectations for our business than could be obtained absent this disclosure. We use adjusted EPS, together with financial measures prepared in accordance with GAAP, such as revenue and cash flows from operations, to assess our historical and prospective operating performance and to enhance our understanding of our core operating performance. The use of adjusted EPS as a performance measure permits a comparative assessment of our expectations regarding our estimated operating performance relative to our estimated operating performance based on our GAAP results while isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies.
       
2.     Guidance is based upon an estimated effective tax rate of 27.5% and an estimated fully diluted share count of approximately 30 million shares.
       
3.     Represents the non-cash change in fair value of contingent earn-out liabilities related to our acquisitions.

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