Performance Food Group Company

Good day and welcome to the PFG's fiscal year 2021, quarter one 2022 earnings conference call. If you would like to ask a question at the conclusion of the prepared remarks, please press the star key followed by the number one on your telephone keypad. I would now like to turn the call over to Bill Marshall, Vice President of Investor Relations for PFG. Please go ahead, sir.

Thank you and good morning. We're here with George Holm, PFG's CEO, and Jim Hope, PFG's CFO. We issued a press release regarding our 2022 fiscal first quarter results this morning, which can be found in the Investor Relations section of our website at pfgc.com. During our call today, unless otherwise stated, we are comparing results to the same period in our 2021 fiscal first quarter. Additionally, occasionally during our call today, as noted, we are comparing results to the same period in our 2020 fiscal first quarter. The results discussed on this call will include GAAP and non-GAAP results adjusted for certain items. The reconciliation of these non-GAAP measures to the corresponding GAAP measures can be found at the back of the earnings release. Our remarks on this call and the earnings release contain forward-looking statements and projections of future results. Please review the cautionary forward-looking statement section in today's earnings release and our SEC filings for various factors that could cause our actual results to differ materially from our forward-looking statements and projections. Now, I'd like to turn the call over to George.

Thanks, Bill. Good morning, everyone, and thank you for joining our call today. I'm excited to be able to share PFG's first quarter results and many of the important strategic actions our company is taking. We believe our business position is extremely strong, reflecting the hard work from all our associates and the dedication of our suppliers and customers. PFG is posting record levels of sales, all while delivering on our vision of distribution leadership by building upon our core business and executing strategic transactions. The actions we have taken over the past several years have transformed PFG from a traditional food service distributor to a multi-channel, multi-product specialty distribution company, expanding the boundaries of our industry's typical end market. The result is a more diverse business model that allows us to align our capabilities with the evolution of our customers and their consumers. As you know, we closed the Cormark acquisition at the beginning of September and are excited to be able to welcome their associates to the PFG family of companies. We view the convenience channel as providing a major growth opportunity as these customers look to drive store traffic by providing better food and food service options. As one entity, PFG offers convenience operators the candy, snacks, and beverage expertise of Vistar, paired with our food service leadership at Performance Food Service. all under the umbrella of Cormark and E.B. Brown, two of the largest and most experienced convenience store distribution companies in North America. I will share more details on the integration efforts already underway, as well as our strategic vision for the convenience business in a moment. But before we get into the details of the quarter, I think it's important to reflect on how far our company has come over the past 18 months. As we entered calendar 2020, None of us could have predicted what was in store for our country, industry, and company. At the time, PFG was generating about $23 billion in annual net sales. It would have been hard to envision where we would be today with a view toward doubling our sales and ultimately eclipsing $50 billion in revenue and $1 billion of adjusted EBITDA. We're not only a larger company, but we believe a stronger company with increasingly diverse revenue streams. providing growth opportunities that were not present just a few years ago. It goes without saying that we could not have made this progress without the commitment and support from every PFG associate, as well as our customers and suppliers. The partnerships we have forged and solidified have propelled our company to new heights. We will keep executing our vision, and with it, the possibility for sales and growth profit over the long term. The additions of EB Brown and Reinhardt Food Service were two of the transformative aspects of our journey. By adding EB, we built a foundation of our convenience business, paving the way for the Cormark acquisition. With Reinhardt, we added another bedrock food service distribution platform to our already strong, broad-line business. Let's start with an update on Reinhardt. We could not be more pleased with the efforts and performance of this business. As we have shared with you since closing that deal, our integration has been on or ahead of schedule since day one. This is a feat in and of itself. We were confident that the business results would follow in step with the goal of accelerating Reinhart's growth to be in line with legacy performance food service. We are very pleased to share with you that we have achieved an important milestone towards that ambition. For the second consecutive quarter, Reinhart independent case volume growth outpaced our legacy food service business. Shortly after the close of Reinhart, we thought a part of PFG. Now that the performances are aligned, we can say that Reinhart and Performance Food Service are truly one business. This is obviously a strong testament to the efforts from both Reinhart and Performance Food Service associates and work by our entire integration team. This success story reinforces our confidence and excitement for Cormark. As I mentioned, we closed the Cormark transaction in early September, and one month of results are included in our fiscal 2022 first quarter numbers. More importantly, the integration is off to a fast start. A tremendous amount of work has been put in to bring these two great organizations together. We have already seen the strong camaraderie between EB and Cormark. Shortly after closing the deal, both companies participated in NACS, an annual convenience store-focused event. I was able to witness the collaboration between EB and Cormark Associates firsthand. We believe that the ability of the two organizations to work together with a single focus is the key ingredient for successful M&A. As I described above, this element was present with Reinhart and Performance Food Services. It is exciting to see a similar dynamic with our convenience efforts. Our early success with Cormark has already extended into business wins. I am pleased to announce that we have converted an important legacy convenience customer over to our food service platform, while also adding a different legacy food service customer's convenience business. It is obviously very early days where we are already seeing our convenience strategy play out as we had hoped it would. In the coming quarters, we will continue to share examples of our progress in this important strategic endeavor. Our efforts on the M&A front have added to our already strong base business, which continues to operate at a very high level. Starting with our food service segment, we continue to see top-line growth far exceeding what we had anticipated just a few quarters ago. Our food service segment sales surpassed $6.3 billion in the quarter, a 26% increase over the previous year. We continue to see a significant improvement in our mix of business as our independent restaurant case and sales growth outpace total company results. After outperforming the industry last year, our independent business continues to impress. On a two-year basis, independent unit case volume increased more than 11% compared to the first quarter of fiscal 2020, including pro forma Reinhart results in that period. This means that our independent case volume is significantly higher than it was entering calendar 2020, quite a feat given the operating environment since that time. Specifically, independent business now represents over 39% of our total food service net sales, which is about four percentage points higher than it was two years ago. As a reminder, we continue to find independence as customers with fewer than five locations. We were also encouraged by the underlying trends within our food service results. For example, areas of the business that had been strong over the past 18 months, notably pizza, Italian, and Hispanic, continued to perform well in the fiscal first quarter of 2022. According to our data, our three-month dollar market share through September remains well above 2019 levels in independent restaurants. This trend holds true across pizza, Italian, and Hispanic concepts. We have continued to invest upon these areas of strength, and the data shows how our efforts over the past year and a half have paid off. We believe that these investments will result in long-term gains and bodes well for our sales and profit potential. Overall, our food service segment continues to produce solid sales and profit growth despite the labor cost challenges. which the majority of our divisions are managing well. At Vistar, we are incredibly pleased with the sequential improvement that business is experiencing. Even without a full recovery in theater and office coffee, Vistar results have improved dramatically. And recent box office trends have caused us to be optimistic about the future for that channel. As you know, a strong recovery at Vistar, which is what we are expecting, would prove to be very favorable to our margin profile in the quarters ahead. We also wanted to discuss an area that we are particularly excited about at Vistar. As you may recall, we have been building our retail automation warehouse network and are pleased to announce that we are now fully operational at all three facilities. The three locations, Retail East, Retail Central, and Retail West, are situated in areas that allow us to distribute to the vast majority of the country quickly and efficiently. While it is still early days, these operations allow us to tap into several exciting distribution opportunities, including customer fulfillment, direct-to-consumer e-commerce fulfillment, and virtual warehousing. We believe this sets us up for incremental selling and growth avenues while consolidating our capacity at other operating companies. The nature of this business means we can efficiently sell to a legacy Distar customer a food service customer or direct to consumers while maintaining significantly more SKUs with less complexity. In today's operating environment where supply chains are stretched and customers are demanding an increasing number of products, we believe we have an advantage compared to our competition. As we continue to grow this business, you will hear more about our progress and this strategic objective. To summarize, we're off to a strong start to fiscal 2022. Our food service business continues to perform well for sizable gains in the high-margin independent restaurant business. Vistar is seeing steady sequential improvement, which we expect to continue in the quarters ahead. We are thrilled to have closed the Cornmark acquisition during the quarter, and the integration process is already ahead of schedule. We have added new business in the convenience channel on the traditional C-Store side, as well as within C-Store food service. Our company is executing at a very high level while also making progress in our strategic vision. Sales growth will continue to be a priority for PFG, and over time, we expect to see improvement in EBITDA margin, which is another focus area for our organization. As Jim will discuss in a moment, we have a strong balance sheet and cash flow profile, which supports our investment in the business. I'm excited about the progress we have made in a few short years and the potential we have for the years ahead. I'll now turn it over to Jim for an update on our fiscal first quarter and financial position.