Premium Brands Holdings Corporation

Good day, ladies and gentlemen, and welcome to the Premium Brands Holdings Corporation's second quarter 2020 earnings call. As a reminder, this call is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. At that time, participants are asked to press star 1 to register for a question. For assistance during the call today, please press star 0 on your telephone. Our speakers will be George Pellilogo, CEO and President of Premium Brands, and Will Kalutich, CFO of Premium Brands. It is now my pleasure to introduce your host, George Pili-Logo. Please go ahead, sir.

Thanks, Lisa, and good morning, everyone. Welcome to our 2020 second quarter conference call. I would like to start today's call by thanking my 9,000 PB associates who continue to do an amazing job every day and every week producing the foods needed to feed and nourish our fellow citizens. I feel very privileged to have such a great and dedicated group. Their commitment to the cause and their hard work and dedication during these uncertain and volatile times is greatly appreciated. Turning to our results, our second quarter numbers are satisfactory given the COVID-19 related disruptions to our business, but do not fully reflect the many reasons we're so excited about our future as they do not tell the full story. Despite the many challenges we faced during the quarter, due to the COVID-19 pandemic, we remain as excited as ever about our business and are encouraged by the momentum we're taking into the third quarter, driven by the reopening of the economy and the return to some level of normalcy. I will now turn the presentation over to our CFO, Will Kaludich, who will review our financial results for the quarter, after which I will make a few brief comments, followed by Q&A. Will?

Thanks George and good morning everyone. Before discussing our results for the quarter, I would like to caution you that to the extent we make forward-looking statements during our presentation, our forecasts and assumptions are subject to change and actual results may vary. Please see our 2019 and second quarter of 2020 MD&A filings, both of which can be found on the Cedar website www.cedar.com for details on some of the factors that could cause our actual results to differ from our current expectations. Turning to our results, our revenue for the quarter grew by $31.2 million or 3.3% to a record $976.6 million despite our company facing the most challenging operating environment in its history. The increase was driven by approximately $93 million of organic volume growth in certain areas of our business, business acquisitions, which accounted for $30 million of the increase, $25 million in selling price inflation, and $15 million in exchange-related inflation. These factors were partially offset by approximately $132 million in COVID-19-related sales impacts. The $93 million in organic volume growth, which was driven by new customer initiatives in the seafood and sandwich categories, as well as successful new product launches, translates to a growth rate of 9.8%. This is in line with the growth rates of 13.8% and 7.4% in the first quarter of this year and the fourth quarter last year, respectively, and above our long-term targeted range of 4% to 6%. The $132 million COVID-19 sales impact related mainly to the partial or full shutdown of a number of our customers operating in the food service and QSR channels, partially offset by unusually high demand for certain products in the retail channel. Our adjusted EBITDA for the quarter fell to $67.1 million from $88.2 million in the second quarter of 2019 due to COVID-19 related issues. namely the $132 million sales impact and $10.9 million of net transitory costs, which is after $3.5 million in COVID-19 related marketing and travel cost savings. These items were partially offset by some general margin expansion resulting from a combination of past selling price increases, inventory strategies used to hedge against commodity cost volatility, and declines in the cost of certain seafood commodities. Overall, the impact of COVID-19 related factors on our adjusted EBITDA was most severe in April with our May and June results each showing substantial sequential improvement. Our adjusted EBITDA margin was 6.9% versus 9.3% in the second quarter of 2019. The decrease of 240 basis points was driven by a variety of factors, including one, the net loss of sales volume associated with the COVID-19 sales impacts, two, the 10.9 million in net transitory COVID-19 related costs, and three, sales mix changes as a portion of the COVID-19 related impact on our food service and QSR channel sales was partially offset by the affected businesses pursuing new but lower margin sales opportunities. The general margin expansion I outlined earlier helped to lessen the impact of these factors. Our adjusted earnings per share for the quarter decreased to $0.57 per share from $1.10 per share in the second quarter of 2019 due to the COVID-19 factors that impacted our adjusted EBITDA. In terms of our outlook for 2020, While we continue to see steady improvement in the performance and stability of our businesses, we are not providing any sales or adjusted EBITDA guidance at this time, based on there still being considerable uncertainty about what the impacts of COVID-19 will be for the remainder of the year. We do, however, based on current circumstances, expect the current trend of improvement to continue, subject to the normal seasonality of our businesses. Despite the near-term uncertainty, we remain confident in meeting or exceeding our 2023 sales and adjusted EBITDA targets of $6 billion and $600 million, respectively. To this end, we expect substantially all of the impacts of COVID-19 to be transitory. Our organic growth initiatives largely remain intact, albeit with some delays, and many of our businesses have developed additional new sales opportunities as well as strengthened customer and supplier relationships as a result of the crisis. Furthermore, we are now resuming our acquisition and CapEx growth strategies, both of which had been temporarily put on hold due to pandemic-related concerns. Turning to our financial position, we went into the COVID-19 crisis with a solid financial position and continue to maintain a conservative balance sheet and strong liquidity. Our senior debt to adjusted EBITDA ratio at the end of the quarter was 2.7 to 1, which is within our long-term targeted range of 2.5 to 1 to 3.0 to 1, and we had approximately $380 million of unutilized credit capacity. Subsequent to the quarter, we completed a combined common share and convertible to venture offering that resulted in net proceeds of $308.7 million. This increased our unutilized credit capacity to approximately $690 million, reduced our pro forma Q2 senior debt to adjust the EBITDA ratio to 1.5 to 1, and positioned us to resume our acquisition and CapEx growth strategies while maintaining a very conservative balance sheet. In terms of capital expenditures, during the quarter we spent $19.5 million on a variety of capital projects that were either relatively small or initiated prior to the COVID-19 crisis, including a 41,000 square foot expansion of our artisan bakery in Langley, BC, several meat snack capacity expansions, adding additional charcuterie tray pack capacity at our Reno sandwich plant, and the installation of automated production lines in our Phoenix Sandwich plant. With the resumption of our CapEx-based growth strategy, we also announced that we are in the process of assessing five major capital projects with a combined preliminary estimated cost of $87 million. Subject to these projects meeting our minimum internal rate of return threshold of 15% on an after-tax, unlevered basis, We expect them to commence over the next two quarters and to be completed between the fourth quarter of 2021 and the fourth quarter of 2022. Turning to dividends, during the quarter we declared a dividend of $21.7 million, or 57.75 cents per share, which on an annualized basis works out to $2.31 per share. Our free cash flow for the trailing 12 months was $161.3 million, as compared to dividends of $82.7 million, resulting in a payout ratio of 51.3%. While our payout ratio was up relative to 38% to 43% range that it has been at in recent years, we were pleased that it was still near our general target of 15% despite facing one of the most challenging economic environments in recent history. I will now pass the presentation back to George.

Thank you, Will. We began the quarter with the economy in full lockdown, with many of our food service and QSR customers having to shut down their businesses. Rather than panicking, we reacted to this extreme situation based on our core values and our focus on creating long-term sustainable value. We avoided mass layoffs and cost-cutting as much as possible and instead prioritized the health and safety of our people, stayed close to our customers and suppliers, and help support the well-being of our communities around us. While many of our businesses suffered greatly financially during April, we remain steadfast in our belief that demand would return and that we needed to be well positioned to meet our customer needs when it did. Sure enough, demand came back strongly in May and virtually overnight many of our businesses saw their plans go from being idle to full capacity with their staff working long hours to meet customer needs. This trend continued into June with several of our businesses not only meeting their budgets but also delivering record results. We were also very pleased to see progress once again being made on a number of key growth initiatives including In the categories of fresh and value-added seafood, artisan sandwiches, meat snacks, premium dry-cured meats, and cooked proteins. Our overall sales growth for the quarter, despite April being the most challenging month our business has ever experienced, is indicative of the momentum we gained through May and June. We continue to disrupt the traditional food space, catering to the needs and wants of health-conscious consumers who are willing to pay for quality and great taste. Our focus on quality, transparency, innovation, and social values is resonating with an increasing number of consumers and driving demand for our products. We believe that COVID-19 will accelerate this trend as more people realize that a healthy diet is important to maintain a strong immune system and defending against diseases such as COVID-19. Looking past COVID-19, I have no doubt that our company will emerge from this crisis stronger and more resilient, as we're uniquely positioned with our decentralized entrepreneurial culture, which pushes decision-making to the front lines, our unique ecosystem, which provides support and resources and allows our businesses to focus on the long-term, and our diversified business portfolios. Our acquisition pipeline also remains especially robust, and we expect to execute a number of transactions during the second half of the year. COVID-19 has motivated many more successful food entrepreneurs to reach out to join our unique ecosystem. We're delighted and honored to be able to offer them ownership solutions that preserve their operational independence while providing them access to our extensive resources and best-in-class services. I will now turn it back to Lisa for the Q&A segment of the presentation. Lisa?

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. As a reminder, if you are on a speakerphone, please make sure your mute option is turned off to allow your signal to reach our equipment. And again, that is star 1. We'll take our first question from John Zamparo with CIBC.

Thanks. Good afternoon, guys. You mentioned in the press release that you'd lost sales in the Sandwich platform, but you successfully pivoted to gain new customers, and those came with some lower margins. So I guess two parts. Are these relationships or clients you plan to maintain, or do you view it as a stopgap solution? And do you have a way you can get the margins on those products to where you would like?

Yeah, the answer is obviously we believe that some of the business will be sustainable over the long term. Some of the business, the new business was lower margin only because effectively we went out and pursued the business on an urgent basis. As QSR gets back on track, obviously we're prioritizing our incumbent customers, but we do plan to continue with some of the business that we pivoted to, but not all of it. Right now, the fact is that we probably got a little more demand than we we have the ability to supply, given some of the labor challenges that we still have in certain facilities, particularly in the U.S.

Okay, that's helpful. Thanks. And then on your food service customers, it's roughly a third of overall sales from last year, I think, split between 40 to 60 between specialty and distribution. But of those food service sales, do you have a number of what percent would come from quick service versus casual or fine dining? Because it does seem like the former is really outperformed in this environment.

Yeah, the quick service sales, John, would all be primarily in the specialty food segment, food service sales. That's mainly QSR.

Got it. Okay, and then last one from me. Sorry, go ahead.

Yeah, so if you look at that chart in the AIF, that's where you see that breakdown, right?

Got it. Okay, thanks. And then last one from me. You mentioned April being the most challenging month you've seen and then notable improvement in May and June. Do you give us a sense of how organic volumes performed throughout the quarter by month, and is it fair to say that July has seen incremental improvement versus what you saw in June?

Yeah. So, you know, the best way to illustrate that, John, is on our website, there is an updated investor presentation and we show our weekly sales year over year. And so you really see the trend. You know, you saw a dramatic decline through April and then, you know, sort of hitting a trough at the end of April. And since then, we've seen a steady improvement in You know, for the last 11 weeks, we've been consistently sort of on a year-over-year basis, similar to levels we were at the start of the first quarter.

And that's continued through July. Okay, got it. That's very helpful. Thanks. I'll get back to you. Thanks, Sean.

We'll take our next question from George Dumais with Scotiabank.

Yeah, guys, congrats on that resilient border. Just to follow up on the trend of July improving, can you guys maybe talk about what areas of strength you're seeing, what pockets you're seeing strength in terms of July, the improvement in July? Is it C-Store, is it QSR? Anything to talk to that?

Yeah. Hi, George. As we mentioned earlier, George, we began to see a pickup in QSR. QSR was effectively shut down in April. It's a big channel for us for many, many reasons. So we began to see a little bit of pickup in May, which helped our revenue and sales numbers, of course. But June was mostly back to normal. Most of QSR had opened by then or up to 80% or 90% open. So we had a significant increase. pick up in demand through the QSR channel. QSR, for us, did better than we anticipated. I think there was a lot of pent-up demand. And we're seeing those trends continuing to July and August.

Okay. On that channel, there's been recent commentary, I guess, from struggles with the breakfast category. I think we saw it with Dunkin'. We saw it with McDonald's. probably because of stay-at-home, but I'm just wondering, are you guys seeing that impact at all in that day part in the sandwich platform, or are you shifting to different day parts, or any commentary there?

Our demand from the QSR channel in general, George, and again, we do deal with many, many major banners, has been very strong for us in many, many cases recently. based on the demand that we see, we're actually shorting that channel today, which is amazing to us in terms of how far we've come from April. You know, again, I can only comment on what we see in terms of demand, but demand from the QSR channel is very strong. I mean, back to your original question, the other channel that suffered greatly in April, of course, with... the complete lockdown of the economy was the C-Store channel in both Canada and the U.S. And with, you know, everybody or almost everybody taking driving holidays as opposed to flying holidays, we're seeing a lot of pickup in demand in the C-Store channel in North America.

Okay, that's helpful. And just one last question, Nick. Can you maybe... A two-part question. Can you maybe give us your outlook in the input cost inflation environment? I know it's been pretty active from the first half, but can you maybe give us your outlook on the second half? And how much do you think of that $25 million price increase that we took, given that some of the inflation came off? How much of that do you think you can hold on to in the back half?

Well, I'm going to answer your second question first, George. In terms of the inflation, a good portion of that was the price increases we put through back at the end of Q2, beginning of Q3 last year in response to the ASF issues specific to the port complex and what happened in China. So those are sustainable. Those are long-term changes that were made and have been maintained. And, you know, as we go into the back half of the year where, you know, ASF and the issues around that and the impact it had on commodities really kind of went away in the first half of the year or the second quarter anyways. So we're being very conservative or concerned about that emerging again in the quarter. So, you know, we intend to maintain those selling price increases. But on a year-over-year basis, you're not going to see that inflationary impact because, like I say, those price increases were in Q3 last year. In terms of your first, what was your first question? Sorry, George.

Yeah, just a general view on, do you see any inflation in the mock capital? I could see the debate.

Commodity costs, yeah. So, you know, again, similar to an earlier question, I'm going to refer you to our investor update. There's a great slide in there that shows what happened in the, you know, two of our bigger commodity complexes, pork and beef. what happened in those over the last quarter and what an incredibly volatile, challenging environment it was during the quarter. Those have come back. They're sort of tracking back in line or even below 2019 levels. So, you know, that's the current trend. But the big subject and the big unknown is how is ASF and Chinese demand for North American protein going to play out in the back of the year? And that's really what's going to drive depending on what happens there.

Okay, got it. Great. Thanks for answering that. Good luck.

Thank you, George. Thanks, George.

Our next question comes from David Newman with Gay Harding. Please go ahead.

Good morning, guys. Hey, David. Good morning. Great set of results overall. Very impressive. Just one last question on the top line. There were some programs I think you sort of put on ice that were in the throes of, you know, almost being launched. I'm thinking like, you know, some of the Rayburns programs and Duncan and a few other ones. Are the ones that were put on hold, are they back operating again? And did that contribute as well into the June period and July?

Yeah, so again, a lot of these launches are taking place as we speak, David. A lot of them were delayed mainly because of our inability to visit customers and to do demos and to do promotions and all of those things. A lot of these things went on hold because everybody was working out of their homes. But we are seeing a lot of activity now. We've launched a number of programs into both C-Store, Flap, and we will be launching more. a number of initiatives in the near future. So there's a lot of activity now within the group, a lot of innovation, and we're happy to see some traction with regards to customers taking meetings and obviously giving us new opportunities.

And further to that, David, in terms of your question on how much of an impact was in the quarter, A lot of that stuff did not impact the quarter. The organic growth that we saw in the second quarter was driven by a lot of initiatives we've been talking about for the last couple of quarters, what we've been doing with our seafood businesses, particularly in the U.S., some new listings in Canada in the seafood category, some new products launched in the cooked protein, a lot of things that have been in the works and contributing to our growth going into the quarter as well.

Okay. And so we would expect those to start contributing kind of in the second quarter, second half, third quarter, second half kind of thing? Correct.

Okay. The new stuff that George is talking about.

Right. Okay, and it's over the margins. Obviously, hold on, my phone's ringing. They never give up, right? Just over the margins on specialty foods, obviously a little more... you know, lower relative margins and, frankly, understandable. You had to replace some of the activity levels. As we move into the second half here, and especially food, I'm thinking, how are the margins playing out? As these new programs kick in, as you get sort of contribution margin on fixed cost absorption and all that, what is sort of a near-term and long-term outlook on sort of the margins overall?

Yeah, I'll just start, David, by saying that you have to remember that April was, you know, was not a good month in every respect. Effectively, a lot of our customers were in a complete lockdown and we made decisions based on trying to keep our employees busy. We took on businesses that were low margin or relatively low margin Again, and, you know, the results in April are effectively skewing our numbers. As we get back to normal, you will see some normality back to the numbers. But I will pass it back to Will to give you a more complete answer.

Okay. And, you know, I do... We do expect to see some improvement, like George says, because April was such a challenging month, so some improvement in the back half. But the reality is, you know, there's still... Key channels that aren't back to normal, so that's impacting sales mix, and particularly in food service, some of our airline business. And then also COVID costs. We do expect those to continue on for at least the third quarter, possibly the fourth, and we'll see how that plays out. We don't expect to get back to sort of original expectations, but we do expect improvement in the second half relative to the second quarter.

Okay, and then last one for me, guys, just on the PFD side, same question. I think you kind of alluded to the answer there anyways, Will, but I was really kind of a remarkable resilience to this business, and it did remarkably well in the face of, you know, full-service restaurants being shut down and everything else. So it was a very surprising and very positive result. So just in terms of attribution between, there was like three buckets that you sort of identified there, the lower seafood commodity costs, some favorable inventory positions, and some procurement benefits overall. So what was the sort of attribution there, and how sustainable might that be?

Certainly, well, some of those impacts, particularly like on the seafood deflation, which has helped offset a lot of those costs, Certainly as we continue to experience the channels that are being impacted, continuing to be impacted by COVID, we do expect those benefits to sustain because they're somewhat related. For example, two key commodities, salmon and lobsters, which were favorably helping on the commodity cost side, is because they're so focused on food service. So until we start seeing our food service coming back, we should continue to see the pickup on the other side there to some extent. The inventory hedging, that's a tough one. In the discussion earlier with George, so much is predicated upon how protein complex plays out in the second half with ASF. We're still fairly heavy on inventory and well positioned coming out of the second quarter, so that should continue to allow us to weather any spikes or But the reality is today the market is somewhat settled and a little more on a year-over-year basis calm, for lack of a better term.

And then how long do you have in the inventory to kind of exhaust the inventory that you've built up?

Well, it's kind of an ongoing process of, you know, you've got a buffer so when there's spikes in the price, you don't need to go into the market. And the reality is the market's constantly fluctuating and there's constant change. And so, you know, you sort of, you use the dips to try and replenish your hedges and you use your long positions to weather the spikes. So, you know, it's a function of how long the spike goes on, whether we can weather it or not, and how low the dips go in terms of how much we replenish the inventory. So it's not sort of a simple we have X amount to see us through to X date.

Got it. And last one, guys, I'll just squeeze it in here. Does Trump providing support to the Maine lobster industry help you guys out? I mean, it's obvious, but... You know, in the absence of an export market, he's supporting that local lobster market in Maine where I think 80% of lobster is procured in the U.S. Not a material event or issue for us, David. Okay, very good. Thanks, guys.

Great results. Thanks, David. Thanks, David.

We'll take our next question from Pahat Khan with RBC Capital Markets.

Thanks, and good afternoon. Maybe just following up on the commentary around the premium food distribution segment and the results there, I guess based on your comments, should we read into it that this was maybe largely associated with seafood and the lobster business and probably more of a U.S. kind of driven health performance, or how would you attribute kind of the big products or the type of customer that helped you deliver these results amidst the shutdowns here?

Yeah, again, first of all, I would say it would be both Canada and the U.S. I can't say enough about our distribution group and how they've gone out and pivoted and found new customers in both Canada and the U.S. We've... We've retained a couple of two very large customers, which we believe to be sustainable. You have to remember the backdrop of what we've gone through. Some food manufacturers were able to keep service levels very high, and some have had issues. You know, I can't say enough about the group and how well they've executed in terms of jumping in where there were opportunities. And as a result, they've retained some very large customers, which we believe is business that will be sustainable.

And that is on kind of the lobster and seafood side or broadly for PFP?

Broadly for the distribution group.

But definitely weighted to the seafood side somewhat. But also it's interesting is in terms of the margin performance, that was definitely across the segments. You know, again, our hedging strategies helped a lot with the margins in the more traditional protein categories while the benefits I talked about earlier in terms of salmon and lobster helped our seafood margins. So the margin performance was driven right across the business.

And you have to remember, Pat, that we've made significant capital investments in that group over the last couple of years. So we had sufficient capacity to take on new customers, which is significant.

Okay, and then just given that these are new customers, are you seeing the trends for this segment also sort of continue through Q3? And maybe not at these levels, perhaps, but it's still, I guess, the improvement is continuing?

Yeah, so far, so good.

Okay, and then on the specialty food side, the commentary around sandwiches earlier, I guess, should we read that to mean that, you know, as of Q3, the sandwiches category is now up year over year, or... Is it that the segment is up, but sandwiches are directionally better than where they were a few months ago?

They're currently running at levels that are above last year's. Okay, and this is driven by some of the... They had challenges in the second quarter. It was not a great quarter for them. Things improved. in May and June, as we stated, and they continue to improve into July, August, and as we speak today, they're running ahead of last year.

Okay, this last one for me. Could you maybe provide kind of similar commentary on sort of the composition of the quarter, you know, across Meats Max and Deli Meats? You know, how did those trends change, or is most of the categories following the similar trajectory at this point?

Our protein group, which is skewed mostly towards retail and club, had a very good quarter and continues to do extremely well. Outside of some capacity challenges, we probably could have delivered better numbers even. There's a lot of great demand for some of our unique value-added products. meat products including meat snacks, dried cured meats, and of course cooked proteins.

Thank you.

We'll take our next question from Vishal Sridhar with National Bank.

Hi, thanks for taking my question. I think you alluded to it earlier and I missed it. The COVID-related costs related to the thank you bonuses and safety measures, so on and so forth, did you say that sticks in its entirety for the next quarters?

Well, it won't be to the extent it was in the second quarter because things like the thank you bonuses, those will start some businesses tailing off. There was sort of fixed costs of putting in safety processes in the facilities and There were inefficiencies associated with the shutdown and startup of certain facilities. So there were a lot of things that happened in the second quarter that will not continue, but a portion of those costs will. So the thank you bonuses are running into the third quarter for some businesses. We have continuing some inefficiencies with some labor instability, particularly in the U.S., where we're We're having some problems sourcing labor. So some will continue, but it won't be to the extent that it was in the second quarter.

Okay. And just moving on here to the demand and the progression of the demand through the quarter, you know, I, like many, are surprised by just how quickly things turned. And just wondering if management takes a few steps back, would they consider this demand to have to have any impact from the work from home dynamic and perhaps people barbecuing at home more than usual in this season? And would stimulus have been a factor? And if these are factors, then do you see these factors fading away in the subsequent periods?

Yeah, it's an interesting question, Michelle. You know, when we tore apart our sales and tried to analyze, okay, what was the impact of COVID on our business? One of the areas we had to delve into was the retail category because we definitely saw some unusual strength there driven by, like you say, stay-at-home behavior, but also driven by the weather because if you recall last year, one of the issues that our protein business struggled with was really poor weather in eastern Canada. And versus this year, it's been fantastic weather. So, you know, we had to make a call of how much was weather related, how much was sort of this unusual demand. And I think we erred on the side of conservatism, i.e. how much we put into organic growth versus the COVID impact. But all that was taken into account when we came up with that differentiation between what was organic and what was COVID related. Got it. Okay.

And... Just again, switching gears here, you know, in the media it's reported that retailers are looking to introduce in Canada new fees on suppliers. And those things tend to ricochet across the industry when they're announced. Wondering if you see that coming into your business and if that's a pressure that we should foresee in the coming quarters.

Again, it's typical, of course, of the normal dealings and back-and-forth relationships with the different customers. I mean, that's my only comment today.

Okay, thank you for the comment.

Thank you, Michelle.

We'll take our next question from Stephen McLeod with BMO Capital Markets.

Thank you. Good afternoon, guys. Hey, Stephen. Hi. I'm sorry if you gave some of this call already, but I just wanted to get a sense of where you saw, from an end market perspective, some relative pockets of strength and weakness through the quarter and where we are today.

Well, as I mentioned earlier, Steve, QSR was nonexistent in April and began to pick up in April. in May, and by June, to our surprise, it was back to normal. That's what we saw. I mean, this is based on our demand. You know, surprisingly, we were shorting customers, some customers in June, some QSR customers in June. So we were surprised, you know, from our own perspective, we were prepared for a very slow second quarter. Effectively, that turned out to be April, one month. And May and June were relatively close to normal outside of Will's comments around startup and getting organized again to meet demand. Also, in terms of what I said earlier, the C-Store channel was extremely slow in April as people stayed at home and isolated at home. The C-Store channel was very slow, and as school closed and people decided to take driving holidays as compared to local holidays, vacations and those type of things versus flying holidays. We began to see a pickup in C-store demand as well. And, you know, I would say that club store demand remains strong throughout the entire quarter.

Great. Thank you. And then you talked about the acquisition pipeline. Is there any more color you can give around sort of what kind of targets you're looking for and is there a way to quantify like what the acquisition pipeline looks like today versus what it looked like sort of pre-COVID?

Yeah, it's as I mentioned in my prepared comments, Stephen, it's extremely robust. We have many acquisitions in the pipeline. As we've stated earlier, we put everything on hold effectively. So we're really backed up. We have a very large M&A team here, and they're rearing to go. And we will have a very, very busy second half of the year completing transactions. Also, in terms of what I said in my prepared remarks, COVID-19... in our view, has motivated even more successful food entrepreneurs to say, listen, this is tough, this is difficult. Maybe I want to join up with premium brands. I'll have the benefits of joining the PB ecosystem, and I'll still run my business. So we are extremely busy. We're in a lot of discussions, and we have a lot on the go.

Well, that's great. Thank you very much.

Thanks, Steve. Thanks, Steve.

As a reminder, everyone, that is star one to ask a question. We'll take our next question from Derek Lessard with TD Securities.

Yeah, thanks, and good afternoon, guys. Again, a very strong course, so congrats on managing that. I just have one question. Most of my questions have been asked, but I was wondering if you could comment maybe on your ability to pass through price in this environment. It seems like you were able to do that Just wondering if you've had any, I guess, pushback from your customers more recently on that.

Yeah, I would say, Derek, that we are in very, very unusual circumstances. And again, my comment is really in terms of the North American market. Clearly, certain channels have a lot of demand. There's a lot of demand. by consumers to shop in certain channels. So at the same time, you've got an industry, uh, the food industry in particular, that's having a tremendous amount of labor issues related to COVID-19. So, so, so, you know, a lot of customers are trying to keep the shelves full. Um, so it's really an environment where, you know, we're doing our best to, uh, you know, fill orders and, uh, and run our plant as efficiently as possible. In many cases, many manufacturers have, you know, very high absentee issues. They're not able to meet orders, and we have to step in. And anyway, these are unusual times. And, you know, I would say that everybody's rational to the extent that It's a run up in protein prices like there was with beef prices. Our customers understand because they have to pay extra as well for some of their fresh beef or pork needs as well. So, you know, it's a very different environment where really it's about producing. It's about maintaining business continuity. And it's about making sure that the shelves are full in a difficult operating environment in general.

Okay. That's it for me. Thanks. Thank you. Thanks, Derek.

We have a follow-up question from David Newman with Jardines. Please go ahead.

Hi, guys. Just a quick follow-up here. If you look at the environment, George, in terms of the Obviously, the challenge is that primary processing is added to this environment. Do you think there's some permanent long-term changes here where your business model might resonate more and be able to operate more nimbly in an environment where we saw all the challenges these guys face? And tied into that are your CapEx that you're putting in the $87 million. Is it because you view that as an opportunity in this environment?

I think the fact, David, is that whenever or wherever people congregated, because they were essential services effectively, there were COVID-19-related issues. So I wouldn't... Even though the primary industry got a lot of press, every company that remained open as an essential industry, of course, including... hospitals and restaurants that had issues with COVID-19. So I don't anticipate that there'll be any permanent changes in terms of the industry. We've all faced challenges, some more than others, of course, but, you know, I would say that everybody faced COVID-19-related challenges.

And where are you ticketing the $85 or $87 million toward?

Yeah, they're... really sort of traditional avenues we've invested in. They're meat snacks, cooked protein, premium processed meats. They're really driven by our current strategies, nothing to do with what's happened in the primary market.

Okay. Thanks, guys. Appreciate it. Thank you, David.

And that does conclude today's question and answer session. I'd like to turn the call back over to George Pellilogo for any additional or closing remarks.

Thank you Lisa. I'd like to thank everybody for attending today. Thank you very much.

And that does conclude today's presentation. Thank you for your participation. You may now disconnect.