Sysco Corporation

Good morning, and welcome to Cisco's second quarter fiscal 2021 conference call. As a reminder, today's call is being recorded. We will begin with opening remarks and introductions. I'd like to turn the call over to Neil Russell, Senior Vice President of Corporate Affairs and Chief Communications Operator. Officer, please go ahead.

Good morning, everyone, and welcome to Cisco's second quarter fiscal 2021 earnings call. On today's call, we have Kevin Hurrican, our President and Chief Executive Officer, and Aaron Ault, 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. 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. Now, I'd like to turn the call over to our President and Chief Executive Officer, Kevin Hurrican. Thank you, Neil.

Good morning, everyone, and thank you for joining our call today. I hope that you and your families are staying safe and healthy. During this morning's call, I will spend time discussing Cisco's recent performance. I'll provide an update on our business transformation, and I'll share some highlights of our preparation for the pending business environment recovery. I'll then turn it over to Aaron, who will discuss Cisco's second quarter fiscal results. As we have discussed during prior calls, Cisco has taken swift and decisive action throughout the pandemic to help our customers succeed during a time of disruption. We have carefully managed our associate productivity, inventory productivity, and business investments. To that end, we initiated a bold business transformation to strategically transform our company for long-term success. I am pleased to confirm that our business transformation remains on track, and we are confident that the strategic initiatives will enable profitable future growth and will differentiate Cisco from our competitors. The COVID environment has placed substantial restrictions upon the customers we serve, in the food away from home sector, and has disrupted our marketplace. In light of those realities, we are pleased with the financial results that we delivered in the first half of fiscal 2021, and for the second quarter, we performed generally in line with our expectations adjusted for the environment. While our second quarter financial results were down compared to prior years, we delivered a profitable quarter despite 23% decline in our top line sales and funded investments to enable our transformation. Our customers experienced increasingly restrictive conditions on their operations during the second quarter, which were most notable in December when restaurant traffic and sales declined. Additionally, our international segment has been hard hit due to tougher restrictions in the countries in which we operate. At Cisco, we are not taking the restrictions on customers as a gravity issue. We are doing more than ever before to help our customers navigate this challenging environment. I am pleased to report that during the second quarter, Cisco gained overall market share versus the rest of the industry, reflecting the early progress of our transformation and the success we are having in winning new business. We continue to win meaningful business in the national account space and signed an incremental $200 million of net new business in the quarter, which totals more than 1.5 billion of net new contracted business since the start of the pandemic. Additionally, throughout the second quarter, we began making investments in preparation for the business recovery that we believe will begin in calendar year 2021. Those investments will increase in the third fiscal quarter, and Aaron will speak more to this in a moment. Examples of investments during the second quarter include investments in our customers, in our people, in our working capital, and in our technology. I'd like to highlight some examples of each of these purposeful choices. Investments in our customers, including our New Restaurants Rising campaign, which makes it easier for restaurants to succeed and strengthen their business for the future. a visual representation of our restaurants rising campaign can be found on page six of our presentation. Most notably, we announced in November that we are eliminating minimum delivery requirements for regularly scheduled delivery days, which provides operators significant flexibility in managing their business and makes it easier to order what they need when they need it. In addition, We are not eliminating delivery service days during the second wave of COVID, a practice we know select competition is currently doing. We see the light at the end of the tunnel, and as such, we are prioritizing customer service. A little incremental expense right now is a small price to pay for customer loyalty and partnership. Our sales consultants are leveraging the Restaurants Rising program to retain current customers and helps Cisco attract and serve new ones. In addition to the no-order minimums commitment, Cisco sales consultants are assisting their customers with setting up touchless menus, optimizing delivery and takeout operations, and helping with marketing programs to create awareness of our customers' operations, just to name a few of our value-added services. I am proud to report that our net promoter score increased by more than 1,000 basis points in the quarter, due in large part to the connections with our customers generated by the Restaurant Rising program. The MPS increase was our largest quarterly increase in our company's history. Importantly, as you can see on page seven in our slides, the incremental closure rate of Cisco's customers is 50% below the industry average. And lastly, we onboarded more new local customers in Q2 than in any single quarter in the last five years. In addition to investing in our customers, we are making investments in our people. We are intentionally retaining drivers despite a volume decline in December to ensure we have them available for our pending volume recovery. Drivers are in short supply across the country, and while this investment will drive some incremental transportation expense in the short term, over the long term, it will help ensure that Cisco is able to maximize our share gains during the upcoming business recovery. As you know, we made changes to our sales organization and sales compensation during the summer. Our associate retention has improved compared to historical retention rates, and our improved retention will help with sales productivity metrics in the future. We are beginning to make investments in working capital to position the right products in the right locations in preparation for the upcoming business recovery. Cisco has the broadest inventory assortment in the industry. Our ability to ship product on time and in full during the upcoming period of volume recovery is a core element of what makes Cisco the strongest broad line distributor in the industry. We have the financial strength and capacity to invest in products and in inventory, while other food service distributors may struggle with sufficient cash flow to make similar investments in the coming quarters. We are also offering payment plans in partnership with our customers to ensure their continuity. Lastly, we are making strategic investments in our technology to improve the customer experience. This includes our Cisco shop technology, our new pricing software, and improvements we are making in our supply chain systems. Cisco's ability to invest in our customers, our people, our inventory, and our technology while delivering a profitable quarter during this pandemic is a testament to the strength of our balance sheet and our leadership team. I'd like to turn now to providing an update on our business transformation. First, as we have shared previously, we are focused on advancing our customer-facing digital tools to improve the customer's experience with Cisco and drive incremental sales. Priority number one is improving our mobile ordering platform, Cisco Shop. Notably, We are now onboarding new customers in less than 24 hours, a step change improvement. The number of customer orders placed through Cisco Shop continues to meaningfully increase throughout the quarter. Additionally, our new pricing software is now live in our first test region. We are learning a lot through this regional pilot, and we remain on track to roll out the pricing system across the country. The goal of this effort is to improve pricing transparency with our customers and drive incremental sales and gross profit growth by optimizing prices at the customer item level. Additionally, by automating customer-level pricing, we will free up time for our valued sales consultants to spend with customers on value-added activities such as menu design, Cisco brand penetration, and other drivers of sales and margins. Second, we are improving our go-to-market selling strategy by transforming our sales process. Through our sales transformation, we have an improved, more customer-centric organizational structure. Our sales transformation is progressing well, and the team-based selling approach is gaining traction. We have created in-field new specialist selling positions. We have implemented a sales quarterback position that helps guide the collective sales teams across a given geography. As I mentioned on our last call, we have launched our first cuisine segment go-to-market selling strategy and we're seeing initial signs of success with that customer segment through incremental market share gains. We will roll out this program to additional cuisine segments in calendar 2021. Lastly, Cisco completed the regionalization of our field leadership structure at the start of our second quarter. I am pleased to report that our new regional presidents are in place and are finding quick wins to improve our business. The average tenure of our market and regional leaders is over 20 years, and these experienced and talented leaders are highly capable of driving top performance within Cisco. Examples of quick wins include optimizing our inventory assortment across multiple physical sites and optimizing the servicing of key customers by ensuring the most efficient physical location services each customer location. To be a great company, you need to have a world-class leadership team. I am pleased that during the quarter, we made important progress in strengthening our leadership team. Aaron Alt joined Cisco as our Chief Financial Officer. Aaron is with us today, and you'll be hearing from him next. Aaron is a proven finance leader with over 20 years of experience in food service and retail leadership positions. He has a track record of transformation and a value creation at large organizations in multiple industries. Additionally, Tom Pecht has joined Cisco as Chief Information and Digital Officer. Tom has experience leading enterprise information technology strategy, services, operations, risk, and cybersecurity for large global enterprises. In his most recent role, He worked for a global B2B distributor in the electronics industry, experience that is directly applicable to the transformational journey at Cisco. Additionally, Tim Orting has officially started his position leading our international division. Tim will be based in our London offices and will be responsible for driving profitable growth and operational excellence across our international geographies. With Tim joining Cisco, I was able to reduce the number of my direct reports by four, which allows me to focus more of my time and energy on managing the strategy development and execution of the company. Joel Grady has begun his new role leading business development and is actively engaged in identifying new sources of growth for Cisco. I am pleased to say that the transition of Cisco's leadership team is now complete. We have a strong management team that balances Cisco and food service industry expertise with best-in-class experience from other industries. Our new leaders join a talented and an experienced Cisco leadership team. Greg Bertrand, the leader of our US business, has over 35 years of industry experience and 30 years specific with Cisco. Greg's expertise in steady hand and running our largest business during the COVID disruption has been invaluable. I appreciate his leadership and the strong impact he has on our results. Great leadership teams work as a team on a common agenda. Our transformation strategy has galvanized this leadership team around a common purpose, and I am honored to work with them to set the standard for food service distribution for many years to come. I report to you today with strong confidence that a pending business recovery sits before us. As vaccine administration makes progress across the globe, the restrictions currently placed upon our customers will begin to ease. We can see in our performance data that once those restrictions ease, consumers are ready and willing to eat away from home. At Cisco, we are working to maximize our opportunity to recover faster than the industry. We have an opportunity to gain market share given our financial strength and our compelling business transformation. We are prepared to do more than any other food service distributor in the industry to ensure the success of our customers. And our customer success will generate business growth for Cisco. In closing, I'd like to give a sincere thank you to all Cisco associates who are working hard to help our customers grow and succeed in this challenging environment. Our industry-leading sales force has been inspired by the Restaurants Rising campaign to support our customers at levels higher than any point in our proud history. Our warehouse and delivery associates are the best in the business, working hard every day to ensure we ship to our customers what they want, when they need it. I am proud of their dedication during this challenging operating time. I also want to thank our customers for their resilience the grit that they have shown, and the fight that they have displayed during this pandemic. At Cisco, our customers are an inspiration to us, and we will show them just as much determination in how we serve them. I will now turn the call over to Aaron Ault, who will discuss our second quarter results, along with additional financial details.