Performance Food Group Company

Please stand by, your program is about to begin. If you need assistance during today's program, please press star zero. Good day and welcome to PFG's fiscal year Q1 2024 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 one key on your telephone keypad at any time. I would now like to turn the call over to Bill Marshall, Vice President, Investor Relations for PFG. Please go ahead, sir.

Thank you and good morning. We're here with George Holm, PFG's CEO, and Patrick Hatcher, PFG's CFO. We issued a press release this morning regarding our 2024 fiscal first quarter results, 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 results in the same period in fiscal 2023. 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 in the back of the earnings release. As a reminder, in the fiscal first quarter of 2023, we updated our segment reporting metrics to adjusted EBITDA from the prior EBITDA metric. Our remarks on this call and in 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 pleased to share our strong first quarter fiscal 2024 results with you today, highlighting our business momentum, which continues despite a range of macroeconomic factors. As you saw in our release this morning, our top-line performance was just below the top end of the guidance range we laid out in August, and our adjusted EBITDA was above the top end of our guidance range. Our results show our company's ability to perform at a high level for a range of economic scenarios, and we expect this to continue going forward. Once again, we are very pleased with our independent restaurant case growth, which was 7.6% in the quarter as we continue to add new accounts and grow our share in this important channel. We recognize the economic backdrop is a dominant factor in the investment decisions that each of you make on a daily basis. In a moment, I will address a few of these items and share our view on the current state of the food service distribution industry. But first, I want to discuss PFG's strategic focus and reasons that we believe our company will thrive in the years ahead. PFG has evolved significantly since we went public in 2015. We have added new lines of business, broadened our in-market channels, and added products and services to capture market share in the large food away from home industry. This shift has been deliberate, and we believe it positions PFG to grow both our top and bottom line for years to come. Our food service business has built scale and breadth in an effort to elevate our independent restaurant sales. we have and continue to invest in our sales force and build new capacity to allow for a long-term market share gains, which has proven to be a winning strategy. In a moment, Patrick will provide more details on our strong results in the independent restaurant business. Vistar has adapted with the market and continue to reinvent itself. From an organization that largely served the vending machine industry, Vistar now sells a wide range of unique products servicing more than 10 distinct channels. These products range from the traditional candy, snacks, and beverages that Distar has always sold and have expanded to include healthy alternatives like protein bars and prepared food, as well as health and beauty aids, non-food packaging, and impulse purchases, and a range of beverage options. The expansion of Distar's product offerings has allowed for a significant increase in channel distribution opportunities. We are particularly excited about the opportunity we see in the micromarket area, which has been growing substantially. The micromarket concept allows for a wide range of product offerings and is benefiting from a structural market shift towards this retail format. We believe that Vistar is well positioned to fully capitalize on this opportunity. Fulfillment is another area where we see significant growth potential. We have invested in facilities that are equipped with automation that allows us to efficiently ship small parcels directly to customers and consumers. For suppliers, this is a beneficial partnership, allowing Vistar to manage the last mile distribution of a range of products. We believe this is an opportunity with significant runway for growth for Vistar. All our facilities servicing this market are currently operating at margins above Vistar's average. The ability to produce above average margins is driven in part by a portion of the business that is priced on a fee basis. With many of the supplier partners, we do not take financial ownership of the product producing very high EBITDA margins. Over time, we expect scale efficiencies to improve these margins further. We have a plan to expand our capacity into additional sites that will allow us to achieve one-day shipments to most of the continental United States. Finally, we are extremely excited about the opportunity that Cormark has brought to PFG. The convenience store landscape is undergoing a shift away from traditional tobacco products towards more options in food and beverages. Our broad expertise in food service and immediate consumption is combined with Cormark's knowledge and relationship with the convenience industry. This partnership, which spans all of PFG's operating segments, is expected to provide a long period of market share gains with both top and bottom line growth. The convenience backdrop has been somewhat softer over the past few quarters. Still, we are very pleased with the adjusted EBITDA results Cormark has achieved. And importantly, Cormark's top line performance has exceeded the industry growth rate in many key categories, including significant outperformance in the food service and snack categories. The pipeline of new business opportunities remains significant, and we expect to add new customer accounts at a steady rate over many years. Historically, PFG is a company that has not only been resilient in difficult times, but has improved during periods of stress. The pandemic was a clear example of this, during which time we gained more market share than we typically would over a multiyear period. While we would all prefer a smooth operating environment, we do not shy away from moments of volatility. Rather, we view it as an opportunity to get stronger, solidify our position as a market leader, and propel our business to new heights. It is no coincidence that our company has seen some of the largest market share increases during periods of disruption, including prior recessions and the pandemic. With that, let's take a moment to put the current macroeconomic backdrop in focus. and discuss how we expect to navigate short-term factors influencing the food away from home market. I will walk through our thoughts on the health of the consumer, foot traffic trends, and the impact from inflation and deflation. There has been much discussion about the health of U.S. consumers and their willingness and ability to purchase food away from their home. Despite significant discussion of a potential drop-off in consumer demand, We have not seen that materialize to date. With that said, there are pockets of the business where purchase behavior is somewhat softer than what is typical, including the traffic at convenience stores I just mentioned. This dynamic is a natural reaction to the significant level of inflation that hit the market. In fact, given the rapid price increases for nearly all products and services that run through our economy, the consumer has proven to be more resilient than many would have predicted at the start of the calendar year. While headline inflation has been slow to move lower, we have experienced deflation in our food service segment over the past two quarters. Through this time, we have demonstrated our ability to show growth and adjusted EBITDA margin expansion despite these deflationary pressures. Through a combination of the work our sales force executes on pricing along with the continuation of the significant positive mix shift to independent restaurants, these deflationary pressures have been very manageable. We would expect this trend to continue if deflation were to persist. However, we are pleased to see deflation lessen and move towards a more neutral position. In fact, trends in the commodity market, particularly the deflationary areas of proteins, has played out just as anticipated, with lower levels of deflation sequentially in both August and September. If this dynamic continues, as we expect, food service will likely be back to slightly inflationary at the beginning of the calendar year, which is our fiscal third quarter. By the end of the fiscal year, we expect food service inflation to be back to a healthy, low single-digit pace. I'm going to turn it over to Patrick, who will discuss our results and specific drivers of performance, and then provide more color in our guidance for fiscal 2024 and beyond. I want to leave you with a few key themes. First, we believe PFG is very well positioned in the large and growing food away from home market with exposure across nearly all channels and product offerings. Second, the consumer remains resilient despite multiple years of above normal inflation. And finally, our company has weathered difficult economic conditions in the past and has grown stronger during periods of volatility. Our view is that the market is stable and PFG continues to evolve and grow by investing in our people and assets in our effort to produce long-term shareholder value. We're excited for what the future holds and appreciate your interest in Performance Food Group. I'm now going to turn it to Patrick.