Q2 2021 Chefs' Warehouse Inc Earnings Call
[music].
Greetings and welcome to the chefs warehouse second quarter 2021 earnings conference call.
As.
This conference is being recorded I would now like to turn this conference over to your host Alex Aldous General Counsel Corporate Secretary and Chief Government Relations Officer. Please go ahead, Sir you may begin.
Thank you operator, good morning, everyone with me on today's call are Chris Pappas founder Chairman.
German and CEO and Jim Leddy, our CFO by.
By now you should have access to our second 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.
Stork on the 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.
Entity of the reconciliations of our non-GAAP financial.
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 these 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 today's release other.
These 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're going.
While the business update and go over our second 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.
Thank you all for joining our second quarter 2021 earnings call.
Business activity and revenue grew.
Steadily throughout the second quarter.
<unk>.
Existing of new customer openings increased and COVID-19 related restrictions eased across many key markets as the quarter progressed, our customers benefited from the growth in both indoor and outdoor dining capacity strengthening consumer.
<unk> demand in the early stages of menu expansion.
Thanks to our teams working tirelessly in delivering the chefs warehouse premium products and service model to our customers in a very challenging environment. We exited June trending in line with 2019 revenue inclusive.
The <unk> of acquisitions added in 2020 and 2021.
Similar to our previous reporting I will compare sales and gross margin results of the quarter of the current quarter sequentially for the first quarter of 2021.
Jim will provide the comparisons to prior year.
Year on his comments later on this call.
During the quarter net sales increased approximately 51% versus the first quarter of 2021.
Specialty sales increased approximately 48, 1% sequentially versus the first quarter of 2020.
With average unique customers, increasing 22% and we saw higher placements of approximately 36%.
Specialty cases increased 41% versus the first quarter of 2021, while center of the plate pounds sold were approximately 29.
9.4% higher sequentially versus the first quarter of 2021, excluding the impact of acquisition.
Gross profit margin has increased approximately 163 basis points compared to the first quarter of 2021.
Gross margin.
'twenty, 1 recipe category increased 316 basis points as compared to the first quarter of 2021, while gross margin in the center of the plate category increased 31 basis points, Jim will provide more detail on gross margin of inflation in a few minutes.
In mid June we completed the acquisition.
<unk> of Nicole on imports based in Phoenix, Arizona.
The addition of Nikola contributes to our continued expansion out west by growing our presence in Arizona, and giving US an entry point into Denver, Colorado, a key restaurant hospitality market that we feel will be well served by chef's unique culture and search.
On the model going forward.
On the technology and operation fronts during the second quarter, we implemented several system and process improvements targeting improved efficiency and routing and warehouse management and we now have close to 100% of our specialty locations utilizing mobile truck scanning.
Service. In addition, we completed a key enhancement to our cyber security platform during the quarter.
Now I'll move on to an update on recent business activity.
Recent sales have been trending generally in line with 2019 sales.
<unk> of the acquisitions completed in 2000.
'twenty 1 to date.
As of July and August of typically quieter months revenue trends remained at similar levels coming out of June into July.
While difficult to predict at this point there are observed the expectations that the return to office buildings from certain large urban market and.
And continued growth.
And from travel and hospitality could lead to additional industry growth as we move into the for months.
I would like to take this moment to express my sincere. Thanks for all chef warehouse team members across our Amazing company.
The extreme nature of this comeback in customer demand as markets reopened in may.
Growth in presented an unprecedented set of challenges.
The ability to execute amidst the unique dynamics in labor supply chain price inflation on logistics created by the pandemic affected reopening has been a significant achievement and we are grateful for their dedication hard work.
<unk> and expertise.
Our teams not only delivered our high quality products and service, but also work with customers to find solutions. The issues created by this unique environment.
Whether it was finding the right substitute ingredient the mantra of 55000, plus product, making that last minute delivery or consulting on.
On menu enhancement of missed multiple supply chain disruptions and food inflation.
I'd also like to thank our customers and suppliers for their cooperation and partnership during the challenging but exciting time.
With that I'll turn it over to Jim to discuss more detailed financial information for the quarter and an update.
Date on our liquidity, Jim Thank you, Chris and good morning, everyone.
I'll now provide a.
The 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 June 25, 2021 increased approximately 111%.
The $423 million from $205 million in the second quarter of 2020 the.
The increase in net sales was the result of an increase in organic sales of approximately 106, 1% as well as the contribution of sales from acquisitions, which added approximately 4.9% for sales growth for the quarter.
Net inflation was 11, 5% in the second quarter, consisting of $10.6 <unk> percent inflation in our specialty category and inflation of 12, 1% from our center of the plate category versus the prior year quarter for.
Most profit increased 128% to $95.9 million for the second quarter.
<unk> 21 versus $43.4 million for the second quarter of 2020.
Gross profit margins increased approximately 101 basis points to 22, 7%.
Multiple factors combined to drive gross profit margin improvement during the quarter, including product mix changes volume driven efficiencies.
A total of inventory management.
We were extremely pleased with our sourcing sales and operating teams execution within a challenging food inflation in logistics environment spec.
Specialty inflation was driven by broad based on inflation across most specialty product lines inflation in the center of the plate category was driven by higher pricing across most.
These categories.
Partially offset by product mix changes associated with our Allen brothers direct to consumer segment.
Total operating expense increased approximately 32, 5% to $91.2 million for the second quarter of 2021% from $68.8 million for the second quarter of 2020.
The primary drivers of higher operating expense were higher compensation and transportation costs associated with higher year over year volume growth and route expansion.
Total operating expense is inclusive of a 1 time benefit of approximately $1.4 million associated with the employee retention tax credit as part of the American cares.
This credit has been added back to our presentation of adjusted EBITDA for the quarter.
As a percentage of net sales adjusted operating expenses were 18, 6% for the second quarter of 2021 compared to 28, 5% for the second quarter of 2020.
Operating income for the second quarter.
1 was for $7 million compared to operating loss of $25.4 million for the second quarter of 2020. The increase in operating income was driven primarily by higher gross profit, partially offset by higher operating costs.
Income tax benefit was 0.8 million for the second quarter of 2021.
$2010.8 million for the second quarter of 2020.
Our GAAP net income was $1.1 million for <unk> income per diluted share for the second quarter of 2021 compared to a net loss of $20.3 million of 62 cents loss per diluted share for the second quarter of 2020.
On the non-GAAP basis, we had positive adjusted EBITDA of $17.2 million for the second quarter of 2021 compared to negative adjusted EBITDA of $13.7 million for the prior year second quarter adjusted.
Adjusted net income was $1.5 million or <unk> <unk> income per diluted share for.
Compared quarter of 2000, 2021 compared to adjusted net loss of $18.7 million for 57 loss per diluted share for the prior year's second quarter.
Turning to the balance sheet and an update on our liquidity as of June 25, 2021, we had total liquidity of 200.
The <unk> $7.7 million comprised of $146.9 million in cash and $100.8 million of availability under our ABL facility.
Net debt as of June 25, 2021 was approximately $254.5 million inclusive of all cash and cash equivalents.
Third for at this time due to continued uncertainty regarding the pace of broader economic recovery and the timing of events 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 post pandemic related environment.
Thank you and at this point, we will open it up the question operator.
At this time, we'll be conducting a question and answer session. If you would like to ask the question. Please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue.
You may.
The start you share move your question from the queue for participants using speaker equipment. It may be necessary for you to pick up the handset before pressing the star key 1 moment, while we poll for questions.
Our first question comes from the line of Alex Slagle with Jefferies. You May proceed with your question.
Thank you.
Good morning, everyone.
Good morning.
Congrats great great quarter.
If you could provide some more color on how the.
Ramp in demand played out how you were able to capture so much I know, it's been the challenge hiring enough drivers of SaaS debt raise the service level switch.
Great and I imagine, possibly also provide even more flow through of margin. If you could touch on that dynamic of that.
Yes, sure so the cadence in the quarter was.
A little surprising.
The big cities that had been.
A lag for us.
Earlier.
Year, and then all through Covid, San Francisco, Chicago, New York. They all started to open really in kind of mid to late may.
And so we really started to see.
We reported coming out of April we were just shy of 80% of 2019.
Earlier in the we really saw the ramp really happened in late May and then June was.
Kind of explosive as New York in the Metro areas around the Big cities really started to open we had already seen.
Good business activity.
In the.
Earlier in the quarter through the states that were pretty much already open so that.
That was the big driver and.
And regarding labor it continues to be of challenge, but.
As we stated in our excuse me.
Prepared.
Oh man.
Our teams really came together.
And executed delivered our product and our service model to our customers on.
We were able to start to build the business back to 2019 levels.
Got it so as we kind.
<unk> kept the recent sales level on the uptick.
How much of that do you think was due to sort of the spur of openings and pantry loading in sort of the unusually strong period of celebrations and everything going on in for May and June.
Just trying to get a sense for what the underlying run rate trend.
And I think couple of days sort of the lockout.
<unk> I know, there's a lot of moving parts right.
Any color there would be helpful.
Sure. So I mean, as we mentioned recent business activity is very similar to what we saw coming out of June.
We haven't obviously.
The second part of Q2 is is always a little less busy just seasonally than may and June.
So.
I'm sorry, the early part of Q3 I should say.
So we haven't seen a significant change.
<unk> in our numbers.
As we've come into the more acquired of seasons. So.
We're not we're not providing guidance for the rest of the year.
But right now we haven't seen a significant change.
And we.
We kind of keep reminding ourselves, we still I mean.
We're back to.
Of these numbers were.
Sure.
It's <unk>.
I think it's a little better than we expected I mean, we knew the pent up demand was there but we.
We still don't have any major events, we still don't have.
Tourist we still don't have real business travel so.
<unk>.
If I had to look on a crystal ball.
I'd say that.
On.
Any of that comes back Okay, you have a tremendous.
The fourth quarter.
If it comes back partially you still of a really good quarter and if it just continues.
Is this just the money the money is changing where it's being expense. So we're still I mean, obviously Midtown Manhattan is still not back downtown San Francisco is not back.
Chicago is in the first thing is the same so.
On the spending at our customers is real.
Continuing on just continuing to be in a lot of the suburbs of lot of the downtowns of.
Say like New York City downtown and Uptown.
People want to go out.
<unk>.
People are getting together I think the being careful.
We have all sorts of outdoor dining venues now that have been added.
The 2 traditional restaurants that never had it so.
We continue to see the spend the demand.
And we can only be optimistic as we get through this could.
Could be a little bumpy in the next month, the 2 but we think again going into 'twenty 2.
All of that built up.
<unk> business and conferences and business travel starts to come back.
You can't help but get really optimistic.
Well congrats on coffee.
And the team will get a chance for us on vacation.
In the day.
Thanks, Alex.
Our next question comes from the line of.
Kelly Bania with BMO capital markets. You May proceed with your question.
Hi, good morning, Thanks for taking our questions.
Hey, Joe Good morning.
Wondering if you could just kind of unpack the sales.
A little bit just really curious what may be sales per customer.
Looks compared to 2019, how much of contribution is coming from new customers just trying to get a gauge of kind of market share gains here or just how youre thinking about that I guess.
Outside of the M&A activity.
Sure.
Again Kelly it's.
It's coming from.
New customers, Okay, it's coming from.
Market share.
Think that are extra efforts.
To supply service.
Obviously, we don't have full employment.
Amongst the ranks we're not running all of our trucks.
And I am sure we are disappointing some customers, but I think debt.
Our decision that.
We needed to keep the company together.
Other than.
Just tons and tons of more layoffs and try to crank up the numbers, even though the numbers of good.
I think the extra effort and offering offering the service that customers are used to as much as possible. Obviously, we're still short handed.
Allowed us to take market share.
We have thousands of.
Of new customers during the pandemic, which I was so pleasantly surprised.
We continue to see tons of new leases being signed so I won't say restaurant tours of open restaurants right. So they're.
We're not going to let a.
An opportunity like this to grab prime locations.
The past volume, we're starting to see more and more credit applications for us.
Key real estate.
And.
Theres, just a lot of demand people.
As I kind of predict that we're going to get tired of cooking I did.
The Whitestone my Pan.
Pans of my knives, and said, we're going out after so many months of cooking. So I think it just continues to build.
America loves to go out and dine and I think Thats what were seeing.
And we're nowhere near.
Out of this and where we have vibrant.
Midtown.
Of all of our cities, but.
As you can see the.
The restaurants restaurants are starting to really thrive, they're short handed I mean, nothing is easy right now but.
The demand is there hey, Kelly I would just add debt, while we don't disclose debt level of detail we are approaching.
We measure of the average weekly customers that are actively buying we are.
Very close to approaching our 2019 levels.
And so that's encouraging.
Okay, that's very helpful.
And then also just thinking about.
Gross margin here it looks like it's about.
About 300 basis points below 2019 levels and in this quarter that year.
Just curious if you could talk about the factors that need to happen to get that back to normal.
If you think that's possible it maybe it looks like it's largely just some more pressure in the in the center of plate.
Area. It just curious if that's accurate how much of that is just the inflation or other factors that could get us back to kind of 2019 gross margin levels.
I think.
What youre comparing not apples to apples so as you recall we adjusted.
On our processing.
<unk> cost and we move them from Opex into gross profit.
Per the SEC and we did that earlier in the year.
So actually when you look on an apples to apples basis, because thats about 150 to 170 basis points adjustment.
Our prior gross profit margins were kind of.
25, and 25, 5% you really have to Rebase line that too.
93, 5% of 24%.
When you are comparing.
The gross profit now to then so.
So we're really maybe 50 to 70 basis points.
Below.
Low when you compare on an apples to apples basis and really the difference there is just coming back to our normal volumes.
Some of some of the.
The revenue performance right now is price.
And so we're not back to 100% of volume.
We're getting close.
Some of it is the.
The efficiencies that come with buying on volume.
Some of it is managing the the inflation volatility right now I think we're extremely happy with our teams ability to improve sequential gross profit.
<unk>.
As inflation exploded.
From Q1 into Q2, I mean, we went from mid single digits to double digit inflation and we drove significant gross profit margin improvement.
Really that was not only managing price that was better buying that was better.
Margin inventory management really across all of our teams in the company.
So as we as we continue to build volume back.
That will move back towards normal.
Great and maybe early to ask this question, but just curious anything youre seeing in the business.
Business, whether it be wages or.
Other factors that make you think about eventually at some point returning to kind of the pre COVID-19 margins and even maybe your longer term kind of.
The margin goals closer to 7%.
Yes.
It's just the.
Better into <unk>.
Predict the total heater Kelly, but.
<unk>.
I think the pivot.
It has been.
How do you do more with less.
Our team has done an unbelievable job.
Of doing that.
There's too many people working 6.
And 7 days and 20 hours, a day and we don't want that and we don't think its healthy its burn out but.
We have learned a lot and we've learned.
Debt, we can do more with less.
I would say nature of finds a way.
It's the.
The.
And necessity of the mother of <unk>.
Harlan.
Be sure of.
What we've had to do and continue to do so.
By being more efficient and asking our customers to cooperate.
I don't mind this model going forward actually preferred.
But the market will dictate if the if we're going.
On a half to.
To add more service.
Yes.
We're going to see where it goes.
We are of high touch service model.
With the long tail and items, but.
We've kind of shortened it all up.
For Covid for many many reasons and it's a very profitable.
Notable model.
Thanks very much.
Thank you.
Our next question comes from the line of Ben Klein with National Securities Corporation. You May proceed with your question.
Thank you and this is Ben cleaving now with.
The Lake Street capital markets, but thanks for taking my question on.
Got a couple of questions here first round inflation.
Curious what if anything you can provide about kind of how.
Inflation was really absorbed throughout the supply chain.
Did you guys see the the ability to kind of pass cost on.
Were you are customers able to pass those on to the to the diners.
And really how kind of how kind of quickly was the pricing model able to adapt to inflation of the.
Came throughout the quarter.
Yes. Thanks for the question Ben Yes, I think.
Like a lot of industries, we've observed.
Pricing power throughout the value chain.
From the manufacturers to the distributors to our customers to the.
True to the end consumers debt that are accepting it right now.
I think when you when you look at inflation at book So pronounced.
Versus Q2 of 2020, but.
Brian effect is a big part of that when you compare.
Food inflation at least in our categories to 2019. It is its less pronounced it's still double of what is normal for our market, which is somewhere between 1% and 3% in normal times.
But it is it is less pronounced so some of that as the baseline effect that will fall away as you move further away from Comping to 2020.
We are still seeing volatility.
Especially in center of the plate, although we're starting to see some easing in the number of the center of the plate categories in debt.
The based on the <unk>.
Encouraging signs for.
Rate remains elevated and that's a big part of product cost.
So while freight remains elevated we expect pricing to remain elevated especially in imported products.
But once again I'd go back to theirs.
Theres a lot of pricing power in the <unk>.
Market right now really throughout the value chain.
And.
And until the end consumer stops accepting it we.
We expect it will continue for a little bit here.
Got it that's helpful. Thanks, Jim.
Jim and other another question probably directed to you.
Regarding.
Some cash flow on inventory build.
With how dramatic the ramp was in the quarter the obvious need debt.
Refill your pantry, where did you guys stand at the end of the quarter regarding.
Regarding inventory levels.
How I know, it's difficult to forecast out the next couple of quarters, but.
Do you think you guys.
On a kind of a.
The normalized run rate now for inventory levels or do you think youre going to need to ramp that spend up still here in the second half of the year.
Well I mean.
We have a really strong cash position.
Our cash flow.
During the quarter was really.
Regarding capex on the on our building build outs in Florida and <unk>.
We spent some money on acquisitions and then we invested in working capital.
Our team has done an amazing job of managing working capital on everything from bringing our dsos down.
And really effectively managing inventory.
We are of significant cash position, we can easily fund.
Additional working capital investment.
I think the bulk of it.
<unk> been pretty quickly, but there'll be some additional investment.
The capex.
As we reported we of 250 million.
So accessible liquidity between cash and availability on our revolver. So.
We're not really concerned about that we're looking forward to.
Putting that capital to work.
On to generate.
Ongoing returns for the business going forward.
Yes.
Doing the certainly of liquidity does not not an issue right now but that was helpful color.
1 more quick 1 for me and then I'll get back in queue didn't hear much about the taxes.
The ramp up can you elaborate kind of on where you stand there.
Both in terms of of investments in converting those investments too.
Yeah.
Was the question about the Texas ramp up yes, I mean look all of that Chris can comment as well.
We made the Texas investment pre Covid obviously.
Covid has.
Is it related debt.
But actually we are very pleased R.
Our Texas business is as.
As move towards breakeven.
<unk> faster than we expected.
Some of that is the team, they're really starting to build the business. Some of it is is the Texas being Covid state that opened very early.
So we're pleased with our progress.
I mean, we'd obviously like to.
Do some acquisitions eventually.
We haven't gotten there yet but.
Chris I don't know if you have anything you want to add about Texas, well again, Texas.
It's an investment in the future.
We're continuing to hire salespeople.
No.
Yes, we're looking at multiple opportunities.
In Houston.
San Antonio Austin So.
It's pretty spread out I actually just came back.
Spending.
A little bit of time on the West coast and in Texas to see what our up and coming opportunities.
I still think Texas will be of top 3 market for.
Of course shafts so.
We are basically in the first inning at this point, but extremely excited of what we're seeing and what the team is doing on the new people that are joining us.
Perfect very helpful. Thanks to you both for taking my questions Congrats.
On a good quarter on I'll get back in queue here.
Thanks Ben.
Our next question comes from the line of Todd Brooks with CL King <unk> Associates. You May proceed with your question.
Hey, good morning, gentlemen, what a difference of the <unk> Tom.
Hey, Todd.
A couple of quick questions.
<unk> for you.
You talked about the natural kind of.
July August slowdown, where youre still with the acquisition is still running at kind of a 100% of fiscal 19, but if we think about this seasonal slowdown before what could be of false spike went back to work back to travel again.
<unk>, what's the digestion period look like Chris you had a couple of interviews during the quarter just outlining the the extreme measures that you guys were having to undertake to maintain service levels.
Are we digesting the spike in demand that we've seen if you could just kind of qualitatively talk about the organization and what you've been able to do.
So that maybe we're a little bit better matched to demand trends going into the fall.
Yes, well.
It's still.
There's still a big headwinds.
Labor on the warehouse and qualify drivers so.
There was more of demand.
And then we.
Good then we could meet so I always hate to turn down some business but.
We have to have the discipline to say, we're going to service are our best customers like any other business right, they're going to say, yes. These are the people that we of the best relationships of our loyal before Covid and ask the Covid.
Customers that maybe just want.
And in term supplier, they're going to go back to where they were buying for before because we can we could service them, but the regular suppliers can.
People kind of flow through the back of the line.
Pure capitalism, right youre going to Youre going to try to service the people.
We're going to be your customers of the future. So.
The demand.
The demand is there now.
Every day, we're hiring every day.
I sent out of memo of this morning, it's like true.
Train, but make sure you retain because of cost money to train.
And.
All that.
It's not an easy market and we want we want the best people on the industry to work for us because our customers expect the service levels and we go down basements in the big cities and we go upstairs and.
They're difficult deliveries in our major cities. So it is hard work it was of hardship.
It was hard to find these kind of people.
With the work ethic and ability to do those jobs before the pandemic. So.
The pandemic, obviously made it harder, but we've got great. We've got great leaders the continued to recruit and as you can.
See the numbers.
The other executing obviously, we want to get better and.
We do get better every day, but.
I just think the opportunity right now for our growth and take advantage of M&A and take market share has never been greater Hey, Todd I will just add debt as we talk to our operators on a weekly or even daily basis.
While it's still challenging there are initial green shoots around some easing in certain markets around finding.
The frontline workers so.
There is a little bit of positivity out there and I would just add debt.
We're doing everything that we had started before the pandemic in terms of.
Of consolidating routes.
We're building new buildings, where we're making investments in consolidating our operations.
And providing a lot of technology based tools to our operators and our sales force on our customers to drive efficiency through through the entire value chain.
The chefs works and so.
It's not like we're not doing anything against it.
To offset it as it's an ongoing process.
Very helpful. Thanks, Tim.
Second question, you talked about some early evidence of menus broadening out again.
Talk about how early.
We are on that process I know at the restaurant level a lot of the operators of the labor constraint too.
Especially on back of house, which may make it harder to do but where do you see where are we in that process of kind.
Of the benefit of broader menus on what that does the case counts.
Yes, I mean, we're getting really close to.
The normal.
Which is amazing I mean, we're not there yet.
Because obviously on the banquets.
We're not back and that's a tremendous amount of skus.
On.
No.
So you still don't have the labor.
Obviously.
In the restaurant industries, but.
So there is still so much upside for us.
The most profitable categories like pastry and all of that are still.
Way below.
Category sales.
And of normal time, but.
I can't complain Todd.
It's amazing to see the creativity at the restaurant the I always say restaurant tours.
The multi task.
They have to they have to have a bit of expertise in finance and people management as well as being really creative.
Putting out food and.
It's a competitive field.
As more and more restaurants open people like myself the dine out every day you want variety.
I'm starting to see it I'm starting to see more and more things on the menu.
Because many people eating the same restaurants weekly so you got to keep for interesting and I think.
That's why we're seeing it and Thats why.
We're almost back to.
Lines per customer.
Of 2019, and I think Thats really the only reason, it's not back to where it is is because.
Our very large customers are not back yet.
Okay, Great and the final question you along.
In the process.
I have kind of share of the goal for what you were hoping the exit rate for <unk> for fiscal 'twenty, 1 would be entering fiscal 'twenty, 2 and obviously, we're all surprised by by the how robust the revenue recovery was on this quarter.
Just wondering if it's changed your thoughts on it I think.
The previously you've talked about an 85% to 90% of.
2019 pro forma for the acquisitions is the targeted exit rate, but where we're sort of thinking now for what we should look like coming out of the back end of the year.
You know Todd.
I hesitate to change our.
Or kind.
Kind of conservatism.
This environment you want to.
You want to under promise and over deliver certainly.
Versus the the reverse.
I think we are we're quite pleased but once again, we're not back to 100% in terms of volume we are getting there.
We're on the path.
But.
Look I think we are.
We still feel that we will come out of this as of.
A more efficient cash.
<unk>.
Operator.
And continue to to get back to the past debt that we had communicated that we will.
<unk> will come out of the year.
The run rate very similar adjusted EBIT margin range as we were prior to the pandemic.
We've done a couple of acquisitions. Since then so we'll have the modeled that in.
But we don't want to we don't want to go out and make a.
<unk> declared a statement at this point given that.
We believe with the variables out there that the.
That.
Could still impact the business going forward.
That's fair enough continued success across the third quarter.
Thank you Todd.
Ladies and gentlemen, we have reached the end of today's question and answers the question.
On this call back over to Mr.
Theres a couple of months for closing remarks.
Sure well, we thank everybody for for.
For joining us.
This morning.
We couldnt be prouder of the job our team has done in such a challenging time.
<unk>.
It's.
It's just been amazing.
Chris touched them perform and execute.
We expect them to do even greater things in the future.
We look forward to everybody joining us on our next earnings call. Thank you very much.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation under the.
The rest of your day.
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Greetings and welcome to the chefs warehouse second quarter 2021earnings call.
The call as a reminder, this conference is being recorded I would now like to turn this conference over to your host Alex Aldous General Counsel Corporate Secretary and Chief Government Relations Officer. Please go ahead, Sir you may begin.
Thank you operator, good morning, everyone with me on today's call of our.
Chris Pappas, founder, Chairman and CEO and Jim Leddy, our CFO.
By now you should have access to our second quarter 2021 earnings press release. It can also be found at www dot chefs warehouse dot com under the Investor Relations section.
This conference call, we will be presenting non-GAAP financial measures.
For us, 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 maybe calculated differently than similarly, titled non-GAAP financial measures used by other companies quantum.
Quantitative reconciliations.
Sales 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.
2 of the 8 or for you should not put undue reliance on them.
These 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 today's release.
These are discussed in our annual report on form 10-K, and quarterly reports on form 10-Q, which are available on the SEC website.
And today, we're going to provide a business update and go over our second 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 second quarter 2021 earnings call.
Business activity in <unk>.
Revenue grew steadily throughout the second quarter.
Existing of new customer openings increased and COVID-19 related restrictions eased across many key markets as the quarter progressed, our customers benefited from the growth in both indoor and outdoor dining capacity strength.
And in consumer demand in the early stages of menu expansion.
Thanks to our teams working tirelessly in delivering the chefs warehouse premium product and service model to our customers and the very challenging environment.
June trending in line with 2019 revenue.
Inclusive of.
Of acquisitions added in 2020 and 2021.
Similar to our previous reporting I will compare sales and gross margin results of the quarter of the current quarter sequentially for the first quarter of 2021.
Jim will provide the.
Greg Harrison to the prior year on his comments later on this call.
During the quarter net sales increased approximately 51% versus the first quarter of 2021.
Specialty sales increased approximately 48, 1% sequentially versus the first.
The competitor of 2021 with average unique customers, increasing 22% and we saw higher placements of approximately 36%.
Specialty cases increased 41% versus the first quarter of 2021.
While center of the plate pounds sold were approach.
The <unk> 29, 4% higher sequentially versus the first quarter of 2021, excluding the impact of acquisition.
Gross profit margins increased approximately 163 basis points compared to the first quarter of 2.
2021.
Product gross margin on the specialty category increased 316 basis points.
Compared to the first quarter of 2021, while gross margin in the center of the plate category increased 31 basis points, Jim will provide more detail on gross margin of inflation in a few minutes.
In mid June.
<unk> completed the acquisition of Nicole of imports based in Phoenix, Arizona.
The addition of Nikola contributes to our continued expansion out west by growing our presence in Arizona, and giving US an entry point into Denver, Colorado of T restaurant, and hospitality market that we feel will be well served by chef's.
<unk> unique culture and service model going forward.
On the technology and operation fronts during the second quarter, we implemented several system and process improvements targeting improved the efficiency in routing and warehouse management.
Now have close to 100% of our specialty locations utilizing mobile.
And withstanding.
In addition, we completed a key enhancement to our cyber security platform during the quarter.
Now to move on to an update on recent business activity.
The recent sales have been trending generally in line with 2019 sales inclusive of the acquisition.
<unk> completed in 2020 once a day.
As of July and August of typically quieter months revenue trends remained at similar levels coming out of June into July.
While difficult to predict at this point there are observed the expectations that the return to office buildings from certain large urban market.
Trucks and continued growth in travel and hospitality could lead to additional industry growth as we move into the for months.
I would like to take this moment to express my sincere. Thanks for all chef warehouse team members across our Amazing company the.
Of the extreme nature of this comeback in customer demand as market.
Opened in May and June presented an unprecedented set of challenges there.
<unk> ability to execute amidst the unique dynamics in labor supply chain price inflation on logistics created by the pandemic affected reopening has been a significant achievement and we are grateful for their dedication.
300, and hard work and expertise.
Our teams not only delivered our high quality products and service, but also work with customers to find solutions for the issues created by this unique environment.
Whether it was finding the right substitute ingredient to months of our 55, plus product, making that last minute of delivery.
Our consulting on menu enhancement of Mrs.
The multiple supply chain disruptions and food inflation.
I would also like to thank our customers and suppliers for their cooperation and partnership during the challenging but exciting time.
With that I'll turn it over to Jim to discuss more detailed financial information for the quarter.
The case and an update on our liquidity Jim.
You, Chris and good morning, everyone.
I'll now provide of Pep.
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 June 25, 2021 increased approximately 100.
On June 11%, the $423 million from $205 million in the second quarter of 2020.
The increase in net sales was the result of an increase in organic sales of approximately 106, 1% as well as the contribution of sales from acquisitions, which added approximately 4.9% of sales.
<unk> for the quarter.
Net of inflation was 11, 5% in the second quarter, consisting of $10.6 <unk> percent inflation in our specialty category and inflation of 12, 1% and our center of the plate category versus the prior year quarter.
Gross profit increased 128% to 95.
$9 million for the second quarter of 2021 versus <unk> $43.4 million for the second quarter of 2020.
Gross profit margins increased approximately 101 basis points to 22, 7%.
Multiple factors combined to drive gross profit margin improvement during the quarter, including product mix changes.
Growth driven efficiencies and effective inventory management.
We were extremely pleased with our sourcing sales and operating teams execution within a challenging food inflation in logistics environment specialty inflation was driven by broad based on inflation across most specialty product lines inflation in the center of the plate category was driven.
By higher pricing across most of these categories, partially offset by product mix changes associated with our Allen brothers direct to consumer segment.
Total operating expense increased approximately 32, 5% to $91.2 million for the second quarter of 2021 from $68.8 million for the second.
<unk> drove 2020 the <unk>.
Primary drivers of higher operating expense were higher compensation and transportation costs associated with higher year over year volume growth and route expansion.
Total operating expense is inclusive of a 1 time benefit of approximately $1.4 million associated with the employee retention tax credit.
As part of the American Cares Act.
Of this credit has been added back to our presentation of adjusted EBITDA for the quarter.
As a percentage of net sales adjusted operating expenses were 18, 6% for the second quarter of 2021 compared to 28, 5% for the second quarter of 2020.
Operating income for the second quarter of 2021 was for $7 million compared to operating loss of $25.4 million for the second quarter of 2020. The increase in operating income was driven primarily by higher gross profit, partially offset by higher operating costs.
Income tax benefit was 0.8 million.
Second quarter of 2021 compared to $10.8 million for the second quarter of 2020.
Our GAAP net income was $1.1 million for <unk> income per diluted share for the second quarter of 2021 compared to a net loss of $20.3 million of 62 cents loss per diluted share.
For the second quarter of 2020.
On a non-GAAP basis.
Net positive adjusted EBITDA of $17.2 million for the second quarter of 2021 compared to negative adjusted EBITDA of $13.7 million for the prior year second quarter of.
Adjusted net income was $1.5 million or for.
Income per diluted share for the second quarter of 2021 compared to adjusted net loss of $18.7.
$7 million for 57 loss per diluted share for the prior year's second quarter.
Turning to the balance sheet and an update on our liquidity as of June 25.2020.
The 1 we had total liquidity of $247.7 million <unk>.
Comprised of $146.9 million in cash and $100.8 million of availability under our ABL facility.
Net debt as of June 25, 2021 was approximately $254.5 million income.
<unk> of all cash and cash equivalents.
At this time due to continued uncertainty regarding the pace of broader economic recovery and the timing of events 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.
Post pandemic related environment.
Thank you and at this point, we will open it up to questions of.
Operator.
At this time, we'll be conducting a question and answer session.
You would like to ask the questions. Please press the X.
Star 1 on your telephone keypad the confirmation somewhat.
Indicate your line is on the question to.
You May press Star 2 share move your question from the queue for participants using speaker equipment. It may be necessary for you to pick up your handset before pressing the star keys, 1 moment, while we poll for questions.
Our first question comes from the line of Alex Slagle with Jeff.
<unk> you May proceed with your question.
Great. Thank you.
Good morning, everyone.
Good morning.
Congrats great great quarter.
If you could provide smart color on how the quick ramp in demand played out how you were able to capture so much I know, it's been the challenge hiring enough driver.
Drivers on staff to manage the service levels, which.
I imagine, possibly also provide even more flow through of margin.
On that dynamic also.
Yes, sure so the cadence in the quarter was.
A little surprising.
The big cities that had been.
No.
A lag for us.
Earlier in the year and then all through Covid, San Francisco, Chicago, New York. They all started to open really in kind of mid to late may.
And so we really started to see.
As we reported coming out of April we.
We're just shy of 80% of 2019.
We really saw the ramp really happened in late May and then June was.
Kind of explosive as New York in the Metro areas around the Big cities really started to open we had already.
Yeah.
Good business activity.
In the.
Earlier in the quarter through the states that were pretty much already open so.
That was the big driver and <unk>.
And regarding labor it continues to be of challenge, but.
As we stated in our.
Seems to me.
The prepared comments.
Our teams really came together.
And executed delivered our product and our service model to our customers on.
We were able to start to build the business back to 2019 levels.
Got it.
As we kind of think about the recent sales level on the uptick.
How much of that do you think was due to sort of the spur of openings and pantry loading in sort of the unusually strong period of celebrations and everything going on in for May and June.
I guess, just trying to get a sense.
Sense of what the underlying run rate trend would be as the sort of look out to the <unk> and <unk> I know, there's a lot of moving parts, but any.
Any color there would be helpful.
Sure. So I mean, as we mentioned a recent business activity is very similar to what we.
Coming out of June.
We haven't obviously.
The second part of Q2 is always a little less busy just seasonally than May and June.
So.
It's I'm sorry, the early part of Q3 I should say.
So we havent.
<unk> seen a significant change in our numbers.
As we've come into the more acquired of seasons. So.
We're not we're not providing guidance for the rest of the year.
But right now we haven't seen a significant change.
And we.
We've got to keep reminding ourselves we still.
So.
We're back to these numbers were.
I think it's.
I think it's a little better than we expected I mean, we knew the pent up demand was there but.
We still don't have any major events, we still don't have.
Tourist we still don't have real business travels.
I mean so.
If I had to look on a crystal ball.
I would say that.
On.
Any of that comes back Okay, you have a tremendous.
Fourth quarter.
If it comes back partially still of a really.
<unk> Center and if it just continues as is just the money the money is changing where it's being expense. So we're still I mean, obviously Midtown Manhattan is still not back downtown San Francisco is not back.
Chicago isn't the first thing at the same so.
On the spending at arc.
Our customers is really just continuing to be in a lot of the suburbs of lot of the downtowns of say like New York City downtown and Uptown.
People want to go out.
And the.
People are getting together I think they're being careful we have all sorts of outdoor.
Dining venues now that have been added.
2 traditional restaurants that never had it.
So.
We continue to see the spend the demand and we can only be optimistic as we get through this.
It could be a little bumpy in the next month, the 2 but we think.
And going into 'twenty 2.
All of that built up <unk>.
<unk> business and conferences and business travel starts to come back.
You can't help but get really optimistic.
Well congrats had appeal and the team.
And we'll get a chance for us on vacation.
Sure.
Thanks, Alex.
Our next question comes from the line of.
Kelly Bania with BMO capital markets. You May proceed with your question.
Hi, good morning, Thanks for taking our questions.
Hey, Joe Good morning, I'm wondering if you could.
Kind of unpack the sales force a little bit just really curious what may be sales per customer.
Looks compared to 2019, how much of contribution is coming from new customers, just trying to get a gauge of kind of market share gain here.
Or just how you're thinking about that I guess, you know outside of the M&A activity.
Yeah.
Sure.
Again Kelly it's.
It's coming from.
New customers, Okay, it's coming from.
Market share.
I think that our extra efforts.
The supply service.
Obviously, we don't have full employment.
On the ranks, we're not running all of our trucks.
And I am sure we are disappointing some customers, but I think that on.
Our decision that we need to.
For the company together.
Rather than just tons and tons of more layoffs and try to crank up the numbers, even though the numbers of good.
I think the extra effort and offering offerings to service the customers are used to as much as possible. Obviously, we're still short handed.
Allowed us to take market share.
We have thousands of.
Of new customers.
During the pandemic, which I was so pleasantly surprised.
We continue to see tons of new leases being signed so I would say restaurant tours open restaurants right. So.
We're not going to let a.
On opportune.
To keep the feel like this to grab prime locations passed volume, we're starting to see more and more credit applications for.
The key real estate.
And.
You know theres, just a lot of demand people.
As I kind of predicted we're going to get tired of cooking.
Opportunity.
My wife stole my pans of my knives, and said, we're going out after so many months of cooking. So I think it just continues to build.
America loves to go out and dine and I think Thats what were seeing.
And we're nowhere near.
Out of this and where.
We have vibrant.
The Midtown of all of our cities, but.
As you can see the.
Restaurants restaurants are starting to really thrive, they're short handed I mean, nothing is easy right now but.
The demand is there hey, Kelly I would just add debt, while we don't disclose debt level of.
We are approaching the.
We measure of the average weekly customers that are actively buying we are.
Close to approaching our 2019 levels.
And so thats encouraging.
Okay, that's very helpful.
And then also just thinking about.
Details of margin here.
Like it's about 300 basis points below 2019 levels.
And in this quarter that year.
Just curious if you could talk about the factors that need to happen to get that back to normal.
If you think thats possible, maybe looks like its largely.
1 of more pressure in the in the center of plate.
Area. It just curious if thats accurate how much of that is just inflation or other factors that could get us back to kind of 2019 gross margin levels.
I think.
What youre comparing not apples to apples so as you recall we.
The adjusted.
Our processing cost and we moved them from Opex into gross profit.
Per the SEC and we did that earlier in the year.
So actually when you look on an apples to apples basis, because thats about 150 to 170 basis points adjustment.
Just fire of gross profit margins were kind of between 25 in the 25, 5% you really have to re baseline net to $23, 5% to 24%.
When you are comparing.
The gross profit now to then.
So we're really maybe 50 to 70.
Our basis points.
Below when you compare on an apples to apples basis and really the difference there is just coming back to our normal volumes.
Some of some of the.
The revenue performance right now is price.
And so we.
<unk> 70, but back to 100% of volume we're getting close.
Some of it is the.
The efficiencies that come with buying on volume.
Some of it is managing the the inflation volatility right now I think we're extremely happy with our teams ability to.
Improved sequential gross profit margin as inflation exploded.
From Q1 into Q2, I mean, we went from mid single digits to double digit inflation and we drove significant gross profit margin improvement and really that was not only managing price that.
Better buying that was better inventory management really across all of our teams in the company.
So as we as we continue to build volume back.
That will move back towards normal.
Great and maybe early to ask this question.
But just curious anything youre seeing in the business whether it be wage.
Wages or other.
The other factors that make you think about eventually at some point returning to kind of the pre.
Pre COVID-19 margins and even maybe your longer term kind of.
The margin goals closer to 7%.
Yes.
It's just so hard to predict the total feature Kelly, but.
I think the pivot.
It has been.
How do you do more with less.
Our team has done an unbelievable job.
Of doing that.
There's too many people working 6 to 7 days and 20 hours a day.
We don't want that and we don't think its healthy its burn out, but we have learned a lot and we've learned that.
We can do more with less.
I would say nature of finds a way.
It's the.
Necessity is the mother of invention.
Couldnt be true of what we've had to do and continue to do so.
By being more efficient and asking our customers to cooperate.
I don't mind this model going forward actually prefer it.
But the market will.
You know if the if we're going to have to add more service.
You know what.
We're going to see where it goes.
We are of high touch service model.
With the long tail and items, but.
We've kind of shortened it all up.
For Covid for men.
<expletive> the reasons and it's a very profitable model.
Thanks very much.
Thank you.
Our next question comes from the line of.
Clive with National Securities Corporation, You May proceed with your question.
Many of them for you and this is Ben Cleveland now with the Lake Street capital markets. Thanks for taking my question on <unk>.
Got a couple of questions here first round of inflation.
Just curious what if anything you can provide about kind of how inflation was really absorbed throughout the supply chain.
You guys did you guys see the.
Turning to kind of pass cost on.
For your customer is able to pass those on to the to the diners.
And really how kind of how kind of quickly was the pricing model able to adapt to inflation of that came throughout the quarter.
Yes, thanks for the question Ben Yes.
Thank you.
Just like.
The ability of a lot of industries we've observed.
The pricing power throughout the value chain.
From the manufacturers to the distributors to our customers to the.
True to the end consumers debt that are accepting it right now.
I think when you when you look at inflation it looks so pronounced.
Q2 of 2020, but the baseline effect is a big part of that when you compare for.
The inflation at least in our categories too.
19, it is its less pronounced it's still double what is normal for our market, which is somewhere between 1% and 3%.
Versus in normal times.
But it is it is less pronounced so some of that as the baseline effect that will fall away as you move further away from Comping to 2020.
We are still seeing volatility.
Specialty and center of the plate, although we're starting to see some easing in.
And the number of the center of the plate categories and that's some.
The encouraging signs freight remains elevated and that's a big part of the product cost.
So while freight remains elevated we expect pricing to remain elevated especially in imported products.
But once again I would go.
And there's a lot of pricing power in the market right now really throughout the value chain and.
And until the end consumer stops accepting it we.
We expect it will continue for a little bit here.
Got it that's helpful. Thanks, Jim.
Jim and other.
Back to probably directed to you.
Regarding cash flow in the inventory build.
With how dramatic the ramp was in the quarter the obvious need the.
Refill your pantry, where did you guys stand at the end of the quarter regarding.
Regarding inventory levels.
How I know it's difficult to forecast.
Another couple of quarters, but.
Do you think you guys are kind of of.
Normalized run rate now for inventory levels or do you think youre going to need to ramp that spend up still here in the second half of the year.
Well I mean.
We have a really strong cash position.
Our cash flow.
During the quarter was really some capex on the on our building build outs in Florida.
We spent some money on the acquisitions and then we invested in working capital.
Our team has done an amazing job of managing working capital of everything from bringing our dsos down.
And.
Really effectively managing inventory. So we are of significant cash position, we can easily fund.
Additional working capital investment.
I think the bulk of it happen pretty quickly, but there'll be some additional investment.
Additional capex.
As we reported we of $250 million of ex.
First of all liquidity between cash and availability on our revolver. So.
We're not really concerned about that we're looking forward to.
Putting that capital to work.
To generate the.
Of.
Ongoing returns for the business going.
In the.
Yes doing out of the certainly of liquidity does not not an issue right now but that was helpful color.
1 more quick 1 for me and then I'll get back in queue didn't hear much about the taxes.
The ramp up can you elaborate kind of on where you stand there.
Both in terms of the investments in converting those investments.
Moving forward.
Yeah.
Was the question about the Texas is ramp up yes, I mean look all of that Chris can comment as well.
We made the Texas investment pre Covid obviously.
Covid has.
Is it related debt.
But actually we are very pleased our.
Our Texas business as the as.
<unk> moved towards breakeven.
Faster than we expected.
Some of that is the team, they're really starting to build the business. Some of it is is the Texas being a COVID-19 state.
That opened very early.
So we're pleased with our progress there I mean, we'd obviously like to.
Do some acquisitions eventually.
We haven't gotten there yet but.
Chris I don't know if you have anything you want to add about Texas, well again, Texas.
It's an investment in the future.
We're continuing to hire salespeople.
We've we're looking at.
The multiple opportunities.
In Houston, Dallas, San Antonio Austin So.
It's pretty spread out I actually just came back.
Spending of.
Little bit of time on the West coast.
And in Texas to see what our up and coming opportunities.
The things, Texas will be of top 3 market.
For shafts so.
We're basically in the first inning at this point, but extremely excited of what we're seeing and what the team is doing and the new people that are joining us.
Perfect very helpful. Thanks to you both for taking my questions. Congratulations on a good quarter on I'll get back in queue here.
Thanks Ben.
Our next question comes from the line of Todd Brooks with CL King <unk> Associates. You May proceed with your question.
Hey, good morning, gentlemen, what the difference of your mix.
Hey, Todd.
A couple of quick questions for you.
You talked about the the natural kind of.
July August slowdown, where you still.
With the acquisition still running of kind of a 100% of fiscal 19, but if we think about this seasonal slowdown before.
Or what could be of false spike went back to work back to travel again, what's this digestion period look like Chris you had a couple of interviews during the quarter just outlining the the extreme measures that you guys were having to undertake to maintain service levels or we are digesting the spike in demand that we've seen now if you could just kind of.
Qualitatively talk about the organization and what <unk> been able to do so that maybe we're a little bit better matched to demand trends going into the fall.
Yeah well.
It's.
It's still a big headwinds.
Labor on the warehouse.
Followed by drivers so.
Well the there was more of demand.
Then we could then we could meet so you know I always hate to turned down some business but.
We had to have the discipline to say you know we're going to service are our best customers like any other business right Youre going to say, yes. These are the people that we of the best relationships that.
Well before Covid and after Covid.
Customers that maybe just want.
And in term of supplier of Theyre going to go back to where they were buying for before because.
We can we could service them, but they are regular suppliers can.
People kind of fall to the back of the line.
The pure capital.
A lot of them right, you're going to you're going to try to serve as the people that are going to be your customers of the future. So.
The demand the <unk>.
Demand is there now it's every day, we're hiring every day.
I sent out a memo of this morning, it's like a.
Train, but make sure you.
Capital gain because of cost money to train.
<unk>.
It's not an easy market and we want we want the best people on the industry to work for us because our customers expect the service levels and we go down basements in the big cities and we go upstairs and theyre difficult deliveries.
And our major cities. So it is hard work it was of hard job. It was hard to find these kind of people.
With the work ethic and ability to do those jobs before the pandemic. So.
The pandemic, obviously made it harder, but we've got great. We've got great leaders the continued to recruit.
And as you can.
<unk> achieved the numbers.
They are executing obviously, we want to get better and I think we do get better every day, but.
I just think the opportunity right now for our growth.
Take advantage of M&A and take market share has never been greater Hey, Todd I will just add debt.
2 of our operators on a weekly or even daily basis.
It's still challenging there are initial green shoots around some easing in certain markets around finding.
Frontline workers so.
There is a little bit of positivity out there and I would just add debt.
Where do.
We talked everything that we had started before the pandemic in terms of consolidating routes.
We are building new buildings, where we're making investments in consolidating our operations.
And providing a lot of technology based tools to our operators and our sales force on our customers.
Doing to drive efficiency through through the entire value chain that the chefs works and so.
It's not like we're not doing anything against it.
Offsetting some of ongoing process.
Very helpful. Thanks, Tim.
Second question you talked about some early evidence of.
Menus broadening out again can we.
Talk about how early we are in that process I know at the restaurant level of lot of the operators of the labor constraint too.
Especially in the back of house, which may make it harder to do but where do you see where are we in that process of kind of the benefit of broader menus on what that does the case.
Counts.
Yes, I mean, we're getting really close to normal.
Which is amazing I mean, we're not there yet.
Because obviously on the banquets.
We're not back.
A tremendous amount of skus.
Yeah.
So you still don't have the labor.
Obviously in the restaurant industries, but.
So there's still so much upside for us some of our most profitable cash.
<unk> like pastry and all of that are still.
The way below.
Category sales.
The normal.
Time, but.
I can't complain Todd.
It's amazing to see the creativity at the restaurant the I always say restaurant tours.
On the multi task.
They have to they have to have a bit of expertise in finance and people management as well as being really creative.
Normal for putting out food and.
It's a competitive field as more and more restaurants open people like myself. The dine out every day you want variety.
I am starting to see it I'm starting to see more and more things on the menu.
Because many people eating the same restaurants.
Weekly so you got to keep the interesting and I think Thats why were seeing it and Thats why.
We're almost back to.
Lines per customer.
Of 2019, and I think Thats really the only reason, it's not back to where it is is because.
Our very large customers on.
Yes.
Okay, Great and the final question you along this whole process.
And a share the goal for what you were hoping the exit rate for for fiscal 'twenty, 1 would be entering fiscal 'twenty 2 and obviously.
We're all surprised by the how robust the revenue recovery.
Knock on this quarter.
Just wondering if thats changed your thoughts on I think previously you've talked about an 85% to 90% of.
2019 pro forma for the acquisitions is that is it.
Target of that exit rate, but where we're sort of thinking now for what we should look like coming out of the back end of the year.
Todd.
It wasn't.
I hesitate to change or are kind of conservatism in this environment you want to.
You want to under promise and over deliver certainly.
Versus the the reverse.
I think we are we are quite pleased but once again we're.
The 100% in terms of volume we are getting there we believe we're on the path.
But.
Look I think we are.
We still feel that we will come out of this as a more efficient.
The company.
Operator.
And continue.
To to get back to the past debt that we had communicated that we will we will come out of the year.
At a run rate very similar adjusted EBIT margin range as we were prior to the pandemic.
We've done a couple of acquisitions since then so what the modeled that in.
But we don't want to we don't want to go.
Out and make a bold declarative statement at this point given that Theres a couple of variables out there that the.
Debt.
Still impact the business going forward.
That's fair enough continued success across the third quarter.
Thank you Todd.
Ladies and gentlemen, we average.
<unk> reached the end of today's question and answer session I would like to turn this call back over to Mr. Chris Pappas for closing remarks.
Sure.
We thank everybody for for.
Joining us this morning.
We couldnt be prouder of the job our team has done in such a challenging time.
And.
It's it's.
Just been amazing to watch them perform and execute.
We expect them to do even greater things in the future.
And we look forward to everybody joining us on our next earnings call. Thank you very much.
This concludes.
The conference you may disconnect your lines at this time. Thank you for your participation during the rest of your day.