Q1 2020 Earnings Call

Lastly given that dramatically reduced volumes we quickly put measures in place to bring both fixed and variable costs and line with reduced volumes. So as to conserve cash or third guiding principle and distribution which accounts for the majority of our operating expenses, we quickly accomplished the right-sizing of our cost structure through a combination of furloughs and temporarily Contracting summer drivers and selectors to retailers were experienced a surge and demand the Slater the slider measure has the added benefit of helping us retain this experienced Workforce for an eventual recovery. I will now turn it over to Dirk who will Begin by discussing the other measures we have taken to align our cost to current volume and the measures we have taken to strengthen our balance sheet dirt road.

Thank you for calling good morning. You heard Pietro talk about the steps. We've taken to manage our variable distribution costs.

We've also taken a number of actions on our selling and admin costs and other activity in managing our capex and working capital as well.

Within our selling organization, we furloughed some sales support Associates and reduce the size of our sales force to match the lower case volume. We're likely to experience over the coming months.

Our team-based selling model and Technology position us to continue to support our customers in the way that we have before which is important in this challenging environment month. We will continue to actively monitor the pace of the potential recovery and believe we are well-positioned to take advantage of the future growth opportunities.

On the admin or more fixed cost side of the business. We've also taken actions to address our cost structure including and acted furloughs for corporate and field. Admin Associates wage implemented hiring freezes and deferring annual Merit increases.

Taking temporary salary reductions and put in place for associate to the manager level and above board compensation temporarily reduced. Finally. We've also significantly reduce aggression area spend and costs such as travel marketing and Consulting.

all of you

Actions are designed to preserve cash as we navigate the current unprecedented situation.

More broadly in cash management. We've also paused non-critical capex spend and are actively managing all areas of working capital.

Today, we've had good success collecting outstanding accounts receivable balances with approx 80% of our pre covid balance is collected while this is a good start. It is too soon to know the full extent of customer losses and the resulting impact on our working capital.

Catcher previously mentioned we recorded the $170 uncollectible account Reserve as an early estimate of future receivables of total losses expected and are actively working to lower this Reserve amount through our collection efforts.

We're also managing down our inventory levels to reflect the lower volume and have temporarily extend that our accounts payable terms.

As volume returns, we would expect accordingly to reinvest to increase inventory and expect to reserve resume to our normal payables Cadence.

Apply 10 to Acquisitions. The Food Group business has seen case volume declines that are very similar to those get your disgust for the Legacy business as a result of social distancing restrictions. We paused integration activities, and she'll travel resumes and restaurants reopen.

As a result of this paused we do expect the delay in achieving Synergy targets that is in line with the delay for integration activities. Once it is safe to resume. We're prepared to quickly restart our integration activities.

On April 24th, we closed smart Foodservice acquisition as a reminder smart Foodservice is a network of 70 small-format Cash & Carry stores that generated $5 in 2019 adjusted ebitda at a 78% margin rate.

One of the reasons this business is attractive to us is that it's leading position in the $17 cash and carry Channel which has higher growth rates and better margin than are delivered business.

Existing Chef stores have shown us the cash and carry also results in Greater share of wallet with delivered customers.

The sales growth opportunity combined with smart Foodservice is attractive ebitda. Margin make the future growth opportunities that much more attractive.

In addition the Cash and Carry business typically performs while during economic downturns. April case volumes were down five to 10% from a year ago versus down roughly 50% for our delivered business office.

And economic downturns more customers appreciate the value offering the cash and carry and our smart Foodservice and Chef store's locations provide.

Let me just slide 11 the financing actions. We've recently completed position as well to regardless of the length or depth of the economic recovery securing this additional liquidity was important given the uncertainty surrounding the impact from covid-19.

We Believe

You are available liquidity positions us to emerge as a strong competitor post covid-19.

We've spent quite a bit of time understanding potential impacts to the business depending on duration and severity of covid-19 for coverage scenarios and believe two are the more likely

quicker recovery, which would entail a gradual and phased recovery across the country beginning in 2020 and continuing the 2021 or a slower recovery, which entails more choppy k-bap through 2020 and a more fulsome recovery beginning in 2021. This includes the possibility of a second downturn in both of these situations. We have ample liquidity.

Furthermore, we've also modeled a stress test or down tight scenario scenario are modeling indicates that even under the stress test scenario with no recovery until the second half of 2012 one and only a gradual recovery even after that the second half as well as a significant slowdown and customer receivable collections. We have sufficient liquidity to whether this type of extended downturn

Moving to 12 on flight 12 you can see the number of transactions we completed recently and that I referenced we thought it would be helpful to provide an estimated view into net debt and liquidity off as of the end of April 20th post to these transactions. So the April view here is our pro-forma estimate of net debt and liquidity as of the end of the month.

Summarize we completed a $500 preferred Equity offering that will fund tomorrow.

a 1 billion dollar senior secured notes offering and a $300 Term Loan

For completing the KKR transaction, we evaluate a different forms and sources of capital raised including public common equity and ultimately determine the preferred Equity investment from off the best option in part due to the fact that it expected to be less diluted over time for existing shareholders.

The proceeds proceeds from these offerings were used to fund the smart Foodservice acquisition and to strengthen our overall liquidity position.

On the left side of the page, you can see the change in our debt structure and liquidity as a result of these transactions. We completed one other change to our capital structure as it relates to our revolving credit facility. We closed and paid off the ABS facility and are moving their receivables that back that facility to our abl facility. The abl facility will now be approximately two billion dollars off the covenants under the abl facility are more flexible and moving our receivables to this facility better preserves our liquidity during the downturn.

As of the end of April we had an estimated one point six billion dollars or perform a cash on hand which gives us flexibility and allows us to operate the business from a position of strength.

The net effect of the recent financing actions results in approximately eight hundred million dollars of additional liquidity giving us total estimated liquidity amount of 2.4 billion as of the end of April.

Overtime liquidity amount will likely decline some Hazard receivable balance declines.

Until such time the case volume rebounds in a more meaningful way and as we return to our normal payables Cadence as I previously mentioned, we believe this is more than an up liquidity liquidity down to whether this crisis regardless of the duration and even the stress test or down scenario that I spoke of previously.

Movie going to slide thirteen on March 23rd, we withdrew our fiscal 2020 fiscal guidance and due to the uncertainty surrounding covid-19 were unable to provide an update on fiscal 2020 guidance at this time. We do expect covid-19 to have a significant impact on our Q2 2020 results with some form of recovery coming after the second quarter.

At the present time is too early to tell with this recovery. Looks like we do look forward to providing more details on our next earnings call.

Regardless of what the recovery looks like the new recent financing activities that we've completed are expected to allow us to operate from a position of strength when covid-19 pass along while the future's uncertain. We operate in a large Brazilian industry and are well-positioned to serve customers needs as this recovery occurs.

Without operator. We cannot open the call for questions. Thank you.

Thank you at this time. I'll wait remind everyone in order to ask a question, please press star then one on your telephone keypad again star one to ask a question to a rep.

Your first question customer Judith broader with Credit Suisse your loan is open.

Hey, good morning guys. Thanks for taking a question and for all the color, you know, maybe if we could just start out. You know, what do you seeing, you know between your independent customer chooses your chain customers, you know not only in terms of recovery off of the bottom. But as we see the independence kind of continued to struggle with volumes in their store. Are you seeing any extreme level of closures from those Independents that could potentially offset the faster recovery from chains?

So thanks Judah. So during the most of the last six weeks there was minimal difference between chains and independent restaurants in terms of the volume declines and the speed with which those volumes declined. There was a a little bit more resilience from the sector but generally both were very much in line with each other and it's it's premature to say, you know, we do expect some closures. I think the NRA has called for office closures on the order of ten or fifteen percent. I don't know that anyone knows exactly where closures will be and they'll be closures on both the corporate side the corporate change side and on the the independent side. So, we we believe that ultimately, you know both as as this sector recovers, I think both both chains and both Independents have an ability to wage.

Just thrive.

Her dark say that the sales force was rationalized to some extent. You know, I think your your public competitors have kind of talked about leveraging the size of their sales force as others kind of pull back and wage, you know don't necessarily have sales people selling into existing a new account right now. So can you just remind us of the approach, you know between the team-based selling approach and and maybe some technology on top that's a month to make sure you continue to kind of build marketshare While others may be pulling back through all this. Yep. So you're right to data the combination of Team based upon our strong e-commerce platform or value-added Services we believe is that is a better way to grow profitably and and with both with existing customers and to acquire new customers and that model continues that we did make some small adjustments to the the size of the direct sales force or not the same

Port side of things not that not the team behind the team-based selling but the the direct sales force and that's because again as we expect a lower smaller number of of customer due to some closure if we wanted to right-size the the sales force and ensure we put our best talent forward as the sector recovers.

Okay. Thanks and good luck. Thank you.

The next question concerned but it's been insufficient. I don't speak gathered color. Please state your name and company name is open.

Again, excuse for a question your line is open. Please state your name and company name.

William writer Bank of America

Good morning.

Go ahead William. Oh, hi, sorry about that a little bit of a difficulty there. I was just wondering if you could talk a little bit about if you've experienced any challenges with regard to perishing and those becoming stale and and I guess if there could be future write-downs of that inventory and the subsequent quarters. Thanks.

A good morning, this is Dirk. So yes, we've had some limited lots of two dates and really as we we've quite actively managed through that across each of the perishable categories. Thursday is um, you know, not a sort of meaningful driver of the overall results, and now are quite actively managing that from week to week as we go forward with the volumes where they are dead and have have done a combination of things of moving things around our distribution centres and finding a partnership with various retail and others in order to submit amai's the loss of income tax base wage rate, and then just one follow-up for me. Can you talk about maybe quantifying any headcount reductions that you have thus for far implemented and if you expect that there could be further reductions that are going to be required if demand remains at lower levels. That's it. Thank you.

Thank you. So so far we haven't talked about a specific amount. But what we've done is we have talked about some of the the

Cuz we're taking on the sales organization and then the rest of the organization from admin we've taken a number of steps where we've we've handled it to date primarily through temporary furloughs and you know meaningful portions, uh to reflect the the environment we were in and really handling those on an ongoing basis. So as the environment continues to evolve will continue to specifically manage through that from short-term a more permanent permanent actions as far as managing that just being really smart with our ongoing admin costs and the environment we're in

Okay, and and I just want to

Great. Thanks so much, and sorry for my technological challenges. No problem. Thank you.

Next question concerned participants information to be gathered, Please state your name and Company the line is open.

Again, the computer for a question. Please state your name and company name your line is open.

This is Geoff Bernstein from Barclays. Can you hear me?

Yes, good morning. Good morning. Thank you to questions. This one looking at slides five appreciate the granularity specific to the presumably down the line for the restaurant industry. I'm just wondering what one maybe you can provide the data points, but it looks like the trough is down more than 60% the week of March twenty. Eighth. Um, it seems like you said most improvement from there, but maybe it's it's kind of flattened out or stalled out that down what looks like 45% So I'm just wondering whether you'd anticipate meaningful further gains from here or the time frame for that and whether you're surprised by the lack of further upside of late, it's wondering maybe what sales assumption you have in your models for coming months for that restaurant line, and then I had one follow-up.

So I wouldn't put too much emphasis on just one week which I think is what you see in the flattening. I think we we continue to see a steady increase in a business with restaurants both chains and independents. And as I mentioned that business is that that incremental business is coming from takeout and delivery as both restaurants and consumers become more interested in more Adept at participating in that channel and then as more and more restaurants continue to open over the coming weeks as long as the shelter-in-place orders get lifted and and we know from our conversation with the feel that that our sales people are having with customers that you know, they are all over the coming weeks. They're all planning to talk to reopen and I think you'll see that that yellow line continued to Trend steadily upwards.

Great, and then I believe he made comments in your prepared remarks about potential Market opportunities from perhaps some of your smaller distributor competitors. Just wondering if any qualitative commentary into in terms of the challenges. They're facing and in terms of the opportunity to take accounts from those smaller competitors what you've seen in the past and creative challenge or what not in terms of the survival rate of those Independents the opportunity you have to take share. Yeah. I think it's you know, what we are going through is is really unlike anything we've seen in the past. So it's hard to really use use the past as a as a predictor. But as you can imagine, you know, given our scale and are in the strength of our balance sheet you what you would expect for us to have the ability to properly gain share and as I mentioned, you know, there are some some customers out there. For example, yep.

Will customers with whom we're having conversations who are concerned that.

Their their existing smaller Regional players or smaller more local players, you know are being significantly stressed by by this crisis off again, because of the liquidity we have from an inventory perspective. We have the ability to respond quickly to anticipate the needs of our customers something that perhaps a competitor is not as well cap might not be able to do so, I think there are a number of reasons why you would expect the larger more well capitalized scale players to to come out of this stronger than perhaps some of the other players in the country.

Understood and then lastly just to clarify I think Dirk you mentioned, you know on your liquidity slide roughly 2.4 billion currently and I know you mentioned that you're very calm with that amount going through the middle of 21 or even to the under-21s. It seems like you got a you know a year and half or so when you feel very comfortable that would seem to imply a you know, the cash burn rate of north of a million a month. Just wondering if that's a fair assumption assuming sales of these current levels would no presumed recovery. Just trying to get a ballpark on that cash burn rate by week or month or whoever you look at it.

Sure, I'll just reiterates my my comments about the the confidence over that time frame as you point out that it's you know, a very stress test scenario of no improvement through the month next year and even modest after that. So and then there's also working capital which is just as important from a cash impact and the uncertainty and exactly what that recovery looks like make some working capital little less predictable. That's why we're really not sharing a specific phone number for these reasons but uh, the comedy really feel very good about our liquidity and that we are managing cash quite prudently across the operations are working capital office during this downturn.

Great. Thank you very much. Thank you.

Your next question customer Carla Casella with JPMorgan your line is open.

Hi, I'm wondering if you've added a lot of retail customers grocery type after covid-19 the overall mix shifting long-term. And where do you think that could go? So this is I think the there's two opportunities with the retail business that we've been able to that we've been able to advance to take advantage of or anticipate. The first one is we've provided, you know, additional capacity called surge capacity for the for the while those retailers were stressed month additional access to perishable inventory that wasn't necessarily available at the time and that that business has been good for us because as I said, it provided some additional Baseline volume and helps keep our Workforce experienced Workforce in place.

I don't expect.

That business to to be in place over the long term, but but some of it will for sure stay in place and will be just will be judicious about the the right profile of the of of that business where there's a good fishing having said that what we've talked in the past about that section of the grocery store which looks and feels more like a restaurant the grocery want and that is right up our dog house in terms of the types of products. We serve the margin profile associated with that business and that's where we anticipate that these some of these new relationships that we have 4 a.m. Will allow us to accelerate or ability to to penetrate that part of of the grocery store which we see as an extension of of food away from home.

Do you give a sense for how big that this is can be? I'm just wondering if the business you're bidding on for that is continuing to grow and how saturated that market is you, that's the second part the the grocery type business how big that is exactly. Yeah, it's it's hard to say. There's no real good faith estimates at this point, but we do see an opportunity to kind of accelerate our position in that in that sector exactly how big the size of prize is if they could feel bitter about to say, okay and is it competitive systematically different when you're looking at that part of the business?

It is a little bit. I think you've heard some of our other competitors also be interested in in that space and they they also serve by a different mix of of wage editors. And I think what what the recent crisis has done is just allowed new relationships to be formed. Right? It's it's shaken things up a little bit which provides an opportunity for us.

Great. Thank you.

Your next question comes from John Hahn back over with big and hold your line is open.

Can you hear me? Good morning, John. Hey Patrick yet seen or is it too early to see a significant pick up incoming inquiries from some of your home scale challenge competitors and are at this point. Are you pretty Channel agnostic meaning independent shame, you know, you'll pretty much take you know, cuz you have a lot of capacity take business where you can I ask you said inquiries from competitors your competitors or customers don't know increase from customers who want to leave. Yes scale challenge a competitors. That's what I thought. Yes, we have. I thought it I thought I actually made that point in the in in my remarks. We have seen some and you know, they've they've just expressed concerns about some of the competitors are Distributors who who serve them.

Talk to say whether there's some of those concerns are well-founded or not.

I think it's what you would imagine and so we we have and and we believe when we look at our our pipeline for the second quarter. We believe there will be some customers are able to bring on because again age of the concern about the viability of some of the smaller smaller scale competitors.

And the the the idea of being agnostic is to write you you actually run a warehouse Network that supplies both Independence the chain so it kind of works for you, but I'm fairly agnostic at this point. We're trying to agnostic. Sorry. I didn't answer that second part. Thanks for the reminder. Look we we as the landscape of Al's between you know in the page and change obviously will continue to be flexible and opportunistic. I know there's a lot of concern out there about independence but Independents are you know, very resilient bunch and I'm a consumer mindset perspective. There's always going to be for many a preference for the independence. You just look at how they've gone into the curb side business. I mean, it's the fact that they have recovered as quickly as some of the chains I think is is is is telling

I would say we I would say we definitely you know, the margin profile with the independence, you know continues to be we expect to continue to be more favorable but we do see from the from the chain side of things, you know, especially if capacity and Industry shrinks a little bit as a result of of this crisis, then I think that potentially narrow the gap between the independence and the chains which makes the chains, you know, relatively more attractive to us and as well, you know, the the we've always had were very opportunistic and selective about the kind of business we bring on we're kind of done with some of the pruning that we did in the last few years. In fact in the second quarter. We have a number of Georgia Regional change that we are bringing on board that will that will help that business.

Then just lastly right? If you look at your your average existing customer. I know there's no good average, but had your market share I'd share of wallet, right? So is that kind of in the same the mid-30s and where can that go right in an environment? Which seems it's much easier right for someone to just consolidate more business with you than to leave somebody else entirely. So that would be a big job opportunity or no. Yes. I mean, I think we we set at our investor data our our share of Wallet nearby. It's an average which has a big distribution around is around 30% And I think that there there will be an opportunity to to increase our share of wallet. You know, if demand is is is lower for some period of time I think that presents an opportunity for the restaurants to consolidate the number of Distributors. They have to make it economic for them and for us and again, I think we are well-positioned from an inventory prep.

active, you know

Give you an example. We have this, uh, uh, exclusive relationship with Channel now which puts customers in the takeout business economics of it are are very favorable compared to GrubHub or doordash the way those economics traditionally were positioned and the percent of the customer paid open. We're on channel Now versus those who are not was significantly higher and the the amount of Interest we've had is has been, you know, really through the roof. So again are off. Perhaps customers didn't think they needed I think position as well to to to make those kinds of share of all games that you're referring to.

Thank you.

Your next question comes from Edward Kelly with Wells Fargo open.

Yeah. Hi guys. Good morning. First question I have for you is just on the the uncollectible accounts right down the hundred seventy million dollars. It's it's more than I've seen it appears. So I'm just kind of curious if there's something different about your account based. You know, how it's calculated and then how you would assess any risk from here?

Sure. Good morning. Ed Sheeran. I'll take that. So as you noted we increased our reserve for bad debt 170 million dollars specifically related to a month and that's our best estimate of total expected losses. And so we were a little more conservative in order to reflect that estimate of full losses. So our current election so far actually trending favorably and as we have our Sales and Credit teams working quite closely together along with our customers and so we've got about 80% of our pre covid balance is collected all ready to date. So we would hope that the N collections exceed our original estimates and would be able to reduce the reserve and future quarters. If collections do come in better than our initial estimates and ultimately are monitoring that pre and post office at balances and really not seeing any deterioration and our postcode was compared to what we saw in our historical a are so uh think of it as full expectation of losses and working to wage.

Too bad. Okay good and then just over the next few quarters and I know you know, it's it's it's very difficult to give any kind of guidance at this point. But over the next, you know few quarters as we start to think about, you know a cute to trough and then sort of, you know, reopening after that. How do we think about the cost structure the business, you know, like what you've been able to take out and cakes to offset the lower volumes and then as things reopen how does Klaus come back and that variable component change given a drop sizes will be larger things like wage which are smaller that you've got to deal with.

So right on that.

So if I can push start with a variable cost we really managed quite actively to try to take a high percentage of our variable costs out. So, you know call it a relative to the early fifty percent reductions in volumes taking, you know, roughly 30% of variable costs up. So there is a portion in there that you're not going to void take out. So it's really managing and putting good process in place as volume declined Thursday. We would expect to manage effectively on the way back up. So it's it's adding cost back smartly aligned with that and I think that that positions is quite well as volume comes back with those variable costs wage distribution selling in the like you got the admin side. What we tried to do is just we've tried to be really smart in the way we've done that the furloughs in the reductions is really so that we're not taking money away from those business critical functions. And then again, we'll reinvest back in those areas of bringing those folks back at volume recovers. So what I would expect is I would expect the phone number.

Results to continue to get better and trying to really minimize the the noise as we're seeing volume increased back up because also we want to make sure that volume is increasing back after we're doing our best choice of our customers effectively both from a inventory deliveries Etc.

Okay, and then just last question for you, probably can you maybe just help us understand? You know the mindset of of a of a privately-run off her, you know who is over half of this industry. I would assume today. They're trying to work down inventories just generate cash. What what does recovery look like, you know about this group if you had to and I know this is hard, but if you had to take a guess, you know sort of as we think about the other side of this how much of that competitive that is is actually going to Rome mean I think that's the one thing that you know, obviously there's a lot of unknowns right now, but it's obviously a large opportunity but difficult to size figure out the timing right what it could actually mean for you guys. I I don't know if you have any thoughts there whatsoever. Yeah. I know. It's a good question. And as you said it's one that's hard to answer. I think it depends and depends on Thursday.

Where that distributor is on a number of Dimensions, you know one kind of succession generational planning, you know, some of them have good succession plans in place others do not and we know that from just are you know, just m&a activity over the last few years. And then the other one is just how well capitalized. There are some have been, you know, very very conservative in terms of how they've managed their balance sheets and and and and others have been less so, you know, which is what you'd expect a month and we've heard they're you know that there's there's a set of of Players whose names keeps keeps popping up in terms of having potential stress. So but it's it's hard to quantify the mix of the two.

and the timing of of decisions

Being made, you know from our perspective. What we're ensuring we do is is you know from a market share gains perspective and ability to respond to those a customer needs that we are we are there, you know front and center and seen as as you know, the best alternative for for those customers.

Great. Thanks guys. Good luck. Thanks.

Your next question comes from Kelly with BMO Capital your lot is open.

Hi, good morning. Thanks for taking my questions for all the all the color wanted to just ask a little bit more on on Independence any any help on just how many of your Independence or what percentage are operational right now and and just any color on how long he has been for that sector what percent of your independent customers were able to secure some assistance there what the feedback has been and and just as we think about the open process across the country what what these capacity restrictions, you know how that could impact these Independents whether it's twenty-five or fifty or whatever is happening in each state. Just what what kind of feedback you're hearing from customers on how how they're kind of managing that restriction on on the dining in portion. Lots of questions there. But yeah, yep.

Lot of questions and I think you know, I think the the general headline would say is you know, we're still learning. They're still learning. That's why these these seminars we do in a one-on-one consultations we do with with those customers are are helpful to us in terms of being agile and Nimble and in terms of what kind of help we provide for them and they're also helpful for them on the PPP some definitely have received. We definitely heard of of customers receiving the funding and some of use that to to reopen as you know, the PPP is directed towards payroll and a certain percent has to be towards payroll to be forgivable. So it's it's created in in some places kind of odd incentives for for customers to perhaps bring back more workers or works at higher wage than they otherwise might but it's definitely had an impact in terms of of of reopening dead.

I don't know that we know what percent of customers have have actually received the second one in terms of the opening and closers wage. Look there's more restaurants reopening every week. That's what we hear from from our field leaders that we talk to every week and going to your third part of the questions about the restrictions. I think I'm some are planning to reopen but our we've actually surveyed our customers and and in terms of how quickly they plan to reopen and and it's in the neighborhood of you know, what you would imagine next one to six weeks some are waiting to see or two for the restrictions to be a little less strict than they are. So 25% capacity seems hard time each and they're waiting for the 50% threshold. Those are opening right away cuz just they want to get back in business. It really is is a mixed bag and I think the I don't know that wage.

We see today or next week or the week after.

Is ultimately representative of where how the industry recovers. I think we want to be there to help our customers every step of the way, but I think we have to look out a few months when we get something that is not not covered but closer to a level of normalcy that that provides, you know.

Relatively good traffic for for customers and relatively good business for us.

Okay, thank you. That's that's helpful. And then the other thing I would add really sorry is as that wasn't part, you know, what motivated our desire to you know, strengthen our balance sheet and and thoughts and get the additional liquidity. You know, we've had some questions around that and and you know, we we said to ourselves with no one really knows there's a range of brought outcomes that are possible and and no one really knows you know, which of those outcomes is most likely it depends on public health decisions that if depends on how the virus develops depends depends on the consumer mindset. So, you know what our posture has been to to have the utmost flexibility in that most agility to respond to the situation as it unfolds.

That's that's helpful. I guess in terms of you know, potential market share gains as the unfolds. Do you see more opportunity on the Chain side or the independent side? Because I I guess I would think that some of those smaller Regional Distributors maybe over index to the independence but maybe just help us think about what that looks like and and what in your markets that could potentially look like over the next couple of years, I think opportunity is both. I mean you'd you'd be surprised that some of these larger National Concepts, you know, they've you know, they typically take the country and break up into a number not always but they often take the country and break up into an allocated to a number of smaller Regional Distributors. I mean we have we have some customers they share their business with

12 other Distributors across the country and so in their lives the opportunity because we you know, we believe and and others believe that some of those will be stressed. So so I think I T 4 market share gains is I think at this point equal in both some of the chain business and from the profitable chain business and some of the Independent Business

Thank you.

The next question comes from John ivanko with JPMorgan your loan is open. Hi. Thank you very much. Hope everyone as well it just a couple for me. I personally if you an Cisco talk about thirty percent market share per customer. Can you remind us like what if there's any you know type of commonality of the 70% of share you don't have money, you know kind of coming through this crisis, whether there's an opportunity, you know to kind of add in to that 70% You're currently not serving is the first question and then secondly, you haven't you, you know talk to them about, you know, acquiring some of the regional or local Distributors, you know that are financially stressed for a number of different reasons. I mean, are you in a position you're just in terms of overall integration and back to where you know a certain businesses were offered to you with a very low price. I mean a very low price of something better than zero if that operator thought, you know, zero was going to be the eventuality weather wage.

Can actually start to actually by your company.

He's at this point as opposed to just you having their customers come through attrition. Thank you.

Okay, I'll talk about the the the the show while the question and in the answer there is you know, I think we've talked in the past how you know, you get to two types of customers. It's interesting that that page also estimates their their share of wallet at comparable to two hours. Yeah, you know within the independence you have some who tend to have a more exclusive type relationship with their Distributors. We have we have some of those and I think those are the the ones that we prefer because they they provide certainty and provide wage, you know better cost to serve and then for the others I think as I've said in the past they typically, you know, either are hedging their bets in terms of pricing or Supply or they prefer some of our local fresh juice Distributors From reputational perspective and I think opportunities in those two segments of Distributors the local and Regional I think will will occur and like I said,

Some are well-run and well-capitalized and and others are not but you know, you don't need too many of them to to be stressed to provide some good market shop drinks and that's where our Focus will be will really be in terms of gaining share from from those competitors sure and I think ignoring John I think the from a integration in such our immediate focus is around really wage going to integrate food group and how smart Foodservice which is much less, uh effort to integrate it really doing that. Well along with getting our our Core Business going. I think it's, you know, kind of TD off some of these other bit smaller size Distributors if they struggle more, you know, what that may or may not entail from whether it was a transaction or just focus on taking the business office get those opportunities. But again our our top priority remains really around getting those other two really integrated quite well and in in continuing to strengthen our Core Business and wage

Two opportunities that were excited to have completed.

Thank you.

The next question customer Chris made the bill which reference your loan is open.

Good morning, guys, I guess as you continue to engage with your customers throughout this time frame and as it kind of come back online Thursday their best to reduce costs while they're realizing limited capacity or just capacity constraints in general. I'm just wondering if you could touch on private label penetration today. So I'm slides before it doesn't see one. But where is that in terms of overall penetration and really could that be somewhat of a silver lining with respect to the current environment where you might be able to walk over to be Bridge your gap between yourselves and your peers in terms of that penetration rate.

Sure, that's a good question. I think that that's your point. It's

So, you know similar overall percentages to where we've been running and this is just as we've talked about I think in the past from time to time and and even just typical downturns you tend to see more operators who have offered opportunities to to do this conversion and helps them from a cost and and so are are sellers are going to continue to focus on those penetration opportunities. And and that is I think the uh, I think silverbolt is a good term to use an opportunity for us to continue because it really is uh a great way for us to help those operators see value along with increasing our wage penetration rates.

Is there any way to really just articulate where you are today on penetration versus your peers?

Well, when we you know, they don't all necessarily distribute. So the the one compared to our larger competitor will be looked at historically is that we've been off basis points below where they are and have continued to focus in recent years about so growing by that, you know, eighty to a hundred basis points per year and getting our penetration up cuz it was we think over time there is no way that our penetration can't be at that level and the question about why can't we go faster if it really comes back to just because operators tend to want to try new products Etc as as they do conversions. So we see lots of Runway ahead of us still for for growing here.

Okay, and then just on the inflation front so you realize some modest inflation in the quarter itself, but in light of some severe declines in Dairy and really where the protein complexes and great flux right now. I mean any way to to square up a frame-up how we're looking today or what the expectations are for calendars do too.

No, it really is to to your point. Saw some modest inflation in q1. It was a little bit lower than worry bad. And I think just because of some of the potential volatility and some of the center of the plate way to predict exactly what we are doing is really managing through that trying to do it effectively as we talk a lot of times with Senator the flight. It's really a benefit of most of our businesses that tends to be past Thursday. It's just a matter of you know, contract being a saturation or through wraps of passing that through and and in this scenario as you see that it's also going to be about reps working with our customers off so that if you have inflation a particular category helping those individuals with whether it's a portion sizes or alternative Solutions alternative protein sources that set as we work through but factual level by itself is a little harder to predict at this point.

Okay, I'll leave it there. Thanks guys. Thank you.

Rebecca with Morning Star is open

Good morning, and thanks for squeezing me in you know, I know it's early but do you have a sense of how willing consumers have been to go back into restaurants in the region that have that open the dining room, you know are your field leaders out there doing any kind of checks? Thank you. So the the I mean, I think what was remarkable about this crisis is that uh volume felt or declined very quickly in every part of the country whether there was a shelter-in-place phone not just consumers seem to respond very quickly to what you know was the was the what was being proposed in terms of flattening the curve I think month since then what we've seen is rural areas recover a little bit more quickly than some urban areas. I think the research shows that younger consumers are probably dead.

are willing to

Get out more quickly than perhaps some of the older populations. But again, those are those are those are Trends or that I you know may impact see what happens in the next few weeks and months, but I you know, in terms of the ultimate health of the industry longer-term, I I wouldn't I would be hesitant to put too much weight on some of that.

Okay. Thank you very much.

And your last question comes from Jeff restaurant is open.

good afternoon so we look at the mix of the business as you guys talked to it in my old notes I had you guys is 1/3 Chainz the third Independence and a Thursday no hospitality and health care and other how do we look at that mix today where you guys are seeing that that change sure good afternoon so what what we haven't specifically talked about that we focus more on is that approximately two-thirds of our business is across Independence health care and hospitality and the remaining third has been crossed chain uh education government Etc and what I'd say is our our Focus there in more in a recent times is about probably growing those Target segments and then as petrol alluded to earlier for the change it's about really smartly adding those customers where it makes sense for us from a capacity and profitably yep

And that's where even some of the new business prospects that he's talked about that we expect on board in the coming months that are chain business is about really making sure that they they are the right fit and in these cases where I look forward to bringing them on board.

Thank you very much guys. Appreciate it.

Okay, I think yeah, I think about dealing with question. So I just make a couple of closing comments, and then we'll we'll we'll in the call. So I want to again close by faith in our Associates have been just just terrific and and who continue to play a vital role in ensuring the food supply of this country, and you know while our industry is clearly been dramatically impacted by the choices. We do believe that our industry will ultimately recover and that the combination of our differentiation strategy or ability to become a leaner and more agile company and the ample liquidity that VIN placed leave us in a position of strength to emerge from this crisis. We appreciate all of you tuning in today, and please be safe. Have a good day. Thank you.

Today's conference call you may now disconnect.

Thursday