US Foods Holding Corp.

Thank you for staying by, and welcome to the U.S. Foods First Quarter Earnings Review Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you need to press star 1 on your telephone. Please be advised today's conference is being recorded. If you require any further assistance, please press star 0. I now lay today in the conference over to your speaker today, Melissa Napier, SVP Treasurer in Investor Relations. Thank you. Please go ahead.

Thank you, good morning everyone. Welcome to our first quarter fiscal 2020 earnings call. Joining me on today's call are Pietro Satriano, our CEO, and Dirk Locascio, our CFO. Since mid-March of 2020, towards the end of our first quarter, the business operations of our restaurant, hospitality, and education customers were significantly disrupted by the spread of the COVID-19 virus. On today's earnings call, We will focus our commentary on trends seen in the business for both a pre-COVID and post-COVID timeframe extending through the week ended May 2, 2020. We'll also be discussing the actions recently taken to strengthen our liquidity and provide an acquisition update for both food group and smart food service. Today's presentation slides, which include volume trend information for the first few weeks of Q2, as well as the Q1 slides that we typically prepare can be accessed on the investor relations page of our website along with our Q1 earnings release issued earlier this morning. We'll take your questions after our prepared remarks conclude. Please provide your name, your firm and limit yourself to one question. During today's call and unless otherwise stated, we're comparing our quarter and full year fiscal results to the same periods in fiscal year 2019. Also during today's call, references to organic financial results exclude contributions from the food group, which we acquired in September of 2019. In addition to historical information, certain statements made during today's call are considered forward-looking statements. Please review the risk factors in our 2019 Form 10-K and our Form 8-K filed with the SEC on April 23, 2020 for further information on these potential factors which could cause our actual results to differ materially from those expressed or implied in those statements. During today's call, we will refer to certain non-GAAP financial measures. All reconciliations to the most comparable GAAP financial measures are included in the schedules on our earnings press release as well as in the appendices to the presentation slides posted on our website. I'll now turn the call over to Pietro.

Thank you, Melissa, and good morning, everyone. Welcome to our first quarter earnings call and our first call since COVID-19 has had such a dramatic impact on our country and our industry. As Melissa said, we'll spend most of the time reviewing the impact of COVID-19 on our business and our response to this unprecedented challenge. But before I do so, I would like to take a moment to say thanks. First, thank you to all the healthcare workers who are on the front lines fighting The COVID-19 outbreak every day. Thank you to our associates who every day play a vital role in maintaining the food supply of our country. And then thank you to our customers and their staff, many of whom have suffered devastating losses during this period. In this time of need, we have tried to do our part to provide meals to those less fortunate, and we encourage all who can to do the same. Slide three provides an outline of the agenda for our discussion today. As Melissa mentioned, our focus will be on recent trend in our response to COVID-19, but we have provided the standard quarterly slides at the end of our presentation for your review. Since the outbreak, our response has been informed by three guiding principles. Keeping our associates safe, helping our customers, and conserving cash and generating additional liquidity. Ultimately, these three guiding principles are what will ensure the long-term health and success of our company. Let's go to slide four for a very brief overview of the first quarter. January and February case growth in EBITDA performance was in line with our expectations for the quarter prior to the COVID-19 outbreak in March. Volumes rapidly began to decline starting the second week of March as many states enacted stay-at-home orders. Case volumes stabilized at just over minus 50% and now have begun to recover in the last few weeks. Our gross margin rate was negatively impacted as a result of the change in customer and product mix, which we do expect to recover as volumes return. And lastly, at the end of the first quarter, we implemented a number of actions to bring our costs more in line with our reduced volumes, but the timing of these actions resulted in In the first quarter, we also booked an incremental $170 million reserve front collectible accounts based on the expectation that COVID-19 would impact our ability to collect outstanding balances from customers. Moving to page five, I would now like to talk about volume trends by customer type from the middle of March to the end of April. The yellow line shows volume for restaurants, which includes both independents and chains. After falling close to 60%, volume for restaurants has improved in recent weeks. We attribute this to a number of factors, including restaurants reopening, in part as a result of SBA loans under the CARES Act, stimulus payments hitting consumers' bank accounts, and both restaurants and consumers taking greater advantage of curbside pickup and delivery. Looking forward, we do see opportunities to gain share with this customer type as we see prospects and customers, some of them approaching us and expressing a concern with the viability of some smaller distributors in our sector. Our healthcare volume, shown in orange, has been less impacted than other areas of the business. The decline in case volumes is a result of the postponement of elective and preventative procedures across most of the country's hospitals. And we do expect this volume to recover more quickly as hospitals have begun to reinstate these procedures. Not surprisingly, hospitality, the blue line, has been one of the hardest hit customer types as travel and large gatherings have come to a virtual standstill. We expect that it will take longer for this particular customer type to recover. Lastly, I am pleased with the progress we have made signing over 30 partnership agreements with grocery retailers. providing some baseline volume and additional opportunities for growth in the restaurant section of these grocery stores, which is right in our wheelhouse. These trends across the various customer types are roughly in line with what we've observed in the industry as reported by third-party data. Moving to slide six. While no one knows exactly when or how our industry returns to normal, we can point to some promising signs about the resilience and the ultimate recovery of our industry. According to consumer research conducted by Technomic, consumers do long to get back to eating out, with 49% of consumers saying dining out is the activity they look forward to the most after social distancing restrictions are lifted. Another promising sign is the growth in spending in the last two weeks, estimated close to 30%, and this coming mostly from takeout and delivery. So while a recovery is likely to be gradual and potentially bumpy, our trends, those of the industry, and consumer attitudes do point to an eventual recovery for our sector. Helping our customers remains one of our guiding principles. And on slide seven, we illustrate how we have pivoted our team-based selling and value-added services to help our customers make it through this challenging period. We've conducted numerous webinars on various topics, including helping customers navigate the CARES Act, activating social media, implementing takeout, and reopening their businesses and the constraints of social distancing, including helping them create opening orders and checklists to successfully reopen. In addition, our chefs and our restaurant operations consultants have been available for one-on-one consults with customers. To date, Over 10,000 customers have taken advantage of these services and have provided overwhelmingly positive feedback. We believe this natural extension of our differentiation strategy not only helps customers with their current challenges, it also creates a tremendous future engagement and loyalty towards the U.S. Foods brand. Until the virus is no longer a threat, keeping our associates safe is our first guiding principle. In our facilities, we put in place measures early on to ensure the health and well-being of our associates. These measures included conducting associate wellness checks before entering our facilities, practicing social distancing, including assigning associates to specific work zones within warehouses, enhancing cleaning procedures and instituting new protocols for deliveries. These measures have resulted in a very low number of COVID cases and minimal risk to business interruption. Nonetheless, early on, we also put business continuity plans in place to ensure we could continue to serve our customers, prioritizing healthcare from any node in our network of over 70 distribution centers. Lastly, given the dramatically reduced volumes, we quickly put measures in place to bring both fixed and variable costs in line with reduced volumes, so as to conserve cash, our third guiding principle. In distribution, which accounts for the majority of our operating expenses, We quickly accomplished the right sizing of our cost structure through a combination of furloughs and temporarily contracting some of our drivers and selectors to retailers who have experienced a surge in demand. This latter measure has the added benefit of helping us retain this experienced workforce for an eventual recovery. I will now turn it over to Dirk, who will begin by discussing the other measures we have taken to align our costs to current volume and the measures we have taken to strengthen our balance sheet. Dirk?