The Chefs' Warehouse, Inc.

Greetings, and welcome to the Chef's Warehouse first quarter 2021 earnings conference call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your hosts, Alex Aldis, 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 Letty, our CFO. By now, you should have access to our first quarter 2021 earnings press release. It can also be found at www.chefswarehouse.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 in 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 differ materially from what we expect. Some of these risks are mentioned in today's 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-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 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 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 increased 0.8%, and we saw higher placements, approximately 4.7%. Specialty cases decreased 3.1% versus the fourth quarter of 2020, while center of the plate pounds sold were approximately 1.6% higher sequentially versus the fourth quarter of 2020. 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 23rd, we completed the acquisition of Foley Fish, located in New Bedford, Massachusetts. Foley distributes premium cut-to-order fresh and frozen seafood products to restaurants, hotels in the Boston metro area, and maintains a national distribution business similar in nature to Allen Brothers. We are extremely excited to add Laura Ramson and her team to the CW family of brands in operation. 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-end 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 our L.A. and Northwest locations and completed an upgrade to our warehouse management systems company-wide. 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 and customer openings have led to a steady weekly improvement and 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 neighborhood segments and our broader regional markets. As we move towards further reopenings, capacity increases, events and celebrations, and more normalcy around social interaction, Our team at Chefs is engaged in supporting our customers and supplier partners in re-energizing the culinary world. Our recently announced Welcome Back campaign is just one example of utilizing the Chefs Warehouse platform to promote and 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 Chef 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'll 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 $280.2 million. from 375.4 million in the first quarter of 2020. 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 2.6% to sales growth for the quarter. Net inflation was 6.2% in the first quarter, consisting of 6.4% inflation in our specialty category and inflation of 6.1% 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 margins 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. The primary driver of net specialty inflation was significant price increases in cheese, dairy, and chocolate categories, accompanied by more moderate broad-based inflation in most specialty product lines. Inflation in the center of play category was driven by higher pricing across most beef categories, as well as product make 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 30.9% 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 one-time reserve increase on receivables booked 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 loss was 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 of 8.1 million for the first quarter of 2020. our GAAP net loss was $17.9 million, or $0.49 loss per diluted share for the first quarter of 2021, compared to a net loss of $14.1 million, or $0.48 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 cents loss per diluted share for the first quarter of the prior year. Turning to the balance sheet and an update on our liquidity. On March 1st, 2021, we completed the reopening of our 1.875% convertible notes maturing in December of 2024 with proceeds of approximately 50.4 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 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. 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 and outlook, and the broader pandemic-related environment. Thank you, and at this point, we'll open it up to questions. Operator? You're not muted anymore.

Thank you. At this time, we'll be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to remove your question from the queue, please press star 2. For participants using speaker equipment, it may be necessary 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 we could just talk a little bit more about the commodity inflation and elevated freight costs, I guess, are out there. Just thoughts on your outlook and kind of the ability to pass along this pricing. Just any additional commentary you have there be helpful?

Yes, sure. So I think, you know, the quarter was a very interesting one. You know, you can bifurcate the quarter really into the first two months, which were extremely impacted by COVID 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, you know, 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 that we haven't really seen 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's impacting the labor market in terms of supply and the dynamics there. And then I think as we look forward, we expect it to gradually normalize 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 gross 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 really extreme inflation I think we view it as transitory and that as supply chains catch up, things will start to normalize toward the back half of the year.

Makes sense. And 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 to do to meet the expected demand?

Do you have any thoughts on that? You know, it was challenging before COVID. You know, it's Looking at some data this morning and, you know, the conversation has never been there's an availability of excess labor that, you know, was never an easy day trying to find drivers and night crews. And, you know, they're hard jobs. And when you had full employment, it was hard before. So extremely challenging, especially, you know, I mean, we knew, obviously, that the recovery was coming, but, you know, it's unprecedented trying to prepare for when you're, you know, the business just exploded, okay, as the weather started turning and the vaccines really started to, you know, we started to see, you know, our customers started to see more and more of their customers returning, and it was just explosive growth. you know, coming out of March into April. So we knew it was 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 that's where unemployment and all the stimulus checks, you know, end. Because right now it's just very, very hard to get people to want to come to work in some of these jobs. And, you know, managers are chipping in and everybody really is helping on the front lines. it's a good problem in many ways. I mean, you know, business is coming back and menus are starting to come back, you know, normalized, which, you know, is increasing our order size and items sold. And that's really how we make money. At the same time, it's extremely, extremely challenging. You know, you're almost like going back to the gym and you know that you're You'll 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. Well, good to see things accelerating. Thank you, and I'll pass it on. Thanks, Alex.

Thank you. Our next question is from Peter Slea of BTIG. Please proceed.

Great. Thanks, and thanks for taking the question. Chris, I think you mentioned recent sales are at 79% of 2019 levels. Are you suggesting that that's April or is that kind of the end of April? And then could you just comment a little bit about what you're seeing out of some of the key markets on the West Coast and in New York, please?

Sure. You know, again, again, I think I'll let Jim, you know, opine a little bit more on the acceleration. I mean, obviously every, every day, you know, thank God gets better. And, uh, we're starting to March, you know, uh, I think it's, you know, just a day, a matter of days before we start going into the eighties and, um, which, you know, for us, honestly, I didn't think we'd get back to the, uh, 80 plus, you know, till later, maybe in the summer going into the fall. So, uh, you know, the pent up demand is just exploding and, which brings its own, you know, issues right now, but, you know, trying to staff, trying to meet demand, you know, I mean, it's just unprecedented, you know, what we're seeing from supply chains coming out of everywhere, Europe, the trailers are backed up, trying to get longshoremen back to work to unload the trailers, so it's going to be tight, you know, until I think September, October, but New York, L.A., all the major markets, it's what you would think that the demand is. When you look at New York, it's downtown, it's 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, you know, some of my favorite restaurants and customers there, they're back to, they're even better than pre-COVID numbers because of just, you know, people wanting to go back out again and socialize and have some normality. So I think the trend will continue every day, will continue to get better. But I think the midtowns of the major cities will drag again. until fall, and we kind of expected that. At the same time, we did expect all our other types of customers to actually exceed expectations, and right now they're exceeding even our expectations, which shows us, you know, how much pent-up demand is, and, you know, people are going out where they're living versus working, and many are still working from home. So I think it's a you know, dictating really, you know, we're following our customer's customer and following the money and trying to ramp up as fast as we possibly can to meet demand.

Yeah, and Peter, just about the cadence part of your question, the 79% is kind of the average of the last two weeks of, you know, these past two weeks. And just to give you a sense of the cadence of 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, we're just under 80%. That gives you a sense of the acceleration over a period of really a matter of weeks that's happening. Hopefully that gives you a sense of the cadence.

No, that's very helpful. And can I ask just one more on acquisitions on the M&A environment? Given how tough the environment is overall right now with inflation and demand coming back, does it make 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 are you thinking about more tuck-in acquisitions at this point? Thanks.

Sure. You know, pre-COVID, you know, the market was extremely frothy. I mean, the industry is consolidating. I think that's obvious, you know, for many, many, many reasons. we're looking at an industry that was fragmented, you know, heavily consolidated in many states, but still thousands of small companies that do something unique. And part of, you know, what Chefs has been doing, you know, the past 10 years is consolidating, you know, this part of the industry. So, you know, a lot of deals that were lingering pre-COVID, I think they'll get done, you know, Right now, the labor market, you know, obviously is a headwind. You know, these companies, you know, have been struggling. You know, nobody's immune from what's going on. But, you know, we think, you know, as we go into the fourth quarter, especially as, you know, stimulus and I think the incentive of not to work starts to go away, you know, and people, you know, realize they have to get a job. I think we have 8 million people still that have not got back into the workplace. from pre-COVID numbers, I think you will see many, many deals being announced. I think it's just being able to forecast, right? So, you know, Foley Fish, we were talking before COVID. We thought they were a perfect fit, you know, culturally, ownership, history, their commitment to quality and service fit right into, you know, the chef's warehouse service model. So, yeah. I think deals like that you will continue to see us hopefully do. And I think the markets, you know, I think you'll see a lot of M&A, you know, going into 22 and 23 deals that were backed up.

Excellent. Thank you very much.

Thank you. Our next question is from Kelly Bonilla of BMO Capital. Please proceed.

Hi, good morning. This is Kelly Bania. Thanks for taking our questions. Chris and Jim, just wanted to see if you had a sense. It's very difficult to kind of measure market share for Chef's 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. You know, a lot of it, I mean, every day we hear about new customer acquisition, and I think we reported even last quarter, you know, which was obviously extremely challenging, that what was amazing was the amount of new customers that we were acquiring. So I would say that, you know, we absolutely have our, you know, net positive, even though we still have a lot of customers who have not opened, historical customers, the amount of new customers that we have who are coming to us, I think kind of fits into what our strategy has been that we knew that the next year would be extremely challenging. So what strategically can we do for the future of our business? And it was really to work with customers and really be a true partner with what we saw coming, which was inflation, logistical challenges, supply chain challenges, labor challenges, and go out of our way to even be a better partner. You know, we're running extra trucks, we're running courier services, salespeople are going out of their way to see how they can assist in every possible way because, you know, you go from customers who are doing 20, 30 covers a day, all of a sudden they're doing 200. You're going to have a lot of challenges and in servicing customers, which is a good thing in many ways, right? We've been waiting for this day, you know, for over the past 14 months. So I think we are, I know we are gaining market share because of our, you know, our ability to service. There's a lot of smaller competitors that we've seen, even larger, that limited service in many areas to many customer bases, you know, trying, just because they just don't even have the labor capacity to make the delivery. So we are by far not perfect, but I think that 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 supply side to fill orders, even though it's not exactly really what customers were buying. I think giving them product that they can put out a menu has been key. And I think it fits into really our model. Our model was, you know, just in time from the beginning. You know, I think I've always said that, you know, Chef does the hard things, you know, doing a lot of importing. You always have challenges and stocking stuff 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 a better position in this crazy, crazy market where it kind of is health to skelter. You know, you have to run 24-7 and you just have to get out of your comfort zone and try to help your customers because it's unpredictable demand. So you could throw out the old playbook and right today you're writing a new playbook of, you know, 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. I'm just curious if you can elaborate on that a little bit and maybe just how much you estimate that's impacting you now and if you think there's any sustained impact. you know, impact from, you know, just the vast menu compression and the reversion, maybe just anything longer term there?

Sure. So, you know, the Cassandra's Crystal Ball, let me get it out of Jim's desk and really shine it up and take a look, Kelly. You know, I think it's, if you're a diner like myself, I, you know, you know, 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. Depending what city I'm in, I'm going to restaurants. If I'm there for a week and I eat in the same restaurants, you don't want to eat 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 bodies, you have to have hands. And I'm starting to see menus coming back. I mean, I could see from 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 in a place that I haven't been to in a while, and 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 challenging because of the supply channels. So, you know, thank God we do have, you know, over 1,000 suppliers in 40 countries and many different channels to get supplies. So we are scrambling. And I think it's going to be tough. I think we're all looking at 22. 21 is really get through it. Be a great partner for our customers. We've had the gross profit margin headwinds because it's just impossible at this point 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 have more customers, gain market share, and really be in a better position just like with the Foley acquisition that we could have a much better portfolio of offerings into 22 and into 23. to kind of make up what's happened 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 is 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 possibly around 75% to 80% of pro forma 19 sales this year. And it sounds like you're already really there, a big acceleration in the last several weeks. So just curious if you wanted to take the opportunity to where you think the full year could kind of end up or any thoughts on that point.

So, yeah, thanks, Kelly. So, yeah, I think the acceleration that we've seen in March and April is you know, on a weekly revenue basis has exceeded our expectations. I think January and February were worse than our expectations, given the severe weather and the significant COVID 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 21 at kind of, you know, 85 to 90% of 2019, you know, on a pro forma for the acquisitions. I think we're on that path. I think we're going to see a leveling off, you know, through the summer months, you know, of 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 toward the end of the year. And I think, you know, if we can exit the year at, you know, 85% or 90%, and then really go into 22 and build gradually back to 100 plus percent in the back half of 22, that would be kind of an ideal situation for us going forward.

Yeah, I think the hardest part, Kelly, the reason why it's impossible to forecast right now is it's really supply chain. It's being able to get adequate supply and fill up containers and get our shipping lanes more efficient. Freight's killing us What we're paying for containers right now, it's almost like an auction. If you're 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, eventually the supply is going to catch up to the demand and prices will normalize. So you still have a COVID environment. You still have a lot of facilities that cannot go back to normal. So they can't produce kind of like what we're seeing in protein right now. They can't keep up with demand. So pushing up the prices and the demand is still there, which is great to see, but it's putting a lot of pressure on on menu prices, and there's only so much you can push the menu price at this point. So I think we're all taking a short-term hit, and I think that's why it's so hard to forecast, because as you know, in our industry, at one point, you'd miss by a quarter point, and you thought the world was ending. Now you're like two points behind, and you're like, wow, this is getting better. So It's climbing up that long, long, long staircase, but there's finally light at the end of the tunnel. There's excitement and enthusiasm in the industry, and now it's just a lot of work to get through to the other side where the labor pool comes back, supply chains normalize, and we can take a deep breath. But right now we're in the middle of a 35-mile sprint And it's requiring, you know, just all our energy just to get through this. But it is exciting to see, you know, restaurants filling up and customers coming back out. It's really almost all about the vaccines at this point. You know, as more and more people get vaccinated, they're more comfortable. And we're hearing, you know, 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 and Associates. Please proceed.

Hey, good morning, guys. A couple 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 you're looking out and what you're hearing from customers kind of into the peak summer season, what's demand for the event business looking like, um, in, in the upcoming periods, as far as key country club customers, uh, hotel customers, what do you, what are you hearing from your customer base?

Um, sure. So, you know, I think it's state by state, you know, um, you're, you're really starting to see that, uh, you know, the way the constitution was built and, uh, the federal system that, uh, It's, you know, states that, you know, 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. Okay. We're hearing things about, say, all 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 business and tourism. We're hearing from many hotel operators that a lot of leisure travel continues. is starting to come back and they're starting to see demand. Um, we're starting to hear weddings being booked. We're starting to see, you know, I don't think, um, I don't think I've heard about large, large, uh, events being booked yet, but I'm hearing more and more, um, just like even looking at Las Vegas, just, uh, I'm amazed sometimes, you know, that the amount of business that we are doing, um, with, with no major conventions. So, um, I think that the major events obviously, uh, will be dictated by, uh, the state and by, you know, corporate's, uh, comfort level in, in having that many people. Um, I was just invited to a, uh, the first party I've been invited to a Memorial day party, but you have to be vaccinated to come. So, um, I, I think again, it's, it's kind of like, it's, it's really, you know, we're entering uncharted territory, but, um, I think it's going to be a great summer. I'm hearing lots and lots of customers very optimistic. I think the drag is still the office buildings in the major cities and the restaurants around them. It is getting better, but I think that we'll wait and see. I'm hearing more it's fall time, which to me would be great because I think we're just so busy right now. It's all we can handle. So, you know, having a tier step up would be, you know, it's not a bad thing, you know, trying to gear up, trying to find drivers, trying to find night crews to meet demand. I think we're all scrambling, and maybe we can get some, maybe someone could speak to our elected officials to say, you know, this is really hard for the businesses especially small businesses too, trying to get labor is really challenging and causing a lot of issues in 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 that the I'll go with the step up. You know, I think that we will step up every month. 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 the pandemic. And that shouldn't surprise any of us with your maintenance of service levels, access to credit. But you typically have a very good view on kind of green shoots in the industry. And I know the sense now, 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 and just the front end of maybe door growth that you'll be able to take advantage of?

Yeah, I think it's... I think it's going to be overwhelming. You know, restauranteurs open restaurants, right? That's what they do. So, you know, as prime real estate becomes available, it's a once-in-a-lifetime, really. So it's going to be a land grab. I don't think it's an even, fair playing field. I think the strong, you know, many, many customers were 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 part consultants, right? Because we kind of see the landscape and see where the business is. So we do get, you know, 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. You know, I mean, 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 open first quarter next year. So I think it's a lot of common sense, you know, where people think people are coming back. I know that, you know, the gazillion dollar question is, you know, how many people will come back to the office? You know, what will the office parks look like? What will business around offices look like? I think that's still to be determined. But we are, you know, we're starting to see it. You know, we're starting to see the recovery. We're starting to see the traffic. And we're starting to see the volume. It's just, I think it's still vibricated in many areas. And if you, you know, go to the major cities, you'll see traffic. You will see people. You'll see restaurants. But it's not... It's not evenly flowing yet, so I think that many people are making bets for 22 and 23, and they're going to start to gobble up places that might have closed, especially in business areas, and they're starting to make the bets that the volume is coming back.

That's very helpful. Thanks, Chris.

Thanks, Todd. Thanks, Jim. Thank you.

As a reminder, if you'd like to ask a question, please press store one on your telephone keypad, and the confirmation tone will indicate your line is in the queue. Our next question comes from Ben Cleave of Lake Street Capital Markets. Please proceed.

All right, thanks for taking my questions. Just one from me this morning. I'm curious about kind of things we saw last year around this time in major urban areas where regulations allowed for expanded outdoor seating and, you know, into sidewalks and some places into 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 to outdoor? Or with indoor restrictions lifting, does this result in a net increase in capacity, you know, especially in your urban core customers?

Yeah. Again, I think it's neighborhood to neighborhood, Ben. But the volume that we're seeing, you have to have indoor capacity, right? Not everybody has outdoor capacity too. So you could just, I call it the vaccine effect. You could just start, you're seeing people starting to go back inside. I think I read this morning too, we're going to go to 75% capacity at a certain time. I mean, I read all the papers around the country. I'm confused which one's which anymore, but it's building and it really is you know, the vaccine effect. You know, Saturday night, our local place here in Connecticut hasn't done, you know, 300 covers since the beginning of the, before the pandemic. So the place inside was packed, the place outside was packed. So you do have an advantage if you have outdoor. First of all, you have more capacity, you know, and especially if there's restrictions, you know, you could do turns. You know, I saw some customers in Texas say, They're doing more covers than pre-COVID because they have outdoor, they have indoor. People are very cooperative. There's a sign when you sit down or they ask you, can you please limit your stay to two hours? And customers are being 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. They know restaurants are short-staffed in many ways. So, I think it is a stage recovery, and it's not going to be even depending on, you know, 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 labor. everything here in coming weeks as everything reopens. Thanks much. I'll jump back in queue.

Thank you, Ben.

Thank you. Ladies and gentlemen, this concludes our question and answer session, and it will also conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.