The Chefs' Warehouse, Inc. (CHEF) Q3 2020 Earnings Report, Transcript and Summary

Greetings and welcome to the Chefs' Warehouse Third Quarter 2020 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Alex Aldous, General Counsel, Corporate Secretary and Chief Government Relations Officer. Please go ahead sir.

Thank you, operator. Good morning, everyone. With me on today's call are Chris Pappas, Founder, Chairman and CEO; and Jim Leddy, our CFO. By now you should have access to our third quarter 2020 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 third 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 third quarter 2020 earnings call. While early third quarter business trends showed slight improvement sequentially as compared to late second quarter, we experienced more measurable increases in active customer count and revenue during the second half of the quarter. Despite continued significant restrictions on indoor dining capacity in our largest markets, the September sales averaged approximately 69% of the same period in fiscal 2019. And we saw multiple days of greater than 80% of prior year sales during the month. Customer openings across markets continued during the quarter, as restrictions eased and we continue to add new customers across segments; including independent restaurants, cafes, country clubs, retail and hospitality. In this section of the earnings announcement, I usually compare the sales and gross margin results of the current quarter to the prior year quarter. But based upon the monsoon [ph] time, we are in -- I felt that -- it would be more appropriate to provide commentary on how we compared versus our sequential quarter. Jim will provide the comparisons to prior year in his comments later on. During the quarter, net sales were 26.7% higher versus the second quarter of 2020. Specialty sales were up 63.5% organically over the second quarter, which was driven by an increase in unique customers of approximately 52.6%, higher placements of approximately 67.4%, an increase in specialty cases of 58.1%. Organic pounds in center-of-the-plate where approximately 9.7% higher than in the second quarter of 2020. Gross profit margins increased approximately 210 basis points compared to the second quarter. Gross margin in the specialty category increased 420 basis points as compared to the second quarter of 2020, while gross margin in the center-of-the-plate category decreased 52 basis points. Now, I'll move on to an update on recent business activity. Sales in October are trending at approximately 71% of prior year. Pent-up demand for dining out restaurants was evident in certain Midwest and Southern markets' capacity percentages were gradually increased. This trend gives us confidence that business will continue to improve over time as indoor dining availability grows in our larger urban markets such as the Northeast, Mid-Atlantic and California. Throughout the last six months, in addition to supporting customer openings, transitions and reinvention, our teams have opened thousands of new customer accounts, targeted growth in suburban markets, grown our Allen Brothers' direct-to-consumer business and have quickly and adeptly adjusted our product lines to meet the changing needs of our Chef partners. Menus are adapting to evolving cost structures and guest experiences in restaurants, and other segments of the hospitality industry. One example is evident in the move towards grab-and-go for breakfast and lunch, while maintaining the highest quality ingredients and service, thus allowing our sales team to bring the full force of their culinary expertise and creativity to help drive the evolving trends in foodservice. I would also like to welcome Harris Seafood, to the Chefs' Warehouse family of companies. This acquisition supports our growth and fresh seafood in the Southeast and complements our continuing category expansion across Florida. In terms of technology and operation, we completed the consolidation of our Texas operation into our Dallas hub, and we have continued to invest in new technology application and in upgrading and deploying our existing platforms throughout this period of volatility and uncertainty. During the quarter, we completed the integration of our Philadelphia operation on to our ERP platform and operation scanning system and have commenced our West Coast implementation projects with an expect to go-live in the first half of 2021. In addition, we executed several enhancements to our digital platforms, including a Design Fresh of our Chefs' Warehouse website, with new customer focused content, as well as internally focused improvements to drive both sales growth and operational efficiency. Before I turn it over to Jim, I would like to pay tribute to Peter Pappas, mine and John's dear father, who passed in early October at the age of 92. Peter founded the Veterans Butter & Egg Company in 1956, the foodservice business that would form the foundation of the Chefs' Warehouse. Peters combination of integrity, compassion and dedication to quality and service of the underlying themes that define the culture of our company, as it is grown and evolved over 35 years. We will miss him. Yes, we will look to honor him as our team members continue to provide the highest quality food products and service to our customers that embodies the Chefs' Warehouse unique, specialty food service model. 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. In this quarter's results, you'll find some reclassifications within our income statement, better in response to an SEC comment letter. These reclassifications have been included in all periods presented in our current press release and 10-Q and will be reflected prospectively in our future filings. We have reclassified our food processing costs previously included in operating expenses to cost of sales and have split our historical presentation of operating expenses between selling, general and administrative expenses and other operating expenses. These reclassifications have no impact on the company's net income, cash flows for EBITDA. 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 September 25th, 2020 decreased approximately 36% to $254 million from $396.8 million in the third quarter of 2019. The decrease in net sales was a result of a decline in organic sales of approximately 44.9%, as well as the contribution of sales from acquisitions, which added approximately 8.9% to sales growth for the quarter. Net inflation was 2.1% in the third quarter, consisting of 1.6% inflation in our specialty category and inflation of 2.7% in our center-of-the-plate category versus the prior year quarter. Gross profit decreased 37.6% to $60.6 million for the third quarter of 2020 versus $97.2 million for the third quarter of 2019. Gross profit margins decreased approximately 63 basis points to 23.9%. Changes in product mix, due to both customer mix and menu adjustment, during the COVID period was the primary driver of slightly lower gross profit margin versus the prior year quarter. The primary driver of net specialty inflation was above average price increases in chocolate and cheese categories, partially offset by deflation in the dairy and specialty pastry categories. Inflation in the center-of-the-plate category was driven by higher pricing across most beef categories, as well as product mix changes contributed to growth in our direct-to-consumer business, as well as other premium cut sales in our Allen Brothers division. Total operating expense decreased approximately 16.2% to $72.6 million for the third quarter of 2020 from $86.6 million for the third quarter of 2019. Lower costs associated with compensation and benefits, as well as general administration related costs were the primary driver of the decrease in operating expense in the quarter. On an adjusted basis, operating expenses decreased 13.4% year-over-year. Excluding the impact of acquisitions, adjusted operating expenses decreased approximately 27.5% versus the prior year quarter. As a percentage of net sales, adjusted operating expenses were 25.8% for the third quarter of 2020 compared to 19.1% for the third quarter of 2019. As mentioned earlier, sales volumes increased sequentially from August into September. As such, September operating expense, on an adjusted basis, represented approximately 24.6% of net sales for the month. Operating loss for the third quarter of 2020 was $11.9 million compared to operating income of $10.6 million for the third quarter of 2019. The decrease in operating income was primarily driven by lower gross profit, offset in part by lower operating expense, income tax benefit was $5.2 million for the third quarter of 2020 compared to expense of $1.7 million for the third quarter of 2019. Our GAAP net loss was $11.4 million or $0.31 loss per diluted share for the third quarter of 2020 compared to net income of $4.4 million or $0.15 profit per diluted share for the third quarter of 2019. On a non-GAAP basis, we had negative adjusted EBITDA of $4.9 million for the third quarter of 2020 compared to positive adjusted EBITDA of $21.6 million for the prior year third quarter. Adjusted net loss was $13.7 million or $0.38 loss per diluted share for the third quarter of 2020 compared to adjusted net income of $6.8 million or $0.23 profit per diluted share, for the prior year third quarter. Turning to the balance sheet and an update on our liquidity. As of October 23rd, 2020, we had total liquidity of $237.3 million comprised of $193 million in cash and $44.3 million of availability under our ABL facility. As of October 23rd, net debt inclusive of all cash and cash equivalents, was approximately $209.1 million. At this time, due to the continued uncertainty regarding both the pace of broader economic recovery and the lifting of in-room dining restrictions across our key markets, we will not be providing guidance for 2020. We hope to provide more color as we gain more clarity on the length of the economic downturn and the pace of re-openings. Thank you. And at this point, we will open it up to questions, operator.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Peter Saleh of BTIG. Please proceed with your questions.

All right, thank you. First, Chris, I just want to say, I'm sorry to hear about your loss. Yes, I just wanted to ask about the sales trajectory, it was encouraging to see that the September sales numbers we're approaching, call it 70%, in October a little bit above that. Can you give us a sense of what level you need to get to profitability? Are you profitable on October or -- or you just shy of that level?

Yes, I'll let Jim take the first part of that and then I'll hop [ph] line on the rest.

Yes, so in terms of where we're operating right now, it's really month-by-month very close to breakeven. The cadence through the month was similar to Q2 with September being very close to breakeven, maybe a little bit of profitability, on an adjusted EBITDA basis. So we're at a level now where you know, based on accruals are on the either side of breakeven. From a medium to longer-term perspective, we've said that our stated goal is to get to 75% to 80% of either 2019 pro forma for the acquisitions or the mid-point of our implied guidance, which are similar levels, our implied guidance for 2020. And the way that we view the world right now, we believe that while the near-term with the colder weather and the activity around COVID, it may provide a more conservative view to the next three to six months. We believe that as we approach the second half of 2021 and into 2022, will be able to build towards those levels and get back to--. It's really about a two-year look right now, 2022 would be in the focus.

Yes. And really to add to Jim's comments. The choice right now, if you have a strong balance sheet, which we do, it's how much do you want to double down on '22 and '23. I mean we see as soon as things -- as soon as the weather got better, as soon as things open, the pent-up demand was unbelievable. We're watching the demand in parts, like Florida and Texas and where things are a little more normalize as far as restaurants. We see a tremendous green shoots. So my decision really was to start to invest, keep investing in IT and digital, keep investing in talent, we have been adding talent that normally is not available to us in the marketplace and really starting to get businesses prime to really be the beneficiary, when the uptick starts to happen, so as painful as it is. For us now we think there's just tremendous opportunity through M&A, really smart M&A, not everybody, I think, we'll get through this unfortunate time. So we think, using our balance sheet, using our breadth and depth size and ability to do fold-ins intelligently. I think that is the right strategy really going into '21 and into '22.

Great, very helpful. Would you just mine, given us a little bit of color or some commentary around what you're seeing in New York City and maybe even San Francisco as some parts of our New York are reopened for indoor dining, I guess at the end of September. Have you seen trends improved in that market, as indoor dining reopened?

Yes, we definitely saw upticks as New York opened. We're looking forward to New York going to 50%. We think that 50% is a huge number, it allows a lot of restaurants to reopen, many customers still are waiting. So, but we did see a nice uptick, we really see uptick in -- well, we're seeing really uptick in California, unfortunately the fires kind of dampen things down. Unfortunately, some of our best performing areas, where [ph] in California, they're starting to come back. But there definitely was a unfortunate head to a real uptick that we were seeing until the fires set [ph], so getting through the fires. Again, I think, the warmer climates are definitely going to do better. Our customers have pivoted, it's unbelievable, as you say, you walk through New York right now, a lot of it looks like more of a European City, what they've created outside. I think, they can push it with the outdoor heaters and the ability to keep people comfortable. I think, that's really going to help and hopefully we get some luck with the weather. I have been pleasantly surprised in cities that have opened up indoors. I know, there's some spikes going on right now, which kind of we expected. But we did notice that there was a certain part of the population that was very comfortable and restaurants we're filling up and that was really encouraging indoors. So I think, it's going to be an up and down, next few months. But I'm encouraged with what I saw.

All right. Thank you very much.

Thank you.

Thank you. Our next question is comes from the line of Alex Slagle with Jefferies. Please proceed with your question.

Thank you. And Chris my condolences. I had a question maybe on the holidays coming up and if you can provide us some context on how to think about these high-volume sort of weeks later in the fourth quarter and maybe how significant the large party and banquet holiday businesses for your customers? And how to think about managing inventory in that kind of environment?

Yes. Well inventory, I think, again, I think the worst is over. I think we went through the difficulty of -- when March when everything closed-down and we've been fighting getting through a lot of that inventory, especially the perishable stuff, obviously, we went through in the first few months. But what we're hearing and what we're seeing is -- the encouraging part is that there are lots of parties booking, they're not the big ones. I think, it's going to be more of a season of small gatherings. And I'm excited to hear that when you watch the news and you hear about spikes, you're like, oh my god, no one is going to want to do anything, but we are seeing more and more small gatherings with our customers, we're seeing a lot of off-premise catering. We're seeing people again, I'm doing this over 35 years, there are social animals, they do want to get together. Right now they're are trying to get together safely. So a lot of our larger units are able to accommodate them with their party rooms, spreading people out. So I think it's going to be a season -- I think it's going to be a longer season. I think, it's not going to be the typical holiday season. I just -- I think, it's going to be an ongoing, I know, if I meet even our friends in our company, people get together differently. And I think that's going to continue throughout the winter, where you see parties of 10 or 20 or 30 depending on what city it is. I think it's going to be a continual long season of small gatherings.

That makes sense. And then if there is any silver linings of this crisis. I mean, you mentioned you're picking up some strong talent on the sales side, is there anything else you'd highlight or maybe breakthrough discussions with new customers that you previously couldn't get to?

Sure. So I think just like restaurants had -- the trend was also already starting for more pickup, take out off-premise catering. I think the COVID has kind of compressed what might have taken five years into a few months. So obviously take out, will be tremendous this winter. And I think, the trend that the industry was consolidating. I think, that will really be consolidated over the next, let's say, two, three years, versus seven to 10. We did a small acquisition in Florida. We think that trend will continue. We think there'll be many opportunities to get talent and our specialty is really supplying either wealthy suburban areas that have lots of restaurants, lots of caterings, obviously the cities. I think the cities will take longer to come back. At the same time, I think that -- we'll be able to fill a lot of the vacuum of less volume with these tuck-in acquisition. So I think that will be accelerated throughout 2021 and 2022.

Hey, Alex. I would just add that. I think, we've been really pleased with the level of new account openings that we've seen over the last six months. I think, as we mentioned in our prepared remarks, thousands of new account openings in that. Obviously, the level of demand is not there, but as we build the business back, especially in the second half of '21, we feel that that sets us up for good growth.

Yes. And which really driving the new account openings is that our ability to continue to service customers, the way they need. I think a lot of our competitors, especially smaller competitors did not have the ability to keep the trucks on the road and service to customers, the way they do -- they needed it, not just once a week, but multiple times a week. So I think, our ability to put enough product on the truck combining all the categories that we've been adding has really been the -- given a stat tailwind to penetrate and grab market share with all these new customers coming on board.

That's great. Thank you.

Thank you.

Thank you. Our next question is comes from the line of the Nicole Miller with Piper Jaffray. Please proceed with your questions.

Thank you and good morning, Chris. Very, very, very sorry for your loss. Thank you for sharing that.

Thank you.

Just two questions for me this morning. When you think about the improvement sequentially from this quarter to last quarter and I'd like that comparison by the way, or even in October to September, could you just rank where the improvement or the delta is coming from. And I'm tempted to say, hey, more capacity in the counts [ph] that are open, but there is probably more behind the momentum. I'm thinking about accounts, just in general coming back online. Maybe there is new accounts obviously capacity, maybe there is other items. Could you just rank where the improvement is coming from?

Sure. Again, we saw unbelievable demand in the outskirts of a lot of our major cities. So, that continued even after summer which shows that many people are hunkered down, they did not go back to their city apartments. But they continue to go out -- in their neighborhood, they continue to take out, they continue to -- I think, there wasn't a golf course that didn't have a record year this year. They were -- golf courses have big catering facilities. So they're able to space people out, create outdoor dining, which I think continues. So that really continue to accelerate. As the city started to open, I think everybody really forget how decimated are our major cities where even going to 25% is a big uptick. So where we see cities is going to 50% where we saw Florida remove restrictions. Obviously, there is tremendous upticks in those markets and we think that will continue throughout the winter. Again I think, the warmer states are going to have a better winter season. And I think, that as we get through and who knows where the balancing act goes with the cities. 50% -- giving our customers 50% allows many, many, many hundreds maybe thousands of customers, who still have not open waiting for that 50% to open up and that's really the uptick that we are looking for. But we did get part of that going into September and October.

Okay, excellent. And then it's been fascinating in the last few months, I've received a lot of inbound commentary from a lot of our peers and partners in New York. Saying, hey I found Chefs' Warehouse, very pleased to find you [ph] in a good experience. So how big is DTC and can this be a real opportunity?

Yes, I mean the -- we are investing in it right now. Obviously, it's a completely different model. The big upticks come when the weather gets cold and people would rather get delivery. So I think, it's a wait and see. We do have more of a digital team right now that is focused to try to accelerate that business again in the winter months. But really the big uptick, we saw was with our online premium protein. So Allen Brothers really continue to accelerate and is having a phenomenal year, with their online ability to send -- mostly [indiscernible] say, it's FedEx and UPS. And we expect that really to continue throughout the rest of the year as people fill up their freezes again. And they've -- really the discovery that you can buy, such a great high-quality steakhouse, type of steak and seafood. I think that trend will continue and we're looking to add on to that.

Great. Thanks again.

Thank you.

Thank you. Our next question is comes from the line of Kelly Bania of BMO Capital Markets. Please proceed with your questions.

Hi, good morning. And I also just want to express my condolences for you and your family, Chris.

Hi, Thank you, Kelly. Yes, he had a great life.

Yes. So I guess, I was wondering if you could just talk a little bit more about the talent investments you're making. I assume it's in the sales force, but would just love to hear more about where you're making those. Is that part of the comment about the acquisition, is there other investments and just generally talk about the size of the sales force now and how you're working to kind of motivate them in this environment, just any color on those topics would be helpful?

Sure. Well, it's very important topic. Obviously keeping everybody motivated, in an environment like this is of the utmost importance. We continue to add talent to support our new businesses. So obviously we're in unprecedented times, but looking at the pent-up demand, looking where the business was going to change anyway, becoming a complete Chefs' Warehouse, I call it like the four legs of the stool. We have just started to invest in produce, we were accelerating into seafood and more into the specialty proteins with our state cutting operations. And we see just a tremendous opportunity over the next few years to dominate more in those categories. So adding more talent, doing small acquisitions like we did in Florida, adding talents and sales especially as Florida comes back is really going to accelerate our growth into 2022 and 2023. So we continue to see opportunities throughout the country, we're not bashful. If we think, there's talent we will acquire it and if we can get the right acquisitions obviously using our balance sheet and it's very intelligently. I think, that the opportunity has never been greater to really have other companies that we always wanted to join Chefs join us. I think, we're stronger together, coming through this we're all going to have excess capacity. So my wish list is the continue to do fold-ins and really smart acquisitions of talent and businesses that make a lot of sense, combining with Chefs' Warehouse and really having that uptick coming into '22 and '23.

Thank you. Our next question is comes from the line of Todd Brooks with CL King & Associates. Please proceed with your questions.

Hey, good morning guys. And Chris I just want to pass my condolences along as well for your dad passed on.

Thank you, Todd. Thank you.

Few questions this morning. One, I was wondering if you could talk about the specialty distribution industry in general and I know, he's made a great comment about everybody has excess capacity and there's a lot of instances where companies will be stronger together. But as you look at the industry and kind of some of the players that can deliver the service levels, what are you thinking of as far as survivor bias that will benefit Chefs' in '22 and '23. Do you expect to see a decent number of competitive closures? Do you expect it to more be competitive impairments that turn some of the competitors into more zombie type distributors going forward?

Yes, I think the reality of what has happened is, I mean, it's unprecedented. I think, I don't think there was a business class, let's say, you wake up one day and all 40,000, 50,000, of your customers are closed. So I can't imagine being a small business right now without the ability to access capital and how do you get through this, I mean even if you do get through it, you're severely wounded. I think the reality is that they have to merge. The pain is -- it's not over. And even if you're doing okay, coming out of this. I think, the demands of the customer have changed just like take-out is -- I don't think, takeout is going to go away. I mean it will subside. But the trend was already there just like Gluten-Free was growing, and just like more beacon [ph] options were growing. I think the trend to consolidate was already there. So labor was going up. The cost of operating, insurance was already a burden for small business. So I think that -- what was going to happen, maybe over seven to 10 years is going to get condense. So I think it makes a lot more sense for people to combined and go after their overhead, their fixed overhead. And for us it's boxes on the truck. Right. So the more boxes, we can unload at a customer, we make more money. And now that COVID has -- its kind of changed the forecast, especially for the next year. If we can deliver more expensive boxes and I think that's why you see us going into more specialty produce and specialty seafood and proteins. Those boxes really help cut into the overhead and especially as the volume, even with the upticks that we see when the volume upticks, it's not rocket science, we make more money. And I think that trend will continue for us and I think, we will be one of the benefactors -- we will benefit from this over the next two, three, four and especially five years, as we start to combine our logistics, our ability to have one computer screen, ability to have just in time, merging of merchandise, which we can start to leverage, having less trucks, more products on the trucks. I think, the salespeople become more consultants, I've been talking about that for a while. I don't see salespeople going away. I see salespeople becoming more the consultants and more of the order being more online. I think that digital revolution is really going to start to give us the ability to leverage our infrastructure and free up our sales staff especially ours, which is highly trained. A lot of them have Chefs' backgrounds and I think, it's going to give us the ability to get more market share.

That's great. And then my final question. You talked about the unprecedented nature of what the industry is going through. And I know early on in the pandemic, when you took a first cut it, what store closures might be within the customer base for Chefs', you kind of talked about maybe a mid-teens level, which was normal closures plus maybe an incremental 500 basis points to 700 basis points. But now that the delays have occurred in reopening dining rooms, just -- do you have updated thoughts, you can share with us on what you're expecting for door closures within your customer base, maybe what you've seen and what you're anticipating?

Yes, I think, we said that normal attrition was anywhere from 7% to 14% and we expected that to at least be doubled. Unfortunately I think, cash flow [ph] projections were pretty accurate. So I think, that's probably what we're going to see. On the flip side, we're already starting to see the green shoots. So it's a kind of a tale of two cities, it's terrific to see people who invested so much of their life and money get the keys back. I think, that's going to be the very unfortunate part of this. But I think, what I've been saying, Todd, is that restaurant tours, people and hospitality, this is what they do. They are not going -- become investment bankers tomorrow or leave [ph] for New Zealand, they're going to come back into the industry and we're starting to hear of customers signing new leases. We're starting to hear customers, old friends, big operators are calling me and saying, what do I think Chris. Should I just take the lead now, signed the lease, the build-out, it's already a restaurant, so the build-out is going to be less that could be opened by mid '21 or the end of '21 going into '22. So I think capital is key. I think, we are going to get another stimulus unfortunately it didn't happen. So I think, that's really going to be the key, I mean almost positive. I think everybody is that there will be one is just when. And I think, that we start all over again. You're going to see a lot of new restaurants, after this is done. They might be changing, but I'm seeing, what -- where the weather is just the atmosphere, I think is better in Texas and Florida and even parts of California that didn't have all the unfortunate fires that pent-up demand, I find it fascinating how much business, some of these customers are doing.

That's great. Thanks, Chris.

Thank you. Our last question is of the conference comes from Ben Klieve from National Securities Corporation. Please proceed with your questions.

All right. Thanks for taking my questions and first I'll reiterate everybody's condolences here. It's never easy, so wish you, your brother and the rest of your family well during this time for you all.

Thank you.

I've got a -- that kind of a two-part question regarding restaurant capacity. So first, to what degree do you see your customers taking advantage of being able to reopen with low capacity restrictions, I'd say 25%. And then for those customers that are open to what degree do you believe that they are getting filled at whatever that capacity is?

Again, I think, it's not a brush stroke kind of answer. I think it goes by territory, 25% really is more of a warm up. You know, the worst thing is to have a dark restaurant. I mean, you got to get your staff back. And I think that's why the restaurant organization that is talking to the White House and people were trying to get them to understand. It's not, you just flip the switch on and you open. It's not like reopening maybe an office and you put the lights on and everybody goes back to the desk. It's kind of like pre-season for professional sports team, you need pre-season, you need practice, you got to get your players back in, the coaches. So just -- still going 25% was a major, major step and the right direction for our operators to start to get back to operating there, getting back on the court, as we say in basketball. So 50% is a magic number, 50% allows them to start to do multiple seating's [ph]. I mean, even 25%, we saw our customers start to do some serious business, because customers, I think our -- the pent-up demand, people are more forgiving. They're more understanding. I find myself going out, sometimes at 6 o'clock. So I can't get a seat [ph] today. So you got to 6 o'clock, 8 o'clock, 10 o'clock seating in a lot of cities. And I think that as they go when we see, when they go to 50%, we really see that big jump in volume and I think, it's going to be kind of sloppy for the next few months. I think you'll see up and down. Hopefully these municipalities and mayors understand that shutting down is not a good idea, maybe push it back to 25% but don't go shutdown. That's a real, real, real punch in the face for our operator. So allow them just to continue to keep staff on and management and get back to 50% again, when they think the levels are good, I think it's a real key to the recovery.

Got it. Perfect and you actually answered my next question. So, thanks for taking my questions and I'll get back in queue here.

Thank you.

Thanks, Ben.

Thank you. There are no further questions at this time, I will now hand the call back over to management for any closing remarks.

Sure. Well, we thank everybody for joining us on this call, and thank you for the condolences for our -- my and John's dad, he was unbelievable human being and so proud to [indiscernible] my dad, he is blessed with many, many years and without a sacrifice and $200,000 seed money to allow us to start this company, we wouldn't be here. So, thank you again. And I want to thank our team. It's been an obviously a very challenging environment and we've had feel [ph] efforts and our people are on the front line and every day, they're putting it out there and having to show up for work. And we just can't be more blessed than I can't imagine, having a better more dedicated team. And we thank them for their efforts and we really look forward to slowly getting back to some sort of normality and better days in '21 and obviously '22. So thank you and look forward to -- for you joining us on our next call.

Thank you.

This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.