Greetings and welcome to the Chefs' Warehouse Second Quarter 2020 Earnings Conference Call. As a reminder, this conference is being recorded. I'd 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 afternoon, 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 second 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 second 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 second quarter 2020 earnings call. The second quarter was one of the most challenging quarters in our company's history. Our team's focus was centered on supporting our customers and supplier partners during the very fluid and gradual transition from limited service, takeout, and curbside operations as well as developing and enhancing our direct-to-consumer Shop Like a Chef platform. In addition, we took a number of employment strength in our balance sheet and right-sized our cost structure to ensure Chefs will eventually get back on the path to growth and improving profitability that we were on prior to this period of volatility and uncertainty driven by the COVID-19 pandemic. During the quarter, we saw gradual improvement from April activity, averaging approximately 40% of prior year's revenues to June averaging approximately 60% of prior year revenue. While reopening in stages were different for each market, our largest markets in the Northeast, Mid-Atlantic, and West Coast were delayed by a number of weeks due to the widespread social activity in early June. Later in June, delays in full opening in these key markets continued due to the observed resurgence of COVID-19 cases in certain states. During the quarter, organic net sales were 57.8% lower versus the prior year quarter. Specialty sales were down 68.2% organically over the prior year, which was driven by a reduction in customers of approximately 56.3% and lower placements of approximately 69.1%, a reduction in specialty cases by 68.3%, organic found were approximately 51.3% lower than the prior year quarter. Gross profit margins decreased approximately 222 basis points during the quarter. Gross margin of specialty category decreased 641 basis points as compared to the second quarter of 2019 while gross margin in the center of the plate category increased 204 basis points year-over-year. Excluding the impact of COVID-19 related inventory reserves, total gross profit margins increased approximately 52 basis points versus the prior year quarter. Jim will provide more detail on margins in a few moments. Now to move on, to an update on recent business activity. Sales in July are trending at approximately 60% of prior year. While more customers are open for outsourced dining, our largest markets continue to delay indoor dining or experience seat capacity decreases due to recent surges in COVID-19 cases in certain markets. Throughout the quarter, our team focused on growing, marketing, and developing our direct-to-consumer businesses. We priced our Allen Brothers Great American Steakhouse online store and our Shop Like a Chef home delivery platform. In addition, we continue to add to our specialty retail grocery portfolio and expect to grow this segment to complement our core restaurants and hospitality business lines going forward. In terms of technology and operations, during the second quarter, we commenced the phased integration of Sid Wainer and Cambridge Meats with our specialty and center-of-the-plate operations in the Northeast. In July we started the process of our Northeast sales team selling Sid Wainer’s trotters facility offering our New York metropolitan customers the high-quality Sid Wainer portfolio of products to complement our specialty and protein categories. In addition, we started the planning process of integrating Cambridge into our Sid Wainer operations, which we expect to complete in the first half of 2021. With this move, we're excited to build on the growing cross-selling opportunities we have started to generate between these two great companies and brands in the New England market. Moving to the West Coast in Texas, we completed the consolidation of three Del Monte meat processing facilities, moving from six processing facilities to three, while utilizing cross factor in the near term as we consolidate routes. Additionally, we're close to completing the consolidation of our Houston and San Antonio facilities into our Dallas hub. These moves contribute to right-sizing our cost structure in these regions and facilitate improved efficiency and customer service going forward. During the quarter, we signed a lease for a 150,000 square foot building in Miami-Dade County. This facility will incorporate specialty, meat, and seafood processing as well as produce and is expected to be completed in the fourth quarter of 2021 with a plan to move during the first quarter of 2022. In addition to developing and deploying Shop Like a Chef direct-to-consumer early in the second quarter, our team continues the deployment of our ERP to our Philadelphia business, which we expect to go live during the third quarter. West Coast implementation is expected to begin in October with a first quarter of 2021 target completion. Before I turn it over to Jim, I would like to thank the entire Chef’s Warehouse team for their passion and energy in supporting our customers during their various phases of opening, partnering with suppliers during this trying time and executing new business activity over the past several months. The dedication to their craft and each other is what has allowed Chef’s to become a premier specialty food purveyor to chef-driven restaurants and establishments during our 35 years of operation. With that, I'll turn it over to Jim to discuss more detailed financial information for the quarter and an update on our liquidity and cost actions. Jim?

Thank you, Chris, and good afternoon, everyone. Our net sales for the quarter ended June 26, 2020 decreased approximately 51.3% to $200.5 million from $411 million in the second quarter of 2019. The decrease in net sales was a result of the decline in organic sales of approximately 57.8% as well as the contribution of sales from acquisitions, which added approximately 6.5% sales growth for the quarter. Net inflation was 3.1% in the second quarter, consisting of 0.2% inflation in our specialty category and inflation of 6.7% in our center-of-the-plate category versus the prior year quarter. Gross profit decreased 55.4% to $47.4 million for the second quarter of 2020 versus $106.5 million for the second quarter of 2019. Gross profit margins decreased approximately 222 basis points to 23.7%. Gross profit and margin were significantly impacted by additional reserve adjustments or inventory valuation loss of approximately $5.5 million due to the expected extended impact of COVID-19 on certain markets and certain customer openings. Flat net specialty inflation was driven by above-average price increases in the dairy and cheese categories offset by significant deflation in bakery and produce categories. Second quarter inflation in the center-of-the-plate category was driven by broad-based higher pricing across beef categories as well as a continued higher percentage of overall sales attributed to our prime and other premium cut sales in our Allen Brothers division. Total operating expense decreased approximately 19.9% to $72.8 million for the second quarter of 2020 from $90.9 million for the second quarter of 2019. Lower costs associated with compensation and benefits as well as distribution-related costs were the primary driver of the decrease in operating expense in the quarter. On an adjusted basis, operating expenses decreased 24% year-over-year. As a percentage of net sales, adjusted operating expenses were 30.5% for the second quarter of 2020 compared to 19.6% for the second quarter of 2019. As Chris noted, volume and sales increased gradually through the quarter. As such, June operating expenses on an adjusted basis declined approximately 33% year-over-year and represented approximately 25% of net sales for the month. Operating loss for the second quarter of 2020 was $25.4 million compared to operating income of $15.5 million for the second quarter of 2019. The decrease in operating income was driven primarily by lower gross profit offset in part by lower operating expenses. Income tax benefit was $10.8 million for the second quarter of 2020 compared to an expense of $2.9 million for the second quarter of 2019. Our GAAP net loss was $20.3 million or $0.57 loss per diluted share for the second quarter of 2020, compared to net income of $7.7 million or $0.26 per diluted share for the second quarter of 2019. On a non-GAAP basis, we had a negative adjusted EBITDA of $13.7 million for the second quarter of 2020 compared to positive adjusted EBITDA of $26 million for the prior-year second quarter. Adjusted net loss was $18.7 million or $0.52 per diluted share for the second quarter of 2020 compared to adjusted net income of $9.8 million or $0.33 per diluted share for the prior-year second quarter. Turning to the actions we took during the second quarter to strengthen our balance sheet and an update on our liquidity. On May 14, 2020, we issued approximately 5.8 million shares of our common stock with an option held by the underwriters to purchase an additional 865,000 shares. On June 2, 2020, the option was exercised, and total proceeds from the entire offering, excluding these, were approximately $86.3 million. On June 8, 2020, we amended our $238 million term B loan maturing in June of 2022, extending the maturity date of approximately 87% of the outstanding balance to June 2025. In addition, we prepaid approximately $35.7 million of principal of the amended and extended balance. Our outstanding debt related to this loan now exists in two tranches: $31.2 million maturing in June of 2022, unamended at LIBOR plus 3.5% and $171.2 million maturing in June of 2025 amended at LIBOR plus 5.5%. During the quarter, we repaid $60 million of borrowings under our ABL facility, and as of July 24, 2020, we have approximately $40 million of outstanding borrowings under the facility. As of July 24, 2020, we had total liquidity of $241.8 million, comprised of approximately $210 million in cash and $31.8 million of availability under our ABL facility. As of July 24, 2020, net debt inclusive of all cash and cash equivalents was approximately $193.3 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 reopenings. Thank you. And at this point, we'll open it up to questions.

Thank you. We will now be conducting a question-and-answer session. Our first question comes from Chris Mandeville with Jefferies. Please proceed with your question.

Good morning, guys. Chris, can I start off just asking with respect to the exposure you guys have in the various COVID hotspots around the country? Maybe you can talk a little bit about the recent performance, how that looked relative to say New York City where the pandemic is more or less well under control.

If there's any good news for Chef, it's that our smallest businesses are performing well in Texas, Arizona, and Florida, despite it being the off-season. This hasn’t created a significant challenge for us. While it does impact the business, we're focused on improving in New York with in-house dining, as well as in California and Chicago, which are now open. Looking at our numbers today, we anticipated being in a better position by now, although we did budget for the current levels, so it's not a huge surprise. We were indeed more optimistic. However, aside from the holiday week, today has actually been our best day since the pandemic began. We're seeing our numbers rising into the 60s compared to last year, while our goal is to reach the 70s. We have adjusted our overhead to ensure profitability when we reach over 70 percent of last year's figures. We're getting closer to that target, and knowing that we can achieve this progress even without New York fully open and having California’s in-house dining available fills me with optimism.

I think I just said, Chris, that a lot of the surveys you’ve seen showed negative same-store sales in July versus June. I think that's been pretty prevalent across the country. And we were able to maintain kind of a flat level as we saw more of our independent customers open. We saw a little bit of decline in some of the retail that we had been selling during the first months of the pandemic. But being able to maintain that 60% while same-store sales across the country were lower was seen as a positive.

Okay. That’s actually very helpful. And then just Chris, as we think about trying to accomplish reaching that 75% run rate goal by the end of the calendar year. As you just alluded to, you expect to kind of be in a better place right now but in light of certain states electing not to reopen indoor dining, how should we think about your ability to get to that 75% run rate by year-end? And really I guess I'm curious about the performance you've seen thus far, how influential has the growth of outdoor dining been to your business? I think a lot of folks within the investment community are concerned about how that might not necessarily be available for the industry as we move into the cooler season of fall and winter?

The positive aspect is that we operate extensively in warm states, making outdoor dining quite common especially in the western U.S. and Florida as the season progresses in the Southern states. There's a significant focus on the adaptability and creativity of independent restaurants, which are core to our business. In cities like New York and Chicago, we are witnessing street closures and the creation of outdoor dining spaces, along with a surge in takeout orders. Our customers are resilient and will find ways to adapt. We are closely monitoring advancements in therapeutics and vaccine discussions. Right now, it's crucial for management to safeguard the balance sheet, and I believe this situation will eventually resolve itself—it’s not a question of if, but when. This is why we fortified our balance sheet to navigate through these challenges and seize opportunities. We are aware that not all businesses will survive this, which is why we set aside significant reserves for bad debt and excess inventory, reflecting our cautious approach. As a result, we’re beginning to see the advantages of our solid financial position. We have been recruiting top talent from the industry who wish to join our team and bring their clientele with them, which is a very encouraging development for the platform I have been building for over 35 years. Our focus is on emerging from this period, enduring the challenges, and looking forward to better times ahead. While some restaurants may close, many will reopen, and we are already witnessing new openings even during the pandemic. People have a strong affinity for restaurants. Ultimately, I believe we will emerge with a stronger team. We have learned to be more efficient and will adapt as we work through these tough times. I am incredibly proud of the team's accomplishments. We have maintained our cash reserves, built a robust balance sheet, and will come out of this with an even stronger team.

Okay. And then the final one for me before I hop back to the queue here. Jim, you guys have made some very solid progress with respect to the reduction in OpEx. I think you noted that June OpEx are down close to 33% versus down 20% for the full quarter. So maybe you can just go back a bit and disclose kind of what were the primary drivers there to get you there and how much more progress can be made in the coming quarter or two, and to what extent you can offer up any color on what represents a variable opportunity versus a fixed opportunity that’d be helpful as well.

Thank you for the question, Chris. If we consider the COVID-related reserves, which in the first half of the year amounted to nearly $25 million in inventory and accounts receivable, you can see that the first half of the year was very close to breakeven. If we adjust EBITDA by excluding the COVID-related reserves, which are genuinely tied to COVID—and while we do have inventory reserves as part of regular business operations, they are not increasing at an extraordinary rate, similar to accounts receivable—we can observe a clearer picture. In terms of the second quarter, if we take out the reserves mentioned earlier, we experienced a notable loss in April when revenues were at 40%. However, as we increased our volume and adjusted our cost structure, May and June brought us closer to breakeven and even into a slightly profitable position on an adjusted basis, again excluding the COVID-related reserves. We believe we’ve positioned our cost structure effectively to manage short-term fluctuations. As our volume increases, we are incrementally incorporating variable costs in a controlled manner. Over the past four and a half to five months, we have not experienced any cash burn, which highlights the positive impact of the team's efforts on managing costs. Our aim is to balance short-term challenges, medium-term goals, and, as Chris mentioned, long-term objectives. We are confident in our liquidity and cost structure to navigate this period of volatility. The journey to achieve 70% to 75% of our pro-forma performance from the previous year will not be entirely linear, as we continue to develop routes and maintain the high-touch service that Chef’s is recognized for. Nevertheless, we expect to achieve operating leverage as we progress toward that goal.

Our next question comes from the line of Peter Saleh with BTIG. Please proceed with your question.

Great. Thanks for taking the question. Jim, I just want to get some clarity. I know you guys commented on the June operating expense and the cuts you guys have made. Were you burning cash in June or was that kind of more of a breakeven type level on the cash side in June?

Well, we haven't burned cash really any week since March 16th. And really that's been a combination of, as I mentioned, excluding the non-cash reserves, essentially breakeven from an adjusted profitability perspective on a cash basis and then really some incredible working capital management by our teams and that's our collection teams, our sales teams, our procurement teams, and really all of our people across the company. We've been collecting more on a weekly basis than we've been selling, and that's you can see from our balance sheet in our release, AR has come down 40% since the beginning of the year or the end of last year. Inventories come down 30%. So we feel good about where we put the risk adjustment from a reserve perspective. And we feel good about managing the liquidity from here as Chris mentioned, to keep the balance sheet strong and really kind of get us through this, I think what everybody views as a short to medium-term period of volatility.

Great to hear. Chris, can you talk about the customer churn? Have you seen many of your restaurant partners permanently closing? Do you have any sense of how many you may lose and how many you may gain this year, considering it's a challenging year for the industry?

We are experiencing a significant increase in new customers. Many companies weren't ready for a service level like ours, so I was pleasantly surprised by the influx of new customers. It's important to note that we have a natural attrition rate of 10% to 14%, meaning restaurants often close. The ones that have shut down likely were going to do so regardless. The last to reopen will probably be those in major cities that rely heavily on international travel and local office traffic. For example, our Midtown Manhattan location is still closed. However, we're witnessing growth in the suburbs where many people have second homes or are opting for staycations. This trend appears promising. There's a lot of innovation happening in urban areas, with restaurants adopting features like large outdoor dining spaces and heat lamps, and implementing infrared blue lights in their air conditioning systems to enhance air quality. Necessity drives creativity, and restaurateurs are showing remarkable adaptability, particularly as they navigate historically narrow profit margins. Despite negative media coverage, we’re observing more restaurant openings and a positive shift overall. Many people, including myself, are tired of cooking at home. In areas like Connecticut and parts of New York, COVID cases are decreasing, leading to increased comfort among the public, who are beginning to dine out while following safety protocols like wearing masks. With advancements in medicine and therapeutics, confidence is likely to grow as we move forward, preparing us for a strong position going into 2022 as we capitalize on our strengths and investments to pursue significant growth once these challenges are behind us.

Peter, I want to highlight a positive development we've observed, particularly in July. In certain regions, we've seen 70% to 75% of our independent restaurant and street customers reopening. The main challenge is demand being limited by government regulations. However, it's encouraging to see this level of openings gradually increasing as we move through the summer.

Our next question comes from the line of Nicole Miller with Piper Sandler. Please proceed with your question.

Thank you. Good morning. Just a couple of quick ones. Chris, in the prepared commentary, you mentioned your largest market. I'm assuming that's New York City or perhaps you define it as the northeast, but can you just help us understand how big is that in terms of sales mix?

Yeah. Nicole, I think we’d break it out. New York is Metro New York, so it includes half of Connecticut. A big part of New Jersey obviously includes the five boroughs. So that is our largest business. So that was obviously in March and April was tremendously impacted. And I'm glad to see that starting to inch up in shop every day. So it is our biggest market. I don't think we’ve broken it out exactly, but I'm pleased to say that that market is coming back today. I'm pleased to see how it is starting to rebound.

And then you had someone in the prior question just mention about 75% of stores being opened in these markets that mobility is increasing and there's clearly restrictions. So let me ask the question this way. How many of your core customer base are back online in your platform today?

It's really different across every market. I mean, as you know, the regulations, the restrictions, and the state of COVID-19 surges or resurgence, whatever you want to call it, is different across every market. So we're not disclosing a level but as I mentioned it was very positive to see certain key markets where the level of openings are higher than the demand that we're seeing. And that's really driven by the current environment as well as the restrictions.

Yeah. I think what I can tell you, Nicole, is that there's a huge amount of our customers that have still not opened for various reasons. They got PPP money. They're writing it out. They want to wait. So to get into the 60s with so many of our core customers still not open and these restrictions, I'm kind of amazed sometimes. I mean, I thought we'd be further. I thought the states would have opened up more, the in-house dining would open up more, the know 25% to 50% limit would have been better. But all that being said, I think it's showing that the take-out demand is increasing and people are sitting outside and even sitting inside where they're allowed, I think every day is getting better. So we’re taking it a day at a time. But I think all things considered and all the states that still are pretty much shut down, to be in the 60s, I'm pretty pleased today.

Thank you. And just a last one, what would you say about the payment terms? I'm sure there was some volatility in the middle part of the quarter but perhaps you're seeing a better trend in that way as well.

We've been focused on collaborating with both our customer and supplier partners on payment terms, which has helped us achieve zero cash burn so far. We're continuing that effort. We were pleasantly surprised by the low number of bankruptcies among our customers. Many customers are awaiting developments, and even those who haven't reopened are willing to discuss payment terms with us. Going forward, we're prioritizing working capital management and customer support, tailoring our approach to each unique case. We're seeing a decrease in our days sales outstanding from their peak in the middle of the quarter and are pleased with the reduction in our accounts receivable balance.

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

Hi. Good morning. Thanks for taking our questions. I was hoping you could help us understand the sales situation, specifically what your typical independent customer sales are like, considering they were down 40% in June and July. Can you unpack what's happening across DTC, grocery, and with new customers and market share gains? I’m trying to understand the situation with your core customers and how long you think they can maintain that level.

Yeah. I think it's all over the place, Kelly. I can tell you that there’s customers actually beating last year's numbers because so many people are working from home. So they're going out to eat in these neighborhoods. Our neighborhood would be a great example up here in Connecticut. There's more people here this summer than ever before and they're getting the benefit between outdoor dining. We have indoor dining in Connecticut as well and take out. Speaking to some of our top, top customers in the cities. They're all operating with skeleton crews and they're waiting for indoor dining. I mean, it's unbelievable to think that New York City still has no indoor dining and restaurants are open and they're doing take out. And like I said, they're setting up beautiful gardens. I think actually there's going to be a contest in New York of who has the most beautiful outdoor dining available. And they're hiring designers to do their outdoor dining areas and make it more cozy and invite people to sit and especially as we're going into the fall. They’re going to put all the outdoor heating available as well and covering it with tents. So they’re getting very creative. So I think it's all over the place, and I think the super-high end is going to be the last to go. It’s a smaller part of our business. Obviously, it’s a very prestigious part. But when you think about all the top, top chefs in the world they have their top two, three-star Michelin restaurant. And then they have usually all their more casual dining is where the volume is. So it’s really upscale casual that is our biggest business and we have an upscale casual takeout that is becoming our big business. We could just see the volume and it's impressive of the support they're getting from their loyal clientele and people really wanting to support them. So I think it's all over the place at this point.

Kelly, I would just add that by far the preponderance of our sales growth from the 40% in April to the 60% in June and July has been with our core independent customers. Obviously, hospitality is not back yet, the hotels but country clubs and especially the suburban markets have been the growth engine of that. While B2C and retail have been good contributors during the crisis, it's still a smaller part of our business.

That's helpful. Can you provide any insights on seasonality, particularly regarding country clubs and outdoor dining, and how we should approach planning for the next quarter or two? Additionally, how are you managing inventory in relation to these trends?

The team has realized that every day feels like a startup. We sell a significant amount of non-perishables, but perishables present more challenges. Customers are quite understanding; when dining out or ordering takeout, they notice more limited menus and product substitutions, which has become the new normal. I’d prefer to sell out rather than risk having products go bad or sending customers items that aren't satisfactory. I expect this trend to continue into fall, with clubs maintaining outdoor setups with tents and heaters. This adaptation is already anticipated. I've always been influenced by the many outdoor cafes in Paris, and now we're seeing similar trends here. For instance, in Florida, I observed Naples shutting down streets to allow for outdoor dining. I believe we will see more of this in major cities like New York, L.A., San Francisco, and Chicago as we head into fall. We are closely monitoring the medical updates regarding therapeutics and current trends, and it's encouraging to see infection rates declining in hotspots like New York, Connecticut, and Massachusetts. As we approach August, we are grateful for this progress. Our immediate goal is to navigate through this year, which is why we have strengthened our balance sheet in preparation for when normalcy returns.

Hey, Kelly, I’ll just add that similar to the cost structure, the significant COVID-related inventory reserves we've taken have really helped us adjust inventory for the future. As I mentioned earlier, every distribution company has inventory adjustments and reserves as part of their normal operations. They're usually a very small percentage of our gross profit margin. We have consistently been in the 25% to 26% range for the last few years. Excluding the reserves, we're actually at the higher end of that this year. I think our team has done a good job of adjusting and managing inventory to meet demand right now. That's how we're thinking about it moving forward.

Okay. Thank you. That's helpful. And maybe just one other one here. Just curious if you’ve surveyed your customers, your core customers and have an understanding of how many of them took PPP loans, how they're feeling about that program and how important it is if there’s an additional extension or new program for independent restaurants there.

I believe most of the restaurants utilized the PPP program, and I'm optimistic that there will be another round of support for them. We are actively engaging with various organizations advocating for independent restaurants, and I feel that our concerns are being heard in Washington. The hospitality sector accounts for over 15 million jobs, and it's clear that those jobs cannot be neglected. I truly believe that the White House and policymakers recognize the necessity of taking measures to support restaurants and help them survive this challenging time. I'm hopeful for another round of aid, and I usually find that almost every customer I speak with has received PPP funding.

Our next question comes from the line of Todd Brooks with C.L. King. Please proceed with your question.

Following up on Kelly's question specifically, I know it's an acronym for the restaurant relief bill that's making its way through Congress. Chris, I didn't know if you had any knowledge of how it's progressing and maybe with its specific targeting towards independent restaurants, your thoughts on how meaningful it could be for the Chefs’ customer base?

I think anything right now is beneficial. I'm optimistic because I've been on many other calls and have spoken to the coalition driving this effort, and our lobbyists are really pushing hard. We're starting to feel hopeful as a lot of senators are showing support by signing on. A key aspect should be ensuring that suppliers are getting paid, so we’re glad to see that progress. I believe that public companies like ours, especially small ones, are largely on our own, but we are fortunate to have the ability to raise capital. They recognize that we play a crucial role; without supplies, restaurants cannot get products. They understand how important we are in the entire food chain and seem to be committed to making sure the necessary funding flows back to us. As Jim mentioned earlier, it’s moving to observe how our customers are making significant efforts to ensure that the funds continue to reach us. This reflects a great deal of respect for the supply side since they know they will need us in the future. We effectively act as their banks by providing credit. As our customers ramp up their business and return to normal, they will require healthy suppliers to support them and extend credit. I'm very pleased to see that funds are coming in. While there have been some bankruptcies, they are far fewer than the media expected. Our customers are resilient and are finding ways to renegotiate leases, operate with minimal staff, and push through this challenging time because running restaurants is what they know best. They aren’t going to become analysts, bankers, or lawyers. They are dedicated to their craft and will keep fighting.

Okay. Great. And then just following up, when you look to your supplier partners, kind of health of the supply chain, financial health of kind of key suppliers and what are you seeing there, are you having to second source any key products because of any sort of stress on the supply chain side?

There were some initial issues, particularly at retail due to high demand, leading to shortages of items like flour and cleaning supplies. However, I’m not seeing significant problems at this time. I take pride in our diverse supply network, which encompasses over 45 countries and more than 2,000 suppliers, providing us with necessary redundancies. Our customers are adaptable; for example, if we run out of a specific Tuscan olive oil, they're willing to accept alternatives from Puglia or California. The fresh produce sector faced more challenges, especially since many farmers primarily supply food services, resulting in some losses. Fortunately, they've received some assistance, and I'm relieved to see that the fresh side seems stable now. The advantage of fresh products is that they come in daily, allowing for constant restocking, unlike our dry goods, which may require months of inventory. Daily essentials like milk and cream also arrive regularly, giving us better control over those products. Additionally, items like our cheeses and aged products have a longer shelf life, so overall, I believe we are in a solid position.

Okay. Great. And then just final question for me. Jim, the working capital performance really has been very impressive, especially considering the environment. If you look at the receivable base now, I guess how healthy is the aging relative to where we were maybe four or six weeks ago? And if you look at reserves that were taken, what do you think is the right window to judge if you're going to fully use reserves taken for bad debt? Is that more towards the end of the year as we work through some PPP funding, or what are the thoughts there? Thank you.

Thank you for the question, Todd. Considering the size of the reserve we established in the first quarter and our current assessment of aging and the flexible payment plans we’ve arranged with many customers, we feel optimistic about the aged balance. Although it affects our revolver capacity somewhat, we have paid down $60 million, creating additional capacity without any negative impact. We believe the reserve is well-placed given our collection levels and the current low bankruptcy rates we've observed, along with our ongoing discussions with customers as they reopen and we assist them. We are particularly pleased with the net of reserves and the 40% reduction in our accounts receivable balance since the end of last year. This decline in accounts receivable, similar to our inventory decline, gives us confidence in our position regarding both accounts receivable and inventory.

Thank you. We've reached the end of the question-and-answer session and with that the conclusion of today's call. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.