US Foods Holding Corp.

Good day and thank you for standing by. Welcome to the Q2 earnings 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 will need to press star 1 on your telephone. Please be advised that today's conference If you are required and for your assistance, please press star zero. I would now like to hand the content over to our speaker today, Ms. Melissa Nathier. Please go ahead.

Thank you, Angelica. Good morning, everyone. Thank you for joining us today for our U.S. Foods second quarter earnings call. Pietro Cetriano, our CEO, and Dirk Lacascio, our CFO, will provide an overview of our results for the second quarter and first six months of fiscal 2021. 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 second quarter and first half results to the same period in fiscal year 2020. References to organic financial results during today's call exclude the contributions from Smart Food Service through April 23rd, 2021, as the acquisition closed on April 24th. Our earnings release issued earlier this morning and today's presentation slides can be accessed on the investor relations page of our website. In addition to historical information, certain statements made during today's call are considered forward-looking statements. is review the risk factors in our 2020 Form 10-K for those potential factors which could cause our actual results to differ materially from those expressed or implied in those statements. And lastly, 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. And I'll now turn the call over to Pietro.

Thank you, Melissa. Good morning, everyone, and welcome. So during today's call, we are going to cover three main themes, just like last time. First, the industry recovery that we spoke of on our last call continues to progress. Restaurants are welcoming customers back into their establishments as restrictions have been lifted across the country. And U.S. Foods continues to participate in this recovery in a meaningful fashion. Second, a great food made easy differentiated platform is helping to drive market share gains with both small and large customers. And third, our financial results are continuing to recover to pre-pandemic levels. Our improved results are being driven by a recovery in case volumes, improved margins, and the performance of our recent acquisitions. So let's begin on slide three. Restaurants are recovering at a rapid pace. As evidenced by the foot traffic, at food away from home establishments, shown in the chart on the left. The traffic for the industry has continued to increase over the last several months and is very close to returning to pre-pandemic levels. This nearly full recovery in foot traffic has occurred despite the fact that some markets across the U.S. are still ramping up, which is shown by the chart on the right. This shows our own restaurant volume for markets that have opened less than three months ago versus markets that have been open six months or longer. Restaurants and markets that have been open the longest are showing growth rates in the high single-digit range compared to 2019, while restaurants and markets that have recently reopened are still down compared to 2019. We believe our view to be representative of what is happening in the country, which indicates that even with volume above 2019 levels, there's still some headroom for growth for restaurants. Moving to slide four. The benefit of markets reopening can be seen in the improvement in total case volume that we experienced during the second quarter. In the chart, you can see that restaurants continue to trend ahead of 2019 levels, with both independents and chains ahead of 2019 by roughly comparable margins. We expect this to continue, supported in part by the growth from the recently reopened markets that I just spoke about. Most of July was also in line with May and June, but we did see in the last two weeks a tick down of about 100 basis points. It is too early to say whether that small change is due to the impact of the Delta variant. Moving to other customer types. The reopening and the related increase in travel is also benefiting our hospitality business, which is now running about at more than 70% of 2019 case volumes and a large improvement from the first quarter. Leisure travel has returned in a very meaningful way this summer and is driving a large part of the improvement. We expect this improvement in that customer type to continue as other customer types within hospitality catch up to leisure travel. First, even within leisure travel, some large parks are still operating below maximum capacity. Second, large conventions, which have in part returned, typically require considerable lead time of up to a year. And third, as we've discussed before, there is a little bit of uncertainty about the future level of business travel. When we consider the impact of these trends, we expect hospitality to recover later in 2022. And when combined with our market share gains, we do expect our hospitality volume to return to pre-pandemic levels. Our healthcare business has remained steady throughout the pandemic. different factors are impacting different customer types within healthcare. With senior living, for example, occupancy rates are still down in the mid to low single digits. But with aging demographics, we do expect demand from senior living facilities to recover over time. With acute care, some employees are still working from home, and it is yet unclear where this will settle over time. Similar to hospitality, when we consider the above trends, combined with our market share gains, we do expect healthcare to return to pre-pandemic levels as well sometime later in 2022. So in summary, based on what we know today about trends within each customer type, combined with our recent market share gains and our strong pipeline of new customers, our best estimate is that we will return to pro forma 2019 total case volumes later in 2022. I am now on slide five. Our great food made easy strategy is the primary reason that we win new customers. The great food piece of our differentiation strategy is anchored by Scoop, our product innovation platform. Given the labor challenges restaurant operators are facing, the latest edition of Scoop features a number of labor-saving products that are very much on trend, as well as a number of fresh grab-and-go items. We've also begun rolling out the food group's tender by design beef products to the legacy U.S. foods markets. Tender by design is a specialized process that produces high-quality cut steaks for customers. The rollout has been met with rave reviews by customers. Our leading technology solutions and expert support are the backbone of the made easy part of our differentiation strategy. In past calls, we've talked about our ghost kitchen playbook, which have played a big part in helping operators generate additional revenue. The following is a quote from an owner of an Italian restaurant outside Chicago who used the ghost kitchen concept to diversify into chicken wings. We survived the first hundredth day of the shutdown, but I don't think we would have survived this one if we didn't have our ghost kitchen of bakewings.com. It has literally been a lifesaver for us." End quote. Most recently, Our ROCs, Restaurant Operations Consultants, have been focused on a series of webinars to help customers navigate the challenging labor environment, including topics such as payroll management and doing more with less staff. Thanks to the benefits of virtual technology, we're able to leverage our best ROCs and food fanatic chefs across a number of geographies, and customers can easily schedule one-on-one consults by simply scanning a QR code. Finally, on the topic of technology, I would like to welcome John Tonneson to the US Foods team. John was recently announced as our new chief information and digital officer. He brings extensive experience leading IT organizations in the distribution space. Most notably, the last 10 years as CIO of one of the largest tech distribution companies globally. John's mandate is to continue to enhance our leading e-commerce platform while working with Phil Hancock, our chief supply chain officer, to make our supply chain the most effective and efficient in our industry. Moving to slide six. Last quarter, we spoke about the challenging operating environment for customers, distributors, and manufacturers alike. And while labor and product supply challenges continue to persist, our actions have helped mitigate these challenges. On the labor side, we have made good progress in hiring warehouse and transportation associates We filled over a third of the open positions that we discussed last quarter, and we expect to continue to close this gap. Our hiring and retention incentives have contributed to improving the pipeline and to reducing churn. In addition, we do expect the labor market to continue to improve. In those states that have ended supplemental unemployment benefits, we have seen a dramatic increase in applicant rates. Lastly, in some select markets, we have made some hourly wage rate increases, especially for entry-level wages. Taken together, these incentives and wage adjustments are having a modest impact on the P&L, which Dirk will discuss shortly. On the product supply side, service levels from vendors are still well below 2019, as a result of manufacturers experiencing the same labour and freight challenges that we are. Here are the products we need to effectively serve our customers. Our net promoter surveys confirm that we are faring as well as or better than our competitors on this front. Lastly, moving to slide seven, both the Smart Food Service and SGA Food Group acquisitions are performing at or above expectations, beginning with cash and carry. Same-store sales at our nearly 80 chef stores open at least one year are ahead of 2019 levels. Recall that part of the rationale for the Smart Food Service acquisition is that the cash and carry market was growing at roughly twice the delivered market with higher margins. As the reopening continues, we're seeing these pre-pandemic trends take shape again. We are bullish on the outlook for ChefStore and expect that 2021 EBITDA levels will exceed those of 2019. The other rationale for the smart food source acquisition is the long runway of growth that we see for ChefStore. We expect to have three new stores open in 2021, all in existing markets. to begin to expand our footprint, ultimately doubling our store count, making Chef's Store a meaningful part of our growth story. Turning to food group. With dining restrictions recently lifted in food group markets in the Pacific Northwest, we are starting to see volume return to those markets. Combined with the introduction of our differentiated scoop, e-commerce and team-based selling, we expect these markets to be poised for growth in the future. By way of a recall, we have completed four warehouse systems conversions and now expect to have the remaining systems conversions completed by early 2022. Synergy capture remains on track, and we expect to fully achieve the previously announced $65 million of synergies in 2023. As I mentioned a few minutes ago, we are extending food groups centered by design process to legacy U.S. foods locations. In addition, we are also extending food groups fresh produce capabilities to the rest of our customer base. Both of these initiatives will bring synergies to the legacy of U.S. Foods Network by providing customers with one of the highest quality product options in the industry in two very important categories, center of the plate and produce. I will now turn the call over to Dirk to discuss our second quarter results and full year financial outlook. Dirk?