Q3 2020 Earnings Call

May 6, 2020

Operator: 2020 Earnings Conference Call. If you would like to ask a question at the conclusion of the prepared remarks, please press the star key followed by 1 on your telephone keypad at any time. I would now turn the call over to Bill Marshall, Vice President, Investor Relations for PFG. Please go ahead, sir.

He doesn't 20 earnings conference call.

If he would like to ask your question at the conclusion of their prepared remarks. Please press the star key followed by the number one on your telephone keypad at any time.

I would now during the quarter to Bill Marshall Vice President Investor Relations for PMT. Please go ahead Sir.

Thank you Brenda and good morning, we're here with George home, PFT, CEO and Jim Ho PFT CFO, we issued a press release regarding our 2020 fiscal third quarter and nine months' results. This morning. The results discussed in this call include GAAP and non-GAAP results adjusted for certain items, a reconciliation of these non-GAAP measure.

Bill Marshall: Thank you, Brandy, good morning. We're here with George Holm, PFG's CEO, and James Hope, PFG's CFO. We issued a press release regarding our 2020 fiscal Q3 and 9-month results this morning. The results discussed in this call will include GAAP and non-GAAP results, adjusted for certain items. The reconciliation of these non-GAAP measures to the corresponding GAAP measures can be found at the back of the earnings release. You can find our earnings release in the Investor Relations section of our website at pfgc.com. Our remarks in the earnings release contain forward-looking statements and projections of future results. Please review the Cautionary Forward-Looking Statements section in today's earnings release and our SEC filings for various factors that could cause our actual results to differ materially from our forward-looking statements and projections. Now, I'd like to turn the call over to George.

As to the corresponding GAAP measures can be found at the back of the earnings release.

You can find our earnings release in the Investor Relations section of our web site at PBF GE Si Dot com our remarks in the earnings release contain forward looking statements and projections of future results.

Please review the cautionary forward looking statements section in today's earnings release, and our SEC filings for various factors that could cause our actual results to differ materially from our forward looking statements and projections now I'd like to turn the call over to George Thanks, Bill Good morning, everyone and thank you for joining our call today.

George Holm: Thanks, Bill. Good morning, everyone, thank you for joining our call today. As the world continues to grapple with the COVID-19 pandemic, we have been working hard to protect PFG's associates and business. Before I discuss our business results and actions we have taken over the past several months, I would like to offer a heartfelt thank you to all our associates in the PFG organization who have worked tirelessly to keep our nation's food supply chain up and running. These associates are on the front lines of keeping Americans fed, and their contribution has not gone unnoticed. Like many other organizations across the world, we have taken steps to keep our associates safe and healthy and appreciate all the support we have received over the past several months. The restaurant industry, which is our primary customer channel, is experiencing significant disruption to their business model.

As the World continues to grapple with the coated 19 pandemic, we've been working hard to protect Pfcs associates, who business.

Before I discuss our business results and actions we've taken over the past several months I would like to offer a heartfelt. Thank you to all our associates in the PFT organization would have worked tirelessly to keep our nation's food supply chain up and running.

These associates on the front lines of keeping Americans fed and their contribution has not gone unnoticed like many other organizations across the world we've taken steps to keep our associates safe and healthy. It appreciate all the support we have received over the past several months.

The restaurant industry, which is our primary customer channel is experiencing significant disruption to their business model. Many have had to close their doors for pivot to takeout and delivery PFT stand side by side with our customers, who will do whatever we can to help them weather the storm.

George Holm: Many have had to close their doors or pivot to takeout and delivery. PFG stands side by side with our customers, and we'll do whatever we can to help them weather this storm. We have also added new partnerships to keep the supply of groceries flowing to the communities we serve. We are proud of how our organization has adapted to this new landscape by sharing workers and drivers. We have also begun selling our inventory of products directly to the grocery channel, adding business that was not part of the PFG platform just a few weeks ago. The effort to sort through the logistics and the challenges to make this a reality has been impressive, and I'm pleased with our progress. At this point, our grocery channel revenue is certainly not material, but it is encouraging to see that we are building important relationships in the grocery industry.

We've also added new partnerships to keep the supply of groceries flowing to the communities we serve.

We are proud of our organization has adapted to this new landscape by sharing workers and drivers.

We've also begun selling our inventory of products directly to the grocery channel.

Adding business that was not part of the PFC platform, just a few weeks ago.

The effort to sort to logistics.

And the challenges to make this a reality has been impressive and I'm pleased with our progress at this point our grocery channel revenue is certainly not material, but it is encouraging to see that we are building important relationships in the grocery industry.

George Holm: Through this effort, we have signed agreements with 25 retail partners and shipped groceries to approximately 1,275 new locations. We are also engaging our workforce and assets in new and exciting ways that were not available to us just a few weeks ago. Looking at our business results, we had a strong start to our fiscal Q3. In fact, through the first two months of the calendar year, our business was tracking in line with our expectations with solid independent case growth and profit contribution. As the quarter came to a close, the final two weeks of March began to quickly deteriorate as stay-at-home orders spread across the country. Importantly, our company moved quickly and decisively to protect our associates, help our customers, and put our business in the best financial position possible.

Through this effort, we have signed agreements with 25 retail partners and ship groceries to approximately 1275 new locations.

We're also engaging our workforce and assets in new and exciting ways that were not available to us just a few weeks ago.

Looking at our business results, we had a strong start to our fiscal third quarter in fact through the first two months of the calendar year, our business was tracking in line with our expectations with solid independent case growth and profit contribution.

But as the quarter came to a close the final two weeks of March began to quickly deteriorate as stay at home orders spread across the country.

Importantly, our company moved quickly and decisively to protect our associates help our customers and put our business in the best financial position possible.

Im pleased to say that despite the significant disruption being experienced across the world Woolfolk, we feel confident.

George Holm: I am pleased to say that despite the significant disruption being experienced across the world, we feel confident that we will come through this period stronger in many ways. I'm also proud that our sales force continued to add new accounts through this period of time. Our integration of Reinhart, despite the external challenges, also continues to be on track. The similarities between our legacy food service business and Reinhart have made the integration smooth, and I'm pleased to see the two organizations working well together. Given recent events, we have accelerated several of the Reinhart synergy activities we had originally planned. We're also proud of the work being done at Vistar. We anticipate the challenges in the theater and concessions business to continue for the foreseeable future.

That we will come through this period stronger in many ways I'm also proud that our Salesforce continued to add new accounts through this period of time.

Our integration of Reinhart. Despite external challenges also continues to be on track.

Similarities between our legacy foodservice business.

And Reinhart have made the integration smooth and I'm pleased to see the two organizations working well together.

Given recent events, we have accelerated several other reinhard synergy activities, we had originally planned.

We're also proud of the work being done at Vistar.

We anticipate the challenges in the theater in concessions business to continue for the foreseeable future.

Theater and important channel.

George Holm: Theater, an important channel to both Vistar and to PFG, represents about 15% of total Vistar sales, excluding Eby-Brown, or 6% of Vistar and Eby-Brown combined. Theater was just 2% of PFG's total sales for the first 9 months of the year. With that said, we are pleased with several other channels that have proven resilient. In particular, the convenience store channel, resulting from the Eby-Brown acquisition, continues to pay dividends for PFG as a relative bright spot in our portfolio. As consumers look to minimize retail trips, we would expect the relative outperformance to continue. While smaller from a contribution standpoint, the value store and correction channels have also performed in recent weeks.

To both Vistar end to PFT.

Represents about 15% of total vistar sales, excluding ETB brown or 6% of Vistar and you'd be Brown combined theater was just 2% of PMFG total sales for the first nine months of the year with that said we are pleased with several other channels that have proven resilient in.

Particular, the convenience store channel, resulting from the Brown acquisition continues to pay dividends for PMT is a relative bright spot in our portfolio.

As consumers love to minimize retail trips, we would expect the relative outperformance to continue while smaller from a contribution standpoint the value storing correction channels have also performed in recent weeks.

George Holm: We recognize that our Q3 results only provide a partial view of our industry and business trends and what that suggests for the weeks, months, and even quarters ahead. We, like nearly every company, are managing our business through this period, acknowledging the high degree of uncertainty that lies ahead. Still, we have started to see some early indications that the market has settled into a relatively stable pattern that could represent industry dynamics over the next few months. In particular, after 50% sales declines for the last week of March or our fiscal week 39, calendar week 13, our performance in the restaurant channel has improved sequentially each week as we've moved through April. Directionally, the larger quick service chains have outperformed with those that are set up for delivery and takeout in the best position. Full-service restaurants continue to be the hardest hit during this period.

We recognize that our third quarter results only provide a partial view of our industry and business trends and with that suggest for the weeks months and even quarters ahead.

We like nearly every company or managing our business through this period acknowledging the high degree of uncertainty that lies ahead.

Still we have started to see some early indications.

At the market has settled into a relatively stable pattern that could represent industry dynamics over the next few months.

In particular after 50% sales declines for the last week of March our fiscal week 39.

Calendar week 13, our performance in the restaurant channel has improved sequentially.

Each week as we move through April Directionally. The larger quick service chains have outperformed with those that are set up for delivery and take out in the best position full service restaurants continue to be the hardest hit during this period.

George Holm: We have also taken several steps to fortify our balance sheet, including successful capital raises in both the equity and fixed income markets. With a strong balance sheet, we are confident turning our attention to the needs of the business and our customers, and strengthening our market position. Our strong balance sheet, coupled with our customer-focused sales force, should provide market share opportunities in the months ahead. Jim will provide more details on our financial activities in a moment. Each quarter during these calls, we like to highlight one associate who goes above and beyond to serve our customers and colleagues. This quarter, it's impossible to recognize just one person. I'm very proud of how our entire team has embraced PFG's role in keeping our country's food supply chain strong. Thanks to our talented sales associates who have continued to be engaged with their customers.

We've also taken several steps to fortify our balance sheet, including successful capital raises in both the equity and fixed income markets with a strong balance sheet. We are confident turning our attention to the needs of the business.

And our customers and strengthen our market position, our strong balance sheet, coupled with our customer focused sales force should provide market share opportunities in the months ahead, Jim will provide more details in our financial activities in a moment.

Each quarter. During this calls we like to highlight one associated goes above and beyond to serve our customers and colleagues.

This quarter, it's impossible to recognize just one person I'm very proud of our entire team has embraced PFT his role and keeping our country's food supply chain strong.

Thanks to our talented sales associates with continued to be engage with their customers.

I want to especially thank our hardworking warehouse associates and professional drivers on site and on the road.

George Holm: I want to especially thank our hardworking warehouse associates and professional drivers on-site and on the road. I want to thank them for answering our call to temporarily help our businesses, meeting increased demand, and keeping those shelves stocked. Thanks for your willingness to work while others were sheltered safely in place. Thanks to the generous spirit of our associates and operating companies, we are proudly helping those in need by using our resources to get food to families in hard hit areas like New York, and to support those on the front lines and other vulnerable populations. We're also partnering with experts to help our customers adapt their businesses and manage through their challenges, from promoting takeout, delivery, and a website, ShowMeTheEats.com, to help families easily find which of their favorite local restaurants are open.

I want to thank them for answering our call to temporarily help our businesses meeting increased demand and keeping those shell stocked. Thanks for your willingness to work while others were sheltered safely in place. Thanks to the generous spirit of our associates and operating companies. We are proudly, helping those in need by using our resource to get food to family.

It's in hard areas like New York and support those in the front lines in other vulnerable populations.

We're also partnering with experts to help our customers adapt their businesses and manage through their challenges on promoting takeout delivery and to website show me to eat stock comp to help families easily find which of their favorite local restaurants are open.

George Holm: These are just a few of the many examples of how associates are helping others during the unprecedented time. I'm grateful for the care, concern, and creativity our team is delivering. Right now, PFG associates are more than helping hands, they're heroes, and I'm honored to be part of this team. With that, I'm going to turn things over to Jim, who will give you more detail on our Q3 and financial position.

These are just a few of the many examples of how associates are helping others during the unprecedented time.

Im grateful for the care concern and creativity. Our team is delivering right now PFT associates are more than helping hands, there heroes and I'm honored to be part of this team with that I'm going to turn things over to Jim who will give you more detail on our third quarter and financial positions. Thank you George and good morning, everyone.

Jim Hope: Thank you, George, and good morning, everyone. As George mentioned, PFG has taken decisive steps to fortify our financial position, adjust our business to the realities of the current environment, and utilize our assets to weather the current pandemic impacting businesses across the world. Before I review some of our Q3 financial highlights, I'd like to discuss our current financial position, liquidity, and expectations for the months and quarters ahead. We took quick action to improve our balance sheet position over the past several weeks. These actions built upon an already strong financial position ahead of the COVID-19 pandemic, as our business results through the middle of March were tracking well within our expectations. However, given the uncertain depth and duration of the current economic reality, we thought it was prudent to protect our company against a downturn that persists longer than any of us would like.

As George mentioned PSG has taken decisive steps to fortify our financial position.

Adjust our business to the realities of the current environment and utilize our assets to whether the current pandemic impacting businesses across the world.

Before I review some of our third quarter financial highlights I'd like to discuss our current financial position liquidity and expectations for the months and quarters ahead.

We took quick action to improve our balance sheet position over the past several weeks.

These actions built upon an already strong financial position ahead of the covert 19 pandemic as our business results through the middle of March were tracking well within our expectations.

However, given the uncertain depth and duration of the current economic reality, we thought it was prudent to protect our company against the downturn that persists longer than any of us would like.

To that end, we took a past that included a mix of equity and debt instruments to maximize our capital structure. We did this enforced specific actions.

Jim Hope: To that end, we took a path that included a mix of equity and debt instruments to maximize our capital structure. We did this in four specific actions. First, we drew $400 million from our $3 billion credit facility and put that money to cash on the balance sheet. This was done prior to the close of our fiscal quarter and is reflected in the cash balance we reported today. This left about $849 million of availability on our credit facility as of 28 March 2020. Second, we accessed the equity markets, issuing over 15 million new shares for gross proceeds of $349 million before underwriter discounts and fees. Third, we issued $275 million of new debt, structured as 5-year bonds at a rate of 6.875%.

First we drew 400 million from our 3 billion credit facility and put that money to cash on the balance sheet.

This was done prior to the close of our fiscal quarter and is reflected in the cash balance. We reported today. This left about 849 million of availability on our credit facility as of March 28 2020.

Second we accessed the equity markets issuing over 15 million new shares for gross proceeds of 349 million before underwriter discounts and fees.

Third we issued 275 million of new debt structured as five year bonds at a rate of 6.875%.

And finally, we agreed to a 364 day term loan was several lending institutions raising an additional 110 million.

Jim Hope: Finally, we agreed to a 364-day term loan with several lending institutions, raising an additional $110 million. We have also managed our working capital closely to align with our business, with the market environment, we have worked to lower inventory levels, which is a cash-generative process. While there are many unknowns, including the pace of collecting receivables, after taking all of these actions, we believe we will have ample liquidity for the foreseeable future. Turning to our fiscal Q3 results, our business was strong through mid-March before being significantly impacted by the shelter-in-place orders that swept across the country. Still, due to the Eby-Brown and Reinhart acquisitions, our reported case volume, net sales, and gross profit all increased double-digits during the quarter.

We have also managed our working capital closely to align with our business.

With our with the market environment, and we have worked to lower inventory levels, which is a cash generative process.

While there are many unknowns, including the pace of collecting receivables after taking all of these actions. We believe we will have ample liquidity for the foreseeable future.

Turning to our fiscal third quarter results. Our business was strong through mid March before being significantly impacted by the shelter in place orders that swept across the country.

Still due to the Brown and Reinhart acquisitions, our reported case volume net sales and gross profit all increased double digits during the quarter.

Total case volume increased 26.4% for the third quarter compared to the prior year period underlying organic case volume declined 7.2% in the third quarter.

Jim Hope: Total case volume increased 26.4% for Q3 compared to the prior year period. Underlying organic case volume declined 7.2% in Q3. Net sales for Q3 of fiscal 2020 improved 49.3% compared to the prior year period to $7 billion. The increase in net sales was primarily attributable to Eby-Brown and Reinhart Foodservice, as well as sales growth in Vistar, particularly in the corrections, retail, and hospitality channels. The acquisition of Eby-Brown contributed approximately $1.2 billion to net sales for the quarter, including $257 million related to tobacco excise taxes. Reinhart Foodservice contributed approximately $1.4 billion to net sales in the quarter. The increase in net sales was also due to higher selling price per case as a result of inflation and mix.

Net sales for the third quarter of fiscal 2020 improved 49.3% compared to the prior year period to 7 billion.

The increase in net sales was primarily attributable to Avi Brown and reinhart as well as sales growth in vistar, particularly in the corrections retail and hospitality channels.

The acquisition to be around contributed approximately 1.2 billion that net sales for the quarter, including 257 million related to tobacco excise taxes.

Brian Art contributed approximately 1.4 billion to net sales in the quarter.

The increase in net sales was also due to higher selling price per case as a result of inflation and mix.

Jim Hope: Overall, food cost inflation was approximately 2.5% in Q3, driven by inflation in cheese, and to a lesser extent, produce and meats. Gross profit for Q3 of fiscal 2020 increased 33.5% compared to the prior year period to $807.5 million due to recent acquisitions. Gross profit per case was up $0.25 in Q3 versus the prior year period. Gross profit margin as a percentage of net sales was 11.5% for Q3, compared to 12.9% for the prior year period. The gross margin decline was driven by the addition of Eby-Brown, which has lower margins due to tobacco sales.

Overall food cost inflation was approximately 2.5% in the third quarter driven by inflation in cheese and do a lesser extent produce and meets.

Gross profit for the third quarter fiscal 2020 increased 33.5% compared to the prior year period to 807.5 million due to recent acquisitions.

As.

Perfect for case was up 25 cents in the third quarter versus the prior year period gross profit margin as a percentage of net sales was 11.5%.

For the third quarter compared to 12.9% for the prior year period.

The gross margin decline was driven by the addition of ebay Brown, which has lower margins due to tobacco sales.

Operating expenses rose by 51.2% to 824.9 million in the third quarter compared to the prior year period. The increase in operating expenses was primarily due to recent acquisitions, an increase in case volume and the resulting impact on variable operational expenses.

Jim Hope: Operating expenses rose by 51.2% to $824.9 million in Q3 compared to the prior year period. The increase in operating expenses was primarily due to recent acquisitions, an increase in case volume, and the resulting impact on variable operational expenses. The increase in operating expense in Q3 was also driven by an increase in professional fees related to acquisitions and an $18.3 million increase in bad debt expense. These items were partially offset by a $46.2 million decrease in bonus expense in the quarter. EBITDA decreased 25.9% to $74 million in Q3, and adjusted EBITDA rose 23.6% to $131.1 million compared to the prior year period.

The increase in operating expense in the third quarter was also driven by an increase in professional fees related to acquisitions, and an 18.3 million increase in bad debt expense.

These items were partially offset by a $46.2 million decrease in bonus expense in the quarter.

EBITDA decreased 25.9% to 74 million in the third quarter and adjusted EBITDA Rose 23.6.

No 131.1 million compared to the prior year period.

The effective tax rate in the third quarter was approximately 33.6% compared to 26.1 in the third quarter of fiscal 2019.

Jim Hope: The effective tax rate in Q3 was approximately 33.6% compared to 26.1% in Q3 of fiscal 2019. The diluted loss per share was $0.35 in Q3 compared to diluted EPS of $0.31 in the prior year period. Adjusted diluted EPS increased 38.1% to $0.58 per share over the prior year period. Let's turn to our Q3 results for our two segments. Net sales for Vistar increased 129.7% in Q3 compared to the prior year period to $2 billion. This increase was driven by the acquisition of Eby-Brown and strong sales growth in the corrections, hospitality, and retail channel. Q3 EBITDA for Vistar increased 10% to $40.7 million versus the prior year period.

The diluted loss per share was 35 cents in the third quarter compared to diluted EPS of 31 cents in the prior year period.

Adjusted diluted EPS increased 38.1% to 58 cents per share over the prior year period.

Let's turn to our third quarter results for our two segments net sales for Vistar increased 129.7% in the third quarter compared to the prior year period to 2 billion. This increase was driven by the acquisition of Ebby Brown and strong sales growth in the corrections hospitality and retail chain.

Panel.

Third quarter EBITDA for Vistar increased 10% to 40.7 million versus the prior year period.

Gross profit growth of 43% in the quarter was fueled by the acquisition of VB Brown.

Jim Hope: Gross profit growth of 43% in the quarter was fueled by the acquisition of Eby-Brown. Our Foodservice segment generated fiscal Q3 net sales growth of 30.4% to $4.9 billion, driven by the acquisition of Reinhart. Foodservice EBITDA decreased 7.7% in Q3. Turning to our cash flow. In the first nine months of fiscal 2020, PFG generated $17.6 million in cash flow from operating activities. Operating cash flow would have been $231.3 million for the first nine months of fiscal 2020, excluding $213.7 million of outstanding checks that were treated as an offset to cash. The remaining decrease in cash flow from operating activities was largely driven by lower operating income and investments in working capital.

Our foodservice segment generated fiscal third quarter net sales growth of 30.4% to 4.9 billion driven by the acquisition of Reinhart.

Food service EBITDA decreased to 7.7% in the third quarter.

Turning to our cash flow.

In the first nine months of fiscal 2020, PSG generated 17.6 million in cash flow from operating activities.

Operating cash flow would have been 231.3 million for the first nine months of fiscal Twentytwenty, excluding 213.7 million of outstanding checks that were treated as an offset to cash.

The remaining decrease in cash flow from operating activities was largely driven by lower operating income and investments in working capital.

For the first nine months to fiscal 2020, PSG invested 101.1 million and capital expenditures, an increase of 8 million versus the prior year period, excluding the impact of the outstanding checks free cash flow would have been at 130.2 million.

Jim Hope: For the first nine months of fiscal 2020, PFG invested $101.1 million in capital expenditures, an increase of $8 million versus the prior year period. Excluding the impact of the outstanding checks, free cash flow would have been $130.2 million in the first nine months of fiscal 2020. As you know, we withdrew our fiscal 2020 guidance in late March as the COVID-19 pandemic added uncertainty not only to our business and our customers, but the business around the world. While we are encouraged by some early signs that the restaurant trends have stabilized sequentially, there is still significant uncertainty for the next several months. For this reason, we have taken prudent steps to strengthen our balance sheet, to be able to take advantage of any market share opportunities and protect from a prolonged downturn.

In the first nine months of fiscal 2020.

As you know we withdrew our fiscal 2002 any guidance in late March as the covert 19 pandemic added uncertainty not only to our business and our customers.

But the business around the world.

While we are encouraged by some early signs that the restaurant friends have stabilized sequentially. There is still significant uncertainty for the next several months.

For this reason, we have taken prudent steps to strengthen our balance sheet to be able to take advantage of any market share opportunities.

And protect from a prolonged downturn.

As a picture becomes clear we will provide more color on our financial projections.

Jim Hope: As the picture becomes clearer, we will provide more color on our financial projections. For now, we will continue to serve our customers and communities, look after the health and welfare of our associates, and take appropriate action to protect the financial standing of the company. We hope to emerge from this period stronger in many ways. With that, we'd be happy to take your questions.

For now we will continue to serve our customers and communities look after the health and welfare of our associates.

And take appropriate action to protect the financial standing of the company.

We hope to emerge from this period stronger in many ways and with that we'd be happy to take your questions.

Operator, do we have any question Im sorry, yes, and Sachin or your question. Please press star one your first question.

[Analyst]: Operator, do we have any questions?

Operator: I'm sorry. Yes. As a time to ask an audio question, please press star one. Your first question comes the line of John Heinbockel of Guggenheim.

John Heinbockel Guggenheim.

Hey, George let me start with.

Jim Hope: Hey, George, let me start with, and maybe talk about, you know, I, I know it's, you know, very disruptive out there, but the pace of incoming inquiries from, you know, potential new customers, and I think, I think you've picked up some chain business, you know, pretty recently. You know, is, is, is the pace of that, you know, new business pickup, is, is that accelerating here in the short term? I know you have capacity to deal with it.

John Heinbockel: Hey, George, let me start with, and maybe talk about, you know, I, I know it's, you know, very disruptive out there, but the pace of incoming inquiries from, you know, potential new customers, and I think, I think you've picked up some chain business, you know, pretty recently. You know, is, is, is the pace of that, you know, new business pickup, is, is that accelerating here in the short term? I know you have capacity to deal with it.

Let me talk about.

I know it's.

Very disruptive out there, but the pace of incoming.

Inquiries from potential new customers and I think I think you've picked up some chain business.

Pretty recently.

Is the pace of that.

New business pick up is that accelerating here.

In the short term.

No you have capacity to deal with it.

Yes, we have some business coming in there.

George Holm: Yeah, we have some business coming in. They're actually in, in all 3 cases, they're public companies, so, you know, we, we don't like to, you know, announce news for them. I, I would call the pace of activity as high as I've ever seen. There's, you know, there's a lot of opportunity in spite of what's going on now, and we're just doing our best to sort through that and kind of figure out what the best route for us to go is. I think it was prudent to pick up that business.

Actually in in all three cases, there public companies so.

We don't like to announce news for them.

But I would call the pace of activity.

As high as I've ever seen.

There's a lot of opportunity in spite of what's going on now and we're just doing our best to sort through that and kind of figure out what the best route for US to Bill is I think it was prudent to pick up that business.

Yes, I don't think any of us knows what business is going to be like when everything comes back.

George Holm: You know, I don't think any of us knows what business is gonna be like when everything comes back, but there seems to be an opinion out there that, that the chains are probably going to do better than the independents, and it just seemed like a wise thing for us to make sure we got some additional business on board to kind of spread these fixed expenses across.

But there seems to be.

In opinion out there that.

With that the chains are probably going to do better than the independence and it just seemed like a wise thing for us to make sure. We got some additional business on board to kind of spread these fixed expenses across.

And then maybe as a follow up to that if you think about again back to capacity.

John Heinbockel: Then maybe as a follow-up to that, if you think about again, back to capacity, right? How much capacity do you have in the customized facilities? Because I assume you're not gonna run chain business through, or maybe you will, through the independent facilities. Then maybe more broadly, how do you think about, you know, using the entire network?

How much capacity do you have in the customized facilities I assume you're not going to run chain business through your many will through the independent facilities and then can maybe more broadly how do you think about.

Using in the entire network.

Well.

George Holm: Well, the business we have coming on...

George Holm: Well, the business we have coming on..

Business, we have comment on two of the three chains will be handled through our broad line in one will be handled through customized.

John Heinbockel: Yep.

George Holm: two of the three chains will be handled through our broad line, and one will be handled through customized. If you look at our customized pre-coronavirus, you know, I would say we maybe have the capacity for an account. During coronavirus, we got all kinds of capacity, right? What we need to figure out is, you know, kind of what the new normal will be as things come back, and then we can make better decisions from there.

If you if you look at our customized.

Cree.

Krona virus.

I would say we may be have the capacity for an account.

During Corona virus, we got all kinds of capacity right.

So what we need to figure out is kind of what the new normal will be as things come back and then we can make better decisions from there.

Okay, and then just one last thing your commentary about sequential improvement I mean, it sounds like.

John Heinbockel: Okay. Just one last thing, your commentary about sequential improvement. I mean, it sounds like, you know, it's... Maybe it's just too variable week to week, but it sounds like it's, you know, relatively, you know, we've kind of hit a bottom and bounced a little bit off it, but it doesn't sound like it's, you know, huge improvement, week over week, or is that, is that wrong?

It's.

Maybe it's just too.

Preamble week to week it sounds like it's.

Relatively it would be kind of hit a bottom and bounced a little bit off it doesn't sound like it's huge improvement week over week or is that is that wrong.

It's improved every week.

George Holm: It's improved every week. Because we follow so closely the number of customers, and we follow so closely our business, and we tend right now to look more sequentially than at last year, since it doesn't matter much. There were really 2 things that, that took place. 1 was that, I think our, our customers got better and better at doing takeout. A lot of them got into curbside, which had not done that before. That got us some sequential improvement. As we got further into this kind of shelter-in-place period of time, more of them started to get into takeout and delivery. I think a lot of that was around making sure they solidified a back-of-the-house staff, so that they only had front of the house to really deal with as things come back.

And I can because we follow so closely the number of customers and we follow so closely our business and we tend to right now to look more sequentially than at last years since it doesn't matter much.

There were really two things that that took place one was that.

I think our our customers got better and better it too and takeout.

A lot of and got into curbside, which had not done that before so that got us some sequential improvement and as we got further into this kind of shelter in place period of time.

More of them started to get into takeout.

And and delivery I think a lot of that was around making sure. They solidified a back of the house staff.

So that they only had front of the house to really deal with as things come back.

Okay. Thank you.

John Heinbockel: Okay, thank you.

Your next question comes the line of Edward Kelly of Wells Fargo.

Operator: Your next question comes the line of Edward Kelly of Wells Fargo.

Hi, good morning, guys.

Edward Kelly: Hi, good morning, guys. Hey, George, just to start as a follow-up to, you know, to John, John's question, can you give us a sense as to what run rate is looking like currently? I know you're saying sales have improved each week. If you troughed it down, call it 50, how are you running now, sort of like pro forma, year-over-year?

Hey, George just to start as follow up to manage on John's question can you give us a sense as to what run rate is looking like currently I know, you're saying sales have improved each week, if you trust it down call. It 50.

How are you running now sort of like pro forma year over year.

Yes, we're real has intent there add because.

George Holm: Yeah, you know, we're real hesitant there, Ed, because we don't know, you know, kind of what's gonna take place coming up. We're, we're probably best just to say it, it, it's improved every week, and it hasn't been light improvement. I mean, it has gotten better each week. It, it doesn't give us a good sense of what it's gonna be like as things come back. Are we gonna see takeout and delivery go down as the other comes up? Are we gonna see that stick, and that's just gonna be incremental business? We're just real hesitant to, to throw numbers out there that we, we don't have good confidence around.

We don't know.

Kind of what's going to take place coming up.

We're probably best just to say, it's improved every week and it hasn't been.

Light improvement I mean, it has gotten better.

Each week.

And it doesn't give us a good sense of what it's going to be like as things come back are we going to see takeout and delivery go down as the other comes up.

We're going to see that stick and that's just going to be incremental business, which is really hesitant to to throw numbers out there that we don't have good confidence around.

Edward Kelly: Okay. George, you know, you've, you've raised a lot of cash, and, and there's obviously a defensive component to this, right? Then there's an offensive component. There's been a lot of focus on the defense, right? Can you talk about the offensive component, you know, sort of like, what you mean by that? Then, you know, in what form does this play out? You know, I, I assume you're not just talking about going out and just buying business, right? What does the timing of the share gains look like? I mean, obviously, you talk about picking up a few chains. What's the pricing of that look like? Any, any color on, on, you know, how you're playing offense, the benefit, and the timing?

Okay.

And George you know you've raised a lot of cash and there's obviously a defensive component to this right. But then there is an offensive component.

Theres been a lot of focus on a defense right. So can you talk about the offensive component sort of like what what you what you mean by that and then.

And what formed as this play out.

You may not just talking about going out just buying business right.

What does the timing of the share gains look I mean, obviously, you're talking about picking up a few change what's the pricing of that look like.

Any any color on on how you're playing offense to benefit in the timing.

Well for right now it is to grow our customer base I think thats really important.

George Holm: Well, you know, for right now, it's to grow our customer base. I think that's really important. I think that when we get through this, and we have a good sense of what things are gonna look like, you know, that's when we really have to address, you know, where we're going with our capital structure, you know, more long term. Certainly want to get through this potential second wave, if there is such a thing. We're certainly not experts on that. You know, we wanna make sure that we have a capital structure that's gonna last us all the way through this. We certainly don't discount, you know, being acquisitive.

I think that when we get through this soon we have a good sense of what things are going to look like.

Thats when we really have to address.

Where we are gone with our capital structure more long term.

Certainly want to get through this potential second wave if that there is such a thing we're certainly not experts on that.

So we want to make sure that we have a capital structures in the last us.

All the way through this.

We certainly don't discount.

Being acquisitive I think it's.

George Holm: I think it's, it's very hard to figure out what an acquisition would look like as part of us, when we don't know what we're gonna look like when we come out of this. We're really pleased with the two that we've done. Eby-Brown has continued, as part of us, to do better than they had as an, as an independent company. Reinhart, we had excellent January and February, where they had been flat in sales and EBITDA going into the period, and they had nice growth in both. We just feel so good about where we're at with that acquisition. We certainly want to be acquisitive, it, it just probably isn't the right time.

It's very hard to figure out what.

And acquisition would look like as part of US when we don't know what we're going to look like when we come out of this.

We're really pleased with the two that we've done.

Beat Brown has continued as part of us to do better than they had isn't as an independent company.

And Reinhard, we had excellent January and February where they had been flat and sales and EBITDA going into the period in and they had nice growth in both we just feel so good about.

Where we're at with that acquisition so.

We certainly want to be acquisitive, it just probably isn't the right time.

Maybe just lastly for you than George.

Edward Kelly: Maybe just lastly for you then, George, you know, as sort of like a follow-up. You, you, you obviously have a ton of industry experience, and I, obviously, what we're going through today is clearly unprecedented. I, I think it'd be really valuable to get your opinion on what you think the industry looks like on the other side of this. You know, how much damage will there be to independent units? How much consolidation and damage will there be amongst your, you know, your private competitors? How confident are you in what the earnings power of the business looks like when the dust settles? I know there's a lot of questions out there, but you know better than most of us, obviously.

Sort of like a follow up you, obviously have a ton of industry experience and I, obviously, what we're going through today is clearly unprecedented bye.

I think it'd be really valuable to get your opinion on what you think the industry looks like on the other side is this how much damage will there be the independent units.

Much consolidation and damage will there be amongst share your private competitors.

How confident are you on what the earnings power on the business looks like when the dust settles that I know, there's a lot of questions out there.

But you know better than most of US obviously lots owned just kind of curious how you're thinking about it.

George Holm: Well-

Edward Kelly: I'm just kind of curious.

George Holm: Well-

Edward Kelly: how you're thinking about it.

Yes, I am really.

George Holm: Yeah, I, I, I really don't have a good feel for how many restaurants are gonna come back. You know, I've been saying for a few years, there's just too many seats out there, and there needs to be less. If, if we did come back with less restaurants and higher unit sales, average unit volume, I think that'd be good for the industry. You know, we just need to assess what kind of the, what the new world looks like and then go from there. You know, we, we dialed this business down, and we needed to do that. Maybe we could have done it a little bit quicker, but I, I like the way we did it, and we feel good that we can dial it up. I think businesses that pulled the plug are gonna have a tough time coming back.

Don't have a good feel for how many restaurants are going to come back.

I've been saying for a few years is just too many seats out there and there needs to be less.

If we did come back with less restaurants.

And.

Higher unit sales average unit volume I think that'd be good for the industry.

We just need to assess what kind of the with the new world looks like.

And then go from there.

We we dialed this business down.

And we needed to do that maybe we could have done it a little bit quicker, but I'd like the way we did it and we feel good that we can dial it up.

I think businesses that pulled the plug are going to have a tough time.

Coming back and you know there's lot of restaurants that are an open.

George Holm: You know, there's a lot of restaurants that aren't open and have not been open through this, and opening a restaurant is a very, very difficult. It's just hard to do that, and that's what we're gonna have. We're gonna have a lot of new openings. We just have to kind of sit back and see how those go, and just work as closely as we can with those customers.

And have not been opened through this and opening a restaurant is a very very difficult.

It's just hard to do that and that's what we're going to have we're going to have a lot of new openings. So we just have to kind of sit back and see how those go and just work as closely as we can with those customers.

Alright, Thank you not put add to that I would add to that we.

Edward Kelly: All right. Thank you.

George Holm: You know, I would add, too, that I would add, too, that. You know, March is kind of a tough month to judge because it does have two full weeks and really another half a week of, of COVID-19 impact. You know, when we looked at the NPD report that came out for March, we built more share than we've ever built in one month. You know, that gives us a good feeling as we come out of this. We don't, we just don't know, you know, how strong, you know, restaurants are gonna be as we come out. You know, I'm an eternal optimist about that because I could go sit in a restaurant alone right now and feel great. I can't wait to get in one. I think a lot of people feel that way.

In March is kind of a tough months to judge because it does have to four weeks and really another half a week of.

Of coven 19 impact but.

When we looked at the NPD report that came out for March we built more share than we've ever built in one month.

So that gives us a good feeling.

As we come matter this but.

We don't we just don't know how strong.

Restaurants going to be as we come out I.

I'm going to turn optimist about that because.

I could go sit in a restaurant alone right now feel great can't wait to getting one I think a lot of people feel that way.

Great. Thanks search.

Edward Kelly: Great. Thanks, George.

Your next question comes line of Chris Mandeville with Jefferies.

Operator: Your next question comes from the line of Chris Mandeville of Jefferies.

Hey, good morning.

[Analyst]: Hey, good morning. George, I guess just sticking with the sales trends here. Maybe looking at the independent organic cases being down only 2.7%, at least we'd argue that that's quite a bit better than what maybe some within the market were fearing. Is there any way to speak to the independent organic trough and then the rate of week-on-week improvement relative to overall performance? How much-

Christopher Mandeville: Hey, good morning. George, I guess just sticking with the sales trends here. Maybe looking at the independent organic cases being down only 2.7%, at least we'd argue that that's quite a bit better than what maybe some within the market were fearing. Is there any way to speak to the independent organic trough and then the rate of week-on-week improvement relative to overall performance? How much-

George I guess, just sticking with the sales trends here, maybe looking at the independents organic cases being down only 2.7%.

At least we'd argue that that's quite a bit better than what maybe some within the market. We're hearing so.

Is there any way to speak to the independent organic trough and then the radar week Henrique improvement relative to overall performance.

We have a minus sorry, 1.7 that yes, we have a minus 2.7 that was it was minus because of those last two and a half weeks, but.

George Holm: You know, when you...

[Analyst]: How-

George Holm: When you have a minus-

[Analyst]: Sorry, go ahead.

George Holm: 2.7, that's yeah, when you have a -2.7, that was. It was minus because of those last 2.5 weeks. You know, we've always aspired to be above that 6% number in independent case growth. You know, we slipped below that for a couple quarters, and we were doing better than that going into that period of time. So, you know, we feel good with it. To comment on the improvement, we just aren't comfortable with that, you know, from the trough week to now, because we there's just too many variables, and, you know, we would rather get through this, and then I think we can give a pretty good idea of if we think we're back to normal or what normal is.

We've always aspired to be above that 6% number in independent case growth than.

We slipped below that for a couple of quarters, and we were doing better than that going into that period of time.

So we feel good with it but to comment on the improvement, we just aren't comfortable with that.

From the trough week to now because we there's just too many variables and.

We would we'd rather get through this and then I think we can give a pretty good idea.

If we think we're back to normal or what normal is.

Okay can you maybe speak to just the resiliency that you saw possibly within the pizza Italian business, how that overall influence the numbers and then Jan and thinking about.

[Analyst]: Okay. Can, can you maybe speak to just the resiliency that you saw possibly within the Pizza Italian business, how that overall influenced the numbers? Then, Jim, in thinking about the market having some concerns surrounding independent closures longer term, if we were to just kind of look at the PFS performance in the quarter itself, is there any way to reference the year-on-year gross margin decline?

Christopher Mandeville: Okay. Can, can you maybe speak to just the resiliency that you saw possibly within the Pizza Italian business, how that overall influenced the numbers? Then, Jim, in thinking about the market having some concerns surrounding independent closures longer term, if we were to just kind of look at the PFS performance in the quarter itself, is there any way to reference the year-on-year gross margin decline?

Market, having some concern surrounding independent closures some longer term. If we were just kind of look at the PFS performance in the core itself is there any way to reference that the year on year gross margin decline.

Well I'll start with the pizza the pizza has outperformed the other parts of our business plan.

George Holm: Well, I'll start with the pizza. The, the pizza has outperformed the other parts of our business and, as far as independent, and sequentially, it's improved similar to the other business. It just started out with, with, a much lesser decline. Then, Jim, there was a question for you, too.

As far as independent and sequentially, it's improved similar to the other business that just started out with.

With a much lesser decline and then Jim There was a question for you too.

Yeah, Chris.

Jim Hope: Yeah, Chris, I, I think if you're asking about the number of store closures, very difficult to determine that, and it certainly is difficult to predict it. I can tell you we're managing our working capital, including receivables, very close. As you would expect, we're monitoring it daily, and our goal is to stay on top of that and make sure that we're on track with all the details. We're reducing inventory levels at the same time, which tends to generate cash. Yeah, there's certainly a risk with store closures and a risk with receivables, and we're, we're paying very close attention to that one.

I think if you're asking about the number of store closures, we very difficult to determine that is certainly is difficult to predict.

I can tell you, we're managing our working capital, including receivables very close.

As you would expect we're monitoring it daily and our goal is to stay on top of that and make sure that we're on track with all the details were reducing inventory levels at the same time, which tends to generate cash though.

Yes, Theres certainly a risk was store closures and a risk with receivables and we're paying very close attention to that one.

Okay, Yeah, and I guess I was I was looking marceau, along the lines or focused more so on the gross margin rate a decline in foodservice sadly the business, yes in light of Thats, how independents performed.

[Analyst]: Okay. Yeah, no, I guess I was, I was looking more so along the lines of or focused more so on the gross margin rate of decline in the, the food service side of the, the business, just in, in light of-

Christopher Mandeville: Okay. Yeah, no, I guess I was, I was looking more so along the lines of or focused more so on the gross margin rate of decline in the, the food service side of the, the business, just in, in light of how independence performed.

George Holm: Yes

[Analyst]: ... how independence performed.

Yes.

Jim Hope: Yeah, you know, look, overall, it's no doubt independents provide good, good margin improvement on the top line, and helpful on the bottom line as well. You've, you know, Eby-Brown has come in with a large amount of tobacco sales, which improve the overall profit margin. I get it. That's probably a tough one to dissect, but I don't have any more color to add there.

Look the overall, it's no doubt independents provide good good margin improvement on the topline and help on the bottom line as well.

He be brown has come in with a large amount of tobacco sales, which improves the overall profit margin.

So I get it thats, probably a tough one to dissect, but I don't have any more color to add there.

Okay and then maybe just my last question years just.

[Analyst]: Okay. Maybe just my last question here is looking at the cash flow and balance sheet, it doesn't appear to us that you necessarily saw much of a benefit on cash from working capital improvements in Q3. Is that a fair statement? I guess, is there any way of really sizing that up as we move forward? On the CapEx front also, the rate of reduction that we saw in fiscal 2020, is that really a true reflection of your flexibility, or could you, in fact, be a little bit more drastic going forward?

Christopher Mandeville: Okay. Maybe just my last question here is looking at the cash flow and balance sheet, it doesn't appear to us that you necessarily saw much of a benefit on cash from working capital improvements in Q3. Is that a fair statement? I guess, is there any way of really sizing that up as we move forward? On the CapEx front also, the rate of reduction that we saw in fiscal 2020, is that really a true reflection of your flexibility, or could you, in fact, be a little bit more drastic going forward?

Looking at the castle on balance sheet. It doesn't appear to us that you necessarily saw much of a benefit on cash from working capital improvements in Q3 is that a fair statements and then I guess is there any way of really sizing that up as we move forward on the Capex front also.

At that rate of reduction that we saw in fiscal 2000 is that that really a true reflection of your flexibility or could you in fact being a little bit more drastic going forward.

Yes look I think is things happened.

Jim Hope: Yeah, look, I, I think just things happened quickly at the end of March. At the same time, we were working through an inventory build, and so both those things caused the results that you're, you're calculating there in, in your analysis. That's not a true picture of the cash flow profile going forward, and typically, and now, as we would reduce inventory, we'll generate cash. We know that we have a good deal of flexibility and elasticity in working capital. We're managing through all three components of those.

Quickly at the end of March at the same time, we're working through an inventory build and so both those things.

Caused the results that you're calculating there.

And your analysis, that's not a true picture of the cash flow profile going forward and typically and now as we would reduce inventory will generate cash.

And we know that.

We have a good deal of flexibility Inelasticity in working capital, we're managing through through all three components of the.

George Holm: Yeah, I think it's important, Chris, that you don't look at the end of the quarter as the point in time. you know, we had single-digit increases in accounts receivable and accounts payable at the end of the quarter, but 33% increase in inventory, and that's normal. if you would call anything right now normal, but, I mean, if you have a sudden drop in sales like that, you know, you, you're not gonna see a sudden drop in inventory. Our working capital's come in line since then, and I think, Jim, that our receivings have been good, right?

Yes, I think it's important Chris that you don't look at the end of the quarter as the point in time.

We had single digit increases in accounts receivable and accounts payable at the end of the quarter, but 33% increase in inventory and Thats normal.

If you would call anything right now normal, but I mean, if you have a sudden drop in sales like that.

Youre not going to see a sudden drop in inventory by working capitals come in line. Since then and I think Jim that.

Our receivables have been good right.

Okay. That's all looking for thanks, guys.

[Analyst]: Okay. That's what I was looking for. Thanks, guys.

Christopher Mandeville: Okay. That's what I was looking for. Thanks, guys.

Your next question comes line of Jeffrey Bernstein of Barclays.

Operator: Your next question comes from the line of Jeffrey Bernstein of Barclays.

Okay.

Great. Thank you very much.

Jeffrey Bernstein: Great. Thank you very much. 3 questions. One, just wanted to follow up on George, your earlier comments about the independent restaurant outlook. Seems like a lot of investors are looking back 12 years to the Great Recession in terms of comparable. It just seems like based on the data we've seen, there really wasn't much in the way of net unit closures back then, whereas this time around, it does seem like there's more challenges in the industry and more likely that you would see these actually be net closures. I'm just wondering if you could compare to that period and why you think this go around, it would actually be some significant net closures. Maybe just the new players aren't willing to fill those old boxes for whatever challenges the industry is facing. Any thoughts there?

Three questions. One just wanted to follow up on Georgia earlier comments about the independent restaurant outlook.

Like a lot of investors are looking back a dozen years to the great recession in terms of comparable.

It just seems like based on a data we've seen there really wasn't much in a way of net unit closures back then, whereas this time around it does seem like there's more challenges in the industry and more likely that you would see these actually being net closures I'm. Just wondering if you could compare to that period and why you think this go around.

That would actually be some significant net closures, maybe just the new players aren't willing to fill those old boxes for whatever challenges the industry is facing any thoughts there.

Yes, I don't think we know this was so sudden.

George Holm: Yeah, I don't think we know. This was so sudden that it's, it's just very hard to tell. Our salespeople are keeping constant contact with those customers as best they can, and we're not hearing them say that there's gonna be a huge amount of closings or, or not reopening. I, I don't think we know. You know, what happened during that Great Recession, I think these are two totally different events.

That is it's just very hard to tell and were our salespeople are keeping constant contact with those customers, especially Ken.

And we're not hearing them say that there's going to be a huge amount of closings are not reopening I don't think we know.

And what happened during that great recession, I think these are two totally different events.

Yep.

Jeffrey Bernstein: Yep. In terms of your comment about the grocery store distribution, I think you mentioned 25 or so partners and well over 1,000 grocery units that you're now distributing to, and how obviously right now it's extremely small. Could you just talk about the vision you might have or what it could be, or maybe why you hadn't pursued that business in the past? Is it presumably a lower margin business, kind of like the chains, therefore, it wasn't the target customer, but now seems more attractive, or how do you see that business playing out over the next few years?

Then in terms of.

Your comment about the grocery store distribution I think you mentioned 25, or so partners and well over 1000 in grocery units that you now distributing to and how obviously right now it's extremely small but can you just talk about the vision you might have or.

What it could be or maybe why you hadn't pursued that business in the past is it.

Presumably a lower margin business kind of like the chains. Therefore, it wasn't that.

Target customer, but now seems more attractive or how do you see that business playing out over the next few years.

Well, we've always done some of that business, particularly where they are preparing food.

George Holm: Well, we've always done some of that business, particularly, you know, where they're preparing food. A lot of the sales that we had into that channel were perishable inventory that, you know, we wanted to get out of the system. We'll see, you know, kind of when this is all over, we're gonna make sure that we keep in touch with these people. We, we really, for the most part, wanted to spend our time going through this, picking up new business that is business that is in our wheelhouse, and we know is long-term or has the potential to be long-term business. I wouldn't say that we've given it a huge effort. We thought it was important to help where we could, so we did, you know, we did supply many warehouse people and many drivers.

A lot of the sales that we head into that channel, where perishable inventory that we wanted to get out of the system.

We'll see kind of when this is our over we're going to make sure that we keep in touch with these people.

We really for the most part wanted to spend our time going through this picking up new business that is business that is in our wheelhouse and we know is long term or has the potential to be long term business. So I wouldnt say that we've given it a huge effort.

We thought it was important to help where we could so we did.

We did supply and many warehouse people in many drivers.

We just have to see from here, but we certainly will.

George Holm: We just have to see from here, but we certainly will, you know, hang on to as much of that business as we can.

Hang onto as much of that business as we can.

Absolutely and then my last question, Jim I'm, just wondering as you talk about liquidity.

Jeffrey Bernstein: Absolutely. Then my last question, Jim, I'm just wondering, as you talk about liquidity, you know, between the cash you had on hand and then the equity and debt offerings, most people feel comfortable, especially from the short term, it's all about defense, that you've got the proceeds to hold on well. I'm just wondering, you know, being a lot of restaurants have provided color in terms of maybe a cash burn rate, I'm just wondering how you would qualitatively or quantitatively offer color in terms of, you know, if sales had stabilized at down 50, or presumably they're now down less than 50, but how you think about your burn rate relative to that $1 billion plus in cash in terms of weekly or monthly at any kind of sales level? Any help there would be great.

Between the cash add on hand, and then the equity and debt offerings. Most people feel comfortable especially from a short term. It's all about defense that you've got the proceeds to hold on well I'm just wondering.

Taking a lot of restaurants have provided color in terms of maybe a cash burn rate I'm. Just wondering how you would qualitatively or quantitatively offer color in terms of.

Sales had stabilized that down 50, what presumably there now down less than 50, but how do you think about your burn rate relative flat billion, plus and cash in terms of weekly or monthly at any kind of sales level any help there would be great.

Yes, sorry look I respect the question, but but I'm not going to give.

Jim Hope: Yeah, no, I'm sorry. Look, I respect the question, but I'm not gonna give any numeric color around a cash burn rate. What I can tell you is that we are encouraged. We're certainly pleased with how the market's responded to our capital raise. We believe we've done really well. We've protected the company for the long term, even in a prolonged downturn, it's given us quite a bit of flexibility. We think we're in very good shape there for the long term.

Any numeric color around a cash burn rate, but what I can tell you is that.

We are encouraged we're certainly pleased with how the markets responded our capital raise we believe we've done really well with protected comp the company for the long term even in a prolonged downturn.

It's given us quite a bit of flexibility. So we think we think we're in very good shape there for the long term.

Understood your current cash position without giving specifics you feel like you could go much longer than you anticipate this current downturn with your existing cash balance.

Jeffrey Bernstein: Understood. Your current cash position, without giving specifics, you feel like you could go much longer than you anticipate this current downturn with your existing cash balance?

Jim Hope: Correct.

Correct.

Very helpful. Thank you guys very much.

Jeffrey Bernstein: Very helpful. Thank you, guys, very much.

Thanks.

Jim Hope: Thanks.

Your next question comes the line of junior from Credit Suisse.

Operator: Your next question comes from the line of Judah Frommer of Credit Suisse.

Yes, hi, guys. Thanks for taking my questions first I just wanted to get back to trends clearly it sounds like.

Judah Frommer: Yeah. Hi, guys. Thanks for taking the questions. First, I just wanted to get back to, you know, trends. You know, clearly, it sounds like you don't want to give kind of week to week, and we understand that. Is there any color you can give on, you know, kind of the progress versus trough for independents versus chain? Which one of those have recovered better? I mean, obviously, chain never got as bad as independent did, but kind of curious, which of those has actually seen better growth in recent weeks? Any color from states where you've seen some restaurant reopenings in the last couple of weeks?

You don't want to give kind of kind of week to week and we understand that but is there any color you can give on.

Got it.

Progress versus trough for independence versus chain.

How much one of those have recovered better I mean, obviously chain never got as bad.

As independent did but kind of curious.

Which of those is actually seen better growth in recent weeks and then any color from states, where you've seen some restaurant openings in the last couple of weeks.

Yes the.

George Holm: Yeah, the from the trough to today, they're about the same, the independent and the chain, very similar. You know, we're getting some feedback, on, on how restaurants are doing. First of all, it, it appears as if, I mean, obviously, we're not in, physically, in either one of those states. We do have distribution centers, and we're in constant contact with the people. A lot of restaurants have not opened yet. That's still happening as they're getting ready to, to, to manage to what that state is, is allowing to have happen. I did get messages from people over the weekend that had very full, full restaurants from the standpoint that if 50% was the guideline, they were 50% full, and they were managing to that 50% full.

From the trough to today there are about the same the independent in the chain very similar.

We're getting some feedback.

On on how restaurants are doing.

First of all it appears as if I mean, obviously, we're not in.

Physically in either one of those states, we do have distribution centers and we're in constant contact with the people a lot of restaurants have not opened yet that's still happening as they are getting ready to too.

To manage to what that state is allowing to have happened, but I did get messages from people over the weekend that had very full.

Full restaurants from the standpoint that 50% was the guideline they were 50% full and they were managing to that 50% for.

Judah Frommer: Mm-hmm.

George Holm: I, you know, I found it to be encouraging. What I heard in the press was not encouraging, but I think we might be a little bit closer to that than, than maybe the general press. I think it's encouraging. I think there's a lot of, kind of cabin fever and pent-up demand.

So I I found it to be encouraging what I heard in the press was not encouraging but.

I think we might be a little bit closer to that than than may be the general press.

But I think it's encouraging I think theres a lot of.

Kind of cabin fever, and pent up demand. Okay. That's helpful. And then just as we think about kind of the new accounts coming online specifically the chains and you mentioned.

Judah Frommer: Okay, that's helpful. Then just as, as we think about kind of the new accounts coming online, specifically the chains, and you mentioned, you know, probably similar to the last recession, it makes sense to have incremental exposure to change and maybe survive a bit better. You know, how do you think about balancing, you know, food service margins if, if it is the independents going away and, and kind of chain business, kind of becoming an outsized piece of the pie? Do you think about offsetting that at, at some point and getting back to your mix of, of higher independent proportion of total sales?

Probably similar to the last recession. It makes sense to have incremental exposure to change you may be survive a bit better how do you think about balancing foodservice margins. If it is the independents going away and kind of chain business.

Hi, becoming an outsized piece of the pie do you think about offsetting that at some point and getting back to on your mix of of higher independent proportionally total sales.

Well, yes, and we're starting to see of course, what our mix is going to be when we come back from that but I think it was prudent to go get that business. We got it at what we consider to be acceptable margins.

George Holm: Well, yeah, you know, we're, we're struggling to see, of course, what our mix is gonna be when we come back from that. I think it was prudent to go get that business. We got it at what we consider to be, you know, acceptable margins. I think that if we come back with a higher mix of business in chain, I think we'll also be able to come back with lower expense ratios. We wanna get everybody back here and back to work as quick as we can. We also understand that we do have an opportunity to, to look very closely at what our expense ratios are, and to make sure that as we bring people back, that our mix of people fits with the mix of business that we come back with.

And.

I think that if we come back with a higher mix of business in.

Chain I think we'll also be able to come back with lower expense ratios.

And we want to get everybody back here in back to work as quick as we can.

But we also understand that.

We do have an opportunity to look very closely at what our expense ratios are and to make sure that as we bring people back that our mix of people.

Fits with the mix of business that we come back with.

Okay that makes sense and then maybe lastly, just.

Judah Frommer: Okay, that makes sense. Then maybe lastly, just Jim Hope with kind of food inflation. You know, obviously, meat was a bit inflationary, but that situation has changed in the last few weeks with facility closures. You know, just kind of thoughts on meat inflation and the impacts to the business, and maybe remind us how that flows through both independent and contracted cases.

Jim Health with kind of food inflation.

Obviously me was a bit inflationary, but thats situation has changed.

In the last few week with facility closures, you know just kind of thoughts.

On meet inflation in the impacts to the business and maybe remind us how that flows through both independent and contracted cases.

Yes, so the inflation came at around 3% for the second quarter, it's almost impossible to predict where it's going to go going forward.

Jim Hope: Yeah. Inflation came in around 3% for Q2. It's almost impossible to predict where it's going to go, going forward. We saw some serious inflation in a handful of categories and some balance than others, as to be expected. How it flows through is, I would describe that as very fair and expedient. It simply flows through cost of goods straight into the customer's pricing, and we do our best to manage that from a reasonability standpoint. Our systems are very adept at passing on inflation through the supply chain, as are our suppliers.

We saw we saw some.

Serious inflation in a handful of categories and some balance that others as to be expected.

How it flows through his is I would describe that is very fair and expedient.

Simply flows through cost of goods straight into the customers pricing and we do our best to manage that from a from a reasonability standpoint, our systems are very adapted.

Passing on inflation through supply chain as our suppliers.

Okay. Thank you.

Judah Frommer: Okay, thank you.

Your next question comes the line of Kelly Bania of BMO capital.

Operator: Your next question comes the line of Kelly Bania of BMO Capital.

Hi, good morning, Thanks for taking my question.

Kelly Bania: Hi, good morning. Thanks for taking my questions. I, I realize you, you're not really, you know, giving much guidance and talking about current trends, but is there any help you can give us in just how you're thinking about operating expenses? I guess how, just what the cost of doing business is now in terms of safety and sanitization and protective equipment and so forth, for you and your customers, I guess?

I realize you're not really giving much guidance and talking about current trends, but is there any help you can give us and just how you're thinking about operating expenses.

And I guess, how just what the cost of doing business is now in terms of.

If the incentivization and protective equipment and so forth.

For you and you have test I guess.

Yes, Kelly, we're we're not being.

George Holm: Yeah, Kelly, we're, we're, you know, we're not being we're not trying to be evasive. We just wanna make sure that everybody understands that it's very uncertain. We've spent a lot of time around the and I'm sure everybody in the industry has, you know, around what type of things we need for a different world, from masks to sanitizer, to those type of things. We've spent a lot of time to make sure that we got plenty of that for our own use and for our customers' use. That, by the way, hasn't been easy, and it's been expensive to do. When, when you ask about expense ratios, I, I think it is very difficult for us to determine that.

We're not trying to be a base if we just want to make sure that.

Everybody understands that very uncertain.

We've spent a lot of time around the and I'm sure, but in the industry has.

Around what type of things, we need for a different world from masks.

Sanitizer to those type of thing. So we spent a lot of time to make sure that we've got plenty of that for our own use and for our customers use in that by the way hasn't been easy and it's been expensive to do.

But.

When you ask about expense ratios I think it is very difficult for us to determine that.

George Holm: I think we have an opportunity here to make sure, once again, that we're sized to the mix of business that we have from an expense standpoint, and we're sized to the amount of business that we have, with the intent of getting as many people back here to work as we possibly can.

But I think we have an opportunity here to make sure. Once again, we're sized to the mix of business that we have from an expense standpoint and were size to the amount of business that we had with the intent of getting as many people back here to work as we as we possibly can.

Okay.

Okay. That's that's helpful. I guess just in terms of your independent customer base.

Kelly Bania: Okay, that's, that's helpful. I guess, just in terms of your independent customer base, in terms of the PPP, and what are you hearing about how that's going for them or how that's helping them, and, and just, managing kind of the resources around, you know, working through those, those programs?

In terms of the PPP and what are you hearing about how thats going for them or how that's helping them.

And just.

Managing kind of the resources around.

Working through those those programs.

Yes, well, we've we've had these web access for our customers and Im sure our competitors have done that as well we've tried to help as much as we can as far as the feedback that I've received from that is very mixed.

George Holm: Yeah. Well, we've had these Webexes for our customers, and I'm sure our competitors have done that as well. I mean, we've tried to help as much as we can. As far as the feedback that I've received from it is very mixed. Some people have had trouble getting it, some people have been able to get it pretty quickly. I've talked to customers that just look at it and say, I don't need more debt. That's the last thing I need, is more debt. I'm just gonna plow through this. I think it's just like everything else with this, it's a real mixed bag. Some people are just very happy to get that money, and some people that just don't wanna touch it.

Some people have had trouble getting it some people have been able to get it pretty quickly.

Got to customers that.

Just look at it and say I don't need more debt. That's the last thing I need it's more debt.

Im just going to plow through this.

So I think it's just like everything else with this it's a real mixed bag.

Some some people that is very happy to get to get that money in some people that just don't want to touch it.

Thank you.

George Holm: You know, in our business, though, I think that a lot of times people, they just, they find a way to figure it out. You know, I've just seen such improvement in takeout and delivery, I think that, they'll find ways. The good operator's gonna find ways to be successful in this environment.

And our business, though I think that lot of times people. They just they find a way to figure it out.

And.

Yes, I've, just seen such improvement in takeout and delivery I think that.

They'll find ways. So the good operators going up it's going to find ways to to be successful in this environment.

That's helpful and I guess, maybe this will be in the queue, but to we'd have a lot of questions just about bad debt.

Kelly Bania: That's helpful. I guess, maybe this will be in the queue, but we've had a lot of questions just about bad debt. Can you help us think about what that was for the quarter, how you're thinking about that going forward, and any, any color there?

Can you help us think about what that was for the quarter, how you're thinking about that going forward and.

Any any color there.

Yeah look we recorded 18.3 million increase in bad debt in the quarter.

Jim Hope: Yeah. Look, we, we recorded a $18.3 million increase in bad debt in the quarter. We think we're being conservative, of course, in reserving for bad debt that may go bad in future periods.

We think we're being conservative of course, and reserving for bad debt that May go bad in future periods.

Your next question comes through Martinson of Jefferies.

Operator: Your next question comes from the line of Christopher Mandeville of Jefferies.

Good morning.

Chris Mandeville: Good morning. With the, I guess, call it shutdown and furlough, and when you look at the Reinhart integration, is it easier to speed up that process as things are shut down? Or do you feel that, you know, it's gonna be dragged out over the process now?

Christopher Mandeville: Good morning. With the, I guess, call it shutdown and furlough, and when you look at the Reinhart integration, is it easier to speed up that process as things are shut down? Or do you feel that, you know, it's gonna be dragged out over the process now?

With with the.

I guess color shutdown furlough and when you look at the Reinhart integration is it.

You are to speed up step process as things are shut down or do you feel that ill.

Going to be dragged out over the process now.

Yes, it was easier.

George Holm: No, it was easier. We had more time. You know, we kept everybody engaged. We had more time from our IT people, so we were able to get the systems, some processes in place that, that would have taken us longer, you know, if we had the, you know, the, the day-to-day challenges of a, of full business. Y- we feel like we've been able to accelerate that. I think another quarter from now, we can put a little bit more color around that. But it's, it's been, it, it's been helpful for us to have that time.

We had more time.

We kept everybody engaged we had more time from our it people. So we were able to get.

The systems and processes in place that that would have taken us longer if we had to the day to day challenges over.

Full business.

So we feel like we've been able to accelerate that I think another quarter from now we can put a little bit more color around that.

But but it's been.

It's been helpful for us to have that time, yes, I agree with Georgia I think it's been really helpful. In we've certainly taken advantage of it to find the synergies.

Jim Hope: You know, I, I, I agree with George. I, I think it's been really helpful, and we've certainly taken advantage of it to, to find the synergies. I'd also say, as, as we looked at the Reinhart acquisition, that business and those folks were exceptional. That was a great acquisition for us, no time more than ever has it shown that, that, that group is just a really good fit in our organization.

But I'd also say is as we looked at the right art acquisition that business and those folks were exceptional that was a great acquisition for us.

And no time more than ever has shown that that that group is just a really good fit into our organization.

If you think about it.

George Holm: You know, if you think about it, by the end of this week, they would've been in, in coronavirus backdrop half the time that they've been part of this company. I think when you go through this period of time where you're having kind of forced daily contact, and I, I just feel like these people have been around for a whole lot more than, than Q1.

By the end of this week, they would have been in and Corona virus.

Backdrop half the time that they've been part of this company I think when you go through this period of time, where you're having.

Kind of force daily contact and I, just feel like these people been around for a whole lot more than in one quarter.

Certainly.

Chris Mandeville: Yes, certainly. Then when we look at the liquidity raise that you guys had, certainly supportive of any near-term trends. I guess from a bigger picture, how are you and the industry looking at the potential of the COVID-19 coming back in the fall? How do you look at your liquidity against that?

Christopher Mandeville: Yes, certainly. Then when we look at the liquidity raise that you guys had, certainly supportive of any near-term trends. I guess from a bigger picture, how are you and the industry looking at the potential of the COVID-19 coming back in the fall? How do you look at your liquidity against that?

And then when we look at the liquidity raise that you guys had certainly supportive of any near term trends I guess from a bigger picture. How are you in the industry looking at the potential of the covert 19 coming back in the fall.

And how do you look at your liquidity and gets that.

Well first of the potential of a comeback in the fall we leave that to the scientists in the doctors and folks that.

Jim Hope: Well, first, the, the potential of it coming back in the fall, we'd leave that to the, the scientists, the doctors, and folks that, that really understand it better than us. We certainly are tuned in to every piece of news that you can possibly get, and we know that that is a scenario that, that's been given merit and attention. Were it to come back, as we said earlier, we took a very conservative approach and strong approach to raising liquidity. We were very, very successful in our ability to do that, and the project plan, the strategy, and the execution, and we are in very good shape, as I'd mentioned earlier, for the long term.

It really understand it better than us, but we certainly are tuned into every piece of news that you can possibly get and we know that that is a scenario that.

It's been given merit and attention.

Were to come back as we said earlier, we took a very conservative approach and strong approach to raising liquidity, we're very very successful at our ability to do that.

And the project plan the strategy in the execution.

And we are in very good shape.

As I'd mentioned earlier for the long term.

Thank you very nice guys appreciate it.

Chris Mandeville: Thank you very much, guys. Appreciate it.

Christopher Mandeville: Thank you very much, guys. Appreciate it.

Your next question comes the line of William Reuter of Bank of America Security.

Operator: Your next question comes the line of William Reuter of BofA Securities.

Good morning.

William Reuter: Good morning. Some investors have brought up issues of spoilage here, and if these are risks. I guess, can you talk about the ability of you to keep your, you know, your goods stored safely for extended periods of time? Is this something that's a risk?

So some investors have brought up.

Issues of spoilage here and if these are risks I guess can you talk about the ability of view to keep your your goods towards safely for extended periods of time and is this something that's a risk.

Well we.

George Holm: Well, we, we went to work on the perishable product that we had very quick. We didn't want to not accept inbound orders that we had placed in good faith. You know, we had a lot of perishable product that we had to deal with. We went to retailers for some of it, some of it we donated, some of it we froze. Some of it that we froze, we've been able to move out, sometimes at a discount. That's one of the things that affected margins there at the end of the quarter, because we, we, we moved quick to get that done. We're past it. We don't have perishable issues now. You know, these are just things that we had to move quick.

We went to work on the perishable product that we had very quick.

We didnt want to.

Not except inbound orders that we had placed in good faith.

So we had a lot of perishable products that we had to deal with.

We went to retail is for some of it some of that we donated some of that we froze and some that that we froze.

We've been able to move out sometimes at it at a discount that's one of the things that affected margins there at the end of the quarter because we we moved quick.

To get that done.

And were passed it we don't have perishable issues now.

These are just things that we had to move quicker wondering I I've told several people is that.

George Holm: One thing I've told several people is that I sat with Jim in early March at lunch, we were in the process of having another record week, and he said to me, You don't seem to be real happy about it. Well, I'm like, Well, you know, we're just a couple months away from Cinco de Mayo and Mother's Day week, I don't know how we're gonna find warehouse people and drivers to handle that. It was, you know, it was worrying me. We always find a way, but it was worrying me. Well, instead of that, you know, within a couple weeks, we were worried what we're gonna do with all this produce and fresh meat. Things changed. I'm just saying this to, given to how fast things changed.

I sat with Jim.

In early March.

At lunch.

And we were in the process of of having another record week and he said to you don't seem to be real happy about it now one unlike well.

We're we're just a couple of months away from Cinco de Mayo and mother's day weekend I don't know, how we're going to find warehouse people in drivers to handle that.

And it was it was worrying me, we always find a way, but it was worrying me well instead of that.

Within within a couple of weeks were worried what we're going to do with all this project. Some fresh meats, so things change I'm, just saying just given to help.

Pass things changed and when things change that fast it's tough to get on the call like this and say this is where we're going to be three weeks from now or a months from now because we've just been through.

George Holm: When things change that fast, it's tough to get on a call like this and say, this is where we're gonna be three weeks from now or a month from now, because we've just been through such incredibly quick change. At this point, I think we're through with any issues to deal with perishable product. If you also think about perishable product, we're ordering it now in anticipation of more business, and we don't really know what's happening. When you talk about second waves, there's gonna be a second wave of perishable product issues. I don't think so, but we're gonna have that product available.

Such incredibly quick change.

So at this point.

I think worth through with any issues to deal with perishable product.

But if you also think about perishable products were ordering it now in anticipation of more business and we don't really know what's happening. So we thought about second ways to Libya second wave of perishable product issues I don't think so.

But.

We're going to have that product available.

Yes, that's a I'm sure it's incredibly tough and then.

William Reuter: Yep, that's, I'm sure it's incredibly tough. Then, in terms of you, you mentioned you have an $18 million bad debt expense, which in the context of all your receivables, is really not that big of a deal. I guess, does GAAP accounting require you to take the information that you've received subsequent to the end of the quarter and put that into your expectations around, you know, receivables and getting paid for those? Or is it just the information you would have received as of March 30?

In terms of you mentioned, you have an $18 million bad debt expense, which in the context of all your receivables is really not that big of a deal.

I guess does GAAP accounting require you to take the information that you've received subsequent to the end of the quarter and put that into your expectations around.

Receivables in getting paid for those or is it just the information you would have received as of March thirtyth.

So if we've seen significant change in information since the time, we closed yes, we would have inquired to.

Jim Hope: No, if, if we'd seen significant change in information since the time we closed, yes, we would have been required to post a subsequent event, and we did not.

Most of subsequent event and we did not.

Okay and then just lastly from me I think you had furloughed.

William Reuter: Okay. Just lastly for me, I think, you had furloughed a little more than 10% of your workforce. Do you feel that that's a sufficient amount at this point, based upon where you are?

A little more than 10% of your workforce do you feel that that day sufficient amount at this point based upon where you are.

Yes, what we did as we manage resources in payroll to the demand we're seeing at that time.

Jim Hope: What, what we did is we managed resources and payroll to the demand we were seeing at that time, and we will continue to manage it closely. As George indicated earlier, that was the bottoming out point that we saw in, in late March, and we'll just continue to watch everything closely.

And we will continue to manage it closely and as George indicated earlier.

That was the bottoming out point that we saw in late March and roll up we'll just continue to watch everything closely.

All very helpful. Thanks, so much.

William Reuter: All very helpful. Thanks so much.

Again as a reminder, address your question. Please press star one on your telephone keypad.

Operator: Again, as a reminder to ask a question, please press star one on your telephone keypad. Your next question comes from Edward Kelly of Wells Fargo.

Your next question is from Edward Kelly of Wells Fargo.

Yes, hi, guys again.

Edward Kelly: Yeah. Hi, guys again. Jim, just, I wanted to follow up on, on variable costs. You know, we, we, we had some discussion around variable costs, and they started going down. Just curious now that you're, you have more information, and as we sort of think about, you know, modeling going forward, how should we think about the variable cost component, you know, within, within the P&L as, as we're taking, you know, and adjusting cases on a go-forward basis?

Jim just I wanted to follow up on on variable costs.

We had some discussion around variable costs and the started going down.

Just curious now that you're.

You have more information and as we sort of think about modeling going forward. How should we think about the variable cost component you know within within the panel as for taking.

Adjusting cases on a go forward basis.

Yeah. That's I think the best way is to go back and look it for instance to Q1 or Q2 and think about it is.

Jim Hope: Yeah, I, I think the best way is to go back and look at, for instance, Q1 or Q2, and think about it as the cost structure is between 60% and 70% personnel, excuse me, typically. Mostly that's from truck drivers, warehouse workers, and the sales force. We've adjusted our workforce since then, including lending the employees to the grocery channel, the furloughs, eliminating positions, to adjust to the volume reality of today. If you calibrate back to that point and know what we've done with expenses, including almost eliminating T&E, and additionally piled on rerouting trucks, which gave us quite a bit of efficiency, you can model back from there.

The cost structure is between 60 and 70% personnel.

[laughter] excuse me typically.

Mostly thats from truck drivers warehouse workers in the Salesforce.

And we've adjusted our workforce since then including wind EMEA poised to the grocery channel the furloughs eliminating positions.

To adjusted the volume reality today, and we've taken other steps to reduce other expenses were possible. So if you calibrate back to that point in and know what we've done with expenses.

Including almost eliminating TNT.

And Additionally filed on rerouting trucks, which gave us quite a bit of efficiency you can model back from there.

Okay, and then related to Ryan heart.

Edward Kelly: Okay. Then related to Reinhart synergies and accelerated synergies, can you just provide a little bit more color on, you know, what got accelerated? Then as we think about the synergy opportunity going forward, is there potential for it to be larger than expected because of all this? What I mean by that is, you know, has any of this changed the way you're thinking about the consolidation opportunity on the operational side?

Synergies and accelerated synergies can you just provide a little bit more color on what kind of accelerate it and then as we think about the synergy opportunity going forward.

Is there potential for it to be larger than expected because of all that somewhat I mean by that is has any of this change their thinking about the consolidation opportunity.

On the operational side.

Yeah, we've talked about a number we put down a marker we put down on synergies across three years, and we talked about how the largest component of that was procurement was there was also some operational and headcount synergies to be at.

Jim Hope: Yeah, we'd, we'd, we'd talked about a, a number we put down, a market we put down on synergies across 3 years. We talked about how the largest component of that was procurement, but there was also some operational and headcount synergies to be had. What we've done is made sure that we took advantage and, and, managed the, the headcount resource synergies. We've also, we've also paid attention to procurement as well. I'm not gonna raise the target for synergies, of course, at this point, in the moment, we don't expect to change our 3-year target.

What we've done is made sure that we took advantage and manage the headcount.

Resource synergies, but we've also we've also paid attention to procurement as well I don't I'm not going to raise the target for synergies of course at this point and then the moment, we don't expect to change our three year target.

Okay, and then can I just ask you about this a you know the checks outstanding issue. So I guess, what why does that accounting change take place now and just to confirm there's there's no real impact to actual cash around this correct.

Edward Kelly: Okay. Can I just ask you about this, you know, the checks outstanding issue? I guess, why does that accounting change take place now? Just to confirm, there's, there's no real impact to actual cash draw, that's correct?

That's right thanks to add its a good question. So normally we don't carry cash on the balance sheet normally checks outstanding would be carried in trade payables.

Jim Hope: That's right. Thanks, Dan. It's, it's a good question. Normally, we don't carry cash on the balance sheet, and normally, checks outstanding would be carried in trade payables. Because we drew down on our ABL and carried cash, we were required to net checks outstanding against cash on the balance sheet. That change in accounting mechanics moves checks outstanding to cash flow for operations. Our objective in the release commentary was to clarify that we should move checks outstanding out of free cash flow to generate the free cash flow number we reported.

But because we drew down on our a b L and carried cash we're required to net checks outstanding against cash on the balance sheet. So that change in accounting mechanics moves checks outstanding the cash flow for operations.

And our objective in the release commentary was to clarify that we should move checks outstanding out of free cash flow to generate the free cash flow number we reported.

Okay, Great and George can I, just actually one more question sure if any on the new business that you. If you picked up the new chain business any color on on why the business move is what's your sense like normal business that was happened to be up for bid or is it is at the environment and just kind of curious as to.

Edward Kelly: Okay, great. George, can I just ask you one more question?

Jim Hope: Sure.

Edward Kelly: On the new business that you picked up the new chain business, any color on, on why the business moved? Was this just like normal business that was happened to be up for bid, or is it, is it the environment? I'm just kind of curious as to, you know, how your, how, like, how all of this is changing the way your customers are sort of thinking about it at this point.

How you're about like how all this is changing the way your customer just sort of thinking about it at this point well.

George Holm: Well, those, those accounts are, are chain accounts that we do business with in other parts of the country today. You know, they're just doing some consolidation of distributors, and actually, in each case, we were speaking with them before this happened. Matter of fact, seeing the two of them were the last trip I did before this happened. It, it was something that was in process, so I wouldn't relate it to the, this COVID-19 at all.

Those those accounts are our chain accounts that we do business with another part of the country today.

And.

They are just too and some consolidation of distributors and actually in each case, we were speaking with them before this happened.

Matter of fact, seeing the two of them where the last trip I did before this act.

So it was something that was in process, so I wouldnt related to that.

This call that 19 at all.

Okay, great. Thanks, guys.

Edward Kelly: Okay, great. Thanks, guys.

Yes, and the last thing I wanted to add but before we are we sign off here is just just thanks for understanding that it's difficult right now to to give any color on what we see coming up and I thought the questions were great and I hope that you understand that we weren't being.

George Holm: Yeah, the last thing I wanted to add before we sign off here is just thanks for understanding that it's difficult right now to give any color on what we see coming up. I thought the questions were great, and I hope that you understand that we weren't being evasive. We're just giving the best information that's available to us now. Thank you.

Evasive were just given the best information that's available to US now and thank you.

Thank you that is the conclusion.

Operator: Thank you. That is the conclusion of the Q&A session. Now I'll now turn the call over back over to George Holm for any closing or additional comments.

Your next is you know after the call back over to Georgia home for any closing for additional comments.

Bill Marshall: Thank you for joining our call today. If you have any follow-up questions, please contact us at Investor Relations. Thank you.

Thank you for joining our call today, if you have any follow up question. Please contact us at Investor Relations. Thank you.

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