Sysco Corporation

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

Good morning, everyone, and welcome to Cisco's third 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 Investors 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 Investors section of our website. As a reminder, we will be hosting Cisco's Investor Day on May 20th. For today's call, Kevin will start by discussing Cisco's recent performance and will then provide an update on the business environment recovery. He will then turn it over to Aaron, who will discuss Cisco's third quarter financial results. 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. At this time, 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. I would summarize our third quarter performance with four important points. First, our industry's COVID business recovery is here, and the pace of the recovery is accelerating, especially in our domestic US business. Second, we are making excellent progress in our business transformation to better serve our customers and differentiate from our competition. Third, we are winning market share at the national and local customer level. Fourth, our financial results for the third quarter were strong in light of the market conditions, mostly due to improved sales and disciplined expense management. As we have previously communicated, we can see in our performance data that once restrictions placed upon our customers are eased, our business results quickly improve. We see tremendous pent-up demand in the food away from home sector. Our data confirms that consumers are eager to eat at restaurants as soon as restrictions are reduced. Strong sales results and long wait times are common in restaurants operating within geographies that have limited restrictions. The third quarter can be aptly described as difficult at the beginning and robust at the end. Our January performance was negatively impacted by meaningfully tight restrictions on our customers during the winter COVID lockdown. In February, a substantial winter storm adversely affected our performance in our strongest domestic markets. In contrast, the March sales period exceeded our expectations and bodes well as a strong indicator for the business recovery within our sector. As a result, we exited the third quarter with promising sales trends. The improvement is most notable in the southern third of the United States, where reduced restrictions and warmer weather are generating strong performance results. The results in reopened markets met and then late in the quarter surpassed 2019 levels in the important local independent restaurant sector. These results are a positive harbinger of things to come as the northern regions begin to benefit from easing restrictions that are mostly still in place today. The independent restaurant sector exceeding 2019 sales levels in reopened markets is positive outcome and a rebound timing that is faster than the industry had predicted. In Europe, however, restrictions remain firmly in place. our European countries are experiencing restrictions even stronger than those experienced in the U.S. in April of 2020. Our sales results in Europe reflect those tight restrictions and remain down meaningfully compared to 2019 levels. We remain confident in our ability to succeed in the European markets and expect improvement to begin in the latter half of our fiscal fourth quarter. In addition to the softer European performance, our business in the travel, hospitality, and food service management sectors remain down. Our business penetration in Europe and in food service management pre-COVID is creating a lingering delay in the full recovery of our business results in comparison to select other distributors. We are confident that these sectors will recover, but their recovery will be at a slower pace than our core restaurant sector. As a result, when these geographies and segments more fully recover, it will add strength and sustainability of Cisco's recovery, giving us fuel to grow in quarters and years to come. All told, we delivered a sales decrease of 13.7% for the quarter. While sales were down compared to 2020, our results reflect an improvement over our second quarter decline of 23%, which is another clear signal that the industry is recovering. The most compelling outcome of the fiscal third quarter is that the local independent restaurant sector was performing well above our expectations as we exited the quarter, with many restaurant partners running sales increases compared to 2019. While our third quarter fiscal results were down compared to the prior year, I am pleased to report that we once again delivered a profitable quarter, delivering $437 million of adjusted EBITDA. Cisco is doing more than anyone in the food service distribution industry to ensure the success of restaurants and prepare for the return of food service demand, which can be seen in our overall market share growth throughout the quarter. Cisco gained overall market share versus the rest of the industry, reflecting the progress of our recent investments. Our sales teams are actively engaged with new customers and helping existing customers maximize their business during this recovery period. We continue to win business at the national and contract sales level. We have now posted over 1.8 billion of net new wins since the start of the pandemic, with another strong quarter of new contracts signed. I've said on prior calls, the contracts we are writing are at historic profit margins. We are winning the new business due to our supply chain and our service capabilities. In addition to the national contract sales wins, we onboarded more new local customers than ever before during the third quarter. Fueled by our restaurants rising program and our new sales associate compensation model, A recent industry report confirmed that the number of local restaurants was down approximately 10% to 2019 levels due to permanent closures. The 10% closure is better than most experts had predicted for the industry. After posting the strongest quarter ever of new local customer wins at Cisco, you can see on slide six that we are now serving 10% more local customers than we did in fiscal 2019. The fact that we have increased the number of customers that we serve during this pandemic bodes well for our future top line growth when the industry is fully recovered. Our increased customer count positions us well to take market share as the business returns to the food away from home sector in our fiscal 2022 and beyond. As we discussed on our last call, we began making several strategic investments in preparation for the business recovery. These investments increased throughout the fiscal third quarter and will continue in our fourth quarter. We have focused our investments on our customers, our people, our inventory, our technology, and our community. These investments have helped position Cisco ahead of the curve for the return of food service demand. Our investments in our customers, including our Restaurants Rising campaign, make it easier for restaurants to succeed and strengthen their business for the future. During this uncertain business environment, we have made it easier for our customers to do business with Cisco by waiving delivery minimums on regularly scheduled delivery days. We are making investments in our people, including increasing our efforts to proactively staff in advance of the business recovery curve to ensure we have the right number of people in the right locations at the right time to be able to ship on time and in full to our customers. At Cisco, we expect to hire over 6,000 associates in the second half of our fiscal year. We have a full court press on hiring warehouse selectors and drivers. Throughout our industry, drivers are indeed in short supply and hiring is a challenge. We are pulling every lever to ensure we meet our hiring targets. While this hiring investment will increase our operational expenses in the short term, over the long term, it will help ensure that Cisco is able to maximize their share gains during the business recovery. We are also making investments in inventory to properly position our warehouses to support customer demand. Currently, Cisco has inventory on hand and on order in a combined amount that is greater than our inventory position before the COVID crisis began. 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. Due to our strong balance sheet, we are uniquely positioned to be able to make investments in inventory to ensure we can accelerate growth faster than the overall recovery. We are seeing pressure and constraints in the supply chain as select suppliers struggle with meeting increased demand levels. This is known as the supply chain bullwhip effect as market conditions rebound. At Cisco, we have seen this constraint coming and have been partnering with our top suppliers for more than 90 days to pre-position inventory at our warehouses. We view this as an opportunity to grow our business and take additional market share. We are continuing our strategic investments in our technology to improve the customer experience. Our technology platform is being meaningfully improved so that we can better serve our customers. We're making it easier for our customers to order products through our Cisco Shop platform, and we're implementing a best-in-class pricing software. We will discuss both of these topics in detail at our Investor Day. Lastly, our corporate social responsibility initiatives and 2025 goals are progressing well. Our industry-leading CSR efforts are setting the standard for care and progress across three pillars of people, product, and planet. We are making great strides on this very important work as evidenced by our recent announcement with cargo, which is a critical partnership, along with the National Fish and Wildlife Foundation to improve sustainable grazing practices across one million acres of grassland. This effort helps to improve soil health, promote biodiversity, and increase carbon storage and safeguard the livelihoods of ranchers and the communities in which we serve. This progress is also good for our business, as our customers can buy Cisco product with confidence, knowing the environmental and social benefits we bring to their table. 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 customers' success will generate business growth for Cisco. I would like to invite everyone to our May 20th Investor Day. At that important meeting, we will provide you with the details of our strategic growth plan and how that plan will deliver compelling financial results. Please plan to join us virtually on May 20th, and Neil will provide you with the details and logistics. 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. I am proud of their dedication during this dynamic operating environment. I'll now turn the call over to Erin Ault, who will discuss our third quarter results along with additional financial details. Aaron, over to you. Thank you, Kevin, and good morning. Improving sales trends, a profitable quarter, and strong cash flow, those are our key headlines. Our fiscal third quarter presented us with the beginning of a restaurant recovery in the United States, countered by continued business disruption in the international and food service management parts of our portfolio. As a result, we balanced five financial priorities, tactical investments in inventory, team, and equipment to get ahead of the business recovery, strategic investments in capabilities and technologies to advance the transformation, careful cost control to mitigate the impact of the COVID environment on our bottom line, purposeful reduction of our indebtedness, and, of course, continued return of capital to shareholders through our dividend payments, totaling $689 million so far this fiscal year. As Kevin called out, we were delighted to see the improving sales trends and the progress on profit, and I will speak more in the income statement shortly. I would like to start today with an emphasis on the strong position we are in as we move up the recovery curve and how that strength is impacting our view of the cash flow and the balance sheet. Recall at the end of the second quarter, we had $5.8 billion of cash. During the third quarter, we generated positive cash from operations of $543 million, offset by $83 million of net capital investment, leaving us with incremental positive free cash flow for the third quarter of $460 million. Working capital was a source of cash for us in the quarter, even though we invested heavily in inventory, and as Kevin pointed out, we ended the third quarter with inventory on hand and inventory on order exceeding pre-COVID levels. And we benefited from a significant increase in payables at quarter end. We saw rising normal course receivables balances as our customers started purchasing more. But we also made excellent progress on obtaining timely payment from our customers on both pre-COVID and post-COVID bills. For the nine-month period, even in the face of COVID-19, Cisco generated an impressive $1.2 billion in free cash flow. This strong cash flow is approximately $300 million better than we had forecast earlier this year, driven by the combination of higher sales and profit, working capital benefit, and lower capex than forecast back in the first quarter. All in, we ended the third quarter with $4.9 billion of cash on hand. We expect that the fourth quarter will bring continued progress on the EBITDA line. It is also expected to bring investments in working capital as we continue to invest in inventory and as the payables which provided us with benefits in the third quarter come due in the fourth quarter. As a result, we are forecasting flattish free cash flow for the fourth quarter, leaving us with free cash for the year of approximately $1.1 to $1.2 billion. Given our balance sheet, our strong cash generation, and our optimism for the business recovery, Early in the third quarter, we announced that we were continuing the process of reducing our debt levels. We paid down 1.1 billion on that date, funded by cash on hand, and you will see that change in leverage reflected in our third quarter financials. What you will not yet see in the financials is that subsequent to the end of our third quarter, we repaid an additional 200 million pounds sterling on the outstanding amount of the UK commercial paper program And we will later this week pay off the remaining 100 million pounds sterling balance on that program, which will bring our debt levels down by approximately $1.5 billion since the start of the third quarter and down by $2.3 billion since the start of this fiscal year. Stay tuned for a discussion of our capital allocation strategy at Investor Day. Okay, let's turn to the income statement. Given the interest in the shape of the COVID-19 recovery curve, for the next couple of quarters, we will disclose sales comparisons against both fiscal 2019 and fiscal 2020. Third quarter sales were $11.8 billion, a decrease of 13.7% from the same quarter in fiscal 2020, and a 19.3% decrease from the same quarter in fiscal 2019. But with the important qualification that in the last two weeks of the quarter, we began to lap the onset of the COVID-19 crisis. Indeed, looking at the monthly progression measured against fiscal 19, our sales were down 23% and 14% in January, February, and March, reflecting the impact of COVID across the quarter. February would have been better, but for the impact of the winter storm in the US during the last week of February. We are also disclosing today on a one-time basis that our April sales were approximately 4.4 billion, up 102.1% from prior year, and improving to only down 8.8% from fiscal 2019. Our United States sales in the US food service segment were down 5.3% versus fiscal 2019, and SGMA was up 12% versus fiscal 2019, reflecting the increase in restaurant traffic and orders as the lockdowns eased in the US. we will continue to benefit as BUS reopening advances. In contrast, Europe, Canada, and Latin America regressed in the third quarter as a result of strict lockdowns that are now expected to continue, in some cases, until the end of May, and as a result of slower progress in vaccination. The slower international recovery will continue to impact our fourth quarter results and may carry into the early quarters of fiscal 2022, depending on vaccination progress by country. However, we see good news in the recent reopening taking place in the United Kingdom. Here are a couple of additional metrics. For the quarter, local case volume within U.S. Broadland operations decreased 9.7%, while total case volume within U.S. Broadland operations decreased 14.1%. Foreign exchange rates had a positive impact of 77 basis points on our sales results. As we move down the P&L, gross profit was $2.1 billion in the third quarter, decreasing 17.2% versus same quarter in fiscal 2020. Most of the decline in gross profit was driven by lower volumes due to COVID. However, we did see modest gross margin dilution at the enterprise level of roughly 77 basis points versus the same period in fiscal 2020, as our rate came in just a touch shy of 18%. The primary reason for the gross margin dilution is business mix. Our sales and our generally higher margin European business were down, so lower gross margin at the enterprise. Along the same lines, our sales and our lower margin Sigma business were up, so lower gross margin at the enterprise. We also saw a modest margin dilution in each of the business segments with varying causes from product mix shifts, the timing by market of the interplay between passing along inflation and implementing our transformation initiatives. Adjusted operating expense decreased 14.7 percent to just under $1.9 billion, and we saw a modest improvement of operating expense leverage, even with lower sales to prior year. Our expense profile reflected the counterweights of good cost-out achievement balanced against our investments for the recovery curve and our investments against the transformation agenda. As part of this, we targeted and achieved increased significant cost savings. We are on track to surpass our fiscal 2021 goal of $315 million of cost savings. We expect to drive continued cost savings opportunities to help fuel our future growth agenda, a topic I will discuss more at Investor Day in two weeks. Finally, at the enterprise level, adjusted operating income decreased 32 percent to $256 million. For the third quarter, our non-GAAP tax rate of 14.3 percent was favorably driven by the impact of stock option exercises. Adjusted earnings per share decreased 51.1% to 22 cents for the quarter. I'm going to say a few words on our third quarter results by business segment, starting with U.S. food service operations. Sales were $8 billion, which was a decrease of 12.8% versus the prior year period. In the rapidly evolving environment, the business again acquired a record number of new customers as our sales teams hit the streets and we deployed digital tools. We also saw growth in our national accounts customer base. This business, our biggest business, is moving up the COVID recovery curve rapidly. Within the business, Cisco brand sales for the third quarter decreased 116 basis points to 37.3% of total US cases, driven by customer and product mix shift. With respect to local US case, the Cisco brand sales decreased 234 basis points to 44.5%, which was driven by product mix shift into prepackaged and takeaway-ready products. Regaining Cisco brand sales levels and the healthy margins that come with them will be a focus for fiscal 22 and beyond. First profit for U.S. food service decreased 13.7% to $1.6 billion for the quarter. The segment's adjusted operating expenses decreased 16.1% to $1.1 billion. and adjusted operating income decreased 8.3% to $525 million. Product cost inflation was 3.5% versus prior year, driven by deflationary error categories in fiscal 2020. Moving to the SGMA segment, for the third consecutive quarter, sales increased during the third fiscal quarter to $1.6 billion, a 15.9% increase over fiscal 2020 and a 3% increase over fiscal 2019. driven by the success of national regional quick service restaurants servicing drive-thru traffic. While we are pleased with the team's efforts during COVID, Sigma is our lowest margin segment, and our team is carefully calibrating our efforts in that business, particularly as it relates to negotiating agreements with customers. As a result, starting during our fiscal fourth quarter, we will be taking an opportunity to transition away from a large existing regional customer. The financials of that relationship do not meet our preferred profile, and we will be focusing on freeing up capacity for more profitable customers. Going forward, we will continue to be diligent in our contract review and approval process across the enterprise. Gross profit increased 12.3% to $133 million for the quarter, while gross margin was down 27 basis points compared to the prior year. Adjusted operating expenses increased 11.1% to $121 million, and adjusted operating income increased 24.1% to $13 million, all at Sigma. Moving to the international segment, as I mentioned earlier, our European, Canadian, and Latin American businesses continue to be impacted by COVID lockdowns. The international food service operations segment saw sales of $1.7 billion, a decrease of 31.3%, while gross profit decreased 35.1%, and gross margin decreased 110 basis points. The gross margin decline was a result of country mix, customer mix, and product mix. For the international segment, adjusted operating expenses decreased 15.8%, leading to an adjusted operating loss of $92 million. We are confident that international will be a significant recovery opportunity for our company in fiscal 2022. Our other segment, which includes our guest worldwide business, remains in the COVID recovery starting blocks as hospitality occupancy rates remain low compared to prior year levels. While still in turnaround mode, the business improved its underlying profitability during the third quarter. Additionally, our guest worldwide business signed a substantial new customer contract during the quarter that will be very beneficial for the segment as the travel and hospitality sectors recover. That concludes my prepared remarks on the third quarter. We are not providing further guidance for the fourth quarter other than to observe that we continue to monitor our operating environment carefully. While operational challenges remain for many of our customers, we are seeing excellent demand in our core business in the key markets in the center and the south. And we are seeing green shoots on the coast as markets reopen. Let's be clear, the upswing has begun and we expect continued progress across the largest parts of our portfolio in the fourth fiscal quarter. Our team remains resolutely focused on driving our businesses, aggressively managing the business recovery, and building customer-centric capabilities to accelerate long-term growth. As we did in the third quarter, we will continue to deploy our balance sheet to invest in inventory, technology, and our people to stay ahead of the recovery curve while also reducing our indebtedness. During our investor day in two weeks, Kevin and the executive leadership team will offer more detailed perspective on the business, on our growth plans for fiscal 2022 and beyond, and provide further specifics on our transformation efforts. We will comment on our post-COVID capital allocation strategy, including the breadth and depth of our organic and inorganic investment plans, our plans for further debt reduction, and how we're thinking about continued shareholder returns. We look forward to seeing you participate in that virtual event. Thank you for your attention. Operator, we are now ready for questions.

At this time, I'd like to remind everyone, in order to ask a question, please press start and then number one. Our first question comes from Alex Legle with Jefferies.

Thanks. Good morning. Um, question on the local case growth and the new customer wins, and it continues to be remarkable. Wondered if you could dive a little deeper behind the drivers first, what would you think the biggest driver was? And then two specifically, if you could dimensionalize how you think the change in delivery minimums impacted the top line of margins during the quarter, that's a meaningful driver you want to keep around or something temporary that you see shifting back shortly.

Good morning, Alex. Thank you for the question. Just on the new customer prospecting, we're very proud of those results. As I said in my prepared remarks, largest single quarter ever in the history of the company from a new customer wins perspective. For those that are keeping score, I said the same thing in Q2. We actually just upped the performance that we posted in Q2. So we've got two consecutive quarters of record levels of new customer prospecting. The why is pretty straightforward. A, we made it a big priority for our sales force. We're a company that manages what we expect and we manage what we measure and we have impact on the things that we focus upon. The second is, as I've spoken pretty openly about, we removed a barrier in our prior compensation program that got in the way of prospecting. So we changed our sales consultant compensation late last summer. It took a quarter or two for that to really kick in and get the change management going and get to a level of understanding of the key components of that program. And we've made it now financially beneficial for our sales consultants to prospect because it's good for us and it's now good for them equally. So two basic, reasonably simple premises, which is we've made it a priority. We're tracking it. We're measuring it. We have goals specifically by sales consultant on new customer prospecting. And the financial compensation rewards them for that activity. And it obviously rewards our company as we are able to win new business profitably and grow over time. As I said in my prepared remarks as well, it's less visible in our total top line because in many cities in this country, there are still significant restaurant restrictions. But those new customer wins are going to pay dividend and fruit for us as this recovery that we are now a part of begins to further accelerate in our Q4 and then into fiscal 2022. So we're really pleased with it. Second part of the question was about restaurants rising. Do we expect it to continue? And was it a big driver of the wins? I would say, yeah, that would be my point number three, which would be restaurants rising was a barrier that previously got in the way for a new customer coming over to Cisco. We had pretty strict and rigorous delivery days and minimums, and we've eliminated that barrier. Will that stay? We'll talk more about that on our May 20th investor day. I'm not ready this morning to make an announcement in that regard. Alex, it's Aaron. Good morning. I'd add one thing to that as well. While we don't spend as much time on these calls talking about the other segments in our business, there is further goodness out there, which is whether it's in Europe and the UK in particular that has gained large food service management contracts during the crisis, but the sales are not yet on display, or indeed in the guest worldwide business where, again, they gained a large customer. Oftentimes, getting in the door is the hardest part. The good news is our teams have kicked open the doors, and as the recovery happens, we expect that to bring goodness to our results as well.

Helpful. Thank you. Thank you, Alex.

Your next question is from Edward Kelly with Wells Fargo.

Good morning, guys. Thanks for all of the color, by the way. I wanted to ask you... Kevin, about post-COVID customer mix and overall volumes. Just kind of curious, how do you think if one business on the independent side, one business on the contract side, how do you think about when the world normalizes, how much higher your case volume will be than 2019? And what does the mix end up looking like? Is it possible with the independent wins you've seen that your independent mix could actually be higher? Is that too much to ask for? Just kind of curious as to how you're thinking about all that.

Ed, thank you for the question. I would say, you know, for fiscal 22, I would expect for our independent mix to be higher for a couple of factors. One, the number of wins that we're talking about. Two, and we did say this in our prepared remarks, food service management, hospitality, travel are down, you know, still pretty significantly and have a slower recovery curve. So, I think those two factors put side by side would indicate that the balance of our total would be shifting. One counterpoint to that is one of our strongest sectors is our sigma sector. We're running double-digit increases to prior year in sigma, and that is margin rate dilutive because of the fact that sigma is our least profitable rate business. So Aaron can talk more about that on May 20th. He's prepared to talk about where we're headed as a company. Ed. So those are comments for fiscal 2022. If I look over the longer term, our expectation is each of the sectors that we play in will recover to pre-COVID levels. They're each going to recover on a different curve, which we've tracked and we've mapped. We're using the economic data to predict when that will occur. What we said from a point of optimism perspective is each of those businesses is actually ahead of schedule versus what Technomic had predicted, which is a positive harbinger of what's to come in fiscal 2022 and beyond. We expect to take share in each of those sectors. That's my best way of putting a kind of period at the end of the sentence. We have growth strategies in place for how to win in each of those sectors. So as each sector recovers and we take share, if you're asking me two years from now, three years from now, will we see a meaningfully different balance of sale by customer, I wouldn't suggest that. I would say each of the sectors will grow, and it's hard to predict three years from now what the precise balance of sale will be. But hopefully post-Investor Day, there will be more clarity to that.

And then just a quick follow-up on that. You did talk about investment in the recovery and about, you know, some pressure on drivers, warehouse workers, contractors. Can you just talk a little bit about that? How will that impact P&L, and does it have any impact on your ability to drive higher post-COVID EBIT margins when the dust settles?

It's a great question in regards to the labor availability challenges that are being faced across the industry, frankly across all industries. You've read, obviously, about the restaurants themselves and how much they're struggling with filling their jobs, and then drivers in particular are in short supply nationwide and, frankly, in multiple countries within which we operate. Here's one meaningful point of difference between Cisco and let's call it the restaurant. Our jobs are excellent paying jobs. We do not have a wage challenge. We do not have a minimum wage challenge. Even if the nation went to a $15 minimum, we do not have pressure in that regard. Our driver jobs are excellent paying jobs, strong benefits. They're attractive positions. Our issue and what I spoke to on the call today is creating awareness to those jobs. So we've had to do things in this quarter and the quarter we're in, Q3 and Q4, to increase advertising, to create awareness. We've had to do some things to create sign-on bonuses, retention bonuses, referral bonuses. So the, quote, incremental expenses that I was referring to were more of that ilk than structural permanent increases to the wage, which would dilute margin. So I view this as actually a little bit more of a transitory activity where we're needing to hire over 6,000 people in our second half of our fiscal year, and there are select pockets within the country that are really tight, and we're doing some things to create awareness of our jobs. So we're confident in our ability to improve our profit ratio in the future. We have a cost takeout program that is substantial that will help offset any pressures we would see in wage. We've said previously that We've taken $350 million of permanent structural costs out of our business, and that's also something that Aaron will talk about in more detail on May 20th.

Thank you.

Thank you, Ed.

Operator, we're ready for our next question.

Your next question is from the line of Kelly Bingia for the BMO Capital.

Hi, good morning. Thanks for taking our questions. I was curious if you could go back to the $350 million in structural cost savings. I think there was a mention of being maybe set up to surpass that target, and it's just curious if you could talk about where you're finding that. you know, incremental savings or where you're feeling better about that, if there's any potential to increase that as you move forward.

Great question. Thank you for it and good morning. We are quite excited about our progress against our cost savings effort. Just to go back for a second, what we had targeted for fiscal 21 was $350 million of cost out through a combination of savings and COGS as well as an operating expense. We are ahead of our forecast in that respect, and we certainly expect to meet or beat our 350 target for fiscal 21. I'm particularly excited this quarter because the savings are more visible than they have been in previous quarters. And at the sake of distracting us a bit, I thought we might do some simple math on the call today just so I could illustrate the point of how we can see the savings having an impact on our P&L and kind of prove the point that they're real, they're there. And in particular, as sales go back up and we have the opportunity to have a cleaner view, it'll be more obvious to everyone that they're out there. So bear with me a second. I'm going to actually walk you through some simple math. And it starts like this. To go back a year to Q3 in fiscal 2020, Our adjusted OPEX was $2.187 billion. Sorry for the decimal points there, but given the levels we're talking about. This quarter, in the comparison period, our sales were down 13.7%. So if, for the sake of argument, we assumed that our costs were fully variable, they're not. But if we did, OPEX should have been down about $300 million. But Joel guided you in the past that our cost structure is a third fixed and two-thirds variable. So the variable cost would have been just under $200 million of that $300 million. And we should have suffered from stranded fixed costs of $100 million, you know, absent cost savings actions. That would have put us at, you know, $1.98 billion, right, just to continue the simple math as we push ahead. Everyone hopefully still with me. Our adjusted optics for this quarter, though, was $1.867 billion, down $320 million, meaning not only did we reduce the variable cost consistent with sales, but we also took out $120 million of fixed costs, which is the whole point of our cost-out effort, right, being able to go quarter over quarter before investments, right, be able to take the fixed costs out of the structure and reduce The nice thing about this quarter is fails are done and we're able to show that. Now, I should point out a couple other things as well. The first is that we did get called $40 million of good guys that are one-time or other benefits that weren't part of the cost-out structure. What you can't see is those good guys offset $40 to $50 million of purposeful investments we made against the recovery and against the transformation in OPEX for the quarter as well. We've always committed that we are going to invest against the business. We're going to use some of the savings to advance our agenda. That's what we've done. This quarter just gives us a good example of how we can show the math, showing that it works out. On Investor Day, I will have more to say about cost out, and it will talk about, really, Kelly, to the point of your question of where is the cost out coming from, how it's coming from the way we've restructured and regionalized our business, how it's coming from a culture of frugality that Kevin is leading, how it's coming from prioritizing our investments and insisting on business cases as we push ahead, really core discipline that you would want, and how it's helping us to offset some of the trends or headlines around employee costs or inflation, et cetera, as we carry forward. So thanks for the question. A long answer, but I hope that's helpful.

Very helpful. I appreciate that detailed answer. I just also wanted to just ask if I can just about food inflation and maybe what you're seeing so far into your fourth quarter, if you're seeing those costs accelerated, just how you feel about passing those on. I think you have some new tools and software to manage that, but maybe just update on what you're seeing there.

Kelly, thank you for the inflation question. It's definitely accelerating, but I would say that's more of a Q4 fiscal happening than it was a Q3 happening. We all read the paper every day. We're seeing what's happening, not just in this industry, but in every industry. Certainly, the economy is becoming more inflationary. Basic economics are at play here. We have significantly increasing demand, unfortunately, simultaneous with some supply challenges that are pretty well known out there in the food industry. So what is the impact of that? We are seeing sales increasing. We will most likely in our Q4 see a slightly dilutive impact on margin rate. And GP dollars, however, hopefully would be in a growth mode, but to be determined on our ability to pass through this inflation to our customers. So here's what we're seeing. Consumers, people who are actually going to the restaurants themselves, are showing a willingness to pay a higher ticket. I think you've heard other restaurant people that you personally cover talk about that. We are seeing restaurant partners being willing to increase their menu prices. And we're working with them. That's a part of what Cisco does. We consult with them. We teach them. We educate them on the impact of the inflation on the COGS that we are all experiencing. And we're providing suggestions on alternative product to offset the cost. And also, we're providing suggestions on where some price increases on the menu could take place. Important, though notable point, food away from home right now is very competitive on a price basis versus retail grocery. I think you all know that this time last year, retail grocers did a good job managing their business. And they essentially eliminated promos because they didn't need them anymore. And they are running double-digit comps. So prices at the retail grocer have gone up on a year-over-year basis. Prices actually had gone down during the COVID crisis within the menu of a restaurant. And I think we're seeing some kind of reestablishment of costs. I heard someone on Squawk this morning actually say this term, re-inflation, which is Last year was deflationary, and we're actually now kind of getting back to where we would have been if 2020 wouldn't have been what it was. So let's call that a catch-up. Last point for me, and then I'll talk about what we're doing with our customers. I do expect for the supply-to-demand equation to normalize over time, meaning suppliers will be smart and they'll ramp up demand. And then, therefore, some of this inflation pressure will decrease. I just don't know how long it's going to take. What we're doing is we're closely, closely managing this. I think you know we have many contracts that it's contracted. It's a percent of COGS or it's a fixed spread to COGS. And also we have many contracts, local independent customers to be specific, where we do not have contracts. And Kelly, that's where today it's mostly manual, done by our sales teams. And we're providing guidance on how to manage it, but it's manual. To your point, the Periscope system that we are deploying will help us greatly on these types of things. We will be much more scientific and specific on how we call specific choices by category on what we want to pass through and what we don't want to pass through, and then we can guarantee it is showing up in Cisco Shop in front of the customer. Unfortunately, as you know, we're still in the middle of that rollout. In fact, we're not in the middle. We're in the beginning part of that rollout. Since last quarter, we've expanded Periscope to five additional regions, and we're in the second half of this calendar year going to complete that rollout. Yes, Periscope will be a tremendous benefit to these types of environmental conditions in the future. It's exactly why we need the tool. Good question. Thank you for asking.

Thank you. Your next question comes from the line of John Heimbacher with Guggenheim.

Hey, Kevin. One thing that COVID did right is drive existing account vendor consolidations. So what are you seeing in reopened markets? Is that sticking? Are restaurants going back to dealing with more vendors? How are they behaving? And what are you seeing with sort of your existing account share gains?

Yeah, John, thank you for the question. Probably still a little bit too soon to tell. There was definitely distributor consolidation that took place during COVID, you know, My goal for our company will be, yeah, keep it. And I'm sure that will be the goal of all of those that were winners during this market share gain that we have experienced. I think what you're asking, and I'll just say it pretty bluntly, the biggest players in this space have been net winners since the beginning of this pandemic. And I've been asked point blank, the question is, Kevin, you're saying and two other big companies are saying you're winning share. How can that be true? How that can be true is if you add the market share of those three companies together combined, we're less than half the total in the marketplace. So I think the thesis remains accurate that the strongest and biggest players are succeeding during this environment, and we have no intentions of giving back the market share that we've gained. Things that we're doing to retain those customers, the Cisco Shop tool is becoming much easier to use. Suggested orders, easy reorder button, Other customers like you are buying the following things, work we're going to talk about on Investor Day on something we're calling personalization to improve the relevance of the offers that we provide our customers. They're specifically targeted towards increasing penetration with the customers that we currently serve. There's gold there in them hills, as we like to say. And so, Ed, the biggest players have been successful, us being the largest in this space. We believe we can even further leverage our scale. of our purchasing economies, our supply chain economies, and as we get better and smarter on the promotional offers we provide to our customers, we intend to increase share of wallet and increase customer retention.

And secondly, do you have a good sense, the 10% increase in independent customers since 19, where they fall in terms of your average share with them? Is it sort of a ramp-up process, so they're below average, or have they come on average or above average in terms of your share?

That's right. I apologize, John. I know you are. I know you live in Staten Island. My apologies for the name flip. Independent new customer wins that we have, are you saying what is our share of them and how does it compare to our normal book of business?

I was going to say the 10%, right, that you've picked up since 19, how are they behaving, right? Is there a ramp-up process where they're below average compared to, you know, more tenured accounts or because of COVID if they come on and are actually your share is higher with those?

Yeah. John, thank you for the question. Yeah, it's what you said in the first half. They come on smaller. We win X number of lines and cases, and then we earn the right over time to increase it. So that industry historical fact pattern remains to be true. And again, we're plowing through that because we know we can, in fact, succeed in selling around the room. So if we win center of plate, we can sell around the plate. If we win with produce, we can then introduce center of plate. And we're confident we can do that. So the profit per case is fine. It's just the number of cases per unique stop tend to be lower for a new customer win, as you indicated.

Okay, thank you.

Thank you, John.

Your next question comes from the line of John Glass with Morgan Stanley.

Thanks. Good morning. I wanted to follow up on the independent comment, Kevin, just a couple of ways. One is you talked about a strategy of going after new cuisine or individual cuisine types. How much evidence was that in this quarter in these new wins? Or was this just broader because the sales force has been refashioned? And similarly, on your pricing tool that you've talked about, I know you're not rolled out yet, but Is the net result of that that you're going to be sharper on pricing, or is it not that it's simply a pricing transparency and that just gets you more wins because of that?

Yeah, John, great questions. Love them both. The first one, which is the cuisine-based selling, what percent of our wins are coming from that? I would say the majority of our new customer prospecting activity is more, A, because we made it a priority, B, the compensation change. C would be relevant offers to be provided to those customers, and I would put our cuisine-based selling into that third bucket. I view the cuisine-based selling upside opportunity to be just as much for existing customers. We serve thousands and thousands of Mexican restaurant customers, Asian customers, Italian customers, and what we're doing with our cuisine-based selling program is improving the category strategy to serve those customers, the marketing strategy, and merchandising promotional strategy to serve those customers, and then serving them up and teeing them up in a very clear, coherent, cogent, digestible manner, both in Cisco Shop and through our Salesforce. It's kind of a best of both digital and human capital. We're still in the early innings of that work, to be clear, and we're going to talk about that quite extensively on May 20th, what that program looks like, how we will roll that program out, and we look forward to being able to share that that with you on that day.

And I'm sorry, the second part of that was just on the pricing. Is it a sharpening of pricing given the new pricing tool, or is that just a customer acquisition vehicle to create that transparency that maybe was the block?

Yeah, great. As it relates to our strategy, we've been reasonably clear on this one, which is the primary point of our pricing software is to be right on price at the item customer level. to be right on price, which means for KBIs, known value items, we need to be sharper on price. We actually need to lower our prices for those items, which will result in sales increases at a slightly lower margin rate, which flows through to GP dollars being put into the bank. Simultaneously, we have the opportunity on what we call the tailover assortment or inelastic SKUs to nominally increase price to be able to offset the investments we're making on the KBIs. So how we've described it in aggregate is, For the most part, margin rate will be a flat constant, and this is a sales gain growth opportunity for us as we are right on price, sharper on known value items. And we know that the number one reason why a customer leaves a distributor is because of trust in pricing and fairness in pricing, and we need to tackle that head on. Got it. Okay. Thank you. Thank you.

Your next question comes from the line of Jeffrey Bernstein.

Great. Thank you very much. Actually, just following up, kind of bringing your last discussion together in terms of profitability, we've heard a number of restaurants and some of your distribution peers talking about doing more with less when the sales do recover to prior full strength, presumably leading to upside to, I guess, prior operating or EBITDA margin, whatever you focus on. But I'm wondering how you specifically think about that, especially as you talk about in the near term, picking up more Sigma chain business, which is lower margin. Now you talk about the pricing tools, which you're raising some, maybe lowering others. And I was wondering how you think about your operating EBITDA margin in coming quarters and years post-COVID when sales presumably do get back to full strength, if not beyond. And then I had one follow-up.

Sure. Let me give you the broad answer of our aspiration, which is we expect to grow sales and to increase our profitability over time. Now, the down click from that is, of course, we're in a transformation and we are investing against the portfolio while also taking significant costs out of the business. And so I don't want you to take any one of the factors as far as investing in a stigma relationship as indicative of we have any intent other than to grow sales and grow our profitability over time. At our investor day in two weeks, and so I'm going to ask you to be patient with us, at our investor day in two weeks, we'll give you more visibility to our points of view on fiscal 22, which is approaching rapidly, as well as the longer-term algorithm about how we think all these pieces come together.

Got it. And then to follow up, Aaron, you mentioned a couple of times debt pay down, which I know over the past few quarters people were questioning what you were going to do with your stockpile of cash. Just wondering how we should think about whether there's a goal or a time frame in terms of that pay down, what that implies for your cash usage. I know you talked about talking about cash priorities in a couple of weeks, but just directionally speaking, what are your thoughts on the time frame and the goal for the debt and whether that has any change to how you used to prioritize your cash usage?

Sure. Well, as you look back over the last nine months, what you can see is significant debt pay down in Q1. pay down in Q2, and indeed we led with the fact that we had paid down debt in Q3 as well. As I look back over the crisis, we did exactly what we should have in the face of the unknown in increasing our balance sheet cash, you know, at an expense. And as we focus on the longer term and the overall profitable profile of the business, profitability profile of the business, given the strong cash that we generate, I'm not hiding it here by saying we have the opportunity to optimize our capital structure. I'll give you the details of that during investor day, but you can take from what we've done a pretty good signal on where we're going. Understood. Thank you.

Your next question comes from Lauren Silverman with Credit Suisse.

Thank you. A little bit of a follow-up to John's question, 10% more local customers, wall chair gains, and we're seeing improved broad industry same-store sales growth among restaurants. So can you help dimensionize how much the new customers and wall chair gains are offsetting same-store sales declines amongst existing customers? And then just overall, what are you seeing with respect to recovery for chains versus independents?

Yeah, Lauren, you were breaking up in the first half of your question a little bit, so I'm going to try to answer what I think was the spirit of your question. But I'll start with the ending, which is, you know, chains versus the local independents. You know, the chain universe is covered pretty prolifically publicly, and I think you all know that data. Certainly the fast food QSR space has been on fire. Anything with the chicken sandwich has been on fire. You know, our Sigma sector reflects that. Double-digit increases, you know, to prior year from a sales perspective. The pleasant surprise in our Q3 and then it's accelerating in our Q4 is the strength of the local independent customer in the fully reopened markets, you know, producing results that are above 2019. That exceeds our expectations. That exceeds technomics prediction by about 18 months, frankly. But there are still major geographies that are still closed. I just want to be clear about that. You know, New York, Boston, Chicago, most of California is still closed. is still confronted with major restrictions. Our European business is still dealing with major restrictions. So we're very optimistic about the health and strength of that local independent customer. It's our most profitable segment, as you well know. And when you combine just the general recovery curve of what independents are doing, coupled with our 10% increase in the number of doors that we serve, when an industry is down 10%, so we have a 20% delta increase our number of unique doors versus the industry's overall performance. As we see more markets opening up, reducing restrictions, we have a strong tailwind here in front of us.

Okay, great. Thanks. Hopefully you can hear me better. Just anything you're willing to share specific to April, I think you said U.S. Broadline's down a little over 5%, local customers in the south running positive sales together with the new customer wins. Can we assume local case volumes are running about flat at this point?

Well, I think we've shared the level of detail we can for purposes of this call. One of the things we're going to talk about at Investor Day is how we think about the individual components of our customer base. What I would have you take away is certainly with food service management still being slow, hospitality not having recovered, the strength where you can see the strength in the portfolio is in the independents coming back and in the chains that have been stronger over the course.

All right, thank you very much. Appreciate it.

Thank you, Lauren.

Your next question is from Nicole Miller with Piper Sandler.

Thank you. Good morning. I wanted to ask first about labor, like an internal reflection, if you would. It's very positive to hear, you know, how you're helping your team and then how they help the community. On average, I'm curious if you could share a spectrum of meaning I'm sure there's still areas of challenges and offsetting clearly areas of successes. So when I think about labor, clearly sales is just crushing it out in the field. And then we hear, for example, maybe on the other end of the spectrum, it's hard to get somebody to drive the truck overnight or something like that. But where does, you know, like the night shift to fill the truck before that truck, you know, pulls out, where does that fit in? Can you just kind of talk through the nuances of, you know, how all of this happens and where there's challenges. And I think you've clearly outlined the successes. So thank you if you can fill that in.

Sure, Nicole. Thank you, Kevin. We have three major functions in our field. There's the sales function. We call them selectors. Those are the folks that work in the warehouse. And then drivers. We're actually going to change the name of the driver piece to be more reflective of the work we're actually going to start calling them delivery partners because they actually partner with our sales team to activate sales at the local level. But for now, sales consultants, selectors, you know, drivers. Sales consultants, you know, that team's just killing it out there right now, as we talked about earlier. We will be in a position of actually adding sales consultants in fiscal 2022 based on the investments we want to make in our team-based selling model We've said publicly, and we'll talk about it more on May 20th, we're going to add more specialists to be able to complement our existing broad line sales consultants. Warehouse selectors, again, as I said a little bit earlier, we pay a very fair wage for those jobs. Those are excellent jobs. And we have a ton of hiring to do. I mentioned that we're going to hire over 6,000 people in total for our spring season. How I would describe our warehouse selectors is we're on track. We manage it day-to-day, week-to-week, with hiring goals by site, by location. And we are green, meaning in a good position, green, yellow, red, on our warehouse selector hiring. The more difficult job to fill at this point in time is our driver job. And it's not because of wage. As I said earlier, our wage for our driver role is terrific. It's about creating more awareness of those jobs. The overall macro impact on drivers is the age of the driver in this country is getting up there. People are retiring, and there's too few people going into that line of work. I would say I'm actually inspired by what United Airlines has done. They have the exact same problem with pilots, and they've just purchased and are going to insource a pilot school. While I'm not announcing anything today on this call, what I would submit to all of you is Cisco is going to be very progressive and be the industry leader on creating a pipeline of drivers for our long-term success, and we're not going to let it get in the way of our growth.

That's a very helpful outline.

If I could add to that, just to go back to some of the core themes, which is, look, we have significant scale across the industry and we have capabilities, whether it's in our buildings with our selectors, with the pipeline on the drivers, with the sales teams. We're an attractive employer in so many ways from a wage and benefit perspective. We don't have the issues that many do in the industry. We have great retention rates on the employees that we have. And as it relates to cost, we have the opportunity of already proven that we can bring and we are bringing our costs down so that both we can improve the bottom line, but also we can invest where necessary. And in Q2 and Q3, you heard us talk about the fact that we are investing in the recovery and investing against our team to be able to drive our successes and enterprise going forward.

If I can just sneak in a second and last question, like more of an external reflection. a day in the life of a restaurant that you deliver to. I'm curious about, you know, fill rates and the predictive nature of the time window and how that's changing. So again, on average, it's amazing. This is where we do have a little bit more insight. You know, when we look at restaurants, it obviously is mapping and correlating to what you've shared. But some are better off and some are lagging naturally. So if, you know, I'm tempted, and this is how I'm going to ask because it's probably wrong, I'm tempted to think oh, suburban chain restaurants get everything they need, fill rate, at the window they want, and maybe urban local restaurants don't. So, again, can you just speak to the spectrum of how it is in a day in the life of a restaurant you deal with? Thanks.

Cool. Thanks for the question. I'll just break it down into two parts. One is the fill rate, as we call it, outbound to our customers. We're experiencing supplier fill rate challenges to Cisco, as are all distributors. We track it by supplier. We are very, very rigorous on our ability to improve those performance data. And for those that can improve, we move volume from supplier A to supplier B in order to ensure that we can ship to our customers. And we are doing that aggressively right now. We partner with our suppliers. We give a joint business plan. We provide rolling forecasts. But if they can't meet our demand, we're going to find a supplier who can. The strength of Cisco is because of our size and our scale, we can do that work more effectively than anyone else in this space, which allows us to ship on time and in full to our customers. There are some specific unique products that are really challenging right now. Chicken wings, shortening to be specific, just to provide two examples. But we are doing an enormous amount of work to ensure that we can fill customers' orders. As it relates to on-time delivery, meaning the truck arriving within a window that our customers want, we're actually going to talk about exactly that topic on May 20th. Marie Robinson, our Chief Supply Chain Officer, is doing a tremendous amount of work We're excited about the progress that we are making to be a more agile, more flexible, and more customer-focused supply chain. We're bringing a mentality of customer first, work our way back versus what's good for Cisco and fit them into our designed model. So more on that on May 20th, and we're excited about talking with you about that. As it relates to metro versus suburban, yeah, I don't think that you should draw a bright line there to say on-time rates or preferred windows are better suburban versus metro. What I would say is something I actually talked about a year ago when we put that project on pause because of COVID and how we're reinvigorating it. Small restaurants in an urban setting have really small back rooms, and they actually need more frequent delivery. And we're going to talk to you about that on May 20th.

Thank you for taking my question.

Our final question comes from the line of John Invinco with JP Morgan.

Hi, great. Thanks for getting me in there at the end. So I think, Kevin, in your prepared remarks, you made a comment about independent restaurants or local accounts that were actually outperforming chains in the markets that had reopened, 21 versus 19. I guess – did I hear that correctly? And then I'll go from there.

John, I didn't mean to come across that way. What I said was local independent restaurants in fully reopened markets are performing better than local independent restaurants in 2019. That by itself is a pretty powerful statement.

Yeah, well, okay, yes. I mean, certainly I understand that, and I didn't mean to screw up the transcript, so forgive me for that. In terms of the independent restaurants that you have added, it's obviously up 10%. is a huge number. I mean, do you think there's something different, and maybe I can anticipate your answer a little bit, that makes them much stickier in 21? I mean, it used to be, hey, these are local accounts. They're not a contract. It's a street fight every day, basically, to maintain this business. Is it your sense, and are you seeing through your experience of some of your technology initiatives and what have you, that are leading to a more predictably sticky restaurant consumer than maybe you had at the beginning of your tenure or, I guess, more appropriately even before your tenure?

It's a great question, and we're going to talk about precisely this topic on May 20th. What we're going to unveil at that investor day is our strategy to increase retention, increase the stickiness of existing customers that we win. and also how we will prospect new customers on an ongoing rate at the level that we currently are. It's hand-in-hand combat on the independent local customer level. For sure, it always has been. It always will be. But the tools that we're bringing to the industry related to being right on price, having a promotional offer that's relevant and specific to that individual because we know more about them than anyone else because of the amount of data that we have, And to provide a merchandising and marketing strategy that meets the needs of those each individual customers, we can do better on all of those things as a company. And we are doing better. And I respectfully and humbly submit we'll be the best in the industry at doing that. And we look forward to talking to you more about it on the 20th. That's great.

And finally, a complete non sequitur, Europe. I don't think there were many, if any, questions on this call about that. Obviously, it's been a challenging market overall. It's been a challenging market for Cisco even before that in terms of integration and what have you. Do you have an opportunity with your balance sheet and the fact that you already have people and assets on the ground – you know, to make a bigger bet in Europe and, you know, if there aren't, you know, necessarily consolidation opportunities that exist in the U.S. for you to buy, you know, distributors, might there be some significant opportunities to really change the landscape of your exposure in Europe and the U.K. and basically, you know, buy scale that otherwise you wouldn't be able to get at current prices?

John, thanks for the question. In our prepared remarks for Europe, we spoke of the fact that it is recovering slower and it's not because of health of restaurants. It's the restrictions. I can go country by country by country if we had time, but essentially Europe's not yet reopened. We're looking at mid-May of the earliest as to when the restrictions will begin easing. With one exception, UK opened up outdoor dining two weeks ago, and you need a reservation to get an outdoor dining appointment in the UK. It's being so warmly received. So mid-May to late May is when most of the European countries are going to begin the process of easing restrictions. So, you know, it's still a struggle in Europe, but we do anticipate a recovery. There's certainly pent-up demand in Europe for eating at restaurants. And we're confident, actually, that our ability to succeed in Europe is increasing, not decreasing. Aaron talked about one. We have a very notable FSM win in the UK that we've signed during, you know, this pandemic that will pay dividend in the future when that business, you know, begins to recover. We can talk about that more in the future. As it relates to M&A, we're not going to comment on any M&A activity unless there was activity to comment on. I would say our European strategy is more fix the things that were broken. France, we had some self-inflicted wounds. We have used this crisis to meaningfully stabilize our performance in France. And I would describe France as we're ready now for the reopening of restaurants to be able to win back lost business and to take a significantly expanded product range and go out and start winning businesses. In the UK, our biggest opportunity is to win new independent local customers, and we're going to talk with you about that on May 20th. Our new international leader, Tim Orting, will go actually country by country explaining our strategy to win in each country.

Great. Thanks so much.

Thank you.

This concludes today's conference.