Q1 2021 Chefs' Warehouse Inc Earnings Call

April 28, 2021

[music].

Greetings and welcome to the chefs warehouse first quarter total 21 earnings conference call.

As a reminder, this conference is being reported.

Now, let's turn the conference over to your host Alex Aldous General Counsel, corporate Secretary and Chief Government Relations Officer.

Please go ahead Sir.

Thank you operator, and good morning, everyone with me on today's call are Chris Pappas, founder, Chairman and CEO and Jim Leddy, our CFO by now you should have access to our first quarter 2021 earnings press release. It can also be found at www dot chefs warehouse dot.

Com under the Investor Relations section throughout this conference call, we will be presenting non-GAAP financial measures, including among others historical and estimated EBITDA and adjusted EBITDA as well as both historical and estimated adjusted net income and adjusted earnings per share. These measurements are not calculated in accordance with GAAP and may be calculated differently than.

Similarly, titled non-GAAP financial measures used by other companies.

Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release.

Before we begin our formal remarks I need to remind everyone that part of our discussion today will include forward looking statements, including statements regarding our estimated financial performance such forward looking statements are not guarantees of future performance and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to.

To differ materially from what we expect some of these risks are mentioned in todays release, others are discussed in our annual report on form 10-K, and quarterly reports on form 10-Q, which are available on the SEC website.

Today, we are going to provide a business update and go over our first quarter results in detail. Then we will open up the call for questions with that I will turn the call over to Chris Pappas Chris.

Thank you Alex and thank you all for joining our first quarter 2021 earnings call.

As expected January and February business activity were significantly impacted by the COVID-19 related restrictions implemented during the fourth quarter of 2020.

Severe weather, especially in the northeast as well as continued customer menu compression due to the COVID-19 environment contributed to lower volumes during the quarter.

Progress on vaccinations combined with easing restrictions in March led to a gradual weekly build in revenue and we exited the quarter trending at approximately 75% of 2019 sales inclusive of acquisitions added in 2020.

Similar to our previous reporting I will compare our sales and gross margin results of the current quarter sequentially to the fourth quarter of 2020.

Jim will provide the comparison to prior year in his comments later in the call.

During the quarter net sales were essentially flat versus the fourth quarter of 2020.

While specialty sales decreased approximately 2% sequentially versus the fourth quarter of 2020 average unique customers increase for.

<unk>, 8% and we saw higher placements approximately four 7%.

Specialty cases decreased three 1% versus the fourth quarter of 2020, while center of the plate pounds sold were approximately one 6% higher sequentially versus the fourth quarter of 2020.

Gross profit gross profit margins increased approximately 13 basis points compared to the fourth quarter of 2020.

Gross margin in the specialty category increased 358 basis points as compared to the fourth quarter of 2020.

While gross margin in the center of the plate category decreased 330 basis points, Jim will provide more detail on gross margin and inflation in a few minutes.

On April 23, we completed the acquisition of Pollyfish located in New Bedford, Massachusetts fully distributes premium cut to other fresh and frozen seafood products to restaurants hotels in the Boston Metro area and maintained the national distribution business similar in nature to Allen brothers.

We are extremely extremely excited to add more around <unk> and.

And her team to the CDW family of brands and operations. This acquisition introduces key talent expertise and premium brands to our growing seafood portfolio and categories.

We look forward to further integrating our specialty produce and center of the plate offerings in the new England and national markets going forward.

During the first quarter, our team completed the implementation of our ERP front in order entry system.

At our West coast operating centers, including Southern and Northern California, and Las Vegas, We now have 100% of our legacy specialty business units live on the system and the team will look to integrate Sid wainer over the coming months. In addition, we rolled out mobile truck scanning to.

L a and northwest location and completed an upgrade to our warehouse management systems companywide.

Now to move on to an update on recent business activity.

Recent sales have been trending at approximately 79% of 2019 sales inclusive of the acquisitions completed in the first quarter of 2020 easing capacity restrictions combined with increasing outdoor dining.

Customer openings have led to a steady weekly improvement in business activity across our markets certain urban market segments, where foot traffic is driven by office occupancy.

Events, and tourism continue to improve but at a slower pace than urban neighborhoods segments and our broader regional markets.

As we move towards further reopening capacity increases events in celebration and more normalcy around social interaction.

Our team at chefs engaged in supporting our customers and supplier partners and re energizing the culinary world.

Our recently announced welcome back campaign is just one example of utilizing the chefs warehouse platform to promote reintroduce the amazing dining experiences our industry provides while the environment remains challenging we are focused on delivering the high touch service and premium quality ingredients to our share customers.

As the World comes back with that I'll turn it over to Jim to discuss more detailed financial information for the quarter and an update on our liquidity Jim.

Thank you, Chris and good morning, everyone. I will now provide a comparison of our current quarter operating results versus the prior year quarter and provide an update on our balance sheet and liquidity.

Our net sales for the quarter ended March 26, 2021 decreased approximately 25, 4% to 280 to $280 2 million from $375 4 million in the first quarter of 2020 the.

The decrease in net sales was the result of a decline in organic sales of approximately 28% as well as the contribution of sales from acquisitions, which added approximately two 6% for sales growth for the quarter.

Net inflation was six 2% in the first quarter, consisting of six 4% inflation in our specialty category and inflation of six 1% in our center of the plate category versus the prior year quarter.

Gross profit decreased 31% to $58 9 million for the first quarter of 2021 versus $85 5 million for the first quarter of 2020 gross profit margin decreased approximately 173 basis points to 21% significant year over year inflation, especially in the center of the plate categories.

As well as product mix were the primary drivers of lower gross profit margin.

As a reminder, net inflation during the first quarter of 2020 was essentially flat.

Primary driver of net specialty inflation with significant price increases in cheese, dairy and chocolate categories, accompanied by more moderate broad based inflation in most specialty product lines inflate.

Inflation in the center of plate category was driven by higher pricing across most beef categories as well as product mix changes attributed to strong growth in our Allen brothers direct to consumer business.

Total operating expense decreased approximately 22, 8% to $79 1 million for the first quarter of 2021 from $102 5 million for the first quarter of 2020.

On an adjusted basis operating expense decreased 39% year over year. The primary drivers of lower adjusted operating expense were lower volume related operational costs. The cost actions taken during 2020 and the onetime reserve increase on receivables book during the first quarter of 2020.

Partially offset by the impact of acquisitions.

Excluding the impact of the 2020 reserve comparison and acquisitions adjusted operating expense decreased approximately 20% versus the prior year quarter.

As a percentage of net sales adjusted operating expenses were 24, 5% for the first quarter of 2021 compared to 26, 4% for the first quarter of 2020.

Operating loss for the first quarter of 2021 was $20 1 million compared to operating loss of $17 1 million for the first quarter of 2020.

The increase in operating losses, driven primarily by lower gross profit, partially offset by lower operating expenses versus the prior year quarter.

Income tax benefit was $7 million for the first quarter of 2021 compared to income.

$8 1 million for the first quarter of 2020, our GAAP net loss was $17 9 million or <unk> 49 cents loss per diluted share for the first quarter of 2021 compared to a net loss of $14 1 million for 48 cents loss per diluted share for the first quarter of 2020.

On a non-GAAP basis, we had negative adjusted EBITDA of $9 5 million for the first quarter of 2021 compared to negative adjusted EBITDA of $13 8 million for the prior year first quarter.

Adjusted net loss was $18 3 million or 50 cents loss per diluted share for the first quarter of 2021 compared to adjusted net loss of $17 7 million or 60 cents loss per diluted share for the first quarter of the prior year.

Turning to the balance sheet and an update on our liquidity.

<unk> 2021, we completed the reopening of our one 8% to 75% convertible notes maturing in December of 2024 with proceeds of approximately $54 million net of issuance costs proceeds were used to prepay $30 2 million of outstanding term loans due in June of 2022 and pay down.

$20 million of borrowings under our ABL credit facility.

As of March 'twenty, six 2021 we had total liquidity of $228 8 million comprised of $175 million in cash and $53 8 million of availability under our ABL facility.

Net debt as of March 26, 2021 was approximately $227 5 million inclusive of all cash and cash equivalents.

At this time due to the continued uncertainty regarding the pace of broader economic recovery lifting of in room dining restrictions across key markets and the timing of event and travel related business activity, we will not be providing guidance for 2021, we hope to provide more color as we gain more clarity on the pace of recovery outlook and the broader <unk>.

<unk> related environment.

Thank you and at this point, we will open it up to questions operator.

We're not muted.

Thank you.

At this time, we'll be conducting a question will also session.

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Participants using speaker equipment, although the growth starting to pick up your handset before pressing the star keys.

One moment, please while we poll for questions.

Our first question is from Alex Slagle of Jefferies. Please proceed.

Thanks, Good morning.

Good morning, Alex.

I Wonder if you could talk a little bit more about the commodity inflation.

Elevated freight costs I guess out there just thoughts on your out.

Lock in kind of the ability to pass along with pricing.

Just any additional commentary you have there the helpful.

Yes, sure so I think.

The quarter was a very interesting one.

You can bifurcate the quarter really into the first two months, which were extremely impacted by COVID-19.

And the weather.

And then you had the back half of the quarter really with a.

A pretty accelerated ramp up in business activity going into April and I think.

Inflation was definitely impacted by that you have supply chains that are in catching up to the extreme artificial demand destruction that happened in 2020.

And so I think it's a unique period, where we saw.

Pretty extreme inflation, while we reported 6% to 7% overall average inflation certain categories in proteins, especially as well as certain specialty categories had double digit inflation.

And that we haven't really seen a very in a very short period of time.

So I think we're going to go through this period of catching up both the supply chains I think it is impacting the labor market in terms of.

Supply and <unk>.

<unk>.

The dynamics there.

And then I think.

As we look forward, we expect it to gradually normalize as we as we get to the back half of 2021.

I think the other thing that has impacted us during the quarter was.

A continuation of product mix.

Changes that brought down our average.

Profit margin selling more proteins, which come at a lower average.

Gross profit margin than some of our specialty product lines.

And that combined with the.

Really extreme inflation.

I think we view it as transitory.

And that is supply chain catch up.

Things will start to normalize towards the back half of the year.

Makes sense.

On labor, maybe just a little more there just challenges finding drivers and staffing warehouses I mean, how much more hiring do you think you need the data to meet the expected demand.

Any thoughts.

Okay.

It was challenging before COVID-19.

Looking at some data this morning.

The conversation has never been there is.

There is an availability of excess labor.

Net.

It was never an easy never an easy day trying to find drivers and night cruise.

They're hard job.

And when you have full employment it was hard for us so extremely challenging, especially.

I mean, we knew obviously the recovery was coming.

But.

It's unprecedented.

Trying to prepare for when you are.

The business just exploded.

As the weather started turning in the vaccines really started too.

We started to see our customers started to see more and more of their customers returning and.

It was just explosive growth.

Coming out of March into April.

So we knew it's going to be difficult our customers are having a really hard time getting labor right. Now we think it's going to probably continue to at least September I think thats, where unemployment all the stimulus checks.

And.

Because right now it's just it's very very hard to get people to want to come to work and some of these jobs and managers are chipping in and everybody really is helping on the frontline.

It's a good problem in many ways.

Business is coming back in.

Menus are starting to come back normalized which is.

Increasing our order size and <unk>.

Items sold and that's really how we make money at.

At the same time its extremely extremely challenging.

Almost like going back to the gym and you know that.

Youll benefit in a few months, but.

The first few months is going to be really hard to get back into shape and I think that's what we're going through.

Got it from getting to see things accelerating our thank you and I'll pass it on.

Thanks, Alex.

Thank you. Our next question is from Peter Saleh.

<unk>. Please proceed.

Great. Thanks, and thanks for taking my question, Chris I think you mentioned.

Sales are at.

79% of 2019 levels are you, suggesting that's april or is that kind of the end of April and then could you just comment a little bit about what youre seeing.

Now to some of the key markets on the West Coast.

And in New York Please.

Sure.

Yes again.

I think I'll, let Jim opine, a little bit more on the acceleration I mean, obviously every every day, thank God gets better and we're starting to March.

I think it's just a day a matter of days before we start going into the Eighty's.

Which for.

Honestly I didn't think we'd get back to the 80 plus till later, maybe in the summer going into the fall so.

The pent up demand is just exploding.

Which brings its own issues right now, but trying to staff trying to trying to meet demand.

It's just.

Unprecedented.

What we're seeing from supply chains coming out of everywhere Europe trailers are backed up trying to get longshoreman back to work to unload the trailers. So.

It's going to be it's going to be tight until I think September October.

But.

New York Law, I mean, all the major markets.

It's what you would think that debt.

Demand is in.

When you look at New York its downtown its Uptown Midtown.

Offices are not full yet so those people are suffering the theater is not back yet.

Where you have good weather, where you have more.

Outdoor seating where you have more.

The ability I mean places like Texas, some of my favorite restaurants and customers there.

They are back to or even better than pre COVID-19.

Number is because of just people wanting to go back out again, and socialize and have some normality. So I think the trend will continue every day, we will continue to get better, but I think the mid towns of.

Of the major cities will drag.

Until fall and we kind of expected debt at the same time, we did expect.

There are other types of customers to actually exceed <unk>.

Expectations and right now, they're exceeding even our expectations, which shows us how much pent up demand is and people are going out where they are living.

Versus working many are still working from home so I think.

I think it's.

Dictating really we're following following our customer's customer and following the money and trying to ramp up as fast as we possibly can to meet demand.

Yes, Peter just about the cadence part of your question.

The 79% is kind of the average for the last two weeks.

Of.

These past two weeks.

And just to give you a sense of the cadence.

I talked about the first quarter being bifurcated into a really horrible January and February and then March really kind of exploding and Chris mentioned and then into April.

We were operating at 55% or 60% of 2019 pro forma for the acquisitions earlier in the Q1 and then coming out of April were just under 80% that gives you a sense of the acceleration over a period of really a matter of weeks.

Thats.

Hopefully that gives you a sense of the cadence.

No that's very helpful and can I ask just one more on on acquisitions on the M&A environment given.

How tough the environment is overall right now with inflation.

Demand coming back does it makes the acquisition market.

I guess more attractive to you guys. I know you just made another small acquisition recently.

Should we be expecting more how do you how are you thinking about.

More tuck in acquisitions at this point, thanks sure yes pre.

Pre COVID-19.

The market was was extremely frothy I mean, the industry is consolidating I think that's obvious.

For many many many reasons.

We're looking at an industry that was fragmented.

Heavily consolidated in many in many states, but still.

A small companies that do something unique in.

Part of what <unk> been doing the past 10 years is consolidating this part of the industry. So a lot of deals that were lingering pre COVID-19 I think they'll get done.

Right now with the labor market.

Do you see as a headwind for these companies have been struggling nobody is immune from whats going on but we think as we go into the fourth quarter.

Especially as.

Stimulus in.

The other.

I think the incentive not to work starts to go away.

Realize they have to get a job I think.

8 million people still that have not got back into the workplace from.

From pre COVID-19 numbers.

I think you will see many many deals being announced I think it's just being able to forecast right. So.

Fully fish, we were talking before COVID-19, we thought they were a perfect fit culturally.

Ownership history.

Their commitment to quality and service fit right into the chefs warehouse service model. So.

I think deals like that you will continue to see.

Hopefully do.

I think the markets.

I think youll see a lot of M&A going into 'twenty, two and 'twenty three deals that were backed up.

Excellent. Thank you very much.

Thank you.

Our next question is from Kelly Bania of BMO capital. Please proceed.

Okay.

Hi, Good morning, This is Kelly bania.

Thanks for taking our questions.

And Jim just wanted to see if you had a sense.

Very difficult to kind of measure market share for chefs warehouse given your kind of unique customer focus, but just curious what you're seeing just broadly across your customer base, how you think.

We're faring in terms of market share with your core customer group.

Sure.

A lot of it I mean.

Every day, we hear about new customer acquisition, and I think we reported even last quarter, which was obviously extremely challenging that what was amazing was.

The amount of new customers that we were acquiring so I would say that we absolutely are net positive even though we still have a lot of customers who have not opened.

Historical customers the amount of new customers, who are coming to us I think.

Kind of fits into what our strategy has been debt.

We knew that the next year would be extremely challenging so.

What strategically.

Can we do for the future of our of our business and it was really to work with customers.

Really be a true partner.

With what we saw comment which was inflation logistical challenges supply chain challenges labor challenges and go out of our way to even be a better partner, we're running extra trucks. We're running carrier services salespeople are are going out of their way to see how they can.

And assist in every possible way because you go from.

Customers, who are doing 2030 covers a day all of a sudden they're doing 200.

Youre going to Youre going to have a lot of challenges and servicing customers, which is a good thing in many ways right. We have been waiting for this day for over the past 14 months. So I think we are I know, we are gaining market share because of our.

Our ability to service there is a lot of smaller competitors that we've seen even larger debt limited service.

In many areas.

Too many customer basis trying to just because they just they don't even have the labor to make the delivery. So we.

We are by far not perfect, but I think that we have we've been able to do a much better job than many competitors and we're being rewarded for that as well as being able to access alternate side alternate supply side.

To fill orders, even though it's not exactly really where customers were buying I think giving them product that they can.

Put out a menu.

Has been key and.

It fits into really our model our model was.

Just in time from the beginning.

I think I've always.

<unk>.

Said that Jeff does the hard things doing a lot of importing you always have challenges in stocking stopped in smaller markets and serving smaller customers is extremely hard having later cutoffs is a really hard model and I think that really prepped us to be in a better position.

In this crazy Crazy market, where it kind of is helped the scout there you have debt run $24 seven and you just have to get out of your comfort zone and try to help your customers because it's.

It's unpredictable demand so you could throw out the old playbook.

And right today. Its you are writing a new playbook of.

How do I get through the next six months and I think chef does it better than most.

Thank you that's very helpful.

Chris just maybe also you mentioned menu compression and maybe a little bit of that starting to come back just curious if you can elaborate on that a little bit.

Maybe just how much do you estimate that's impacting you now and if you think theres any sustained.

Impact from.

Just the vast menu compression and the reversion, maybe just anything longer term there.

Sure so.

The Cassandras Crystal ball, let me, let me get it out of Jim's desk really shine it up and take a look Kelly.

<unk>.

Yes.

I think its if youre, if youre a diner like myself.

<unk>.

Been out lunch and dinner, sometimes breakfast every day trying to talk to customers and really get a feel and obviously, we read all the reports and we see the category sales.

As labor comes back the menus are going to expand.

People want choices.

<unk>.

Depending what city I'm in I'm going to restaurants, especially if I'm there for a week and eight in the same restaurants, you don't want to get the same thing every day. So I think a lot of it is common sense.

I think depending on their labor pool that limits the menus right. So to expand the menu you have to have that bodies, yet that Hans and I am starting to see menus coming back I mean, I could see from our our sales reports.

People are being asked to come in and help with their new menus and people are trying to get back to normal menus.

Even last night I had dinner and a place that I haven't been to in a while and I was I was overwhelmed with choices too many choices.

So absolutely depending on labor.

The menus are coming back, which we need them to come back.

At the same time. It is it is it is challenging because.

The supply channel so thank God, we do have.

Over 1000 suppliers in 40 countries and many different channel channels to get supply. So we are scrambling.

And I think it's going to be tough I think.

We're all looking at 'twenty two 'twenty, one is really get through it.

Meat meat RFP, a great partner for our customers.

We've had the gross profit margin headwinds because it's just impossible at this point to to manage everything so really our goal right now is make sure we have product get it to the customer.

Obviously try to make as much gross profit dollars, but really it's setting up 'twenty two.

To have more customers gain market share.

And really be in a better position just like with the fully acquisition that we could have a much better portfolio of offerings into 'twenty, two and into 'twenty three to kind of make up what's happened in the last 14 months. So I think we're looking at the long ball and obviously day to day.

We're trying to execute but.

It almost looks like the feeling of coming out of a war and trying to get back to normal.

Thanks, and maybe I'll just throw one more in.

Just looking back I think we were or you had mentioned maybe reaching.

Around 75% to 80% of pro forma 19 sales.

This year and it sounds like Youre already really they're big.

A big acceleration in the last several weeks. So just curious if you wanted to take the opportunity to where you think for the full year could kind of end up.

Or any thoughts on that point.

So yes, thanks Kelly.

Yes, I think the acceleration that we've seen in March and April.

Weekly revenue basis has has exceeded our expectations I think January and February were worse than our expectations given the severe weather and the significant COVID-19 impact it was very much like December.

So I think we said before our goal really it's not guidance, but our goal is to exit 'twenty one.

Kind of.

85% to 90% of 2019.

On a pro forma for the acquisitions.

I think we're on that path I think were going to see a leveling off.

For the summer months.

The acceleration I think.

Revenue continues to outperform.

Chris mentioned, obviously, we have gross profit margin challenges driven by inflation and other dynamics, but we think that that will start to normalize towards the end of the year and I think.

If we can exit the year at 85% to 90% and then really go into 'twenty, two and build gradually back to a 100 plus percent in the back half of 'twenty, two that would be kind of an ideal situation for us going forward.

I think the hardest part Kelly too.

The reason why it's impossible to forecast right now is it's really supply chain.

<unk>.

Being able to get adequate supply and fill up containers and get our shipping lanes more efficient freights, killing us.

For the.

What we're paying for containers right now it it's almost like an auction.

If you are willing to pay you can jump the line and get your product from a lot of these.

Seaports so.

It's kind of the wild west and like Jim always reminds me.

It's going to eventually the supply is going to catch up to the demand.

And prices will normalize so you still have a COVID-19 environment, you still have a lot of facilities that.

Cannot go back to normal so they can't produce kind of like the what we're seeing in protein right now they can't they can't keep up with demand so.

Pushing up the prices and.

Demand is still there, which is which is great to see but it's putting a lot of a lot of pressure on menu prices and there is only so much you can push the menu price at this point. So I think we're all taken a short term hit.

And I think that's why it's so hard to forecast because as you know.

In our industry or one point.

You'd miss by a quarter point and you thought the world was ending now youre like two points behind.

While this is getting better.

So.

It's it's climbing up that long long long staircase, but.

Yes.

<unk>.

Finally light at the end of the tunnel there is excitement and enthusiasm in the industry and now is just a lot of work.

To get through to the other side, where the labor pool comes back supply chain has normalized and we can take a deep breath, but right now.

Right now we're in the middle of <unk>.

35 mile Sprint.

And.

<unk>.

It's requiring just all our energy just to get just to get through this.

But it is exciting to see restaurants building up and customers coming back at it.

It's really almost all about the vaccines at this point as more and more people get vaccinated theyre more comfortable.

We're hearing record record breaking nights for customers.

It's exciting.

Great. Thank you.

Thanks Kelly.

Thank you. Our next question is from Todd Brooks of CL King <unk> Associates. Please proceed.

Hey, good morning, guys, a couple a couple of questions and it sounds like with the challenges to keep up demand.

I don't know if this will be more fuel to the fire or not but Chris as youre looking out and what youre hearing from customers kind of enter the peak summer season.

What's the demand for the event business looking like.

In the upcoming periods as far as key country club customers hotel customers. What do you what are you hearing from your customer base.

Sure. So I think it's state by state.

Youre really starting to see that.

The way the Constitution was built in the federal system.

Sure.

States that kind of like Florida that.

Never really closed and so when I look at Florida, except for.

We don't have our cruise ship business, which actually brings a lot of tourists into Florida.

If that was back Florida would actually be exceeding 2019 so.

Hearing things about say or the theme parks and all that you can see they're starting campaigns, especially for local a lot of people that can drive there.

Are starting to come out so we're starting to see the signs of a business and tourism.

We're hearing from many hotel operators that.

A lot of leisure travel.

It is starting to come back and they are starting to see demand.

We're starting to hear weddings being booked we're starting to see.

Think.

I don't think Ive heard about large large events being booked yet, but I'm hearing more and more.

Just even looking at Las Vegas, just im amazed sometimes that the amount of business that we are doing.

With no major convention so.

I think that the major events, obviously will be dictated by the state and by corporates.

Level and having that many people I was just invited to.

The first party I have been invited to a memorial day party, but you have to be vaccinated to come.

Oh.

I think again, it's kind of like it's really we're entering uncharted territory, but.

I think it's going to be a great summer.

Im hearing lots and lots of customers very optimistic.

Think the drag is still the office buildings in the major cities and the restaurants around them. It is getting better, but I think thats.

We'll wait and see I'm hearing more of its all time.

Which to me would be great because I think were just so busy right now all we can handle.

No.

Having it having a tiered step up.

It's not a bad thing trying to gear up trying to find drivers is trying to find night cruise.

To meet demand I think we're all scrambling.

Maybe we can get some maybe maybe someone can speak to our elected officials to say.

This is really hard for the business.

Especially small businesses to trying to get labor is really challenging and causing a lot of issues.

And the recovery I know that everybody means well, but.

It's making it extremely hard.

To get labor back and.

To allow us to do business and be profitable, so I think debt.

I'll go with the step up I think that we will step up every month day, it'll get a little better a little better and I think the challenge will be labor.

Fair enough fair enough and then the second question you talked about.

New customer wins during during the pandemic and that Shouldnt surprise any of us with.

Your maintenance for service levels for access to credit.

You typically have a very good view on kind of green shoots in the industry and I know that.

The sense now with especially with the new stimulus for the industry that we're not going to bottom with as many doors closed, but what are you seeing as far as.

New restaurant creation as you start to look at maybe a third phase of.

Once the downtown city centers start to open up this fall what are you seeing as far as.

New restaurants opening in just the front end of maybe door growth that youll be able to take advantage of it.

Yes.

I think it's.

I think it's going to be overwhelming.

Restaurant tours open restaurants, right, that's what they do so.

As prime real estate.

Becomes available it is a once in a lifetime really too so it is going to be a land grab.

I don't think it's and even there.

Playing field.

I think the strong.

Many many customers we're blessed with.

Getting PPP.

And being able to have the balance sheet right now to take advantage of.

What is happening so we're hearing from many many customers.

Our park consultants right.

We kind of see the landscape and see where the businesses. So we do get a tremendous amount of phone calls of what do you think.

And we are seeing many customers signing leases.

I think it's going to take some time because they just don't have the labor.

We're hearing from customers, saying I'd open my other restaurant, but I just don't have the labor yet Chris so.

Probably open in the fall probably opened first quarter next year. So.

I think it's a lot of common sense.

Where people think people are coming back I know that.

For the Brazilian question is how many people will come back to the office.

What will the office parks look like what business around offices look like I think that's still to be determined.

But we are.

We're seeing we're starting to see we're starting to see the recovery.

We're starting to see the.

The traffic.

And we're starting to see the volume, it's just I think it's still bifurcated.

In many areas.

<unk>.

Go to the major cities Youll see traffic.

You will see people youll see restaurants, but it's not.

It's not EBIT flowing yet so I think that many people are making bets for 'twenty, two and 'twenty, three and they're going to start to gobble up places that might've closed, especially in business areas and they are starting to make the bets that the volume is coming back.

That's very helpful. Thanks, Chris.

Thanks Todd.

Thanks, Jim.

Thank you.

A reminder, if you'd like to ask a question. Please press star One for example from confirmation total on senior ones in the queue.

Our next question comes from Ben <unk> of Lake Street Capital markets. Please proceed.

Alright, Thanks for taking my questions just one from me this morning.

Curious about kind of.

Things, we saw last year around this time in major urban areas that where regulations allowed for.

For for expanded outdoor seating and the sidewalks in some places and they closed off streets with warm weather on the horizon again are you seeing this again and if so are your customers kind of shifting capacity from indoor or outdoor or with with indoor restrictions lifting does this result in a net increase in capacity.

Especially in your urban core customers.

Yes.

Again, I think it's a neighborhood to neighborhood Ren.

But.

The volume that we're seeing.

To have indoor capacity right not everybody has outdoor capacity to sell.

You can just I call it the vaccine effect.

You can just start youre seeing people starting to go back and side I.

I think I read this morning, too we're going to go to 75% capacity that has a certain time I mean I read all the papers around the country.

I am confused which ones which anymore, but.

It's building and it really is the vaccine effect.

Saturday night or local place here in Connecticut.

<unk> has been done.

300 covered since the beginning of the before the pandemic so.

Replace inside was pack the place outside was packed so.

You do have an advantage if you have outdoor first of all you have more capacity, especially if theres restrictions you could do turns.

I saw some customers in Texas.

Theyre doing more coverage than pre COVID-19, because they have outdoor or they are indoor people are very cooperative theres assign when you sit down or they ask you can you. Please limit your stage two hours and.

Customers are being cooperative they know that the industry has been traumatized and we're all trying to recover it so.

I think that it's benefiting people are being forgiving they know rest.

Restaurants are short staffed in many in many ways.

No.

It is a staged recovery.

And it's not going to be even.

Depending on your ability to to get labor. So I think the only thing thats going to hold us back really in the next few months is the ability to get labor back.

Because the demand is there.

Got it got it very encouraging that does it for me best of luck here navigating everything here in coming weeks as everything reopens. Thanks, so much I'll jump back in queue.

Thanks Benny.

Thank you.

Ladies and gentlemen, this concludes our question and answer session.

We will also conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.

Thank you.

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Greetings and welcome to the chefs warehouse first quarter 2021 earnings Conference call. As a reminder, this conference is being recorded.

I'd now like to turn the conference over to your host Alex Aldous General Counsel, corporate Secretary and Chief Government Relations Officer.

Please go ahead Sir.

Thank you operator, good morning, everyone with me on today's call are Chris Pappas, founder, Chairman and CEO and Jim Leddy, our CFO by now you should have access to our first quarter 2021 earnings press release. It can also be found at www dot chefs warehouse dot.

Measurements are not calculated in accordance with GAAP and may be calculated differently than similarly, titled non-GAAP financial measures used by other companies.

Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release.

Statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect some of these risks are mentioned in todays release, others are discussed in our annual report on form 10-K, and quarterly reports on form 10-Q, which are available on the SEC website.

Thank you Alex and thank you all for joining our first quarter 2021 earnings call.

As expected January and February business activity were significantly impacted by the COVID-19 related restrictions implemented during the fourth quarter of 2020.

Severe weather, especially in the northeast as well as continued customer menu compression due to the COVID-19 environment contributed to lower volumes during the quarter.

Similar to our previous reporting I will compare our sales and gross margin results of the current quarter sequentially to the fourth quarter of 2020.

Jim will provide a comparison to prior year in his comments later in the call.

During the quarter net sales were essentially flat versus the fourth quarter of 2020.

While specialty sales decreased approximately 2% sequentially versus the fourth quarter of 2020 average unique customers increase for.

<unk>, 8% and we saw higher placements approximately four 7%.

Specialty cases decreased three 1% versus the fourth quarter of 2020, while center of the plate pounds sold were approximately one 6% higher sequentially versus the fourth quarter of 2020.

Gross profit gross profit margins increased approximately 13 basis points compared to the fourth quarter of 2020.

Gross margin in the specialty category increased 358 basis points as compared to the fourth quarter of 2020.

While gross margin in the center of the plate category decreased 330 basis points, Jim will provide more detail on gross margin and inflation in a few minutes.

On April 23, we completed the acquisition of Pollyfish located in New Bedford, Massachusetts fully distributes premium cut to order fresh and frozen seafood products for restaurants hotels in the Boston Metro area and maintained for National distribution business similar in nature to Allen brothers.

We are extremely extremely excited to add <unk> and her team to the CW family of brands and operations.

This acquisition introduces key talent expertise and premium brands to our growing seafood portfolio and categories.

Look forward to further integrating our specialty produce and center of the plate offerings in the new England and national markets going forward.

During the first quarter, our team completed the implementation of our ERP front in order entry system.

La and northwest location.

<unk> completed an upgrade to our warehouse management systems companywide.

Now to move on to an update on recent business activity.

Things have led to a steady weekly improvement in business activity across our markets certain urban market segments, where foot traffic is driven by office occupancy events and tourism continue to improve but at a slower pace in urban neighborhoods segments and our broader regional markets.

As we move towards further reopening capacity increases events in celebration and more normalcy around social interaction our team at chefs engaged in supporting our customers and supplier partners and re energizing the culinary world.

As the World comes back with that I'll turn it over to Jim to discuss more detailed financial information for the quarter and an update on our liquidity Jim.

Our net sales for the quarter ended March 26, 2021 decreased approximately 25, 4% to 280 to $280 2 million from $375 4 million in the first quarter of 2020.

The decrease in net sales was the result of the decline in organic sales of approximately 28% as well as the contribution of sales from acquisitions, which added approximately two 6% for sales growth for the quarter.

Net inflation was six 2% in the first quarter, consisting of six 4% inflation in our specialty category and inflation of six 1% in our center of the plate category versus the prior year quarter.

Gross profit decreased 31% to $58 9 million for the first quarter of 2021 versus $85 5 million for the first quarter of 2020.

Gross profit margin decreased approximately 173 basis points to 21% significant year over year inflation, especially in the center of the plate categories as well as product mix were the primary drivers of lower gross profit margin.

As a reminder, net inflation during the first quarter of 2020 was essentially flat for <unk>.

Inflation in the center of plate category was driven by higher pricing across most fee categories as well as product mix changes attributed to strong growth in our Allen brothers direct to consumer business.

Total operating expense decreased approximately 22, 8% to $79 1 million for the first quarter of 2021 from $102 5 million for the first quarter of 2020.

Partially offset by the impact of acquisitions.

Excluding the impact of the 2020 reserve comparison and acquisitions adjusted operating expense decreased approximately 20% versus the prior year quarter.

As a percentage of net sales adjusted operating expenses were 24, 5% for the first quarter of 2021 compared to 26, 4% for the first quarter of 2020.

Operating loss for the first quarter of 2021 was $20 1 million compared to operating loss of $17 1 million for the first quarter of 2020.

The increase in operating losses, driven primarily by lower gross profit, partially offset by lower operating expenses versus the prior year quarter.

Income tax benefit was $7 million for the first quarter of 2021 compared to income.

$8 1 million for the first quarter of 2020, our GAAP net loss was $17 9 million or <unk> 49 cents loss per diluted share for the first quarter of 2021 compared to a net loss of $14 1 million or <unk> 48 loss per diluted share for the first quarter of 2020.

On a non-GAAP basis, we had negative adjusted EBITDA of $9 5 million for the first quarter of 2021 compared to negative adjusted EBITDA of $13 8 million for the prior year first quarter.

Adjusted net loss was $18 3 million or 50 cents loss per diluted share for the first quarter of 2021 compared to adjusted net loss of $17 7 million or 60 loss per diluted share for the first quarter of the prior year.

Turning to the balance sheet and an update on our liquidity.

$20 million of borrowings under our ABL credit facility.

As of March 26, 2021, we had total liquidity of $228 8 million comprised of $175 million in cash and $53 8 million of availability under our ABL facility.

Net debt as of March 26, 2021 was approximately $227 5 million inclusive of all cash and cash equivalents.

<unk> pandemic related environment.

Thank you and at this point, we will open it up for questions operator.

We're not moving.

Thank you.

This time, we'll be conducting a question and answer session.

If we would like to ask a question. Please press star one on your telephone keypad.

If you would like to remove your question from the queue. Please press star zero for.

All participants using speaker equipment and data growth.

Sorry to pick up your handset before pressing the star keys for.

One moment, please while we poll for questions.

Our first question is from Alex Slagle of Jefferies. Please proceed.

Thanks, Good morning.

Good morning, Alex.

I Wonder if you could talk a little bit more about the commodity inflation.

Elevated freight costs, I guess out there and just thoughts on your outlook and kind of the ability to pass along with pricing.

Just any additional commentary you have there the helpful.

Yes, sure so I think.

The quarter was a very interesting one.

You can bifurcate the quarter really into the first two months which were.

Extremely impacted by COVID-19.

And the weather.

And then you had the back half of the quarter really with.

A pretty accelerated ramp up in business activity going into April and I think.

Inflation was definitely impacted by that you have supply chains that aren't catching up to the extreme artificial demand destruction that happened in 2020.

And so I think it's a unique period, where we saw.

Pretty extreme inflation, while we reported 6% to 7%.

Overall average inflation certain categories in proteins, especially as well as certain specialty categories had double digit inflation.

And in.

Debt, we haven't really seen in a very in a very short period of time.

So I think we're going to go through this period of catching up both the supply chains I think it is impacting the labor market in terms of.

Supply and <unk>.

<unk>.

The dynamics there.

And then I think.

As we look forward we.

We expect it to gradually normalize as we as we get to the back half of 2021.

I think the other thing that has impacted us during the quarter was.

A continuation of product mix.

The changes that brought down our average.

Gross profit margin.

More proteins, which committed.

Lower average.

Gross profit margin than some of our specialty product lines.

And that combined with the really.

Really extreme inflation.

I think we view it as transitory.

And that is supply chain catch up things.

Things will start to normalize towards the back half of the year.

Makes sense.

On labor, maybe just a little more there just challenges finding drivers and staffing warehouses.

How much more hiring do you think you need to do to meet the expected demand.

Yes.

Okay.

It was challenging before COVID-19.

Looking at some data this morning.

The conversation has never been there is.

There is an availability of excess labor debt.

It was never an easy never an easy day trying to find drivers and night cruise and.

They are hard job.

And when you have full employment it was hard before so extremely challenging especially.

I mean, we knew obviously the recovery was coming but.

It's unprecedented.

Trying to prepare for when you are.

The business just exploded.

As the weather started turning into vaccines really started too.

We started to see our customers started to see more and more of their customers returning and.

It was just explosive growth.

Coming out of March into April.

And.

Because right now it's just it's very very hard to get people to want to come to work and some of these jobs and managers are chipping in and everybody really is helping on the frontline.

It's a good problem in many ways.

Business is coming back in.

Menus are starting to come back normalized which is increasing our order size in items sold and that's really how we make money.

At the same time its extremely extremely challenging.

Almost like going back to the gym and you know that.

Youll benefit in a few months, but the.

The first few months is going to be really hard to get back into shape and I think that's what we're going through.

Sure.

Got it from getting to see things accelerating.

I'll pass it on.

Thanks, Alex.

Thank you. Our next question is from Peter Saleh.

<unk>. Please proceed.

Great. Thanks, and thanks for taking the question, Chris I think you mentioned.

Sales are at.

79% of 2019 levels are you, suggesting that's april or is that kind of the end of April and then could you just comment a little bit about what youre seeing now.

Some of the key markets on the West Coast and in New York. Please.

Sure.

Yes again.

I think I'll, let Jim opine, a little bit more on the acceleration I mean, obviously every every day, thank God gets better and we're starting to March.

I think it's just a day a matter of days before we start going into the Eighty's.

Which for.

Honestly I didn't think we'd get back to the 80 plus till later, maybe in the summer going into the fall so.

The pent up demand is just exploding.

Which brings its own issues right now, but trying to staff trying to trying to meet demand.

Sure.

It's just we.

Unprecedented.

What we're seeing from supply chains coming out of everywhere Europe trailers are backed up trying to get longshoreman back to work to unload the trailers. So.

It's going to be it's going to be tight until I think September October but.

New York La <unk>, I mean, all the major markets.

It's what you would think that debt.

The demand is in.

When you look at New York its downtown its Uptown Midtown offices are not full yet so those people are suffering the theaters not back yet.

Where you have good weather, where you have more.

Outdoor seating where you have more.

For the ability I mean places like Texas, some of my favorite restaurants and customers there.

They are back to they're even better than pre COVID-19.

The major cities will drag.

Until fall and we kind of expect the debt at the same time, we did expect all or other types of customers to actually exceed.

Expectations and right now, they're exceeding even our expectations.

It shows us how much pent up demand is and people are going out where they are living.

Versus working many are still working from home so I think.

I think it's.

Dictating really we're following following our customer's customer and following the money and trying to ramp up as fast as we possibly can to meet demand.

Yes, Peter just about the cadence part of your question.

The 79% is kind of the average for the last two weeks.

Of.

These past two weeks.

And.

And just to give you a sense of the cadence.

I talked about the first quarter being bifurcated into a really horrible January and February and then March really kind of exploding and Chris mentioned and then into April we were operating at 55% or 60% of 2019 pro forma for the acquisitions earlier in the Q1 and then coming out of April were just under 80% that gives you a sense of.

The acceleration over a period of really a matter of weeks.

Thats.

Hopefully that gives you a sense of the cadence.

No that's very helpful and can I ask just one more on on acquisitions on the M&A environment given.

How tough the environment is overall right now with inflation.

Demand coming back that does it makes the acquisition market.

I guess more attractive to you guys. I know you just made another small acquisition recently.

Should we be expecting more how do you how are you thinking about.

More tuck in acquisitions at this point, thanks sure yes.

COVID-19.

The market was.

Was extremely frothy I mean, the industry is consolidating I think that's obvious.

For many many many reasons.

We're looking at an industry that was fragmented.

Heavily consolidated in many in many states, but still.

A small companies that do something unique.

Part of what <unk> been doing the past 10 years is consolidating this part of the industry. So a lot of deals that were lingering pre COVID-19 I think they'll get done.

Right now with the labor market.

Obviously is a headwind for these companies have been struggling nobody is immune from whats going on but we think as we go into the fourth quarter.

Especially as.

Stimulus in.

The I think the <unk>.

Center of not to work starts to go away and people realize they have to get a job I think.

We have about 8 million people still that have not got back into the workplace.

From pre COVID-19 numbers.

I think you will see many many deals being announced I think it's just being able to forecast right. So.

Fully fish, we were talking before COVID-19, we thought they were a perfect fit culturally.

Ownership history.

Their commitment to quality and service fit right into the chefs warehouse service model. So.

I think deals like that you will continue to see us hopefully do and I think the markets.

I think youll see a lot of M&A going into 'twenty, two and 'twenty three deals that were backed up.

Excellent. Thank you very much.

Thank you.

Our next question is from Kelly Bania of BMO capital. Please proceed.

Yes.

Hi, Good morning, This is Kelly bania.

Thanks for taking our questions Chris.

Chris and Jim just wanted to see if you had a sense.

Very difficult to kind of measure market share for chefs warehouse given your kind of unique customer focus, but just curious what you're seeing just broadly across your customer base, how you think.

You're faring in terms of market share with your core customer group.

Sure.

A lot of it I mean.

Every day, we hear about new customer acquisition, and I think we reported even last quarter, which was obviously extremely challenging that what was amazing was the.

The amount of new customers that we were acquiring so I would say that we absolutely have our net positive even though we still have a lot of customers who have not opened.

Historical customers the amount of new customers, who are coming to us I think.

Kind of fits into what our strategy has been debt.

We knew that the next year would be extremely challenging so.

What strategically.

Can we do for the future of our of our business and it was really to work with customers and.

Really be a true partner.

And assist in every possible way because you go from.

Customers, who are doing 2030 covers a day all of a sudden they're doing 200.

Youre going to Youre going to have a lot of challenges and servicing customers, which is a good thing in many ways right. We've been waiting for this day for over the past 14 months. So I think we are I know, we are gaining market share because of our.

Our ability to service there is a lot of smaller competitors that we've seen even larger debt limited service in.

Many areas.

Too many customer basis trying to just because they just don't even have the labor to make the deliveries so.

To fill orders, even though it's not exactly really where customers were buying I think giving them products that they can.

Put out a menu.

Has been key and.

It fits into really our model our model was.

Just in time from the beginning.

I think I've always.

Said that Jeff does the hard things doing a lot of importing you always have challenges in stocking stuffed in smaller markets and servicing smaller customers is extremely hard having later cutoffs is a really hard model and I think that really prepped us to be in.

Better positioned in this crazy crazy market, where it kind of is help the sculptor you have to run 24, seven and you just have to get out of your comfort zone.

And try to help your customers because it's.

It's unpredictable demand so you could throw out the old playbook.

And right today that Youre, writing, a new playbook of.

How do I get through the next six months and I think chef does it better than most.

Thank you that's very helpful.

Christopher maybe also you mentioned.

New compression and maybe a little bit of that starting to come back just curious if you can elaborate on that a little bit.

Maybe just how much do you estimate that is impacting you now and if you think theres any sustained.

Impact from.

Just the vast menu compression and the reversion, maybe just anything longer term there.

Sure so.

Yeah.

Cassandras Crystal ball, let me, let me get it out of Jim's desk really shine it up and take a look Kelly.

Yes.

I think its if youre, if youre a diner like myself.

<unk>.

Been out lunch and dinner, sometimes breakfast every day trying to talk to customers and really get a feel and obviously, we read all the reports and we see the category sales.

As labor comes back the menus are going to expand.

People want choices.

<unk>.

Depending on what city Amen, I am going to restaurants, especially if I'm there for a week and eight in the same restaurants, you don't want to get the same thing every day. So I think a lot of it is common sense.

I think depending on their labor pool that limits the menus right. So to expand the menu you have to have that bodies, yet that hands and I'm starting to see menus coming back I mean, I could see from our our sales reports.

People are being asked to come in and help with their new menus and people are trying to get back to normal menus.

Even last night I had dinner and a place that I haven't been to in a while and I was I was overwhelmed with choices too many choices.

So absolutely depending on labor.

The menus are coming back, which we need them to come back.

At the same time. It is it is it is challenging because.

The supply channel so.

God, we do have.

Over 1000 suppliers in 40 countries and many different channel channels to get supply. So we are scrambling and I think it is going to be tough I think.

We're all looking at 'twenty to 'twenty, one is really get through it.

Meat meat RFP, a great partner for our customers.

<unk>.

We've had the gross profit margin headwinds because it's just impossible at this point to to manage everything so really our goal right now is make sure we have product get it to the customer.

Obviously try to make as much gross profit dollars, but really it's setting up 22 to.

To have more customers gain market share and really be in a better position just like with the fully acquisition that we could have a much better portfolio of offerings into 'twenty, two and into 'twenty three to kind of make up whats happened in the last 14 months. So I think we're look.

And at the long ball and obviously day to day, we're trying to execute but.

It almost looks like the feeling of coming out of a war and trying to get back to normal.

Thanks, and maybe I'll just throw one more in.

Just looking back I think we were you had mentioned maybe reaching.

Possibly around 75% to 80% of pro forma 19 sales.

This year and it sounds like Youre already really there.

Big acceleration in the last several weeks. So just curious if you wanted to take the opportunity to.

Or do you think for the full year could kind of index.

Or any thoughts on that point.

So yes, thanks Kelly.

Yes, I think the acceleration that we've seen in March and April.

<unk> revenue basis has has exceeded our expectations I think January and February were worse than our expectations given the severe weather and the significant COVID-19 impact it was very much like December.

So I think we said before our goal really it's not guidance, but our goal is to exit 'twenty one.

Kind of.

85% to 90% of 2019.

On a pro forma for the acquisitions.

I think we're on that path I think were going to see a leveling off.

For the summer months.

The acceleration I think.

Revenue continues to outperform.

Chris mentioned, obviously, we have gross profit margin challenges driven by inflation and other dynamics, but we think that that will start to normalize towards the end of the year and I think.

The reason why it's impossible to forecast right now is it's really supply chain.

So being able to get adequate supply and fill up containers and get our shipping lanes more efficient freights, killing us.

The what we're paying for containers right now I'd say its almost like an auction.

If you are willing to pay you can jump the line and get your product from a lot of these <unk>.

Seaports so.

Kind of the wild West and like Jim always reminds me.

It's going to eventually the supply is going to catch up to the demand and prices will normalize. So you still have a COVID-19 environment, you still have a lot of facilities that.

Cannot go back to normal so they can't produce kind of like the what we're seeing in protein right now they can't they can't keep up with demand so.

Pushing up the prices and the.

And I think that's why it's so hard to forecast because as you know.

In our industry, our one point.

You had missed by a quarter point and you thought the world was ending now youre like two points behind and you're like Wow. This is getting better.

No.

It's it's climbing up that long long long staircase, but.

Yes.

<unk>.

Finally light at the end of the tunnel there is excitement and enthusiasm in the industry and now is just a lot of work.

To get through to the other side, where the labor pool comes back supply chain has normalized and we could take a deep breath, but right now.

Right now we're in the middle of <unk>.

<unk> 35 mile Sprint.

And.

<unk>.

It's requiring just all our energy just to get just to get through this but it is exciting to see restaurants building up and customers coming back Alex.

Really almost all about the vaccines at this point as more and more people get vaccinated theyre more comfortable.

We are hearing record record breaking nights for customers I mean.

It's exciting.

Great. Thank you.

Thanks Kelly.

Thank you. Our next question is from Todd Brooks of CL King <unk> Associates. Please proceed.

Hey, good morning, guys. A couple of couple questions. It sounds like with the challenges to keep up demand.

I don't know if this will be more fuel to the fire or not but but Chris as youre looking out and what youre hearing from customers kind of enter the peak summer season.

Demand for the event business looking like.

In the upcoming periods as far as key country club customers Hotel customers. What are you what are you hearing from your customer base.

Sure. So I think it's state by state.

Youre really starting to see that.

The way the Constitution was built in the federal system.

It's states debt kind of like Florida that.

Never really closed and so when I look at Florida, except for.

We don't have our cruise ship business, which actually brings a lot of tourists into Florida.

Yes.

That was back Florida would actually be exceeding 2019, so we're hearing things about say or the theme parks and all that you can see they're starting campaigns, especially for local a lot of people that can drive there.

Are starting to come out.

So we're starting to see the signs of a.

Business and tourism.

We're hearing from many hotel operators that.

A lot of leisure travel.

Is starting to come back and they are starting to see demand.

We're starting to hear weddings being booked we're starting to see.

Thank you.

I don't think Ive heard about large large events being booked yet, but I'm hearing more and more.

Just even looking at Las Vegas, just im amazed sometimes that the amount of business that we are doing.

With no major convention so.

I think that the major events, obviously will be dictated by the state and by corporates.

Level and having that many people I was just invited to.

The first party I have been invited to a memorial day party, but you have to be vaccinated to come.

I think again, it's kind of like it's really we're entering uncharted territory, but.

I think it's going to be a great summer.

Im hearing lots and lots of customers.

I'm very optimistic.

Think the drag is still the office buildings in the major cities and the restaurants around them. It is getting better, but I think thats.

We'll wait and see I'm hearing more of its all time.

Which to me it would be great because I think were just so busy right now it's it's all we can handle.

No.

Having having a tier step up.

Would be it's not a bad thing trying to gear up trying to find drivers is trying to find night cruise.

To meet demand I think we're all scrambling and.

Maybe we can get some maybe maybe someone can speak to our elected officials to say.

This is really hard for the business.

Especially small businesses to trying to get labor is really challenging and causing a lot of issues.

And the recovery I know that everybody means well, but.

It's making it extremely hard.

To get labor back end.

To allow us to do business and be profitable, so I think that the.

I'll go with the step up I think that we will step up every month day, it'll get a little better a little better and I think the challenge will be labor.

Fair enough fair enough and then the second question you talked about.

New customer wins during during the pandemic and that Shouldnt surprise any of us with your maintenance for service levels access to credit.

You typically have a very good view on kind of green shoots in the industry right now.

The sense now with especially with the new stimulus for the industry that we're not going to bottom with as many doors closed, but what are you seeing as far as.

New restaurant creation is you start to look at maybe a third phase of.

Once the downtown city centers start to open up this fall what are you seeing as far as <unk>.

New restaurants opening in just the front end of maybe door growth that youll be able to take advantage of.

Yeah.

I think it's.

I think it is going to be overwhelming.

Restaurant tours open restaurants, right, that's what they do so.

As prime real estate.

Becomes available it is a once in a lifetime really too so it's going to be a land grab.

I don't think its uneven fare.

Playing field.

I think the strong.

Many many customers we're blessed with.

Getting PPP.

And being able to have the balance sheet right now to take advantage of what is happening. So we're hearing from many many customers I mean, we are parked consultants right, because we kind of see the landscape and see where the businesses. So we do get a tremendous amount of phone calls of what do you think.

And we are seeing many customers signing leases.

It's going to take some time, because they just don't have the labor.

We're hearing from customers, saying I'd open my other restaurant, but I just don't have the labor yet Chris so.

We opened in the fall probably opened first quarter next year. So.

I think it's a lot of common sense.

Where people think people are coming back I know that.

The Brazilian question is how many people will come back to the office.

What will the office parks look like what business around offices look like I think thats still to be determined.

But we are.

We're seeing we're starting to see we're starting to see the recovery.

Darting to see.

The traffic.

And we're starting to see the volume, it's just I think it's still bifurcated.

In many areas.

<unk>.

The major cities, you'll see traffic.

You will see people youll see restaurants, but it's not.

It's not EBIT growing yet so I think that many people are making bets for 'twenty, two and 'twenty, three and they're going to start to gobble up places that might have closed.

Especially in business areas.

And theyre starting to make the bad debt the volume is coming back.

That's very helpful. Thanks, Chris.

Thanks Todd.

Thanks, Jim.

As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad come from.

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Our next question comes from Ben <unk> of Lake Street Capital markets. Please proceed.

Alright, Thanks for taking my questions just one from me this morning.

Curious about kind of.

Things, we saw last year around this time in major urban areas that debt.

Where regulations allowed for for expanded outdoor seating and the sidewalk income places and they closed off streets with warm weather on the horizon again or are you seeing this again and if so are your customers kind of shifting capacity from indoor or outdoor or with with indoor restrictions lifting does this result in a net increase in capacity.

Especially in your urban core customers.

Yes.

Again, I think it's a neighborhood to neighborhood Ren.

But.

The volume that we're seeing.

You have to have indoor capacity right not everybody has outdoor capacity to sell.

You can just I call it the vaccine effect.

You can just start youre seeing people starting to go back inside.

I think I read this morning, too we're going to go to 75% capacity that has a certain time I mean I read all the papers around the country.

I am confused which ones which anymore, but.

It's building and it really is the vaccine effect.

Saturday night or local place here in Connecticut.

Hasnt done.

300 covered since the beginning of the day before the pandemic so.

Place inside was pack the place outside was packed so.

You do have an advantage if you have outdoor first of all you have more capacity, especially if there is restrictions you could do turns.

I saw some customers in Texas.

Theyre doing more coverage than pre COVID-19, because they have outdoor or they are indoor people are very cooperative theres assigned when you sit down with the asks can you. Please limit your stay to two hours.

And.

Customers have been cooperative they know that the industry has been traumatized and we're all trying to recover so.

I think that it's benefiting people are being forgiving restaurants, a short staffed in many in many ways.

So I think the.

It is a staged recovery and it's not going to be even depend.

Depending on your ability to get labor. So I think the only thing that's going to hold us back really in the next few months is the ability to get labor back.

Because the demand is there.

Got it got it very encouraging that does it for me best of luck here navigating everything here in coming weeks.

Is everything reopens. Thanks, so much I'll jump back in queue.

Thanks, Patrick.

Thank you.

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