Q4 2023 US Foods Holding Corp Earnings Call

Eric: The Ultimate Parody Site! Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the US Foods fourth quarter 2023 earnings call. All lines have been placed on mute to prevent any background noise.

Thank you for standing by my name is Eric and I will be your conference operator today.

Eric: At this time I would like to welcome everyone to the U S Foods fourth quarter 2023 earnings call.

Eric: All lines have been placed on mute to prevent any background noise.

Eric: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Mike Neese, Senior Vice President, Investor Relations. Please go ahead.

Eric: After the Speakers' remarks, there will be a question and answer session.

Eric: She would like to ask a question. During this time simply press star followed by the number one on your telephone.

Eric: If you would like to withdraw your question Press Star one again.

Speaker Change: Thank you.

Speaker Change: I'd now like to turn the call over to Mike Neese Senior Vice President Investor Relations. Please go ahead.

Speaker Change: Yeah.

Mike Neese: Thank you, Eric. Good morning, and welcome to US Foods' fourth quarter and full year fiscal 2023 earnings call. On today's call, we have Dave Flitman, our CEO, and Dirk Locascio, our CFO. We will take your questions after our prepared remarks conclude. Please limit yourself to one question and one follow-up.

Mike Neese: Thank you Eric Good morning, and welcome to U S foods fourth quarter and full year fiscal 2023 earnings call.

Mike Neese: On today's call, we have deep lifting our CEO.

Mike Neese: Dirk Locascio our CFO.

Speaker Change: We'll take your questions after our prepared remarks conclude.

Speaker Change: Please limit yourself to one question and one follow up.

Mike Neese: Our earnings release issued earlier this morning and today's presentation can be found on the investor relations page of our website at ir.usfoods.com. During today's call, and unless otherwise stated, we're comparing our fourth quarter and full year 2023 results to the same period in fiscal year 2022. In addition to historical information, certain statements made during today's call are considered forward-looking statements. Please review the risk factors in our Form 10-K for a detailed discussion of the potential factors that could cause our actual results to differ materially from those anticipated in those results.

Speaker Change: Our earnings release issued earlier this morning, and today's presentation can be found on the Investor Relations page of our website at IR Dot U S foods Dot com.

Speaker Change: During today's call and unless otherwise stated, we're comparing our fourth quarter and full year 2023 results.

Speaker Change: Same period in fiscal year 2022.

Speaker Change: In addition to historical information certain statements made during today's call are considered forward looking statements.

Speaker Change: Please review the risk factors in our Form 10-K for a detailed discussion of the potential factors that could cause our actual results to differ materially from those anticipated in those results.

Mike Neese: Lastly, during today's call, we will refer to certain non-GAAP financial measures. All reconciliations to the most comparable gap financial measures are included in the schedules on our earnings press release, as well as in the presentation slides posted on our website. We are not providing reconciliations to forward-looking non-GAAP financial measures. Now, I'd like to turn the call over to Dick.

Speaker Change: Lastly, during today's call, we will refer to certain non-GAAP financial measures.

Speaker Change: All reconciliations to the most comparable GAAP financial measures are included in the schedules on our earnings press release as well as on the presentation slides posted on our website.

Speaker Change: We are not providing reconciliations for forward looking non-GAAP financial measures.

Speaker Change: Now I'd like to turn the call over to Dave. Thanks, Mike Good morning, everyone and thank you for joining US today, let's turn to today's agenda.

Dick: Thanks, Mike. Good morning, everyone. And thank you for joining us today. Now, let's turn to today's agenda. I'll start by sharing highlights from my first year at US Foods and progress against our key strategy pillars and long-range plan before I hand it over to Dirk to review our fourth quarter and full year 2023 financial results, as well as fiscal 2024 guidance. 2023 was an exciting year at US Foods. Through the execution of our strategy and long-range plan, which underpins our company's transformation, we accomplished many of our goals, including capturing profitable market share and enhancing margin. Following this past year's success, I am even more confident in our ability to continue to gain profitable market share with independent restaurants, healthcare, and hospitality customers.

Dave: I'll start by sharing highlights from my first year at U S foods and progress against our key strategy pillars, and long range plan before I hand, it over to <unk> to review, our fourth quarter and full year 2023 financial results as well as fiscal 2020 for guidance.

Dave: 2023 was an exciting year U S foods through execution of our strategy and long range plan, which underpins our company's transformation.

Dave: Accomplished many of our goals, including capturing profitable market share and enhancing margins.

Dave: Following this past year's success I am even more confident in our ability to continue to gain profitable market share with independent restaurants health care and hospitality customers.

Dick: Improve productivity, drive margin expansion, and deliver double-digit adjusted EPS. We achieved record full-year 2023 adjusted EBITDA of $1.56 billion, driven by strong case growth, including independent case growth of nearly 7%, and MarketShare Games with target customers. This was combined with 53 basis points of adjusted EBITDA margin expansion, which came as a result of the implementation of key operational initiatives we outlined at the beginning of the year.

Dave: We improved productivity.

Dave: Drive margin expansion and delivered double digit adjusted EPS growth.

Dave: We achieved record full year 2023, adjusted EBITDA of $1 $5 6 billion.

Dave: Driven by strong case growth, including independent case growth of nearly 7%.

Dave: And market share gains with target customer base.

Dave: This was combined with 53 basis points of adjusted EBITDA margin expansion.

Dave: Which came as a result of the implementation of key operational initiatives, we outlined at the beginning of the year.

David E. Flitman: Our proprietary digital platforms, Moxie and Vitals, were key drivers of our top-line performance in 2023 and are enablers of further growth in 2024 and beyond. We also deployed our strong operating cash flow to reduce net leverage to 2.8 times, which is within our target range, repurchased approximately $300 million in shares, and completed two accretive tuck-in acquisitions, all while investing in the business for continued organic growth. We continue to lead the industry in the digital customer experience by constantly innovating and adding new capabilities to meet our customers' needs. Our differentiated business model, digital expertise, and sustainable competitive advantages will enable us to drive continued market outperformance. The structural improvements we made in 2023 position us to win in any macro environment. My confidence comes from the strong momentum we've built delivering on our long-range plan and from our 30,000 dedicated associates, who bring their expertise and tireless dedication to work every day. Turning to slide four.

Dave: Our proprietary digital platforms Moxie and Bibles were key drivers of our top line performance in 2023.

Dave: Our enablers of further growth in 2024 and beyond.

Dave: We also deployed our strong operating cash flow to reduce net leverage to two eight times, which is within our target range.

Dave: We repurchased approximately $300 million in shares and completed two accretive tuck in acquisitions, all while investing in the business for continued organic growth.

Dave: We continue to lead the industry in the digital customer experience by constantly innovating and adding new capabilities to meet our customers' needs.

Dave: Our differentiated business model digital expertise and sustainable competitive advantages will enable us to drive continued market outperformance.

Dave: The structural improvements we made in 2023 position us to win in any macro environment.

Dave: My confidence comes from the strong momentum, we built delivering against our long range plan and from our 30000 dedicated associates, who bring their expertise and tireless dedication to work every day.

Dave: Turning to slide four.

David E. Flitman: Our strategy guides how we operate and what we are focused on to win and comprises four pillars: Culture, Service, Growth, and Profit. I believe these are the right areas of focus to ensure continued service improvements and sustainable top and bottom line growth. We're excited about the progress we've made to accelerate each of these coming into this year. Moving to slide five, let's take a look at some of our key accomplishments in 2023 that our team delivered under our four pillars. Our first pillar is culture.

Dave: Our strategy guidance, how we operate and what we're focused on to win and comprises four pillars.

Dave: Culture service growth and profit.

Dave: I believe these are the right areas of focus to ensure continued service improvements and sustainable top and bottom line growth.

Dave: We're excited about the progress we've made to accelerate each of these coming into this year.

Dave: Moving to slide five let's take a look at some of our key accomplishments in 2023 that our team delivered under our four pillars.

Dave: Our first pillar is culture.

David E. Flitman: The safety of our associates remains our number one priority, and we made significant strides in 2023 to reduce the number of vehicle accidents and associated injuries across our facility. Our injury and accident frequency rates improved from the prior year by 23 percent, and importantly, our fourth quarter and full year 2023 safety results were our best in recent history. Additionally, creating a supportive and inclusive workplace is key to our success, and we enhanced our diverse talent pipeline by filling 47% of new or open leadership roles with women or people of color, exceeding our 40% goal. We also remain responsible stewards of our planet, and in 2023, we reported reducing absolute Scope 1 and Scope 2 greenhouse gas emissions by 13% during the previous year, 40% of the way toward achieving our 2032 target.

Dave: The safety of our associates remains our number one priority and we made significant strides in 2023 to reduce the number of vehicle accidents and associated increase across our facilities.

Dave: Our injury and accident frequency frequency rates improved from the prior year by 23% and importantly, our fourth quarter and full year 2023 secret results, where our best in recent history.

Dave: Additionally, creating a supportive and inclusive workplaces key to our success and we enhanced our diverse talent pipeline by filling 47% of newer open leadership roles with women are people of color.

Dave: Leading our 40% goal.

Dave: We also remain responsible stewards of our planet in 2023 reported reducing absolute scope, one and scope two rehouse gas emissions by 13% during the previous year, 40% of the way toward achieving our 2032 targets.

David E. Flitman: We continue to make progress on infrastructure design and construction to support electric vehicles and took delivery of 40 electric trucks and 8 electric yard tractors, in addition to completing the delivery of 42 compressed natural gas trucks. We also continue to innovate and offer our customers more sustainable, private-label products, many of which come under our ServeGood product portfolio. In 2023, as part of our strategic focus on fighting hunger, we donated more than $13 million in food and supplies to Hunger and Disaster Relief Partners, which is the equivalent of roughly 5 million meals and more than 225 truckloads of food. As a Feeding America mission partner, US Foods provides year-round support to food banks across the country through financial and product donations.

Dave: We continue to make progress on infrastructure design and construction to support electric vehicles and took delivery of 40 electric trucks and eight electric yard tractors and in addition to completing the delivery of 42 compressed natural gas trucks.

Dave: We also continue to innovate and offer our customers more sustainable private label products, many of which come under our serve good product portfolio.

Dave: In 2023 is part of our strategic focus on fighting hunger, we donated more than $13 million in food and supplies the hunger and disaster relief partners, which is the equivalent of roughly 5 million meals for more than 225 truckloads of food.

Dave: Is that feeding America mission partner U S foods provides year round support to food banks across the country through financial and product donations.

David E. Flitman: This work is supported by our associates who volunteer their time and resources to fight hunger through annual company-wide engagement campaigns. Since 2007, US Foods has donated more than 170 million pounds of product to aid national hunger relief efforts. We continue to focus on providing a best-in-class delivery experience, and we are proud to report our on-time and in-full customer service levels are now back to pre-COVID levels. We delivered the best cases per mile in our company's history again in the fourth quarter, improving on our prior third quarter record. We launched the Descartes routing pilot in two markets in the fourth quarter and have taken away early learnings to apply to our national launch this year.

Dave: This work is supported by our associates, who volunteer their time and resources to fight hunger through annual company wide engagement campaigns.

Dave: Since 2007 U S foods has donated more than 170 million pounds of product to a national hunger relief efforts.

Dave: Turning to our service pillar.

Dave: We continue to focus on providing a best in class delivery experience. We are proud to report our on time and in full customer service levels are now back to pre COVID-19 levels.

Dave: We delivered the best cases per mile in our company's history again in the fourth quarter improving over our prior third quarter record.

Dave: We launched the cart routing pilot in two markets in the fourth quarter and have taken away early learnings to apply to our national launch this year.

David E. Flitman: Our routing initiative provided us with more than 5% improvement in routing effectiveness in 2023, while also focusing on further improvements in on-time deliveries enabled by the Descartes platform. As I mentioned earlier, we are also transforming the experience for our customers through our Moxie digital solutions platform that enables customers to easily place orders, manage inventory, and pay bills, while freeing up time for our sales teams to further accelerate growth. In short, it puts our supply chain in the hands of our customers, which will generate tremendous efficiency for both our customers and U.S. consumers. Moxie is now fully embedded in our independent restaurant business and approximately 50% of our national chain business, with full deployment anticipated by the second half of 2023. Our digital penetration is at an all-time high of 73% for independent residents.

Dave: Our routing initiative provided us with more than 5% improvement in routing effectiveness in 2023.

Dave: While also focusing on further improvements in on time deliveries enabled by the card platform.

Dave: As I mentioned earlier, we're also transforming the experience for our customers through our <unk> digital solutions platform that enables customers to easily place orders manage inventory and pay bills, while freeing up time for our sales teams to further accelerate growth in short it puts our supply chain in the hands of our customers.

Dave: Which will generate tremendous efficiency for both our customers and U S foods.

Dave: <unk> is now fully embedded with our independent restaurant business and approximately 50% of our national chain business with full deployment anticipated by the second half of 2024.

Dave: Our digital penetration is at an all time high of 73% for independent restaurants.

David E. Flitman: Our net promoter score, which is the highest in the industry among top food service distributors, has continued to increase since the launch of Moxie. We want to help our customers succeed and are giving them digital tools to make it easier for them to do business with us, which we believe is a key differentiating factor in our success. Now, let's turn to our growth goal. In 2023, we had net sales growth of 4.5% to $35.6 billion, driven by our 4.4% growth in total case volume, led by a 6.9% increase in independent restaurant case volume, a 7.2% increase in health care volume, and an 8.9% increase in hospitality volume. We exceeded our one-and-a-half times restaurant market growth goal and have now gained market share with independent restaurants for 11 consecutive quarters.

Dave: Our net promoter score, which is the highest in the industry among top foodservice distributors continues to increase since the launch of Moxie.

Dave: We want to help our customers succeed and are giving them digital tools to make it easier for them to do business with us, which we believe is a key differentiating factor in our success.

Dave: Now, let's turn to our growth pillar.

Dave: In 2023, we had net sales growth of four 5% to $35 6 billion.

Dave: Driven by a four 4% growth in total case volume led by six 9% increase in independent restaurant case volume.

Dave: Seven 2% increase in health care volumes, and an eight 9% increase in hospitality volume.

Dave: We exceeded our one five times restaurant market growth goal.

Dave: GAAP now gained market share with independent restaurants for 11 consecutive quarters. We anticipate this will continue over the course of 2024.

David E. Flitman: We anticipate this will continue over the course of 2024. Our volume gains in both health care and hospitality were driven largely by converting our pipeline of customers into new business through our service model and innovation, such as our highly differentiated vitals platform for acute care and senior living facilities. This platform allows customers to increase patient satisfaction and reduce labor and staffing. This improves revenue flow and bolsters operations through more effective pricing strategies, staff training, and menu planning. We also continue to differentiate ourselves through our fresh, on-trend, and labor-saving scoop product innovation, such as our recently-launched Chef's Line exclusive brand of kimchi fried rice and a unique team-based selling model featuring our expert chefs and restaurant operations consultants.

Dave: Our volume gains in both healthcare and hospitality were driven largely by converting our pipeline of customers into new business through our service model and innovation such as our highly differentiated vitals platform for acute care and senior living facilities.

Dave: This platform allows customers to increase patient satisfaction and reduced labor and staffing costs.

Dave: This improved revenue flow and bolsters operations through more effective pricing strategies staff training and menu planning.

Dave: We also continue to differentiate ourselves through our fresh on trend in labor savings scoop product innovations.

Dave: Such as our recently launched Chef's line exclusive brand of Kim Chief Fried Rice, and a unique team based selling model featuring our expert chefs and restaurant operations consultants.

David E. Flitman: These are significant competitive differentiators that our customers have grown to value. Our hard work and commitment to constantly innovate was recognized as one of Fortune's most innovative companies that are transforming industries from the inside out. Companies were ranked based on an assessment of four dimensions of innovation, product, process, culture, and revenue growth.

Dave: These are significant competitive differentiators of our customers have grown to value.

Dave: Our hard work and commitment to constantly innovate was recognized as one of fortune's most innovative companies that are transforming industries from the inside out.

Dave: Companies were ranked based on an assessment of four dimensions of innovation products process culture and revenue growth.

David E. Flitman: We believe our products will continue to be industry-leading as we use our in-house expertise, market research, and supplier relationships to deliver value to our customers. We also expanded Pronto, which is our differentiated and flexible small truck delivery model aimed at improving customer service in targeted, dense geography. Today, Pronto has a presence in 35 markets, and we plan to launch it in another five markets in 2024.

Dave: We believe our products will continue to be industry, leading as we use our in house expertise market research and supplier relationships to deliver value to our customers.

Dave: We also expanded pronto, which is our differentiated and flexible small truck delivery model aimed at improving customer service and targeted dense geographies.

Dave: Today <unk> has a presence in 35 markets and we plan to launch it in another five markets in 2024.

David E. Flitman: Pronto has been a great addition to our customer service model and has accelerated independent restaurant case growth in markets where we have added it. Much opportunity remains for continued growth in both existing and new markets. The real machine behind our growth pillar is ourselves.

Dave: Pronto has been a great addition to our customer service model and has accelerated independent restaurant case growth in markets, where we have added.

Dave: Much opportunity remains for continued growth in both existing and new markets.

Dave: The real machine behind our growth pillar is our sellers.

David E. Flitman: Last quarter, I highlighted that we were working on revisions to our Territory Manager Sales Compensation. I want to provide a bit more context on the changes that we made. Why change now?

Dave: Last quarter I highlighted that we were working on revisions to our territory manager sales compensation plan.

Dave: I want to provide a bit more context on the changes that we've made.

Dave: Why change now.

David E. Flitman: We had our current sales compensation plans for several years and last made modifications during the early portion of the pandemic. We wanted to ensure our sales teams are aligned and accelerating profitable growth, and that requires effectively incentivizing our sellers for that profitable growth. Here are a few highlights.

Dave: We had our current sales compensation plans for several years and last made modifications during the early portion of the pandemic.

Dave: We wanted to ensure our sales teams are aligned and accelerating profitable growth and that requires effectively incentivising, our sellers for that profitable growth.

Dave: A few highlights.

David E. Flitman: We made more of our sellers' compensation variable, with the variable component now uncapped, and focused on accelerating profitable growth and private label penetration. We assigned individual volume targets and higher-margin private label targets for sellers that roll up to our company business, ensuring we are all working together to achieve our profit and market share growth goals. Finally, we have implemented a more disciplined approach to route splitting to ensure our territory sizes are managed.

We made more of our sellers compensation variable.

Dave: With the variable component now uncapped and focused on accelerating profitable growth and private label penetration.

Dave: We assigned individual volume targets and higher margin private label targets for sellers that rollout through our company business plan in.

Dave: Ensuring we are all working together to achieve our profit and market share growth goals.

Dave: Finally, we have implemented a more disciplined approach to routes to ensure our territory sizes are manageable.

David E. Flitman: We are confident this plan better positions us for success and ensures we are growing together across the organization. For example, in 2023, we increased seller headcount by 6%. We're having great success in finding the right sales talent to ensure that our profitable growth continues well into the future. We continue to believe adding sales headcount in the low to mid-single digits is the right model for U.S. foods going forward. Turning to M&A, to bolster our local footprint in select markets, we executed two tuck-in acquisitions last year, Ramsay Food Service and Saladino's Food Service. And this morning, we're excited to announce that we've signed an agreement to purchase IWC Food Service, which serves the greater Nashville area, one of the fastest growing markets in the country. This acquisition fills an important gap in our footprint and allows us to expand into the central Tennessee market. IWC has approximately 220 employees and $200 million in annual sales.

Dave: We are confident this plan better positions us for success and ensures we are growing together across the organization.

Dave: In 2023, and we increased seller head count by 6%.

Dave: We're having great success in finding the right sales talent to ensure that our profitable growth continues well into the future.

Dave: We continue to believe adding sales head count in the low to mid single digits is the right model for U S foods going forwards.

Turning to M&A.

Dave: To bolster our local footprint in select markets, we executed two tuck in acquisitions last year Ramsey foodservice and solid Dino is food service.

Dave: And this morning, we're excited to announce that we've signed an agreement to purchase Iwc foodservice, which serves the greater Nashville area, one of the fastest growing markets in the country.

Dave: This acquisition fills an important gap in our footprint and allows us to expand into the central Tennessee market.

Dave: Iwc has approximately 220 associates and $200 million in annual sales.

David E. Flitman: More than half of their business is in growing independent restaurants. We're excited to welcome the IWC associates to the US Foods team and are targeting to close the transaction in the second quarter. Finally, let's move to our profit pillar. Driving margin, productivity, and optimization of our business are the key tenets of this pillar. Addressing cost of goods sold, proactively managing pricing to help neutralize commodity volatility, and healthy volume growth with target customer types all contributed to enhancing our market. As a result of our improving execution, we grew adjusted EBITDA 19% to a record $1.56 billion and delivered record Ibex-opera revenue, while expanding adjusted EBITDA margin by over 50 basis points to 4.4% and growing adjusted EPS by 23% to $2.63.

Dave: More than half of their business is in the growing independent restaurant space.

Dave: We're excited to welcome the Iwc associates to the U S foods team and are targeting to close the transaction in the second quarter.

Dave: Finally, let's move to our profit pillar.

Dave: Driving margin productivity and optimization of our business are the key tenants of the store.

Dave: Addressing cost of goods sold proactively managing pricing to help neutralize commodity volatility and healthy volume growth with targeted customer types, all contributed to enhancing our margins.

Dave: As a result of our improving execution, we grew adjusted EBITDA, 19% to a record $1 $5 6 billion.

Dave: And delivered record EBITDA per case.

Dave: Expanding adjusted EBITDA margins by over 50 basis points to four 4%.

Dave: And growing adjusted EPS by 23% to $2 63.

David E. Flitman: Adjusted gross profit from 9% in 2023 to $6.1 billion. We drove further progress on initiatives such as cost of goods sold by working collaboratively with additional vendors. We addressed approximately 60% of COGS last year and will continue to look for additional cost savings in 2024 as we deliver on the remaining 40% of our vendor spend that has not yet been addressed. We are also focused on growing our private label brands, where our penetration is up 40 basis points to over 50% with independent restaurants. Adjusted operating expenses grew less than gross profit, resulting in operating leverage.

Dave: Adjusted gross profit grew 9% in 2023% to $6 1 billion.

Dave: We drove further progress on initiatives such as cost of goods sold by working collaboratively with additional vendors.

Dave: We addressed approximately 60% of Cogs last year.

Dave: You need to look for additional cost savings in 2024, as we deliver on the remaining 40% of our vendor spend that has not yet been addressed.

Dave: We are also focused on growing our private label brands, where our penetration was up 40 basis points to over 50% with independent restaurants.

Dave: Adjusted operating expenses grew less than gross profit, resulting in operating leverage.

David E. Flitman: The Flexible Scheduling Initiative is now live in over half of our locations, and we continue to receive positive feedback. We will roll out the remaining appropriate locations in 2024. We continue to see significant improvements across our network, especially in our pilot, including year-over-year reduction in turnover that is approximately twice the rate of improvement versus our other locations, 33% improvement in safety, and continued improvement in productivity. As a result of our supply chain initiatives, we delivered more than 5% improvement in both delivery and warehouse productivity. We began to see early results with our indirect spending initiative late last year and expect to accelerate those savings in 2024.

Dave: Our flexible scheduling initiative is now live in over half of our locations and we continue to receive positive feedback.

Dave: We will roll out the remaining appropriate locations in 2024.

Dave: We continue to see significant improvements across our network, especially in our pilots including year over year reduction in turnover that is approximately twice the rate of improvement versus our other locations.

Dave: 33% improvement in safety and continued improvement in productivity.

Dave: As a result of our supply chain initiatives, we delivered more than 5% improvement in both delivery and warehouse productivity.

We began to see early results with our indirect spending initiative late last year and expect to accelerate those savings in 2024.

David E. Flitman: We have identified a number of opportunities that will favorably and permanently impact operating expenses. This work is an important enabler to achieving our target of three to five percent overall annual productivity savings in 2024. Before I hand it over to Dirk, I would like to highlight one of our talented associates. Soon, we will be celebrating associates who ignite excellence in our first ever CEO award. Out of the hundreds of associates nominated across the company, Mike Talmadge, our night warehouse manager in Albany, is one of our 25 semi-finalist nominations.

Dave: We have identified a number of opportunities, which will favorably and permanently impact operating expenses.

Dave: This work is an important enabler to achieving our target of 3% to 5% overall annual productivity savings in 2024.

Speaker Change: Before I hand, it over to Dirk I would like to highlight one of our talented associates.

Speaker Change: Soon we will be celebrating associates, who ignite excellence in our first ever CEO Awards.

Speaker Change: Out of the one hundreds of associates nominated across the company, Mike Talmage, Our night warehouse manager and Albany is one of our 25 semi finalist nominations.

David E. Flitman: Mike's leadership has driven significant improvements in safety, associate engagement, quality, and profit at the local level. His efforts have quickly become a benchmark for excellence within the company, affecting customer service and our ability to grow profit. Mike is one of thousands of our associates who strive for greatness within US Foods, and we appreciate his leadership and the dedication of each of our associates.

Speaker Change: Mike's leadership has driven significant improvements in safety associate engagement quality and profit at the local level.

Speaker Change: These efforts have quickly become a benchmark for excellence within the company influencing customer service and our ability to grow profitably.

Speaker Change: Mike is one of thousands of our associates, who strive for greatness within U S foods and we appreciate his leadership and the dedication of each of our associates.

Dirk Locascio: I am pleased with our progress in 2023 as we gain momentum, executing against the four pillars of our strategy, which is driving improved safety, service, productivity, and profitability. Even considering this tremendous progress, we have a long runway of profitable growth. The team and I look forward to sharing our next long-range plan during our Investor Day in June, and we hope you will join us. Let me now turn the call over to Dirk to discuss our fourth quarter results and our 2024 guidance. Thank you, Dave. Good morning, everyone.

Speaker Change: I am pleased with our progress in 2023, as we gained momentum executing against the four pillars of our strategy, which is driving improved safety service productivity and profitability.

Speaker Change: Even considering this tremendous progress we have a long runway of profitable growth.

Speaker Change: Team and I look forward to sharing our next long range plan for our Investor Day in June and we hope you will join us.

Speaker Change: Let me now turn the call over to Dirk to discuss our fourth quarter results and our 2020 for guidance.

Dirk: Thank you, Dave and good morning, everyone.

Dirk Locascio: I'll cover three topics with you this morning. First, I'll discuss our fourth quarter and full year 2023 results. Second, I'll provide an update on capital deployment. And finally, I'll discuss our first quarter and full year 2020 results. Turning to slide 7.

Dirk: I'll cover three topics with you. This morning first I'll discuss our fourth quarter and full year 2023 results second I'll provide an update on capital deployment.

Dirk: And finally, I'll discuss our first quarter and full year 2020 for guidance.

Dirk: Turning to slide seven I'll walk.

Dirk Locascio: I'll walk you through our fourth quarter results in greater detail. The fourth quarter was a strong finish to 2020, as our full-year adjusted EBITDA margins increased double digits and we continue to grow our market. Net sales increased 4.9% to $8.9 billion, driven by total case volume growth of 5.6%. Food cost inflation was essentially flat, while mixed with a headwind of 70 basis points.

Dirk: Walk you through our fourth quarter results in greater detail.

Dirk: The fourth quarter was a strong finish to 2023.

Dirk: As our full year adjusted EBITDA margins increased double digits.

Dirk: And we continue to grow our margins.

Dirk: Net sales increased four 9% to $8 9 billion.

Dirk: Driven by total case volume growth of five 6%.

Dirk: Food cost inflation was essentially flat while mix was a headwind of 70 basis points.

Dirk Locascio: We drove strong volume growth in each of our target customer types again this quarter. Volume increased 7.3% for independent restaurants, including approximately 100 basis points of growth. Healthcare growth was 8.1%, and hospitality was 5%. Healthcare and hospitality continue to deliver strong, profitable growth, driven in large part by healthy net-new businesses. We remain focused on expanding within our target, and expect to continue that momentum in 2020. Chef Store volume in November and December had low single-digit case growth, which was in line with our expectations. We continue to expect accelerated growth in 2020. This quarter, we moved all Chef Store cases to All Other, and thus, they are no longer included in Independence.

Dirk: We drove strong volume growth in each of our target customer types again this quarter.

Dirk: Volume increased seven 3% for independent restaurants, including approximately 100 basis points of growth from acquisitions.

Dirk: Health care growth was eight 1% and hospitality was 5%.

Dirk: Health care hospitality continued to deliver strong profitable growth driven in large part by healthy net new business.

Dirk: We remain focused on expanding within our target customer types and expect to continue that momentum in 2024.

Dirk: Chef store volume in November and December had low single digit case growth, which was in line with our expectations. We continue to expect accelerated growth in 2024.

Dirk: This quarter, we moved all chef store cases to all other and thus they are no longer included in independents we.

Dirk Locascio: We made this change to be consistent with how third-party providers, such as Cercana, formerly known as NPDF, report market share data, and it better aligns with how peers communicate their broad line growth. All periods have been updated. During the fourth quarter, adjusted gross profit increased 6% to $1.5 billion, while adjusted operating expenses increased 4% to $1.2 billion. Our Adjusted Gross Profit continues to grow faster than Adjusted Op. Adjusted EBITDA was $388 million, or 11% growth from the prior year. We expanded Adjusted EBITDA margins by nearly 25 basis points to 4.3%. Finally, Adjusted Diluted EPS grew 16.4% to $0.64 per share, demonstrating our continued growth of EPS faster than Adjusted EBITDA.

Dirk: We made this change to be consistent with how third party providers such as <unk>, formerly known as NPD report market share data and it better aligns with how peers communicate their bottom line growth.

Dirk: All periods have been updated for consistency.

Dirk: During the fourth quarter adjusted gross profit increased 6% to $1 5 billion.

Dirk: While adjusted operating expenses increased 4% to $1 2 billion.

Dirk: Our adjusted gross profit continues to grow faster than adjusted Opex.

Dirk: Adjusted EBITDA was $388 million or.

Dirk: Our 11% growth from the prior year, we expanded adjusted EBITDA margins by nearly 25 basis points to four 3%.

Dirk: Finally, adjusted diluted EPS grew 16, 4% to <unk> 64 per share demonstrating our continued growth of EPS faster than adjusted EBITDA.

Dirk Locascio: Turning to slide eight, we made significant progress on a per case basis in 2023, which we believe emphasizes strong execution of our strategy. Our adjusted gross profit per case increased 4.5% in 2023, while our adjusted operating expense per case was up 1%. Importantly, our adjusted EBITDA per case was $1.93 for the full year, up 14% year-over-year and represents 4.3% compound annual growth rate since 2019. We have demonstrated strong leverage through the P&L, with operating expense per case growing at a slower rate than gross profit per case, and we expect to maintain that operational discipline in 2024 and beyond. Moving to slide 9.

Dirk: Turning to slide eight we made significant progress on a per case basis in 2023, which we believe emphasizes strong execution of our strategy.

Dirk: Our adjusted gross profit per case increased four 5% in 2023, while our adjusted operating expense per case was up 1%.

Dirk: Importantly, our adjusted EBITDA per case was $1 93.

Dirk: For the full year.

Dirk: Up 14% year over year and represents four 3% compound annual growth rate since 2019.

Dirk: We have demonstrated strong leverage through the P&L with operating expense per case growing at a slower rate than gross profit per case, and we expect to maintain that operational discipline of 2024 and beyond.

Dirk: Moving to slide nine.

Dirk Locascio: Our strong operating cash flow creates flexibility to deploy capital strategically to enable growth. Our 2023 operating cash flow is $1.1 billion, with free cash flow of over $800 million. We invested $309 million in CashKabba.

Dirk: Our strong operating cash flow creates flexibility to deploy capital strategically to enable growth are.

Dirk: Our 2023 operating cash flow was $1 1 billion.

Dirk: With free cash flow of over $800 million.

Dirk: We invested $309 million in cash Capex will continue to focus on projects to expand our fleet and invest in capacity and technology to enable organic growth.

Dirk Locascio: We continue to focus on projects to expand our fleet and invest in capacity and technology to enable organic growth. Our ongoing cash CapEx target is approximately 1% of net sales, and we will remain disciplined in our approach. Following the successful closing of Renzi in Q3, we closed the Saladino acquisition in December for a purchase price of $56 million.

Dirk: Our ongoing cash Capex target is approximately 1% of net sales and we will remain disciplined in our approach.

Dirk: Following a successful closing of R&D in Q3, we closed the <unk> acquisition in December for a purchase price of $56 million.

Dirk Locascio: We remain committed to returning capital to shareholders as we repurchase 1.6 million shares in the fourth quarter for $65 million. We have $192 million dollars remaining on our $500 million share refur... Before moving on to guidance, I want to highlight the significant progress we've made in reducing our leverage in 2020. We ended the year at 2.8 times, which is a 0.7 term reduction versus 2022. We were steadfast in our approach to lowering our leverage last year, which we accomplished through disciplined debt paydowns and EBITDA growth. We expect to remain in our net target leverage range between two and a half and three times for 2020. Our balance sheet is in solid shape, which informs our capital allocation framework.

Dirk: We remain committed to returning capital to shareholders as we repurchased one 6 million shares in the fourth quarter were $65 million.

Dirk: We have $192 million remaining on our $500 million share repurchase program.

Dirk: Before moving onto guidance I want to highlight significant progress we made in reducing our leverage in 2023.

Dirk: We ended the year at two eight times Levered.

Dirk: Which is a <unk> seven turn reduction versus 2022.

Dirk: We were steadfast in our approach to lowering our leverage last year, which.

Dirk: Which we accomplished through disciplined debt paydowns and EBITDA growth.

Dirk: We expect to remain in our net target leverage range between two five and three times for 2024.

Dirk: Our balance sheet is in solid shape, which informs our capital allocation framework.

Dirk Locascio: We will continue to invest in the business, re-purchase shares given the current valuation of our stock, and evaluate Tuck in M&A. Now, I'll discuss our guidance on slide 11. Importantly, there are several assumptions in this.

Dirk: We will continue to invest in the business.

Dirk: Repurchase shares given the current valuation of our stock price and evaluate tuck in M&A opportunities.

Speaker Change: Now I'll discuss our guidance on slide 11.

Speaker Change: Importantly, there are several assumptions on this slide.

Dirk Locascio: For full year 2024, we expect total company net sales to be $37.5 billion to $38.5 billion, an increase of approximately 5% to 8%. We believe we can grow our total cases by four to six percent, and we expect slight inflation of 0.5 to 1.5 percent. Our tuck-in M&A from last year, combined with the IWC announcement, will add approximately two percentage points to our case. We expect our independent restaurant case growth to continue running higher than our overall. As a result of good faith bargaining efforts, our agreement with the union in Bensonville that represents our drivers was ratified on February 3rd. US Foods has a longstanding record of bargaining in good faith and reaching agreements with the union.

Speaker Change: For full year 2024, we expect total company net sales to be $37 5 billion to $38 5 billion.

Speaker Change: An increase of approximately 5% to 8%.

Speaker Change: We believe we can grow our total cases by 4% to 6% and we expect slight inflation of <unk> five to one 5%.

Speaker Change: Our tuck in M&A from last year combined with the Iwc announcement will add approximately two percentage points to our case growth.

Speaker Change: We expect our independent restaurant case growth to continue running higher than our overall case growth.

Speaker Change: As a result of good faith bargaining efforts our agreement with the Union <unk> that represents our drivers was ratified on February three.

Speaker Change: U S foods is a longstanding record bargaining in good faith, and reaching agreements with the union.

Dirk Locascio: From the start, we took a principled approach and provided a fair offer to the union before and after the expiration of the contract on December 21st. We are pleased that the agreed-upon proposal largely reflects the economics outlined in that offer. The five-year agreement provides wage and benefit increases that build on the highly competitive offerings our drivers in Bentonville currently receive. It also includes safety enhancements aligned with a very high priority we place on safety. There was an increased cost to us for business continuity and labor relations to serve our customers, as well as weather-related issues across the country, which have been noted by several others in our industry. As a result, we expect an approximate $20 million negative impact on adjusted EBITDA for the first quarter, primarily driven by incremental costs during the labor disruption. We believe the first quarter adjusted EBITDA will be in a range of $340 million to $355 million.

Speaker Change: From the start we took a principle approach provided a fair offer to the union before and after the expiration of a contract in December 2019.

Speaker Change: We are pleased that the agreed upon proposal largely reflects the economics outlined in that offer.

The five year agreement provides wage and benefit increases that builds on the highly competitive offerings are drivers in bentonville currently receive.

Speaker Change: It also includes safety enhancements align with a very high priority, we placed on associate safety.

Speaker Change: There was an increased cost to us for business continuity and labor relations to serve our customers as.

Speaker Change: As well as weather related issues across the country, which have been noted by several others in our industry.

Speaker Change: As a result, we expect an approximate $20 million negative impact to adjusted EBITDA for the first quarter, primarily driven by incremental costs during the labor disruptions.

Speaker Change: We believe the first quarter adjusted EBITDA in a range of $340 million to $355 million.

Dirk Locascio: Even with the labor disruption and the weather-related issues that we experienced in January, we remain confident in achieving our full-year guidance. We expect Adjusted EBITDA to be $1.69 to $1.74 billion and Adjusted Diluted EPS to be $3 to $3.26. This translates into double-digit growth on the bottom line from the combination of profitable growth and margin expansion, as we expect gross profit per case to grow faster than others. In closing, 2023 was a strong year. I feel very good about the opportunity in front of us, the momentum we are generating, and our growth potential this year as outlined in our 2024 guidance. I'll now pass it back to Dave for his closing remarks. Thanks, Dirk.

Speaker Change: Even with the labor disruption and the weather related issues that we experienced in January we remain confident on achieving our full year guidance. We expect adjusted EBITDA to be $1 69 to $1 74 billion and adjusted diluted EPS to be $3 to $3 20.

Speaker Change: This translates into double digit growth on the bottom line from the combination of profitable growth and margin expansion as we expect gross profit per case to grow faster than opex.

Speaker Change: In closing 2023 was a strong year I felt very good about the opportunity in front of us the momentum we are generating in our growth potential this year as outlined in our 2020 for guidance.

Speaker Change: I'll now pass it back to Dave for his closing remarks.

David E. Flitman: As we move into 2024, we will continue to execute our strategy and maintain our disciplined approach to capital deployment to drive long-term value creation for our shareholders. Before we head into Q&A, I would like to comment on our long-term growth process. As I've said before, our 2024 Adjusted EBITDA target is not a ceiling for this company, and we are confident that we will continue to grow Adjusted Yibidah in the high single to low double-digit range over the next several years, and we will continue to grow Adjusted EPS even faster through a combination of earnings growth and share repurchase. Stay tuned.

Dave: Thanks, Dirk as we move into 2024, we will continue to execute our strategy and maintain our disciplined approach to capital deployment to drive long term value creation for our shareholders.

Dave: Before we head into Q&A I would like to comment on our long term growth prospects.

Dave: As I've said before our 2024 adjusted EBITDA target is not a ceiling for this company and we are confident that we will continue to grow adjusted EBITDA in the high single to low double digit range over the next several years.

Dave: And we.

Dave: We will continue to grow adjusted EPS, even faster through a combination of earnings growth and share repurchases.

David E. Flitman: There's more to come at our Investor Day on June 5th. We're in a great position today, and I believe we have sustainable competitive advantages to outperform the market well into the future as we continue to do what we do best, helping our customers make it every day. Thank you for your continued trust and confidence in US Foods.

Dave: Stay tuned theres more to come at our Investor Day on June five.

Dave: We are in a great position today and I believe we have sustainable competitive advantages to outperform the market well into the future as we continue to do what we do best helping our customers make it every day.

Dave: Thank you for your continued trust and confidence in U S foods I have never been more excited about our future.

Eric: I have never been more excited about our future. With that, Eric, please open up the line for questions. At this time, I would like to remind everyone, in order to ask a question, press star then the number 1 on your telephone keypad. Your first question comes from the line of Lauren Silberman with Deutsche Bank. Please go ahead.

Dave: With that Eric Please open up the line for questions.

Eric: At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

Eric: Your first question comes from the line of Lauren Silberman with Deutsche Bank.

Eric: Please go ahead.

Lauren Silberman: Thanks so much and congratulations on the quarter. If I could just start with capital allocation, it looks like you'll get close to a billion in free cash flow this year. You're now at your target leverage. Even with acquisitions, it looks like you have a lot of cash left over. Can you just talk about how you're thinking about capital allocation appetite to further pay down debt versus buybacks or even the potential for dividends? Good morning, Lauren. This is Dirk.

Lauren Silberman: Thanks, so much and congrats on the quarter, if I can just start with capital allocation. It looks like Youll get close to 1 billion in free cash flow this year.

Lauren Silberman: Target leverage even with acquisitions. It looks like you have a lot of cash left over but can you talk about how youre thinking about capital allocation appetite to further pay down debt versus buybacks or even potential for a dividend.

Speaker Change: Good morning, Lawrence Dirk So yes, we were excited the strong cash flow, we do expect that to meaningfully grow as you point out as we grow earnings and as our debt is already well within our target range, but what we expect in 2020 for us to have a reduction of leverage but more for earnings growth as opposed to much more on debt pay down so that means that in <unk>.

Dirk Locascio: So, yes, we're excited. The strong cash flow, we do expect that to meaningfully grow, as you point out, as we grow earnings. And as our debt is already well within our target range, what we expect in 2024 is to have a reduction in leverage, but more from earnings growth, as opposed to much more on debt paydown. So that means, in addition to investing in the business, it will be around share repurchases and opportunistic M&A. So we're very excited about the IDWC announcement this morning, and we would expect, over the course of the year, to increase the amount that we allocate for share repurchases. Great, very helpful.

Speaker Change: Two investing in the business it will be around share repurchases and opportunistic M&A. So we're very excited about the iwc announcement. This morning, and we would expect over the course of the year to increase the amount that we allocated for share repurchases.

Speaker Change: Great very helpful. And then if I could just ask on please go ahead.

David E. Flitman: And then, if I could just ask on case growth, and there's a lot of noise with weather and some of the idiosyncratic factors you called out in one cue. Any color on what you're seeing more recently as things began to normalize and just the confidence in the four to 6% case growth for the year? Thank you very much.

Speaker Change: No it was weather and some of the idiosyncratic factors you called out in <unk> any color on what you're seeing more recently as things began to normalize and get the confidence in the Florida, 6% case growth for the year. Thank you very much.

David E. Flitman: Thanks for the question, Lauren. You know, as you've heard from others, there were a few weather disruptions across the country in January. That's no surprise. But we were pleased, actually, with the recovery that we've seen since we got past the labor disruption and those weather events, notwithstanding what happened on the West Coast last week and a little nor'easter earlier this week. And I'm really, really pleased with the team's work around the labor disruption. You know, I've been doing this for a long time in many industries, and I've seen labor disruptions before. I will tell you that we were as well prepared going into that event as I've ever seen.

Speaker Change: Yes, thanks for the question.

Speaker Change: As you've heard from others. There were a few weather disruptions across the country in January that's no surprise.

Speaker Change: But we were pleased actually with the recovery that we've seen since we got pass the labor disruption and those weather events not notwithstanding what happened on the West Coast last week and a little nor'easter earlier. This week and they are really really pleased with the team's work around the labor disruptions you know I've been doing this for a long time in many industries and I've seen.

Speaker Change: Labor disruptions before I will tell you that we were as well prepared going into that event as I've ever seen and we came out of it with a very strong plan to go get our volume back and so I'm pleased to see the progress that we've made in largely in those non labor disrupted markets. We've seen our volumes get back to basically the trajectory we saw in the fourth.

David E. Flitman: We came out of it with a very strong plan to get our volume back, and so I'm pleased to see the progress that we've made. And, largely, in those non-labor-disrupted markets, we've seen our volumes get back to basically the trajectory we saw in the fourth quarter, which was very strong, as you heard this morning. So I'm really feeling good about that. Just a little bit more color I can give you is the early read on the CERCANA data, formerly MPD, as Dirk said.

Speaker Change: <unk>, which was very strong as you heard this morning, so really feeling good about that in just a little bit more color I can give you is the early read on the sarcoma data formerly.

David E. Flitman: You know, we maintained our market share in January, and I was quite pleased to hear that. So all in all, more work to do, but I feel really good about our trajectory and certainly our team's focus to continue to drive that growth. Thanks so much.

Speaker Change: Formerly MPD as Dirk said, we maintained our market share in January and I was quite pleased to hear that so all in all more work to do but feel really good about our trajectory and certainly our team's focus to continue to drive that growth.

Thanks, so much.

David E. Flitman: Your next question comes from the line of Brian Harbour with Morgan Stanley. Please go ahead. Thanks. Good morning, guys. When you think about sort of the, you know, productivity and OPEX opportunity this year, what do you think will be, you know, the most impactful kind of thing that's different than what you did in 23? I think, largely, Brian, you will see us continue to lean in on the areas that we've been focused on, and I was pleased, you know, it was kind of the tale of two halves last year. We spent a lot of time in the first half of the year really honing our focus on the needle moving activities, and we're really pleased with the trajectory that you saw us deliver in the back half of the year, resulting in those productivity improvements that I quoted. But look, there's more work to do in all of those areas, whether it's in COGS and the work we've done with our suppliers, the pricing optimization work, and certainly supply Really pleased with the progress we're making on routing, but there's a lot more to do there. So largely the same.

Speaker Change: Your next question comes from the line of Brian <unk> with Morgan Stanley.

Brian: Please go ahead.

Brian: Thanks, Good morning, guys. When you think about sort of the productivity and Opex opportunity. This year, what do you think will be.

Brian: Most impactful kind of that's different than what you did in 'twenty three.

Brian: Well I think largely Brian you will see us continue to lean in on the areas that we've been focused on and I was pleased it's kind of a tale of two halves last year. We spent a lot of time in the first half of the year really.

Brian: Honing our focus in on the needle moving activities and really pleased with the trajectory that you saw us deliver in the back half of the year resolving and those productivity improvements are quoted bullet theres more work to do and all of those areas, whether it's in Cogs and the work we've done with our suppliers the pricing optimization work and certainly supply chain productivity.

Brian: Really pleased with the progress, we're making at routing, but theres a lot more to do there. So largely the same you heard my comments earlier about indirect spend that's a piece of work that we started to talk about in the back half of last year and really started to see some traction.

David E. Flitman: You heard my comments earlier about indirect spend. That's a piece of work that we started to talk about in the back half of last year and really started to see some traction in the back half of the fourth quarter. So that was very good to see, and I think we will ramp up that effort significantly in the first half of this year and deliver significant productivity improvements there as well. So, largely, a lot of the same work, just a lot more to do, and a few new things. Okay, thanks.

Really in the back half of the fourth quarter. So that was very good to see and I think we will ramp up that effort significantly in the first half of this year and deliver significant productivity improvement there as well so largely a lot of the same work just a lot more to do.

Brian: Two new things.

Speaker Change: Okay. Thanks.

David E. Flitman: And when you kind of talk about, you know, low to mid single-digit increases in head count, as I think, you know, it sounds like the typical rate, how does that usually flow through to case growth? Or do you have a certain target that, like, this should drive, you know, x flow through to case growth? Yeah, I think, you know, largely, it depends on the mix of talent that you're bringing in. We have had great success in finding strong sales talent with industry experience, and not all that's coming directly from competition. You know, others in food service that understand the market and the industry and have a sales background fit really well in our model. We spend a lot of time training people, as you know.

Speaker Change: When you kind of talk about low to mid single digit increases in head count.

Speaker Change: As I think it sounded like the typical rate.

Speaker Change: Does that usually flow through to case growth or do you have like a certain target that like this should drive X flow through to case growth.

Speaker Change: Yes, I think.

Speaker Change: Largely depends on the mix of talent that you are bringing in.

Speaker Change: We have had great success in finding strong sales talent with industry experience and not all of that is coming directly from competition.

Speaker Change: Others in foodservice that understand the market and the industry and have a sales background fit really well in our model we spend a lot of time training people as you know and I think long term, Brian the right way to think about that is we should be able to grow our cases, 30% to 50% faster than our head count additions, but again theres a ramp up period for that so.

David E. Flitman: And I think long term, Brian, the right way to think about that is, you know, we should be able to grow our cases 30 to 50% faster than our headcount additions. But again, there's a ramp-up period for that. So as we get into this cycle of kind of stable single to mid-single digit growth, that's what you should expect over the long run. Thank you. Your next question comes from the line of Kelly Bania with BMO Capital Markets. Please go ahead. Good morning.

Speaker Change: So as we get into this cycle of kind of a stable single to mid low to mid single digit growth. That's what you should expect over the long run.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: The next question comes from the line of Kelly Bania with BMO capital markets.

Kelly Ann Bania: Please go ahead.

Kelly Ann Bania: Good morning, Thanks for taking our questions.

David E. Flitman: Thanks for taking our questions. I just wanted to ask, as we think about that 2 to 4% organic case growth target for 24, can you talk about the channels in more detail? It sounds like you're definitely still planning for those independents to outpace the total, but maybe within health care and hospitality, is there any outsized growth left for those channels? Or maybe just help us think about what you're seeing in terms of the new business pipelines for health care and hospitality. Yeah, for sure, we will continue to maintain our focus on the independent space, the most profitable segment of the business that plays to our strengths in terms of our product and sales portfolio. So, that's clearly a very strong focus for us. And what we saw last year, to your question about hospitality and healthcare, was largely a strong recovery from an industry perspective, which provided some tailwinds. But importantly, as we talked about last year, we believe we're differentiated in healthcare with our vitals platform and some of the other things we have on the technology front.

Kelly Ann Bania: Just wanted to ask as we think about that 2% to 4% organic case growth target for 'twenty four.

Kelly Ann Bania: Can you talk about the channels in more detail. It sounds like you are definitely still planning for those independent outpaced the total, but maybe within healthcare and hospitality are there is there any outsize growth growth left there for for those channels. There maybe just help us think about what you're seeing in terms of the new biz.

Kelly Ann Bania: This pipeline path.

Kelly Ann Bania: For health care hospitality.

Yes for sure we will continue to maintain our focus in the independent space. It's the most profitable segment of the business that plays to our strengths in terms of our product and sales portfolio. So that's clearly a very strong focus for us and what we saw last last year to your to your question on hospitality and healthcare largely a strong recovery from in <unk>.

Kelly Ann Bania: Industry perspective, which provided some tailwind, but importantly, as we talked about last year. We believe we're differentiated in health care with our vitals platform and some of the other things we have on the technology front and we've got a very strong pipeline in both health care and hospitality that we expect will deliver outsized growth again this year.

David E. Flitman: And we've got a very strong pipeline in both healthcare and hospitality that we expect will deliver outsized growth again this year. Maybe not at the rate that we saw last year, just given the recovery is largely intact, but we expect to continue to drive growth at or above market in both of those segments. Great, that is helpful. Can I also ask about sales compensation? Sounds like you're making some tweaks here.

Kelly Ann Bania: Maybe not at the rate that we saw last year, just given the recovery is largely intact, but we expect to continue to drive growth at or above market in both of those segments.

Speaker Change: Great that is helpful.

Speaker Change: Just also ask about it.

The sales compensation sounds like you're making some tweaks. There can you just remind us the timing of that change and what youre seeing across.

David E. Flitman: Can you just remind us the timing of that change? And what you're seeing across the space from kind of the other private players? Is this kind of a broad change happening across the industry as we've kind of normalized in growth, or is this just maybe unique to US Foods and a couple of others?

Speaker Change: And across the space from kind of the other private players. This is kind of a broad change happening across the industry is.

Speaker Change: As we've kind of normalized in and.

Speaker Change: Gross.

Speaker Change: Or is this just maybe unique to U S food than a couple of others.

David E. Flitman: Yeah, I really can't comment on what others are doing relative to their sales comp. I think, you know, my color this morning, I largely gave in our prepared remarks where we really hadn't made any significant changes to our plan since some tweaks that were made during the pandemic, which were largely aimed at maintaining our sales headcount and providing what we needed to keep folks in the company as volumes declined. And as we get back on this aggressive profitable growth plan, those tweaks that we talked about there are really aimed at just giving our sellers the incentive they need to accelerate growth. You know, the couple things around shifting to more variable compensation, untying that portion of their pay.

Speaker Change: Yes, I really can't comment on what others are doing relative to their sales comp I think my color. This morning, largely gave in our prepared remarks, where we really haven't made any significant changes to our plans since since some tweaks that were made in the pandemic, which was largely aimed at.

Speaker Change: Maintaining our sales head count and providing what we needed to to keep folks in the company as volumes declined and as we get back on this aggressive profitable growth plan those tweaks that we've talked about there.

Speaker Change: Are really aimed at just giving our sellers the incentives they need to accelerate growth.

Speaker Change: Couple of things around shifting to more variable compensation on tapping that portion of their pay.

David E. Flitman: You know, I want our sellers to make as much money as they possibly can because that means great things for our growth and for the company's future. So, again, I kind of foreshadowed this last quarter saying these were just tweaks, not significant overhauls of our account plan, and it's been well received. And to your question, that all went into effect here in the first quarter. Thank you. Your next question comes from the line of John Heinbockel, with Guggenheim Securities. Please go ahead. Hey Dave, I want to start with something.

Speaker Change: Once our sellers to make as much money as they possibly can to that means great things for our growth for the company's future.

Speaker Change: Again.

Speaker Change: Kind of foreshadowed this last quarter, saying these were tweaks not significant overhauls of our comp plans and it's been well received and to your question that all went into effect here.

Speaker Change: In the first quarter.

Speaker Change: Thank you.

Speaker Change: The next question comes from the line of John Baugh.

John Baugh: With Guggenheim Securities.

John Baugh: Please go ahead.

John Baugh: Hey, Dave wanted to start with.

David E. Flitman: The investment in account-facing folks, when you think about business managers, territorial guys, and specialists. Where do you want, how do you want that investment to shake out? And then, curiously, the impact that would have on new account additions versus WalletShare.

John Baugh: The investment in <unk>.

John Baugh: Account facing folks when you think about.

John Baugh: Business managers.

John Baugh: Territorial guys specialists.

John Baugh: Where do you want to how do you want that investment to shake out and then curious the impact that would have on new account additions.

John Baugh: Versus mark a wallet share right.

David E. Flitman: What's your strategic thrust there? Yeah, good question, John. We're focused on adding territory managers to continue to drive growth, but to your point, they have to have the right support around them. So the right number of specialists, new business managers go out and target new opportunities, sometimes on their own, largely in parallel and in partnership with our TMs. And then, as we continue to grow our size and scale the sales force, we've got to make sure we've got the right management team in place as well, and the right number of districts. And we add district managers when that makes sense, too, to make sure that we don't overload our leadership. So all that is embedded in that 6% growth number. But some of those pieces are growing at a slower rate, obviously, than the TMs. But when I think about that low to mid-single digits, that's really comprehensive for all those roles.

John Baugh: Is there what's your strategic thrust there.

John Baugh: Yes.

Speaker Change: Question is on <unk>.

Speaker Change: We're focused on adding territory managers to continue to drive growth, but to your point they have to have the right support around them. So the right number of specialists new business managers.

Speaker Change: Go out and target new opportunities.

Speaker Change: Sometimes on their own largely in parallel in partnership with our Tms and then as we continue to grow our size and scale of the Salesforce. We've got to make sure. We've got the right management team in place as well and the right number of districts that we add district managers when that makes sense too to make sure that we don't overload our leadership. So all of that is embedded.

Speaker Change: In that 6% growth number some of those pieces are growing at a slower rate obviously from the Tms, but when I think about that low to mid single digits. That's really comprehensive of all of those roles.

David E. Flitman: Okay, and then maybe as a follow-up, right? So when you think about, and obviously, you'll lay this out in June, but when you think about, you know, the biggest low hanging fruit, where do you think that is functionally? Right?

Speaker Change: Okay, and then maybe.

Speaker Change: As a follow up right.

Speaker Change: So when you think about.

Speaker Change: And obviously, you'll lay this out in June, but when you think about the biggest low hanging fruit.

Speaker Change: Yes, where do you where do you think that is functionally right minerals that's productivity.

David E. Flitman: I don't know if that's productivity. You talked about stem miles. There is productivity in the warehouse, and as you roll out Descartes, how much do you think you can further improve cases per mile? Yeah, to the first part of your question, I think we largely believe the existing long-range plan that we're finishing up this year. I feel really good about our progress. As we commented previously, I think we had outsized improvement in the first couple of pillars of that, the profit and the growth pillars, and largely, supply chain productivity has lagged since the pandemic. I was pleased with the progress that we made in the back half of the year. However, I think largely that portion of our improvement has still lagged behind the other two areas.

Speaker Change: You talked about step.

Stem miles.

Speaker Change: There.

Speaker Change: Is it productivity in the warehouse.

Speaker Change: And as you rollout the Descartes how much do you think you can further improve.

Speaker Change: Cases per mile.

Speaker Change: Yes, so the first part of your question I think.

Speaker Change: We largely believe that the existing long term earnings plan that we're finishing up this year feel really good about our progress as we commented previously I think we had outsized improvement in the first couple of pillars of that the profit and the growth pillars and largely subside seeing productivity has lagged since the pandemic.

Speaker Change: I was pleased with the progress that we made in the back half of the year. However, I think largely that portion of our improvement is still lagged the other two areas and so I see the greatest opportunity for productivity gains.

David E. Flitman: And so I see the greatest opportunity for productivity gains largely coming out of the supply chain. That's why I get so excited about our flex scheduling platform, the Descartes platform, despite all the improvement that we made in routing efficiencies last year with some record paces per mile. There's a lot more to do, and we'll get a lot of benefit once we get Descartes spread across the country here. So a lot more work to do in all those areas, John, but I would say productivity is the one area we're ramping up most aggressively. Okay, thank you.

Speaker Change: Coming out of the supply chain and that's why I get so excited about our flex scheduling that the card platform. Despite all the improvement that we've made in routing efficiencies last year with some record paces per mile. There's a lot more to do.

Speaker Change: And we'll get a lot of benefit once we get the cart.

Speaker Change: Spread across the country here, so a lot more work to do in all those areas, John but I would say productivity is the one area, we're ramping up most aggressively.

Speaker Change: Thank you.

David E. Flitman: Thank you. Your next question comes from the line of Alex Slagle with Jeffreys. Please go ahead.

Thank you.

Speaker Change: The next question comes from the line of Alex Slagle with Jefferies.

Alexander Russell Slagle: Please go ahead.

David E. Flitman: Yeah, I was going to ask sort of along the same lines. I mean, the longer-term opportunities around flex scheduling, I mean, now I guess more than half the locations have gotten productivity levels mostly back to pre-COVID levels and sort of normalizing levels of turnover and overtime, but I mean, improvements lately in turnover and safety over time all suggest there could be a good bit more room to go, just beyond just getting back to historical levels of all that And just is that accurate and just a little bit more on a sense of kind of where it could go generally even before you kind of consider other things like automation and whatnot? I think, generally Alex, you're thinking about it. You're thinking about it right now. I think there's a lot more.

Alexander Russell Slagle: Thanks, Yes.

Alexander Russell Slagle: I was going to ask sort of along the same lines I mean that longer term opportunities around flex scheduling I mean, now I guess more than half locations just seems like you've gotten.

Alexander Russell Slagle: Tiffany levels, mostly back to pre Covid.

Alexander Russell Slagle: Levels.

Alexander Russell Slagle: Sort of normalizing levels of turnover and over time, but many improvements lately in turnover and safety over time I'll suggest there could be a good bit more room to go just beyond.

Alexander Russell Slagle: Beyond just getting back to historical levels of.

Alexander Russell Slagle: Of all of that.

Speaker Change: And just is that accurate and then just a little bit more of a sense of kind of where it can go generally that before you can consider other things like automation and whatnot.

Speaker Change: I think generally Alex you are thinking about it.

Alexander Russell Slagle: Youre thinking about it right I think there's a lot more.

David E. Flitman: We've got a long runway there, and as excited as I am about flex scheduling, and my comments and the prepared remarks there said we've seen outsized improvement in our pilot market, so even where we've expanded it, expanded it across half of our markets, we haven't yet gotten the productivity uplift that we've seen in the pilot, and it just takes time, right? It takes the local team time to work in the new operating model, as well as our associates, and we expect to see productivity gains there over time.

Alexander Russell Slagle: Run way there.

Alexander Russell Slagle: Cited as I am about flex scheduling.

Alexander Russell Slagle: Comments in the prepared remarks, there said, we've seen outsized improvement in our pilot markets. So even where we've expanded it expanded it across the half of our markets. We haven't yet gotten the productivity uplift that we've seen in the pilots and it just takes time takes a local team time to.

Alexander Russell Slagle: Work in the new.

Alexander Russell Slagle: Operating model as well as our associates and we expect continued productivity gains there over time. So we'll have a lot more to say about long term productivity targets in June but just suffice it to say we're excited about the work were think were working on the right areas of improvements that drive the focus for the company going forward.

David E. Flitman: So we'll have a lot more to say about long-term productivity targets in June, but just suffice it to say we're excited about the work, we think we're working on the right areas of improvement to drive the focus for the company going forward, and I'm bullish on our ability to continue to lean in and drive productivity. Your next question comes from the line of Peter Saleh with BTIG. Please go ahead.

Alexander Russell Slagle: I'm bullish about our ability to continue to lean in and drive productivity.

Alexander Russell Slagle: Okay.

Alexander Russell Slagle: Your next question comes from the line of Peter Sally.

David E. Flitman: Great. Thanks for taking the question and congrats on a strong finish to the year. I did want to come back and talk about the compensation for the sales force. You mentioned, you know, several changes, variable compensation, more variable focus on private label targets, and removing the cap on compensation. Dave, I think you also mentioned that this was well received. I'm just curious; have you seen any attrition as this has gone into place? Are you expecting any attrition from the sales force in 2024 as these changes go into place? So the out-of-the-gate answer is no, we haven't seen any, and nor do I expect any.

Peter Sally: With BTG.

Peter Sally: Please go ahead.

Peter Sally: Great. Thanks for taking my question and congrats on a strong finish to the year.

Peter Sally: I didn't want to come back and talk about the compensation for the sales force.

Peter Sally: You mentioned several changes in variable compensation more variable focus on private label targets.

Peter Sally: Removing the cap on compensation.

Speaker Change: Dave I think you also mentioned this was well received I'm just curious.

Speaker Change: Have you seen any attrition as this has gone into place or are you expecting any attrition from the sales force.

Speaker Change: In 2024 as these changes go into place.

Dave: So the out of the gate answer is no we haven't seen any and nor do I expect any I think our team did a very good job preparing for this rollout.

David E. Flitman: I think our team did a very good job, you know, preparing for this rollout. We had a thoughtful approach that any time you make change, even if it's positive, you have got to change management process, you've got to lead through, and that starts with robust communications. We did a very nice job of that starting actually very early in the fall last year.

Dave: We had a thoughtful approach that anytime you make change even if its positive he's got a you've got a change management process, you've got at least through and that starts with robust communications. We did a very nice job of that starting actually very early in the fall last year. So we had plenty of time to not only give our sales team a heads up we kind of model their compensation.

David E. Flitman: So we had plenty of time to not only give our sales team a heads up but also kind of model their compensation in the old model and the new model so they could see what that looked like and, importantly, understand what actions, if any, they had to take differently to maintain or actually increase their compensation. So as we got further and closer to that date, you know, what we saw was our sellers got excited about it because they saw the opportunity to make more money lined up with what we've done here. So, you know, I don't expect any attrition from this with something that we look at very closely all the time, every week, as you would expect, and we haven't yet seen anything, and nor do I expect... And then just on MOXIE. I believe you guys mentioned 50% of national chains now on MOXIE.

Dave: In the old model in the new model. So they could see what that looked like and importantly understand what actions if any they had to take differently to maintain or actually increase their compensation and so as we got further to closer to that date, what we saw was.

Dave: Are sellers got excited about it because they see the opportunity to make more money.

Dave: Windup with what we've done here. So I don't expect any attrition from this with something that we look at very closely all the time every week as you would expect and we haven't yet seen anything nor do I expect to.

Speaker Change: Great and then just on the on Moxie.

Speaker Change: Believe you guys mentioned, 50% of National chains, now on Moxie, and I think last quarter, we were somewhere in the 30%.

David E. Flitman: And I think last quarter we were somewhere in the 30% range, so a pretty sizable step up. Can you just talk about how or what you're seeing in terms of behavior change as more and more of these chains are on this platform? Are you seeing increased case counts? Just try to understand the behavior change post this implementation.

Speaker Change: <unk> is a pretty sizable step up can you just talk about how.

Speaker Change: How or what you're seeing in terms of behavior change as more and more of these chains are on this platform are you seeing increased case count just just trying to understand the behavior change post.

Speaker Change: The implementation.

David E. Flitman: Yeah, I think it's actually a little early on the national side to see anything significant change yet, you know, we're still in the ramp-up phase, you know, we're pleased the customers are liking it and embracing it similar to they have with independent restaurants. And remember, you know, what we said that's going on in independent restaurants is that those customers are buying, And they're stickier. They stick with us longer.

Speaker Change: Yes, I think it's actually a little early on the national side too.

Speaker Change: To see anything significant change yet we're still in the ramp up phase you were pleased or customers are liking it and embracing it similar to they have the way they have in independent restaurants, and remember what we said that's going on in independents is that those customers are buying more.

Speaker Change: And they're stickier.

David E. Flitman: We would expect to see those same sorts of benefits through the course of time in the national area, just like we have an independent, Great, thank you very much. Your next question comes from the line of Jake Bartlett with Truist Securities. Please go ahead.

Speaker Change: With us longer we would expect to see those same sort of benefits through the course of time and the national area, just like we have in independents.

Speaker Change: Great. Thank you very much.

Speaker Change: And your next question comes from the line of Jake Bartlett with <unk> Securities.

David E. Flitman: Thank you. Great. Thanks for taking the questions. You know, my first question was on product costs and inflation, and you gave the guidance of 0.5 to 1.5. You were flat in the fourth quarter.

Jake Rowland Bartlett: Please go ahead.

Jake Rowland Bartlett: Great. Thanks for taking the question My first was on product cost inflation and you gave the guidance of <unk> five to 1.5, you were flat in the fourth quarter looking back I think you were actually it was positive in October if my notes are right. So it looks like it decelerated and so my question is just about the cadence what do you expect you expect to start.

Dirk Locascio: Looking back, I think you were actually positive in October, if my notes are right. So, it looks like it decelerated. And so my question is just about the cadence. You know, what do you expect? Do you expect to start the first quarter out with deflation and then go to inflation? Just help us out on the cadence there, then I will follow up. Hi, Jake. It's Dirk.

Jake Bartlett: <unk>.

Speaker Change: The first quarter at with deflation going to inflation just to help us out on the cadence there.

Speaker Change: A follow up.

Speaker Change: Thanks, Hi, Jake it's Derrick so I would expect us to see inflation, we saw inflation in the fourth quarter actually in January we saw some modest inflation again.

Dirk Locascio: So I would expect us to see inflation. We saw inflation in the fourth quarter. Actually, in January, we saw some modest inflation again, likely increasing as the year goes on. But I think the overall message embedded within that range is we're not assuming sort of strong levels of inflation throughout the year. That's not that different from the last couple of years. We've tried to be a little more conservative and drive more of our results through the overall things that we control within our business. But

Derrick: Likely increasing as the year goes on.

Derrick: I think the overall message embedded within that range as we're not assuming a strong levels of inflation throughout the year, that's not that different than the last couple of years, we've tried to be a little more conservative and drive more of our results through our overall things that we control within our business but.

Dirk Locascio: Inflation through probably most of the year, Got it. So the comment of flat was, I guess, for the year as a whole. So another question on just your confidence in continuing to drive gross profits per case in 24. You mentioned there's still 40% of your vendors you're talking with, you have some modest inflation, but if you could just talk about what kind of gross profit per case increase you expect, what's embedded in it, and maybe how much of that 40% that you think you're going to be able to hit in 24 and drive that forward. Or maybe just back to your deflation question. So the reason we talked about essentially flat, I think it was 15 basis points or so of inflation in the quarter. So, a very, very low level, but it was, and most importantly, was positive.

Derrick: Inflation through probably most of the period.

Speaker Change: Got it.

Speaker Change: The comment of flat with I guess for the year.

Speaker Change: Hole.

Speaker Change: So another question on just your confidence on continuing to drive gross profit per case in 'twenty four.

Speaker Change: You mentioned, there's still 40% of your vendors youre talking with.

Speaker Change: You have some modest inflation, but if you could just talk about what kind of.

Speaker Change: Gross profit per case increase you expect whats embedded in them and maybe how much of that 40% that you think youre going to be able to hit in 'twenty four and drive that forward.

Speaker Change: Sure maybe just back to your deflation question. So the reason we talked about essentially flat I think it was 15 basis points or so of inflation in the quarter, so very very low level, but it was.

Speaker Change: Importantly, a positive.

Dirk Locascio: So we're not going to talk about specifics here, but I think the important thing, though, is if you look at, you know, really the last three years, we've continued to drive gross profit, and a lot of that's going to come from a lot of the same initiatives that we talked about maturing, as well as some additional things coming on board. But on the cost of goods, we do expect to get through the rest of the tail this year, and there are some other activities that we will be doing. In the cost of goods...

Speaker Change: So we're not going to talk about specifically within that the per case increases I think the important thing, though is if you look at and really the last three years, we've continued to drive gross profit.

Speaker Change: And a lot of that is going to come from a lot of the same initiatives that we've talked about maturing as well as some additional things coming on board, but and the cost of goods, we do expect to get through the rest of the tail of this year and there are some other activities that we will be doing in the cost of goods.

Dirk Locascio: The thing that we continue to have an advantage versus a lot of others is our rate of growth, and especially our rate of growth with our target customer types. So, as we partner with vendors, we're bringing them growth in these customer types so they can have more information. So we think that's a great win-win opportunity.

Speaker Change: Thing that we continue to have an advantage versus a lot of others as art with our rate of growth and especially our rate of growth with our target customer types. So we as we partner with vendors, we're bringing them growth and these customer types that they can have more influence and so we think that's a great win win opportunity and then as we get some of those savings we get again to make sure we're out.

Dirk Locascio: And then if we get some of those savings, we can, again, make sure we're priced fairly with our customers. We're going to continue on things like managed cases within logistics and then, at the same time, on OPEX, really striving for our efficiency, whether it's the supply chain Dave talked about, the indirect and other, to mitigate most of the cost inflation that we see. So therefore, we expect the GP per case growth to continue to flow through. That message from us of EBITDA growth coming from a combo of profitable growth and margin expansion; you're going to continue to hear us beat that drum. We think that's important and that it's a healthy way to continue to grow over time. Your next question comes from the line of Edward Kelly with Wells Fargo; please go ahead. Hi, everyone.

Speaker Change: Fairly with our customers.

Speaker Change: Going to continue on things like manage cases within logistics and then at the same time on Opex really striving through our efficiency, whether it's supply chain, Dave talked about the indirect in other to mitigate most of the cost inflation that we see so therefore expecting the GP per case growth to continue to flow through.

Speaker Change: That message from us of EBITDA growth coming from a combo of profitable growth and margin expansion youre going to continue to hear us beat that drum, we think that's important and that's a healthy way to continue to grow over time.

Speaker Change: Great.

Speaker Change: Your next question comes from the line of Edward Kelly with Wells Fargo.

Edward Kelly: Please go ahead.

Edward Kelly: Hi, everyone nice quarter.

David E. Flitman: Nice quarter. Dave, I wanted to ask you first about M&A. You know, your tuck-in strategy is ramping nicely; you'll get two points of case growth from M&A in 24. Can you talk about the quality of the business you're taking on from a margin standpoint? And then, you know, what does the pipeline look like moving forward?

Edward Kelly: To answer the first about that.

Edward Kelly: Hey.

Edward Kelly: You know you tuck in strategy is ramping nicely youll get two points of case growth from M&A in 24 can you talk about the quality of.

Edward Kelly: The business, you're taking on from a margin standpoint, and then.

Edward Kelly: How does the pipeline look like.

David E. Flitman: And is the contribution that you'll see in 24, is that a good placeholder for the run rate, you know, as we think about this over time? Yeah, we're excited about what we've done in M&A. And then certainly the latest one we talked about here this morning with IWC.

Edward Kelly: Going forward and is the contribution that youll see in 'twenty four is that a good placeholder for.

Edward Kelly: The run rate.

Edward Kelly: And as we think about this over time.

Speaker Change: Yes, we're excited about what we've done in M&A, Ed and certainly the latest when we talked about here. This morning, with Iwc and as we said.

David E. Flitman: And as we said, the majority of their business is in the independent space, which is, you know, fits right in our wheelhouse, exactly the type of strategy we want to deploy. And IWC, in particular, I didn't say this on the call, but we're serving that market today, but we're coming from two other distribution centers that are probably three hours away from the market, so we're not getting there very efficiently.

Speaker Change: The majority of their businesses in the independent space, which is fits right in our wheelhouse exactly the type of strategy want to deploy and iwc in particular I didn't say this on the call but.

Speaker Change: We're serving that market today, but we are coming from through to other distribution centers that are probably three hours away from the market. So we're not getting there very efficiently. So in all three of the acquisitions, they've solved that problem for us and have the right mix of business to help us to continue to drive growth in that platform. So we're pleased with it.

David E. Flitman: So in all three of the acquisitions, they've solved that problem for us and have the right mix of businesses to help us to continue to drive growth in that platform. So we're pleased with it. These are accretive.

David E. Flitman: They make great sense. We're not overpaying for these acquisitions. And, you know, to the last part of your question, M&A is hard to predict. We don't know when deals are coming to the market.

Speaker Change: These are accretive.

Speaker Change: Great sense, we're not overpaying for these acquisitions and to the last part of your question.

Speaker Change: M&A is hard to predict.

Speaker Change: We don't know when deals are coming to the market. We've been opportunistic on all three of these we will continue to be but.

David E. Flitman: We've been opportunistic on all three of these. We will continue to be, but, you know, I'd be hard pressed to predict how the rest of the year may or may not play out. But what you're seeing us do is drive these tuck-ins in a way that just makes absolute sense for our business over the long haul. And that's what we'll continue to look for.

Speaker Change: Be hard pressed to predict how the rest of the year may or may not play out, but what you're seeing US do is drive these tuck ins in a way that just makes absolute sense for our business over the long haul and that's what we'll continue to look forward and we think theres still opportunities out there.

Dirk Locascio: We think there's still opportunities out there. Great, and just to follow up, I guess, for Dirk, gross profit per case this quarter was up a lot less than what it's been year over year, and I think there are some year-end sort of things, you know, some of the year-end timing stuff. Maybe could you talk about that?

Speaker Change: Great and just a follow up I guess for Derek.

Speaker Change: Gross profit per case.

Derek: Quarter Derek was.

Speaker Change: But a lot less than what it's been year over year and I think there are some year end sort of like some year end timing. So maybe could you talk about that and then as we think about 'twenty four.

Dirk Locascio: And then as we think about 24, how do you think about the relationship of, you know, GP per case versus operating expenses per case in terms of how you grow, you know, EBITDA per case? You know, operating expenses per case this quarter were actually down a little bit. I'm just kind of curious as to how you think about that relationship in 24 as well.

Speaker Change: How do you think about the relationship of.

Speaker Change: GP per case or stop expertise in terms of how you grow EBITDA per case.

Speaker Change: Opex per case this quarter was actually down a little bit I'm, just kind of curious as to how you think about that.

Speaker Change: Our relationship.

Speaker Change: In 24 as well.

Dirk Locascio: Sure. Well, as you pointed out for the fourth quarter, not a real surprise. We've talked about this for the last few quarters that you can have different cadence things that play out. And in gross profit, you're right. It still stayed at a very strong level that we've been at the last couple of quarters.

Speaker Change: Sure glad as you pointed out for the fourth quarter are not a real surprise, we've talked about this for the last few quarters that you're going to have different cadence things to play out and in gross profit you're right. It's still stayed at a very strong level that we've been at the last couple of quarters. So we're pleased that I think that demonstrates also again that the benefits are coming and the durability from the things that we're doing.

Dirk Locascio: So we're pleased. And I think that also demonstrates again that the benefits are coming and the durability of the things that we're doing as opposed to whether it's inflation or deflation. And you're right.

As opposed to whether it's inflation or deflation.

Dirk Locascio: So we talked about that a year ago; there were a few benefits that hit in the fourth quarter. Then, over the course of this year, we've recognized them throughout the year. So there's nothing really new or beyond that. As we go into 2024, again, less about the specific number, but we are very focused on continuing to grow gross profit faster than we do offset. And we believe we have a lot of opportunity. And let's come back to my comment on durability, where we think that the gross profit that we've continued to grow year after year after year through the actions that we're deriving from our initiatives, we think there's still a runway there over the course of 2024. So I'm not going to give you the specific magnitude, but clearly, we do expect that to grow faster than... Great. Thanks, guys. Your next question comes from the line of Jeffrey Bernstein with Barclays. Please go ahead.

Speaker Change: And you're right. So we talked about that a year ago. There were a few benefit to hit in the fourth quarter that over the course of this year, we've recognized some over the year so nothing.

Speaker Change: It really newer beyond that as we go into 2020 for Ken.

Speaker Change: Plus about a specific number but we are very focused on continuing to grow gross profit faster than opex and we believe we have a lot of opportunity and come back to back to my comment on the durability of why we think that the gross profit that we've continued to grow year after year after year through the actions that we're driving from our initiatives that we think they are.

Speaker Change: So our runway there over the course of 2024, so not going to give you the specific magnitude, but clearly.

Speaker Change: We do expect that to grow faster than opex.

Speaker Change: Alright, thanks, guys.

Speaker Change: And next question comes from the line of Jeffrey Bernstein with Barclays.

Jeffrey Bernstein: Please go ahead.

Jeffrey Bernstein: Great. Thank you very much. Two questions. The first one is just on the adjusted EBITDA.

Jeffrey Bernstein: Great. Thank you very much.

Jeffrey Bernstein: Two questions. The first one just on the.

David E. Flitman: Dave, I think you mentioned, or maybe you gave a little teaser ahead of June Investor Day, but you thought you'd grow adjusted EBITDA in the high single digit to low double digit range the next several years. The low double digit was above our expectation. I know consensus is in kind of that 7% to 8% range.

The EBITDA, Dave I think you mentioned or maybe you gave a little teaser ahead of the June Investor Day.

Jeffrey Bernstein: Grow adjusted EBITDA in the high single digit to low double digit range. The next several years.

Jeffrey Bernstein: The low double digits.

Jeffrey Bernstein: Above all our expectation I know consensus is in kind of that 7% to 8% range, but just wondering if you could talk a little bit about the biggest driver of that potential growth acceleration, whether or not it's more from upside to sales or whether you have increase in confidence greater confidence.

David E. Flitman: But I was wondering if you could talk a little bit about the biggest driver of that potential growth acceleration, whether or not it's more from the upside to sales, or whether you have increasing confidence or greater confidence, the margin opportunity that would allow you to get into that north of the single-digit range. And then I have one follow-up. Well, first of all, I'll say we'll say a lot more about all that, Jeff, in June. But having said that, I think what you've seen us deliver, particularly in 2023, was a great balance in our P&L. You know, we've got very good top-line growth, and we're leveraging that quite well based on some of the comments you heard from Dirk and our control of operating expenses. We're leveraging that quite well through the P&L. And so that model is working quite well for us.

Jeffrey Bernstein: The margin opportunity that would allow you to get into that north of single digit range and then I have one follow up.

Speaker Change: Well first of all say well say a lot more about all that Jeff June.

Speaker Change: But having said that I think what you've seen us deliver particularly in 2023 was a great balance in our P&L. We've got very good top line growth and we're leveraging that quite well based on some of the comments you heard from Dirk and our control of operating expenses.

Speaker Change: We're leveraging that quite well through the P&L.

So that model is working quite well for us I'm excited about our top line growth, we're investing in the right areas.

David E. Flitman: I'm excited about our top line growth. We're investing in the right areas, both to drive top line growth and continue to drive productivity and efficiency in the business. And I think that will continue for a long time to come. So think balance, think just equal opportunity on the top line, as well as the leverage areas of GP and expense control.

Both to drive top line growth and continue to drive productivity and efficiency in the business and I think that will continue for a long time to come so think balanced think just equal opportunity in the top line as well as the.

Speaker Change: The leverage areas of GP and expense control.

David E. Flitman: And then just to follow up on because you talked about, well, the very strong EBITDA margin expansion of, I think it was 50 plus basis points in 2023. As you think about that expansion in 2024 and longer term, and they talked about the supply chain being perhaps the lagging factor, but should we assume steady increases kind of in the theme of what you just said balanced, or is it more lumpy? I'm just wondering if you could prioritize the greatest opportunities to drive that EBITDA margin expansion. Thank you. I think steadier would be a better way to think about it versus lunging.

Speaker Change: Understood and then just to follow up on because you talked about.

Speaker Change: Well the very strong EBITDA margin expansion of I think it was 50 plus basis points in 2023.

Speaker Change: As you think about that expansion in 2024 and longer term.

Speaker Change: Talk about supply chain being perhaps the lagging factor, but curious.

Speaker Change: Steady increases kind of in the theme of what you just said balanced or is it more lumpy I'm. Just wondering if you could prioritize the greatest opportunities to drive that EBITDA margin expansion. Thank you.

Speaker Change: I think steadier would be a better way to think about it first lumpy. Obviously every quarter you can apply the same weighting steadier is the right way to think about it and we've demonstrated that ability to drive that leverage with a couple of pandemic and post here as a side for a long time and so it may not be at 50 basis points, but we think there's still plenty of room for.

David E. Flitman: Obviously, every quarter is going to play out the same, but we think steadier is the right way to think about it. And we've demonstrated that ability to drive that leverage with a couple of pandemic and post-yr aside for a long time. And so it may not be at the 50 basis points, but we think there's still plenty of room for year after year. The Community for Margins.

Speaker Change: <unk> per year opportunity for margin expansion.

David E. Flitman: Thank you. Your next question comes from the line of Mark Parden with UBS; please go ahead. Good morning.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of Mark Carden with UBS.

Mark Carden: Please go ahead.

Mark Carden: Good morning, Thanks, so much for taking the questions. So to start you guys talked a bit about your expansion at pronto and that you are now in 35 markets. Today. When you guys add perhaps that's a new market is the vast majority of independent case scripts left captured in year. One do you see much of a waterfall benefit there and then just more broadly speaking.

David E. Flitman: Thanks so much for taking the questions. So to start, you guys talked a bit about your expansion of Pronto and that you're now in 35 markets today. When you guys add Pronto to a new market, is the vast majority of independent case gross lift captured in year one? Do you see much of a waterfall benefit there?

David E. Flitman: And then just more broadly speaking, what inning do you think you're in for this initiative before it hits maturity? Great question. You know, we're excited about Pronto, where we've penetrated the market with that. We see a great uplift in independent growth, particularly with new customers there. And that comes fairly early.

Mark Carden: King.

Do you think Youre entered its finished it before its maturity.

Speaker Change: Great question, we're excited about pronto, where we've penetrated the market with that we see a great uplift in independent growth, particularly with new customers there and.

Speaker Change: And that comes fairly early gives us an additional tool in our toolkit.

David E. Flitman: It gives us an additional tool in our toolkit to serve as customers, particularly in dense geographies where, you know, it's hard to get to, or they may need more frequent deliveries than we do with our, you know, larger deliveries. I would say we're not mature in that yet, but we've got five more markets we're going to penetrate this year. I will say that not all markets are ripe for pronto, particularly those larger, dense geography markets that make the most sense.

Speaker Change: Service customers, particularly in those dense geographies were.

Speaker Change: It's hard to get to or they may have need more frequent deliveries than we do with our larger deliveries.

Speaker Change: I would say, we're we're not mature in that yet, but we've got five more markets. We're going to penetrate this year I will say that not all markets are ripe for pronto.

Speaker Change: Particularly those larger dense geography markets make the most sense.

David E. Flitman: We still have plenty of opportunity there, and, you know, I'd be remiss not to reiterate that we see plenty of growth where we've already penetrated the market with pronto and continue to add new trucks and capabilities there where we've had success. So I probably see an equal balance between new market penetration as well as existing market growth.

Speaker Change: We'll have plenty of opportunity there and I'd be remiss to not reiterate that we see plenty of growth, where we've already penetrated the market.

Speaker Change: With <unk>, we continue to add new trucks and capabilities, there, where we've had success. So I see probably an equal balance for new market penetration as well as existing market growth.

David E. Flitman: That's helpful. And then, as a follow-up, how are you guys thinking about the labor environment in the year ahead? You gave some really helpful color about the recent strike. Your largest competitors had a few of these as well in recent years. Has there been any underlying changes here, or do you see it just being more or less of an isolated issue? We see it as an isolated issue.

Speaker Change: Got it that's helpful and then as a follow up how are you guys thinking about the labor environment in the year ahead, you gave some really helpful color about the recent strike your largest competitors had a D. A davidson's while in recent years has there been any underlying changes here or do you see it just being more or less of an isolated issue.

Speaker Change: Yeah, we see this as an isolated issue we pride ourselves on having very strong relations with our associates, whether they're represented or not.

David E. Flitman: We pride ourselves on having very strong relationships with our associates, whether they're represented or not. We've got a long history of reaching positive win-win outcomes with our labor unions across the country. We had a disruption, and as I said, we were well prepared for it. We got through it in a few weeks and settled largely on the offer that we put forward at the end of last year.

Speaker Change: We've got a long history of reaching positive win win outcomes.

Speaker Change: With our labor unions across the country, we had a disruption.

Speaker Change: As I said, we are well prepared for it we got through it.

Speaker Change: A few weeks and settled largely.

Speaker Change: On the offer that we put forward at the end of last year. So those things come and go over time.

David E. Flitman: Those things come and go over time. You don't expect them to happen, but you need to be prepared and ready for them, and we were. Just like we do every year, we've got a number of new agreements that are up for negotiation this year, and we expect those to go well. That makes sense. Thanks so much.

Speaker Change: We expect them to happen, but you need to be planned and ready for it and we were.

Speaker Change: We've got a number just like we do every year, we've got a number of new agreements that are up for negotiation. This year and we expect those to go well.

Makes sense. Thanks, so much good luck.

David E. Flitman: Good luck. Thank you. Your next question comes from the line of John Ivankoe with JP Morgan. Please go ahead.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of John Ivan Cope with J P. Morgan.

David E. Flitman: Hi, thank you. Maybe your fourth quarter results and your overall 23 results speak to this, but you just wanted to get a sense of the underlying health of the independent restaurant segment. You know, there has been, you know, I think some debate or discussion in terms of whether this is actually, you know, still a growing industry and the fundamentals are still positive for independent restaurants to put new capital in the ground and for them to get new capital in the ground as we kind of think about 24, you know, into 25, but let's just focus on 24.

Speaker Change: Please go ahead.

Hi, Thank you.

Speaker Change: Your fourth quarter results and your overall 23 results speak to this but just wanted to get a sense of the underlying health of the independent restaurant segment. There has been no I mean.

Speaker Change: I think some debate or discussion in terms of whether this is actually still a growing industry fundamentals are still positive for independent restaurants to put new capital in the ground and for them to get new capital in the ground as we kind of think about 'twenty four and the 25, but let's just focus on 24, so I can talk to your territory.

David E. Flitman: So, you know, as you talk to your territory managers, what are they telling you about, you know, this important addressable customer set? Are they seeing even more, you know, sales opportunities out there relative to what you're currently serving? Thanks. Yeah, they are excited about it.

Speaker Change: Managers, what are they telling you about this important addressable customer set are they seeing even more sales opportunities.

Speaker Change: Out there relative to what you're currently serving.

Speaker Change: Yes. They are they are excited about it I'm excited about it I think the healthy operators is really strong I think theres been a nice recovery since the pandemic.

David E. Flitman: I'm excited about it. I think the healthy operator is really strong. I think there's been a nice recovery since the pandemic in terms of actual units that have come back online or new restaurants.

Speaker Change: In terms of actual units that have come back online or new restaurants.

David E. Flitman: But importantly, you know, the thing that I always tell our team, even given the health of the industry, it's going to ebb and flow. We think it's very robust right now. But, you know, we have ample share gain opportunities regardless of what's going on with the macro.

Speaker Change: But importantly, the thing that I always tell our team even given the health of the industry is going to ebb and flow. We think it's very robust right now.

Speaker Change: We have ample share gain opportunities regardless of what's going on with the macro and let's stay focused on the things. We can control our model works our team based selling model works, we have great products and services for our customers and what's.

David E. Flitman: And let's stay focused on the things we can control. Our model works, our team-based selling model works. We have great products and services for our customers. And, you know, let's not look left or right.

Speaker Change: What's not look left to right, let's just stay focused on running our plays that are working and I think we've got a long runway of growth ahead of us.

David E. Flitman: Let's just stay focused on running our plays that are working. And I think we've got a long runway of growth ahead of us. Thank you. As a reminder, if you would like to ask a question, press star 1 on your telephone keypad. Your next question comes from the line of Andrew Wolfe with CL King. Please go ahead. Thanks. Good morning.

Speaker Change: Thank you.

Speaker Change: As a reminder, if you'd like to ask a question press star one on your telephone keypad.

Speaker Change: Your next question comes from the line of Andrew Wolf with C. L. King.

Andrew Wolf: Please go ahead.

David E. Flitman: Dave, you know, you consistently emphasize worker safety, almost like a mantra. I was kind of wondering, given your experience, not just in this industry but others, is there a correlation between, you know, improved safety and, you know, other key metrics across the enterprise? More broadly, you know, productivity, on time, etc.

Andrew Wolf: Hi, Thanks, good morning.

Andrew Wolf: Dave.

Andrew Wolf: Lee.

Speaker Change: Ken emphasized worker safety almost like a mantra.

Just kind of wondering.

Speaker Change: Given your experience not just in this industry, but others.

Speaker Change: Have you is there a correlation between improved safety.

Speaker Change: And other key metrics across the enterprise.

Speaker Change: More broadly.

Speaker Change: TBD.

Speaker Change: On time et cetera.

Speaker Change: Uh huh.

David E. Flitman: I mean, I'm just trying to get to the bottom of why you lead with WorkerSafe. Well, the reason I lead with it is it's the right thing to do for our associates and for our company, and I say this all the time to our team, Andy. If we can't keep our people safe, working for us every day, then nothing else we're going to accomplish matters. I'm that passionate about it. And when I got here, we didn't actually have the focus I felt we needed in safety, and that's why I'm so excited about our 23% improvement last year. We will continue to focus on it because it's the right thing. Now, having said that, to your question, yes, I think safety performance is a good indicator of overall operating discipline that you have in areas like quality, productivity, and how you think about the customer.

Speaker Change: Yes.

Speaker Change: I'm, just trying to get to the bottom of <unk>.

Speaker Change: Why you lead with worker safety.

Speaker Change: Well the reason I leave with it is it's the right thing to do for our associates and for our company and I say this all the time to our team Andy.

Speaker Change: We can't keep our people safe working for US every day, then nothing else, we're going to accomplish matters.

Speaker Change: Passionate about it.

Speaker Change: And when I got here, we didn't have actually the focus I felt we needed on safety and that's why I'm. So excited about our 23% improvement last year, we will continue to focus on it because it's the right thing now having said that to your to your question. Yes, I think safety performance is a good indicators overall operating discipline that you have.

Speaker Change: In areas like quality productivity, how you think about the customer.

Speaker Change: I used to do our work with Dupont for 20 years, you might remember.

David E. Flitman: I worked at DuPont for 20 years, you might remember, and I used to be able to walk into an operation and just observe and look around. And if I saw good housekeeping and safety behavior, you could kind of get a good sense for how that operation was run, you know, top to bottom. So it's the right thing for our people. It's the right thing for our company and for our business, and we'll stay focused. Okay, that's a good color.

Speaker Change: I used to be able to walk into an operation.

Speaker Change: Just observe and look around and if I saw good housekeeping and safety.

Speaker Change: Behavior, you can kind of get a good sense for how that operation was run top to bottom.

Speaker Change: So it's the right thing for our people, it's the right thing for our company for our business and we will stay focused on it.

Speaker Change: Okay. That's good color I appreciate it and just a last follow up on this on the sales.

Compensation changes you've had a bunch of questions but.

David E. Flitman: Appreciate it. And just the last follow-up on this in terms of sales. Compensation changes. You've had a bunch of questions, but do you think, you know, having an uncapped compensation can help you, you know, recruit, you know, better or territory management? Is there a recruitment advantage to that?

Speaker Change: Do you think.

Having uncapped compensation can help you recruit.

Speaker Change: Better or.

Speaker Change: Territory managers.

Speaker Change: Recruitment advantage to that or.

Speaker Change: More of the.

Speaker Change: I think that's not really the driver of it but I think folks coming in from the outside that are hungry.

Speaker Change: Eight salespeople and we tell them that that's the way we've accomplished structured I think that will be a real benefit.

David E. Flitman: more of a conversation. I think there will be, that's not really the driver of it, but I think, you know, folks coming in from the outside that are hungry, great salespeople, and we tell them that that's the way the comp is structured, I think that will be a real benefit. We just want to incentivize our folks in the right way to drive as much profitable growth as they can for themselves and for the company, and we thought that made sense.

Speaker Change: We just want to Incent, our folks in the right way to drive as much profitable growth as they can for themselves and for the company and we thought that makes sense.

Speaker Change: Okay. Thank you.

Thank you.

Speaker Change: I will now turn the call back over to David Lipman for closing remarks. Please go ahead.

David Lipman: Thank you and thank you all for joining US today, we have very strong momentum in our business. We're excited about the future. We look forward to seeing all of you on June 5th we'll talk before then have a great rest of the week.

Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining and you may now disconnect your lines.

David E. Flitman: Yeah, thank you. Thank you. I will now turn the call back over to Dave Flitman for his closing remarks. Please go ahead.

Speaker Change: Okay.

Speaker Change: [music].

David E. Flitman: Thank you. Thank you all for joining us today. We have very strong momentum in our business.

David E. Flitman: We're excited about the future. We look forward to seeing all of you on June 5th. We'll talk before then. Have a great rest of the week. Ladies and gentlemen, that concludes today's call. Thank you all for joining us, and you may now disconnect your lines.

Speaker Change: Okay.

Speaker Change: [music].