Sysco Corporation

Good morning and welcome to Cisco's first quarter fiscal 2021 conference call. As a reminder, today's call is being recorded. We will begin with opening remarks and introductions. 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 the pound key. I would now like to turn the call over to Neil Russell, Vice President of Corporate Affairs. Please go ahead.

Good morning, everyone, and welcome to Cisco's first quarter fiscal 2021 earnings call. On today's call, we have Kevin Hurrican, our president and chief executive officer, and Joel Grady, our chief financial officer. Before we begin, please note that statements made during this presentation, which state the company's or management's intentions, beliefs, expectations, or predictions of the future are forward-looking statements within the meaning of the Private Securities Litigation Reform Act, and actual results could differ in a material manner. Additional information about factors that could cause results to differ from those in the forward-looking statements is contained in the company's SEC filings. This includes, but is not limited to, risk factors contained in our annual report on Form 10-K For the year ended June 27, 2020, subsequent SEC filings and in the news release issued earlier this morning. A copy of these materials can be found in the investor section at cisco.com or via Cisco's IR app. Non-GAAP financial measures are included in our comments today and in our presentation slides. The reconciliation of these non-GAAP measures to the corresponding GAAP measures are included at the end of the presentation slides and can also be found in the investor section of our website. To ensure that we have sufficient time to answer all questions, we'd like to ask each participant to limit their time today to one question and one follow-up. And as an additional reminder, fiscal 2021 is a 53-week year for Cisco. At this time, I'd like to turn the call over to our President and Chief Executive Officer, Kevin Hurrican.

Thank you, Neil. and good morning, everyone. Thank you for joining our call. I hope that you and your families are staying safe and healthy during these unprecedented times. During this morning's call, I'll spend time discussing Cisco's management of the COVID-19 crisis, how we are strategically transforming the company to better serve our customers and grow the business, and finally, I'll update everyone on the current state of our business environment. I'll then turn it over to Joel who will discuss Cisco's first quarter financial results. Earlier this morning, Cisco reported first quarter fiscal year 2021 results that included substantial free cash flow and 365 million of adjusted operating income, despite a 23% sales decline. We are pleased with these financial results in light of the significant constraints that are being placed upon our customers due to the COVID-19 pandemic. Cisco is doing more than anyone in the food service distribution industry to ensure the success of the restaurants and customers that we serve. The impact of these efforts can be seen in the success of customers that we serve relative to the broader industry. Cisco customers are closing at a lower percentage and are generally outperforming the broader food away from home industry. Our leadership team is focused on managing the day-to-day business, supporting our customers, and delivering upon the largest business transformation in our company's history. This is important, as our transformation will enable Cisco to further differentiate from our competition and better serve our diverse customer segments. Examples of Cisco's management of the crisis during the first quarter include more than $8 billion of cash and available liquidity, which ensures we have financial flexibility in this difficult operating environment. Cisco is leading the industry with the work that we are doing to help our restaurant customers succeed, delivering holiday toolkits for restaurateurs, creating marketplace pop-up shops, providing solutions to extend the outdoor dining season, and finally, our culinary experts, are helping restaurants narrow their menu to increase profitability and tailor their offerings for takeout and delivery effectiveness. Since pictures are worth a thousand words, I call your attention to page number five of our presentation. The right-hand side of the chart shows an example of what we mean when we say extend to the patio season. This is one of many solutions that our sales consultants are presenting to our customers to help them extend their outdoor season. The left-hand side of the page is a visual of one of our latest foodie solutions, a holiday season selling guide for our customers to leverage to maximize sales during what will be a unique holiday season in 2020. Importantly, we added $300 million in net new business in the first quarter, which totals more than $1.3 billion of new national business since the start of the pandemic. In addition to these wins at the national level, we are winning new customers at the local level at an accelerated rate compared to prior year due to an increased focus on prospecting new customers across our sales force. At Cisco, we have the sales force strength and supply chain capacity to continue winning new business at both the national and local level. These customer wins will enable Cisco to recover faster than the overall market as economic conditions improve. This is evidenced by our current share gains in the overall marketplace. Most importantly, we are leveraging the crisis to transform our company, and I am proud of the work our associates have done to accelerate our strategic transformation. Here at Cisco, we are successfully navigating through the biggest crisis in our industry's history, and we are substantially transforming our company for the future. Our business transformation is on track. We are continuing work on our bold transformation that improves how we serve our customers, differentiate Cisco from our competitors, and transforms the industry. We are making substantial progress against the four crucial priorities we have shared with you previously. We are accelerating efforts across our customer-facing tools and technology. which includes improving our digital order entry platform, Cisco Shop, our CRM tool, and implementing a centralized pricing tool. Through these technologies, we'll improve the service to our customers. By the end of the first quarter, the percentage of orders being placed through Cisco Shop increased to approximately 60%. This substantial increase is a direct result of the improvements we are making to the shop platform. combined with the consultation that our sales force has been providing customers on how best to utilize the tools that we have built and soliciting that customer's feedback on what customers most want to see in the Cisco Shop platform. This is a great example of how we leverage the power of our human and digital capital. Additionally, we are on track to begin piloting our new pricing software later this month. Our sales transformation is centered around elevating our selling effectiveness with an improved, more customer-centric structure. We will utilize data and analytics to help identify customer sales prospects and have a new sales leadership structure that will allocate our talented resources most effectively against those opportunities. Later this fiscal year, we will be leveraging our new sales process to pilot our first meaningfully improved customer engagement strategy. This program will better address the needs of specific customer segments, which will enable us to grow share. Regionalization within our U.S. Broadline business is also on track. It is the key enabler of our other U.S. transformation initiatives, and we are happy to say it is now complete. Our new leadership team is fully in place, and we are seeing early wins from this new structure as a result of the strength of the leadership team that was selected for these important roles. Lastly, through our structural cost out efforts, we are making significant progress in becoming a more efficient company. We are on track to deliver the 350 million structural savings we communicated in our most recent call. As a reminder, the vast majority will flow through to the bottom line. We are committed to returning value to our shareholders in funding our growth agenda, and we have a line of sight to additional savings starting in fiscal 22 and beyond. I am pleased today to welcome Judy Sansoni to Cisco as Executive Vice President and Chief Commercial Officer. She is an experienced and highly talented leader who consistently delivers results and drives transformative change. This newly created leadership role will bring marketing, merchandising, pricing strategy, customer loyalty, and e-commerce together under one leader, creating a compelling opportunity for us to develop a commercial organization focused on profitably growing sales and inspiring customers to buy more from Cisco. Judy started with the company in October. Additionally, in August, we announced our new international business leader, Tim Orting, who will be joining the company soon. Tim is an experienced and highly talented European leader who has spent his career in the food industry. He will be responsible for driving profitable growth and operational excellence across our international geographies. It is clear that we are strengthening our leadership team and increasing our organizational capabilities for the future. I will now transition to the current business environment and the pace of our recovery. From a top-line sales perspective, the rate of sales for the quarter was consistent with our internal projections for business recovery. We saw steady week-over-week improvement in sales at the beginning of the quarter and a leveling of the improvement as we exited the quarter. Our road to full recovery will be nonlinear. We remain vigilant in the current environment as new restrictions on our customers in the second quarter are stalling the recovery at approximately minus 20% compared to the prior year, with potential for worsening results due to the additional COVID restrictions. Where restrictions have eased, however, consumers are showing that they are ready to eat away from home. Southern states and more rural geographies continue to meaningfully outperform national averages. Restrictions on customers, plus or minus, will be the primary driver of the pace of our business recovery until vaccines are more broadly available. Subsequent to the end of the first quarter, select geographies are experiencing increased restrictions on restaurant operations. We expect these restrictions to impact second quarter sales results, particularly in Europe. I will note that at Cisco, we are more prepared now than ever to handle business disruption. From inventory management debt collections, and operations efficiencies, we are better prepared for the potential impact of a second wave on our business. As a reminder, despite the profound impact of COVID on the business climate during the first quarter, Cisco produced positive adjusted operating income and very strong positive free cash flow for the first quarter. Cisco is focused on supporting our customers throughout this fluid operating environment and our strategy is to continue to provide robust support to our customers to help them succeed. We have hosted hundreds of webinars with customers, and our industry-leading sales force has conducted tens of thousands of business reviews to help our customers succeed during this challenging environment. Recent business consultations are focused on succeeding during the upcoming winter season. We fully recognize that we must go further to ensure our customers' success, and there is no company doing more to help independent restaurants succeed than Cisco. As a result, our customer closure rate is lower than the industry average. The customers that have engaged with Cisco on these consultative services are outperforming the general market from a sales perspective, and we are winning overall market share during this challenging environment due to our focus on new customer prospecting. I want to give a heartfelt thanks to all of our Cisco associates who continue to help our customers grow and succeed in this challenging environment. As essential workers, I am proud of their dedication and resolute focus on our customers during these challenging times. I'll now turn it over to Joel, who will discuss our first quarter results, along with additional financial details. Joel, over to you. Thank you, Kevin. Good morning, everyone.