Q1 2020 Earnings Call
Over the following weeks our customers adapted as delivery curbside pickup and drive through business continued to expand. Our customers have also adapted with streamlined delivery focus on a used to enhance profitability accordingly restaurant sales have improved sequentially each week through April and into early may as reported by industry analysts such as Miller pulse technomic and bared research average check size has increased reflecting delivery and take out with orders for families or larger groups as people are eating out at home sectors that have fared better during this period include Healthcare retail stores and restaurants offering drive-through or delivery jobs such as Quick Serve and pizza.
We've also seen school systems in government less affected as they continue with budgeted programs many of our school system in University customers appear to be continuing with programs to refresh their food service operations in a certain cases have started those activities early during the shutdown.
Are independent casual dining and fine dining customers have been hit the hardest while some dine-in locations have started to offer curbside pickup. They are largely closed and in many cases, unfortunately may not reopen.
International
The impact and responses to our customers across the globe are very similar to what we have seen in the US market in China the First Market to experience the pandemic. We have seen reference reopen including dine-in. Although traffic remains considerably impacted our order rates in this market which were sharply down starting in January by approximate 70% improved late in q1 and remained down approximately 25% in April.
Given the large installed base in the USA in around the world much of our business is generated from existing restaurants through service replacement menu changes and operating initiatives comprising approximately 75% of our equipment revenues as a result. We are positioned to withstand the impact of a down as we emerge from the crisis. It is expected that operators will enact new safety protocols for both employees and customers we will see many of the tracks existing prior to the crisis accelerate. This likely will include added focus on off-premise dining delivery and drive through a continued increase in Mobile ordering.
Efforts to simplify menu greater focus on Space utilization and throughput along with smaller dining rooms and kitchens continued development in non-traditional Food Service locations, including retail and see store along with the emergence of new food service models, including modular and ghost kitchens labor will continue to be a primary challenge operators and there will be a greater use of iot data analytics remote monitoring and restaurant operations through automation middle be as well positioned for these emerging Trends given our decision to focus on Technology Solutions and growth Trends the significant Investments that we have made in R&D during the course of 2019 and a 2020 positioned us with broad-based offerings for our customers.
With the recent launch of are open kitchen iot platform by Powerhouse Dynamics. We addressed many of the issues our customers face through our cloud-based platform by wage being equipment adding labor savings functionality food, safety automation energy monitoring and operations automation while providing exception to better capture meaningful data and provide a real-time understanding of his what what is happening in their kitchen open kitchen has a proven record of saving users millions of dollars and is the same platform that bring together all elements of the open Connected kitchen, whether it be connecting any cooking equipment any Refrigeration any HVAC system off any lighting control any handheld probes and any other connectable device
With a continued introduction of our middle be control.
In Middle be connect where this year connectivity will be enhanced and Equipment operation will be simplified reducing training requirements user error and increasing process automation.
Our process automation team at has been working hard over the past year developing automated ghost kitchen Solutions, utilizing the leading equipment Technologies across middle be in a grating those utilizing Robotics and data analytics. We can provide a more flexible and connected kitchen utilizing less labor in a smaller footprint.
We've also invested in our ventless kitchen platform. We have the broadest portfolio that was kitchen equipment Solutions. No longer is ventilation required as we can provide both aspects of cooking and kitchen operations without a hood this provides a smaller less expensive operation that can be opened anywhere and suited to support non traditional food service locations.
Or delivery system Solutions include the puck cabinet which provides our customers with touchless with a touch of solution to Stage delivery orders that can be accessed utilizing a barcode received via text on a mobile device. This significantly simplifies complications associated with pick up operations and increases food quality and importantly with no longer does the customer or door Dasher need to interact with restaurant staff resulting in Greater safety for our customers and employees.
As we moved through this uncertain. We do so with a strong financial position. We are pleased to have recently completed the refinancing of our credit facility just took her to the onset of covid-19. Although the impact of covid-19 will have significant effect in the upcoming. The actions we have taken to reshape our business and respond to the current environment suspect will allow us to Main profitability and generate positive cash flow throughout the downturn. I will now turn it over to Brian to comment further on the the financials and q1 results. Thanks to for the first quarter. We generated gaap earnings per share of a dollar and $0.33 versus a dollar $24 in the prior-year as you likely recall for them to quarters. We've been reporting adjusted EPS as well for q1. It was $1.46 versus a dollar fifty one in the prior-year the gaap to non-gaap reconciliation.
Is included in the tables that are part of the press release we issued this morning when evaluating the impact of recent acquisitions on earnings the ongoing operational impact primarily off Brands acquired over the past year including the most recently acquired businesses of RAM and Deutsche in q1 was at $0.03 for the quarter this excludes the impact form during activities in inventory purchase accounting for q1 revenues declined 1.4% or 5.9% Organically total company adjusted ebitda was relatively flat compared to the prior-year at 138 million dollars our ebitda margin improved slightly to 20.3% from 20.1 in the face of addressing the challenging the challenges of declining markets. Well managing through these conditions that existed even before the global pandemic. We continued our investments in the business to ensure a leadership position for the future more rebirth.
Like we have taken aggressive message.
Measures to cut costs across the company. I will comment further on the East later.
When reviewing q1 results, please note that sg&a expenses from Acquisitions added over $11 for the quarter. However, this was offset from revenue decline impacts and cost control by restructuring charges and Associated transition costs, which do not qualify as restructuring under gaap or approximately 1 million in total. This represents largely the culmination of efforts initiated in 2019 charges from our actions related to the global pandemic will start to be seen in the second quarter.
I will seek to keep my segment comments about q1 performance shorter today than in Prior calls within our press release you can find information about the year-over-year changes in revenues on the geographic basis for each said the tables to the press release also provide the reported organic sales analyses. We've also included in the slides on our investor relations website that you are additional information in a material on the quarter.
For commercial for commercial Foodservice. The decline in revenues was impacted late in the quarter as the covid-19 impact spread globally what had started out impacting us and China as well as Asia and then in certain pockets of Europe obviously expanded greatly in a quick manner this led to Rapid declines in sales and orders as well as to some limited distractions and operations within our organization in spite of top-line challenges. We continue to improve margins over the prior-year adjusted ebitda for commercial Foodservice wage amounted to 108 million dollars representing 24.3% of sales or 25.2% when excluding the impact from foreign exchange in recent acquisitions, this compares to 24.8% in the prior year quarter.
We were pleased to be delivering improvements at various businesses acquired in recent years.
Moving on to the residential segment on an organic basis. We experience the sales decline of 5% and the US were able to generate modest growth of 8% driven by of imported super premium products while headwinds persisted impacting other kind of Refrigeration Sales internationally. We have not seen improved market conditions in the face of brexit and also experiencing additional impacts from the pandemic. We we saw weakness across all the regions for a total decline of 14.2% internationally margins were impacted by the sales levels and the manufacturing transition that we noted would be ongoing and from our acquisition of Brava, which alone is a drag of under 2% By the way. This is the stage where it otherwise like to talk about. My other son's favorite middle be product. However, I will have to keep you wondering about that until a future call. Although I will say we are excited for the arrival of outdoor cooking season here in the Midwest dead.
But more on that in the future.
Order so onto the food processing segment where we did generate organic growth of 6% for the quarter largely in our protein product offerings ebitda margins improved slightly to 7.8% as compared to 17.5 in the prior year. When adjusting for foreign exchange and Acquisitions looking forward the existing backlog provides stability for this business segment of the upcoming quarters in terms of revenues and margins having briefly gone through the three segments or q1. I do want to elaborate on the changes made to our borrowing agreement the porter
In January, we amended our credit agreement which provides us excellent liquidity. Currently. The facility has a five-year term and is comprised of a $750 a month Term Loan, which is essentially fully wrong and a 2.75 billion dollar revolver. The term loan has minimal annual required principal payments during the life of the facility Boston twenty million dollars annually actual availability under the facility is generally at four times ebitda as defined in the credit agreement and may expand to four thousand times Eva. In certain situations after Acquisitions. I also note that ebitda as defined under the credit agreement is generally higher than our otherwise reported adjusted with this is mostly due to us not including the benefit from the non-cash pension income in our management results.
So the relevant relevant trailing-twelve-month even from a bank perspective is $683. This results in Gross availability of over 2.7 billion to us at the end of q1.
Based internet that at that time we had nearly $850 availability.
During the quarter we did increase our borrowings to build our cash balance up to $381. However, as we maintain this additional cash in the US, it actually does not impact our Netflix kept which was at 1.8 billion a quarter's end. We've continued to build cash as a prudent measure in the current environment our balance. As of today is over $575 off the increase since the end of March is from 175 million of additional borrowings with the remainder as a result of our ongoing positive operating cash flows. Please read off our interest expense in future quarters will be higher due to the increased amount of gross borrowings. I would also point out that our overall interest costs is approximately 3.3% what we ought certainly being deeply impacted by This Global pandemic. We remain profitable and are generating positive operating cash flows.
This our strong belief that we will continue to execute in this manner and be able to actually reduce our net debt over the coming months. I've commented an operating cash flow of numerous times the same page comments. I have made applies to free cash flow as well as we look forward for the remainder of the Year. Our plans would be to reduce Capital expenditures by at least 50% compared to 2019 spending levels.
this brings me to a short but important discussion on Leverage we are typically limited to borrowings of four times ebitda as I noted at the end of q1 we were at 2.76 X as I noted earlier well at this level of Leverage we have availability of nearly eight hundred fifty million dollars the combination of our cash generating business model low interest rates check the availability under the facility all leave us very strongly positioned in the current environment we will also see benefits from our aggressive cost-cutting actions that will come back to momentarily we did not generate record operating cash flows for first quarter of $87 our free cash flow is $78 million compared to twenty six million in the prior year this improve was driven by favorable collections activity a more modest seasonal increase in inventory offset by the timing and amount of various payments as compared to the prior-year for compensation matters.
And rebates while the current environment will certainly present business challenges. We do expect to continue to monetize our working capital over the coming months.
Last quarter I noted three factors that are key to our approach to improving margins over the long term while we are currently facing different conditions the same factors helped Drive the benefit from cost control actions and ensure continuity of operations during this pandemic. We achieve this through one integration efforts at recent acquisitions to continuing to Echo and supply chain initiatives The Leverage our scale and three harnessing our capabilities and best practices to improve business processes given the current circumstances are often have gone beyond these types of actions. We've reviewed every expense within the company and have aggressively reduced all controllable and discretionary costs. We have extremely controls in place on expenditures. We measure receipts and disbursements daily. We've reduced our Workforce both in terms of production personnel and all other functions across the company in response to the
The near-term decreased demand levels. This has been achieved largely through furloughing actions. We've also made permanent reductions Personnel costs have been reduced in excess of 35% We also continue to evaluate the appropriate Staffing levels or various future forecasted scenarios. We've reduced cash compensation to Executives and hundreds of additional employees for the remainder of the Year given challenges in Sharing reliable forecasts with a high degree of confidence. Currently. I can only comment broadly on some future scenarios, even if we took a sales increases of 50% and ebitda margins are cut in half as well through reducing sg&a expenses by approximately 30% and ensuring tight control of production costs as a company. We should still generate double-digit ebitda margins and positive net earnings and cash flows the challenges. We Face are numerous how else
We are positioned for long-term.
So our management team is highly experienced. Most of our leaders have been in this industry for multiple decades beyond the dedication of our people we have an existing cost structure generates industry-leading profitability which leads to strong cash flows. Well, every crisis is different. We have a track record of managing through them with Vigor and decisiveness and we emerged stronger.
With that Tiffany, please open the call to questions ladies and gentlemen wage ad again. That is star one. Your first question comes from the line of Jeff Hammond with keybanc capital markets.
Hey, good morning guys morning Jeff.
Thanks for all the great detail in the presentation. I was really really helpful. If you could just first maybe touch on how you think sacramentals look, you know, you gave some work, I think Brian but you know as you look into the two q and giving all the cost actions you're taking how do you think decremental is flush out? And if you can give any color by segment, that'd be helpful and then you know, I'm also as you kind of get into the second half and things start to normalize a little bit. What would those look like?
You know, obviously we shared you know order indications or information as you know, the best, you know indications and I would say, you know, that's where we start, you know, our modeling scenarios, you know, the one caveat I'll add to that. Obviously. We are seeing orders down in food processing but you know, that's a little bit of a different Faith Dynamics there where we have backlog so, you know, I'm not suggesting that we are going to see, you know, a 28% you know decrease in revenues there for the quarter. So, you know, it's just hard for me to offer a very specific answer Beyond again, you know using the orders as as a proxy and you know, even in that situation, you know, we will see, you know, operating margin, you know, whether it's the gross profit or the you know, the eve it's a level, you know declining and really that that those comments apply to commercial and residential you know birth.
We have lots of scenarios out there. You know, I think we're all starting to see, you know slow but positive momentum in the marketplace. So, you know, we see things picking up from there, but it's really hard for me to offer specific, you know commentary, you know, two and three quarters out at this point in time. Yeah. Yeah. My guess my question was on decremental margin. So, you know, if you if you saw declines similar to the order rates for two Q what would decremental margins look like?
You know again, I'm not going to get extremely, you know specific on that. We don't offer, you know exact items, but it would you know, we still anticipate being, you know, double digits, you know, you bit margins for the company, you know, the you know, there will be you know decreases. I don't walk, you know, as I said in my comments, you know could even margins, you know be be cut in half, you know, obviously that will depend primarily on the extent of either the revenue decline or or the revenue recovery, but, you know, I'll leave it to everyone to come up with their best model, but but hopefully it is, um, you know, no worse than that.
okay, and then
Just one more on I mean certainly give great collar on on the April orders, but you know talked about kind of improvement through the through the month. Is there any way to give us a sense of like off the exit rate, you know for orders were as you exited April and then in the Mets versus kind of those total numbers, which you know, we're sharply down.
So, you know, we're obviously trying to provide as much information as possible. So people get a sense of it. I'll copy out that way. So, you know weekly orders can be variable even in normal circumstances, but you know, I mean, I think certainly the the 57% that I mentioned was for the the the entire month. I would say we were, you know ten to fifteen percent better than the average exiting exiting the month. So when we did see consistent climate, we you know our trough wage and you know the week of ending April 3rd and 10th and then uh, 17-24, you know through through even last week, you know, we'd seen a you know, a consistent step up. So look at what I think that you know, are we are you know prepared for all types of outcomes, you know here but at
I think a you know, a potential assumption is that April is the toughest right? Because it is, you know, people were just turned off for a while including us right. I mean everybody was dealing with the pandemic adjusting their business getting their their head around what was that going to look like work at home situations not only for us for our you know for our customer so, you know, so our belief and again, everybody can kind of have a view of the world is that April was probably going to be the the toughest incoming order of months for the. And again, we're reporting orders here not sales. So we came in with a bit better of a backlog going into to April so are you know revenues outpatient what incoming orders will be and we you know, we we we think that there's you know likely we'll we'll see Improvement as we move through the the next couple of months based on some of these indicators Thursday.
That we have shared, you know as well as just kind of activities behind that.
Okay, that's very helpful. Thanks, Brian.
Your next question comes from the line of Mig dobre with bear.
Thank you very much. Good morning. Everyone. I think I want to ask Jeff margin question. Maybe a little bit different Brian when when your song thinking of all the buckets of cost that that you've taken action on. Can you maybe talk about the dollar figure associated with some of these buckets? Um, I know you had a roughly twenty million dollars, uh cost savings plan that was supposed to help you this year. This is incremental on top of that wage. I guess what I'm wondering here is can you also help us understand how many how much of this cost is purely temporary in nature versus something that's a structural that I think you might be doing with the business to to sort of
3 line for a postcard business
Thank you. Yep, you know in in the you know, the twenty million referred to we are largely and kind of you know, the clogs area and it's a little harder to get after a specific cost number because so much of it, you know is is variable, you know thinking on the you know sg&a side. I mean we are certainly targeting in excess of twenty five. If not, you know much higher than that millions of dollars on a quarterly basis on on the takeout. Now, you know obviously is you go through in cost and you think about also, you know fixed versus variable and you know, given the detriments we're seeing in the business now, right it it really causes you to challenge, you know, uh, what what you thought may have been fixed or a semi fixed. So I I don't have a a specific number yet or or kind of run rate or plan on you know, what is the new level birth?
Costs whether it be on you know, the cost is support production or you know in in sg&a because honestly, I mean we don't yet have a solid enough definition or understanding of what the new run rate is going to be we certainly expect that, you know, a lot of the actions we've taken our temporary but we also expect that, you know, some of them are going to turn into, you know less call in, you know seminar semi-permanent. So, you know, it puts have a number there, you know on the sg&a side again, not sure that you know, I'm not going to classify anything is this permanent yet? And you know obviously on the clogs side they you know, our our goal is to to be bringing down those costs, you know is close to the you know decrement in Revenue as as possible, you know the extent of birth.
Isn't exactly at the same level on the sg&a side, even though you know, we certainly attack them with the with the same vigor.
That's that's helpful color and maybe going back to demand and and looking at at April at the same question of June. The other day, but obviously demand is down 60% in in April, but it's not down 100% So I'm I'm I guess I'm wondering of that page of the folks are still buying equipment. Can you give us some sense for exactly? What is it that they're purchasing what type of customers and and you know, if you think about this this base this that that you still have a business how do you expect that this set of customers or or or type of demand to progress going for? How long is the economy reopens?
So so maybe if it's helpful, we we you know, there's a slide deck out there that page nine which tried to break the business by off the demand requirement including you know, what's replacement. What's new? What's what's our service element, you know Parts largely and then we've got different jobs out there. And and so look, I think there are there is you know, so it's kind of actually across a lot. So we've got a lot of different brands. None of them are at zero their own know there's a variety but they're all maintaining some, you know level of based business and I think a lot of it is, you know driven by replacement, you know, that that these stores are still operating, you know, we've got, you know segments such as you know pizza and the quick-serve where you know, frankly business is kind of continued to creep up and uh, you know, yep.
A lot of places I go to uh, and I I hit multiple restaurants today and the the drive-thrus are are busy. My daughter's a door Dasher and she's uh, she's she's booked all day and age, you know, so there's those segments are turned down retail which and and see stores which were expanding their their food service programs and beverage programs coming into this. They you know, they continue to be online, you know, we're still seeing even some rollout, you know activity, you know, half a happening because they're you know, they're seeing uh people coming in and freaked I'm looking for food and that's kind of given them confidence that you know, now's a good time to continue to you know to invest in that so we're you know, so again retail c-store. Hello here, you know, our health care business is held in pretty strong. We do actually have a meaningful health care business. We you know provide, you know, not only medical Refrigeration log
But you know the ice machine business that we that we have were a leader in that segment that goes into uh-uh, you know in in to hospitals, you know, and as I mentioned in the kind of the opening comments to even institutional on the school system side, I know you know, obviously there's a lot of discussion about here we're going to be doing alluring or what have you but a lot of choice systems have budgets and expectations kind of going into the summer and Summer started a little bit early, you know for them and I think you know, I'll be at there's uncertain what you know, classrooms took like a lot of our schools and universities still are spending in in those areas. So, you know, so we are still seeing a flow of business really across Our Brands and across the month, you know, the segments the you know, obviously the hardest-hit are Independents the cash will dining and you know and travel and Leisure right? Yep.
and so, you know and that is not an insignificant piece of our business, but
You know represents probably about you know, less than than a and a quarter, you know in some cases, you know, also as I mentioned particularly with casual dining, you know, we're seeing you know, some curbside, you know pick up and so forth. But you know extremely they're not uh spending, you know, executing on big, you know, Capital spend projects. So, you know, so it is, uh, you know again across quite a few segments and a walk across quite a few product lines and look I mean, I think you know Food Service doesn't stop right. I mean people people eat out and you know, and I think even in you know, this. Well, certainly there was the immediate shock and we're not, you know, certainly through the other side and you know by by no means, uh, do we think things are going to you know, uh turns back on, you know quickly here eating out is not going away and and there is a lot of takeout, you know delivery carry out and you know and Ed.
You know the operators that are involved in those segments are still still purchasing right now so that kind of you know, seems like that that had been showing up and what we're seeing in, you know weekly reports home. And so that kind of gives us the you know, the the confidence that the industry and our customers are, you know are adapting and and again, we're down significantly, right? So but but but seems like that that it will continue to to turn on slowly here, you know absent a wave to or you know other uh home no disruptions.
Understood last question if I may just trying to get a little bit of color as to how you think about your accounts receivable you made a little bit of progress sequentially here in a quarter of that number down, but can you talk about the Aging of receivables allowances how you're kind of thinking about the risks there? Thank you.
It is Tim noted, you know beyond what we have that strong backlog. But you know, the order rate has come down, you know, our customers are seeing great demand for their product, but they are also dealing with their own challenges of whether it's employee safety or transitioning from you know, one type of let's call it a a food service products more retail oriented product. So I think it would be you know, too aggressive for me to make a bold statement. You know that we you know, we are going to see organic off if the same you know level we've had but but certainly we we don't expect to see, you know, uh declines, you know of of the magnitude of how the order rate that we quoted.
Thanks, and have you mentioned in a release that you've deferred near-term acquisition Investments? Can you talk through how you're thinking about Acquisitions as we get more clarity on the Outlook and if you think there will be more opportunities in the pipeline a smaller players may not be able to weather the lower sales as well as you guys. Yeah, so that's a good question. So, you know as as always we're off the had plenty of ideas and activities coming into the year. Obviously. This is uh significant disruption of like the everybody else would like to suck get visibility in our our our our our feet under us and so it was obviously appropriate to to defer the those activities and until we have a better understanding of birth, uh of the Outlook, but look, I mean, you know, uh acquisition and Business Development ideas are cord to to Middle be and birth
There was a lot of strategic initiatives that we had to expand certain pieces of our business and particularly, you know continue with some of our technology initiatives as you seen a month. So invested in over the the the last year which we we think will position us again for you know, organic growth is we, you know move Beyond, you know, the the the crisis so so look, I mean, I think at some point that will come back online at the appropriate, you know time depending on how long you know this occurs and with you know, as you said, you know, not everybody will will fare equally during you know, a a crisis such as this and I think you know, we you know that being a long-term acquire and you know, you know, you know, we've been doing this, you know, it'll be was wage.
On September eleventh in a lot of ways. That's how we you know started the the acquisition platform. I mean, we you know, a lot of our most transformational Acquisitions came, you know back in in around you know, disruptive periods like this. Certainly we saw multiples that have climbed up over the last few years, which has been one of the challenges for us as well had, you know been very committed to our acquisition strategy even as multiples creeped up. So I mean, I think this may be a bit of a a resetting. So I think you know will continue to think through things with uh, you know, strategically and opportunistically as we go through the the the. But it's a a deferral. It's not a a a shut off of kind of what is a off a core tenet of middle people.
That's really helpful color. Thank you, sir.
The next question comes from the line of jolted from BMO.
Hey guys, how's it going? Good, how are you Joe? All right. So I wonder if you can talk through, you know, you gave us little hints here and there about opportunities to to accelerate sort of the integration of the past Acquisitions, like some of the activities that you've already been doing. Is it just to like everything is too disrupted right now too long to kind of rethink the strategies or not, you know to kind of accelerate the strategies and pull forward some things that maybe you thought you couldn't get to it till Twenty-One or twenty-two
so look again it's very early we you know we we had a number of initiatives that we had been executing on last year Brian outline you know a number of those in the comments which took you know some some you know wind in our sales coming in into this year you know certainly there are some some other items which might relate to respect for other Synergy opportunities around the company that that certainly were you know again uh you know four to eight weeks kind of been into this. Here in and been batten down the hatches on the business kind of generally but you know we will look smartly at what other opportunities there there there might be so it's really a not answer to you but you know that that those will be things that will be you know thinking through you know more probably and in the upcoming weeks and months here
Okay, and what one thing I think would would be super helpful for everybody would be just to talk a little bit about about used equipment, you know, some sort of Industry experts or whatever had been throwing around that that's going to be an issue but it seems that historically that hasn't really been you know, there hasn't really been a lot of overhang from used equipment and it seems like a lot of the kitchens are kind of custom built and designed and installed and it might be a little bit harder than the Casual Observer would think to be able to just rip equipment out and and replace it into a different area. So I just wondering. Can you talk a little bit about what you've learned over the decades about used equipment and how we should think about it, you know, I'll start and then I'll probably throw this over to Dave. I need a couple of comments that are so used equipment is not new, right? So, I mean certainly, you know, there's discussion about more restaurant likely being shut down during this period of you know tend to Thursday.
10% you know, as you said usually there's a specification for chain customer, so they're not just going to take any piece of equipment. So that's that's number one phone number number two, you know the cost of equipment and refurbishing is actually a pretty expensive. So just taking a piece of equipment and then moving it to another location and the risk. Oh, hey, it might not work. It might be a safety hazard. You got to clean it up and that might require a service call which is fairly expensive and putting in new parts that that is pretty difficult and and a lot of our equipment, I'll say it's kind of like a laptop for you know, it's an operating piece of equipment for our our customers and you know, certainly, you know, you wouldn't buy used, you know laptop from another country and wipe it clean and you know and kind of start over you kind of want the latest and greatest. It's got more Energy Efficiency in a better control. So it's not that there won't be equipment out there cuz there will be in there probably dead.
We'll be more of it and it probably will have some impact but I don't think that this is going to be a wave of you know, a new uh, you know Factor that's going to over, you know over take the industry. I mean even as we, you know middle be have looked at, you know, should we buy used equipment refurbishing and put it back out in the market? You know, our our conclusion was that it off and I will say conclusion. We have done this in the past. It was more costly to to refurb equipment than build a new piece of equipment. So I think there's that just fundamental cost dynamic as well as user Dynamic of what you know, what that is and Equipment again is is usually, you know, very specific to the need of the the customer.
So, okay.
Yeah, I would I would I'd only add built on that that I I don't see it as a threat frankly. I don't see it as a threat at all to Tim's point a long time ago a long time ago. I ran a refurbishing business for yum brands. And so we had an internal system and it wasn't profitable and it wasn't good. It did not generate good pieces of equipment that will practical for the operator. So I don't see any issue at all. We are obviously watching it very closely. But the trim right now with antibacterial surfaces the technology of controllers and control technology around cooking surfaces are advancing so quickly that the the refurbished Market the change it to make it more current to operate in a in a new production line in a burger operation or a chicken operation just isn't even practice birth.
Financially to pull it out recondition it reinstall it versus a new piece of equipment. It hasn't worked in the past. It hasn't worked for the last twenty years and took a while. It surely will be looked at. I don't think it's going to work in the future. Frankly. That's great. Thank you very much.
Thanks, Joel.
The next question is from the line of Jamie clemett from
Hey, good morning. Everybody. Good morning, Jamie Tim. If you or Dave if you look back over the last five to ten years the percentage of your business in Commercial Banking service that you would attribute to new store openings. Whatever. That number is, roughly. What do you think? The breakdown would have been between the month International?
So I'll I'll start on this one too. And then I'll kick kick that over to Dave add on to it so often so clearly, you know in the recent periods. It has been greater internationally, right? So you've got you know, as we focus on Emerging Markets, you know, clearly that's where Investments that we've made over the last five years markets such as India China Russia Middle East, uh-huh parts of Latin America, you know, I mean, those are greater new store opening markets in the US was a you know, a larger installed base. So kind of within you know, what we think is about, you know, twenty-five percent of our revenue of new new build that percentage is higher for the international markets and it's been lower for the the the domestic markets in and in the domestic markets. It tends to be around fast-casual off.
Traditional locations, right? So so as you kind of move forward, you know again, who knows what the you know, the world will will will bring but you know likely, you know new store opening some of the Emerging Markets, you know, might turn on before they they they wouldn't the US and that's kind of where our greater if you want to call it, you know exposure to new builds would be
Okay, great.
So it gave any comments. I know I would say exactly the same thing. I you know, I'm actually pretty excited about the international markets and especially our home what we've been focused on with new store development internationally. I think it's going to pay dividends next year in a year after just from a market share perspective both because we are able to be in the market for the original the original equipment. Then the after-sales service and support system and the technology of the equipment itself. I think those three things combined would just make us a dominant force in New Markets internationally. Thank you all very much for your time. Appreciate it.
Excuse me. Your next question comes from the line of Walter from Seaport.
Hi, thanks gud morning guys. Well, I just got a couple of follow this one on the DM a discussion. You're a bigger company now at this point in my life, um, you know, I wonder if there's a view that you have on m&a versus BuyBacks, you know with the stock down here, you know, once things start to stabilize, you know, would you look at one or the other you still prefer? M&a over BuyBacks? So look, I mean, you know even hear the first quarter we we did a buyback. So, uh, we had started it again, you know kind of pre covid-19 set which you know, we've we've we've hoped it is obviously we're focused on cash flow and liquidity and in fact, you know till we have a you know, better certainty like the you know, the the rest of the world so certainly we are thinking about, you know coming into Jersey.
This you know, we had been you know thinking about you know, uh, you know, BuyBacks opportunistically. So look at me. I think we wait we we way the uh the too hard to talk about that off right now, but clearly that was on the the the menu, uh walking, you know into this. But I think it all all depends on the uh, the the what the the the pipeline looks like the opportunities and and you know in our buyback approach was uh, you know, being somewhat opportunistic in terms of where you know middle be trades, you know, obviously, we've got a very positive view on positive looking how we we perform in the long run.
Okay, is it a Monday ask about the trends in China? Are there any lessons or you know insights that you got from how China has started off cover that you know might play out in the rest of the world and is the restaurants open? You know, we're there more aftermarket parts and service to get the the restaurants up and running again. So look I you know our platform is certainly a Asia just in general which one is, you know big pieces a you know, a market that we both had been focused on expanding into that being said it's a relatively small piece of our business, you know overall. So it's it's hard to you know, pick through all the the trends their life than you know that we did see orders, uh, you know, uh come up as I mentioned in the you know, the comments were probably, you know, eight to ten weeks, you know behind restaurants or turning on traffic is dead.
So a lot of our customers do have their store opening.
Plans and their original business plans kind of coming into the year that they are looking to execute on in the you know, the back half of half of the year. So, I mean, I think that that you know gives us wage, um, you know, some optimism, you know there but we don't want to read too much into anything, you know right now, you know, so other other than you know, the phone numbers, you know trends that that we've seen here in the US seem to be following what we you know, we we've seen in in China.
Okay. All right. Great. Thank you. Good luck guys. Thank you.
Your next question comes from the line of Larry demaria from William Blair.
Hi, thanks. Good morning. Everybody morning detail. A lot of the short-term actions are doing to manage the business and have some of those may become a more permanent. But are you going to doing anything to address potential for excess capacity or more large detail restructuring, obviously, you know structurally different best markets maybe with some of the closures that maybe more permanent. So maybe you can just talk about some how you're thinking about that and even discuss utilization in the factories Now versus pre-crisis, I guess God.
You know, so I would just say it's probably you know too early. I mean clearly the utilization factor is very low right now, right? So we you know, we're our factories are are down to some cases. You know, we're we're closing if we don't have enough orders for the week or certainly we're running at lower stats or you know off days. So, I mean, I think we're what I'm trying to do right now is, you know Drive the greatest efficiency in our operation at much lower levels and certainly, you know, there's things that we are, you know learning as we go through that. Um, uh, that will make us a better company right and help us as we as we come out of that and think about you know capacity but I think it's you know, again, we're you know, six weeks into it. So, I mean, I think you know, we're we're we're certainly not going to you know, lay out what you know, big changes in the the business may or may not be cuz we'd like to understand me.
The business is going to look like as we come out of it and we do, you know, we are confident that we will see, you know, some step back up. I think it's just a a function of how how long it how quickly off David's, you know worked certainly on a lot of the operational initiatives particular around supply chain is we've gone through that so I'll probably, you know, ask him to you know, add on to that as well.
Yeah, the only bit of color a little bit of color that I would add to what Tim just said is the you know, if I came outside we've learned some really key lessons on Samsung suppliers that have stepped up and helped us through this and I think those suppliers have lowered our cost and improved our quality and and obviously they're going to reap the benefits as we ramp back out of this lesson. We've learned in management of of our suppliers through and Technology suppliers. It's also being applied to our customers, right? Our customers clearly are giving us credit for stepping in faith and leaning into taking care of them during some tough times and getting them pieces of equipment or getting them parts and after-sales service and support so, you know, that's not going to change our leverage off our supply chain got accelerated during the initial weeks here leveraging certain suppliers for better quality and lower costs and our customers are doing the same thing to us birth.
So that is going to pay dividends next year in a year.
To be honest on how we look at our our suppliers and how our customers are looking at their suppliers.
Thanks, and then you guys discussed about obviously buyback version Acquisitions is Sarah and why we can go over and that's pretty early to be deploying much Capital. But are you having some of the long discussions about potentially Diversified portfolio more maybe getting more let's say into processing which may be more insulated and more agnostic to you know, where food is consumed we thinking of having those discussions yet. And are you thinking about diversifying portfolio in that way at all? So, you know, I would say, you know, we clearly life or you know, very focused on Food Service as a company and we like the food service market right? So I mean, I think you know it despite the that we're very disrupted right now. I mean fundamental it's based on, you know, people eating right? So other it is, you know through our food processing operation, which we're supplying, you know to retailers and in the home and a lot of our customers are, you know going through the restaurant wage
Whether it is, you know preparing, you know food at home, which we've continued to, you know, expand down and and in commercial and within commercial, you know, we've continued to to broaden out from cooking, you know, then then in do beverage and really becoming a technology company that's going to help run a food service operation whether it's a restaurant a c-store institutional operation, right? So so, you know, I would say we have a very Broad and diverse portfolio around Food Service. I think that we you know have demonstrated that we continue to broadcast that you know overtime but within you know, very core competencies that we understand very well from a product and Innovation standpoint and how we can deliver value to our customer. So I mean, I think that's kind of just our natural DNA is to continue to broaden in in a place that that you know, frankly, you know, yep.
Say, you know fundamentally, you know the that it's food service. So there's some stability, you know behind that, you know, you know, certainly not in a specific order but over a long period of time, you know, so so naturally, you know, that's how we've extended the company and I think that that will you know continue to a certain extent going forward extending into areas that are very core synergistic we know well and and and fit into our our strengths
Okay. Thank you. Good luck. Thank you.
That is our last question today. I'd now like to turn the call back over to management for any closing remarks.
Okay. Well, I think we've covered a lot. So I don't have a lot of closing remarks other than you know, I mean, I think obviously, you know, we we're confident in the actions that we've taken to to move through. What is a challenging. Here and ensure that we're taking care of our employees customers and continuing to talk to Leverage The the financial strength of the the company. So, uh again appreciate the support of everybody customers are employees and shareholders. So thank you everybody for joining today's call and we will talk to you on the next quarter.
Ladies and gentlemen, thank you for participating. This concludes. Today's conference call you may mail disconnect.
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