Sysco Corporation (SYY) Q1 2021 Earnings Report, Transcript and Summary

Good morning and welcome to Sysco's First Quarter Fiscal 2021 Conference Call. As a reminder, today's call is being recorded. We will begin with opening remarks and introductions. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Neil Russell, Vice President of Corporate Affairs. Please go ahead.

Good morning everyone and welcome to Sysco's first quarter fiscal 2021 earnings call. On today's call, we have Kevin Hourican, our President and Chief Executive Officer; and Joel Grade, our Chief Financial Officer. Before we begin, please note that statements made during this presentation which state the Company's or management's intentions, beliefs, expectations or predictions of the future are forward-looking statements within the meaning of the Private Securities Litigation Reform Act and actual results could differ in a material manner. Additional information about factors that could cause results to differ from those in the forward-looking statements is contained in the Company's SEC filings. This includes but is not limited to risk factors contained in our Annual Report on Form 10-K for the year ended June 27, 2020, subsequent SEC filings and in the news release issued earlier this morning. A copy of these materials can be found in the Investors section at sysco.com or via Sysco's IR app. Non-GAAP financial measures are included in our comments today and in our presentation slides. The reconciliation of these non-GAAP measures to the corresponding GAAP measures are included at the end of the presentation slides and can also be found in the Investors section of our website. To ensure that we have sufficient time to answer all questions, we would like to ask each participant to limit their time today to one question and one follow-up. And as an additional remainder fiscal 2021 is a 53-week year for Sysco. At this time, I'd like to turn the call over to our President and Chief Executive Officer, Kevin Hourican.

Thank you, Neil, and good morning everyone, and thank you for joining our call. I hope that you and your families are staying safe and healthy during these unprecedented times. During this morning's call, I'll spend time discussing Sysco's management of the COVID-19 crisis, how we are strategically transforming the company to better serve our customers and grow the business and finally I'll update everyone on the current state of our business environment. I'll then turn it over to Joel, who will discuss Sysco's first quarter financial results. Earlier this morning, Sysco reported first quarter fiscal year 2021 results that included substantial free cash flow and $365 million of adjusted operating income, despite a 23% sales decline. We are pleased with these financial results in light of the significant constraints that are being placed upon our customers due to the COVID-19 pandemic. Sysco is doing more than anyone in the food service distribution industry to ensure the success of the restaurants and customers that we serve. The impact of these efforts can be seen in the success of customers that we serve, relative to the broader industry. Sysco customers are closing at a lower percentage and are generally outperforming the broader food-away-from-home industry. Our leadership team is focused on managing the day-to-day business, supporting our customers and delivering upon the largest business transformation in our company's history. This is important as our transformation will enable Sysco to further differentiate from our competition and better serve our diverse customer segments. Examples of Sysco's management of the crisis during the first quarter include more than $8 billion of cash and available liquidity, which ensures we have financial flexibility in this difficult operating environment. Sysco is leading the industry with the work that we are doing to help our restaurant customers succeed, delivering holiday toolkits for restaurant tours, creating marketplace pop-up shops, providing solutions to extend the outdoor dining season and finally our culinary experts are helping restaurants narrow their menu to increase profitability and tailor their offerings for takeout and delivery effectiveness. Since pictures are worth a thousand words, I call your attention to page number five of our presentation. The right hand side of the chart shows an example of what we mean when we say extends in the patio season. This is one of many solutions that our sales consultants are presenting to our customers to help them extend their outdoor season. The left hand side of the page is a visual of one of our latest foodie solutions, a holiday seasoned selling guide for our customers to leverage to maximize sales during what will be a unique time holiday season in 2020. Importantly, we added $300 million in net new business in the first quarter, which totals more than 1.3 billion of new national business since the start of the pandemic. In addition to these wins at the national level, we are winning new customers at the local level at an accelerated rate compared to prior year, due to an increased focus on prospecting new customers across our salesforce. At Sysco, we have the salesforce strength and supply chain capacity to continue winning new business at both the national and local level. These customer wins will enable Sysco to recover faster than the overall market as economic conditions improve. This is evidenced by our current share gains in the overall marketplace. Most importantly, we are leveraging the crisis to transform our company and I am proud of the work our associates have done to accelerate our strategic transformation. Here at Sysco, we are successfully navigating through the biggest crisis in our industry's history, and we are substantially transforming our company for the future. Our business transformation is on track. We are continuing work on our bold transformation that improves how we serve our customers, differentiates Sysco from our competitors and transforms the industry. We are making substantial progress against the four crucial priorities we have shared with you previously. We are accelerating efforts across our customer facing tools and technology, which includes improving our digital order entry platform, Sysco Shop, our CRM tool in implementing a centralized pricing tool. Through these technologies, we'll improve the service to our customers. By the end of the first quarter, the percentage of orders being placed through Sysco Shop increased to approximately 60%. This substantial increase is a direct result of the improvements we are making to the Shop platform combined with the consultation that our salesforce has been providing customers on how best to utilize the tools that we have built and soliciting that customer's feedback on what customers most wants to see in the Sysco Shop platform. This is a great example of how we leverage the power of a human and digital capital. Additionally, we are on track to begin piloting our new pricing software later this month. Our sales transformation is centered around elevating our selling effectiveness with an improved more customer centric structure. We will utilize data and analytics to help identify customer sales prospects and have a new sales leadership structure that will allocate our talented resources most effectively against those opportunities. Later this fiscal year, we will be leveraging our new sales process to pilot our first meaningfully improved customer engagement strategy. This program will better address the needs of specific customer segments, which will enable us to grow share. Regionalization within our U.S. Broadline business is also on track. It is the key enabler of our other U.S. transformation initiatives and we are happy to say it is now complete. Our new leadership team is fully in place, and we are seeing early wins from this new structure as a result of the strength of the leadership team that was selected for these important roles. Lastly through our structural cost-out efforts, we are making significant progress in becoming a more efficient company. We are on track to deliver the $350 million structural savings we communicated in our most recent call. As a reminder, the vast majority will flow through to the bottom line. We are committed to returning value to our shareholders and funding our growth agenda, and we have a line of sight to additional savings starting in fiscal 2022 and beyond. I am pleased today to welcome Judy Sansone to Sysco as Executive Vice President and Chief Commercial Officer. She is an experienced and highly talented leader, who consistently delivers results and drives transformative change. This newly created leadership role will bring marketing, merchandising, pricing strategy, customer loyalty and e-commerce together under one leader, creating a compelling opportunity for us to develop a commercial organization focused on profitably growing sales and inspiring customers to buy more from Sysco. Judy started with the company in October. Additionally in August, we announced our new international business leader, Tim Orting, who will be joining the company soon. Tim is an experienced and highly talented European leader, who has spent his career in the food industry. He will be responsible for driving profitable growth and operational excellence across our international geographies. It is clear that we are strengthening our leadership team and increasing our organizational capabilities for the future. I will now transition to the current business environment in the pace of our recovery. From a top-line sales perspective, the rate of sales for the quarter was consistent with our internal projections for business recovery. We saw a steady week-over-week improvement in sales at the beginning of the quarter and the leveling of the improvement as we exited the quarter. Our road to full recovery will be non-linear. We remained vigilant in the current environment as new restrictions on our customers in the second quarter are stalling the recovery at approximately minus 20% compared to the prior year with potential for worsening results due to the additional COVID restrictions. Where restrictions have eased however, consumers are showing that they are ready to eat away from home. Southern states and more rural geographies continue to meaningfully outperform national averages. Restrictions on customers, plus or minus, will be the primary driver of the pace of our business recovery until vaccines are more broadly available. Subsequent to the end of the first quarter, select geographies are experiencing increased restrictions on restaurant operations. We expect these restrictions to impact second quarter sales results, particularly in Europe. I will note that at Sysco, we are more prepared now than ever to handle business disruption. From inventory management, debt collections and operations efficiencies, we are better prepared for the potential impact of a second wave on our business. As a reminder, despite the profound impact of COVID on the business climate during the first quarter, Sysco produced positive adjusted operating income and very strong positive free cash flow for the first quarter. Sysco is focused on supporting our customers throughout this fluid operating environment and our strategy is to continue to provide robust support to our customers to help them succeed. We have hosted hundreds of webinars with customers and our industry leading salesforce has conducted tens of thousands of business reviews to help our customers succeed during this challenging environment. Recent business consultations are focused on succeeding during the upcoming winter season. We fully recognize that we must go further to ensure our customers' success and there is no company doing more to help independent restaurants succeed than Sysco. As a result, our customer closure rate is lower than the industry average. The customers that have engaged with Sysco on these consultative services are outperforming the general market from a sales perspective, and we are winning overall market share during this challenging environment due to our focus on new customer prospecting. I wanted to give you a heartfelt thanks to all of our Sysco associates, who continue to help our customers grow and succeed in this challenging environment. As essential workers, I am proud of your dedication and resolute focus on our customers during these challenging times. I'll now turn it over to Joel, who will discuss our first quarter results along with additional financial details. Joel, over to you.

Thank you, Kevin. Good morning everyone. I want to start-off by reminding everyone that fiscal year 2021 is a 53-week year for Sysco. We will begin prepared remarks with first quarter results for Sysco and results by business segment followed by an update on cash flow and capital spend for the quarter. Our total Sysco results for the first quarter include a sales decrease of 23% to $11.8 billion. Local case volume within U.S. Broadline operations decreased 21.6% while total case volumes within U.S. Broadline operations decreased 25.8%. Gross profit decreased 25% to $2.2 billion and gross margin decreased 39 basis points. We had a relatively flat exit rates for gross margins in the quarter, which was driven by favorable margins in the paper and disposables category and specifically in PPE. There's an impact to our margin comparison primarily driven by increased sales of PPE products with some margin favorability. Margins within this category have now normalized as demand has begun to stabilize. Adjusted operating expense decreased 16% to $1.9 billion. Expense management during the first quarter was strong due to the initiatives that we've executed thus far. We remain on track to meet the $350 million of structural savings we communicated in our fourth quarter earnings call. And as a reminder, the vast majority of these savings will flow through to the bottom line, while a push into the cost savings will be reinvested into our growth agenda. Adjusted operating income decreased 51% to $365 million. Our non-GAAP tax rate for the first quarter was 19.7%, which is lower than usual, and it was driven by the favorable impacts of equity compensation and other factors. Adjusted earnings per share decreased 65% to $0.34 for the quarter. During the second half of fiscal 2020, Sysco recognized $323 million of excess bad debt expense due primarily to the impact of the COVID-19 pandemic. That amount represented our best estimate of what we expected the charges to be at that period in time. During the first quarter of fiscal 2021, we experienced better than expected collections as both the resilience of our local customers has been stronger than expected, and our teams have done tremendous work to improve processes around collections. As a result, we recorded a net reduction of $77.8 million in our allowance for bad debts in the first quarter of fiscal 2021. Regarding an update on our customer segments, during the quarter we saw better than expected performance from local customers, specifically independent customers as they're growing at an accelerated rate compared to total customer growth. Additionally, restaurants performed better than expected including improved performance throughout the first quarter in SYGMA, as we're seeing continued resiliency in the industry. Healthcare performed well throughout the first quarter, which was offset by continued weakness in our food service management and hospitality segments. I’ll now transition to our quarterly results by business segment starting with U.S. Food Service operations. Sales for the first quarter were $7.9 billion, which was a decrease of 26% versus the prior year period. Gross profits decreased 25% to $1.6 billion for the quarter and gross margin increased 7 basis points to 20.2%. Sysco Brand sales for the first quarter increased 15 basis points to 38.8% of total U.S. cases, which was driven by customer mix shift in brand penetration in certain categories. With respect to local U.S. cases, Sysco Brand sales decreased to 106 basis points to 46.3%. Our adjusted operating expenses decreased 19% to $1.1 billion and adjusted operating income decreased 37% to $503 million. Within our International Foodservice Operations segment sales decreased 26%, gross profits decreased 26% and gross margin increased 4 basis points. Adjusted operating expenses decreased 15% and adjusted operating income decreased 81% to $19 million. Our European business performed well throughout the first quarter considering COVID. However, we continue to be cautious of new regulations and changing restrictions throughout France, Ireland and the United Kingdom. In Canada, the business performed within expectations for the quarter. Within Latin America, business was on-track as local economies slowly reopened throughout Mexico, Costa Rica and Panama. Moving on to the SYGMA segment, sales increased 5% to $1.5 billion compared to prior year period, as quick-service and drive-through restaurants continue to thrive compared to other restaurant types and we are winning new business. Gross profit increased 4% to $132 million for the quarter, and gross margin declined by 7 basis points. Adjusted operating expenses increased 4% to $120 million and adjusted operating income increased 15% to $12 million. In the other segment, our hospitality business, Guest Worldwide, remains challenged as the customers in that segment continue to see lower hospitality occupancy rates compared to normal levels. Lastly, as you may recall, during the quarter, we sold a non-core asset, Cake, as we choose to narrow our business focus. As such Cake will no longer be in the other segments going forward. Turning to cash flow and working capital. For the first quarter, cash flow from operations was $931 million; free cash flow was $862 million, which was substantially higher than the same period last year. Historically, the first half of the fiscal year provides lower cash flow for Sysco. However, this year, we saw a positive DSO and working capital environment, which included a benefit from accounts payable and a diminished use of cash in both accounts receivable and inventory. We are pleased with the work we have done to improve the cash cycle throughout the past two quarters. This includes work we have done to tighten up terms on new sales to customers, as well as through supplier term extensions. Net CapEx for the first 13 weeks of fiscal 2021 was $102.4 million lower compared to the prior period. As a result of our substantially reduced capital expenditures that were directed only to urgent projects and targeted strategic investments that you heard Kevin talked about earlier in his remarks. I am pleased with this strong cash flow performance during the year quarter. Looking ahead, the free cash flow for the remainder of the fiscal year, we anticipate that free cash flow will initially decline for the next quarter or two due to the building of inventory and ongoing investments in the business. That will be offset by anticipated free cash flow generation in the fourth quarter. Free cash flow for the full fiscal year is expected to end flat to slightly positive compared to the end of the first quarter. Lastly, I'm proud to say that Sysco remains financially strong from a balance sheet perspective. As of November 3, 2020, we have more than $8 billion of cash and available liquidity, which ensures us the stability and flexibility to make decisions that are in the best interest of the company. We continue to take definitive steps for the cash we have in our balance sheet. We redeemed early $750 million of our outstanding senior notes in September, and paid down $1 billion on our revolving credit facility since the start of the pandemic. This leaves us with a remaining outstanding balance of $700 million or $1.3 billion in available borrowings on our $2 billion revolving credit facility. Throughout the first quarter, we maintained our strong liquidity position and were able to fund the redemption of the senior notes with the free cash flow generated in the quarter. With that said, I want to remind everyone that Sysco went into this crisis in a position of strength. Although it has been a tough operating environment we have managed well through the crisis and have taken advantage of the opportunities that crisis presents to make bold transformational changes. We have prioritized supporting our customers in this dynamic operating environment, and we believe our strategy will continue to drive future value and growth for our associates, shareholders and customers. And with that operator we are now ready for Q&A.

[Operator Instructions] Your first question comes from the line of Kelly Bania from BMO Capital. Your line is open.

Hi, good morning. Thanks for taking our questions. Joel and Kevin, I was wondering if you could maybe just talk a little bit more about the underlying assumptions in those free cash flow projections that you just talked about for fiscal 2021, especially in light of way; maybe what you're seeing right now in the business?

Sure, Kelly. It's Joel. I'll take that. Thanks for the question. A couple of key points I think that are important to remember as we talk about the free cash flow and specifically the modeling. Number one, we've continued to have positive improvement in our working capital trends. And I think, one of the things that we've done a really good job of adding that that's really across all different categories of working capital, Kelly. Our payable terms as we talked about, our collections on our receivables, and our overall cash cycles has gotten better throughout this crisis, which is I think really important. And so in addition to that, we've done a really good job managing our inventories in terms of being able to have product availability, but also do so in a way that is again working capital efficiency. So we do anticipate many of those trends to continue, but I'll make a point there. As the year continues and as our business continues to build back and as we certainly do anticipate some of those trends continuing to improve and then obviously as we head into a fourth quarter, where we're certainly anticipating a sizeable year-over-year improvement, that's going to require a working capital investment. And in some cases again fairly a substantial one of this business comes back, and that's one of the things we talked about early in the crisis as one of the areas where Sysco has a significant opportunity to do some things. And I think others in this industry are going to struggle with. As that business comes back, we'll be able to make those investments, but that is certainly something that as you think about the overall working capital trends that are reflected in the cash flow forecast going forward. I think a couple other quick things I would point out. There's one of the things that you do see in the first quarter in addition to some of the working capital trends that happened, that are not necessarily something to repeat through the year. First quarter is when we typically pay our incentive payments from a cash perspective and that was clearly something that we had less of this year than in previous years. On the flip side of that, we also have a higher interest payment throughout the course of this year that will be factored into our cash flow. And then in Q2, one of the things we also expect is in prior years you may recall that we have had tax deferrals from floods that we've had in Houston and we've had that for a number of years actually. And that actually allowed us to delay the payment of our taxes that would normally have been doing in the second quarter that was paid then in the second half of the year. We're not anticipating that this year. And so, there is going to be a cash tax detriment to cash if you will as we head into the second quarter. So those are few of the puts and takes that I'd call out Kelly. I think generally speaking again, we're very pleased with the way we're managing the cash against sizeable improvement from working capital's perspective. And again, as we said, anticipate the end of the year being flat-to-above where we ended up here in the first quarter.

And can you just help us think about just CapEx plans for the year?

Sure, of course. So I'd say with the following. And as we've talked about, we have cut back some of our CapEx to what we can call those specific, and again, kind of a mission critical projects in a general sense, but what we've also done is made targeted and strategic investments. And we'll continue to do that. I think some of the things that you've heard Kevin talked about in terms of the ways we think about really and truly accelerating our growth, those areas like investing in our stock platform, investing in pricing tools, investing in those areas that are enhancing our sales organization and the way that we go to market. Some of those really important pieces are areas we were making and are continuing to make strategic investments in. So Kelly, I think, certainly obviously our CapEx number as a percent of sales is less than it has been and will continue to be that as well. It will also be a contributor to some of the cash flow that we just talked about. But nonetheless, again, our priority of this company from the use of cash does continue to be those investments that are going to fund future growth in this organization and certainly during this crisis we've continued to make those investments. But clearly we'll end up the year at a lesser rate than we typically have. If you recall, we've run a number that is somewhere between 1.2% to 1.3% of sales as total CapEx as we'll certainly be well below that for over the course of the total year.

Thank you.

Your next question comes from the line of Edward Kelly from Wells Fargo. Your line is open.

Hi, guys. Good morning. Kevin, I was hoping that you could provide a bit more color around that what you're seeing out there from a sales trend standpoint, you talked about, I think, stalling out it sort of like down around 20, but how does the U.S. and international look within that? And then just thoughts around how you're thinking about the fall and winter in each of these regions right now?

Ed, thank you for the question. Happy to go a little bit deeper there. From a quarter perspective, we're reasonably pleased with the performance overall and I'd say met or slightly exceeded our expectations broadly across all regions of the globe. And quite frankly, Europe in Q1 was the strength of ours, certainly versus Q4, but also just in aggregate. What I alluded to in our prepared remarks is obviously you've been reading about the increased restrictions in Europe. We've all been reading about it and it is going to impact our restaurant customers in Europe. It's a little bit too soon to tell is the honest answer. I know you want more than that, but this is late breaking and happening as we speak. I would say that did not impact our October results. October was reasonably consistent flattish to the exit velocity of Q1, which is a good thing. November, I would anticipate there to be softening our performance coming from Europe. The restrictions at this time are pretty significant. I do want to call out some detailed nuances, however, on what's different in Q2 of our fiscal versus what was happening back in Q4 at the beginning of the pandemic. Restaurant operators in Europe, in the countries that we are operating within, Ken continued to take out in delivery. Its on-prem dining is what has been closed down. That is very different than what was happening in Europe back at the beginning of the pandemic, it was a hard shutdown in Europe back in March and April. And if you remember Europe didn't open back up until our July 4th here in the United States. So Europe meaningfully entered the crisis earlier. Lockdowns were substantially more significant and lasted much longer. It's a fluid situation, Ed. What we know at this time is that this particular lockdown, the goal of most of the government leaders dispersed to be roughly one month that's what they've explicitly stated. We'll see if that is in fact the timeline, but the desire is a pretty hard lockdown in November to reopen in December. They desire for holidays to have some form of normalcy and they're trying to really bend the curve the second time here in November. So two pieces of positive, the duration should be quite a bit shorter. We'll see if that's the case. And more importantly, restaurant operators are capable of doing takeout and delivery, which many of them are proving good at doing, because we've been at this now for seven, eight months. As I pivot to the United States, as you know, it's state by state. Now that might change. But for now in the United States, that state by state, I mentioned in our prepared remarks, our Southern States and our rural geographies are performing quite well substantially better than the national average, the major urban centers, California as a state are struggling. And it's directly tied to the restrictions that are being placed on operators. The third piece, which comes up often I'll just lean into it here, is pending cold weather and the impact that that will have on outdoor dining. We've been working on that for months, as I mentioned in my prepared remarks. Our sales consultants are going customer by customer by customer enabling an extension of that outdoor patio dining and helping our customers in locations like Chicago, which are now not able to do on-prem dining again, maximize takeout, maximize delivery. I think the biggest takeaway here from my narrative is our customers are more prepared to keep their business up and running and vibrant during this second wave. And we certainly are more prepared from an inventory management perspective, expense control perspective, and we're really leaning in to make sure that every customer has a website that is usable on a mobile phone that takeout and delivery are logical intuitive. And if they don't have a delivery partner, we're connecting them with one. So November to be determined, I wish I could share more about what's going to happen in the future, but these restrictions are changing on a weekly basis and we're doing everything we can to maximize the support of our customers during this difficult time.

Okay, that's helpful. And maybe just one follow up on that probably, maybe for Joel, but how do we think about the level of EBIT that you generate with sales down 20%? And I asked this because it actually seems a little bit more complicated just looking at Q1, right. Because your gross margin performance was good, you had a flat exit rate, which is certainly encouraging, but it sounds like gross margin might not be flat sort of going forward. So I'm kind of curious as to how you think about that? And then you've been cutting costs, which may be are still ramping in. So, anyway you could sort of help us around how to think about what the performance of the business with total sales down 20%?

Yes, sure. A couple of things I'll start and Kevin could chime in if anything he wants. Clearly, I mean, obviously on a positive note, we've certainly had again the $365 million of income we generated was on 23% down business. And obviously – so certainly our ability to be profitable at levels of business well below where we'd previously have been obviously is very strong. I think a couple of puts and takes to think about that in general. So from a margin perspective, a couple of points I would call out. And one of the things that we talked about in the script was the fact that from a business mix perspective, our local and even more specifically independent restaurant customers, which is our highest margin business are those that are actually performing at a rate that is in excess of the rate that our overall business is performing. And so, when we often talked about the business, the wins that we've had in the national account space and certainly obviously again those generate growth rate, gross profit dollars, which I'll take every day of the week. We had a slightly lower margin rate, but again broadly speaking our independent businesses performing well and better than our overall business. So that's a positive on the margin side. Another part of that to think about when you think about our margins is the fact that our food service management, hospitality customers, which are areas that are actually lower margin business are actually struggling as we've talked about in a higher way. So I think from a customer mix perspective, there's some decent parts of that that in terms of how we think about our overall margin. From a product mix perspective, we talked about there was some from paper disposables a little bit, and it's really related to just the fact that we sold a lot of those products during the fourth quarter, and we're expecting demand to moderate some there. But overall from a margin perspective, I think our year-over-year rate variance, Ed; we anticipate the remaining relatively consistent. So you should think about that over the next couple of quarters. From an expense perspective, we've talked about the fact that we're well on track for this fast takeout, the $350 million that we've talked about for this year. We talked about the fact that the vast majority of that is going to our bottom line. I would think about that as somewhere on north of the 80% range of that is actually going to the bottom line. And the reminder of that about two thirds of our cost structure is variable where as the rest would be – the other third would be fixed. And so, I think, those are some of the things I would think about as we head into these next few quarters. Again, I think this work that we've done both from a margin perspective, again, we've got people in our [indiscernible] area, our finance area, our sales teams that are aggressively working to continue the work that we've done in the margin area, which has generally been good. Again on track for cost takeout as we discussed and a lots of great stuff there. And I think all those things are how I would think about the EBIT performance, which again, continues to be positive even as our sales obviously are down.

Great. Thank you. That's helpful.

Your next question comes from the line of John Heinbockel from Guggenheim. Your line is open.

Hi, just two things. Let me start maybe one – with one for Kevin. The segment oriented sales effort, what does that entail broadly speaking product pricing service and when do you think that can move the needle? During COVID is that an opportunity? Or is this sort of setting up for the recovery?

John, thank you for the question. It is exactly what you just articulated from a segment perspective. So I'm not on today's call actually going to declare, which the segment is because we want to introduce it to our customers before broadly to the marketplace, but we have chosen a specific customer segment, and we have a dedicated focus team that's working full time on how Sysco can better serve that customer profile and it's across everything you said, tailored assortment – tailored pricing, promotional offers that are unique and bundled for that specific customer type that are time bound, and then introduced to those customers through a specialized dedicated sales expert in that category. So it's our first, let's call it, national effort tied to really winning within a given specific customer type and what's different from the past because I know you have a lot of history with understanding Sysco as we have a dedicated full-time team working on how do we maximize our ability to serve that specific customer type. So I think it will be during and after COVID. During COVID, I believe we have the opportunity to win more of the unique customers or doors in that segment. We believe we can increase our penetration with that segment, but I really do believe this is from a post-COVID perspective, a tailwind that will help us for the long-term. And this is the first John of what will be many. We're going to do this in many different sectors, Mexican, Italian, Asian and the like. We'll do it across essentially all of the major sectors, but we've chosen one, an important one to Sysco and we're going to be piloting it this fall. We're going to learn a lot. And then we will take the winning elements of that pilot and expand it nationwide. And that's the power of Sysco. We can pilot things with dedicated experts. And when we find the winning recipe, when we find the winning formula, we can expand it out. And our new regional leadership structure, which we know a lot about, is more prepared than in the past to be able to absorb that type of a best practice and implement it in a more agile and timely manner.

And then maybe secondly, right, you think about share gains both and I'm thinking more local, right, so you think about new customers to you and then you think about existing customers with higher share those two buckets. As one of them outperformed the other, when you think about your share gains and how – either of those compared to what you thought maybe a couple of months ago, as you thought or other share gains greater or lesser than you envisioned in those areas?

Yes. I must often just our restaurant closure is going to have a permanent headwind on Sysco's results. And I have a different view on that. First of all, I think restaurants are resilient and the bankruptcy rate is showing to be less than what many had modeled, which is a favorable item. More importantly Sysco has a meaningful ability to grow even if the pie were slightly smaller in the future. But John, the two elements that you just said, 30% share of wallet on average today for our independent customers, we have the opportunity to move that upward in a meaningful way through our transformation. And the second is we serve less than half of the available doors out there in the marketplace from an independent perspective. Those two data points are substantial. We have the opportunity to meaningfully increase the number of unique doors we serve above the – on average 50% we have today. And we have the ability to grow our share of wallet with existing. You asked the straightforward question, which is in this current environment, which has been the bigger lever? Winning new customers John has been the bigger lever in the current environment. We are doing more new customer prospecting than at any other point in time in our history. We've updated our sales compensation model to actually pay for that behavior for those outcomes and it's having an impact. People do what they get paid to do, and they're motivated by it. And so our sales force which is the largest in the industry has been skilled up and trained up on how to do new customer prospecting. They're doing role play with their supervisors, and they're going out boots on the street, knocking on doors and we're winning new customers at the local level at an accelerated rate versus prior years. So currently it's from winning new customers. I would say for the long-term, John, the bigger lever will be the 30% share of wallet, but both of them pack a pretty powerful punch.

Thank you.

Your next question comes from the line of Lauren Silberman from Credit Suisse. Your line is open.

Thanks. So just a follow-up on the last question, are you willing to quantify the relative impact of closures, new customer acquisition comp decline from the restaurant side? And I guess wallet share expansion though it doesn't seem like much right now with respect to what you're seeing with local case growth.

Yes, we prefer today not to break out that data. One, there's a lot of moving parts on the closure side. Are they closed temporarily? Are they closed permanently? Customers communicate their closing and then two weeks later they reopen. We've got in some select northern geography, people are closing for the winter, but they're planning to reopen in the spring. So there's a little moving data there that we would prefer not to convey. What we can clearly articulate is we are winning share. We're winning share at the national level through the $1.3 billion worth of national sales wins that we have posted since the beginning of COVID and net new $300 million since the last time we spoke. What we did not communicate on prior calls, which we are communicating today, is we are winning share at the local level. And I believe that that will actually accelerate over time as our sales force gets better at doing that type of work, the sales compensation model that I just spoke to is still new in driving the behaviors, which I believe will continue. As it relates to closures, I would say it's in the single digits, high single digits, whereas you've heard industry reports that were substantially higher than that. So beyond that one data point, I'd prefer not to get into more details.

Okay, that's very helpful. And then just on the gross margin, you've talked about the accelerated growth among local customers. It sounds like that'll really be the focus going forward, some benefit from elevated PPE at better margins. So do you see any opportunity for sustainably higher gross margins coming out of this? Should local customer mix settle at a higher percentage of Sysco sales?

Yes. One of the strengths of Sysco is that we over-index at the local level, and I would believe that that strength will continue over time as evidenced by the new selling model that we have, the compensation change that I referenced. And yes, that would be a stated intention of Sysco as to increase the percentage of our total business over time in the independent local customer business, which comes at a much higher rate. But that does not mean that we won't pursue national sales. I think at times in the past, people have tried to box us into, is it A or B. It can be A and B. So we're going to grow at the local level we believe at a rate that will lead the industry. And we have this supply chain flexibility and capacity to win business at the national level as well. So, right now, we're seeing some favorability in gross margin rate because of business mix. Joel covered that very well. His point on the PPE was in Q1 we had some time-based favorability in that category, which is normalized because supply and demand have come into alignment. In Q2, you would expect a more normal run rate of gross margin and we're not highlighting any specific concerns.

Yes, Lauren, I think I would just add – I'm sorry. I would just add really two quick things to that even your question on the ability to add to that customer mix, if you will, through the local. Again, some of the work that we're investing in from a pricing perspective is also some of that work that we do believe over the long-term will be significantly beneficial both from a margin percentage as well as a growth percentage and again all for that category. So, certainly, we do believe that the other part just to build on one thing Kevin said, it certainly doesn't mean we're not interested in growing in the national space. I think at the end of the day, always recall I like percentages, I like margin dollars even better. And so, I mean, I think the – those customers do drive significant gross profit dollars into our business. And so, just a couple, just again small builds on something Kevin says as it relates to your question.

Really helpful. Thank you so much.

Thanks.

Your next question comes from the line of Alex Slagle from Jefferies. Your line is open.

Thanks. Good morning. Just wondering if you could talk a little more about your success with new customer prospecting activities and accelerating digital platforms still seems like it's early innings and any more color on what the pipeline looks like and margin profiles of the new business wins at?

Alex, thank you for the question. I'll start. This is Kevin. I haven't spoken about the digital activities yet on the call. So I'll go there first and I'll answer the margin profile and then I'll end with kind of what's resonating with the customers that we're winning and why Sysco and why are we winning. We're really pleased with our progress in the shop digital platform. We communicated on today's call that we have approximately 60% of our orders now being placed through shop. That is a substantial increase from where we've been. And it's not because we're forcing that too on our customers. That's a big difference. We are seeing that increase because the tools becoming easier to use, more inspiring from what our customers should be buying, or providing a suggested order or providing them other customers like you are also buying the following things, Sysco Brand penetration opportunities, menu design options and suggestions. Click here if you like this menu and everything you need will be on your next truck. It's a really powerful vehicle and our customers are responding. We've also scaled up our sales force to embrace it. And we believe, as I said in my prepared remarks, that this is the combination of the human capital that we have, which is the largest sales force in the industry and this powerful digital tool. The digital improvements are not in competition with our local sales force. That is a very significant point. We do not leave this as a means to reduce our sales force presence. We view it as a means to get our sales force more focused on consultative selling and less time being spent on manual things like hand keying and order or changing pricing every Friday in a manual way. We're automating pricing. We're automating order entry through the shop tool, which is really unleashing our sales force to spend more time on value-added activities. So we're really pleased with the progress that's happening in that space in a really short order. We've moved to an agile development methodology. We're deploying new code on an every two week basis, really positive outcomes. What that's resulted in is more time spent on that new prospecting activity. To answer your question on margin rate, we are winning the new customer rate equal to our historical averages, both at the national level and the local level. That's the answer to that question. On the [indiscernible] Sysco, it's a couple of things. One as Joel said, we have the financial strength to be able to be in stock and have the inventory available to ship on time and ship in full, and that is not actually happening in the industry at large. That's why we're winning at the national level for sure. We even have customers coming to us, expressing concerns about their ability to get what they need, when they need it and they're confident that Sysco can support them and that's the biggest unleash at the national level. At the local level, many of these customers are just doors that we've never knocked on before, and they don't actually or didn't actually understand the breadth and depth of the capabilities of Sysco then that we desire to serve them. Some perceived that maybe they were too small for Sysco to be interested in them. And the reality is our supply chain is flexible that we can support both big customers and small, and we can do so profitably. So that's a bundle around why they're choosing to do business with Sysco, and again we see that accelerating over time.

Helpful. Thank you.

Your next question comes from the line of Nicole Miller from Piper Sandler. Your line is open.

Thank you so much and good morning and thanks for the update. Two quick questions; the first one is on the local and independent commentary around performing better than the overall system. And I'll admit, I just don't remember that level of detail nor that that performance frankly. And so I was wondering when did that pivot occur for the locals and independents? And do you think it's just a function of time? Or is it because of some closures and they have less competition? Is that the last man standing essentially?

That's a good question, Nicole. Thank you. It's Kevin. I'll break it down into two parts and we've not publicly communicated the percentages, but with confidence and with accuracy we can quote these two points. The first is closure rate and it comes from – so it comes from a third-party source, not internal data. Sysco customers are closing at a lower rate than the national average of closure. Is it a chicken or an egg? We'd like to believe it's because of the significant work that we're doing to help ensure their success with menu redesign for takeout we've connected tens of thousands of customers through a delivery carrier on and on and on to help them fight through. And that is a fact based data point that our customers are closing at a lower rate than the national average, point one. Point two, the second data point we've said, and I'll just be very clear on what it was. Those customers that we've succeeded with engaging with them on what we call our value-added services, which would be takeout, delivery, menu redesign, optimization of their web experience in-restaurant cleanliness improvement to be able to make customers be safe – feel safe with on-prem dining. That's what I would bucket all of those things into the value-added services. Those customers that have engaged with us or we've engaged on those things are meaningfully outperforming those customers that have chosen to be more passive; that's fact-based. And our objective during the second wave of COVID is to touch every single one of our customers with those services because we know when we do them, when we improve their website, when we have contactless menus, perhaps you've been out to eat recently I'll just do a quick one there, I had the opportunity to go out on Saturday night and there was a QR code on the middle of the table. Just take your phone, take a picture of the QR code, brings up a contactless menu. You can order your meal without even speaking to a waitress or waiter. You can actually pay through your mobile phone. You don't have to touch your credit card or payment device and you get up and leave. And it's outdoor dining or it's on-prem dining where that's allowed and it's clean, it's safe, it's comfortable and we've helped many, many thousands of our customers with those experiences, even small customers that have less sophistication in that regard. So for those that we've engaged and we're being very proactive about this they're meaningfully outperforming national average.

And actually, Nicole, if I could just address one part of your question on sort of as – think about this as we're not only servicing the restaurant industry remember, this is what we're talking about here. And it isn't really new; it's just really the first quarter we've decided to call it out here specifically throughout as this crisis has evolved. But the hospitality sector clearly is an area that's been challenged. The area of the food service management sector has clearly been an area that's been challenged. There's parts of education obviously that have been challenged in these ways. And so are over-indexing in this business area is something that's starting to come through when you combine that with the resilience of the industry and the work we've done that Kevin has talked about as the reason from a mix perspective, you're seeing what you're seeing.

I appreciate the finer points on that. Thank you very much. And just a second and last question, I couldn't agree more about the strength of the restaurant industry and how it will come back. So I'm trying to think past this. And what I'm seeing before, during and now again – well still, I guess, in the pandemic is restaurant consolidation. So it's not closure, it's not bankruptcy. There's some of that, but it's consolidation, strategic buying somebody and putting portfolios together. And so as we see that happening, I'm extremely curious about the impact of distribution. So whether or not they're public or private, but more so you're putting a bunch of brands together like we see announcements even this week of big brands, what happens when I come back to you as the distributor? Clearly, you could be getting more doors, more stores, more concepts as they do that, but do they also push to get a better deal?

Yes. It's a good question and I'll start with one of your premises, which is well there'd be a reduction in the number of doors and will the strong gets stronger? I think that's a logical hypothesis. It's one that we've been communicating for a while. What Neil says well is what we know is food-away-from-home fatigue – food-at-home fatigue, excuse me, is real. And people want to go out to eat. We can see it. We see it in the data as soon as restrictions are eased, the consumer is back out and they're out of their home and experiencing a dining experience. We can see it in the data. In the United States because it's so varying what the restrictions are, I can tell you state-by-state, the states that have fewer restrictions are meaningfully outperforming. That gives me optimism that as this pandemic begins to abate the customers ready, they're willing, they're able, and they do it quickly. There's not a meaningful latency between the restrictions improving and their ability to get out of their home and experiencing a good meal. As it relates to the number of doors, yes, I would anticipate there will be fewer doors in the future in aggregate. That is a good thing for Sysco. Our drop size will improve, which increases our efficiencies of both our order selectors in our warehouses and the drivers doing delivery. The most time consuming part of a delivery is actually the stop, the opening of the truck, putting on the ramp, they're getting the product to the customer's door. And as we can increase drop size, that's a meaningful benefit. In aggregate, that's a positive thing for this company as it relates to negotiations with key partners. And we'll keep that private with our key partners, but in aggregate, I would say reducing the number of doors overall to positive for this company.

Yes, I do think…

Yes. And just to put a finer point on my question, sorry to interrupt, but let me just be speak, Dunkin' right, its going private. It's going into a portfolio. So I don't know if you had Dunkin' before or not. It's not about Dunkin' let's say, but they were standalone and once they get put into the portfolio with four other brands, and this happens all day long, private-to-private, public-to-private, the portfolios are growing, right? So the doors don't close, and that's – I didn't clarify consolidation. I'm saying a standalone company getting put into a portfolio now the whole bunch of concepts and they're pitching to a scale. And part of that scale is beating up on the distributor. Does that happen? Or is it good for you because it's easier access to all of those brands?

I would say Sysco would be uniquely positioned to be successful in the environment that you're describing. Our breadth, our depth, our national scale, our ability to pivot or support a customer like that coast-to-coast is viewed favorably by them. And long-term, I would say that's a positive for this company. And I prefer not to get into margin discussion vis-à-vis negotiations, but I think you understand my answer and I'm being quick.

Yes, absolutely. And I apologize for the interruption, I don't think I asked the question right the first time. So thank you.

Yes. No problem. Thank you for the question.

Thanks again.

Your next question comes from the line of John Glass from Morgan Stanley. Your line is open.

Thanks and good morning. First, can I just ask about the $350 million of cost saves? Is that – would that fully resident in this quarter like a quarter of that is that high to think about it or does that stays in through the quarters? And if it does stays in, how we should think about that? And I assume it's all contained within 2021. In other words, it's not a run rate at the end of 2021, but it's $350 million in this fiscal year. Thanks.

Sure. I'll start with the last part of your question. Yes, that is an amount that's contained in FY 2021, but what I would also emphasize is we certainly have a line of sight to cost that is over and above that is that we would look at moving forward. So that's certainly an important point. But as it relates to that, I mean, I would say that the distribution of the cost is relatively consistent across the borders and I think some of it is ramping up as we go throughout the year. But I would say generally speaking, since the beginning of this pandemic, you'll recall that we took some really, really swift and decisive action both from a permanent and temporary cost out perspective. And so some of the work we've done on structural cost that is leading into that $350 million, it was well underway as we headed into this year. So again, I would tell you, again it's relatively well distributed. Again as we talked about earlier on the call, the vast majority of that is going to go down into our bottom line, but some of it will also be reinvested as well.

And then if I could just ask on the M&A outlook, I understand this is a tenuous time, and there's a lot of buyers and sellers may not be on the same page, but how do you think about both domestically tuck-in acquisitions? Is this the right time to start re-engaging? I know now that we're off the bottom, we have some visibility and anything about the European business in particular, since there's probably even greater runway there, et cetera. Is this an opportunity to also take advantage of this period of time? Or is it too early?

Yes. Well, I'd say a couple of things. First of all, from an engagement perspectives, both from I would call on the inbound and outbound calls perspective, we have had a fairly significant level of engagements relates to this. Clearly as this thing has evolved and clearly if it continues the drag on for longer, there has been a continued re-struggles within that industry. And so, there have been plenty of discussions. I think I would just say that it has to make sense for us. It has to make sense that – and when we think about, you said buyers and sellers not necessarily on the same page, I think that's still true in the sense that multiple expectations are so quite high in this idea that we're – I always joke it's like the housing crisis back in 2008 or 2009. People were kind of holding on to site, how long they can try to sell their houses at a higher price. And so I think there's some of that happening here in the M&A space domestically. And as it relates to Europe, I think certainly our first priority in Europe is to continue to stabilize our existing business. And that doesn't mean we don't have discussions or eyes out for opportunities, but I would say that it is not our primary focus in our business in Europe at this point.

Thank you.

This is Kevin. I just do one build if I could. And I've said before, we wish ill upon no one in this business. But another piece of this puzzle is the buyer, or do you just jump right over a competitor and go straight to their customer and win the business, which has a higher financial return. So we're modeling all of those things. And we've had some substantial wins this year where, yes, we could have perhaps bought a company, but the more cost effective way was actually to go direct to the customer and win the business. And I do not mean we're buying it through rate. We're being market competitive, the wins that we have there have been at our historical average margin ratios, but they see the confidence in Sysco, Joel covered it well with inventory availability and our cast ability to fund the growth. They see it. It's real and we're able to win business because of that. And if the opportunity is right and the company is right and the price is right, and yes, there will be opportunities for acquisitions and Joel is very active in that regard.

Thank you.

Your next question comes from the line of John Ivankoe from JPMorgan. Your line is open.

Hi, thank you. There's a lot that was said, and I think it was all very good color around the above average survivability of your independent restaurants that you serve. So I guess that's just reiterating what you've already said. And, it got me thinking about, how you could potentially help some of these customers or potentially even new customers survive and even thrive at an increase rate in the future. So at certain markets like Chicago as you cited entering to reducing on-premise dining and the potential elsewhere or the fact of capacity in New York and other places are going to be added back to 100% anytime soon. In different periods, whether it's months or it's quarters, does Sysco consider extending its working capital facilities to restaurants? And does it make sense or could it potentially be the case that you could enter into some short-term working capital agreements with independent restaurants that could potentially translate into medium and long-term business for you. And I did hear Joel in the prepared remarks that you said that terms are tighter for new customers. Could you elaborate on that? And whether that would be something that would be ongoing or it's a trend or it could potentially go the other direction?

Hi, John, it's Kevin. I'm going to just start at the higher level, and then I'm going to toss to Joel specifically to talk about the good work his team is doing on our customer payable side. Your question is more of a what more can Sysco do to ensure the success of our customers? Trust like every day, every meeting, every employees Sysco wakes up everyday thinking about that exact question. And we have a whiteboard bigger than the room that we're sitting in with ideas. So, we're not even close to done on all of the things that we can do. Obviously, I can't talk yet about things that aren't public, but know that we're turning over every rock to determine how best to help our customers. I just want to ensure we have a ton of gas still in the tank on things that we're doing that many, many customers haven't yet engaged on. That example, I gave earlier about a contactless menu with a mobile app version of a menu, that's easy to use, directly linked to a delivery partner at a cost-effective delivery rate. There's a lot there and a small percentage of independent restaurants are doing that let's call it exceptionally. I viewed as our imperative to have every one of our partners do that work exceptionally. And we can do that work to help them better than anyone else. As it relates to working capital, I'm proud of Joel's team as he said we actually had a strong quarter from a receivables collection perspective, and he can walk you through both of the – what we're doing on our P&L side and also what we're doing to help our customers, Joel over to you.

Sure. Thanks, Kevin. Yes, a couple of key points here. First of all, when we talked about pre-COVID receivables, John, and the work that we did, you heard us talk about lowering our bad debt reserve, a lot of that had to do with the fact that we're continuing to make collections, significant collections over and above what we anticipated even on those pre-COVID receivables, many of those are essentially payment plans with customers. And so when we say how we used our working capital to help our customers that's really what we're talking about. And so, again, we're in a good place there with those customers. It's certainly helped them. And again, we've collected at over and above rate. The other point I would make as it relates to talking about moving forward and helping customers, if you recall maybe about a year ago, we talked about the fact that we rolled out a new centralized credit and collections process and we had some bumps along the way. But, Kevin and I were talking about this the other day and it's like, wow, thank goodness we have that today because what has given us now is the ability to use, again essentially managed technology predictive analytics to essentially separate customers into different tiers to develop specific targeted strategies for each of them. So for customers where we feel terms needs to be tighter, we were actually, again communicating between our centralized organization and our fuel organization in order to execute that. For those though that actually we do have opportunities that we can help continue to do so, we do that. So there's no one size fits all, but again, the centralized management's predictive analytics improved technologies has allowed us to actually have that – do that work in a way that's been really effective through this process and I think will continue to allow us to do both of the things that you said.

Very helpful color. Thank you.

Your final question comes from the line of Jeffrey Bernstein from Barclays. Your line is open.

Great. Thank you very much, two questions. Just one on the new business side, I think you mentioned, right, $1.3 billion annualized up from $1 billion previously, and I think you noted that it's primarily national, but I just wanted to confirm that. But any color on whether it's quick-service or it's casual dining and would you expect the new business dollars to continue to ramp from the $1.3 billion, I think you noted no capacity constraints, perhaps that's part of your theory around pushing that 30% wallet penetration. So I am just wondering maybe where that 30% could go ultimately. I'm going to have one follow up.

Yes, sure. On the $1.3 billion, it is national customer wins. I'm tried to be clear about that in my prepared remarks, but I'll be even more clear now. So the $1.3 billion is national. And you asked is there more a definite thing? The answer is yes. We have a pipeline of customer opportunities that is robust that we are pursuing. It's a combination of existing customers where we could expand the geographies that we serve with them and net new customers. It's mostly in QSR, but not QSR. We have few healthcare wins that are notable in there as well. And we have the fulfillment capacity and the transportation capacity to continue to win in that regard. And as I mentioned, we're not buying that business with that historically strong margin levels. I have not quoted the local growth other than to say we're winning market share as Sysco. And so we're trying to parse it out that way, because at the local level, there's a lot of noise with select restaurant closures with overall ticket for restaurant being down because of restrictions on their on-prem dining. But I can say with confidence that we are winning more new local business than at any other point in Sysco's history, it's a significantly elevated rate versus prior years. And the new compensation model plus the fact that we're focused on it from, as I mentioned, role play and sales leadership perspective, and I believe there's an accelerating opportunity in that regard as well. So at the national level, there are still many sales prospects available from an opportunities perspective. At the local level, it's about our sales force which is the largest in the industry ability to win new business. And I'll toss to you for your follow-up.

Okay. And then well actually just to clarify, what do you think that 30% wallet penetration can go to? I mean, it would seems like customers don't necessarily want to put all their eggs in one basket. So I guess customers are torn between giving more share to you versus being protected by having a diversified supplier base. So just wondering, based on maybe some accounts that you've seen that has much larger than 30%, where you would say that goal would be for that 30% today?

Yes. I'm going to save that question for our Investor Day, because one of our key components of our long-term strategy is how we will increase that share of wallet. I'm going back to John Heinbockel's question. He asked me for the current versus the long-term, which lever is the bigger lever. For the long-term increasing that 30% is the biggest lever and we are bullish on that. Our long-term strategy, which we will unveil and talk about in much more detail at Investor Day, we'll explain that how we will actually put some size of the prize math on the table at that point in time, where we can articulate for you each of the key components of our strategy, what the work we have done that math. We've just not gone public with it yet given the fact that COVID is unpredictable and restaurant restrictions are unpredictable and how long it will take for us to get through this, this pandemic is unpredictable. So we believe we can move that number meaningfully higher. We have many customers, independent customers where that number is meaningfully higher. It comes back to one of the reasons why to your point they don't choose to do more with us. Pricing is the number one reason why a customer chooses to do business with more than one distributor and transparency and lack of trust in pricing is the double click into that topic. We will make meaningful progress on that customer pain point with the deployment of our national strategic pricing tool. We will increase transparency. We will increase trust by being right on price on the items that matter most. And we believe that is a very significant lever to improve share of wallet, which Joel mentioned briefly earlier. Assortment is topic to increase the availability of fresh and premium, and we're making significant efforts to increase our availability and access and ability to deliver fresh, best at fresh is something we talk about internally and our ability to be able to increase share of wallet by being better at fresh and best at protein and we're confident in our capabilities. The third bucket would be supply chain services, and I'm going to save that one for our upcoming Investor Day.

Got it. And then just the other question was just on cost savings and your ability to do more with less. You highlighted how your adjusted operating income was quite strong despite sales down 20 plus percent. So I'm just wondering whether you would be able to quantify the reduced breakeven level. And then you mentioned having a lot of set on additional savings beyond the $350 million some, I think you said starting next year. So I'm just wondering to what magnitude are we talking about something similar to $350 million or now we're talking about smaller pieces in out years? Thank you.

Yes. So I'm not going to answer that [indiscernible] to Kevin's point that would be something we rollout further at an investor event. Regarding the breakeven point, I mean, that certainly is something we've talked about. As we exited the last fiscal year, our business was down again in nearly the 30% range. And if you'll recall, we've talked about the fact that we actually exited that quarter, which again was our Q4 positive from an operating income and cash flow perspective. So, clearly our breakeven point has moved to somewhere beyond 30% down. And that certainly is significantly different than it had been even at the beginning of the crisis. So, that's the color I'll give you on that.

Understood. Is there a date for this Investor Day or is it kind of pending based on COVID? A – Kevin Hourican: Yes, pending.

Thank you.

Thank you everybody for joining the call today. That concludes the first quarter of 2021 Sysco Corporation earnings call. You may now disconnect.