Q2 2024 US Foods Holding Corp Earnings Call

Thank you for standing by. My name is Kari, and I will be your conference operator today. At this time, I would like to welcome everyone to the US Foods second quarter 2024 earnings conference call.

Operator: At this time, I would like to welcome everyone to the US Foods' second quarter of 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.

Operator: 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 one again. Thank you.

Operator: 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 the star followed by the number one on your telephone keypad.

Operator: Speaker's Remarks Now there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number.

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

Dave Flitman: Thank you very much. Thanks for joining the call this morning. We continue to control the outcomes we control. We're confident in our future, and we're also confident in our new long-term algorithm. Thanks a lot. Have a great day.

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.

Michael Neese: I would now like to turn the call over to Mr. Mike Neese, Senior Vice President of Investor Relations. Please go ahead.

Mr. Minenice: if you would like to withdraw your question price star one again thank you i would now like to turn the call over to mr minenice senior vice president of investor relations please go ahead

Operator: Thank you, Carrie.

David Flitman: Good morning, everyone, and welcome to the US Foods' second quarter of fiscal year 2024 earnings call. On today's call, we have Dave Flipp and our CEO, and Dirk Locascio, CFO. We will take your questions after our prepared remarks conclude. Please open yourself to one question and one follow.

Mr. Minenice: Thank you, Carrie. Good morning, everyone, and welcome to the US Foods second quarter fiscal year 2024 earnings call.

Unknown Executive: On today's call, we have Dave Flitman, our CEO, and Dirk Locascio, our CFO. We also expect to deploy more than $4 billion of capital over that same period and anticipate approximately half of that will be deployed towards share repurchases.

Speaker Change: On today's call, we have Dave Flitman, our CEO , and Dirk Locascio, CFO .

Speaker Change: we will take your questions after our prepared remarks conclude

Michael 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 second quarter of fiscal year 2024 to the same period in our second quarter of fiscal year 2023.

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

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.usfoods.com.

Speaker Change: During today's call, unless otherwise stated, we're comparing our second quarter fiscal year 2024 to the same period in our second quarter fiscal year 2023.

Michael Neese: In addition to historic 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 statements. During today's call, we will refer to certain non-GAAP financial measures. All reconciliation to the most comparable GAAP financial measures are included in the schedules on our earnings press release, as well as in the presentation slides posted on our website.

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

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

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

Speaker Change: all reconciliation to the most comparable gaap financial measures are included in the schedules on our earnings press release as well as in the presentation slide posted on our website

Michael Neese: We are not providing reconciliation to forward-looking non-GAAP financial measures.

Speaker Change: we are not providing reconciliations to forward-looking n-gaap financial measures

Operator: Thank you. I'll turn the call over today.

David Flitman: Thanks, Mike.

David Flitman: Good morning, everyone. And thank you for joining us. Before we turn to our second quarter results, I would like to thank everyone who joined our Investor Day in June. It was a great event, and we were excited to share our story, future goals, and our ambition to become the undisputed best in our industry: the safest, the fastest growing, the most profitable, leading digital, and the best place to work. Importantly, we laid out our financial algorithm for 2025 through 2027, which includes growing sales at a 5% cater, increasing adjusted EBITDA at a 10% cater, expanding adjusted EBITDA margin by at least 20 basis points per year, and growing adjusted diluted EPS 20% annually.

Speaker Change: Thank you. I'll turn the call over to Dave. Thanks, Mike. Good morning, everyone, and thank you for joining us.

Dave Flitman: Before we turn to our second quarter results, I would like to thank everyone who joined our Investor Day in June . It was a great event, and we were excited to share our story, future goals, and our ambition to become the undisputed best in our industry.

Speaker Change: The safest, the fastest growing, the most profitable, leading digital, and the best place to work.

Speaker Change: Importantly, we laid out our financial algorithm for 2025 through 2027, which includes growing sales at a 5% CAGR, increasing adjusted EBITDA at a 10% CAGR.

Speaker Change: Expanding adjusted EBITDA margin by at least 20 basis points per year and growing adjusted diluted EPS 20% annually.

David Flitman: We also expected to deploy more than $4 billion of capital over that same period, and anticipate approximately half of that will be deployed toward share repurchases. We remain excited about our path ahead. Through today's call, I will share several of our accomplishments from the second quarter and update the UNT initiatives across each of our four strategic pillars.

Speaker Change: We also expect to deploy more than $4 billion of capital over that same period and anticipate approximately half of that will be deployed towards share repurchases.

Speaker Change: We remain excited about our path ahead.

Speaker Change: during today's call i will share several of our accomplishments from the second quarter and update you on ke iniatives across each of our four strategic pillers

David Flitman: Then Dirk will review our second quarter financial results in our fiscal year 2024 guidance. Turning to slide 4, in the second quarter, we delivered record EBITDA driven by a combination of top line growth and margin expansion, as our growth profit grew significantly faster than operating expense. Our team's success is quarter further emphasizes the strength of our operating model and our ability to control the controllables. This balance of top-line growth, growth profit expansion, and cost productivity led to significant adjusted EBITDA and EPS growth, along with a record adjusted EBITDA margin of 5%. We also continue our disciplined approach to capital deployment.

Speaker Change: Then Dirk will review our second quarter financial results and our fiscal year 2024 guidance.

Dirk Locascio: Turning to slide four, in the second quarter, we delivered record EBITDA driven by a combination of top-line growth and margin expansion, as our gross profit grew significantly faster than our operating expenses.

Dirk Locascio: Our team's success this quarter further emphasizes the strength of our operating model and our ability to control the controllables.

Dirk Locascio: This balance of top-line growth, gross profit expansion, and cost productivity led to significant adjusted EBITDA and EPS growth, along with a record adjusted EBITDA margin of 5%.

Dirk Locascio: Importantly, these results are underpinned by our strong capital structure.

David Flitman: As we announced that our investor day, our board authorized a $1 billion share repurchase program in early June. Dirk will provide a status of our repurchases in more detail. We do expect to be more aggressive buying back our shares over the balance of this year.

Dirk Locascio: we also continue our disciplined approach to capital of deployment

Dirk Locascio: As we announced at our Investor Day, our board authorized a $1 billion share repurchase program in early June .

Dirk Locascio: Dirk will provide a status of our repurchases in more detail.

Dirk Locascio: We do expect to be more aggressive buying back our shares over the balance of this year.

David Flitman: Let's turn to broader industry trends in the health of our markets. Restaurant foot traffic remained pressured during the second quarter and was down approximately 3%. Despite the current headwinds facing our industry, our team captured proper market share and target customer types as we focused on executing our playbook. Specifically, our independent restaurant share increased for the 13th consecutive quarter, and our share gains improved sequentially each month throughout the second quarter. Our strategy is succeeding, as evidenced by our volume growth and share gains.

Unknown Executive: Let's turn to broader industry trends and the health of our market, and ShareBean. I will discuss our progress on each of them over the next few slides. Turning to slide six, our first pillar is culture. For example,

Dirk Locascio: Let's turn to broader industry trends and the health of our markets.

Dirk Locascio: Restaurant foot traffic remained pressured during the second quarter and was down approximately three percent.

Dirk Locascio: Despite the current headwinds facing our industry, our team captured proper market share and target customer types as we focused on executing our playbook.

Dirk Locascio: Specifically, our independent restaurant share increased for the 13th consecutive quarter, and our share gains improved sequentially each month throughout the second quarter.

Dirk Locascio: Our strategy is succeeding as evidenced by our volume growth and share gains.

David Flitman: Our team's work remains guided by our four strategic pillars, and I will discuss our progress on each of them over the next few slides. Turning to slide six, our first pillar is Culture. Keeping our associates safe is paramount. During the second quarter, our injury and accident rates were 19% better than the prior year and were our best results since 2020. We remain focused on improving our safety performance as we strive to achieve zero injuries. We published our 2023 Sustainability Report in the second quarter, highlighting progress in our three key focus areas: products, people, and climate.

Dirk Locascio: Our team's work remains guided by our four strategic pillars, and I will discuss our progress on each of them over the next few slides.

Dirk Locascio: Turning to slide six, our first pillar is culture.

Dirk Locascio: Keeping our associates safe is paramount.

Dirk Locascio: During the second quarter, our injury and accident rates were 19% better than the prior year and were our best results since 2020.

Dirk Locascio: We remain focused on improving our safety performance as we strive to achieve zero injuries.

Dirk Locascio: We published our 2023 Sustainability Report in the second quarter, highlighting progress in our three key focus areas, products, people, and planet.

David Flitman: And none is more important than our people component as we seek to make a positive impact on the lives of our associates. For example, in supply chain, we have our Leadership, Excellence, and Accelerated Development program, which we refer to as LEAD. Through this program, we developed leadership fundamentals for our operations leaders. Since its inception, 970 associates have participated in the program.

Dirk Locascio: And none is more important than our people component as we seek to make a positive impact on the lives of our associates. For example, in supply chain, we have our leadership, excellence, and accelerated development program, which we refer to as LEED.

Dirk Locascio: Through this program, we've developed leadership fundamentals for our operations leaders.

Dirk Locascio: Since its inception, 970 associates have participated in the program.

David Flitman: I would encourage you to read our sustainability report on our website to see the tremendous progress we have made on our journey and our exciting initiatives and future goals. Turning to slide seven and our second pillar service. We strive to provide the best delivery and service experience to our customers. And we made year-over-year progress during the second quarter on both on-time delivery and in-full service levels. We also improve distribution productivity again in this quarter. Our new depart rounding technology is now live in eight markets. By year end, we expect to roll out to an additional 18 markets and have approximately 50% of our routed miles on depart.

Dirk Locascio: I would encourage you to read our sustainability report on our website to see the tremendous progress we have made on our journey and our exciting initiatives and future goals.

Dirk Locascio: Turning to slide 7, and our second pillar, service.

Dirk Locascio: We strive to provide the best delivery and service experience to our customers, and we made year-over-year progress during the second quarter on both on-time delivery and in full-service levels.

Dirk Locascio: We also improved distribution productivity again this quarter.

Dirk Locascio: Our new Descartes routing technology is now live in eight markets.

Dirk Locascio: by year-end we expect to roll out to an additional eighteen markets and have approximately fifty percent of our routed mildees thec

David Flitman: This great work, combined with additional benefits from our Market Lead Routing Initiative, delivered a 3.7% improvement in cases per mile during the quarter. Additionally, turnover reduction, flexible scheduling implementation, and process standardization continue to help improve our overall productivity. Finally, as JT highlighted at our Investor Day, US Foods holds the leadership position in digital commerce in the food service industry. While that's exciting, I am even more enthusiastic about where we are taking Moxie and Vitals to our continued technology investments and use of artificial intelligence. Driven by our ambition, we will continue to bring additional value and better user experiences to our customers through our digital platform.

Dirk Locascio: This great work, combined with additional benefits from our market-led routing initiative, delivered a 3.7 percent improvement in cases per mile during the quarter.

Dirk Locascio: Additionally, turnover reduction, flexible scheduling implementation, and process standardization continue to help improve our overall productivity.

Dirk Locascio: Finally, as JT highlighted at our Investor Day, US Foods holds the leadership position in digital commerce in the food service industry.

JT: While that's exciting, I am even more enthusiastic about where we are taking MOXIE and Vitals through our continued technology investments and use of artificial intelligence.

Dirk Locascio: Driven by our ambition, we will continue to bring additional value and better user experiences to our customers through our digital platform.

David Flitman: And to highlight one functionality enhancement, we recently optimized our delivery tracking function utilizing artificial intelligence within the Where's My Truck feature for Moxie customers to track their truck and delivery time. Over the past few months in our pilot markets, we've improved our delivery window accuracy by 40%. And we've seen a significant reduction in delivery-related customer service calls in those markets as a result of a better customer experience. This solution will be implemented in all markets by the end of the year.

Dirk Locascio: And to highlight one functionality enhancement, we recently optimized our delivery tracking function utilizing artificial intelligence within the Where's My Truck feature for MOXIE customers to track their truck and delivery time.

Unknown Executive: Over the past few months in our pilot markets, we've improved our delivery window accuracy by 40 percent, and we've seen a significant reduction in delivery-related customer service calls in those markets as a result of a better customer experience. Let's now turn to our growth pillar on slide 8.

Dirk Locascio: Over the past few months in our pilot markets, we've improved our delivery window accuracy by 40 percent.

Dirk Locascio: And, we've seen a significant reduction in delivery-related customer service calls in those markets as a result of a better customer experience.

Dirk Locascio: This solution will be implemented in all markets by the end of the year.

David Flitman: Let's now turn to our growth pillar on slide 8. We remain laser focused on accelerating profitable growth and gaining market share with our target customer types. Our 5.7% independent case growth was driven by a combination of new account wins and growth from our recent acquisitions. We remain highly confident that we will exceed our 1 and a half times market growth goal for restaurants for the full year. Our Pronto Small Truck delivery service continues to gain traction in its live in 40 markets. Pronto caters to the hard-to-service customers in high-density urban areas with later cut-off times and next-day delivery requirements.

Dirk Locascio: Let's now turn to our growth pillar on slide eight. We remain laser-focused on accelerating profitable growth and gaining market share with our target customer types.

Dirk Locascio: Our 5.7% independent case growth was driven by a combination of new account wins and growth from our recent acquisitions.

Dirk Locascio: We remain highly confident that we will exceed our one-and-a-half times market growth goal for restaurants for the full year.

Dirk Locascio: Our Pronto small truck delivery service continues to gain traction and is live in 40 markets.

Dirk Locascio: Pronto caters to hard-to-service customers in high-density urban areas with later cut-off times and next-day delivery requirements.

David Flitman: Our newly launched Pronto penetration service is a differentiator that fills in non-routine delivery days for existing independent customers, which further expands our share of wallet. Earlier this year, we successfully launched two pilot markets, and the early results are positive, which with much stronger independent case growth. We have four additional markets planned for later this year, and Pronto is now on track to generate nearly $700 million of annualized sales this year.

Dirk Locascio: Our newly launched Pronto Penetration Service is a differentiator that fills in non-routine delivery days for existing independent customers, which further expands our share of wallet.

Unknown Executive: Earlier this year, we successfully launched two pilot markets, and the early results are positive, with much stronger independent case growth. We have four additional markets planned for later this year, and Pronto is now on track to generate nearly $700 million in annualized sales this year. These high-quality, innovative products enable competitive pricing for our customers while also improving our market. Great companies are constantly adapting and looking for ways to become more efficient. As we continue to identify ways to become more efficient and take steps to streamline our corporate and field interactions, we took additional cost actions this quarter, and our customers.

Dirk Locascio: Earlier this year, we successfully launched two pilot markets, and the early results are positive, with much stronger independent case growth.

Dirk Locascio: We have four additional markets planned for later this year, and Pronto is now on track to generate nearly $700 million of annualized sales this year.

David Flitman: Turning to slide 9, our profit killer. Our proven operational playbook, merchandising excellence work, and team-based selling approach increased adjusted growth profit by 8% in the second quarter to $1.7 billion. We also continue to make progress in growing our private label grants, which grew approximately 100 basis points year-over-year to more than 52% penetration with independent customers. Our continued focus on private label penetration represents a pathway to profitable growth for US Foods. These high-quality innovative products enable competitive pricing for our customers while also improving our market. Great companies are constantly adapting and looking for ways to become more efficient, continuously driving productivity and reinvesting a portion of those savings to fuel future growth.

Dirk Locascio: Turning to slide 9, our profit pillar.

Dirk Locascio: Our proven operational playbook, merchandising excellence work, and team-based selling approach increased adjusted gross profit by 8% in the second quarter to $1.7 billion.

Dirk Locascio: We also continue to make progress on growing our private label brands, which grew approximately 100 basis points year-over-year to more than 52% penetration with independent customers.

Dirk Locascio: Our continued focus on private label penetration represents a pathway to profitable growth for U.S. foods.

Dirk Locascio: These high-quality, innovative products enable competitive pricing for our customers while also improving our markets.

Dirk Locascio: Great companies are constantly adapting and looking for ways to become more efficient, continuously driving productivity and reinvesting a portion of those savings to fuel future growth.

David Flitman: As we continue to identify ways to become more efficient and take steps to streamline our corporate and field interactions, we took additional cost actions this quarter. We now expect to achieve $80 million in expense savings in 2024. And $120 million on an annualized run rate. These changes underscore our commitment to achieving our three to five percent annual productivity target, while more effectively serving our customers.

Dirk Locascio: As we continue to identify ways to become more efficient and take steps to streamline our corporate and field interactions, we took additional cost actions this quarter.

Dirk Locascio: We now expect to achieve $80 million in expense savings in 2024 and $120 billion on an annualized run rate.

Dirk Locascio: These changes underscore our commitment to achieving our 3-5% annual productivity target while more effectively serving our customers.

David Flitman: Finally, as we announced during our investor day, given the lack of synergies, we believe Shester would benefit from focused investment under new ownership. We are still in the process of exploring strategic alternatives and provide updates as appropriate. Throughout the process, we remain fully committed to supporting the Shester or business, our associates, and our customers.

Dirk Locascio: Finally, as we announced during our Investor Day, given the lack of synergies, we believe Chef Store would benefit from focused investment under new ownership.

Dirk Locascio: We are still in the process of exploring strategic alternatives and will provide updates as appropriate.

Dirk Locascio: Throughout the process, we remain fully committed to supporting the Chef Store business, our associates,

David Flitman: Before I hand it over to Dirk, I would like to acknowledge one of our drivers, Jason Buck, who works in our Knoxville distribution center. One of our cultural beliefs at US Foods is the liver excellence, and Jason embodies this belief every day. Jason joined US Foods in 2004 and has been named Driver of the Year twice. He also runs our weekly driver skills course with all new drivers and plays a lead role on our local safety team. Importantly, Jason's efforts contributed to the Distribution Center exceeding its on-time service metrics during the deployment of our card grounding platform.

Dirk Locascio: and our customers.

Speaker Change: Before I hand it over to Dirk, I would like to acknowledge one of our drivers, Jason Buck, who works in our Knoxville Distribution Center.

Speaker Change: One of our cultural beliefs at US Foods is the liver excellence, and Jason embodies this belief every day.

Unknown Executive: Jason joined US Foods in 2004 and has been named Driver of the Year twice. I thank Jason for all he does to deliver excellent service to our customers and ensure a safe work environment for our Knoxville associates. Thank you, Dave.

Speaker Change: jason joined u s foods in two thousand and four and has been named a driver of the year twice

Dirk Locascio: He also runs our weekly driver skills course with all new drivers and plays a lead role on our local safety team.

Dirk Locascio: Importantly, Jason's efforts contributed to the distribution center exceeding its on-time service metrics during the deployment of our CART routing platform.

David Flitman: At night, Jason for all he does to deliver excellent service to our customers and ensure a safe work environment for our Knoxville associates. As we approach Labor Day, I also want to thank all our associates for their hard work, their commitment to our safety culture, their relentless focus on providing superior customer service, and for making US Foods a great place to work.

Speaker Change: I thank Jason for all he does to deliver excellent service to our customers and ensure a safe work environment for our Knoxville associates.

Speaker Change: As we approach Labor Day, I also want to thank all our associates for their hard work, their commitment to our safety culture, their relentless focus on providing superior customer service, and for making US Foods a great place to work.

Dirk Locascio: Let me now turn the call over to Dirk to discuss our second quarter results in more detail in our 2024 guidance.

Dirk Locascio: Let me now turn the call over to Dirk to discuss our second quarter results in more detail and our 2024 guidance.

Dirk Locascio: Second quarter results were largely consistent with our expectations, with continued top line growth and further margin expansion, leading to record adjusted EBITDA and adjusted EBITDA margin. We deliver this record profitability through our balanced approach to drive top and bottom line growth, despite the software operating environment. Starting on slide 11, second quarter net sales increased 7.7 percent and 9.7 billion dollars, driven by total case volume growth 5.2 percent and food cost inflation of 2.9 percent, while mixed with a headwind of 40 basis points. We drove case growth faster than the market and captured share gains in the second quarter, including our 13th consecutive quarter market share gains with independent restaurants.

Unknown Executive: Second quarter results were largely consistent with our expectations, with continued top line growth and further margin expansion. We deliver this record profitability through our balanced approach to drive top and bottom line growth despite the softer operating environment, starting on slide 11. Strong Gross Profit Gains and Disciplined Expense Management. Finally, adjusted EPS increased 17.7% to 93 cents. Turning to slide 12, we once again expanded adjusted gross profit per case faster than adjusted operating expense per case, resulting in further adjusted EBITDA per case improvement. The COGS initiatives delivered $50 million for the first six months.

Dirk Locascio: Thank you, Dave. Good morning, everyone. Second quarter results were largely consistent with our expectations, with continued top-line growth and further margin expansions, leading to record adjusted EBITDA and adjusted EBITDA margin.

Dirk Locascio: We deliver this record profitability through our balanced approach to drive top and bottom line growth despite the softer operating environment.

Dirk Locascio: Starting on slide 11, second quarter net sales increased 7.7% and $9.7 billion, driven by total case volume growth 5.2% and food cost inflation of 2.9%.

Dirk Locascio: While mixed with a headwind of 40 basis points.

Dirk Locascio: We drove case growth faster than the market and captured share gains in the second quarter, including our 13th consecutive quarter of market share gains with independent restaurants.

Dirk Locascio: Our independent restaurant volume grew 5.7%, including 250 basis points from acquisitions.

Dirk Locascio: Couture growth remain strong at 6%. Off fatality growth approved to 2.1% as we successfully onboarded new business. Adjusted EBIDOT grew 13.2% from the prior year to a quarterly record $489 million from a combination of profitable volume growth, strong growth profit gains, and disciplined expense management. In addition to strong EBIDOT dollar growth, our adjusted EBIDOT margin expanded by 25 basis points to an all-time high of 5% as adjusted gross profit dollars grew over 200 basis points faster than adjusted off-ex dollars. Finally, adjusted EPS increased 17.7% to 93 cents. We continue to grow adjusted EPS at a faster rate than adjusted EBIDOT and expect that trend to continue while deploying more of our strong free cash flow toward repurchases.

Dirk Locascio: Healthcare growth remained strong at 6%. Hospitality growth improved 2.1% as we successfully onboarded new business.

Dirk Locascio: Adjusted EBITDA grew 13.2% from the prior year to a quarterly record $489 million dollars from a combination of profitable volume growth,

Dirk Locascio: Strong Gross Profit Gains, and Disciplined Expense Management.

Dirk Locascio: In addition to strong EBITDA dollar growth, our adjusted EBITDA margin expanded by 25 basis points to an all-time high of 5% as adjusted gross profit dollars grew over 200 basis points faster than adjusted OPEX dollars.

Dirk Locascio: Finally, adjusted EPS increased 17.7% to $0.93.

Dirk Locascio: We continue to grow Adjusted EPS at a faster rate than Adjusted EBITDA and expect that trend to continue, while deploying more of our strong free cash flow to our repurchases.

Dirk Locascio: Turning to slide 12, we once again expanded adjusted gross profit per case faster than adjusted operating expense per case, resulting in further adjusted EBIDOT per case improvement. Adjusted gross profit per case grew by 22 cents or nearly 3% over prior year. Primarily grew by our cost to good soul initiatives and discipline pricing. The COGS initiatives delivered $50 million for the first six months, and for the full year, we expect approximately $70 million in savings. We were well on track to achieve over $220 million in COGS savings from 2022 through the end of this year from our strategic vendor management work.

Dirk Locascio: turning to slide twelve we want to againget expanded adjusted gross profit per case faster than adjusted operating expense per case resulting in further adjusted ebitda for case improvement

Dirk Locascio: Adjusted gross profit per case grew by 22 cents or nearly 3% over prior year.

Dirk Locascio: Primarily driven by our cost of goods sold initiatives and discipline pricing.

Unknown Executive: For the full year, we expect approximately $70 million in savings. Growing our GP per case five and a half times faster than our OpEx per case led to a record adjusted EBITDA per case of $2.27, up 16 cents or 7.6% from the prior year. We expect continued adjusted EBITDA for case expansion as we execute our initiatives while also consistently meeting our customers' needs. We are currently focused on integrating these acquisitions, and we'll lean in on more share repurchases for the remainder of 2024. This includes paying $220 million for IWC and $41 million for share repurchases in the second quarter, which were both funded through operating cash. We're also pleased to report two positive developments related to our credit rating.

Dirk Locascio: The COGS initiatives delivered $50 million for the first six months, and for the full year, we expect approximately $70 million in savings.

Dirk Locascio: We are well on track to achieve over 220 million dollars in COG savings for 2022 through the end of this year from our strategic vendor management work.

Dirk Locascio: Adjusted operating expense per case increased 4 cents, or less than 1%, during primarily by increased labor costs, partially offset by continued distribution productivity improvement from routing efficiency gains, turnover reduction, and process standardization, as well as actions to streamline administrative processes and costs. Growing our GP per case five and a half times faster than our OPEX per case led to a record adjusted EBIDOT per case of $2.27. Up 16 cents or 7.6% from the prior year. We continue to drive strong leverage throughout the P&L with a combination of profitable buying growth and continued progress on gross margin and operating expense initiatives.

Dirk Locascio: Adjusted operating expense per case increased 4 cents, or less than 1%.

Dirk Locascio: Driven primarily by increased labor costs, partially offset by continued distribution productivity improvement, from routing efficiency gains, turnover reduction, and process standardization, as well as actions to streamline administrative processes and costs.

Operator: At this time, I would like to welcome everyone to the US Foods' second quarter of 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers 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 one again. Thank you.

Dirk Locascio: Growing our GP per case five and a half times faster than our OpEx per case led to a record adjusted EBITDA per case of $2.27.

Dirk Locascio: Up 16 cents, or 7.6% from the prior year.

Dirk Locascio: We continue to drive strong leverage throughout the P&L with a combination of profitable volume growth and continued progress on gross margin and operating expense initiatives.

Dirk Locascio: We expect continue to adjust the EBIDOT per case expansion as we execute our initiatives while also consistently meeting our customers' needs. Moving on to slide 13, we have generated strong cash flow here today, including $621 million of operating cash flow and $467 million of free cash flow. Driven by increased profitability and disciplined working capital management. However, this was lower than the prior year, as we had more working capital benefit in the first half of 2023 due to the immature reduction benefits from the replenishment optimization initiative that Bill Hancock discussed during our investor day. Excluding the working capital impact, operating cash flow is modestly above the prior year.

Michael Neese: I would now like to turn the call over to Mr. Mike Neese, Senior Vice President of Investor Relations. Please go ahead. Thank you, Carrie.

Dirk Locascio: We expect continued adjusted EBITDA for case expansion as we execute our initiatives while also consistently meeting our customers needs.

Dave Flitman: Good morning, everyone, and welcome to the US Foods' second quarter of fiscal year 2024 earnings call.

Dave Flitman: On today's call, we have Dave Flipp and our CEO, and Dirk Locascio, CFO. We will take your questions after our prepared remarks conclude. Please open yourself to one question and one follow.

Dirk Locascio: Moving on to slide 13.

Dirk Locascio: We have generated strong cash flow here today, including $621 million of operating cash flow and $467 million of free cash flow.

Dirk Locascio: Driven by increased profitability and disciplined work in capital management.

Dave Flitman: Our earnings release issued earlier this morning. And today's presentation can be found on the Invest Relations page of our website at ir.usfoods.com. During today's call, and unless otherwise stated, we're comparing our second quarter of fiscal year 2024 to the same period in our second quarter of fiscal year 2023. In addition to historic information, certain statements made during today's call are considered for looking statements. Please review the risk factors in our form 10k.

Dirk Locascio: However, this was lower than the prior year as we had more working capital benefit in the first half of 2023 due to the inventory reduction benefits from the Replenishment Optimization Initiative that Bill Hancock discussed during our Investor Day.

Dirk Locascio: Excluding the working capital impact, operating cash flow is modestly above the prior year.

Dirk Locascio: Our durable stream of cash flow enables us to invest in the business and return capital to shareholders. We invest in $156 million in cash catbacks for the first six months, mainly focused on projects to support growth, including information technology, property equipment, as well as maintenance of our distribution facilities.

Dirk Locascio: Our durable stream of cash flow enables us to invest in the business and return capital to shareholders.

Dirk Locascio: We invested $156 million in cash cap acts for the first six months.

Dave Flitman: For a detailed discussion of the potential factors that could cause our actual results to differ materially from those statements. During today's call, we will refer to certain non-gap financial measures. All reconciliation 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 reconciliation to forward looking non-gap financial measures.

Dirk Locascio: Mainly focused on projects to support growth, including information technology, property and equipment, as well as maintenance of our distribution facilities.

Dirk Locascio: On June 1st, 2024, the board authorized the new $1 billion share purchase program. Under this new authorization, we repurchased $21 million in June 2024. In the third quarter today, through August 7th, we have repurchased approximately $61 million. We have approximately $918 million remaining in the authorization. Since the inception of our buyback program in November 2022, we have repurchased $10 million shares for a total cost of $425 million.

Dirk Locascio: On June 1st, 2024, the Board authorized a new $1 billion share repurchase program. Under this new authorization, we repurchased $21 million in June 2024.

Dirk Locascio: In the third quarter today, through August 7th, we have repurchased approximately $61 million.

Dave Flitman: Thank you. I'll turn the call over today.

Dave Flitman: Thanks, Mike.

Dave Flitman: Good morning, everyone. And thank you for joining us. Before we turn to our second quarter results, I would like to thank everyone who joined our investor day in June. It was a great event and we were excited to share our story, future goals, and our ambition to become the undisputed best in our industry, the safest, the fastest growing, the most profitable, leading digital, and the best place to work. Importantly, we laid out our financial algorithm for 2025 through 2027, which includes growing sales at a 5% cater, increasing adjusted EBITDA at a 10% cater, expanding adjusted EBITDA margin by at least 20 basis points per year, and growing adjusted deluded EPS 20% annually.

Dirk Locascio: We have approximately $918 million dollars remaining in the authorization.

Dirk Locascio: Since the inception of our buyback program in November 2022, we've repurchased 10 million shares for a total cost of $425 million.

Dirk Locascio: Rounding out capital deployment, we have completed three acquisitions over the past 18 months, and will continue to be opportunistic in selectively pursuing a creative token M&A. We are currently focused on integrating exact acquisitions, and we'll lean in on more share repurchases for the remainder of 2024. Turning to slide 14, we remain well within our two to three times net leverage target, where the strong value sheet, as we ended the quarter, at 2.6 times leverage, which is a 0.4-term reduction from the same period last year. This includes paying $220 million for IWC and $41 million for share repurchases in the second quarter, which were both funded through operating cash flow.

Dirk Locascio: Rounding out capital deployment, we have completed three acquisitions over the past 18 months and will continue to be opportunistic in selectively pursuing a creative tuck in M&A.

Dirk Locascio: we are currently focused on integrating these acquisitions and we'will leadan in on more share repurchase for the ft remainder of two thousand and four

Dirk Locascio: turning to slide fourteen

Dirk Locascio: we remain well within our two to three times not leverage target with a strong balance sheet as we ended the quarter at two point six times levered which is a point four - term reduction from the same period last year

Dave Flitman: We also expected to deploy more than $4 billion of capital over that same period, and anticipate approximately half of that will be deployed toward share repurchases. We remain excited about our path ahead. Through today's call, I will share several of our accomplishments from the second quarter and update the UNT initiatives across each of our four strategic pillars. Then Dirk will review our second quarter financial results in our fiscal year 2024 guidance.

Dirk Locascio: This includes paying $220 million for IWC and $41 million for share repurchases in the second quarter, which were both funded through operating cash flow.

Dirk Locascio: We're also pleased to report two positive developments related to our credit ratings. Our corporate credit rating was upgraded one notch by Moody's to VA2, and S&P revised their outlook on U.S. foods to positive. Each reflecting the continued execution of our long-range plan, an expectation that the initiatives outlined our investor day will drive further earnings growth and credit metric improvement.

Unknown Executive: We're also pleased to report two positive developments related to our credit ratings.

Dirk Locascio: Our corporate credit rating was upgraded one notch by Moody's to BA2 and S&P revised our outlook on US Foods to positive.

Dirk Locascio: Each reflecting the continued execution of our long-range plan and expectation that the initiatives outlined in our Investor Day will drive further earnings growth and credit metric improvement.

Dave Flitman: Turning to slide 4, in the second quarter, we delivered record EBITDA driven by a combination of top line growth and margin expansion, as our growth profit grew significantly faster than operating expense. Our team's success is quarter further emphasizes the strength of our operating model and our ability to control the controllables. This balance of top-line growth, growth profit expansion and cost productivity led to significant adjusted EBITDA and EPS growth, along with a record adjusted EBITDA margin of 5%.

Dirk Locascio: Now turning to guidance on slide 15. Given our strong first half of the year, an outlook for the remainder of 2024, we are reiterating our fiscal year in 2024, net sales, adjusted EBITDA, and adjusted diluted EPS guidance. Moving to modeling assumptions. For 2024, we continue to expect total cash growth of 46%. We are updating our sales inflation assumption to a range of 1 to 2%. Despite the operating environment, we continue to grow top line, gain share, expand our margins, and deploy our strong free cash flow against our capital allocation priorities. We are well positioned to deliver on our 2024 financial targets and remain committed to our new three-year long-range plan.

Dirk Locascio: Now turning to guidance on slide 15.

Unknown Executive: Given our strong first half of the year and outlook for the remainder of 2024, we are reiterating our fiscal year 2024 net sales, adjusted EBITDA, and adjusted diluted EPS guidance.

Dirk Locascio: Moving to modeling assumptions.

Dirk Locascio: For 2024, we continue to expect total case growth of 4 to 6 percent. We are updating our sales inflation assumption to a range of 1 to 2 percent.

Unknown Executive: Despite the operating environment, we continue to grow top line, gain share, expand our margins, and deploy our strong free cash flow against our capital allocation priorities.

Dave Flitman: We also continue our disciplined approach to capital deployment. As we announced that our investor day, our board authorized a $1 billion share repurchased program in early June. Dirk will provide a status of our repurchases in more detail. We do expect to be more aggressive buying back our shares over the balance of this year.

Dirk Locascio: We are well positioned to deliver on our 2024 financial targets and remain committed to our new three-year long-range plan.

David Flitman: With that, I'll now pass the back today for his closing remarks.

Dirk Locascio: Thanks Dirk. We continue to execute our strategy, gain market share, and improve profitability and record an adjusted EBITDA margin of 5% while gaining share in our highest-margin customer type.

David Flitman: Thanks, Dirk. We continue to execute our strategy, gain market share, and improve profitability. We delivered double digits, adjusted EBITDA growth, and record adjusted EBITDA margin of 5%, while gaining share in our highest margin, customer types. Our strong business model serving independent restaurants, healthcare, and hospitality, which are among the fastest growing and most profitable customer types in the food service industry, combined with the execution of our strategic initiatives, supports our ambition to be the undisputed best in our industry.

Dirk Locascio: With that, I'll now pass it back to Dave for his closing remarks. Thanks, Dirk. We continue to execute our strategy, gain market share, and improve profitability.

Dave Flitman: Let's turn to broader industry trends in the health of our markets. Restaurant foot traffic remained pressured during the second quarter and was down approximately 3%. Despite the current headwinds facing our industry, our team captured proper market share and target customer types as we focused on executing our playbook. Specifically, our independent restaurant share increased for the 13th consecutive quarter and our share gains improved sequentially each month throughout the second quarter. Our strategy is succeeding as evidenced by our volume growth and share gains. Our team's work remains guided by our four strategic pillars and I will discuss our progress on each of them over the next few slides.

Dave Flitman: We deliver double-digit adjusted EBITDA growth and record adjusted EBITDA margin of 5% while gaining share in our highest margin customer types.

Dave Flitman: Our strong business model serving independent restaurants, health care, and hospitality, which are among the fastest growing and most profitable customer types in the food service industry, combined with the execution of our strategic initiatives, supports our ambition to be the undisputed best in our industry.

David Flitman: History, and we have a long runway of profitable growth in front of us, including delivering our 2025 to 2027 growth algorithm, which includes a 10% adjusted even our growth caterer. We remain laser focused on improving the business to generate profitable growth, while executing our capital deployment priorities.

Dirk Locascio: And, we have a long runway of profitable growth in front of us, including delivering our 2025 to 2027 growth algorithm, which includes a 10% adjusted EBITDA growth cager.

Dirk Locascio: we remain laser focused on improving the business to generate profitable growth while executing our capital deployment priorities

Operator: And with that, Kerry, please open up the lines for questions. Thank you. Oh, now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hands and join the queue. If you would like to withdraw your question, simply press star one again.

Dave Flitman: Turning to slide six, our first pillar is culture. Keeping our associates safe is paramount. During the second quarter, our injury and accident rates were 19% better than the prior year and were our best results since 2020. We remain focused on improving our safety performance as we strive to achieve zero injuries. We published our 2023 sustainability report in the second quarter, highlighting progress in our three key focus areas, products, people, and climate.

Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. We do request for today's session that you please limit your question to one and one follow-up. Your first question will come from Edward Kelly with Wells Fargo.

Operator: And with that, Kerry, please open up the line for questions.

Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question.

Operator: Please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.

Operator: We do request for today's session that you please limit your question to one and one follow-up. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Operator: We do request for today's session that you please limit your question to one and one follow-up. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Dave Flitman: And none is more important than our people component as we seek to make a positive impact on the lives of our associates. For example, in supply chain, we have our leadership, excellence, and accelerated development program, which we refer to as lead. Through this program, we developed leadership fundamentals for our operations leaders. Since its inception, 970 associates have participated in the program. I would encourage you to read our sustainability report on our website to see the tremendous progress we have made on our journey and our exciting initiatives and future goals.

Edward Kelly: And your first question will come from Edward Kelly with both Fargo. Hi, morning, guys. Nice quarter. Dave, I was hoping you could maybe just elaborate or talk a bit more about what you're seeing from an end demands standpoint, maybe even by customer type. I'm just curious how the quarter evolved and then specifically what you saw in July. And then as part of the start, you know, how are you feeling about the two to four percent organic case volume target for the year? I think you do need maybe a little bit of acceleration with that cap.

Speaker Change: Your first question will come from Edward Kelly with Wells Fargo.

Edward Kelly: Dave, I was hoping you could, you know, maybe just elaborate or talk a bit more about what you're seeing from an end demand standpoint, you know, maybe even by customer type. I'm just kind of curious how the quarter evolved, and then specifically what you saw in July. And then, as part of the start, you know, how are you feeling about the two to 4% organic case volume target for the year? I think you do need maybe a little bit of acceleration to bridge that gap.

Speaker Change: Hi. Good morning, guys. Nice quarter.

Edward Kelly: Dave, I was hoping could...

Edward Kelly: Could you, you know, maybe just elaborate or talk a bit more about what you're seeing from an end demand standpoint, you know, maybe even by customer type, I'm just kind of curious how the how the quarter

Edward Kelly: Dirk, how are you feeling about the 2-4% organic case volume target for the year?

Dave Flitman: Turning to slide seven and our second pillar service. We strive to provide the best delivery and service experience to our customers. And we made year over year progress during the second quarter on both on time delivery and in full service levels. We also improve distribution productivity again in this quarter. Our new depart rounding technology is now live in eight markets. By year end, we expect to roll out to an additional 18 markets and have approximately 50% of our routed miles on depart.

David Flitman: Well, I'll take that last part of that question in first, but I think we were confident in that two to four percent case growth and reiterated our full guidance for the year as just outlined. So we're confident in that. But, as you point out, I think the macro is a little softer than we expected coming into the year. What you've seen us do is control the controls very well, which is what we always say we're going to do. You know, we can't control the macro, but we can control our ability to drive growth on the top line, which we continue to do in the second quarter and also into July, to your point, despite what's going on in the macro.

Ed: Well, I'll take that last part of that question, Ed. First, I think we were confident in that 2-4% case growth and reiterated our full guidance for the year, as Dirk just outlined. So we're confident in that. But as you point out, I think the macro is a little softer than we expected coming into the year. But what you've seen us do is...

Dave Flitman: Control of uncontrollables very well, which is what we always say we're going to do. You know, we can't control the macro, but we can't control our ability to drive growth on the top line, which we continue to do in the second quarter.

Dave Flitman: This great work, combined with additional benefits from our Market Lead Routing Initiative, delivered a 3.7% improvement in cases per mile during the quarter. Additionally, turnover reduction, flexible scheduling implementation, and process standardization continue to help improve our overall productivity.

David Flitman: And you know, things around the macro will ebb and flow, but our ability to drive our initiatives and make this thing as strong as it can possibly be is completely within our control. And so, you know, we've seen lower foot traffic, as we pointed out, down three percent in the second quarter. I think the back half of the quarter was a little slower than the first half, and that trend kind of continued into July. Health care remains very strong. You saw our robust growth there in hospitalities. We said last quarter we were on board new business.

Speaker Change: and also end of July , to your point.

Dave Flitman: Despite what's going on in the macro and you know things around the macro will ebb and flow but our ability to drive our initiatives and and make this thing as strong as it can possibly be is completely within our control.

Speaker Change: And so, you know, we've seen lower foot traffic, as we pointed out, down 3% in the second quarter.

Dave Flitman: Finally, as JT highlighted at our investor day, US Foods holds the leadership position in digital commerce in the food service industry. While that's exciting, I am even more enthusiastic about where we are taking moxie and vitals to our continued technology investments and use of artificial intelligence. Driven by our ambition, we will continue to bring additional value and better user experiences to our customers through our digital platform. And to highlight one functionality enhancement, we recently optimized our delivery tracking function utilizing artificial intelligence within the Where's My Truck feature for moxie customers to track their truck and delivery time.

Speaker Change: I think the back half of the quarter was a little slower than the first half and that trend kind of continued into July .

Dave Flitman: Health care remains very strong. We saw a robust growth there. And hospitality, as we said last quarter, we were onboarding new business. You've seen us tick up in our case growth there. We expect that will continue into the third quarter and into the back half.

David Flitman: You've seen us take up in our case growth there. We expect that will continue into the third quarter and into the back half. So, that's kind of how we see it, and we're not counting on the market helping us in the back half to achieve what we said we were going to achieve, and we'll continue to execute our playbook.

Dave Flitman: So, that's kind of how we see it, and we're not counting on the market helping us in the back half to achieve what we said we were going to achieve, and we'll continue to execute our playbook.

David Flitman: So, follow up, Dave, can I just ask you on any adjustments that you are making to the business, you know, in this, you know, in this backdrop? I know you're, you know, controlling what you can control, but, you know, today you talked about some cost action, you know, that was incremental. Curious on like the selling side, you know, if there's any, you know, fine tuning that you make there and this type of backdrop, just any additional color there. Yeah, I think we, you know, we modified our TM. Compensation plan going into the year. We're pleased with progress we're making there and how that's playing out. As you recall, we've analyzed more of that.

Edward Kelly: This is a follow-up, Dave. Can I just ask you about any adjustments that you are making to the business in this backdrop? I know you're controlling what you can control, but today you talked about some cost action that was incremental. Curious on the selling side, if there's any fine-tuning that you make there in this type of backdrop. Is there any additional color there?

Edward Kelly: This is a follow up, Dave. Can I just ask you on, you know, any adjustments that you are making to the business, you know, in this, you know, in this backdrop, I know you're, you know, controlling what you can control. But, you know, today, you talked about some cost action.

Dave Flitman: Over the past few months in our pilot markets, we've improved our delivery window accuracy by 40%. And we've seen a significant reduction in delivery-related customer service calls in those markets as a result of a better customer experience. This solution will be implemented in all markets by the end of the year.

Speaker Change: that was incremental curious on like the selling side if there's any inetuning that you make there in a stp of back ddrupt there any additional color there

Dave Flitman: Yeah, I think we've, you know, we've modified our, our TM.

Speaker Change: Compensation Plan going into the year. We're pleased with the progress we're making there and how that's playing out. As you recall, we variable-ized more of that.

David Flitman: To incentive our sellers to drive more aggressive growth and also incentive them to grow our private label brands. As you heard, we were up 100 basis points year over year with independent restaurants with our brands. I think the root of that is our continued ability to bring innovation and great products of the marketplace, supplemented with, you know, those compensation plans changes. And to your point on the expense side, you know, I said since the day I got here, we were going to drive 3% productivity. And we've been ramping that up to the course of the last 18 months, and we've really been driving that aggressively in the first half of this year.

Dave Flitman: Let's now turn to our growth pillar on slide 8. We remain laser focused on accelerating profitable growth and gaining market share with our target customer types. Our 5.7% independent case growth was driven by a combination of new account wins and growth from our recent acquisitions. We remain highly confident that we will exceed our 1 and a half times market growth goal for restaurants for the full year. Our Pronto Small Truck delivery service continues to gain traction in its live in 40 markets.

Speaker Change: to incent our sellers to drive more aggressive growth and also incentive them to grow our private label brands. As you heard, we were up 100 basis points year over year with independent restaurants with our brands. I think at the root of that is our continued ability to bring innovation and great products to the marketplace, supplemented with those compensation plan changes.

Dave Flitman: And to your point on the expense side, you know, I said since the day I got here, we were going to drive 3% productivity.

Speaker Change: And we've been ramping that up through the course of the last 18 months.

David Flitman: And I think that that fits with what we said we're going to do. It also fits with the operating environment that we're in. So I point to those adjustments, and I think you can expect more of the same. And on the sales side, we're continuing to be committed to growing our sales head down in the load amid single digits, despite what's going on in the macro. and Ed, what you really continue to see from our results is continued top line growth, especially in our target customer types, continued focus and execution on growth profit expansion and the cost management.

Dave Flitman: We've really been driving that aggressively in the first half of this year, and I think that that fits with what we said we're going to do, it also fits with the operating environment that we're in. So I point to those adjustments, and I think you can expect more of the same. And on the sales side, we're continuing to be committed to growing our sales headcount and the load of mid-single digits.

Dave Flitman: Pronto caters the hard-to-service customers in high-density urban areas with later cut-up times and next-day delivery requirements. Our newly launched Pronto penetration service is a differentiator that fills in non-routine delivery days for existing independent customers which further expands our share of wallet. Earlier this year we successfully launched two pilot markets and the early results are positive which with much stronger independent case growth. We have four additional markets planned for later this year and Pronto is now on track to generate nearly $700 million of annualized sales this year.

Dave Flitman: Despite what's going on in the macro.

Dave Flitman: And what you really continue to see from our results is continued top-line growth, especially in our target customer types, continued focus and execution on gross profit expansion, and the cost management. So it's really across all three of those and that balance is what makes us feel good about the results that we have and expect to continue to generate.

David Flitman: So it's really across all three of those, and that balance is what makes us feel good about the results that we have and expect to continue to generate.

Operator: Thank you.

Jeffrey Bernstein: Your next question will come from Jeffrey Bernstein with Barclays. Great. Thank you very much. They've just wanted to follow up on your comments about the market share gains, and they've talked about, I guess, 13 consecutive quarters. I think you actually said your share gains improved each month of the second quarter. Just wondering if you could provide some color behind that data, just wondering how you measure that. What do you think you're at all vulnerable to maybe slowing independent sales growth? I know your largest peers and more aggressively hiring and compensate in their sales people. I'm just wondering how you think about that independent case growth market share gains going forward with, again, the competition getting a little bit more aggressive, and then I'd one follow up.

Speaker Change: Thank you.

Dave Flitman: Turning to slide 9, our profit killer. Our proven operational playbook, merchandising excellence work, and team-based selling approach increased adjusted growth profit by 8% in the second quarter to $1.7 billion. We also continue to make progress in growing our private label grants which grew approximately 100 basis points year-over-year to more than 52% penetration with independent customers. Our continued focus on private label penetration represents a pathway to profitable growth for US foods. These high-quality innovative products enable competitive pricing for our customers while also improving our market.

Speaker Change: Great. Thank you very much. Dave, just wanted to follow up on your comments about the market share gains. I know you've talked about, I guess, 13 consecutive quarters.

Speaker Change: I think you actually said your share gains improved each month of the second quarter. I'm just wondering if you could provide some color behind that data, just wondering how you measure that.

Edward Kelly: And what do you think, you're at all vulnerable to maybe slowing independent sales growth? I know your largest peers are more aggressively hiring and compensating their sales people. I'm just wondering how you think about that independent case growth market share gains going forward with, again, the competition getting a little bit more aggressive. And then I had one follow-up.

David Flitman: Yeah, well, as we've been stating for a while, the data that we use to judge our market share is the Serkana, formally in PD data, third-party independent data that looks across the industry. So it's not our data. So when I tell you that we're one gaining share and two that accelerated in the quarter, that that's as supported by the Serkana data. And I keep saying, we're going to control what we can control. We can't control the macro. And even though that foot traffic was down sequentially each month in the quarter, you just heard us say that we ramped up our share gains throughout the quarter.

Dave Flitman: Great companies are constantly adapting and looking for ways to become more efficient, continuously driving productivity and reinvesting a portion of those savings to fuel future growth. As we continue to identify ways to become more efficient and take steps to streamline our corporate and field interactions, we took additional cost actions this quarter. We now expect to achieve $80 million in expense savings in 2024. And $120 million on an annualized run rate. These changes underscore our commitment to achieving our three to five percent annual productivity target, while more effectively serving our customers.

Dave Flitman: Yeah, well, as we've been stating for a while, the data that we use to judge our market share is the Cercana, formerly NPD data, third-party independent data that looks across the industry, so it's not our data. So when I tell you that we're, one, gaining share, and two, that it accelerated in the quarter, that's as supported by the Cercana data.

Dave Flitman: And, you know, I keep saying we're going to control what we can control. We can't control the macro, and even though that foot traffic was down sequentially each month in the quarter.

David Flitman: I expect that will continue. Our team is laser focused on driving growth. And while penetration may be a challenge when foot traffic is down, our ability to generate new accounts is not inhibited at all. By what's going on in the macro? And, as you guys heard, heard me say a lot. We still have a relatively small market share position within the pen of restaurants. And as I tell our team all the time, three out of every four cases on ours. So don't worry about the macro. Go run our place and drive that growth. And that's what we continue to do.

Dave Flitman: You just heard us say that we ramped up our share gains throughout the quarter. I expect that will continue. Our team is laser focused on driving growth.

Speaker Change: And while penetration may be a challenge when foot traffic is down, our ability to generate new accounts is not inhibited at all by what's going on in the macro. And as you guys heard me say a lot.

Dave Flitman: Finally, as we announced during our investor day, given the lack of synergies, we believe Shester would benefit from focus investment under new ownership. We are still in the process of exploring strategic alternatives and provide updates as appropriate. Throughout the process, we remain fully committed to supporting the Shester or business, our associates, and our customers.

Dave Flitman: We still have a relatively small market share position with independent restaurants.

Dave Flitman: And as I tell our team all the time, three out of every four cases are ours, so don't worry about the macro. Go run our plays.

David Flitman: So regardless of what's going on there, Jeff, we'll continue to run our plays, and I'm confident that those share means we'll continue.

Edward Kelly: and Drive That Growth. And that's what we continue to do. So regardless of what's going on there, Jeff, we'll continue to run our plays, and I'm confident that those shared gains will continue.

Dave Flitman: Before I hand it over to Dirk, I would like to acknowledge one of our drivers, Jason Buck, who works in our Knoxville Distribution Center. One of our cultural beliefs at US Foods is the liver excellence and Jason embodies this belief every day. Jason joined US Foods in 2004 and has been named driver of the year twice. He also runs our weekly driver skills course with all new drivers and plays a lead role on our local safety team.

Jeffrey Bernstein: Understood. And then just you mentioned about the private label being up 100 basis points now. I guess to independent customers now to 52%. Do you see increased demand? I don't know whether you're pushing more of that or whether the customers are asking more of that; seemingly, it's lower cost to them, higher margin to you. So I'm wondering how you incentivize that. It would seem like that would be a big opportunity with some of your smaller independent competitors not really having a platform like that.

Speaker Change: Understood. And then just, you mentioned about the private label being up 100 basis points now, I guess, to independent customers, now to 52%.

Speaker Change: Do you see increased demand? I don't know whether you're pushing more of that or whether the customers are asking more of that. Seemingly, it's lower cost to them, higher margin to you. So I'm wondering how you incentivize that. It would seem like that would be a big opportunity with some of your s'mores.

David Flitman: So how do you accelerate that in this type of environment to benefit you and your customers? Thank you. I think it's a combination of great products. And then we pride ourselves on our scoop process, but more broadly the way we bring innovation to our product line with our exclusive brands. We've been doing this for the better part of a dozen years now. And so we believe we're the leader in innovation, and what we do is we bring great quality products from market that help our customers be more efficient in their kitchens. And it's a great time for that need, given the inflation has been absorbed in some of the foot traffic challenges as they're looking to have these great products at a bit lower cost position.

Dave Flitman: Importantly, Jason's efforts contributed to the Distribution Center exceeding its on-time service metrics during the deployment of our card grounding platform. At night, Jason for all he does to deliver excellent service to our customers and ensure a safe work environment for our Knoxville associates.

Speaker Change: Independent Competitors not really having a platform like that. So how do you accelerate that in this type of environment to benefit you and your customers? Thank you.

Dave Flitman: I think it's a combination of great products and we pride ourselves on our scoop process but more broadly the way we bring innovation to our product line with our exclusive brands which we've been doing for

Dave Flitman: As we approach Labor Day, I also want to thank all our associates for their hard work, their commitment to our safety culture, their relentless focus on providing superior customer service, and for making US Foods a great place to work.

Speaker Change: The better part of a dozen years now. And so we believe we're the leader in innovation. And what we do is we we bring great quality products to market that help our customers be more efficient in their kitchens.

Speaker Change: And it's a great time for that need given the inflation that's been absorbed and some of the foot traffic challenges as they're looking to have these great products.

Dirk Locascio: Let me now turn the call over to Dirk to discuss our second quarter results in more detail in our 2024 guidance. Second quarter results were largely consistent with our expectations, with continued top line growth and further margin expansion, leading to record adjusted EBITDA and adjusted EBITDA margin. We deliver this record profitability through our balanced approach to drive top and bottom line growth despite the software operating environment. Starting on slide 11, second quarter net sales increased 7.7 percent and 9.7 billion dollars, driven by total case volume growth 5.2 percent and food cost inflation of 2.9 percent, while mixed with a headwind of 40 basis points.

David Flitman: You couple that with the changes that we made to the TM incentive plan this year to incentive to drive the brand growth more. And I think you're starting to see that play out. And as I said before, I don't see any near-term ceiling to our ability to penetrate the market with our exclusive brand. Jeff, the last couple of quarters, you've heard us talk a lot about since vendor supply stabilized and we've increased the focus again with our sellers. You're not saying that really come to fruition in the form of growth, and this has been an hour, a couple of quarters were reaching that growth.

Speaker Change: at a bit lower cost position.

Speaker Change: You couple that with the changes that we made to the TM Incentive Plan this year to incentive them to drive the brand growth more, and I think you're starting to see that play out. And as I've said before, I don't see any near-term ceiling to our ability to penetrate the market with our exclusive brands.

Jeff: Jeff, the last couple quarters you've heard us talk a lot about since vendor supply stabilized and we've increased the focus again with our sellers, you're now seeing that really come to fruition in the form of growth and this has been now a couple quarters where we've seen that growth. Like Dave said, we expect that to continue.

David Flitman: Like Dave said, we expect that to continue.

Mark Carden: Your next question will come from Mark Carden with UBS. Great. Good morning. Thanks so much for taking the questions. So to start, just another question in the sales force, and essentially controlling the controllables. I was really surprised.

Operator: Your next question will come from Mark Carden with UBS.

Speaker Change: Thank you.

Speaker Change: Thank you.

Operator: Your next question will come from Mark Carden with UBS.

Mark Carden: Great. Good morning. Thanks so much for taking the questions. So, to start, just another question on the sales force and essentially controlling the controllables. How is retention trending, just given some of the softening in traffic? Does this shift to more variable compensation acting as a double-edged sword in any sense? Or if not, what have you been able to do to weather the headwinds quite well?

Dirk Locascio: We drove case growth faster than the market and captured share gains in the second quarter, including our 13th consecutive quarter market share gains with independent restaurants. Couture Growth Remain Strong at 6% Off Fatality Growth Approved to 2.1% as we successfully onboarded new business. Adjusted EBIDOT grew 13.2% from the prior year to a quarterly record $489 million from a combination of profitable volume growth, strong growth profit gains, and discipline expense management. In addition to strong EBIDOT dollar growth, our adjusted EBIDOT margin expanded by 25 basis points to an all-time high of 5% as adjusted gross profit dollars grew over 200 basis points faster than adjusted off-ex dollars.

David Flitman: Just given some of the softening and traffic, does this shift some more variable compensation act as a double wedge stored in any sense, or if not, what have you been able to do to whether the headlines quite well. Yeah, I think, you know, we do a great job on porting new TMS. In fact, I had the opportunity to talk to our latest class on Tuesday this week. We had an income class of 50. We get asked. A lot, you know, with what's going on in the marketplace, whether we have challenges finding great sales. We are not having problems finding great sales talent.

Speaker Change: Yeah, I think, you know, we do a great job of onboarding new TMs. In fact, I had the opportunity to talk to our latest class on Tuesday of this week. We had an incoming class of 50.

Speaker Change: We get asked a lot, you know, with what's going on in the marketplace, whether we have challenges finding great sales talent. We are not having problems finding great sales talent. That's why I'm confident that we'll continue to

David Flitman: That's why I'm confident that we'll continue to. To hit that low to mid single digits, head count rose as we committed to for the full year. You know, and it's really about how we onboard our sales talent, how we give them a portion of business. You know, in this route splitting is very important. We outlined a couple quarters ago. You know, we take and see these. New sellers with some business that they can, they can grow from. And we also have ongoing training, you know, throughout their first couple of years here. So it's not a one-and-done.

Speaker Change: to hit that low to mid single-digit headcount growth as we've committed to for the full year.

Dave Flitman: It's really about how we onboard our sales talent.

Speaker Change: How we give them a portion of business, you know, and this route splitting is very important that we outline.

Speaker Change: A couple quarters ago, you know, we take and seed these new sellers with some business that they can they can grow from.

Dirk Locascio: Finally, adjusted EPS increased 17.7% to 93 cents. We continue to grow adjusted EPS at a faster rate than adjusted EBIDOT and expect that trend to continue while deploying more of our strong free cash flow toward repurchases. Turning to slide 12, we once again expanded adjusted gross profit per case faster than adjusted operating expense per case, resulting in further adjusted EBIDOT per case improvement. Adjusted gross profit per case grew by 22 cents or nearly 3% over prior year.

Speaker Change: And we also have ongoing training, you know, throughout.

David Flitman: It's not that we put them through an intense training program and throw them on the street and let them go find their way. We continue to nurture them. And, as we said before, you know, it really depends on where that sales talent comes from. You know, we hire operators, higher competitive reps. We hire people from outside the industry with strong sales backgrounds. And it really depends on what they're. Experiences whether they bring a book of business or not in terms of how quickly they ramp up their productivity. But we know exactly who they are, with all the various cohorts that come in.

Speaker Change: Their first couple years here. So it's not a one and done. It's not that we put them through an intense training program and throw them on the street and let them go find their way.

Speaker Change: We continue to nurture them.

Speaker Change: And as we said before, you know, it really depends on where that sales talent comes from. You know, we hire operators, we hire competitive reps.

Speaker Change: We hire people from outside the industry with strong sales backgrounds.

Speaker Change: And it really depends on what their experience is, whether they bring a book of business or not.

Speaker Change: In terms of how quickly they ramp up their productivity. We know exactly who they are with all the various cohorts that come in. We know what those classes look like and we make sure we give them the ongoing support that they need, including some pretty intense product training.

David Flitman: We know what those classes look like when we make sure we give them the ongoing support that they need, including some pretty intense product training. Which suppliers are helpful at helping us deliver in the local markets. So we've got a great plan.

Dirk Locascio: Primarily grew by our cost to good soul initiatives and discipline pricing. The COGS initiatives delivered $50 million for the first six months and for the full year, we expect approximately $70 million in savings. We were well on track to achieve over $220 million in COGS savings from 2022 through the end of this year from our strategic vendor management work. Adjusted operating expense per case increased 4 cents or less than 1% during primarily by increased labor costs, partially offset by continued distribution productivity improvement from routing efficiency gains, turnover reduction and process standardization, as well as actions to streamline administrative processes and costs.

Speaker Change: which our suppliers are helpful at helping us deliver in the local markets. So we've got a great plan. Retention is not a challenge. And we're continuing to ramp up our sales force.

David Flitman: Retention is not a challenge, and we're continuing to ramp up our sales portion.

Mark Carden: Great.

Unknown Executive: That's great. And then, turning to hospitality for a second, how are you thinking about hospitality growth in the second half of the year? I know you guys have some new businesses being onboarded in the

David Flitman: And then turning to hospitality for a second, how are you thinking about hospitality growth in the back half of the year. And you guys have some new businesses in on board, and the process is being on board it. But just when you think about the broader macro, how do you think the balance of those two dynamics? Boy, Mark, Sir. I didn't think when you think of the broader macro, to your point, is facing some of the same headwinds that restaurants are facing. However, back to the point of the control of the controllables. We talked about the business we wanted.

Speaker Change: Great, and then turning to hospitality for a second, how are you thinking about hospitality growth in the back half of the year? I know you guys have some new businesses being onboarded and the process of being onboarded, but just when you think about the broader macro, how do you think the balance of those two dynamics?

Dwight Marks: Dwight Marks, Dirk

Speaker Change: When you think of the broader macro, to your point, it's facing some of the same headwinds that restaurants are facing. However, back to the point of the control of the controllables, we talked about the business we've onboarded. We continue to have a strong pipeline of new business that we're expecting and planning to onboard.

David Flitman: We continue to have a strong pipeline of business that we're expecting and playing on board. So our expectation is to continue strengthening of the growth there with hospitality. We've got a lot of differentiation in health care and hospitality. And we think that that growth rate. So we'll go accelerate.

Dirk Locascio: Growing our GP per case five and a half times faster than our OPEX per case led to a record adjusted EBIDOT per case of $2.27. Up 16 cents or 7.6% from the prior year. We continue to drive strong leverage throughout the P&L with a combination of profitable buying growth and continued progress on gross margin and operating expense initiatives. We expect continue to adjust the EBIDOT per case expansion as we execute our initiatives while also consistently meeting our customers needs.

Speaker Change: So our expectation is the continued strengthening of the growth there with hospitality. We've got a lot of differentiation in health care and hospitality, and we think that that growth rate, so we'll be able to accelerate.

Operator: Great.

Lauren Silverman: Thanks so much.

Lauren Silverman: Good luck, guys.

Operator: Your next question will come from Lauren Silberman with Deutsche Bank.

Lauren Silverman: Your next question will come from Lauren Silverman with Deutsche Bank. Thank you, congrats, guys. So I wanted to ask about their promotional environment. I think there are some concerns that we're seeing an increase in promotional activity as sort of distributors fight for case growth, new customer acquisition. Obviously, you guys are seeing strong market gains in your key segments. Are you seeing any increase in promotional activity, and how does that usually play out in more challenging economic backdrops? I think we have seen increased promotional activity, which is not uncommon at any point, given the various cycles that different companies have in terms of when their year end is and all that, but probably a little bit more intense given the macro backdrop.

Lauren Silberman: Great. Thanks so much. Good luck, guys.

Operator: Thank you. Thank you. Your next question will come from Lauren Silverman with Deutsche Bank.

Lauren Silberman: Thank you. Congratulations, guys.

Lauren Silberman: Thank you, congrats guys.

Lauren Silberman: So, I wanted to ask about the promotional environment. I think there are some concerns that we're seeing an increase in promotional activity as sort of distributors fight for case growth, new customer acquisition. Obviously, you guys are seeing strong market...

Dirk Locascio: Moving on to slide 13, we have generated strong cash flow here today, including $621 million of operating cash flow and $467 million of free cash flow. Driven by increased profitability and discipline working capital management. However, this was lower than the prior year as we had more working capital benefit in the first half of 2023 due to the immature reduction benefits from the replenishment optimization initiative that Bill Hancock discussed during our investor day.

Lauren Silberman: and your key segments. Are you seeing any increase in promotional activity and how did that usually play out in more challenging economic backdrops?

Lauren Silberman: to

Lauren Silberman: Yeah, I think we have seen increased promotional activity, which is not uncommon at any point given the various cycles that the different companies have in terms of when their year-end is and all that, but probably a little bit more intense given the macro backdrop. But again, Lauren, I would just point to our results. I don't think that's impacted our ability to drive growth.

David Flitman: But again, I would just point to our results. I don't think that's impacted our ability to drive growth. We have our own promotional activity that we bring to market from time to time. And so we're not immune to that. And we know how to navigate the market for those times. But it's out there. I don't see that intensity, inhibiting our ability to execute what we need to get done in any way.

Dirk Locascio: Excluding the working capital impact operating cash flow is modestly above the prior year. Our durable stream of cash flow enables us to invest in the business and return capital to shareholders. We invest in $156 million in cash catbacks for the first six months, mainly focused on projects to support growth, including information technology, property equipment, as well as maintenance of our distribution facilities.

Speaker Change: We have our own promotional activity that we bring to market from time to time, so we're not immune to that, and we know how to navigate the market during those times, but it's out there. I don't see that intensity inhibiting our ability to execute what we need to get done in any way.

Lauren Silverman: Great.

Dirk Locascio: And a follow-up and somewhat related growth, profit, growth, per case, obviously very strong. Can you help unpack the drivers? How much of that is company-specific versus benefits of inflation? And with the promotional activity kind of increasing, any thoughts on it being a risk or a headwind as you think through the back half of the year.

Lauren Silberman: Great, and a follow-up and somewhat related, gross profit growth per case obviously very strong. Can you help unpack the drivers? How much of that is company-specific versus benefits from inflation? And with the promotional activity kind of increasing, any thoughts on it being a risk or a headwind?

Dirk Locascio: On June 1st, 2024, the board authorized the new $1 billion sharing purchase program. Under this new authorization, we repurchased $21 million in June 2024. In the third quarter today, through August 7th, we have repurchased approximately $61 million. We have approximately $918 million remaining in the authorization. Since the inception of our buyback program in November 2022, we have repurchased $10 million shares for a total cost of $425 million. Rounding out capital deployment, we have completed three acquisitions over the past 18 months, and will continue to be opportunistic in selectively pursuing a creative token M&A. We are currently focused on integrating exact acquisitions, and we'll lean in on more share repurchases for the remainder of 2024.

Dirk Locascio: Thank you.

Dirk Locascio: Good morning, Lauren. So almost all of that is company-specific from our initiatives. Inflation did tick off, but it's still within that historical level that drives a very, very small gain. But again, we will still take it, but a very small gain. Cost of goods, smart pricing, effective logistics management; each of those are things that all contribute to it. I think, as we talked about, we've seen $50 million in year of gains from our cost of goods work. So we continue, that's really continuing to believe that's why growth profit is so durable and why we expect to continue to grow a growth profit per case and grow it fast and then we grow our index per case.

Lauren Silberman: As you think through the back half of the year. Thank you.

Speaker Change: Good morning, Lauren. So almost all of that is company-specific from our initiatives. Inflation did tick off, but it's still within that historical level that drives a very, very small gain. But again, we will still take it, but a very small gain.

Speaker Change: Cost of Goods, Smart Pricing, Effective Logistics Management, each of those are things that all contribute to it. Thinking as we talked about, we've seen 50 million dollars in year of gains from our cost of goods work, so we continue that's

Speaker Change: We really continue to believe that's why gross profit is so durable and why we expect to continue to grow gross profit per case and grow it faster than we grow OPEX per case. So we feel good about the durability and the strength of that.

Dirk Locascio: Turning to slide 14, we remain well within our two to three times not leverage target, where the strong value sheet, as we ended the quarter, at 2.6 times leverage, which is a 0.4-term reduction from the same period last year. This includes paying $220 million for IWC and $41 million for share repurchases in the second quarter, which were both funded through operating cash flow. We're also pleased to report two positive developments related to our credit ratings.

Dirk Locascio: So we feel good about the durability and the strength of that. Thank you.

Dirk Locascio: Thanks a lot. Your next question will come from John Huynebuckle with Guggenheim Securities. Dave, I want to start with, can you address the cadence of rolling out day, you did a little bit, but the rollout of day card and umos and I know 50% day card by the end of this year. How does that play out in 25, umos? Where are we going to be in that journey? And does that get us as you roll out to a lot of this in 25, you think about that 3 to 5% productivity gains would almost seem like there's going to be a sweet spot here, you know, we're closer to five ish, you know, for a period of time before settling back down. Is that fair?

Speaker Change: Thank you.

Lauren Silberman: Thanks a lot.

Speaker Change: Your next question will come from John Heinbockel with Guggenheim Securities.

Lauren Silberman: Hey Dave, I want to start with, can you address the cadence of rolling out, you did a little bit, but the rollout of Descartes and Hummus?

Dirk Locascio: Our corporate credit rating was upgraded one notch by Moody's to VA2, and S&P revised their outlook on U.S, foods to positive. Each reflecting the continued execution of our long-range plan, an expectation that the initiatives outlined our investor day will drive further earnings growth and credit metric improvement.

Speaker Change: You know, I know 50% Descartes by the end of this year.

Lauren Silberman: You know, how does that play out in 25, UMOS, you know, where are we going to be in that journey? And does that get us as you roll out to a lot of this in 25?

Lauren Silberman: When you think about that 3-5% productivity gains, it would almost seem like there's going to be a sweet spot here, you know, where you're closer to 5-ish, you know, for a period of time before settling back down. Is that fair?

Dirk Locascio: Now turning to guidance on slide 15. Given our strong first half of the year, an outlook for the remainder of 2024, we are reiterating our fiscal year in 2024, net sales, adjusted EBITDA, and adjusted deluded EPS guidance.

John Huynebuckle: Yeah, good morning, John. Good questions. You know, we will have the card fully rolled out by about this time next year with a 50% at the end of this year, be late to probably more likely the first part of two three next year. And you know, that combined with, you know, the great work that we've done with our historical routing process led to that 3.7% improvement in cases profile. We would expect that to continue as we ramp out the card and will continue to find new ways with that new system fully implemented across the company to drive further gains. You know, I'm confident of that.

Lauren Silberman: So I wanted to ask you about the promotional environment. I think there are some concerns that we're seeing an increase in promotional activity. As distributors fight for case growth, and new customer acquisition, obviously, you guys are seeing strong market gains in your key segments. Are you seeing any increase in promotional activity? And how does that usually play out in more challenging economic backdrops?

Lauren Silberman: Yeah, good morning, John . Good questions.

Speaker Change: You know, we will have the cart fully rolled out by about this time next year.

Dirk Locascio: Moving to modeling assumptions. For 2024, we continue to expect total cash growth of 46%, we are updating our sales inflation assumption to a range of 1 to 2%. Despite the operating environment, we continue to grow top line, gain share, expand our margins, and deploy our strong free cash flow against our capital allocation priorities.

Speaker Change: what's a fifty percent at the end of this year to be late q two probably more likely the first to first part of his two three next year

Speaker Change: And, you know, that combined with, you know, the great work that we've done with our historical routing process led to that 3.7% improvement in cases per mile. We would expect that to continue as we ramp out the cart, and we'll continue to find new ways with that new system fully implemented across the company to drive further gains.

Dirk Locascio: We are well positioned to deliver on our 2024 financial targets and remain committed to our new three-year long-range plan.

David Flitman: And as I talked in my prepared remarks, you know, you must, as part of the process standardization work that we've got going on across the company, we will have that broadly rolled out. Middle, next year to the second half of next year, being thoughtful about that and in each rollout, we're learning more. That would make sense in that process standardization, so we're being thoughtful about tweaking that process as we go forward. But you're right to point out, part of this three to five percent productivity improvement is not just taking cost out, but it's driving this process standardization and doing things more consistently, making sure that we're doing it right the first time and not adding and burdening the system with those inefficiencies that drive cost up.

Speaker Change: I'm confident of that and as I talked in my prepared remarks, UMass is part of the process standardization work that we've got going on across the company. We will have that broadly rolled out.

Dave Flitman: With that, I'll now pass the back today for his closing remarks. Thanks, Dirk. We continue to execute our strategy, gain market share, and improve profitability. We delivered double digits, adjusted EBITDA growth, and record adjusted EBITDA margin of 5%, while gaining share in our highest margin, customer types. Our strong business model serving independent restaurants, healthcare, and hospitality, which are among the fastest growing and most profitable customer types in the food service industry, combined with the execution of our strategic initiatives, supports our ambition to be the undisputed best in our industry.

Speaker Change: middle of next year to second half of next year, being thoughtful about that. And in each rollout, we're learning more about what makes sense in that process, standardization. So we're being thoughtful about, you know, tweaking that process as we go forward. But you're right to point out.

Speaker Change: If you're part of this 3-5% productivity improvement,

Speaker Change: is not just taking costs out, but it's driving this process standardization and doing things more consistently, making sure that we're doing it right the first time and not adding...

David Flitman: So if we're excited about it, we believe we control our own destiny there, and the three to five percent is fully in view.

Speaker Change: and burdening the system with those inefficiencies.

Dave Flitman: History, and we have a long run way of profitable growth in front of us, including delivering our 2025 to 2027 growth algorithm, which includes a 10% adjusted even our growth caterer. We remain laser focused on improving the business to generate profitable growth, while executing our capital deployment priorities.

Speaker Change: that drive cost up. So we're excited about it. We believe we control our own destiny there. And the 3 to 5% is fully in view.

David Flitman: Maybe as a follow up, just philosophically, what is your thought or maybe the board's thought on buyback, timing, front loading, right? I think about front loading within a year, buying maybe early funding that with a revolver, you know, front loading in front of chef's door, you know, buy before those proceeds are in, or even right as your leverage ratio comes down in the low twos, taking on some debt, if you think the shares are, you know, incredibly undervalued. What is the thought on all of that? Do you like that idea, or no? Well, we certainly believe our shares are undervalued.

Speaker Change: And maybe as a follow-up, just philosophically, what is your thought or maybe the board's thought on buyback timing?

Speaker Change: front-loading right I think about front-loading within a year you know buying maybe early funding that with a with the revolver

Operator: And with that, Kerry, please open up the lines for questions. Thank you.

Speaker Change: Dirk Locascio, Michael Neese, Adam Dabrowski

Operator: Oh, now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hands and join the queue. If you would like to withdraw your question, simply press star one again.

Operator: We do request for today's session that you please limit your question to one and one follow up. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Speaker Change: Do you like that idea or no?

David Flitman: You know, we're excited at the board to authorize that billion dollars, you know, twice the size of the initial authorization back in late 22, and you heard their say this morning, and I also supported. We're leaning in heavily on share repurchases. That's why we gave a little bit of color on that accelerated ramp up already in Q3, and you've started to see that. So we believe we're undervalued. We're going to buy our shares back appropriately. You're ramped out through the course of time.

Speaker Change: Well, we certainly believe our shares are undervalued, you know, we're excited that the board authorized that billion dollars, you know, twice the size of the initial authorization back in late 2022.

Lauren Silberman: And as you heard Dirk say this morning, and I also supported, we're leaning in more heavily on share repurchases. That's why we gave a little bit of color on that accelerated ramp up already in Q3, and you've started to see that. So we believe we're undervalued. We're going to buy our shares back appropriately here and ramp that up through the course of time.

Edward Kelly: And your first question will come from Edward Kelly with both Fargo. Hi, morning, guys. Nice quarter. Dave, I was hoping could you maybe just elaborate or talk a bit more about what you're seeing from an end demands standpoint, maybe even by customer type. I'm just curious how the quarter evolved and then specifically what you saw in July. And then as part of the start, you know, how are you feeling about the two to four percent organic case volume target for the year? I think you do need maybe a little bit of acceleration with that cap.

Operator: Okay. Thank you.

Kelly Bania: Your next question will come from Kelly Bania with BMO Capital Markets. Thank you for taking that question. Hi. Morning. This is Kelly Bania from BMO.

Operator: Your next question will come from John Heinbockel with Guggenheim Security.

Speaker Change: Okay, thank you.

Speaker Change: Thank you.

Speaker Change: Your next question will come from Kelly Bania with BMO Capital Markets.

Dave Flitman: Well, I'll take that last part of that question in first, but I think we were confident in that two to four percent case growth and reiterated our full guidance for the year is dirt just outlined. So we're confident in that. But as you point out, I think the macro is a little softer than we expected coming into the year, what you've seen us do is control the controls very well, which is what we always say we're going to do.

John Heinbockel: Thanks for taking our questions.

Kelly Bania: I'm wondering if you could just unpack a little bit the drivers of the independent case growth, the contribution you're seeing from new sales reps, penetration versus new account growth, and then geographic differences. I also like to tag on to that just the investment that you're seeing across the industry in terms of Salesforce headcount. We know obviously what that is with the public competitors, and maybe that's accelerating a little bit. But what are you seeing across the private competitors on that front? And I appreciate it can widely vary, but what maybe have you seen historically? Are you seeing any difference, any color there? I think would be helpful.

Operator: Hi, good morning. This is Kelly Bania from BMO.

John Heinbockel: I'm just wondering if you could just unpack a little bit the drivers of the independent case growth, the contribution you're seeing from new sales reps, penetration versus new account growth, and then geographic differences.

Speaker Change: I'd also like to tag on to that, just.

Speaker Change: The investment that you're seeing across the industry in terms of sales force headcount, we know obviously what that is with the public competitors, and maybe that's accelerating a little bit, but

Dave Flitman: You know, we can't control the macro, but we can control our ability to drive growth on the top line, which we continue to do in the second quarter and also into July to your point despite what's going on in the macro. And you know, things around the macro will ebb and flow, but our ability to drive our initiatives and and make this thing as strong as it can possibly be is completely within our control.

John Heinbockel: What are you seeing across the private competitors on that front? And I appreciate it could widely vary, but what maybe have you seen historically? Are you seeing any difference? Any color there I think would be helpful.

David Flitman: Sure. So at first part of your question, their Kelly was around kind of unpacking the growth. You know, overwhelmingly our growth is coming, as it has been for quite some time now, from new account generation, customer growth. We expect that would continue, especially in a slower foot traffic environment. And again, we believe that's completely within our control. As I referenced a little bit earlier, you know, where you first see foot traffic challenges is in penetration. You know, the customers are still by the same number of lines, but they're by less cases on those lines; their volume is challenged.

John Heinbockel: Hey Dave, I want to start with, can you address the cadence of rolling out, you did a little bit, but the rollout of Descartes and hummus. I know 50% of Descartes by the end of this year, but how does that play out in 25, hummus? You know, where are we going to be on that journey? And does that get us as you roll out to a lot of this in 25, when you think about that three to 5% productivity gains, it would almost seem like there's going to be a sweet spot here, you know, we are closer to five ish, you know, for a period of time before settling back down.

John Heinbockel: Is that fair?

Speaker Change: Sure. So, the first part of your question there, Kelly, was around kind of unpacking the growth. You know, overwhelmingly, our growth is coming, as it has been for quite some time now, from new account generation to customer growth.

Dave Flitman: And so, you know, we've seen lower foot traffic as we pointed out down three percent in the second quarter. I think the back half of the quarter was a little slower than the first half and that trend kind of continued into July. Health care remains very strong. You saw our robust growth there in hospitalities. We said last quarter we were on board new business. You've seen us take up in our case growth there.

Dave Flitman: Yeah, good morning, John. Good questions. You know, we will have the cart fully rolled out by about this time next year, with the 50% at the end of this year. It will be late Q2, probably more likely the first part of Q3 next year. And, you know, that combined with the great work that we've done with our historical routing process led to that 3.7% improvement in cases per mile. We would expect that to continue as we ramp out the cart, and we'll continue to find new ways with that new system fully implemented across the company to drive further gains.

Dave Flitman: We expect that would continue, especially in a slower foot traffic environment. And again, we believe that's completely within our control.

Speaker Change: As I referenced a little bit earlier, you know, where you first see foot traffic challenges is in penetration. You know, the customers are still buying the same number of lines, but they're buying less cases on those lines.

Dave Flitman: We expect that will continue into the third quarter and into the back half. So that that's kind of how we see it and we're not counting on the market helping us in the back half to achieve what we said we were going to achieve and we'll continue to execute our playbook.

David Flitman: And so we've certainly seen that and felt it, but our ability to drive new account generation and hold on to our business to the fullest extent and drive that lost number down.

Speaker Change: Dirk Locascio, Michael Neese, Adam Dabrowski

Dave Flitman: So, follow up Dave, can I just ask you on any adjustments that you are making to the business, you know, in this, you know, in this backdrop, I know you're, you know, controlling what you can control, but, you know, today you talked about some cost action, you know, that was incremental curious on like the selling side, you know, if there's any, you know, fine tuning that you make there and this type of backdrop, just any additional color there. Yeah, I think we, you know, we modified our, our TM.

David Flitman: That's that's where we're squarely focused. Really haven't seen anything play out geographically. You know, we're having challenges or, you know, greater areas of strength. And to your question on the sales force, you know, I mentioned earlier the productivity ramp of those new sellers is very greatly dependent upon their background. And we have targeted those account additions where we believe one, there's great market growth and penetration opportunity, and maybe what we're a little underrepresented. So any geographic change that we've seen there is really probably more driven by where we've added head count versus where we have it.

Dave Flitman: to the fullest extent and drive that loss number down. That's where we're squarely focused. Really haven't seen anything play out geographically, you know, where we're having challenges or greater areas of strength.

Speaker Change: And to your question on the sales force.

Speaker Change: As I mentioned earlier, the productivity and ramp of those new sellers varies greatly depending upon their background.

Speaker Change: And we have targeted those headcount additions where we believe, one, there's great market growth and penetration opportunity, and maybe we're a little underrepresented. So any geographic change that we've seen there is really probably more driven by where we've added headcount versus where we haven't.

Dave Flitman: Compensation plan going into the year we're pleased with progress, we're making there and how that's playing out as you recall, we've analyzed more of that. To incentive our sellers to drive more aggressive growth and also incentive them to grow our private label brands. As you heard, we were up 100 basis points year over year with independent restaurants with our brands. I think the root of that is our continued ability to bring innovation and great products of the marketplace supplemented with, you know, those compensation plans changes.

David Flitman: In the last part of your question here, I think I got them all on the private competitors. Really, no change. I don't think we've seen any impact on our ability to attract sellers or drive growth based on anything that's going on with the private stuff.

Dave Flitman: And the last part of your question here, I think I got them all on the private competitors. Really no change. I don't think we've seen any impact on our ability to attract sellers or drive growth based on anything that's going on with the privates.

Kelly Bania: I was wondering if I could also just maybe follow up. We talked about restaurant traffic down three; that's something consistent with what we've heard from others. But can you just talk a little bit more about what you're seeing in restaurant cohorts or different types of restaurants, as well as the pace of new restaurant openings? And what you're seeing in the growth there. Yeah, I wouldn't say you know the foot traffic challenges. You know, we see a lot or hear a lot about the consumer challenges, particularly at the lower end. I think some of those that are reported this week are spoken to some of the challenges in QSR.

Dave Flitman: And to your point on the expense side, you know, I said since the day I got here, we were going to drive 3% productivity. And we've been ramping that up to the course of the last 18 months and we've really been driving that aggressively in the first half of this year. And I think that, that fits with what we said we're going to do. It also fits with the operating environment that we're in.

Speaker Change: Thank you. Great.

Speaker Change: I was wondering if I could also just maybe follow up.

Speaker Change: We talked about restaurant traffic down three, that sounds consistent with what we've heard from others, but can you just talk a little bit more about what you're seeing in restaurant cohorts or different types of restaurants, as well as the pace of new restaurant openings?

Dave Flitman: So I point to those adjustments and I think you can expect more of the same. And on the sales side, we're continuing to be committed to growing our sales head down in the load amid single digits, despite what's going on in the macro, and Ed, what you really continue to see from our results is continued top line growth, especially in our target customer types, continued focus and execution on growth profit expansion and the cost management. So it's really across all three of those and that balance is what makes us feel good about the results that we have and expect to continue to generate. Thank you.

Dave Flitman: and what you're seeing in the growth there.

Speaker Change: I wouldn't say, you know, the foot traffic challenges, you know, we see a lot or hear a lot about the consumer challenges, particularly at the lower end.

Speaker Change: I think some of those that have reported this week have spoken to some of the challenges of QSR.

David Flitman: I think some of the challenges and foot traffic have been pretty broadly spread across most of the cohorts. Maybe the higher ends will not be a little bit higher or better than others, but you know, even that's been challenged a little bit. So I wouldn't point to any really significant area of strength or more challenge based on what's going on. Thank you.

Speaker Change: Fast Casual. I think some of the challenges in foot traffic have been pretty broadly

Dave Flitman: spread across most of the cohorts.

Jeffrey Bernstein: Your next question will come from Jeffrey Bernstein with Barclays. Great. Thank you very much. They've just wanted to follow up on your comments about the market share gains and they've talked about, I guess, 13 consecutive quarters and I think you actually said your share gains improved each month of the second quarter. Just wondering if you could provide some color behind that data, just wondering how you measure that. What do you think you're at all vulnerable to maybe slowing independent sales growth?

Alex Legal: Your next question will come from Alex Legal with Jeffries. And thanks. Good morning. Good to see the OPEX for case growth, really flattening out, and you talked about the indirect spend reduction forecast, which is a pretty big jump.

Speaker Change: Thank you.

Speaker Change: Thank you. Your next question will come from Alex Slagle with Jeffreys.

Speaker Change: Hey, thanks. Good morning. Good to see the OPEX for case growth really flattening out and you talked about the indirect spend reduction forecast, which was a pretty big jump, I think, from the last outlook, but just wanted to dig into that a little more, what changed in your views and where that's coming from.

Jeffrey Bernstein: I know your largest peers and more aggressively hiring and compensate in their sales people. I'm just wondering how you think about that independent case growth market share gains going forward with again the competition getting a little bit more aggressive and then I'd one follow up. Yeah, well, as we've been stating for a while, the data that we use to judge our market share is the Serkana formally in PD data third party independent data that looks across the industry.

Dirk Locascio: I think from the last outlook, but it's wanted to dig into that a little more. What changed in your views and where that's coming from? Thank you very much.

Speaker Change: Thank you very much.

Dave Flitman: Good morning, Alex. This is Dirk. So I'm assuming you're talking about the increase of the $80 million of savings. That's a combination of people and non-people related costs. And it really is not different than what you've heard.

Jeffrey Bernstein: So it's not our data. So when I tell you that we're one gaining share and two that accelerated in the quarter that that's as supported by the Serkana data. And I keep saying we're going to control what we can control. We can't control the macro. And even though that foot traffic was down sequentially each month in the quarter, you just heard us say that we ramped up our share gains throughout the quarter.

Speaker Change: Let's talk about the last few quarters, where continuing to, for efficiency, the combination of use of technology, simplifying the interactions between field and function, and if we're not getting value in some of the functional resources, either redeploying or in some cases reducing those.

Dave Flitman: and so it really all fits into this balance that I highlighted earlier one of the other questions about top line growth, GP expansion, and then cost reduction to manage productivity.

Jeffrey Bernstein: I expect that will continue. Our team is laser focused on driving growth. And while penetration may be a challenge when foot traffic is down, our ability to generate new accounts is not inhibited at all. By what's going on in the macro? And as you guys heard, heard me say a lot. We still have a relatively small market share position within the pen of restaurants. And as I tell our team all the time, three out of every four cases on ours.

Speaker Change: As far as Indirect specifically, we continue to attack this $1 billion plus spend pool and

Dave Flitman: To reach the $60 million of savings by 2027, we're continuing to see more initiatives come online to generate savings, and we'll give an update more concretely as we move further into here, but good progress continues there.

Jeffrey Bernstein: So don't worry about the macro. Go run our place and drive that growth. And that's what we continue to do. So regardless of what's going on there, Jeff, we'll continue to run our plays and I'm confident that those share means we'll continue. Understood. And then just you mentioned about the private label being up 100 basis points now. I guess to independent customers now to 52%. Do you see increased demand? I don't know whether you're pushing more of that or whether the customers are asking more of that seemingly it's lower cost to them higher margin to you.

Speaker Change: Okay and a follow-up on the routing I guess process improvements I mean it seemed like you're doing good work with the existing system in place and

Speaker Change: I mean, I guess there are additional enhancements coming just in terms of what you're doing with the process just in this initial, just in the existing systems.

Jeffrey Bernstein: So I'm wondering how you incentivize that it would seem like that would be a big opportunity with some of your smaller independent competitors not really having a platform like that. So how do you how do you accelerate that in this type of environment to benefit you and your customers? Thank you. I think it's a combination of great products. And then we pride ourselves on our scoop process, but more broadly the way we bring innovation to our product line with our exclusive brands.

Speaker Change: Before you even get to see the separate benefits from the deployment of the new routing technology, just trying to understand, like, is there more to come here of the benefit of all the process changes?

Dirk Locascio: and you know, that'll come, you know, on top of that, we'll have the new system rollout. Just a little more on that. Yeah, I think Alex, the way to think about that is, you know, we've been delivering rally improvements here for, you know, the better part of the last couple of years. And in large part until we initiated that the cart rollout, that was largely driven by what you're pointing out, the process changes and improvements as we've gotten better at that. Now we're overlaying the technology in a new system that we believe is going to take it to the next level.

Dave Flitman: You know, that'll come, you know, on top of that, we'll have the new system rollout, just a little more on that.

Dave Flitman: Yeah, I think, Alex, the way to think about that is, you know, we've been delivering rounding improvements here for, you know, the better part of the last couple of years.

Jeffrey Bernstein: We've been doing for the better part of a dozen years now. And so we believe we're the leader in innovation and what we do is we we bring great quality products from market that help our customers be more efficient in their kitchens. And it's a great time for that need given the inflation has been absorbed in some of the foot traffic challenges as they're looking to have these great products at a bit lower cost position.

Speaker Change: And in large part, until we initiated the cart rollout, that was largely driven by what you're pointing out, the process changes and improvements as we've gotten better at that.

Dirk Locascio: So I'm sure that I'm confident we'll continue to optimize the process as we go through this and we learn more about the new technology, but I think this technology overlay is really going to be with, with fuels the future productivity improvements with with routing once we get that fully deployed. I think Alex, the other thing is on the routing today's point of it being a driver for the last few years, what we've been pleased with is it's not once and done. It is a standardized process and you see markets each, each week and each month it continues to add additional opportunities on that get executed against.

Dave Flitman: Now we're overlaying new technology in a new system that we believe is going to take it to the next level. So I'm sure and I'm confident we'll continue to optimize the process as we go through this and we learn more about the new technology.

Jeffrey Bernstein: You couple that with the changes that we made to the TM incentive plan this year to incentive to drive the brand growth more. And I think you're starting to see that play out. And as I said before, I don't see any near term ceiling to our ability to penetrate the market with our exclusive brand. Jeff, the last couple of quarters you've heard us talk a lot about since vendor supply stabilized and we've increased the focus again with our sellers. You're not saying that really come to fruition in the form of growth, and this has been an hour, a couple of quarters were reaching that growth. Like Dave said, we expect that to continue. Thank you.

Dave Flitman: But I think this technology overlay is really going to be what fuels the future productivity improvements with routing once we get that fully deployed.

Alex: I think, Alex, the other thing is, on the routing, to Dave's point of it being a driver for the last few years, what we've been pleased with is it's not a once and done. It is a standardized process, and you see markets each week and each month that continue to add additional opportunities on that get executed against.

Dirk Locascio: And then the piece on the technology and a card, as I gave a couple of years ago, David talked about is when you put it in place, there's some improvement, but as we get it in place and we optimize it more, but we expect further to come from that. So a long way of saying we think there's still plenty of opportunity for further savings, which in this case typically results in about our customer experience as well.

Dave Flitman: and then the piece on the technology on Descartes.

Dave Flitman: As I think it was a couple of years ago, David talked about is when you put it in place, there's some improvement. But as we get it in place, so we optimize it more, but we expect further to come from that. So a long way of saying, we think there's still plenty of opportunity for further savings, which in this case, typically results in a better customer experience as well.

Dave Flitman: Your next question will come from Mark Carden with UBS. Great. Good morning. Thanks so much for taking the questions. So to start, just another question in the sales force, and essentially controlling the controllables, I was really surprised. Just given some of the softening and traffic, does this shift some more variable compensation act as a double wedge stored in any sense, or if not, what have you been able to do to whether the headlines quite well.

Brian Harbour: Thank you.

Dirk Locascio: Your next question will come from Brian Harbor with Morgan Stanley. Thanks. Good morning, guys. Director, just on your inflation outlook, do you, you know, you're a little bit above that and too cute. Do you expect it to, to therefore kind of come down a bit in the second half? Could you give more color on that and just, I don't know if there're any product mixed dynamics that kind of affect that. You could talk about that.

Speaker Change: Your next question will come from Brian Harbour with Morgan Stanley .

Dave Flitman: You know, I'm confident of that. And as I talked in my prepared remarks, UMass is part of the process standardization work that we've got going on across the company. We will have that broadly rolled out,

Speaker Change: Thanks, good morning guys. Dirk, just on your inflation outlook, do you, you know, you're a little bit above that in 2Q, do you expect it to...

Dave Flitman: Yeah, I think, you know, we do a great job on porting new TMS. In fact, I had the opportunity to talk to our latest class on Tuesday this week. We had an income class of 50. We get asked. A lot, you know, with what's going on in the marketplace, whether we have challenges finding great sales. We are not having problems finding great sales talent. That's why I'm confident that we'll continue to.

Speaker Change: To therefore kind of come down a bit in the second half could you give more color on that and just I don't know if There are any product mix dynamics that kind of affect that you could talk about that

Dirk Locascio: Sure. So when we think about the inflation, we also consider the impact of mix in there as well. And so that's, that's one thing to consider. We did see, you know, as you've gotten into past the second quarter, you see a little more moderation. Proteins were the biggest piece that turned more inflationary in the second quarter, but didn't have seen that continue. So overall, what we're not seeing is we're not seeing any significant levels of inflation across the board. And I think that what we feel good about is whether it ends up at one to two or a little above or a little below that is very manageable, very modest.

Speaker Change: Sure. So when we think about the inflation, we also consider the impact of mix in there as well. And so that's one thing to consider. We did see, as you've gotten into kind of past the second quarter, you see a little more moderation. Proteins were the biggest piece that turned more inflationary in the second quarter, but did haven't seen that continue.

Dave Flitman: To hit that low to mid single digits head count rose as we committed to for the full year. You know, and it's really about how we onboard our sales talent, how we give them a portion of business, you know, in this route splitting is very important. We outlined a couple quarters ago. You know, we take and see these. New sellers with some business that they can, they can grow from. And we also have ongoing training, you know, throughout their first couple years here.

Speaker Change: So overall, what we're not seeing is we're not seeing any significant levels of inflation across the board, and I think that what we feel good about is whether it ends up at one to two or a little above or a little below that is very manageable, very modest, and that we'll be able to effectively manage our way through that.

Dave Flitman: So it's not a one and done. It's not that we put them through an intense training program and throw them on the street and let them go find their way. We continue to nurture them. And as we said before, you know, it really depends on where that sales talent comes from. You know, we hire operators, higher competitive reps. We hire people from outside the industry with strong sales backgrounds. And it really depends on what they're.

Dirk Locascio: And so we'll be able to effectively manage our way through that. Okay, sounds good.

Dirk Locascio: We've talked a bit about kind of your operating expenses, but was there anything you kind of pulled forward? You know, anything that you think was more impactful in the second quarter that it drove the pretty good performance and operating expense? I think specific that I would call out, you know, a good portion of it is the difference cost actions that we've taken over this past six months or so, combined with significant supply chain productivity that you referenced on the call today. No, it was not. And I think when Dave talked earlier, but we talked about this three to five percent productivity.

Speaker Change: Okay, sounds good. We've talked a bit about kind of your operating expenses, but was there anything you kind of pulled forward, you know, anything that you think was more impactful in the second quarter that drove the pretty good performance and operating expense?

Dave Flitman: Experiences whether they bring a book of business or not in terms of how quickly they ramp up their productivity. But we know exactly who they are with all the various cohorts that come in. We know what those classes look like when we make sure we give them the ongoing support that they need, including some pretty intense product training. Which are suppliers are helpful at helping us deliver in the local markets. So we've got a great plan. Retention is not a challenge and we're continuing to ramp up our sales portion. Great.

Speaker Change: Nothing specific that I would call out. A good portion of it is the different cost actions that we've taken over this past six months or so, combined with significant supply chain productivity that Dave referenced on the call today. So there's not.

Dave Flitman: And I think when Dave talked earlier, when we talk about this three to five percent productivity.

Dirk Locascio: It's not just to be able to say that's how we're operating. It's how we're holding the teams accountable and focusing on all while doing it smartly, while keeping an eye toward not damaging or hurting the business for that continued growth and further margin expansion.

Dave Flitman: It's not just to be able to say that's how we're operating, it's how we're holding the teams accountable and focusing on.

Mark Carden: And then turning to hospitality for a second, how are you thinking about hospitality growth in the back half of the year. And you guys have some new businesses in on board and the process is being on board it. But just when you think about the broader macro, how do you think the balance of those two dynamics? Boy, Mark, sir. I didn't think when you think of the broader macro to your point is facing some of the same headwinds that restaurants are facing.

Dave Flitman: All while doing it smartly, while keeping an eye toward not damaging or hurting the business for that continued growth and further market expansion.

Operator: Thank you.

Operator: Thanks, Brian.

Peter Saleh: Your next question will come from Peter Saleh with BTIG? Great, thanks, and congrats on a nice quarter, guys. I wanted to ask about Moxie, if you guys could give us maybe an update on the adoption of that platform. And if you're still seeing the incremental case count growth or the ticket growth from customers using Moxie, I think it previously said one and a half more cases per customer. And then just lastly on that, is Moxie helping to drive any of the private label penetration as you do more suggestive sell-in through the app? Yeah, great questions, Peter.

Speaker Change: Thank you.

Brent: Thanks, Brent.

Speaker Change: Your next question will come from Peter Saleh with BTIG.

Mark Carden: However, back to the point of the control of the controllables. We talked about the business we wanted. We continue to have a strong pipeline of business that we're expecting and playing on board. So our expectation is to continue strengthening of the growth there with hospitality. We've got a lot of differentiation in health care and hospitality. And we think that that growth rate. So we'll go accelerate. Great. Thanks so much.

Mark Carden: Good luck guys.

John Heinbockel: Great, thanks and congrats on a nice quarter, guys.

Dave Flitman: um

Speaker Change: I wanted to ask about Moxie, if you guys could give us maybe an update on the adoption of that platform. And if you're still seeing the incremental case count growth or the ticket growth from customers using Moxie, I think previously it said one and a half more cases per customer. And then just lastly on that, is Moxie helping to drive any of the private label penetration as you do more suggestive selling through the app?

Lauren Silverman: Your next question will come from Lauren Silverman with Deutsche Bank. Thank you, congrats, guys. So I wanted to ask about their promotional environment. I think there are some concerns that we're seeing an increase in promotional activity as sort of distributors fight for case growth, new customer acquisition. Obviously you guys are seeing strong market gains in your key segments. Are you seeing any increase in promotional activity and how does that usually play out in more challenging economic backdrops?

Peter Saleh: Thank you. And yes, we're very excited about Moxie. As we previously mentioned, you know, we're 100% old out the pressure in the tenant restaurants. We continue to ramp that up in our chain business. It's now in 75% of our national chain business. We expect to ramp that up between now and the end of the year. And to your point, yes. And as we send an investor bank, on average, customers are buying 10% more. And we have great algorithms within Moxie. One of those is, you know, our ability to sell our private label brands and make product recommendations.

Speaker Change: Yeah, great questions, Peter. Thank you. And yes, we're very excited about MOXIE. As we previously mentioned, you know, we're 100% holdout across our independent restaurants. We continue to ramp that up in our chain business. It's now in 75% of our national chain business. We expect to ramp that up between now and the end of the year.

Speaker Change: And to your point, yes, and as we said on Investor Day, on average, customers are buying 10% more.

Lauren Silverman: I think we have seen increased promotional activity, which is not uncommon at any point, given the various cycles that different companies have in terms of when their year end is and all that, but probably a little bit more intense given the macro backdrop. But again, I would just point to our results. I don't think that's impacted our ability to drive growth. We have our own promotional activity that we bring to market from time to time.

Speaker Change: And we have great algorithms within Moxie. One of those is, you know, our ability to sell our private label brands and make product recommendations.

David Flitman: And so yes, we believe that coupled with some of the things that I commented on earlier relative to the focus that we have on our brands and the way we send our sales force. All of that is working together. And I'll support that growth that we talked about.

Dave Flitman: And so, yes, we believe that, coupled with some of the things that I commented on earlier, relative to the focus that we have on our brands and the way we incent our sales force, all of that is working together to help support that growth that we talked about.

Dirk Locascio: Great. And then just Dirk, I don't know if I missed it, but did you guys provide the indirect cost figure that, or at least the run rate that you have for 2024 as you ramp up to the 60 million by 2027? I, Peter, no, I didn't. I was more of color commentary, and we'll give some more specifics as we get further into the year. But we are continuing, as I said, to make progress with real concrete savings and, while on our way toward our target.

Lauren Silverman: And so we're not immune to that. And we know how to navigate the market for those times. But it's out there. I don't see that intensity, inhibiting our ability to execute what we need to get done in any way.

John Heinbockel: Great, and then just, Dirk, I don't know if I missed it, but did you guys provide the indirect cost figure that, or at least the run rate that you have for 2024 as you ramp up to the $60 million by 2027?

Lauren Silverman: Great. And a follow-up and somewhat related growth, profit, growth, per case, obviously very strong. Can you help unpack the drivers? How much of that is company-specific versus benefits of inflation? And with the promotional activity kind of increasing any thoughts on it being a risk or a headwind as you think through the back half of the year. Thank you. Good morning, Lauren. So almost all of that is company-specific from our initiatives. Inflation did tick off, but it's still within that historical level that drives a very, very small gain.

Dave Flitman: Hi Peter. No, I didn't. I was more color commentary and we'll give some more specifics as we get further into the year. But we are continuing, as I said, to make progress with real concrete savings and well on our way toward our target.

Peter Saleh: Thank you very much. Thanks, Peter.

Speaker Change: Thank you very much.

Andrew Wolf: Your next question will come from Andrew Wolf with CL King and Associates. Thank you. Good morning on the performance, you know, in the market, particularly want to focus on with the independent restaurants. Are you gaining, or are the sales team gaining any lines per stop, or any additional penetration in that? Or is it all really just mainly, mainly almost all driven by, you know, new customer wins that new customer wins? It's overwhelmingly handy. New customer wins, but you know, penetration is an important part of our algorithm. And, as I said, it was something that is being overridden currently with the foot traffic.

Speaker Change: Thank you.

Speaker Change: Your next question will come from Andrew Wolf with C.L. King & Associates.

Speaker Change: Thank you. Good morning. On the outperformance, you know, in the market, particularly I want to focus on with the independent restaurants.

Lauren Silverman: But again, we will still take it, but a very small gain. Cost of goods, smart pricing, effective logistics management, each of those are things that all contribute to it. I think as we talked about, we've seen $50 million in year of gains from our cost of goods work. So we continue, that's really continuing to believe that's why growth profit is so durable and why we expect to continue to grow a growth profit per case and grow it fast and then we grow our index per case. So we feel good about the durability and the strength of that. Thank you.

Operator: Thanks a lot.

Speaker Change: Are you gaining, are the sales team gaining any lines per stop or any additional penetration in that, or is it all really just mainly almost all driven by new customer wins, net new customer wins?

Andy: It's overwhelmingly Andy, new customer wins, but you know, penetration is an important part of our algorithm. And as I said, given some of that is being overridden currently with the foot traffic, so kind of hard to get a handle on that. Exactly. But certainly we're working hard to drive penetration with our customers.

David Flitman: So kind of hard to get a handle over that exactly, but certainly we're working hard to drive penetration with our customers.

Dirk Locascio: Got it.

Dirk Locascio: And Dirk, I think you said the college savings year-to-date are 50 million and 70 million is for the year. So it's like a 20 million back half. Is that just the timing thing on initiatives or like, you know, what is going on with that increment being, you know, a little less than the first half? It is. It doesn't hit equally, but as you probably remember from our best today, we talked about a 260 plus million dollar for the new law rights plan. So we clearly have a lot of work going on. Expect a lot of value to continue to come.

John Huynebuckle: Your next question will come from John Huynebuckle with Guggenheim Securities. Dave, I want to start with, can you address the cadence of rolling out day, you did a little bit, but the rollout of day card and umos and I know 50% day card by the end of this year. How does that play out in 25, umos, where are we going to be in that journey? And does that get us as you roll out to a lot of this in 25, you think about that 3 to 5% productivity gains would almost seem like there's going to be a sweet spot here, you know, we're closer to five ish, you know, for a period of time before settling back down is that is that fair?

Speaker Change: Got it. Dirk, I think you said the COD savings year-to-date are $50 million and $70 million is for the year.

Speaker Change: So it's like a 20 million back half. Is that just the timing thing on initiatives or like, you know, what is going on with that increment being, you know, a little less than the first half?

Speaker Change: It is. It is. It doesn't hit equally, but as you probably remember from our investor day, we talked about a

Dave Flitman: 206 million dollars for the new long range plan. So we clearly have a lot of work going on and expect a lot of value to continue to come.

Dirk Locascio: And I think that the fourth thing is, you know, even in this environment that we are continuing to grow, we're continuing to expand growth profit, we're continuing to run productivity, which is not something that a lot of companies are doing right now.

Dave Flitman: and I think that the important thing is...

Dave Flitman: Now even in this environment that we are continuing to grow, we're continuing to expand gross profit and we're continuing to drive productivity, which is not something that a lot of companies are doing right now.

John Huynebuckle: Yeah, good morning John. Good questions. You know, we will have the card fully rolled out by about this time next year with a 50% at the end of this year, be late to probably more likely the first part of two three next year. And you know, that combined with, you know, the great work that we've done with our historical routing process led to that 3.7% improvement in cases profile. We would expect that to continue as we ramp out the card and will continue to find new ways with that new system fully implemented across the company to drive further gains, you know, I'm confident of that.

Dirk Locascio: Okay, and just one last thing, you mentioned the delivery window accuracy or on-time deliveries in these test markets for Moxie customers was up, I think you said 40 percent. Like, what behavior is being changed here through the tracking? Is it just the drivers? What's going on? Are the drivers just not wanting to get followed up by the customers? Or is there some internal tracking that's better? Like, you know, what is changing, you know, to make this, you know, that's of quite a dramatic improvement. So just kind of curious what that is. So this isn't anything to do with the driver of the customer.

Speaker Change: Okay, and just one last thing, you mentioned, you know, the delivery window accuracy or on-time deliveries.

Speaker Change: in these test markets for moxy customers was up i think it's forty percent

Speaker Change: What behavior is being changed here through the tracking?

Speaker Change: Just, you know, the drivers.

Speaker Change: What's going on? Are the drivers just not wanting to get followed up by the customers? Or is there some internal tracking that's better? Like, you know, what is changing, you know...

John Huynebuckle: And as I talked in my prepare remarks, you know, you must as part of the process standardization work that we've got going on across the company, we will have that broadly rolled out. Middle, next year to the second half of next year, being thoughtful about that and in each rollout, we're learning more. That would make sense in that process standardization, so we're being thoughtful about tweaking that process as we go forward, but you're right to point out, part of this three to five percent productivity improvement is not just taking cost out, but it's driving this process standardization and doing things more consistently, making sure that we're doing it right the first time and not adding and burdening the system with those inefficiencies that drive cost up. So if we're excited about it, we believe we control our own destiny there and the three to five percent is fully in view.

Speaker Change: to make this, you know, that's a quite a dramatic improvement. So just kind of curious what that is.

Dirk Locascio: This is our ability to predict when the route will get to the customer. And so we've applied some significantly enhanced capabilities using artificial intelligence machine learning to be able to predict that, and that those increased capabilities are allowing us to be more accurate in telling the customer when we think that that truck will get to their stops. So this is really an increased our capability. And it's just a good example of using I got to use a lot in a lot of places, but where we're using it for real practical things to improve our results.

Speaker Change: so this isn't anything to do with the driverof the customer this is

Dave Flitman: Our ability to predict when the route will get to the to the truck to the customer and so we've applied some significantly enhanced capabilities using artificial intelligence machine learning to be able to predict that and that those increased capabilities are allowing us to be more accurate in telling the customer when we think that that truck will get to their stops

Dave Flitman: So this is really increasing our capability, and it's just a good example of using, AI gets used a lot in a lot of places, but where we're using it for real practical things to improve our results, and there's plenty of those real concrete places that we continue to do work on that we'll bring to life in the coming quarters.

Dirk Locascio: And there's plenty of those real concrete places that we continue to do work on that will bring to life the coming orders.

Operator: Thank you.

John Huynebuckle: Maybe as a follow up, just philosophically, what is your thought or maybe the board's thought on buyback, timing, front loading, right? I think about front loading within a year, buying maybe early funding that with a revolver, you know, front loading in front of chef's door, you know, buy before those proceeds are in, or even right as your leverage ratio comes down in the low twos, taking on some debt, if you think the shares are, you know, incredibly undervalued.

John Heinbockel: Thank you. Got it. Thank you.

Operator: And once again, ladies and gentlemen, for any questions or comments, please press star one on your touch-tone phone at this time.

Speaker Change: Thank you.

Speaker Change: And once again, ladies and gentlemen, for any questions or comments, please press star one on your touchtone phone at this time. Your next question will come from Fred Whiteman with Wolf Research.

Operator: Your next question will come from Fred Whitman with Wolf Research. Hey guys, good morning. I wanted to touch on Pronto. It looks like the expected contribution came up pretty immediately versus what you talked about before. So I'm wondering if you could just dig into that and maybe where you're seeing the most opportunity. I'm excited about Pronto. And as we said in yesterday, we've just recently started to roll that out with existing independent customers, which is largely an uncapped opportunity. Because at this point, you know, we've only sought new business with Pronto. And so we've proven the model; there will be a master role that out more aggressively for new customers, but importantly for existing customers.

Speaker Change: Hey guys, good morning. I wanted to touch on Pronto. It looks like the...

Speaker Change: Expected contribution came up pretty meaningfully versus what you talked about before so I'm wondering if you could just dig into that and maybe where you're seeing the most opportunity.

John Huynebuckle: What is the thought on all of that? Do you like that idea or no? Well, we certainly believe our shares are undervalued. You know, we're excited at the board to authorize that billion dollars, you know, twice the size of the initial authorization back in late 22 and you heard their say this morning and I also supported. We're leaning in heavily on share repurchases. That's why we gave a little bit of color on that accelerated ramp up already in Q3 and you've started to see that. So we believe we're undervalued. We're going to buy our shares back appropriately. You're ramped out through the course of time. Okay. Thank you.

Dave Flitman: We're excited about Pronto, and as we said yesterday, we've just recently started to roll that out with existing independent customers, which is largely an untapped opportunity, because at this point, you know, we've only

Dave Flitman: . . . sought new business with Pronto, and so we've proven the model there.

David Flitman: And I think all of that is at the root of our acceleration on the top line here. So we're excited about it.

Dave Flitman: I'm now starting to roll that out more aggressively for new customers, but importantly for our existing customers. And I think all that is at the root of our acceleration on the top line here. So we're excited about it. I don't see any reason why over the midterm that can't be a billion-dollar-plus business for us.

David Flitman: I don't see any reason why, with the midterm, that can't be a billion dollar plus business for us. Perfect.

Frederick Wightman: Then just thinking about the sales guidance, the inflation outlook came out a little bit. Case has gone changed, and the total dollar sales number was unchanged. So I'm wondering maybe what the offset is, David, to talk about a little bit of continued pressure into July. So is the case trajectory, maybe towards the lower end of the prior range, or perhaps we think about that. So foot traffic does play a little bit. The primary is if you look at that small of a change, is a couple hundred million dollars in savings. So ultimately, we think of the range that we have.

Speaker Change: Perfect. Then just thinking about the sales guidance, the inflation outlook came out a little bit. Cases were unchanged and the total dollar sales number was unchanged. So I'm wondering maybe what the offset is. Davey did talk about a little bit of continued pressure into July . So is the

Kelly Bania: Your next question will come from Kelly Bania with BMO capital markets. Thank you for taking that question. Hi. Morning. This is Kelly Bania from BMO.

Speaker Change: Case trajectory may be towards the lower end of the prior range, or how should we think about that?

Kelly Bania: I'm wondering if you could just unpack a little bit the drivers of the independent case growth, the contribution you're seeing from new sales reps, penetration versus new account growth and then geographic differences. I also like to tag on to that just the investment that you're seeing across the industry in terms of Salesforce headcount. We know obviously what that is with the public competitors and maybe that's accelerating a little bit. But what are you seeing across the private competitors on that front and I appreciate it can widely vary, but what maybe have you seen historically are you seeing any difference any color there I think would be helpful.

Speaker Change: So put traffic does play a little bit. The primary is if you look at that small of a change, it's a couple hundred million dollars in savings. So ultimately when you think of the range that we have, it doesn't really change the broad outlook that we have for sales for the year.

Frederick Wightman: It doesn't really change the broad outlook that we have for sales for the year. Fair enough.

Operator: Thanks.

Operator: And once again, ladies and gentlemen, for any questions or comments, please press star one.

John Heinbockel: Fair enough, thanks.

Speaker Change: Thank you very much.

Speaker Change: And once again, ladies and gentlemen, for any questions or comments, please press star one.

Jake Bartlett: Your final question will come from Jake Bartlett with True Securities. Great. Thanks for taking the question. You know, I wanted to ask again about the cadence throughout the quarter. You mentioned your market share gains improving, but also your restaurant traffic decelerating. So was your case growth. Did it? You had it trend throughout the quarter. Also, you know, when I look at the guidance, the two to four percent independent or organic case growth. You know, guidance, it doesn't apply for you're going to get towards the middle of that, you know, an acceleration from the levels in the second quarter.

Speaker Change: Your final question will come from Jake Bartlett with Truist Securities.

Speaker Change: Great. Thanks for taking the question. You know, I wanted to ask again about the cadence throughout the quarter. You mentioned your market share gains improving, but also your restaurant traffic decelerating. So was your case growth, did it, did it, you know, how did it trend throughout the quarter?

Kelly Bania: Sure. So at first part of your question, their Kelly was around kind of unpacking the growth, you know, overwhelmingly our growth is coming as it has been for quite some time now from new account generation, customer growth. We expect that would continue, especially in a slower foot traffic environment. And again, we believe that's completely within our control. As I referenced a little bit earlier, you know, where you first see foot traffic challenges is in penetration, you know, the customers are still by the same number of lines, but they're by less cases on those lines is their volume is challenged.

Speaker Change: Also, you know, when I look at the guidance, you know, the two to four percent independent or, you know, organic case growth, you know, guidance, it does imply if you're going to get towards the middle of that, you know, an acceleration from the from the levels in the second quarter.

David Flitman: So the question is the cadence. And then, you know, maybe what, you know, hopefully you can comment on kind of recent trends and how that should give us confidence or not in the acceleration towards the back capacity. here. Yeah, so as we commented, foot traffic slowed. I would say our case growth generally followed what was happening with foot traffic, but we continue to drive growth in the quarter and, importantly, grow outside share games. So the trends continued into July. And you know, we have a lot of confidence in that case growth guidance is stir highlighted here and our ability to drive that outcome both in terms of share great games and the work that we've got going on to generate new business should help us to continue to take it that guidance that we gave you for the full year.

Speaker Change: Dirk Locascio, Michael Neese, Adam Dabrowski

Kelly Bania: And so we've certainly seen that and felt it, but our ability to drive new account generation and hold on to our business to the fullest extent and drive that lost number down. That's that's where we're squarely focused really haven't seen anything play out geographically, you know, we're having challenges or, you know, greater areas of strength. And to your question on the sales force, you know, I mentioned earlier the productivity ramp of those new sellers is very greatly dependent upon their background.

Speaker Change: Yeah, so as we commented, put traffic slowed. I would say our case growth...

Speaker Change: Generally followed what was happening with foot traffic, but we continued to drive growth in the quarter and importantly drove outside share gains.

Dave Flitman: Those trends continued into July , and we have a lot of confidence in that case growth guidance.

Dirk Locascio: As Dirk highlighted here, our ability to drive that outcome, both in terms of share grant gains and the work that we've got going on to generate new business, should help us to continue to hit that guidance that we gave you for the full year.

Kelly Bania: And we have targeted those account additions where we believe one, there's great market growth and penetration opportunity and maybe what we're a little underrepresented. So any geographic change that we've seen there is really probably more driven by where we've added head count versus where we have it. In the last part of your question here, I think I got them all on the private competitors. Really no change. I don't think we've seen any impact on our ability to attract sellers or drive growth based on anything that's going on with the private stuff.

David Flitman: Okay, you know, and then just, you know, another chunk that you haven't, you know, talked much about on the call, at least it's all other, you know, in terms of case growth, it was negative in the last two quarters. What if the pipeline looked like there or, or, you know, what should be expected from that, that driver in the back half, then if one was brought along? So the all other is as you'd expect. It's, we school, it can be some government, retail, etc. So we're similar to change; we're thoughtful in the way we pursue that business.

Speaker Change: Okay, um, you know, and then just, you know, another chunk that we haven't talked much about on the call is this all other, you know, in terms of case growth, it was negative in the last two quarters. What does the pipeline look like there? Or, you know, what should we expect from from that, that driver in the bad path? And then one more follow up?

Speaker Change: So the all other is, as you'd expect, it's the school, it can be some government, retail, etc. So we're similar to change, we're thoughtful in the way we pursue that business.

Kelly Bania: I was wondering if I could also just maybe follow up. We talked about restaurant traffic down three that's something consistent with what we've heard from others, but can you just talk a little bit more about what you're seeing in restaurant cohorts or different types of restaurants as well as the pace of new restaurant openings. And what you're seeing in the growth there. Yeah, I wouldn't say you know the foot traffic challenges.

David Flitman: So that's not a key area; it'll be opportunistic in how we grow it. The very areas that we expect to drive our overall growth to be becoming from our independent healthcare and health hospitality, and, again, opportunistic in those. Got it.

Speaker Change: So that's that's not a key area will be opportunistic and how we grow it. The main areas that we expect to drive our overall growth to be will be coming from our independent health care and hospitality and again opportunistic in those.

Dirk Locascio: And then last is kind of a clean up question, but, you know, M&A guidance, the impact, I think the prior that you talked about was about a two percent impact on the year. You're running ahead of that; you've made acquisition since. So, you know, what should we expect from the acquisition impact on case growth in 24? Sure. Our update in the back we had, we estimate sort of two to three percent coming from the M&A, overall, and as Dave said earlier, continue to expect overall case growth to continue at four to six percent. Okay, thank you very much.

Speaker Change: Got it. And then last is kind of a cleanup question, but M&A guidance, the impact, I think the prior that you talked about was about a 2% impact on the year. You're running ahead of that and you've made acquisitions since. So what should we expect from the acquisition impact on case growth in 24?

Kelly Bania: You know, we see a lot or hear a lot about the consumer challenges, particularly at the lower end. I think some of those that are reported this week are spoken to some of the challenges in QSR. I think some of the challenges and foot traffic have been pretty broadly spread across most of the cohorts. Maybe the higher ends will not be a little bit higher or better than others, but you know, even that's been challenged a little bit. So I wouldn't point to any really significant area of strength or more challenge based on what's going on. Thank you.

Speaker Change: There are our update in the back we had and we estimate sort of two to three percent coming from from the M&A overall and as Dave said earlier I continue to expect overall cake growth to continue at four to six percent

Operator: Thanks, Jay.

Speaker Change: Okay, thank you very much.

David Flitman: And that concludes our Q&A session. I'll now enter the conference back over to Mr. Dave Kelvin for any questions or any opening closing remarks. Thank you very much. Thanks for joining the call this morning. We continue to control the outcomes we control. We're confident in our future, and we're also confident in our new long-term algorithm. Thanks a lot.

Unknown Executive: Maybe as a follow-up, just philosophically, what is your thought or maybe the board's thought on buyback timing? Front-loading, right? I think about front-loading within a year, you know, buying maybe early funding with a revolver, you know, front-loading in front of a chef's store, you know, buy before those proceeds are in, or even, right, as your leverage ratio comes down and the low-2s take on some debt, if you think these shares are, you know, incredibly undervalued. What is your thought on all of that? Do you... Do you like that idea or no? Well, we certainly believe in our share.

Operator: Your next question will come from Kelly Bania with BMO Capital Markets.

Kelly Bania: Thanks, Jay.

Dave Flitman: Sure. So the first part of your question there, Kelly, was around kind of unpacking the growth. You know, overwhelmingly, our growth is coming as it has been for quite some time now from new account generation to customer growth. We expect that to continue, especially in a slower foot traffic environment. And again, we believe that's completely within our control.

Dave Flitman: As I referenced a little bit earlier, you know, where you first see foot traffic challenges is in penetration. You know, customers are still buying the same number of lines, but they're buying fewer cases on those lines because their volume is challenged. And so we've certainly seen that and felt it, but our ability to drive new account generation and hold on to our business to the fullest extent and drive that loss number down is where we're squarely focused.

Dave Flitman: and

Dave Flitman: I really haven't seen anything play out geographically, you know, where we're having challenges or, you know, greater areas of strength. And to your question on Salesforce, as I mentioned earlier, the productivity and ramp of those new sellers varies greatly depending upon their background. And we have targeted those headcount additions where we believe, one, there's great market growth and penetration opportunity, and maybe we're a little underrepresented. So any geographic change that we've seen there is really probably more driven by where we've added headcount versus where we haven't.

Dave Flitman: That concludes our Q&A session. I'll now turn the conference back over to Mr. Dave Feldman for any opening closing remarks.

Unknown Executive: I was wondering if I could also maybe follow up. We talked about restaurant traffic down three, and that sounds consistent with what we've heard from others. But can you just talk a little bit more about what you're seeing in restaurant cohorts or different types of restaurants, as well as the pace of new restaurant openings and what you're seeing in the growth there?

Unknown Executive: That'll come, you know, on top of that, we'll have the new system rollout. Just a little more on that.

Alex Slagle: Your next question will come from Alex legal with Jeffries. And thanks.

Unknown Executive: Hey, Alex, the other thing is on the routing. To Dave's point of it being a driver for the last few years, what we've been pleased with is it's not a once and done. It is a standardized process, and you see markets each week and each month that continue to add additional opportunities that get executed against. And then the piece on the technology on Descartes, as I think it was a couple of years ago David talked about, is that when you put it in place, there's some improvement, but as we get it in place and we optimize it more, we expect further to come from that. So, to go a long way in saying we think there's still plenty of opportunity for further savings, which in this case typically results in a better customer experience as well.

Unknown Executive: Yeah, thanks. Good morning, guys.

Unknown Executive: Got it. And then, and then last is kind of a cleanup question.

Unknown Executive: Sure. So when we think about inflation, we also consider the impact of mixing in there as well. And so that's one thing to consider. We did see, as you've gotten into kind of past the second quarter, you see a little more moderation. Proteins were the biggest piece that turned more inflationary in the second quarter, but we didn't see that continue. So overall, what we're not seeing is we're not seeing any significant levels of inflation across the board.

Unknown Executive: But, you know, M&A guidance, the impact, I think the prior that you've talked about was about a 2% impact on the year. You're running ahead of that, and you've made acquisitions since. So, you know, what should we expect from the acquisition impact on case growth in 24? We have our update in the back, and we estimate sort of two to three.

Unknown Executive: And I think that what we feel good about is whether it ends up at one to two or a little above or a little below that, it is very manageable, very modest, and that we'll be able to effectively manage our way through that.

Operator: And that concludes our Q&A session. I'll now turn the conference back over to Mr. Dave Feldman for any questions, or for any opening or closing remarks.

Unknown Executive: Great. Thanks, and congrats on a nice quarter, guys.

Peter Saleh: I wanted to ask about Moxie, if you guys could give us maybe an update on the adoption of that platform, and if you're still seeing the incremental case count growth or the ticket growth from customers using Moxie. I think previously it said one and a half more cases per customer. And then, just lastly, on that, is Moxie helping to drive any of the private label penetration as you do more suggestive selling through the app?

Alex Slagle: Good morning. Good to see the OPEX for case growth, really flattening out and you talked about the indirect spend reduction forecast, which is a pretty big jump. I think from the last outlook, but it's wanted to dig into that a little more what changed in your views and where that's coming from. [inaudible] and you know, that'll come, you know, on top of that, we'll have the new system rollout, just a little more on that.

Dave Flitman: Yeah, great questions, Peter. Thank you. And yes, we're very excited about MOXIE. As we previously mentioned, you know, we're 100% holdout across our independent restaurants. We continue to ramp that up in our chain business. It's now in 75% of our national chain business. We expect to ramp that up between now and the end of the year. And to your point, yes, and as we said on Investor Day, on average, customers are buying 10% more.

Speaker Change: Thank you very much. Thanks for joining the call this morning. We continue to control the outcomes we control. We're confident in our future and we're also confident in our new long-term algorithm. Thanks a lot. Have a great day.

Dave Flitman: And we have great algorithms within MOXIE. One of those is, you know, our ability to sell our private label brands and make product recommendations. And so yes, we believe that, coupled with some of the things that I commented on earlier, relative to the focus that we have on our brands and the way we

Peter Saleh: Great. And then just, Dirk, I don't know if I missed it, but did you guys provide the indirect cost figure, or at least the run rate that you have for 2024 as you ramp up to the $60 million by 2027?

Dirk Locascio: Hi Peter. No, I didn't. I was more color commentary, and we'll give some more specifics as we get further into the year, but we are continuing, as I said, to make progress with real concrete savings while on our way toward our target.

Unknown Executive: Are you gaining, are the sales team gaining any lines per stop or any additional penetration into that new customer? It's overwhelmingly Andy Newcomb.

Unknown Executive: So it's like a 20 million back half. Is that just the timing thing on initiatives, or?

Unknown Executive: to make this.

Unknown Executive: So this isn't anything to do with the driver, or the customer; this is our ability to predict when the route will get to the customer. And so we've applied some significantly enhanced capabilities using artificial intelligence and machine learning to be able to predict that, and those increased capabilities are allowing us to be more accurate in telling the customer when we think that truck will get to their stops. So this is really increasing our capability, and it's just a good example of using... AI gets used a lot in a lot of places, but where we're using it for real practical things to improve our results, and there are plenty of those real concrete things that we continue to do work on that we'll bring to life in the coming quarters.

Operator: Have a great day.

Operator: And once again, ladies and gentlemen, for any questions or comments, please press star 1 on your touchtone phone at this time. Your next question will come from Fred Wightman with Wolf Research.

Unknown Executive: We're excited about Pronto, and as we said yesterday, we've just recently started to roll that out with existing independent customers, which is largely an untapped opportunity. Because at this point, you know, we've only sought new business with Pronto. And so we've proven the model there.

Operator: Thank you for your participation. This does include today's conference.

Unknown Attendee: Unknown Attendee, Dave Poe, Unknown Attendee, Dave Poe, Unknown Attendee, Dave Poe,

Unknown Executive: So food traffic does play a little bit. But the primary thing is if you look at that small of a change, it's a couple hundred million dollars in savings. So ultimately, when you think of the range that we have, it doesn't really change the broad outlook that we have for sales for the year.

Unknown Executive: Great, thanks for taking the question. You know, I wanted to ask again about the cadence throughout the quarter. You mentioned your market share gains improving, but also your restaurant traffic decelerating. So, was your case growth, did it, did it, you know, how did it trend throughout the quarter? Also, you know, when I look at the guidance, you know, the two to 4% independent or, you know, organic case growth, guidance, it does imply an acceleration if you're going to get towards the middle of that, you know, from the levels in the second quarter.

Unknown Executive: So, the question is the cadence, and then, you know, maybe, you know, maybe, you can comment on kind of recent trends and how that should give us confidence or not in the acceleration towards the back.

Operator: You may now disconnect.

Dave Flitman: Yeah, so, as we commented, foot traffic slowed. I would say our case growth generally followed what was happening with foot traffic, but we continued to drive growth in the quarter and, importantly, drove outside share gains. Those trends continued into July. And, you know, we have a lot of confidence in that case growth guidance, as Dirk highlighted here, and our ability to drive that outcome, both in terms of share gains and the work that we've got going on to generate new business, should help us to continue to hit that guidance that we gave you for the full year.

Speaker Change: Thank you for your participation. This does conclude today's conference. You may now disconnect.

Alex Slagle: Yeah, I think Alex, the way to think about that is, you know, we've been delivering rally improvements here for, you know, the better part of the last couple of years. And in large part until we initiated that the cart rollout, that was largely driven by what you're pointing out, the process changes and improvements as we've gotten better at that. Now we're overlaying the technology in a new system that we believe is going to take it to the next level.

Alex Slagle: So I'm sure that I'm confident we'll continue to optimize the process as we go through this and we learn more about the new technology, but I think this technology overlay is really going to be with, with fuels the future productivity improvements with with routing once we get that fully deployed. I think Alex, the other thing is on the routing today's point of it being a driver for the last few years, what we've been pleased with is it's not once and done.

Alex Slagle: It is a standardized process and you see markets each, each week and each month it continues to add additional opportunities on that get executed against. And then the piece on the technology and a card, as I gave a couple of years ago, David talked about is when you put it in place, there's some improvement, but as we get it in place and we optimize it more, but we expect further to come from that. So a long way of saying we think there's still plenty of opportunity for further savings, which in this case typically results in about our customer experience as well.

Operator: Thank you.

Brian Harbour: Your next question will come from Brian Harbor with Morgan Stanley. Thanks. Good morning, guys. Director, just on your inflation outlook, do you, you know, you're a little bit above that and too cute. Do you expect it to, to therefore kind of come down a bit in the second half, could you give more color on that and just I don't know if they're any product mixed dynamics that kind of affect that. You could talk about that.

Brian Harbour: Sure. So when we think about the inflation, we also consider the impact of mix in there as well. And so that's, that's one thing to consider. We did see, you know, as you've gotten into past the second quarter, you see a little more moderation. Proteins were the biggest piece that turned more inflationary in the second quarter, but didn't have seen that continue. So overall, what we're not seeing is we're not seeing any significant levels of inflation across the board.

Brian Harbour: And I think that what we feel good about is whether it ends up at one to two or a little above or a little below that is very manageable, very modest. And so we'll be able to effectively manage our way through that. Okay, sounds good.

Dirk Locascio: We've talked a bit about kind of your operating expenses, but was there anything you kind of pulled forward? You know, anything that you think was more impactful in the second quarter that it drove the pretty good performance and operating expense? I think specific that I would call out, you know, good portion of it is the difference cost actions that we've taken over this past six months or so, combined with significant supply chain productivity that you referenced on the call today.

Dirk Locascio: No, it was not. And I think when Dave talked earlier, but we talked about this three to five percent productivity. It's not just to be able to say that's how we're operating. It's how we're holding the teams accountable and focusing on all while doing it smartly while keeping an eye toward not damaging or hurting the business for that continued growth and further margin expansion. Thank you. Thanks, Brian.

Peter Saleh: Your next question will come from Peter Saleh with BTIG? Great, thanks and congrats on a nice quarter, guys. I wanted to ask about Moxie, if you guys could give us maybe an update on the adoption of that platform. And if you're still seeing the incremental case count growth or the ticket growth from customers using Moxie, I think it previously said one and a half more cases per customer. And then just lastly on that, is Moxie helping to drive any of the private label penetration as you do more suggestive sell-in through the app?

Peter Saleh: Yeah, great questions, Peter. Thank you. And yes, we're very excited about Moxie. As we previously mentioned, you know, we're 100% old out the pressure in the tenant restaurants. We continue to ramp that up in our chain business. It's now in 75% of our national chain business. We expect to ramp that up between now and the end of the year. And to your point, yes. And as we send an investor bank on average customers are buying 10% more.

Peter Saleh: And we have great algorithms within Moxie. One of those is, you know, our ability to sell our private label brands and make product recommendations. And so yes, we believe that coupled with some of the things that I commented on earlier relative to the focus that we have on our brands and the way we send our sales force. All of that is working together. And I'll support that growth that we talked about.

Peter Saleh: Great. And then just Dirk, I don't know if I missed it, but did you guys provide the indirect cost figure that or at least the run rate that you have for 2024 as you ramp up to the 60 million by 2027? I Peter, no, I didn't. I was more of color commentary and we'll give some more specifics as we get further into the year. But we are continuing as I said to make progress with real concrete savings and while on our way toward our target. Thank you very much.

Operator: Thanks Peter.

Andrew Wolf: Your next question will come from Andrew Wolf with CL King and Associates. Thank you. Good morning on the performance, you know, in the market, particularly want to focus on with the independent restaurants. Are you gaining are the sales team gaining any lines per stop or any additional penetration in that? Or is it all really just mainly, mainly almost all driven by, you know, new customer wins that new customer wins? It's overwhelmingly handy.

Andrew Wolf: New customer wins, but, you know, penetration is an important part of our algorithm. And as I said, it was something that is being overridden currently with the foot traffic. So kind of hard to get a handle over that exactly, but certainly we're working hard to drive penetration with our customers.

Dirk Locascio: Got it. And Dirk, I think you said the college savings year to date are 50 million and 70 million is for the year. So it's like a 20 million back half. Is that just the timing thing on initiatives or like, you know, what is going on with that increment being, you know, a little less than the first half? It is. It doesn't hit equally, but as you probably remember from our best today, we talked about a 260 plus million dollar for the new law rights plan.

Dirk Locascio: So we clearly have a lot of work going on. Expect a lot of value to continue to come. And I think that the fourth thing is, you know, even in this environment that we are continuing to grow, we're continuing to expand growth profit, we're continuing to run productivity, which is not something that a lot of companies are doing right now.

Dave Flitman: Okay, and just one last thing, you mentioned the delivery window accuracy or on-time deliveries in these test markets for moxie customers was up, I think you said 40 percent. Like, what behavior is being changed here through the tracking? Is it just the drivers, what's going on? Are the drivers just not wanting to get followed up by the customers? Or is there some internal tracking that's better? Like, you know, what is changing, you know, to make this, you know, that's of quite a dramatic improvement.

Dave Flitman: So just kind of curious what that is. So this isn't anything to do with the driver of the customer. This is our ability to predict when the route will get to the customer. And so we've applied some significantly enhanced capabilities using artificial intelligence machine learning to be able to predict that and that those increased capabilities are allowing us to be more accurate in telling the customer when we think that that truck will get to their stops.

Dave Flitman: So this is really an increased our capability. And it's just a good example of using I got to use a lot in a lot of places, but where we're using it for real practical things to improve our results. And there's plenty of those real concrete places that we continue to do work on that will bring to life the coming orders.

Operator: Thank you. And once again, ladies and gentlemen, for any questions or comments, please press star one on your touch tone phone at this time.

Fred Whitman: Your next question will come from Fred Whitman with Wolf Research.

Dave Flitman: Hey guys, good morning. I wanted to touch on Pronto. It looks like the expected contribution came up pretty immediately versus what you talked about before. So I'm wondering if you could just dig into that and maybe where you're seeing the most opportunity. I'm excited about Pronto. And as we said in yesterday, we've just recently started to roll that out with existing independent customers, which is largely an uncapped opportunity. Because at this point, you know, we've only sought new business with Pronto.

Dave Flitman: And so we've proven the model there will be a master role that out more aggressively for new customers, but importantly for existing customers. And I think all of that is at the root of our acceleration on the top line here. So we're excited about it. I don't see any reason why with the midterm, that can't be a billion dollar plus business for us.

Jake Bartlett: Perfect.

Jake Bartlett: Then just thinking about the sales guidance, the inflation outlook came out a little bit. Case has gone changed and the total dollar sales number was unchanged. So I'm wondering maybe what the offset is David to talk about a little bit of continued pressure into July. So is the case trajectory, maybe towards the lower end of the prior range or perhaps we think about that. So foot traffic does play a little bit.

Jake Bartlett: The primary is if you look at that small of a change is a couple hundred million dollars in savings. So ultimately, we think of the range that we have. It doesn't really change the broad outlook that we have for sales for the year. Fair enough.

Jake Bartlett: Thanks.

Operator: And once again, ladies and gentlemen, for any questions or comments, please press star one.

Jake Bartlett: Your final question will come from Jake Bartlett with true securities. Great. Thanks for taking the question. You know, I wanted to ask again about the cadence throughout the quarter. You mentioned your market share gains improving, but also your restaurant traffic decelerating. So was your case growth. Did it? You had it trend throughout the quarter. Also, you know, when I look at the guidance, the two to four percent independent or organic case growth. You know, guidance, it doesn't apply for you're going to get towards the middle of that, you know, an acceleration from the levels in the second quarter.

Dave Flitman: So the question is the cadence. And then, you know, maybe what, you know, hopefully you can comment on kind of recent trends and how that should give us confidence or not in the acceleration towards the back capacity, here. Yeah, so as we commented, foot traffic slowed, I would say our case growth generally followed what was happening with foot traffic, but we continue to drive growth in the quarter and importantly, grow outside share games.

Dave Flitman: So the trends continued into July. And you know, we have a lot of confidence in that case growth guidance is stir highlighted here and our ability to drive that outcome both in terms of share great games and the work that we've got going on to generate new business should help us to continue to take it that guidance that we gave you for the full year.

Jake Bartlett: Okay, you know, and then just, you know, another chunk that you haven't, you know, talked much about on the call, at least it's all other, you know, in terms of case growth, it was negative in the last two quarters. What if the pipeline looked like there or, or, you know, what should be expected from that, that that driver in the back half, then if one was brought along? So the all other is as you'd expect it's, we school, it can be some government retail etc.

Jake Bartlett: So we're similar to change, we're thoughtful in the way we pursue that business. So that's not a key area, it'll be opportunistic in how we grow it. The very areas that we expect to drive our overall growth to be becoming from our independent healthcare and health hospitality and, again, opportunistic in those. Got it.

Jake Bartlett: And then last is kind of a clean up question, but, you know, M&A guidance, the impact, I think the prior that you talked about was about a two percent impact on the year you're running ahead of that, you've made acquisition since. So, you know, what should we expect from the acquisition impact on case growth in 24? Sure. Our update in the back we had, we estimate sort of two to three percent coming from from the M&A, overall and in as Dave said earlier, continue to expect overall case growth to continue at four to six percent. Okay, thank you very much. Thanks, Jay.

Operator: And that concludes our Q&A session.

Dave Flitman: I'll now enter the conference back over to Mr. Dave Kelvin for any question for any opening closing remarks. Thank you very much. Thanks for joining the call this morning. We continue to control the outcomes we control. We're confident in our future and we're also confident in our new long-term algorithm. Thanks a lot.

Operator: Have a great day. Thank you for your participation. This does include today's conference.

Operator: You may now disconnect.