Chefs Warehouse Inc (CHEF) Q2 2021 Earnings Call Transcript

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Chefs Warehouse Inc (CHEF 0.75%)
Q2 2021 Earnings Call
Jul 28, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Chefs' Warehouse Second Quarter 2021 Earnings Conference Call. [Operator Instructions]

I would now like to turn this conference over to your host, Alex Aldous, General Counsel, Corporate Secretary and Chief Government Relations Officer. Please go ahead, sir. You may begin.

Alexandros Aldous -- General Counsel, Chief Government Relations Officer and Corporate Secretary

Thank you, operator. Good morning, everyone. With me on today's call are Chris Pappas, Founder, Chairman and CEO and Jim Leddy, our CFO. By now, you should have access to our second quarter 2021 earnings press release. It can also be found at www.chefswarehouse.com under the Investor Relations section. Throughout this conference call, we will be presenting non-GAAP financial measures, including among others, historical and estimated EBITDA and adjusted EBITDA as well as both historical and estimated adjusted net income and adjusted earnings per share. These measurements are not calculated in accordance with GAAP and may be calculated differently in similarly titled non-GAAP financial measures used by other companies. Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release. Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements, including statements regarding our estimated financial performance. Such forward-looking statements are not guarantee of the 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 in Form 10-K and quarterly reports in Form 10-Q, which are available on the SEC website. Today, we're going to provide a business update and go over our second quarter results in detail. Then we will open up the call for questions.

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

Christopher Pappas -- Founder, Chairman, President and Chief Executive Officer

Thank you, Alex, and thank you all for joining our second quarter 2021 earnings call. Business activity and revenue grew steadily throughout the second quarter as existing and new customer openings increased and COVID-related restrictions eased across many key markets. As the quarter progressed, our customers benefited from the growth in both indoor and outdoor dining capacities, strengthening consumer demand and the early stages of menu expansion. Thanks to our teams working tirelessly in delivering the Chefs' Warehouse premium products and service model to our customers in a very challenging environment, we exited June trending in-line with 2019 revenue inclusive of acquisitions added in 2020 and 2021. Similar to our previous reporting, I will compare sales and gross margin results of the quarter -- of the current quarter sequentially to the first quarter of 2021. Jim will provide the comparison to prior year in his comments later in this call. During the quarter, net sales increased approximately 51% versus the first quarter of 2021. Specialty sales increased approximately 48.1% sequentially versus the first quarter of 2021, with average unique customers increasing 22%, and we saw higher placements of approximately 36%. Specialty cases increased 41% versus the first quarter of 2021, while center-of-the-plate pounds sold were approximately 29.4% higher sequentially versus the first quarter of 2021, excluding the impact of acquisitions. Gross profit margins increased approximately 163 basis points compared to the first quarter of 2021. Gross margin on the specialty category increased 316 basis points as compared to the first quarter of 2021, while gross margin in the center-of-the-plate category increased 31 basis points. Jim will provide more detail on gross margin and inflation in a few minutes.

In mid-June, we completed the acquisition of Nicola Imports based in Phoenix, Arizona. The addition of Nicola contributes to our continued expansion out West by growing our presence in Arizona and giving us an entry point into Denver, Colorado, a key restaurant hospitality market that we feel will be well served by Chef's unique culture and service model going forward. On the technology and operations front, during the second quarter, we implemented several systems and process improvements targeting improved efficiency in routing and warehouse management, and we now have close to 100% of our specialty locations, utilizing mobile truck scanning. In addition, we completed a key enhancement to our cybersecurity platform during the quarter. Now to move on to an update on recent business activity. Recent sales have been trending generally in-line with 2019 sales, inclusive of the acquisitions completed in '20 and '21 to date. As July and August are typically quieter months, revenue trends remained at similar levels coming out of June and into July. While difficult to predict at this point, there are observed expectations that the return to office buildings in certain large urban markets and continued growth in travel and hospitality could lead to additional industry growth as we move into the full months. I would like to take this moment to express my sincere thanks to all Chefs' Warehouse team members across our amazing company.

The extreme nature of this comeback in customer demand as markets reopened in May and June presented an unprecedented set of challenges. Their ability to execute amid the unique dynamics in labor, supply chains, price inflation and logistics created by the pandemic-affected reopening has been a significant achievement, and we are grateful for their dedication, hard work and expertise. Our teams not only delivered our high-quality products and service, but also worked with customers to find solutions to issues created by this unique environment; whether it was finding the right substitute ingredients among our 55,000 plus products, making that last minute delivery or consulting on menu enhancement amid multiple supply chain disruptions and food inflation. I would also like to thank our customers and suppliers for their cooperation and partnerships during the challenging but exciting time.

With that, I'll turn it over to Jim to discuss more detailed financial information for the quarter and an update on our liquidity. Jim?

James F. Leddy -- Chief Financial Officer

Thank you, Chris, and good morning, everyone. I'll now provide a comparison of our current quarter operating results versus the prior year quarter and provide an update on our balance sheet and liquidity. Our net sales for the quarter ended June 25, 2021, increased approximately 111% to $423 million from $200.5 million in the second quarter of 2020. The increase in net sales was the result of an increase in organic sales of approximately 106.1% as well as the contribution of sales from acquisitions, which added approximately 4.9% to sales growth for the quarter. Net inflation was 11.5% in the second quarter, consisting of 10.6% inflation in our specialty category and inflation of 12.1% in our center-of-the-plate category versus the prior-year quarter. Gross profit increased 120.8% to $95.9 million for the second quarter of 2021 versus $43.4 million for the second quarter of 2020. Gross profit margins increased approximately 101 basis points to 22.7%. Multiple factors combined to drive gross profit margin improvement during the quarter, including product mix changes, volume-driven efficiencies and effective inventory management. We were extremely pleased with our sourcing, sales and operating teams execution within a challenging food inflation and logistics environment. Specialty inflation was driven by broad-based inflation across most specialty product lines. Inflation in the center-of-the-plate category was driven by higher pricing across most beef categories, partially offset by product mix changes associated with our Allen Brothers direct-to-consumer segment.

Total operating expense increased approximately 32.5% to $91.2 million for the second quarter of 2021, from $68.8 million for the second quarter of 2020. The primary drivers of higher operating expense were higher in transportation costs associated with higher year-over-year volume growth and route expansion. Total operating expense is inclusive of a onetime benefit of approximately $1.4 million associated with the Employee Retention Tax Credit as part of the American CARES Act. This credit has been added back to our presentation of adjusted EBITDA for the quarter. As a percentage of net sales, adjusted operating expenses were 18.6% for the second quarter of 2021, compared to 28.5% for the second quarter of 2020. Operating income for the second quarter of 2021 was $4.7 million, compared to operating loss of $25.4 million for the second quarter of 2020. The increase in operating income was driven primarily by higher gross profit, partially offset by higher operating cost. Income tax benefit was $0.8 million for the second quarter of 2021, compared to $10.8 million for the second quarter of 2020. Our GAAP net income was $1.1 million or $0.03 income per diluted share for the second quarter of 2021, compared to a net loss of $20.3 million or $0.62 loss per diluted share for the second quarter of 2020. On a non-GAAP basis, we had positive adjusted EBITDA of $17.2 million for the second quarter of 2021, compared to negative adjusted EBITDA of $13.7 million for the prior year second quarter. Adjusted net income was $1.5 million or $0.04 income per diluted share for the second quarter of 2021, compared to adjusted net loss of $18.7 million or $0.57 loss per diluted share for the prior year second quarter.

Turning to the balance sheet and an update on our liquidity. As of June 25, 2021, we had total liquidity of $247.7 million, comprised of $146.9 million in cash and $100.8 million of availability under our ABL facility. Net debt as of June 25, 2021, was approximately $254.5 million, inclusive of all cash and cash equivalents. At this time, due to continued uncertainty regarding the pace of broader economic recovery and the timing of events and travel-related business activity, we will not be providing guidance for 2021. We hope to provide more color as we gain more clarity on the pace of recovery, outlook and the broader post pandemic-related environment.

Thank you. And at this point, we will open it up to questions. Operator?

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Alex Slagle with Jefferies to may proceed with your question.

Alex Slagle -- Jefferies -- Analyst

Great thank you good morning everyone congrats, great quarter. Maybe you could just provide some more color on how this quick ramp in demand played out, and how you're able to capture so much. I know it's been a challenge hiring enough drivers and staff to raise the service levels, which I imagine possibly also provide even more flow through on margins. If you could touch on that dynamic also.

James F. Leddy -- Chief Financial Officer

Yeah sure. So the cadence in the quarter was a little surprising. I mean, the big cities that had been a lag for us earlier in the year and then all through COVID, San Francisco, Chicago and New York, they all started to open really in mid to late May. And so we really started to see -- as we reported coming out of April, we were just shy of 80% of 2019. We really saw the ramp really happened in late May, and then June was kind of explosive as New York and the metro areas around the big cities really started to open. We had already seen good business activity in -- earlier in the quarter through the states that were pretty much already opened. So that was a big driver. And regarding labor, it continues to be a challenge. But as we stated in our prepared comments, our teams really came together and executed, delivered our product and our service model to our customers, and we were able to start to build the business back to 2019 levels.

Alex Slagle -- Jefferies -- Analyst

Got it. So as we think about the recent sales level and the uptick, how much of it do you think was due to the spur of openings and pantry loading and the unusually strong period of celebrations and everything going on in May and June? Just trying to get a sense for what the underlying run rate trend would be as we look out to the 3Q and 4Q. I know there's a lot of moving parts, but any color there would be helpful.

James F. Leddy -- Chief Financial Officer

Sure. So as we mentioned, recent business activity is very similar to what we saw coming out of June. We haven't -- obviously, the second part of Q2 is always a little less busy just seasonally than May and June. So it's -- I'm sorry, the early part of Q3, I should say. So we haven't seen a significant change in our numbers as we've come into the more quieter season. So we're not providing guidance for the rest of the year. But right now, we haven't seen a significant change.

Christopher Pappas -- Founder, Chairman, President and Chief Executive Officer

Yeah. And we got to keep reminding ourselves, we still -- I mean, we're back to these numbers where I think it's a little better than we expected. We knew the pent-up demand was there, but we still don't have any major events. We still don't have tourists. We still don't have real business travel. So if I had to look in a crystal ball, I would say that any of that comes back, OK, you have a tremendous fourth quarter. If it comes back partially, you still have a really good quarter. And if it just continues as is, it's just the money, the money is changing where it's being spent. So we're still -- obviously, Midtown Manhattan is still not back, downtown San Francisco is not back. Chicago isn't bursting at the seam. So the spending at our customers is really just continuing to be in a lot of the suburbs, a lot of the downtowns of say, New York City, downtown and uptown. People want to go out, and people are getting together. I think they're being careful. We have all sorts of outdoor dining venues now that have been added to traditional restaurants that never had it. So we continue to see the spend, the demand and we can only be optimistic as we get through this, it could be a little bumpy in the next month or two. But we think, again, going into '22, all that built up convention, business and conferences and business travel starts to come back, you can't help but get really optimistic.

Alex Slagle -- Jefferies -- Analyst

Congrats help your team get indication thanks

James F. Leddy -- Chief Financial Officer

Thanks alex

Operator

[Operator Instructions] Our next question comes from the line of Kelly Bania with BMO Capital Markets. may reserve your questions.

Kelly Bania -- BMO Capital Markets -- Analyst

Hi good morning thanks for taking our questions. good morning wondering if you could just unpack the sales for us a little bit. Just really curious what's maybe sales per customer looks compared to 2019. How much of contribution is coming from new customers? Just trying to get a gauge of market share gains here or just how you're thinking about that outside of the M&A activity.

Christopher Pappas -- Founder, Chairman, President and Chief Executive Officer

Sure. Again, Kelly, it's coming from new customers. It's coming from market share. I think that our extra efforts to supply service -- obviously, we don't have full employment among the ranks. We're not running all our trucks. And I'm sure we are disappointing some customers, but I think that our decision that we need to keep the company together rather than just do tons and tons of more layoffs and try to crank up the numbers -- even though the numbers are good, I think the extra effort in offering service that customers are used to as much as possible, obviously, we're still short handed, allowed us to take market share.

We have thousands of new customers during the pandemic, which I was so pleasantly surprised. We continue to see tons of new leases being signed. So I would say restaurateurs open restaurants, right? So they're not going to let a -- an opportunity like this to grab prime locations pass by, and we're starting to see more and more credit applications for key real estate. And there's just a lot of demand. People -- as I kind of predict we're going to get tired of cooking, I did. My wife stole my pans and my knives and said we're going out after so many months of cooking.

So I think it just continues to build. America loves to go out and dine, and I think that's what we're seeing. And we're nowhere near out of this and where we have vibrant midtowns of all our cities. But as you can see, the restaurants are starting to really thrive. They're short handed, I mean nothing is easy right now, but the demand is there.

James F. Leddy -- Chief Financial Officer

And Kelly, I would just add that while we don't disclose that level of detail, we are approaching -- we measure the average weekly customers that are actively buying. We are very close to approaching our 2019 levels. And so that's encouraging.

Kelly Bania -- BMO Capital Markets -- Analyst

Okay. That's very helpful. And then also just thinking about gross margin here. It looks like it's about 300 basis points below 2019 levels in this quarter that year. Just curious if you can talk about the factors that need to happen to get that back to normal, if you think that's possible. It maybe looks like it's largely just some more pressure in the center-of-plate area. Just curious if that's accurate. How much of that is just inflation or other factors that could get us back to 2019 gross margin levels?

James F. Leddy -- Chief Financial Officer

Well, I think what you're comparing are not apples-to-apples. So as you recall, we adjusted our processing cost, and we moved them from opex into gross profit per the SEC, and we did that earlier in the year. So actually, when you look on the apples-to-apples basis, because that's about 150 to 170 basis points adjustment. Our prior gross profit margins were between 25% and 25.5%. You really have to rebaseline that to 23.5% to 24%, when you're comparing gross profit now to then. So we're really maybe 50 to 70 basis points below what you compare on an apples-to-apples basis. And really, the difference there is just coming back to our normal volumes, some of the revenue performance right now is price. And so we're not back to 100% of volume. We're getting close. And some of it is the efficiencies that come with buying on volume. Some of it is managing the inflation volatility right now.

I think we're extremely happy with our team's ability to improve sequential gross profit margin as inflation exploded from Q1 into Q2. I mean we went from mid-single digits to double-digit inflation, and we drove significant gross profit margin improvement. Really, that was not only managing price that was better buying, that was better inventory management, really across all of our teams in the company. So as we continue to build volume back, that will move back toward normal.

Kelly Bania -- BMO Capital Markets -- Analyst

Great. And maybe early to ask this question, but just curious, anything you're seeing in the business, whether it be wages or other factors that make you think about eventually, at some point, returning to those pre-COVID margins and even maybe your longer-term margin goals closer to 7%?

Christopher Pappas -- Founder, Chairman, President and Chief Executive Officer

Yeah. I mean, it's just so hard to predict the total future, Kelly, but I think the pivot has been, how do you do more with less, and our team has done an unbelievable job of doing that. I mean, it's not easy. There's too many people working six and seven and 20 hours a day, and we don't want that. We don't think it's healthy, it's burn out. But we have learned a lot. And we've learned that we can do more with less. I always say nature finds a way, and it's the -- necessity is the mother of invention, couldn't be truer of what we've had to do and continue to do. So by being more efficient in asking our customers to cooperate, I don't mind this model going forward, actually prefer it. But the market will dictate if we're going to have to add more service, and we're going to see where it goes. We're a high-touch service model with a long tail in items, but we've kind of shortened it all up for COVID for many, many reasons, and it's a very profitable model.

Kelly Bania -- BMO Capital Markets -- Analyst

Thanks for much.

Christopher Pappas -- Founder, Chairman, President and Chief Executive Officer

Thank you.

Operator

[Operator Instructions]Our next question comes from the line of Ben Klieve with National Securities Corporation. you may proceed with your question.

Ben Klieve -- National Securities Corporation -- Analyst

Thank you this is Ben Klieve now with Lake Street Capital markets. Thanks for taking my question. got a couple questions here. First, around inflation. Curious what if anything you can provide about how inflation was really absorbed throughout the supply chain. I mean, were you guys -- did you guys see the ability to pass costs on? Were your customers able to pass those onto the diners? And really, how quickly was the pricing model able to adapt to inflation as it came throughout the quarter?

James F. Leddy -- Chief Financial Officer

Yeah. Thanks for the question, Ben. Yes, I think just like a lot of industries, we've observed pricing power throughout the value chain, from the manufacturers to the distributors, to our customers, to the -- through to the end consumers that are accepting it right now. I think when you look at inflation, it looks so pronounced versus Q2 of 2020, but the baseline effect is a big part of that. When you compare food inflation, at least in our categories, to 2019, it is -- it's less pronounced. It's still double what is a normal for our market, which is somewhere between 1% and 3% in normal times, but it is less pronounced. So some of that is the baseline effect that will fall away as you move further away from comping to 2020. We -- we're still seeing volatility, especially in center-of-the-plate, although we're starting to see some easing in a number of the center-of-the-plate categories and that's some encouraging signs. Freight remains elevated. And that's a big part of product cost. So while freight remains elevated, we expect pricing to remain elevated, especially in imported products. But once again, I'd go back to -- there's a lot of pricing power in the market right now, really throughout the value chain. And until the end consumer stops accepting it, we expect it will continue for a little bit here.

Ben Klieve -- National Securities Corporation -- Analyst

Got it. That's helpful. Jim, Jim another question probably directed to you, regarding cash flow and inventory build. With how dramatic the ramp was in the quarter, the obvious need to refill your pantry, where did you guys stand at the end of the quarter regarding inventory levels? How -- I don't know, it's difficult to forecast out the next couple of quarters, but do you think you guys are at a normalized run rate now for inventory levels? Or do you think you're going to need to ramp that spend up still here in the second half of the year?

James F. Leddy -- Chief Financial Officer

Well, we have a really strong cash position. Our cash flow during the quarter was really some capex on our building build-outs in Florida and LA. We spent some money on acquisitions, and then we invested in working capital. Our team has done an amazing job of managing working capital, everything from bringing our DSOs down and really effectively managing inventory. So we have a significant cash position. We can easily fund additional working capital investment. I think the bulk of it happened pretty quickly, but there'll be some additional investment or some additional capex. But as we reported, we have $250 million of accessible liquidity between cash and availability on our revolver. So we're not really concerned about that. We're looking forward to putting that capital to work to generate the ongoing returns for the business going forward.

Ben Klieve -- National Securities Corporation -- Analyst

Yes. Duly noted that certainly, liquidity is not an issue right now. But that was helpful color. I didn't hear much about the Texas ramp up. Can you elaborate on where you stand there, both in terms of investments and converting those investments to business?

Christopher Pappas -- Founder, Chairman, President and Chief Executive Officer

Was the question about Texas's ramp up?

James F. Leddy -- Chief Financial Officer

Yeah I mean Chris can comment as well. We made the Texas investment pre-COVID. Obviously, COVID has delayed that. But actually, we're very pleased. Our Texas business has moved toward breakeven faster than we expected. Some of that is the team there, really starting to build the business. Some of it is Texas being a COVID state that opened very early. So we're pleased with our progress there. I mean, we'd obviously like to do some acquisitions eventually. We haven't gotten there yet, but -- Chris, I don't know if you have anything you want to add about Texas.

Christopher Pappas -- Founder, Chairman, President and Chief Executive Officer

Well, again, Texas is -- it's an investment in the future. We're continuing to hire salespeople. We've -- we're looking at multiple opportunities in Houston, and you have Dallas, San Antonio, Austin. So it's pretty spread out. I actually just came back spending a little bit of time on the West Coast and in Texas to see what our up and coming opportunities. I still think Texas will be a top three market for Chefs'. So we're basically in the first inning at this point, but extremely excited of what we're seeing and what the team is doing and the new people that are joining us.

Ben Klieve -- National Securities Corporation -- Analyst

Perfect. Very helpful. Thank you both for taking my question Congratulations on a good quarter. and ill get back into you here.

Christopher Pappas -- Founder, Chairman, President and Chief Executive Officer

Thanks.

James F. Leddy -- Chief Financial Officer

Thanks, Ben.

Operator

[Operator Instructions] Our next question comes from the line of Todd Brooks with C.L. King & Associates. You may proceed with your question.

Todd Brooks -- C.L. King & Associates -- Analyst

Hey good morning gentlemen what a difference a year makes huh? a couple quick questions for you you talked about the natural July, August slowdown, where you're still -- with the acquisition still running at kind of 100% of fiscal '19. But if we think about this seasonal slowdown before what could be a fall spike with back to work, back to travel again, what's this digestion period look like? Chris, you had a couple of interviews during the quarter just outlining the extreme measures that you guys were having to undertake to maintain service levels. Are we digesting the spike in demand that we've seen now? Could you just qualitatively talk about the organization and what you've been able to do so that maybe we're a little bit better matched to demand trends going into the fall?

Christopher Pappas -- Founder, Chairman, President and Chief Executive Officer

Yeah. Well, it's still a big headwind, labor in the warehouse and qualified drivers. So there was more demand than we could meet. So I always hate to turn down some business. But we had to have the discipline to say we're going to service our best customers, like any other business, right? You're going to say, these are the people that we have the best relationships, that are loyal before COVID and after COVID. And customers that maybe just want an interim supplier, they're going to go back to where they were buying from before because we could service them, but their regular suppliers can't. Those people kind of fall to the back of the line. Pure capitalism, right? You're going to try to service the people that are going to be your customers of the future. So the demand is there. Now it's every day we're hiring, every day it's -- I sent out a memo this morning. It's like, "Train, but make sure you retain because it costs money to train." And it's not an easy market, and we want the best people in the industry to work for us because our customers expect the service levels, and we go down basements in the big cities and we go upstairs, and they're difficult deliveries in our major cities. So it's hard work. It was a hard job. It was hard to find these kind of people with the work ethic and ability to do those jobs before the pandemic. So the pandemic actual -- obviously made it harder, but we got great leaders, they continue to recruit. And as you could see the numbers, they're executing, obviously, we want to get better. And I think we do get better every day, but I just think the opportunity right now for our growth and take advantage of M&A and take market share has never been greater.

James F. Leddy -- Chief Financial Officer

And Todd, I'll just add that as we talk to our operators on a weekly or even daily basis, while it's still challenging, there are initial green shoots around some easing in certain markets around finding frontline workers. So there is a little bit of positivity out there. And I would just add that we're doing everything that we had started before the pandemic in terms of consolidating routes, we're building new buildings where we're making investments in consolidating our operations and providing a lot of technology-based tools to our operators and our sales force and our customers to drive efficiency through the entire value chain that Chefs' works in. So it's not like we're not doing anything against it to offset it. It's an ongoing process.

Todd Brooks -- C.L. King & Associates -- Analyst

Very helpful. Second question, you talked about some early evidence of menus broadening out again. Can we just talk about how early we are in that process? I know at the restaurant level, a lot of the operators are labor constrained, too, especially in back of house, which may make it harder to do. But where do you see -- where are we in that process of the benefit of broader menus and what that does to case counts?

Christopher Pappas -- Founder, Chairman, President and Chief Executive Officer

Yeah. I mean, we're getting really close to normal, which is amazing. We're not there yet because, obviously, all the banquets are not back, and that's a tremendous amount of SKUs. You still don't have the labor, obviously, in the restaurant industries. But -- so there's still so much upside for us. Some of our most profitable categories like pastry and all that are still way below category sales in a normal time. But I can't complain, Todd. It's amazing to see the creativity at the restaurant. Like I always say, restaurateurs, they multitask. They have to have a bit of expertise in finance and people management as well as being really creative at putting out food. And it's a competitive field. As more and more restaurants open, people like myself that dine out every day, you want variety. And I'm starting to see it. I'm starting to see more and more things on the menu because many people eat in the same restaurants weekly. So you got to keep it interesting. And I think that's why we're seeing it, and that's why we're almost back to lines per customer of 2019. I think that's really -- the only reason it's not back to where it is, is because our very large customers are not back yet.

Todd Brooks -- C.L. King & Associates -- Analyst

Okay. Great. And a final question. You along this whole process, have kind of shared a goal for what you were hoping the exit rate for fiscal '21 would be entering fiscal '22. And obviously, we're all surprised by the -- how robust the revenue recovery was in this quarter. Just wondering if it's changed your thoughts. I think previously, you've talked about an 85% to 90% of 2019 pro forma for the acquisitions as a targeted exit rate. But where is the thinking now for what we should look like coming out of the back end of the year?

James F. Leddy -- Chief Financial Officer

You know Todd you know I hesitate to change our kind of conservatism that in this environment, you want to under-promise and over deliver, certainly versus the reverse. I think we are -- we're quite pleased. But once again, we're not back to 100% in terms of volume. We are getting there. We believe we're on the path. But look, I think we are -- we still feel that we'll come out of this as a more efficient company operator and continue to get back to the path that we had communicated that we will -- we'll come out of the year at a run rate, very similar adjusted EBITDA margin range as we were prior to the pandemic. We've done a couple of acquisitions since then. So have to model that in. But we don't want to go out and make a bold declarative statement at this point, given that there's a couple of variables out there that could still impact business going forward.

Todd Brooks -- C.L. King & Associates -- Analyst

Thats fair enough. Continued success across the third quarter

James F. Leddy -- Chief Financial Officer

Thank you todd.

Operator

[Operator Instructions] Ladies and gentlemen we have reached the end of todays question and answer session I would like to turn this call back over to Mr. Chris Pappas for closing remarks.

Christopher Pappas -- Founder, Chairman, President and Chief Executive Officer

Sure. Well, we thank everybody for joining us this morning. you know where we couldn't be prouder of the job our team has done in such a challenging time. And it's just been amazing to watch them perform and execute, and we expect them to do even greater things in the future. And we look forward to everybody joining us on our next earnings call. Thank you very much.

Operator

[Operator Closing Remarks]

Duration: 41 minutes

Call participants:

Alexandros Aldous -- General Counsel, Chief Government Relations Officer and Corporate Secretary

Christopher Pappas -- Founder, Chairman, President and Chief Executive Officer

James F. Leddy -- Chief Financial Officer

Alex Slagle -- Jefferies -- Analyst

Kelly Bania -- BMO Capital Markets -- Analyst

Ben Klieve -- National Securities Corporation -- Analyst

Todd Brooks -- C.L. King & Associates -- Analyst

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