Q1 2020 Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome to the well built in 2020 Q1 earnings call. At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to asked a question during the session you'll need to press Star then one on your telephone keypad. Please be advised that today's conference is being recorded if you're quite.

Further assistance. Please press star Zero I would now like to hand, the conference over to your speaker today Rich Sheffer. Please go ahead Sir.

Good morning, and while new well belts, 2021st quarter earnings call and webcast.

Joining me on the call today is Bill Johnson, our President and Chief Executive Officer, and Marty Inc., Our Chief Financial Officer.

Before we begin our discussion please refer to our safe Harbor statement on slide two of the presentation slides, which can be found in the Investor Relations section of our website www dot well built dot com.

Any statements on this call regarding our business that are not historical facts are forward looking statements at our future results could differ materially from any expressed or implied projections or forward looking statements made today.

Our actual results may be affected by many important factors, including risks and uncertainties identified in our press release and in our SEC filings.

We do not undertake any obligation to publicly update or revise any forward looking statement, whether as a result of new information future events or other circumstances.

Today's presentation and discussion will include both GAAP and non-GAAP measures. Please refer to our earnings release for our non-GAAP reconciliations another important information regarding the use of non-GAAP financial measures.

Now I'd like to turn the call over to Bill.

Thanks, Rich and good morning.

Im extremely proud of the way our well Bill team has stepped up to the challenges we are currently facing.

Not only received 100% participation in our voluntary salary reductions many of our people have volunteered and their local communities. While our plants have donated personal protective equipment to their local hospitals and first responders.

Positive attitude to do whatever it takes for as long as it take gives me confidence in our ability to emerge as a stronger company. Once this crisis abate some business conditions begin to normalize.

Before we get into our first quarter results I want to share well built business responses to the Covance 19, pandemic and give you a little more color on the current environment for the commercial foodservice industry.

Starting on slide three.

You can see some of our responses to the crisis.

I'm not going to cover each individual item on the slide will point out that our early recognition of the magnitude of this crisis created an urgency within well be able to create meaningful responses across our entire company.

First and foremost was ensuring a safe work environment for our employees, who couldn't work from home, while making sure we had the infrastructure to support those that could work from home.

We quickly reduced discretionary spending in early March we fine tuned our plans to implement broader cost reductions later in the month.

Our early started in working with the banks in our revolving credit facility allowed us to be near the front of the line and complete the amendment in a timely manner.

Marty will cover the specifics of our cost reduction actions and the revolver amendment during his comments.

Coming out of this pandemic there are certain trends that will accelerate in the short term and may have longer lasting impact on industry over the course of the next several years.

We began working with customers to help them adapt to the new social distancing paradigm that will likely be with us for a long time.

One of the outcomes of this crisis is likely to be an increased focus on goes kitchens.

Today as a result of the pandemic nearly every restaurant has been transformed into a goes kitchen.

The number of goes kitchens in the U.S. is expected to increase between five to 10 times by 2024 compared to today and well, but is seen as a leader in modular design menu management integration with apps speed cooking and mobility.

As the industry reset more companies may decide to eliminate the dining room altogether and capitalize on longer term off premise trends.

Also important to the operators of these goes kitchens, it's having both hot and cold equipment have common connectivity.

We are actively increasing our focus on this important and growing market segment opportunity establish well build as the preferred supplier to goes kitchens.

We're also increasing our marketing emphasis on the enhance sanitation features that are already designed into our equipment. Today. So customers are aware, the health and safety benefits they get from owning well bill equipment.

One example is that features in our Manitowoc ice machines that can be outfitted or retrofitted to enhance sanitation.

Our option Aluminize growth inhibitor generates cash is ozone combat contamination in our ice machines.

We also have an automatic cleaning system.

It provides regular scheduled cleaning of the ice machine with sanitizing chemicals.

We are seeing growing interest from customers in these features.

Our fresh frozen Smoothie machine features disposable pumps that are attached to each bag of concentrate so they are placed each time, a new bank concentrate is put in the machine.

This eliminates the cross contamination from having one permanent pump that competitive machines use.

We also automatically clean the blending chamber after each smoothies made adding to the benefits of our smoothie machine.

The other features that are currently in development that will continue to help well positioned as the recognized industry leader in providing enhanced sanitation solutions and the commercial foodservice industry.

Another area, where we have focused is how to continue providing the best service in industry. When we can be with our customers in person.

We have focused on providing a variety of online classes and seminars for kitchen operators to work with our culinary team to better understand how to get the most out of our equipment and their kitchens.

Likewise, we have conducted many online sales training sessions with our reps and dealer customers provided how to classes for our aftermarket service dealers.

He's online classes have been well attended and we received very positive feedback.

I believe online training will become more that norm, even when people are able to travel again.

On slide four we have provided some details on the current market environment.

Looking at the Miller Paul's weekly same store sales graph you can see the historic drops that began the second week of March and bottom by the end of the month as restaurants were ordered close for dine in and populations were quickly put on stay at home orders.

Notable that the QSR ours.

We are less impact is in casual dining chains.

Most QSR has had more than 50% of their sales come through their drive-thru windows prior to the crisis and have also embrace delivery.

As a result, they have been more resilient and casual dining restaurants, who pre crisis saw the majority of their sales tied to dine in traffic.

With a broader outlook still unclear, including the speed with which the industry returns and changing customer sentiments towards restaurants in foodservice usage.

The industry appears to have moved off the bottom as April progressed as consumers have begun to receive government stimulus checks have started to get the team with the stay at home orders.

As more stimulus checks are sent to consumers and stay at home orders are ease.

We believe that conditions will gradually improve.

However, we're also aware that there will be a reduction in a number of restaurants post crisis and an increased level of used equipment that could impact the demand for nuclear them for a period of time.

Used equipment hasn't been a big part of the commercial foodservice equipment market historically due to reliability warranty and food safety concerns.

However, it is possible that it could mute the demand for new equipment for a period of time.

It's also possible that operators will differ new equipment purchases temporarily while they recover financially from the crisis and get clarity on the new demand environment.

And this case, we would expect to see an increase in kitchencare aftermarket sales as they spend more on their repairing existing equipment rather than replace.

However, foodservice equipment, our income producing assets for operators and the cost of repairs lost sales while equipment is down in the food safety concerns and hang over the industry will likely keep extended equipment lives in check.

Moving to slide five of our presentation, we delivered a 50 basis point margin increase in the first quarter. Despite sharp drop in demand from the coven 19 pandemic.

We originally expected sales the decrease in the high single digits. When we provided guidance on the last earnings call.

This was due to tough comps from large chain rollouts in the Americas in EMEA and last year's first quarter and from the coded 19 impact in our APAC region.

As a crisis move to the Americas in EMEA, we saw incoming orders decreased quickly in mid March that Didnt see as many order cancellations as we anticipated.

On slide six sales in Americas decreased 9.4% in the quarter from the prior year.

We originally expected a soft quarter due to the tough comps from last year's large chain Rollouts and we're running slightly ahead of our expectations through February we can quickly in the second half of March.

Looking at M&A on slide seven sales decreased 21.2% with organic net sales down 19%.

Similar to the Americas, We had originally expected last year's large chain rollout to create a tough comp and this year's first quarter.

We were running ahead of our expectations through February but we can quickly in March.

On slide eight sales and APEC decreased 10.1% with organic net sales down 8.9%.

We came into the year expecting growth in the first quarter and APEC and we're on target in January.

China shutdown from late January into mid February impacted China sales. The most but also other parts of the region were supplied by our Chinese manufacturing plants in February turned out to be the worst month of the quarter for the region.

We did see incoming orders gradually improve in March and turned out to be better than February.

But the region is still substantially below prior levels in April and full recovery will take some additional time.

Moving to slide nine we continue to make progress on our transformation program.

Our procurement team has issued the majority of the planned RF queues and we have been receiving embedding responses.

The sponsors continuous support our estimates for our targeted procurement savings.

We've now begun to implement new sourcing agreements with both current and new suppliers delivered another small net savings from these activities in the first quarter.

We remain confident that we will complete our procurement activities close to our original timeline may lag in actual dollar savings until the business returns to pre covis levels.

We will continue to make great progress at the five North American manufacturing plants that are currently part of the transformation program.

We have continued to improve the layouts of our assembly lines, and where we've done that we've seen efficiencies and lead times improved significantly.

These steps contributed to head count reductions beginning in Q4 of 2019 and more in Q1 of 2020.

We have taken delivery install some new fabrication equipment. However, the pace of capital spending for additional fabrication will slow over the next few quarters as we focus on liquidity management.

Slowdown in capital investment combined with temporary plant shutdowns and furloughs will slow the pace of recognizing manufacturing savings by a few quarters.

We remain fully committed to delivering the 500 basis points of margin improvement from the transformation program, but the timing will be slower than our original expectations by a few quarters.

We will emerge from the crisis with leaner manufacturing plants and lower material costs.

With that I'll turn the call over to Marty.

Thanks, Phil and good morning, everyone.

Im going to start with some comments on the actions we took to address the financial impacts from covert 19 shown on slide 10.

Beginning with the actions to protect our gross profit we began temporary plant closures at the end of March. These initially lasted one to three weeks, we're continuing to look at conditions every week and planning additional temporary closures as necessary.

We also implemented a reduction in force across several plants. Many of these were to lock in the productivity improvements we had been achieving as part of the transformation program.

As volume recurrence of those plants will bring back fewer employees due to the improvements we've been making over the last year.

We've also implemented furloughs in many open plans to better align their cost structures with reduced production volumes.

We've taken many actions to address our SGN a cost structure. The first to be implemented in early March were hiring and discretionary spending freezes by the end of the month, we had implemented all of the other actions shown on the slide.

As we disclosed in early April we executed a reduction in force that we think it's a bit of an acceleration of the transformation efforts in the SGN a space and has a long term savings impact.

The current year impact from all the cost actions, we've taken is approximately $40 million.

Moving to actions to support our free cash flow, we began pursuing opportunities provided by the carriers acting including funding deferrals and tax refunds, which I'll cover in more detail in a few minutes.

We've reduced our original capital budget, a 40 million to now be between 24 and 28 million.

We're also managing working capital focusing on accounts receivable collections and customer requests for extended terms, while working with our vendor partners to extend our payables terms with them to keep these in balance.

We're also working to reduce raw materials and finished goods inventory levels in line with current demand, while being mindful of maintaining service levels to our customers on critically needed equipment and protecting availability of materials.

Moving onto the adjusted operating EBITDA margin driver shown on slide 11.

Volume mix and net pricing were down 170 basis points into first quarter with lower volume, partially offset by positive pricing.

The favorable pricing was driven by last March as list price increase and the January this price increase that we put through in the Americas.

Also had smaller benefits from January price increases that we implemented in EMEA and APAC.

Material costs, including tariffs was 180 basis point contributor to margin expansion this quarter compared to prior year.

This reflects some of the Q4 2018 challenges, we had that rolled through inventory and adversely impacted Q1 of last year and some early procurement benefits we've achieved through our transformation program.

Other manufacturing expenses, mainly labor overhead and warranty were 130 basis point headwind this quarter.

This was mainly driven by the absorption challenges from the lower volume environment, along with some capitalize variance carry over from the fourth quarter.

In the face of the current volume headwinds caused by the Koby 19 pandemic, we did take actions to reduce our cost structure with the temporary plant closures furloughs and reductions in force that I previously mentioned, but that will mainly served to soften the absorption impacts of the low demand in Q2.

We are continuing to monitor our plant activity levels closely to reduce our labor and overhead variances as much as possible.

Yes, DNA on an adjusted basis and excluding FX was 180 basis point contributed to margin expansion in the quarter, we were favorable and most of the SGN eight categories in the quarter employee related expenses marketing expenses traveling professional fees were all favorable.

As a reminder, if you're reading the face of the income statement SGN. A includes the transformation program investments that are excluded from our adjusted operating EBITDA.

You can track to specifics through the non-GAAP reconciliation schedules.

We had three charges in the quarter that are highlighted on slide 12. The first was for the impairment of trade names and trademarks in EMEA with the Cobot 19 pandemic. It's a triggering event. It was determined that the carrying value of those intangibles exceeded their fair value by 11.1 million, resulting in discharge the.

Second charges 3.7 million for the previously mentioned restructuring action taken in the Americas and at corporate in the first quarter and the current quarter impact from actions initiated in EMEA and APAC in the fourth quarter of 2019.

The third charges 3.1 million and its related to the trade compliance issue that we disclosed for the last few quarters in our filings.

This involves a fairly distant historical research effort and we are working to conclude our review and settle this issue as quickly as possible.

All three of these charges are excluded from our adjusted operating EBITDA and from our adjusted net earnings.

Next on slide 13, I'd like to highlight a few of the cures Act opportunities. We are pursuing that will provide liquidity improvements in some tax benefit.

First as a federal income tax refund of 7.4 million on our 2019 return for favorable changes in the Cures Act for the interest deduction limitation and it will carry back rules, we've already filed for that refund.

We're also allowed to defer the payment of the employer portion of social security taxes, which we estimate to be a $4.7 million benefit to liquidity in 2020.

Next we are planning to pursue the employee retention tax credit opportunity, but haven't quantified that savings yet.

And lastly, we are taking advantage of the ability to for 2020 minimum required funding payments on our us pension plan to either late December or early January.

Moving to slide 14 free cash flow was a 78.1 million use of cash in the quarter compared to the 68.9 million use of cash in last year's first quarter.

Remember that we define free cash flow as cash provided by operating activities less capital spending, but historically have included unique adjustments for arc accounts receivable securitization program that was terminated in March of 2019.

While the 2020 free cash flow has no unique adjustments 2019 was adjusted for the cash receipts on beneficial interest in sold receivables of 196 million that was reflected as a use of cash in the operating section of the cash flow statement as well as a source of cash in the investing section.

And a further 96.9 million from the increase in accounts receivable, resulting from the termination of the securitization program last year. There was reflected in the operating section of the cash flow statement.

One last reminder, on our free cash flow is that it is traditionally a seasonally use of cash in the first quarter as we pay customer rebates payout annual incentives build inventory and experienced seasonally lower volumes.

Then generate seasonally stronger cash flow in the remaining three quarters.

We have averaged approximately 100 million of free cash flow each year since our spin off which is a testament to the strong cash flow generation ability inherent in our business.

While we're not providing a free cash flow forecast today, nor expecting it to achieve the levels over the last four years. It is another factor we considered when reviewing the adequacy of our liquidity.

Moving to total liquidity, we ended the first quarter with 300 million of liquidity, which is an increase of 57 million from last March we define liquidity as cash and short term investments plus availability on our revolver.

Cash increased by 17.8 million during the quarter, while our overall debt balance increased by $102.8 million.

We did draw 30 million on our revolver in March June increase our cash balance in the U.S. as a precautionary measure, but otherwise did not drawn our revolver for non working capital needs.

Our leverage ratio finished the quarter at 5.06 turns well within the 5.5 times covenant ratio in place as of quarter end.

On slide 15 is a summary of the revolver amendments we completed on April 17.

The leverage ratio and interest coverage covenants are suspended for the next four quarters. They replaced by minimum EBITDA and maximum capital expenditure covenants that will be tested quarterly and a minimum liquidity covenant that will be tested monthly.

So liquidity measure excludes cash held in China, and we will refer to this metric from time to time with covenant liquidity, while most references will be to our traditional liquidity measure that includes all cash.

As of the end of April our liquidity position has not materially different than the March 31 level reported here and so we are clearly well ahead of the minimum liquidity covenant.

Beginning with the second quarter 2021, the leverage ratio and interest coverage covenant our reinstated at modified levels with the minimum liquidity covenant also in effect that quarter.

Overall this amendment provides substantial covenant headroom over the next seven quarters and restructured to help ensure our continued access to the revolver through the duration of this crisis.

We continue to believe that we have sufficient liquidity resources to meet our working capital and cash requirements.

Finally on slide 16, I'd like to share a few thoughts on 2021st we withdrew our 2020 guidance in March and will not reinstate until conditions have sufficiently stabilize we can share that our preliminary April sales pending final accruals and adjustment decreased right around 60% and with limited visibility.

We are planning for our May sales to decrease between 55 and 60% we.

We don't have a June estimate nor a third quarter estimate at this time.

We did model multiple stress test scenarios to get comfortable with the sufficiency of our liquidity and with the amended financial covenants I will share some of the assumptions, we use but I want to be very clear stress test modeling is not guidance and you should not use it as such.

We looked at various sales decreased scenarios, where sales decrease in excess of 60% in the second quarter nearly as much in the third quarter and we're still down modestly in the fourth quarter.

Based on historical information, we estimated that our cost of sales of 75% to 85% variable and that our SDMA is 30% to 40% variable.

I would comment that the deeper the sales declined the more bedrock fixed costs, we run into and we moved to the lower end of these variable cost ranges and in our stress models. We incorporated some of this dynamic to add a level of conservativeness.

We stressed our working capital so receivables terms expansion outpaced payables extension to sales declined inventory was held fairly stable and we brought down capital spending to be inline with our current forecast since that is entirely within our control.

After reviewing the results of these multiple scenarios, we are quite comfortable with our liquidity in the headroom for our covenant compliance.

The last thought this year on 2020 is that we're not abandoning our key strategic initiatives, but we'll balance our pace and advancing the transformation program with our digital and new product innovation initiatives.

Against what we can afford in the current environment, we can't do everything at once or as fast as we'd like but we will continue to prioritize among these initiatives to maximize the positive impact on our business.

That concludes my comments operator, we'll now open the call up for questions.

At this time, if you'd like to ask the question over the phone lines. Please press Star then one on your telephone keypad.

We'll pause for a moment compile the too and they roster.

Your first question comes from line of 10 sign of Citi. Your line is open.

Okay. Thanks, and good morning, with the first question is on how to North America.

Some of our.

Channel contacts and noted destin and quoting activity seems to have stabilized and maybe picked up a bit in recent weeks.

Very much a similar path.

Thirdly on what you show in the slide four for restaurant comps Im curious if from your lens, if thats consistent with what you're hearing from from your own sales team and both in terms of of equipment and aftermarket activity. Thanks.

Yeah were.

Yes, Tim we are hearing that from our sales guys.

There's a pickup in service calls, but as people are starting to really start their kitchens up and you.

Good.

And open up the dining rooms in certain states, but yeah, and then there are certain sectors, where we're seeing.

Increase in activity.

You know the healthcare field, we're seeing.

A lot of activity in that particular vertical right now. So there is some additional quoting activity going on I would agree with you.

Okay, and then and then second Bill just relates to what are your experience and what you've seen in Asia Pac hearing in the.

Earlier comments in terms of of how March orders trended versus February I know thats.

We're a bit heavier with the large chains, there, but anything you'd call out that may or may not make you experienced you've observed in China different then how you'd expect activity to potentially play out in the Americas in Europe, and I know they certainly are our related in terms of.

The way, they're playing out in April we saw.

The APAC region get a little better than than they were in March.

Still down year over year kind of 30, 40% range for the month and APAC.

We live if we look at April as we said in the call here, we're down about 60%.

So as we go in the next few months.

Hopefully that starts to come back that was kind of the same level that we saw a packet in February down kind of 60, 70%.

And it's kind of recovered now and getting steadily better every week as we as it goes along.

Got it thanks, a lot I'll turn it over.

Okay.

Your next question comes from the line of Middlesborough Baird. Your line is open.

Yes, good morning, guys. Thanks for taking my questions.

So.

Maybe maybe sticking with with trending into April sort of curious here.

Your your down 50%, but you obviously still.

So selling something so what sort of demanded.

I've been out there in April what types of products, what sort of customers.

What were partially creating the base of your business.

The unprecedented disruption that we've all seen during the month of April.

Yeah, I think this is where well builds mix helps us a little bit because the cold side, we're certainly seeing a better better order rate. The order patterns. There have have continued to be a little stronger than the hot side.

On the hot side cooking is down more than the cold side, So I would say.

Theres anything there and you know people need the cold for storage purposes and.

I think that's that's a little bit better for us and.

And the hot side.

Okay.

You also.

Maybe talk about give us an update on your business mix, some sort of curious as to where you are right now in terms of.

Hi, QSR versus.

Got you will dining.

Are there other portion of the restaurant market and restaurants worth.

Institutional and I'm curious if.

You've seen divergence in institutional versus.

Restaurant customers or if the downturn has been fairly broad based in that regard.

Yes. So the QSR is have held up I'm, a little bit better than the casual dining of course, because you know the casual dining was shut down completely and then they had to.

Figure out how to do off premise stuff and that's taken them a little bit longer than the QSR and the QSR as we're able to keep their.

Drive throughs open and then the delivery services. So they had a little bit of a head start on the casual dining. So you know I would say that you know the casual dining is down kind of 70, 80%.

And QSR is that kind of down in the 25, 35% range.

From their order patterns.

And then on the institutional side of things, we're certainly seeing more business start to pick up on the contract side.

And on the institutional side as I said in health care. It seem there seems to be some really good activity going on in that particular vertical.

Okay can you remind us of some of your business mix.

In terms of product.

No. It in terms of you know QSR versus Oh, Okay, yes.

Ours or are 25 to two a 30% of our overall business and then the general market makes up the rest with about 2015% to 20% for spare parts.

And institutional.

Hey, this is rich when we look at our at our end market break down just by by market type. So 60% restaurants half of that are going to be the large chains predominantly QSR other rests on the other half there's going to still be some QSR maybe.

Third of the of the remaining restaurants are going to be QSR like what you're going to be still more related to take out and drive through windows and that type of of exposure the remaining 20.

20% San would be where all the casual and bar restaurant.

Fine dining the ones that are going to be the most impacted so so 40% of restaurants are open business decreased but but still open and and doing okay. In this environment.

That remaining third that are going to be the ones that are more impacted on the 40% non restaurant, it's a big mix of.

Convenience stores, which are still doing pretty good health care office, whether private industry or government offices.

Where they have their own cafeterias, you've got the travel industry exposure.

Our hotels cruise ships and and and.

Yeah, and then you get get into some of the stadium projects and entertainment venues like that as well so our schools as another piece. That's that said there. So you get into some of the up a government space. The schools actually are holding in pretty well right now they've still got budgets to span.

And we're getting some lift from from projects for schools that we'll be going on over the next one to two quarters.

And then you get into the military and prison systems within the government exposure and those also are still going okay.

No I appreciate the color Rich lastly from me maybe a question for Marty.

You have conducted your your stress testing.

On the financial model I'm curious what sort of revenue levels do you think you will be breakeven on EBITDA.

Given all the cost actions that youve under thank you.

Yeah. So the short answer I guess would be probably in that.

You know.

65% to 75% down in sales.

This is somewhat unchartered and for all the actions, we took and we we articulated in the in there during the prepared remarks.

If there's so many moving parts, it's a little hard to see just how effective we're going to be we got that early starting in the latter part of March we were going to plant by plant plants and so we've really pulled a lot of strains and and worked hard on this.

We have not closed April yet so I can't really get a sense of how effective we're going to be but.

As we think through the fixed and variable percentages and some of the ones. We gave you and we play that through we get down to sort of breakeven EBITDA in that somewhere north of 60, and probably somewhere short of.

Of 75% down in sales.

Very helpful. Thank you.

Your next question comes from the line of Jeff Hammond of Keybanc capital markets. Your line is open.

Hey, Good morning, this is Brad on for Jeff.

You know just going back to some of the post quarter detail I think you discussed some gradual improvement towards the end of April stimulants, Jackson and things of that nature rolled them, but I guess, what that doesn't appear to fully aligned with your view on may when the declines are expected to be more or less the same as April. So is there maybe a little bit of conservatism in that number or kind of wanted us.

The offsets there and then have you seen any early on benefit us suits began that no pull back restaurant restrictions, but in the last week or so.

Well I'll start.

We've seen an increase in quoting activity that doesn't necessarily equate to an increase in order activity.

Alan and until we start getting orders there might be a little bit of conservatism and you know in the may numbers, but we're in uncharted territory as right now and so I think we're still looking at you know kind of that 50% to 60% down range in may and.

I wouldn't say, we've seen anything meaningful coming out of April yet in terms of orders, we certainly seen more quoting activity, but orders yet to be determined.

Yeah, and I'd only add that April while it was down you know big and we face some order cancellation. We did have some of the the carry in orders and longer term projects that managed to survive and get shipped and stuff. So so april probably add a little bit of a carry in benefit and May I think we have to expect a little.

A bit of a lag in turning quoting activity into orders. So the two end up in the same kind of ZIP code and comparisons to say it to last year, but even though the underlying business see it feels like it's starting to get you know little bit better.

Okay, No that makes sense and then I wonder if we could dig into the U.S equipment market here for a second.

Yes, you referenced the generate study to just being 15% of capacity could be taken out of a system or no kind of 100000 restaurants give or take no certainly a lot of equipment is going somewhere so I want to understand historically, who are the traditional buyers that used equipment I'd imagine its independence, but now have you seen chains go that route before then.

What's the traditional flow that equipment like as we go through the traditional general market or other specialized use dealers.

Now, they're specialize use dealers for that for the most part.

The specialize in it and typically on the chain side, you know the chains will will use equipment from the locations such down one of their location shuts down we'll use that equipment in another chain location.

I think what we're gonna see we're in uncharted territory share but.

It's going to take awhile for these these restaurants to go through bankruptcy closures or liquidation. So I think you know, it's a quarter or two before we kind of start to see any impact meaningful impact on on used equipment market, but there's a lot. There's a lot that has to do with warranty service you know.

And these things have to go into specific spot in a lot of cases have to be specific demand should dimensions. So there's a lot of variables that go into making the decision not just on kind of the initial equipment food safety is it is a concern for the with used equipment.

We also offer a lot of financing programs to our customers to help them you know if that's an issue and but I would say more most of that equipment. You will end up in the general market you know in the independent side of things.

All right I'll leave it there thanks to them.

Sure.

Your next question comes from the line of Larry to me a of William Blair. Your line is open.

Hi, Thanks.

Morning, everybody.

Just curious it sounds like obviously, you guys liquidity shored up.

Given the actions, we've taken and the cost cutting et cetera are you considering at this 0.2 or is there any pressure from the lending group et cetera.

Hi, good or asset sales are calling if somebody's assets, either now or or is that if a doctor for that for the future. I'm curious are you thinking about the need.

Monetize some assets potentially or some underperforming ones.

I think we've usually shored up the liquidity position and we're happy with our profile and our businesses and I don't see any any need for that.

Okay. Thank you and freight pricing, obviously sounds like some of the price increase has helped our they maybe said if I missed it but they expected to hold into the second half for a immuno maybe kind of price doesn't help much it's kind of market. So just curious about your expectation where you're seeing in the market with some of the new orders are coming in.

In terms of pricing.

Yeah, I mean, we're not seeing a lot of pricing pressure right. At this moment you know we're of course, we're kinda right and throws of nobody's buying anything it anyways. It you know an appreciable amount, but right now I would say the pressure on pricing is small.

At Hayden area, just and one other it's Marty one other point of clarification just from a bridge standpoint in the first quarter, we add sort of almost two price increases layer in the year over year comparison, we did last years in March and this one at the started a year so to that comparison will be a little bit more muted when we only have one price increase into you.

Over year comparison, just to keep that in line.

Got it.

This last thing for me. Thanks, Marty you know there's talk of goes kitchen, which you referenced earlier in the called repaired remarks.

It's something that given the excess capacity now are we thinking that this is a retrofit opportunity because some of the restaurants arent you know into in for the high volume or or is this a greenfield opportunity or.

What is the timeframe. We think this starts to play out with we moved beyond kind of this initial storm.

Yeah. So I think it's a mixture I, we it's been playing out before the virus. We've had a lot of activity because the you know it's like the cost to serve as so much lower they don't have the dining room and they don't have the weighting staff and things like that so.

Theirs, they were struggling with trying to figure out you know what was the best model.

Pre Cove, and I think you know the than what they're finding out is.

And consumers of change some of their behaviors right. So there is there more willing to go pick up a bit off premise right or except delivery and except in additional cost of that delivery. So I think that's what's changed kind of people's thinking is that in this kind of post coated environment.

Their business models start working better in terms of where they where they can apply the cost.

Huh.

And get good value for it so.

We were seeing some activity now you know we will design some kitchens from the ground up for people.

On some will do retrofits to existing kitchens, Oh, So I think it's all taking shape as we speak right now and I think you'll see it I think that's a trend a macro trend is with us to stay for awhile.

Okay, Thanks, and good luck.

Your next question comes from the line of Walt Liptak, Oh Seaport Global your line is open.

Hi, Thanks, Good morning, guys.

When they ask about.

About China and yeah, I understand is still down a lot still down 30 or 40%.

And similarly, the last the last question are you seeing any changes in behavior. There are like is the food safety issue or are they getting past that or are there like anything new that's going on in China that you don't like your replicated in either Europe or the U.S.

I would say you know it's just the it slowed opened right the dining room the the.

Social distancing is continuing food safety is certainly a big concern for for everybody.

Sanitation and and I think those things you know until we have a vaccine in place or.

The ability to address this virus with no other medications, you're going to see that kind of activity and I think that's kind of the new norm for US right now and we're working with the restaurants too.

To maximize their outputs.

Okay.

And one of the I will say this too well one of the thing one of the other things is we're seeing a reduction in menus right. So it was simplification and menus.

Really to accommodate the takeout piece of things delivery.

Which it when you do that it kind of lowers the overall costs the operating costs for the restaurants.

Okay got it thanks for that insight.

Wanted to ask about you brought up.

Kind of the extending some of the the receivables and I Wonder if you've done a bad debt review if.

You've seen an uptick in bad debt because maybe some of these restaurants.

In bankruptcy or is there or if that's something that's still going to come.

No I mean, you know most of the stuff, we sell only sell through that almost all of it we sell through the channel and we watching the channel we haven't had any any problems with collections the.

As Marty said in his remarks, you know our M&A are in a p. standpoint, we've kind of tried to balance those two things out. So we think were covered there but.

Nothing on the collection side, yet that that's alarming.

Okay. That's great. Thank you.

<unk>.

[noise] once again this year would like to ask your question over the phone lines. Please press Star then one on your telephone keypad Euronets question comes from the line of Michael Lipski overnight Fed capital. Your line is open.

Hi, Thanks for taking the question.

Hi, I appreciate the the granularity within the restaurant, 60% customer segment.

QSR being half of that.

My question, if we modeled fast casual is 10%.

Total sales and then the other 20% of restaurant being you know conventional restaurants would that be the correct breakdown would then restaurants QSR thirtyk fast casual 10, and the rest 20%.

I would say fast casuals, probably between five and 10%.

Got it Okay and then my other question is is we have very good granularity on the U.S. opening up state by state we have different reopening orders I was wondering if you had that type of Ah granularity on.

On one Europe, or Asia, Hi, Hi, where they are in the in the cadence of opening restaurants to dine in.

And just some color around that that you're seeing.

Yeah actually we do track each of the country's and just like we do in the U.S. and it varies by region of course, Italy is the hardest hit in Italy, and France, and Spain or kind of the hotbeds in Europe and.

They've extended their their restaurant openings until I think the end of May is when they're looking at potentially reopening there.

<unk> restaurants for foot traffic and a lot of them shutdown and wouldn't even allowed delivery in Europe, and I think Europe took a much more aggressive approach than than in the U.S.U.S.. We we kept a lot of the drive throughs open.

Almost the entire time, where they they shut down for example in the UK. They shut down a lot faster QSR business completely and they're just now kind of getting some of that reopen back up so I would say that you know in Europe. Our business is it took a a sharper downturns.

Faster just because they shut everything down completely in Europe, and then in Asia, there, allowing some foot traffic back into restaurants, and it's it's maybe three four weeks ahead of where we are in the U.S.

Okay.

Alright, thank you for that.

Huh.

<unk>.

There are no more questions in the queue at this time.

At this time I turn the call over to Bill Johnson.

Before we end todays call, we'd like to thank our employees once again for stepping up to the challenges presented by the Coven 19 pandemic entire management team really appreciate your efforts.

Next I want to reiterate that I believe well bill will emerge from this crisis, a stronger company that is structurally leaner more efficient.

We will focus on opportunities, where we can use our competitive advantages of innovation and digital leadership to help our customer success and grow.

We will return to delivering profitable growth and delevering the balance sheet as this crisis the base.

This concludes todays 2021st quarter earnings call. Thanks, again for joining us this morning and have a great.

This concludes todays conference call. Thank you for joining you may now disconnect.

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