US Foods Holding Corp.

Good day and thank you for standing by. Welcome to the Quarterly Earnings Call conference call. At this time, all participants' lines 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. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker for today. Ms. Melissa Mapier, please go ahead.

Thank you. Good morning and happy Monday. I'm joined for our call today by Pietro Cetriano, our CEO, and Dirk Lacascio, our CFO. On today's call, we will provide an overview of our results for the third quarter and first nine 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 are comparing our third quarter and nine-month results to the same period in fiscal year 2020. 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. please 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. I'll now turn the call over to Pietro.

Thank you, Melissa. Good morning, everyone. Third quarter results were in line with expectations. Volume for the quarter was up 18% over prior year and 6% below 2019 as the industry continued to recover. EBITDA margins were up slightly as we continued to successfully manage through both higher-than-normal product and labor inflation. This performance resulted in strong cash generation, which contributed to further deleverage from the prior quarter. Since the industry is demonstrating that it is well on its way to recovery, we are shifting our discussion and our goals to be more in line with our pre-pandemic strategy. First, to profitably grow market share with our great food, made easy differentiation. Second, to optimize growth profit margins. And third, to execute with an intense focus on operational efficiency. But first, let me start, as I usually do, with a brief update on the industry on slide three. Industry foot traffic at restaurants in the third quarter was largely in line with the prior quarter, despite the surge in COVID cases due to Delta. This underscores our view that industry demand is resilient and that demand for eating out or taking out at restaurants is largely past COVID. In fact, as seen by the chart on the right, economic is now calling for the entire industry to recover to pre-pandemic levels across restaurants and other customer types alike by 2024. Based on our own current trends, we are confident that U.S. foods will recover ahead of the industry, with our volume returning to 2019 levels sometime in 2022. This reaffirms our continued ability to gain market share. Now let me turn to our volumes on slide four. Restaurant volume for the third quarter was generally in line with the second quarter. And the slight dip in growth rate that you see in the third quarter is attributable to COVID-related staffing challenges in a handful of markets. If not for these challenges, we believe we would have achieved higher volume and market share gains, gains that are fueled by our differentiated Great Food Made Easy platform. October volumes to restaurants are trending slightly higher than the third quarter. Hospitality volume continues to recover, while volume to health care was flat, for the reasons that I mentioned on our last call. Some lingering restrictions on visitors has hurt food consumption in hospitals, while senior living has yet to recover to pre-pandemic occupancy rates. We think recovery in senior living is simply a matter of time, given the favorable demographics, of an aging population. Lastly, we continue to have great success finding larger multi-geography customers across healthcare, hospitality, and chains. For the two years combining 2020 and 2021, we are on track to add a billion dollars in net incremental business across these three customer types, some of whom will onboard in 2022. This one billion is net of any exits over the last two years including strategic exits as we continue to optimize our portfolio. The single most important reason cited by these large customers for switching to U.S. foods continues to be our service model, which makes it easier and simpler for customers to do business with us. I will now update you on the elements of our strategy starting on page four, sorry, page five, with how Great Food Made Easy will continue to drive market share gains with target customers. Recall that Great Food Made Easy consists of three elements, innovative products, industry-leading technology, and a selling and service model based on a team of experts that support our sellers, what we call team-based selling. So let's start with innovative products. We had yet another successful scoop launch featuring labor-saving products that are highly relevant to customers in this tight labor market. This was the 10th anniversary of Scoop, and since then, we have launched 540 exclusive innovative products, of which 80% are still sold somewhere in our network, a remarkable stick rate. Also of note on the product side, during the quarter, we rolled out Tender by Design, an innovative and proprietary beef program that we inherited with the acquisition of Food Group. In the subcategory that we launched, we saw a 300 basis point increase in market share, and we expect further market share gains as we expand the lineup. Turning to technology, or the second element of Great Food Made Easy platform. We continue to expand our leadership position with frequent releases of enhancements, including a recent update that provides customers with real-time inventory visibility during the ordering process, which is critical in this environment of supply volatility. Recent third-party research with customers reaffirmed our lead in technology in our industry, with customers rating the US Foods mobile app significantly better, with the net promoter score several times higher than the competition. Representative quotes from the survey include, easier to navigate, most logical setup, and able to show all breadth of products and ways to save money. Lastly, on the third element, of our differentiation platform, our team of experts, fast company named U.S. Foods, one of the 95 brands that matter, in recognition of the seminars, playbooks, and expertise that we deliver to customers to help them navigate the pandemic. So having now just covered how Great Food Made Easy is driving Eat at Dog World for market share gains, I'm turning to page six to cover the second and third elements of our strategy, that is optimizing gross profit margins, and driving operational efficiency. So let's start with our efforts to optimize gross profit. As Dirk will cover shortly, gross profit per case for the quarter was the highest it has been in recent years, despite some headwinds from unfavorable customer and product mix. Contributing to this expansion in gross profit has been first, our ability to manage and pass through inflation, second, continued growth in private label brands, and third, the continued optimization of terms and customers in our portfolio. For the quarter, private label as a percent of total sales in our legacy US Foods Broadline business was 36.6%, which represents almost 140 basis point increase compared to Q3 of 2019. And we still see plenty of opportunity for further growth in private label penetration, which will further expand gross profit margins. We also continue to optimize our portfolio of customers, negotiating better terms, bringing on new, more profitable business, or warranted exiting customers at the low end of the profitability range. The new business in healthcare, hospitality, and national change that I referred to and that we brought on this year is coming in at margins that are three times higher than the existing base. Still on page six, I want to update you on the third and last element of our strategy, an intense focus on operational efficiency. In supply chain, while the challenging labor environment persists, we have made significant progress in our hiring and our headcount for drivers and selectors is now above 2019 and close to our staffing targets. The resulting high penetration of new warehouse and driver associates, not surprisingly, was a headwind to productivity in the quarter. But we do expect to return to 2019 productivity levels by mid-2022 as the tenure of the workforce returns to more normal levels. In addition, we continue to make progress on our supply chain efficiency roadmap. Since the beginning of the year, we have reduced assortment by 15%, which not only contributes to higher service levels for customers, but also to higher productivity in the warehouse. With staffing now in a better position, we have resumed the deployment of our new picking technology, which we started in 2019, and we now expect to complete that by the middle of 2022. This technology has demonstrated to improve productivity, especially of new associates, as well as service to customers. And lastly, we have resumed the rollout of more efficient receiving methods, which we had also paused. On the delivery side, with greater stability on the customer ordering front, we can now put greater focus on continuing to optimize routing. Taken together, these efficiency initiatives will help bring distribution expense closer to historical levels. Lastly, on the sales and administrative side, we still expect to retain two-thirds of the $180 million in fixed cost savings that we announced last year, with most of the reinvestment showing up as an expansion in our sales force, which will drive market share. We are very pleased with the level of sales talent we are attracting. Our tools, our unique products, and our culture make us a very attractive choice for sellers. I will now move to slide seven for a quick update on the Smart Food Service and SGA food group acquisitions, which are both performing at or above expectations. Recall that the rationale for the Smart Food Service acquisition was twofold. First, the opportunity to expand our presence in the cash and carry market, which is growing at roughly twice the delivered market with higher margins. On that front, we continue to secure real estate for expansion into new geographies. And second, the revenue synergies that come from existing customers in existing markets. The fact that same-store sales at our nearly 80 chef stores open at least one year our head of 2019 levels, provides some support for that thesis. And on the synergy front, we are beginning to see reductions in cost of goods and improvements in private label penetration. Lastly, we expect 2021 EBITDA for our cash and carry business to exceed 2019. Turning now to food group. Recall that the rationale for that acquisition was to complete our footprint in the important and growing Pacific Northwest region. Of note, we recently won a significant national customer due to our strong presence in the Pacific Northwest, which was the result of this acquisition. We have now completed six warehouse system conversions and all have gone fairly smoothly. We expect to have seven warehouses completed by year end and all complete by early 2022. With the continued progress on immigration, Synergy capture remains on track. And by the end of 2021, we will have captured approximately $40 million of the projected $65 million in synergies. And as I mentioned earlier, we are now starting to see some of the revenue benefits across the entire U.S. Foods network in the center of plate capabilities that came with this acquisition. I would now like to turn the call over to Dirk to discuss our third quarter results and our outlook. Dirk?