Performance Food Group Company

Good day and welcome to PFG's fiscal year first quarter 2021 earnings conference call. If you would like to ask a question at the conclusion of the prepared remarks, please press the star key followed by the number one on your telephone keypad at any time. I would now like to turn the call over to Mr. Bill Marshall, Vice President, Investor Relations for PFG. Please go ahead, sir.

Thank you, Maria, and good morning. We are here with George Holm, PFG CEO, and Jim Hope, PFG CFO. We issued a press release regarding our 2021 fiscal first quarter results this morning, which can be found in the investor relations section of our website at pfgc.com. During our call today, unless otherwise stated, we are comparing results to the same period in our 2020 fiscal first quarter. The results discussed on this call will include GAAP and non-GAAP results adjusted for certain items, The reconciliation of these non-GAAP measures to the corresponding GAAP measures can be found at the back of the earnings release. Our remarks on this call and in the earnings release contain forward-looking statements and projections of future results. Please review the cautionary forward-looking statement section in today's earnings release and our SEC filings for various factors that could cause our actual results to differ materially from our forward-looking statements and projections. Now, I'd like to turn the call over to George.

Thanks, Bill. Good morning, everyone, and thank you for joining our call today. I'm very pleased with the start to fiscal 2021. Our first quarter results came in ahead of our expectations as the business recovery remains on track and we continue to outpace the food service industry. We continue to win new business, particularly in the independent restaurant channel, which resulted in year over year gross margin expansion during the quarter. Meanwhile, the Reinhart transaction has exceeded our expectations and proven to be a strong cultural and operational fit with the legacy performance food service business. This gives us confidence in our ability to bring future Reinhart sales growth to be more in line with our legacy performance food service business. Reinhart's integration into the PFG family, which includes successful technology transition and sales compensation conversions, has continued to progress smoothly, and our synergy efforts similarly remain on track, which should result in roughly $50 million of annualized cost synergies in the third full fiscal year following the closing. As a result of all this work, we continue to expect long-term value creation from Reinhart, an exciting prospect for the years ahead for Performance Food Group. The EB Brown business has also continued to produce good results the past several months. While many of Vistar's channels have experienced significant disruption, the convenience store channel has kept moving forward, growing sales year over year. Keep in mind that we now have fully lapped the EB Brown acquisition, so the sales and earnings growth that they generate is fully organic. Before we discuss our first quarter results in more detail, I'd like to address the current operating environment. While it is still very early, we are not yet experiencing a negative impact from the cooler fall weather. In fact, our weekly sales trends have held steady through September and October, including the pro forma Reinhart results in the year-ago period. PFGs consolidated. Net sales were down 8.4% in September. approximately 8% in October. This is an improvement from the 10.9% decline in the month of August. While there has been some modest improvement in Legacy Distar, that business continues to be pressured by a handful of channels. In particular, we continue to expect a very slow recovery at movie theaters, office coffee services, travel, and hospitality. While none of us can predict the future, we remain extremely well positioned with the segments of the restaurant industry that have performed well during these challenging times. With that said, if factors out of our control do produce a more challenging environment, we believe that our customers and PFC operations leaders now have a playbook to adjust and can push through until we eventually get to a level of normalcy. For our part, we will continue to support our customers and look for opportunities to expand our market share. During our year-end call in August, you may recall that we discussed our strong market share gains driven by our Salesforce investments and business mix. I'm pleased to report that these trends continued in the first quarter as well, and we are particularly happy with our performance within the independent channel. For the quarter, our independent cases grew 28% compared to a total case volume growth of 8.9%. Excluding the contribution from Meinhardt, independent organic cases were down just 6.3% during the quarter, a fantastic outcome given the situation. Not surprisingly, we have been asked about the impact that business trends would have on our margin structure. We are therefore very pleased to report our first quarter gross margins expanded to 11.6% from 11.4% in the year-ago period. despite the dilutive impact from faster growth in the convenience store channel, which has lower margins than the rest of our business. We are pleased with our organization's focus on cost control. We believe we have found the right balance between controlling costs to match demand and equally as important, taking care of our customers during the recovery. We are experiencing higher inbound freight costs due to tightening capacity, particularly in recent weeks. While we feel good about our carrier relationships and our ability to effectively manage this cost item, we would expect some near-term cost pressure. Also, as we discussed last quarter, we continue to bring the associates back from furlough as sales trends have improved. In addition to servicing the needs of our core business and value customers, PFT associates continue to focus on helping the communities we serve. Over the past few months, their generosity has helped our neighbors in need across the country. Our newest community relationship is with the American Heart Association as the presenting sponsor for the Richmond Heart Walk. This was important to us because heart-related issues affect so many. It was a great opportunity to support our communities and reinforce our associates that health and wellness are priorities. Many associates provided support as part of the steering committee and as enthusiastic coaches for PFGs 17 teams. While it normally would have been only a local Richmond, Virginia event, it became a virtual walk and PFG associates across the country joined in. One of our longest standing community partnerships is with Feeding America. We know the need continues to grow and during this year's Hunger Action Month campaign in September, our associates generously donated online to benefit Feeding America network of food banks across the country. As a company, we have proudly provided financial and food donations for many years. From our associate food drives and donations from our operating companies throughout the year, we've donated, on average, more than a million pounds a year. And finally, PFG is pleased to again be offering a match for donations our associates make to the American Red Cross hurricane and disaster relief efforts. With wildfires in the west and very active hurricane season in the east, our associates are giving generously here to help the communities where we live, where we work, and to serve our customers. In closing, let me thank our PFG associates for the work they do every day for our business and the customers and communities we serve. While many organizations are struggling, our PFG family has come together to support one another and those around us. Company morale is strong. And it shows through in our business results and in many other intangible ways. This sets our organization apart from others and drives us forward as a true industry leader. With that, I'm going to turn things over to Jim, who will give you more detail on our first quarter and financial position.

Thank you, George. Good morning, everyone. Let's start with a quick overview of our results for the first quarter of fiscal 2021. We're very pleased with the progress our company achieved in the first quarter. While COVID-19 continues to impact our customers and industry, we have seen a continual, sequential improvement in our business. As a reminder, we have now fully lapped the acquisition of E.B. Brown, but these results do include the acquisition benefit from Reinhart. Total case volume increased 8.9% in the first quarter compared to the prior year period driven by the acquisition of Reinhart. Underlying organic case volume, which excludes Reinhart, declined 17.5% in the first fiscal quarter. Independent cases were up 28% in the quarter, including Reinhart, and were down just 6.3% on an organic basis. Our continued outperformance in the independent channel continues to drive positive mixed shift. Net sales grew 12.9% in the first quarter of fiscal 2021 to $7 billion. The acquisition of Reinhart contributed approximately $1.5 billion to net sales in the quarter. Overall food cost inflation was approximately 1.5% in the first quarter, driven by inflation in cheese, and particularly mozzarella and meats. Gross profit for the first quarter of fiscal 2021 increased 14.6% to $815.5 million as compared to the prior period, prior year period. Gross profit per case was up 25 cents in the first quarter versus the prior year period. Gross profit margin as a percentage of net sales was 11.6% for the first quarter compared to 11.4% for the prior year period. Total gross margin rose in the first quarter of fiscal 2021 due to improved channel and product mix. despite growth in the lower margin convenience store channel and in an $11.9 million inventory write-off, which was $5.7 million higher than in the prior year period. We are very pleased with our gross margin results and believe it speaks to the long-term profit potential of our business. Operating expenses rose by 20.3% in the first quarter compared to the prior year period. The increase in operating expenses was primarily due to the Reinhart acquisition. We continue to focus on managing our operating expense to match demand, though we would expect to continue to see our OPEX increase as we adjust to the business recovery. In the first quarter, adjusted EBITDA rose 5.9% compared to the prior year period to $135.2 million. The diluted loss per share was one cent in the first quarter compared to diluted EPS of 34 cents in the prior year period. Adjusted diluted earnings per share was 25 cents in the first quarter. Let's now turn to first quarter results for our two segments. Our food service segments' fiscal first quarter net sales grew 28.1% to $5 billion, driven by the acquisition of Reinhardt. Food service EBITDA increased 50.2% in the first quarter to $156.2 million. Net sales for Vistar decreased 13.2% in the first quarter compared to the prior year period to $2 billion. First quarter EBITDA for Vistar was $11.7 million, a 77.3% decline over the prior year. I'd like to briefly discuss our liquidity and cash flow profile. As we mentioned on our last earnings conference call, we had significant working capital gains in fiscal 2020 and expected some of that to reverse in early 2021. While that was the case, I'm very pleased with our organization's continued focus on working capital. In the first quarter, PFG used $132 million in cash from operating activities, largely driven by the payment of the EB Brown earn-out and investments in working capital. Looking ahead, we expect to continue using our liquidity to build inventory levels and to keep pace with demand recovery in the marketplace. With that said, we feel very comfortable with our current cash position and believe it has put our company in a strong position to continue to invest in building our market share and solidify our position in the food distribution industry. PFG invested $40.8 million in capital expenditures during the first quarter of fiscal 2021, an increase of $18 million over last year. We will continue to spend on future growth opportunities, including increased capacity and new lines of business. We ended the quarter with another strong total liquidity position of nearly $2 billion, Our liquidity at the end of the fiscal first quarter consisted of about $417 million of cash plus more than $1.5 billion of availability on our ABL facility. In the near term, we will continue to look for organic market share opportunities and will use our liquidity to service our customers. However, the strength of our balance sheet has also positioned PFG to take advantage of M&A opportunities that may arise over the intermediate term. As always, we intend to be disciplined with our capital allocation and strive to pursue targeted transactions that would enhance shareholder value. We remain very encouraged by the sequential stabilization in our weekly sales trends, even as we start to enter the cooler weather of the fall season. While we expect a slower recovery at Vistar, our organization has adjusted to the operating environment and remains well positioned to strengthen our market share across our businesses. Still, despite our confidence in the resilience of our business, there remains a good deal of uncertainty for at least the next several months. We hope to be in a position to provide meaningful, forward-looking guidance as the winter progresses and our near-term visibility improves. In summary, we feel very good about how our business is positioned and the accomplishments that our organization has made. Our liquidity and working capital management has been strong, and we believe it positions us well for the long term. The strong recovery in our weekly sales has continued into the fall, and our sales force remains focused on taking market share to build upon our strong position in the food distribution industry. We do appreciate your interest in Performance Food Group. And with that, we'd be happy to take your questions.

Thank you. The floor is now open for questions. Again, to ask a question at this time, simply press star, then the number 1 on your telephone keypad. If at any point your question has been answered and you wish to remove yourself from the queue, press the pound key. Our first question comes from the line of Edward Kelly of Wells Fargo.

Hi, good morning, guys. George, maybe just starting out, could you provide a little bit more color on current case growth trends? I think, you know, what you're saying, I think certainly sounds encouraging, given, you know, the weather and rising COVID cases. I'm kind of curious as to Is there any color by region, you know, that sort of gives you a better peek into, you know, the next couple of months? What are your thoughts, you know, generally about any potential setback? And if that were to occur, does it change the way that you would think about the other side of COVID, you know, meaning do your independents make it through any setback? Any concerns there?

Well, you know, with the independent, we're encouraged. that they've just done so well with takeout curbside. And, of course, we're concerned with the weather getting cooler, but we haven't seen that affect us. We're continuing to make progress versus the previous year, not at the rate we were before, but continue to make progress. As far as the regional, that's pretty simple. The Northeast is still heavily affected. Chicago, Wisconsin, and the West Coast. And you get outside of those areas, and almost all of our companies are running sales increases. But those areas are still pretty heavily affected.

As we think about the margin performance going forward, the EBITDA margin this quarter, I think, really encouraging just given where we are at this point. There are some really unusual things going on in your mix, I think. Obviously, your independent business has been good, but you're selling a lot of PP. Your C-store business has been good. How do we think about the progression now of the margin performance going forward here?

Well, the margin growth we've had is pretty much all driven by change in mix. with the independent declining at a much slower rate than our total business. But a pretty significant swing and mix in our Vistar channel with convenience having increased dollars. Unfortunately, a lot of that coming from the cigarette part of the business, which has very high case costs. Theater is our low case cost area, and that's all but been shut down. So it has had a pretty big mix change for us. Also, when you look at our food service business, the delta between our inflation rate and our average case, our average case is up about twice the percentage as the inflation, and that's just been driven by strong growth in center of the plate, and then within meat and cheese, it's our highest-priced, most expensive brands in those two categories that have been leading the way with growth. So just a bit – I would call it an unusual quarter, Ed, as far as the delta between case growth and dollar growth.

And just last one for you, George, you mentioned M&A opportunity. Any color on limitations here, you know, just given current leverage, integration of Reinhart, what the opportunities that are like a shipping up out there are like and what you're looking for generally?

Well, you know, we would love to be acquisitive, always like to be acquisitive. It's just a real difficult time, and we certainly have the capital structure to do it. You know, to value a company today is just really difficult. And, you know, we don't want to spend a great deal of time on that, not only to end up where we can't meet the needs of the seller and, you know, our need to make sure that we're not overpaying for the company. So it's just a difficult time. But we certainly feel that when we get back to at least some sense of normalcy here that we should be able to get active again. Great. Thanks, guys. Thanks, Ed.

Our next question comes from one of Alex Legle of Jefferies.

Hey, thanks. Good morning. You know, I wanted to ask about your new business wins and sort of how much you've added since the start of the crisis and any color on the categories and what the pipeline looks like?

Well, you know, we added some food service national account business, and that was, you know, done towards the tail end of last fiscal year. We've had some small wins in that area, but nothing significant since then. In independent, we seem to be driven surprisingly by more business per customer um you know that has been a great surprise for us but you know just people have been really effective uh with their takeout and their curbside and i think what they've done with volumes down there buying from less distributors so we're actually seeing uh penetration growth within our customers and of course you know new customers as well that's always kind of a lifeline In the convenience area, we do have some additional business coming on there, some that starts late this quarter and that will stay. And then next calendar year, our fiscal third quarter, we've got some additional business coming in then. So that will certainly be helping us. And really, that's about it. I think the biggest thing for us is just continuing to pick up new accounts. And then as the core Vistar business comes back online, that's going to be a significant contributor for us going forward.

Thanks. And then expanding on that, on EB Brown, how should we think about the path going forward for gaining access to food service sales and

convenience channel i guess sort of paused some of this potential progress i imagine the crisis but what are your latest thoughts there well the food service business within uh eb brown has declined uh it declined quickly with with shelter in place and it's just gradually gotten a little bit better but but still not not close to last year's number In our food service business, we've actually been doing really well in the convenience or part of our business, and it is a growth area for us today.

Thank you. Our next question comes from one of Kelly Daniel of BMO Capital.

Hi, good morning. Thanks for taking our questions. George, I'm sure you're aware that two of your largest competitors have identified pretty sizable permanent fixed cost savings. And it does feel like you guys maybe, correct me if I'm wrong, are just a little bit more managing variable expenses to where volume is. But I was just wondering if you could talk about what you're seeing from the rest of the players in the market, a lot of the private players, and how they're managing expenses and how you think any of those actions far as at all contributing to your market share gains or how much you attribute to just your customer mix, your geographic exposure, and just the structure of your business?

Well, our customer mix definitely helps us. We have a fairly significant piece of business, and that's done well. I think what helps us, too, is that we went into this running about 7% case growth in independent, so I think we had good momentum going in. It's just kind of hard to figure, you know, the different things that contribute. The market share numbers that we get really show us running growth in independent in every type of restaurant. I think our sales force has just responded well and has worked hard. tough to tell with the independence. I think it says a lot that we haven't seen people go out of business. It speaks to the incredible resilience that just has been amazing, the resilience that our industry has. Obviously, we feel we're gaining share. I don't know that it would be any more from independent distributors than it would be from the larger distributors. I think it's probably pretty close to whatever percentage people have. That seems to be where we get it. I would say across the board, but, you know, not real significant in any one competitor.

And I guess just to follow up, you know, any comments or view that you can share with us on your margins considering maybe EBITDA margins, you know, longer-term post-COVID, you know, and return to normalization. Obviously, there's a synergy impact from Reinhart, which you talked about, you know, three years post-closing, but any other factors that, you know, can lead the company to, you know, a higher margin structure over time?

Well, you know, a lot of that has to do with mix and the changing mix that we have. But if you look at going through this period of time, you know, I think we've grown some good share independent, and that's become a bigger part of our business, so that will help our margins by holding on to that. And, you know, when you look at the expense part of it, I mean, we certainly weren't aggressive, but there are areas of our business that we recognize that we will not have the kind of expense that we've had in the past. So I said from early in this that we're not going to come out of this with expense ratios as high as they were before. So that should help us when it comes to our EBITDA margins.

Thank you.

Our next question comes from one of John Glass of Morgan Stanley.

Hey, good morning. Thanks very much. George, can you maybe just talk a little bit more about the success you've had in the independent case growth? Is that really just coming from your core customers and the pizza category of Mexican, which have just been strong through this? Or are you seeing a broadening of new customers or adding new that are outside of that category? I'm trying to understand, is this just the category being better and you're sort of benefiting from that? Or if you're actually seeing penetration outside of those categories that are in case growth in those independents?

Definitely a broadening. You know, we've continued to be real aggressive increasing our SKU base. We've been aggressive with our brand, particularly at the higher end. And like I said before, it's every type of restaurant. At least the numbers we get show that we've gained share in each type.

And just on Vistar, can you just break down, like, what C-stores are running down now relative to theaters, just so we understand sort of the dynamic there? How different are those channels? I understand there is a difference, but how different are C-stores now, which is a pretty big part of that business, versus the rest of it?

Our C-store channels grow, and our Vistar channel is down. The core legacy Vistar, I guess I would say, is down significantly. You know, they're in kind of the firestorm of, you know, what's not performing well today. It is a company that will do extremely well again. And the areas that have seen the significant declines would be anything work-related, vending, office, coffee service, and anything travel-related has been highly affected. And You know, people gathering in large crowds. I mean, we have a significant theater concessions business and also a significant concessions business that, you know, is more sports-oriented. Just really in the, you know, it's just a tough, tough time for them. Down the right side, the corrections business is very good. The dollar store business is very good. Surprisingly, retail has been good. the impulse buy item at retail.

If I could just add just one final brief follow-up. Just on freight, what are you seeing in freight rates? What do you think that headwind potentially is in the near term? And if you change the way you've negotiated freight terms, inbound freight terms, with your suppliers so that you think you can manage that, so you can match the increased cost of increased allowances, for example? How do we think about freight in the near term?

Yes, Jim. So first, we wouldn't change our approach because our approach has helped buffer some of the headwind that perhaps we would have gotten if we had managed things differently. You know, I would characterize that as a mild headwind. It's tough for the team that manages it. They're a very strong and experienced group of folks for us. And I believe they'll be able to work through it as they have in past years.

Our focus has always been, as much as we can, to work on steady relationships, same supplier, not trying to bid it out, not trying to get the last penny. And that really has helped us.

We have no intention of changing that. Okay. Thank you. Sure.

Our next question comes from one of John Heinbockel of Guggenheim.

Hey, George. You guys are always growth-oriented. I'm curious, when you think you may want to pivot even more toward investing in the business for the eventual recovery here, I guess, next summer, and how satisfied are you with the growth in quality of people you're seeing on the Salesforce side? You always like to grow that low single-digit or better. where are we there? And then where are you with Reinhart in terms of ramping up their Salesforce?

Yeah. Well, our, our, our Salesforce today, the average sales per salesperson is at the highest level we've, we've had. And, uh, part of that is because, you know, we did furlough some people that were new that were, you know, real new, uh, we've been starting to bring those people back, um, And I'm finding the quality of the people to be good. I think that we're having higher success rates here of late with new people, and we're continuing to invest and we're continuing to hire. I don't think there's going to be this huge increase in capital expenditures here, but we are definitely more aggressive adding capacity. We've got some new facilities that we're going to be doing. Matter of fact, I'm visiting a new one today that we are just opening in the convenience side of our business. But our biggest priority is to get more capacity in food service distribution.

So that's the greater priority rather than expanding the sales force. And how do you think about structure of the sales force in terms of Where you are today, the idea of adding folks that maybe just purely prospect for new business as opposed to ongoing relationship, is there room to productively kind of tweak the structure or it's where you want it to be?

Well, we've always had business development managers that their primary responsibility is going out and getting new business. Not an area that we see ourselves growing, it's Really, I think we're set there. We've got plenty of people. Our focus is salespeople, salespeople that have a regular customer base that they see frequently and that they manage.

Okay, thank you.

Thanks, John.

Our next question comes from one of William Reuter of Bank of America.

Hi, this is Marion for Bill. Thanks for taking our questions. So first, just can you touch on your outlook for food cost inflation?

Yeah, it's Jim. We provided in the script, we saw around 1.5% inflation. Don't have any real reason to see that average number moving. But look, it's unpredictable times. So very difficult to provide outlook. I can tell you we're prepared with great supplier relationships to manage through whatever... whatever challenges we get there, and we know how to manage the cost.

Great. And you mentioned that you've been bringing back a lot of your furloughed associates, but were there any permanent personnel eliminations?

Yes. I really couldn't quantify that. I wouldn't call it real material, but it's certainly going to help us.

Got it. That's all from me. Thank you.

Thanks. Our next question comes from the line of Jeffrey Bernstein of Barclays.

Hey, guys. This is actually Jeff Preaster on for Jeff Bernstein. Just on your inventory levels, I know back in the height of the pandemic in March, April, May, PFTC continued to take deliveries, and so your inventory levels were maybe a little bit higher than you'd otherwise want them, given the volumes you were seeing at the time. How have your inventory levels managed over time, and kind of what is your outlook from there, whether you need to still kind of wind down to those levels or whether you're now in the build-up process?

We're definitely in the build-up process. Just this last week, we had the highest inbound fill rate from our suppliers since shelter-in-place. So that speaks well that our suppliers are recovering and they're starting to be able to fill our orders. Excess inventory that we had, proteins that we had to take to the freezer, that type of of issue, that's all behind us. We've got that product sold and out of the buildings. I think that you'll see our inventory levels grow at about the same rate that our sales grow. But we do feel like that we're in a mode now of kind of rebuilding that inventory level.

Gotcha. And then just digging in on the additional penetration to independence, Do you think you guys are continuing to see a benefit from having those inventory levels, maybe at the height of the pandemic, that independents know you will have the product available for them? And then also, are there any areas that independents may not have purchased from you guys in the past that they're now purchasing from you to kind of drive that penetration, just trying to figure out exactly what they're buying from you?

Yeah, we're definitely getting new customers, and maybe we made too much of having the inventory. You know, that wasn't a huge period of time. Certainly, our competitors had inventory. I think that our salespeople are just getting additional SKUs into the accounts, and that's a lot of what's driving, I guess I would say, our sales declines not being that bad, but Hopefully soon we can talk about sales growth, but I think it's just the salespeople adding SKUs.

Gotcha. Appreciate it.

Our next question comes from one of Rebecca Juneman of Morningstar.

Good morning, and thanks for the question. So earlier this week, one of your largest competitors talked about how they're going to be developing specialized products and services to be targeting specific restaurant segments such as Italian eateries, which is obviously a big stronghold for you guys. I was wondering if you could just speak to how you plan on defending your positioning there.

Well, our salespeople are the biggest thing. you know, we take the product real serious. We're very, very serious about, you know, our product and the price value that it offers. And I don't really see us doing anything different than what we're doing today.

Okay. Thanks. And also, you know, I was wondering if you could speak to, you know, what percentage of like permanent store closures you're seeing? You know, some of your competitors have talked about high single digits. I'm guessing it's probably lower for you guys. I'd just, you know, like to hear your thoughts on that.

It's a hard number to grab. I will tell you, in most parts of the country, what we look at shows us that it is single digit, probably fairly high single digit, but it's single digit between customers we sold, I always say pre-shelter-in-place, and customers we sell now, it's less than 10% of those customers don't buy from us today. Now, that doesn't necessarily mean they're closed. I mean, there's other reasons that you can lose business. When you get to particularly Metro New York, the Northeast, Chicago, the West Coast, much higher numbers, certainly double digit, but it's much higher number than the rest of the country.

Okay, great. Thank you. And then lastly, I was just wondering if you could speak to, you know, what percentage of your restaurant sales you think is eaten off promise, you know, which would kind of help give us some color for how much risk there is to as we approach limited indoor dining and also other possible restrictions coming into place. Thanks.

Yeah, that number, like store closures, is equally difficult to get to because they're managing that. But I can tell you, it's impressive to see how restaurants are managing through indoor versus takeout and curbside. They've done an amazing job. being flexible and agile and being able to handle the shift in demand and how people want food. And we couldn't be more pleased with how our customers have taken care of that. And they know what they're doing. They have great experience. They're just really hardworking folks. So I would expect that number obviously is significantly higher than it was, and it may grow. I'm sure I'm pleased with how they've done that.

Okay, great. Thank you. Again, ladies and gentlemen, if you wish to ask a question, simply press star then the number one on your telephone keypad. Again, that is star one to ask a question. Our next question comes from one of Lauren Silverman of Credit Suisse.

Thank you. So I wanted to ask about the independent case growth. Your customers tend to be concentrated with chain pizza Italians. They just perform better, and you spoke to the wall share. So is there any way to quantify the relative impact of restaurant comp declines, wallet share, and net new customers acquisition on independent case growth?

I'm sorry. Could you repeat that? I couldn't hear it for some reason.

Sure. Is it better?

Yes.

Okay. So regarding the independent case growth, your customers tend to be more concentrated with chains, pizza, Italian, which perform better, as well as wall chair growth that you spoke to and expansion of SKUs. So is there any way to quantify the relative impact of restaurant conflict lines, wall chair, and net new customer acquisition on independent case growth?

You know, I think that that's probably difficult. I mean, our chain business has not actually been that great. We do a lot of casual dining, and it's more difficult for them. So that has not been a contributor. Pizzerias have done well. Italian restaurants have done surprisingly well. Mexican restaurants have done well. But to be able to quantify it is just not something that we do.

Yeah, I'd agree with that, George. I got to tell you, though, we're really pleased with sales growth return and recovery so far. Really pleased with the investment we made in the sales force and how it's paid off. And the Reinhardt integration and performance is going exceptionally well. The EB integration and performance is going exceptionally well. Did you have another question?

Okay, yes. So are you seeing any differences in wallet share penetrations? among new customers that you're bringing into the system relative to cohorts that you were bringing in pre-COVID? So just trying to see if there's a greater willingness for new customers to buy more from kind of a single distributor.

I don't think there's any difference, really. The environment is, from a competitive standpoint, is just the same as it's been for quite a while.

Okay, fair. And then just thinking through the supply of independent food distributors in the market and recognize there's limited visibility, but would you expect a commensurate level of closures among peers that you would expect among independent restaurants?

Not from what I've seen so far, no. I mean, if we get kind of a second wave of closures of markets, I think that could have an impact, but We just don't see a lot of stress in the industry among independent distributors. We just don't see it.

Okay. And then my final question is, there's always a turn amongst restaurants each year. So how elevated is your level of closures amongst customers currently relative to historical levels of closures?

I mean, it's certainly greater. I don't think we could quantify that either. I'm not trying to be evasive, but I just don't know how we could quantify that. You know, we're just not losing accounts at any different rate than we were in the past. Matter of fact, there might even be more stability from the standpoint that, you know, people are just kind of hunkered down doing things the way they've always done it. And I think what's helped us is just additional SKUs within our existing customer base. not a big difference between how many we lose or how many we gain.

Understood. Thank you very much.

Thanks. Our next question comes from one of of VTIG.

Great. Thanks for taking the question. I know you guys mentioned you're seeing maybe single-digit closures, maybe it's high single-digit with maybe a little bit more on the coast. Can you provide any more sort of clarity or detail around the types of customers that you think may be closed, any sort of characteristics, type of cuisine? Is it more with terms of restaurants that are maybe a little bit more or a slightly higher average guest spend? Any sort of details around that would be helpful.

Thank you. Yeah, I would say that we've seen a little higher percentage on the high end. I think it's difficult if you can't seat people to get that kind of price point for a pickup or, you know, a takeout or a delivery. It's just not the same experience. So that I would say. Um, and it is certainly more difficult if, if you don't have a good takeout program, if you don't have a good curbside program, if you've got a small restaurant, even if it's that 50%, it's hard to get 50% of what you would normally get in there. I think that's difficult. Um, you know, and, and I do believe there's restaurants that are, that are closed. have been closed for quite a while, that still will open when the opportunity is right. I've talked to people that are just going to shut down for the winter if things don't change, but that doesn't mean they won't come back later. And then, of course, if you've got outdoor dining you've done better, less likely to have closed your doors. Just all those things that you logically would think would happen.

Right. That's very helpful. Can I ask, have you seen more restaurants come online for the first time as capacity restrictions in some municipalities were lifted from maybe 25% of seating to 50% of seating? Did you see more restaurants decide for the first time to open their doors when that level increased?

Yes. And we've seen people, and a good bit of this, where it goes from 25% to 50%, and they were doing very well with takeout and elected not to open at 50%, the dining room, but continued to do business. I think there's every scenario that you could possibly have I think we've seen. I mean, there are people out there doing extremely well right now and still have not opened their dining rooms.

Excellent. Thank you very much. I appreciate it.

And that was our final question. I'd like to turn the floor back over to Mr. Bill Marshall for any additional or closing remarks.

Thank you for joining our call today. If you have any follow-up questions, please contact us at Investor Relations.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.