Q4 2024 US Foods Holding Corp Earnings Call
Greg: Thank you for standing by. My name is Greg and I will be your conference operator today. At this time, I would like to welcome everyone to today's U.S. Foods Holdings Corporation Q4 2024 earnings call.
Greg: All lines have been placed on mute to prevent any background noise.
Speaker Change: After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. And if you'd like to withdraw your question, simply press star one again. Thank you. I would now like to turn the call over to Mike Neese, Senior Vice President and Head of Investor Relations. Mike, the floor is yours.
Mike Neese: Thank you, Greg. Good morning, everyone, and welcome to the U.S. Food's fourth quarter and full year fiscal 2024 earnings call.
Speaker Change: On today's call, we have Dave Flitman, CEO, and Dirk Locascio, CFO.
Speaker Change: We will take your questions after our prepared remarks conclude. Please limit yourself to one question and one follow-up.
Speaker Change: During today's call and unless otherwise stated, we're comparing our fourth quarter and full year 2024 results to the same period in fiscal year 2023. In addition to historical information, certain statements made during today's call are considered forward-looking statements.
Speaker Change: Please review the risk factors in our Form 10-K for a detailed discussion of the potential factors that could cause our actual results to differ materially from those anticipated in forward-looking statements.
Lastly,
Speaker Change: During today's call, we will refer to certain non-GAAP financial measures. All reconciliations 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.
We are now providing reconciliations to forward-looking non-GAAP financial measures.
Speaker Change: And with that, thank you, and I'll turn the call over to Dave.
Dave Flitman: Thanks, Mike. Good morning, everyone, and thank you for joining us today.
Speaker Change: Before we turn to today's agenda, I want to take a moment to acknowledge the devastating fires in the Los Angeles area.
Our thoughts are with everyone impacted by this tragedy.
Speaker Change: I'm relieved to share that all of our associates in the L.A. area are safe.
Speaker Change: We eagerly supported the critical work of first responders, including CAL FIRE, by providing food and hydration, and we are very thankful for their brave and tireless efforts.
Now let's turn to today's agenda.
Speaker Change: I'll start by recapping our 2022 to 2024 long-range plan, then I'll share highlights from 2024, including the significant progress our team made executing our strategy.
Speaker Change: I'll then hand it over to Dirk to review our fourth quarter and full year 2024 financial results as well as our fiscal 2025 guidance.
Speaker Change: We delivered another strong quarter, which resulted in record 2024 full-year earnings of $1.74 billion, capping off the final year of our long-range plan.
Speaker Change: The fact that we didn't get there exactly the way we originally planned three years ago demonstrates our ability to adjust to any macro environment and our team's relentless focus on controlling the controllables to ensure we reached our target.
Speaker Change: During the past three years, we accelerated our work on key initiatives, including delivering consistent share gains with our three target customer types.
Speaker Change: driving more than 230 million dollars in cost of goods savings.
extending our technology leadership position.
Speaker Change: Reducing net leverage, ending 2024 at 2.8 times, within our 2 to 3 times target range.
Speaker Change: and expanding adjusted EBITDA margin by 100 basis points to 4.6 percent.
Speaker Change: I am equally excited about starting our new long-range plan, continuing to execute our strategic initiatives to drive sustained growth and return capital to shareholders.
Speaker Change: Our future is bright, and our current momentum gives us confidence in achieving a 5% sales CAGR, a 10% adjusted EBITDA CAGR, at least 20 basis points of annual adjusted EBITDA margin expansion, and a 20% adjusted diluted EPS CAGR through 2027.
Speaker Change: I am highly confident in our ability to continue to outpace industry volume growth over the long term and expand margins through our extensive portfolio of self-help initiatives while driving long-term value creation for our shareholders.
Speaker Change: As we turn the page on a momentous chapter for U.S. foods, I thank our 30,000 associates for their extraordinary effort, dedication, and sharp focus to deliver excellence and help our customers make it every day.
This next chapter will be even more exciting.
Turning to slide four.
Speaker Change: Our strong fourth quarter results finished a year in which we achieved record adjusted EBITDA of $1.74 billion while we expanded adjusted EBITDA margin by 22 basis points.
Speaker Change: We also delivered record adjusted EPS of $3.15 which was 20% growth and we grew adjusted EPS 8 percentage points faster than we grew adjusted EBITDA.
Speaker Change: Importantly, we deployed our strong cash flow through our $220 million acquisition of IWC and nearly $1 billion of share repurchases in 2024.
Let's turn to the broader macro environment.
Speaker Change: Chain Restaurant foot traffic, as published by BlackBox, was down a little less than 2% for the fourth quarter, and while still negative, it showed sequential improvement from the third quarter.
Speaker Change: Independent restaurant industry volume per cercana was down less than 1% in the fourth quarter and in line with last quarter's year-over-year results.
Speaker Change: Our ability to outperform the market was again demonstrated in the fourth quarter as we posted a 3.2% increase in total independent case volumes and our 15th consecutive quarter of share gains with independent restaurants.
Also...
Speaker Change: We continue to gain share in both customer types, and in fact, we just posted our 17th consecutive quarter of share gains in healthcare.
Speaker Change: These two high-growth customer types are an important part of our differentiated go-to-market strategy.
Speaker Change: The fourth quarter was noisy due to the impact of the devastating hurricanes that hit near the end of the third quarter and early in the fourth quarter, affecting industry volumes, specifically in the southeast, where we have a larger portion of our independent business.
Speaker Change: In addition to storms, the election and a holiday calendar shift also impacted restaurant foot traffic.
Speaker Change: These impacts translated to an estimated 150 to 200 basis point headwind to our independent and hospitality case growth.
Speaker Change: Despite these external factors, we continue to capture profitable market share, grow volumes, and expand our margins.
Speaker Change: And in the fourth quarter, we improved our share gains with independent restaurants compared to the prior year, and we also grew our new independent accounts at the fastest rate of the year in December.
Speaker Change: Moving to slide 5, let's take a look at some of the key achievements in 2024 that our team delivered under our four strategic pillars.
2024 was another strong year for U.S. foods.
Speaker Change: As I reflect on my two years here, I am now even more confident in delivering our new long-range plan and our ability to consistently gain profitable market share in our three target customer types of independent restaurants, healthcare, and hospitality, the three most profitable segments of the food service industry.
Speaker Change: We also have line of sight to continued productivity gains of 3-5% and further gross margin expansion.
Speaker Change: Now let's move to some highlights in each of our pillars.
Our first pillar is culture.
Speaker Change: The safety of our associates continues to be and always will remain our number one priority.
Speaker Change: Our injury and accident frequency rates improved 19% from the prior year, on top of our 23% improvement in 2023.
Speaker Change: These safety results are our best in many years, but we still have more work to get to our ultimate goal of zero.
Speaker Change: As we look to further reduce associate injuries, the rollout of centeride power industrial equipment is a key initiative that is underway across the network.
Speaker Change: We are nearly 50% through this deployment, and importantly, where this equipment has been already rolled out, we have not had a single injury.
Speaker Change: In 2024, we donated more than $14.5 million to support hunger relief, culinary education, and disaster relief efforts.
Turning to our service door.
Speaker Change: We're striving to differentiate our service platform to our customers to provide a best-in-class delivery experience.
Speaker Change: In 2024, we deployed Descartes, a leading routing technology in 25 markets, resulting in nearly 50% of our routed miles on the system at year-end.
Speaker Change: It enabled us to route more dynamically and drive even greater delivery efficiency while also providing a better customer experience by delivering their orders within a more precise time window.
Speaker Change: We improved distribution productivity in 2024 by delivering our best cases per mile performance in our company's history.
Speaker Change: This was driven through our market-led routing initiative combined with a more than 2% productivity uplift in markets where Descartes has been deployed.
Speaker Change: We are also transforming the experience for our customers through our continued enhancements to our MOXIE digital solutions platform that enables customers to easily place orders, manage inventory, and pay their bills.
Speaker Change: We have been and will continue to be the e-commerce leader in our industry.
Speaker Change: We close the year at 77% e-commerce penetration for our independent customers and 87% for the total company.
Speaker Change: The 77% is an all-time high for our independent customers and represents a four-and-a-half percentage point improvement versus 2023, and then 11% percentage point improvement versus 2021.
Now let's turn to our growth pillar.
Speaker Change: In 2024, net sales grew 6.4 percent to $37.9 billion through continued market share gains in all three of our target customer types.
Speaker Change: Our differentiated team-based selling model and consistent addition of new seller headcount over time, which was up 5% in 2024, remain at the core of our growth plan.
Speaker Change: We continue to invest in our Hungry for Better program with three distinct product portfolios of over 4,000 products, Serve You, Serve Good, and Serve Local.
Speaker Change: Hungry for Better makes it easy for our customers to help meet diners preferences for delicious on-trend meals from clean ingredients that support individual dietary and lifestyle needs to sustainably sourced products.
Speaker Change: In fact, in 2024, our responsibly sourced, served good portfolio of private label products achieved record-breaking sales, surpassing $1 billion for the first time.
Speaker Change: Pronto, our small truck delivery service continues to grow and is live in 40 markets.
Speaker Change: Pronto provides these previously untapped independent restaurant customers with smaller, more frequent deliveries and later cutoff times.
Speaker Change: In addition, we launched Pronto Penetration in the middle of 2024 in two pilot markets and expanded that to six later in the year with a goal to launch 15 to 20 more markets in 2025.
Speaker Change: This service fills in non-routine delivery days for our existing independent restaurant customers, leading to the potential for further wallet share for U.S. Foods.
Speaker Change: In our first two pilot markets, we are seeing an approximate 20 percent uplift in our overall case growth from customers in the program.
Speaker Change: As expected, Pronto exited 2024 with approximately $730 million of annualized run rate sales, and we expect it to grow double digits this year.
Speaker Change: Turning to M&A, we completed one tuck-in acquisition last year by purchasing IWC Food Service, which serves the greater Nashville area.
Speaker Change: More recently, in January, we acquired Jake's Finer Foods in Houston, our fourth acquisition over the last two years.
Speaker Change: Jake's also includes a quality meat cutting facility which will fit in nicely with our stockyards network.
Speaker Change: With more than $160 million in annual revenue, this acquisition increases our local capacity and expands our presence in South Texas.
Finally, let's move to our profit pillar.
Adjusted gross profit grew 7.3% in 2024 to $6.6 billion.
Speaker Change: We continue to make additional progress on cost of goods through our strategic vendor management efforts, realizing more than $70 million in savings last year.
Speaker Change: We also remain focused on growing our private label brands, where our full year penetration was up nearly 50 basis points to 52% with our core independent restaurant customers.
Speaker Change: Our momentum accelerated throughout the year, with penetration nearing 53% by the end of 2024.
Speaker Change: And we see no near-term ceiling with our ability to further increase our private label brand penetration.
Speaker Change: Finally, as part of our ongoing goal of achieving three to five percent annual productivity improvement, we made significant progress in 2024 to streamline administrative processes and costs and achieved 120 million dollars in annualized operating expense savings.
Regarding Chef Store.
Speaker Change: We are nearing the conclusion of exploring the sale of this business and expect that we will have more to say about that by the end of this quarter or early in the second quarter.
Speaker Change: We remain fully committed to supporting the business, our associates, and our customers throughout the process.
Speaker Change: As we have previously said, in the event of a sale, we would expect to deploy the majority of the proceeds to repurchasing shares.
Dirk Locascio: Before I hand it over to Dirk, I would like to recognize two associates who have gone above and beyond during the wildfires that raged across California.
Dirk Locascio: Two of our associates, Danny Moore and Paul Wheeler, dedicated their personal time to serving the approximately 10,000 firefighters in the area.
Dirk Locascio: With Danny supporting the Pacific Palisades fire and Paul supporting the Eaton fire, both were on site daily to coordinate the delivery of over 75 truckloads of product and were in the kitchens preparing food for first responders.
Dirk Locascio: Both have made incredible personal sacrifices being away from their families, and I thank them and all of our associates for their service to support those who are on the front line during this tragedy.
Dirk Locascio: Let me now turn the call over to Dirk to discuss our fourth quarter results and our 2025 guidance.
Dirk Locascio: Thank you, Dave, and good morning, everyone. Our fourth quarter performance finished off strong 2024. We continue to execute our strategy of driving healthy, balanced growth through the P&L, which resulted in margin expansion and double-digit earnings growth.
Turning to slide 7.
Dirk Locascio: Fourth quarter net sales increased 6.2 percent to 9.5 billion dollars, driven by total case volume growth of 3.5 percent and food cost inflation and mixed impact of 2.7 percent.
Dirk Locascio: Our independent restaurant volume grew 3.2%, including 140 basis points from acquisitions.
Dirk Locascio: As Dave mentioned earlier, industry case volumes were impacted by storms, the election, and timing of the holiday season.
Dirk Locascio: Despite the noise in the quarter, we continue to focus on the outcomes that we can control, and we again drove healthy share gains in all three of our target customer types.
Dirk Locascio: We remain encouraged that 2025 will produce a stronger macro backdrop than 2024, and when combined with our focus on share gains, will enable us to accelerate organic case growth.
January growth rates in independent
Dirk Locascio: Although significantly impacted by weather in the California fires, showed signs of strengthening over Q4.
Dirk Locascio: Fourth quarter adjusted EBITDA grew 13.7% from the prior year to 441 million dollars through a balance of profitable volume growth, gross profit gains, and operating expense productivity.
Dirk Locascio: Our actions to drive profitable growth resulted in 30 basis points of adjusted EBITDA margin expansion to 4.6 percent.
Dirk Locascio: Importantly, adjusted gross profit dollars grew 240 basis points faster than adjusted operating expense dollars.
Finally, adjusted diluted EPS increased 31.3% to 84 cents.
Dirk Locascio: We, again, grew Adjusted EPS significantly faster than Adjusted EBITDA, and we expect this to continue as we execute our share repurchase plan on top of strong Adjusted EBITDA growth.
Dirk Locascio: Zooming out to the full year, we delivered record profitability as we grew Adjusted EBITDA by 11.7% to $1.74 billion.
Dirk Locascio: expanded adjusted EBITDA margin by 22 basis points to 4.6% and increased adjusted diluted EPS by 19.8% to $3.15 despite the macro challenges that persisted throughout 2024.
Dirk Locascio: Our results are a testament to the focused execution of our self-help initiatives and our ability to control the controls.
Dirk Locascio: This performance gives us confidence that we have the right strategy and initiatives in place to achieve our new long-range plan.
Dirk Locascio: Moving on to slide 8, we continue to drive significant gains in operating leverage. We again grew adjusted gross profit per case faster than adjusted operating expense per case.
Dirk Locascio: In the fourth quarter, adjusted gross profit per case grew by $0.28, or 3.6%, compared to the prior year, while adjusted operating expense per case increased by $0.08, or 1.4%.
Dirk Locascio: Fourth quarter adjusted EBITDA per case was $2.12, up 19 cents from the prior year, as we grew adjusted gross profit per case three and a half times as fast as adjusted operating expense per case.
Dirk Locascio: The full year result was very similar as we increased adjusted EBITDA per case 14 cents to $2.07.
Dirk Locascio: We continue to drive gross profit gains and offset a significant portion of operating expense inflation with supply chain productivity improvement and other efficiency gains, including streamlining administrative processes and costs and realizing indirect procurement spend savings.
Dirk Locascio: Specific to indirect spend, we achieved more than 30 million dollars in savings for full year 2024, above the 20 million dollar estimate I discussed on the last earnings call.
And we remain on track for $60 million by 2027.
Dirk Locascio: Our fourth quarter and full year results demonstrate our ability to drive strong leverage through the P&L. We expect to maintain that operational discipline in 2025 and beyond.
Dirk Locascio: Turning to slide nine, we are growing our business in a responsible and sustainable way to drive earnings
cash flow and improved return on investment capital.
Dirk Locascio: Over the past three years, we delivered significant profit growth from a balance of top-line growth and EBITDA margin expansion.
Dirk Locascio: including an 18% adjusted EBITDA CAGR and a 27% adjusted diluted EPS CAGR. As a result, we increased ROIC by 1,300 basis points to 31%.
Dirk Locascio: And repurchased $23 million of shares.
Dirk Locascio: We are disciplined in our capital deployment and we remain committed to returning capital to shareholders.
Dirk Locascio: We expect to return to more meaningful share repurchases in the second quarter and balance of the year and we will adjust based on future tuck in M&A opportunities.
Dirk Locascio: As a reminder, we expect to generate more than $4 billion of cash flow over our new long range plan period of 2025 through 2027 and.
Dirk Locascio: And expect to deploy approximately half of these proceeds are $2 billion.
Dirk Locascio: Towards share repurchases.
Dirk Locascio: Additionally, we expect to reduce net leverage due to earnings growth.
Dirk Locascio: Moving on to slide 11 in our guidance and modeling assumptions for fiscal year 2025.
Dirk Locascio: We expect to grow total company net sales by 4% to 6% compared to prior year driven by total case growth of 2% to 4%, which includes faster independent restaurant case growth of 4% to 7%.
Dirk Locascio: The lower end of our range assumed a slower macro environment persists.
Dirk Locascio: We expect a normal inflationary environment with sales inflation and mix impact of approximately 2%.
Dirk Locascio: We expect to grow adjusted EBITDA, 812% and adjusted diluted EPS, 17% to 23%.
Dirk Locascio: Our expected double digit earnings growth will be driven by the combination of profitable volume growth and margin expansion as a result of adjusted gross profit per case, continuing to grow faster than adjusted operating expense.
Dirk Locascio: In closing I am very pleased with our financial performance as we delivered record adjusted EBITDA for 2024 and achieved a long range plan that we presented in early 2022.
Dirk Locascio: We did this by think focused on executing our strategy.
Dirk Locascio: Being agile and controlling the controllable during times of macro uncertainty.
Dirk Locascio: I am excited about the opportunity in front of us as we embark on our new long range plan and we are confident in our ability to achieve it given the momentum we are generating.
Dave Flitman: I'll now pass it back to Dave for his closing remarks.
Dave Flitman: Thanks, Dirk you've heard about the great progress that we made last year.
Dave Flitman: We are extremely pleased with how we successfully completed our prior long range plan and are very optimistic about our momentum heading into 2025 and beyond.
Dave Flitman: Ours is very much a self help an execution story with a long runway of top and bottom line growth in front of us.
Dave Flitman: We will continue to run our playbook execute our strategy and effectively deploy capital.
Dave Flitman: I'd like to quickly draw your attention to slide 12, and what differentiates U S foods versus our competition.
Dave Flitman: We are the only pure play U S focused foodservice distributor with national scale.
Dave Flitman: We have a differentiated value proposition and significant scale with the three most profitable customer types in the industry.
Dave Flitman: Independent restaurants health care and hospitality.
Dave Flitman: We have the industry, leading digital ecosystem.
Dave Flitman: We're in the early innings of self help initiatives that will drive sustained profitable growth for many years to come.
Dave Flitman: We believe we have the fastest P&L growth algorithm in the industry underpinned by accretive capital allocation, which will enable us to grow adjusted EPS faster than adjusted EBITDA over the next several years.
Dave Flitman: And finally, we are accelerating cash flow generation, which will result in more than $4 billion to deploy over the next three years.
We are much stronger today than we were several years ago and we are just getting started.
Dave Flitman: We have sustainable competitive advantages to outperform the market well into the future and we will continue to drive shareholder value for many years to come.
Speaker Change: With that Greg Please open up the line for questions.
Greg: Great. Thanks, Dave.
Speaker Change: And at this time I would like to remind everyone in order to ask a question press star and the number one on your telephone keypad once again star one and as Mike mentioned earlier in the interest of time, we ask that you. Please limit your question to one primary question and one follow up thanks in advance and we'll pause just a moment to compile the Q&A roster.
Speaker Change: Okay. It looks like our first question today comes from the line of Mark Carden with UBS. Please go ahead.
Mark Carden: Great. Good morning, Thanks, so much for taking the questions. So to start it seems like Theres, new tariff news every day, including today with reciprocal tariffs what percentage of your operating do you import overall and then if tariffs on food products end up occurring would you expect activity. So are seeing are with industry simply.
Speaker Change: Able to pass through the pricing.
Mark Carden: Yes, good morning, Mark and thanks for the question I would just point out that.
Mark Carden: The majority overwhelming majority of our products are produced and distributed in the United States. We have a low to mid single digit importing from the various countries that have been mentioned.
Mark Carden: And just just recall that the majority of our customer interactions and our agreements are pass through.
Mark Carden: In nature, but having said all of that at the heart of our work with our customers is helping them handle inflation I would I would wrap this tariff issue into just more inflationary pressures on our customers. So how we go to market the way our restaurant operations consultants work to help take cost and waste out of the back office of our operators our scoop products.
Mark Carden: Our private label brands that end up being cheaper for our customers and help them save time and money in kitchens. That's at the heart of what we do everyday and we will continue to work hard to help support our customers.
Speaker Change: That's great. Thank you and then do you think about your independent case growth assumptions in the year ahead, how do you think about the balance of new account growth versus penetration growth and how that can progress really throughout the year.
Speaker Change: Yes, so penetration has been a challenge given the foot traffic.
Speaker Change: Challenges really all throughout 2020 for especially in the back half of the year.
Speaker Change: But just over time, the overwhelming majority of our growth comes from new account generation.
Speaker Change: That's why I pointed out we had the highest new account generation of the year in December even with all the calendar and foot traffic challenges I am very encouraged we also had one of our strongest monthly year over year share gains in the months of December and all of that positions us very well for for growth going forward, especially when that foot traffic environment improves, which we expect to happen.
Speaker Change: Throughout the course of 2025.
Alright, Thanks for the question Mike.
Speaker Change: And our next question comes from the line of Edward Kelly with Wells Fargo. Ed. Please go ahead.
Edward Kelly: Yes, hi, good morning, everyone.
Edward Kelly: And I wanted to maybe just start with double clicking on the independent case for US I mean, youre clearly taking share there's no doubt about that.
Edward Kelly: But you're below the 5% to 8%.
Although right that you've kind of talked about.
Edward Kelly: Any guidance seems to me that you know because you're talking about.
Edward Kelly: 2% to 4% total organic case growth that you're seeing a sharp improvement in the independent side.
Edward Kelly: Can you just maybe talk about the expectation for the year.
Edward Kelly: Your confidence and visibility.
Edward Kelly: How maybe you think about bridging.
Edward Kelly: Back to that to that target.
Edward Kelly: And how we should be thinking about the cadence of the year.
Edward Kelly: As that occurs.
Edward Kelly: Sure.
Speaker Change: Let me just start by just Reframing that 5% to 8% case growth as we did an investor day recall is the underlying assumption there was a normalized plus 2% foot traffic environment, which we did not see in 2024, so I'd start with that and if you just bridge.
Speaker Change: The performance that we had during the fourth quarter. It's at one 8% organic growth you have the 2% foot traffic back in that 150 to 200 basis points.
Speaker Change: The impact that we have from the storms whether calendar.
Speaker Change: That all puts us right in the heart of low to upper fives.
Speaker Change: Even in that environment, So I'm confident in what we put forward.
Speaker Change: And then as you heard <unk> comment we saw some improved traffic trends in January.
Speaker Change: Kind of we're looking at the month of January if you take the impact of the strike that we had last year and the weather.
Speaker Change: And in fact offsets completely the weather, which was much more significant this year. So I would call that year over year for U S Foods awash.
Speaker Change: And then underneath that we saw strengthening from December to January so as Derek pointed out the low end of that range assumes that the foot traffic environment doesn't improve.
Speaker Change: Confident that will assist at what rate that happens in 2025, but we've got a lot of confidence based on the underlying momentum that we've seen the share gains that we're taking to put forward that guidance range for the year.
Speaker Change: Maybe just a follow up to that Dan I mean, you've pretty consistently talked about that.
Speaker Change: And you can adjust to the background.
Speaker Change: Controlling the controllable, but I think 24, obviously prove that.
Speaker Change: Exiting the year with a lot of momentum and profit per case.
Speaker Change: The self help side of the of the profitability equation.
Speaker Change: So does the same mentality apply as youre thinking about 25% guidance.
Speaker Change: Just curious how you would size the self help opportunity in <unk> and 'twenty five versus what we what you accomplished in 2004.
Speaker Change: Yes, I would say, we feel really good about the momentum and as I pointed out Ed.
Speaker Change: Really believe this we're in the early innings of all the work that you see us doing.
Speaker Change: On the top line continuing to take share there is a lot more share for us to be had in all three of our targeted customer types I feel really good around the way the teams aligned around our mission there and in the numbers that we're putting up but theres more to do and then as you think about the gross profit per case work that we have going on.
Speaker Change: And our margin improvement work, our strategic vendor management works at $260 million target the cloud over the next three years the momentum we're exiting the year with in that area of our exclusive brands.
Speaker Change: Nearing 53% at the end of the year. There is a lot more for us to do and to be had and then supply chain productivity with all of the framing that we've done in the structurally structural improvement work overlaying things like the card we're going to just get continued momentum as.
Speaker Change: As we roll that out across the rest of this year, our turnover continues to reduce and both selectors and drivers.
Confident that our delivery and outbound productivity will continue to improve throughout the year. So just feel really good about the execution story that we have in front of us and the way the team is driving the outcomes.
Speaker Change: And again the other thing.
Speaker Change: To not forget is the benefit that we have from not just from a growth not just independents, but the strong base as Dave mentioned, it's more than a quarter of our business and health care hospitality, which both were growing at a significant rate with health care at almost 5% for the fourth quarter.
Speaker Change: Hospitality at two 4% despite having the same headwinds basically as independents had in both the dose a commodity gain January well within our guidance range. So that's up.
Speaker Change: Another good growth engine for us as we talk about that our EBITDA growth and EPS growth kind of a balance of top line growth and margin expansion.
Ed: Alright, Thanks for the question Ed.
Speaker Change: And our next question comes from the line of Jeffrey Bernstein with Barclays. Jeffery. Please go ahead.
Jeffrey Bernstein: Great. Thank you very much.
Jeffrey Bernstein: My first question is just kind of bigger picture I think you guys mentioned, you're assuming are you, suggesting a stronger macro backdrop in 'twenty five versus 24.
Jeffrey Bernstein: I'm just wondering what what metrics gives you that confidence.
Jeffrey Bernstein: There are some that are concerned that the consumer environment isn't getting much better.
Jeffrey Bernstein: Especially around that because you're talking about the long term algo for case growth, 5% to 8%.
Jeffrey Bernstein: Which assumes positive 2% industry traffic.
Jeffrey Bernstein: There's definitely a question as to whether or not the industry will ever get back to positive 2% traffic. It seems like it's year. After year. There are always challenges. There. So just wondering you were kind of a broader view on the macro backdrop and the confidence you have in getting back to that.
Jeffrey Bernstein: 2% positive industry traffic.
Eric: Sure Good morning, Jeff It's Eric.
Speaker Change: Technomic is one source that we use is calling for a healthy improvement in 25 over 2024 also when you have declined last year sort of reset our base and not expecting further declines again versus.
Speaker Change: Prudent we have likely more some more stability with the election behind.
Speaker Change: So those all give us the.
Speaker Change: The optimism that the foot traffic environment will continue to get better.
Speaker Change: So it will be.
Speaker Change: Thanks.
Speaker Change: The other thing that is.
Speaker Change: It's not new that you've heard us talk a lot about is things that we can control around the share gains in all three of our target customer types, where it continued to drive that and its self help control. The controllable. So hard we want to talk about it that is at the heart of how we're thinking about it whether it's top line growth or just bottom line earnings growth.
Speaker Change: Got it and then my follow up is just on.
Jeffrey Bernstein: Dave you mentioned, the independent customer gains from about the fastest growth.
Jeffrey Bernstein: Just in the month of December and January is on a strong start I'm. Just wondering is there anything that you view as the key driver of that acceleration and maybe what's your expectation is that sustainable throughout 2025 specific to that independent customer gain metrics. Thank you.
Jeffrey Bernstein: Yes.
Jeffrey Bernstein: Yes, I think the focus that we've had in independents 15 quarters of share gains.
Jeffrey Bernstein: Running our playbook the way, we use this or kind of the data to target customer growth by market by Zip code.
Jeffrey Bernstein: Our team is on it you augment that with our continued.
Jeffrey Bernstein: Hiring of sellers.
Some of them are maturing over the last 12 months to 18 months, we will continue to hire in that.
Jeffrey Bernstein: Low to mid single digit range as we committed to as we did the last two years and it's just continuing to run our playbook and.
Jeffrey Bernstein: I remind our team all the time, given our share position regardless of the macro there is plenty of volume to be had in the industry and specifically with independent customers and our job is to go get those cases and Thats, what our team continues to do.
Jeffrey Bernstein: All right. Thanks, Jeff.
Speaker Change: And our next question comes from the line of Lauren Silberman with Deutsche Bank Lauren. Please go ahead.
Lauren Silberman: Thanks, so much so I wanted to ask if you can extend a bit more on what you saw in terms of cadence in <unk> and into January it's good to hear growth accelerated in January I guess are you within striking distance of the Florida, 7% independent case growth target for the year just trying to understand.
Lauren Silberman: What are the guide implies industry trends improve from here what are the magnitude of that.
Dirk Locascio: Good morning, Lauren This is Dirk so in the fourth quarter, we saw more growth in October November just like the rest of the industry and peers have talked about is December with.
Dirk Locascio: The shift in the holiday timing, we saw slower growth overall, we did see some acceleration in January I think with the weather and the buyers made it pretty noisy. So I think for the when you think of the first quarter. Just a reminder, kind of January and early February lower volume periods relative to overall so.
Speaker Change: Our expectation is that we will accelerate throughout the year and to have that confidence for the reasons, Dave talked about earlier that we that we achieve that 4% to 7% independent case growth as well as our overall, 2% to 4% case growth.
Dirk Locascio: Great.
Dirk Locascio: 2% to 4% case growth and then I confirm what's organic versus whether theres any M&A contribution embedded and just more broadly how you're thinking about the M&A environment for 25.
Dirk Locascio: That is in incorporates anything that we've transacted already so it would be includes IFC and a small contribution from Jake switches relatively small as I mentioned.
Dirk Locascio: Our pipeline continues to be to be worked and we continue to look for opportunities out there and what will continue to be opportunistic with the right businesses.
Dirk Locascio: Jacobs is a good example of fit the network very well doubled our capacity in the Houston area allow for continued growth as Dave mentioned, a very good meat cutting facilities that fits well into our network. So I would say the environment remains healthy and we continue to work our pipeline and engage with people as you've heard us say.
Dirk Locascio: Plenty of times that you can't determine is when they are ready and so our but our work continues on that front.
Dirk Locascio: Yes.
Dirk Locascio: Thank you very much.
Dirk Locascio: Alright, Thank you Lauren.
John: And our next question comes from the line of China, Excuse me, John <unk> with Guggenheim Partners. John. Please go ahead.
Speaker Change: Hey, guys wanted to start with can you can you discuss what youre seeing.
Speaker Change: Take out weather and calendar trend line online.
Speaker Change: On lines per account and cases per line.
Speaker Change: And obviously I cases per line right as we see the macro impact is it possible could that be down 5% or mid single digit.
Speaker Change: With the bulk of that being macro.
Speaker Change: Yes. The cases per line has been the challenge John I think.
Speaker Change: Assuming a relatively stable.
Speaker Change: Obviously, we continue to look for those penetration opportunities, but it's just particularly in the back half of the year, it's been kind of overwhelmed by.
Speaker Change: The foot traffic challenges and that's where that shows up.
Speaker Change: Okay.
Speaker Change: And maybe totally different topic, where are we if you think about the rest of this year.
Speaker Change: Rollout of Descartes new mass.
Speaker Change: The rollout of that and then I think last quarter, you talked about productivity was up three 5%.
Speaker Change: I don't know what that was for the full year, maybe maybe with similar do you think could that be higher right in 25 because of the rollout of those programs or you think it's about the same.
Speaker Change: Good morning, John It's Eric I think so.
What they expect to be fully rolled out by the end of this year.
Speaker Change: <unk> continues to deploy to more markets I would say today, our expectation is the productivity impact is pretty similar to what it was last year future rolling off some older ones.
Speaker Change: And then continue to add new is but as we come into 2025, we are still very pleased with the outcomes that both of those those are offering.
Speaker Change: And then.
Speaker Change: For Descartes the opportunities that it will continue to grow for us in the coming years by having a more advanced routing platform.
Speaker Change: Thanks for the question John.
Speaker Change: And our next question comes from the line of Peter Salad with BTG. Peter. Please go ahead.
Speaker Change: Great. Thanks, just a couple of questions first.
Speaker Change: Wanted to come back to the conversation around.
Speaker Change: Tariffs.
Speaker Change: Dave you mentioned low to mid single digit.
Speaker Change: <unk> from the countries that may be affected just curious if the you know the private label brands that you guys have are they more or less exposed to those countries versus the Brandon. That's my first question. Thanks.
Speaker Change: Thanks antibody equally or Peter no, no plus or minus on a relative basis.
Speaker Change: Okay. That's very helpful and then just on.
Speaker Change: The moxie.
Speaker Change: <unk> I know you gave some metrics there.
Speaker Change: Or are the are you still seeing the.
Speaker Change: Case count growth there I think maybe several quarters ago, you were mentioning about our case and a half or more per per order just any update on that would be helpful. Thank you.
Speaker Change: Yes, Peter it's relatively the same that pace and a half in that 1% to two cases is where we continue to land with moxie and we're confident in that and we expect that will continue.
Speaker Change: Okay. Thank you for the question Peter.
Speaker Change: And our next question comes from the line of Brian <unk> with Morgan Stanley Brian. Please go ahead.
Brian: Yeah. Thanks, good morning, guys.
Speaker Change: Just on the health care and hospitality side.
Brian: Has that been.
Speaker Change: Mostly kind of.
Speaker Change: New business wins versus versus penetration I know, the new business wins, there can be a little bit lumpier, but.
Speaker Change: What do you expect that rate to kind of continue.
Speaker Change: Into this year or anything that affected <unk>.
Good morning, Brian Stark so overall as we said.
Speaker Change: We're quite pleased with the way both are performing and it's really coming from a combination of new and penetration across that customer base.
Speaker Change: And our expectation as we continue to grow at very healthy rates and as I mentioned, where we're growing well within our guidance range for the year, we have differentiation with those customer types, just like with you on our go to market with independent restaurants.
Speaker Change: And the the wins can be yes, there can be some chunky pieces, but they're also can be smaller that we continue to bring on on a regular basis. So we think we're very well positioned and excited about the growth that comes from those customer types.
Speaker Change: Okay. Thanks Derek.
Speaker Change: What's a.
Speaker Change: A rough capex number for.
Speaker Change: This year and I guess, just kind of any changes in the.
Speaker Change: The different buckets of that versus 24.
Speaker Change: Sure so we.
Speaker Change: We guided to $3 $75 million to $425 million for the year, that's a step up from a little under $3 50 in 2024, and it's really right in line with what we talked about Investor day, and it's a combination of as the business gets a little bit bigger its fleet a little more.
Speaker Change: To support some of our initiatives.
Speaker Change: Some of the work around building maintenance capacity, there's not a single driver there, but I think the important part is that depreciation both or what we had been contemplating and it's really as we step up coming off of a few years of lower investments around the COVID-19 period of getting back to investing in a healthy way.
Speaker Change: What you see is.
Speaker Change: Even with that we continue to grow EPS meaningfully faster than adjusted EBITDA.
Speaker Change: Alright, Thank you for the question Brian.
Speaker Change: And our next question comes from the line of Kelly Bania with BMO capital markets. Kelly. Please go ahead.
Speaker Change: Thanks, Jim.
Kelly Bania: A couple questions from us.
Lots of focus on the restaurant traffic in the broader trends, there, but anything you're seeing underneath the hood, whether it's quick wound types that are performing better.
Kelly Bania: Or or income cohort dynamics or even regional dynamics and just curious if there's areas that are stronger that maybe you might be moving into for growth as we think about 2025.
Kelly Bania: Yes, I wouldn't point to any regional challenges I think.
Kelly Bania: Put pressure of foot traffic pressure has been it's been pretty broad based.
Kelly Bania: And particularly in the back half of the year.
Kelly Bania: Our strength, we have a lot of strength in the bar and Grill area. Our team continues to do a nice job, they're taking share tends to hold up on a relative basis better than some other segments.
Kelly Bania: But that's really the only thing I would probably point out and mentioned there.
Okay. That's helpful and then.
Speaker Change: Dave I think you mentioned sales force head count was up 5% in 2024 is it safe to assume 25 is on a similar trajectory.
Kelly Bania: And.
Kelly Bania: Just color on how you feel about the compensation structure for for the tool and feedback and how that's going or any changes or things that we should consider on that front.
Kelly Bania: Yes, we were up 6% and 23 and 5% last year, I think that 4% to 6% range feels good for US we've got good momentum around that our team does a nice job of Onboarding new sellers.
Kelly Bania: So I think we will.
Kelly Bania: We will stay in that range.
Kelly Bania: We thought we did not make any challenges to our compensation plan going into this year.
Kelly Bania: Because we felt good about the changes we made a year or so ago and that's playing out as we'd hoped.
Kelly Bania: We'll continue to review through the course of time make any tweaks as we need to.
Edward Kelly: Thank you Kelly.
Speaker Change: And our next question comes from the line of Alex Slagle with Jefferies. Alex. Please go ahead.
Edward Kelly: Alright. Thanks.
Speaker Change: <unk> on the performance this year.
Speaker Change: And the private the private label and just environment theme is primed to support further expansion here and it sounds like you've seen the momentum climb through 'twenty. Four is wondering if you could kind of talk about some of the drivers.
Speaker Change: Yes that could allow that to ramp further in 'twenty five as you think about the effectiveness of the seller incentives and the kind of the <unk>.
Speaker Change: Product, you're offering or any other industry dynamics that might impact that.
Speaker Change: Yes, I'll just take you back in history, a little bit Alex there with the pressure that ourselves and really the industry saw in private label coming out of Covid.
Speaker Change: All were challenged with supply for a few years there and it was really in the back half of 'twenty three and all of that started to normalize and then regained the solar confidence. So we entered 2024 with full supply capability.
Speaker Change: You overlay that with our innovative scoop process, where we're launching new products highly innovative products that again, great quality and help our customers save time and money.
Speaker Change: We do that twice a year the spring and the fall and those have been quite successful and most of those products stick once we launch them and so we feel really good about it and that's why I pointed out earlier that.
Speaker Change: We exited the year with a much stronger momentum than we had for average for the year and I expect that that will continue.
Speaker Change: Challenging times, when our customers are feeling those inflationary pressures.
Speaker Change: Our private label brands are exactly what they need.
Speaker Change: Our team's incentive to sell those and so it's a win win for our customer for our sales team.
Speaker Change: Thanks, and a follow up on the acquisitions that have Jay expand the newest edition, maybe an update on kind of where we are with some of the other recent acquisitions <unk> just in terms of integrating those businesses and that journey towards and getting productivity.
Speaker Change: Activity in the growth synergies that you've been looking for.
Speaker Change: Sir.
Good morning.
Speaker Change: We've been pleased with each of them each continue to progress from an integration perspective, both from a processing system and we will continue that over the course of this year.
Speaker Change: You can probably remember we've talked about and we do when we buy companies, we do integrate them into our systems over time.
But each of them continue to.
Speaker Change: Largely performed as we expected and we expect the same amount of Jake's as we bring it on and are excited about that one as well.
Alex Slagle: Thanks for the question Alex.
Alex Slagle: And our next question comes from the line of Jake Bartlett with Truest Jacob. Please go ahead.
Speaker Change: Great. Thanks for taking the question My first one was on the product cost and mix guidance of 2% and 25 and trending higher than that.
Alex Slagle: In the fourth quarter.
Alex Slagle: It looks to me like linked some.
Alex Slagle: <unk> is remaining elevated so I guess the question is is that would you view that as kind of conservative on that the 2% versus the $2 seven on a blended basis and also what maybe there is some mix impact in there that are not contemplating so any commentary there would be helpful.
Alright, Jake and overall it probably is a little on the conservative side since we don't know exactly how the inflation is going to play out and we've used that to 2% very similar to how we've talked about it previously.
Alex Slagle: And just as a reminder, inflation plays out a little bit higher than that it would be more of an impact on sales and it will on earnings just because when we think about the.
Alex Slagle: The inflation, even in the fourth quarter and very similar to the third quarter is more of that is coming through proteins to center of the plate and those cases has more of an impact on sales dollars than it does earnings. So we're.
Alex Slagle: While position here and we'll continue to work on managing inflation effectively just as we had the last few years.
Speaker Change: Great and then I had a question on some of the margin drivers in 'twenty five and I'm, hoping you can quantify maybe some of the you.
Speaker Change: And what you are looking to get with procurement savings just remind us what you think youre going to get there as well as the corporate cost savings any other.
Speaker Change: Initiatives, maybe that you could quantify for us as we think about the margin build in 'twenty five.
Speaker Change: Sure well I'm not going to get into a lot of specifics on the components I think on the cost of goods the $260 million that we talked about it's relatively balanced across the years. So you can sort of think about that in that way.
Speaker Change: Dave made a comment that I referenced on the cost savings of the.
Speaker Change: $120 million that we took this year and some of that will carry forward into next year, and then indirect Spanish how we achieve the more than $30 million on our way to the $60 million I would expect we'd probably get to another $15 million to $20 million of gains. This year incrementally. So it's that plus then the elements of productivity and supply chain.
Speaker Change: We are targeting and that again.
Speaker Change: Three plus percent range. So it's it all contributes.
Speaker Change: Why because of the visibility we have to be the actions and initiatives will drive it which gives us such confidence in achieving the overall earnings outlook that we put forth.
Speaker Change: Great. Thanks for the questions Jay.
Speaker Change: And ladies and gentlemen, just a reminder, again if you'd like to ask a question Thats Star one on your telephone keypad once again star one.
Speaker Change: And our next question comes from the line of Andrew will excuse me Andrew Wolf with.
Speaker Change: With C L King Andrew Please go ahead.
Speaker Change: Thank you good morning.
Speaker Change: To ask a couple questions around the pronto penetration initiatives that you've launched recently and gave some color on.
Speaker Change: Could you just clarify Dave.
Speaker Change: I'll leave that for the entire independents.
Our customer base.
Speaker Change: Just the pronto folks and specifically I wanted to ask about the 20% uplift in sales with.
Speaker Change: Those who have tried it.
Assume thats got to be new lines based on the convenience.
Speaker Change: Having a stock out or whatever.
Speaker Change: Uh huh.
Speaker Change: Just a little color on whether it's mainly new lines or what's driving that.
Speaker Change: And also the economics, because I was thinking about it near term.
Speaker Change: Truck delivery, but longer term you might might have chance to consolidate that into a larger purchase so just kind of get some clarity on how you're thinking about that.
Speaker Change: You know what it is and how the economics consorted sort out if that 20% uplift holds out.
Speaker Change: Yes, Thanks, Andy Let me just take you back to the original launch of Pronto and for several years.
Speaker Change: This was aimed at.
Speaker Change: Urban markets difficult to reach areas and overwhelmingly actually a 100% targeting new customers.
Speaker Change: It was just the middle of last year, when we started to take what we call pronto penetration to our new customer base, we started that in two markets.
Speaker Change: Towards the end of last year, we extended that pilot to four markets. So this is now for the first time ever.
Speaker Change: Aimed at our existing customer base.
Speaker Change: It gives them a chance and actually that the lens that opens for us is competing against specialty suppliers.
Speaker Change: So many of the products that we're delivering on pronto pattern or products that our customers are buying some from us some competitors those specialty guys and they're really looking for more frequent deliveries of fresh product. So think about produce think about center of the plate items think about seafood.
Speaker Change: Those sort of things or what typically goes on our pronto truck.
Speaker Change: And to your question around the 20% uplift that is aimed at specifically the customers.
Speaker Change: In those penetration markets that we've opened this up to and again. This is in pilot phase. So we've entered a market with one or two just a couple of trucks to test it and just recall to your question. We're looking at two things as we took this to our existing customer base. One is our ability to maintain the profitability, which is important and that's linked.
Speaker Change: So with making sure that we don't cannibalize, our existing business and that's why we're being thoughtful about the ramp up of profit penetration and so far we feel good and from a profitability standpoint.
Speaker Change: It's right in line with our bottom line profitability.
Speaker Change: Great Thanks for that.
Speaker Change: Color and if I could just get one housekeeping.
Speaker Change: Question Ed.
Speaker Change: On the dirt the 4% to 7% independent case growth that's in the plan.
If I use the acquisitions and assume it's all for independents.
Speaker Change: At least at this juncture, what you've announced.
Speaker Change: It seems to add about 1% to that number.
Speaker Change: The organic.
Speaker Change: Component be about 1% lower.
Speaker Change: So it will be.
Speaker Change: Not all independents I think for each of them they tend to be call. It app on the independent side, so it'll add probably not quite that much but it will definitely be a contributor to it I think.
Speaker Change: Bigger sort of improvement as Dave talked about is the continued share gains and then over the course of the year some improvement in the foot traffic environment.
Speaker Change: It's got all leads us to our expectations for the 4% to 7% and wrapping up the year rollout.
Speaker Change: Okay.
Speaker Change: Thanks for the question Andy.
Speaker Change: And our next question comes from the line of John <unk> with J P. Morgan John Please go ahead.
Speaker Change: Hi, the question is on it.
Speaker Change: The amount of broad liners that you might be able to acquire nationally that could drive your independent restaurant case lines specifically is it.
Speaker Change: Not to completely put numbers in your head, but could you potentially expand that business and you know 25% 50%.
Speaker Change: Can you just give us some kind of sense in terms of how big of an acquisition opportunity there may be to be more getting it to do more tuck in acquisitions is the first question and the related ones for some of the businesses that you've acquired have you actually learned anything from them. I mean have you learned anything from the various businesses that you've acquired that's actually.
Speaker Change: Made U S foods.
Speaker Change: A better operation both for our customers and employees, maybe that surprised you on the positive side. Thank you.
Speaker Change: So overall I think we're not going to as you pointed out not going to get into specific numbers. We think there are a number of opportunities primarily in the parking space that are out there and that is one were.
Speaker Change: You've heard Dave say plenty of times, we don't need to do them. So that's why our focus is on.
Speaker Change: Probably a couple of year.
Speaker Change: Opportunities more or less in a given year, we will evaluate that but our primary growth engine is going to be our organic growth, but these are nice complements to add to the business.
Speaker Change: To your question on what have we learned.
What we learned is that.
Speaker Change: Some of the relationships and the ultimate density in these markets and.
Speaker Change: The way they serve those local customers has been something that we've been able to then apply a little more broadly and when you think about a bigger basis. So the food group there are some capabilities around.
Speaker Change: Logistics produce or things like that that we've leveraged across our entire network. So there are learnings as we go in and we do keep our eyes open for those rather than just the U S. U S foods.
Speaker Change: Thank you.
Speaker Change: Alright, Thank you John.
Speaker Change: And our final question today comes from the line of Jacob <unk> and Philips with Melius Research Jacob. Please go ahead.
Jacob: Hi, Good morning, everyone I wanted to ask about ROIC.
Speaker Change: You indicated you showed a significant increase over the last few years kind of slowing a little bit, but just how should we think about ROIC going forward over the next three years with margin expansion kind of a reshuffle of the debt profile.
Speaker Change: Sure. Good morning, Jacob our expectation is ROE continues to increase to your point now with the hire of much much higher base than just a few years ago on a percentage basis or basis points.
Speaker Change: <unk> been for the last few years.
Speaker Change: Our expectation.
Speaker Change: And our where even our long term comp is set up is to continue to drive and improve that overtime and that balance of earnings growth, but earnings growth in a responsible way of deploying capital responsibly is as important to us and its something youll continue to see us do.
Speaker Change: Alright, Great and then just a quick one on <unk>.
Speaker Change: What do you how do you look at labor inflation and labor availability, just generally but also in the context of the.
Speaker Change: Last year, there was some union stuff within the company, but currently there has been some other industry Union activity.
Speaker Change: Yeah.
Speaker Change: Overall from a labor availability inflation. So we continue to be successful and being fully staffed whether its supply chain for drivers and selectors or sellers through the organization so that hasnt been a.
Speaker Change: The challenge of course, and we want to make sure. We continue to create an environment that people want to work in and Thats an important part for us.
Speaker Change: Overall, the inflation, that's why we target, 3% to 5% productivity because our cost inflation tends to be right in that range overall labor inflation that we saw in the last year or so come down where it sits in a closer around that range, which is a positive for everybody given that it had been.
Speaker Change: Above that for a few years in a row. So I don't expect 2025 at this point look very different than that and that's contemplated in our outlook for the year.
Speaker Change: Thank you for the questions Jacob.
Dave Flitman: And that does conclude our Q&A session today, so with that I will now turn the call back over to Dave <unk> for closing remarks, David the floor is yours.
Speaker Change: Thank you, Greg and thanks, everybody for joining US today, let me just finish by thanking our associates again for their hard work over the last three years.
Speaker Change: And the foundation that they built to strengthen our company and give us a strong launching point for our next three years, which is even more exciting thanks for joining us today and have a great Valentine's day everybody.
Speaker Change: Thanks, Dave and again, ladies and gentlemen that concludes today's call. Thank.
Speaker Change: Thank you all for joining and you may now disconnect.
Speaker Change: Have a great day everyone.
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