US Foods Holding Corp.

Good day and thank you for standing by and welcome to the U.S. Foods fourth quarter earnings call. At this time, all participants are in a listen-only mode. After the speaker 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 is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to our speaker today, Melissa Napier. Please go ahead.

Thank you, and thank you everyone for your patience. We sincerely apologize for the delay. It took a bit longer than we had initially anticipated, but we are excited to get into today's commentary and talk about the overview of our results for the fourth quarter in fiscal year 2021. and also provide commentary on our outlook for fiscal 2022 and 2024 and talk a bit about our 2024 long-range plan. As usual, we'll take your questions after our prepared remarks conclude. And given the delay in the time of the start of the call, Pietra and Dirk will be happy to spend a bit of extra time on the call to be sure that all questions are answered. Our earnings release issued early this morning And today's presentation slides can be accessed on the investor relations page of our website. That information should be updated. During today's call, and unless otherwise stated, we're comparing fourth quarter and fiscal 2021 results to the same time period in fiscal year 2020. In addition to historical information, certain statements made during today's call are considered forward-looking statements. Please review the risk factors in our most recent Form 10-K for a detailed discussion of those potential factors that could cause actual results to differ materially from those anticipated in these 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 release, as well as in the appendices to the presentation slides that are posted on the website. As noted, we're not providing reconciliations to forward-looking non-GAAP financial measures. Now I'd like to turn the call over to Pietro.

Thanks, Melissa. Good morning, everyone, and apologies as well for the delay, especially on a day where we've got so much to cover. So let's get into it. As you heard us say on the last call, our plans to drive continued value creation are centered on delivering against three financial outcomes, profitably grow share, expand gross margin, and drive operational efficiency. In 2021, we made solid progress against those outcomes in the face of continued headwinds impacting the industry, and our results in the fourth quarter clearly demonstrate the impact of these efforts. Today, we will present our long-range plan against those same financial outcomes. The plan covers the period from 2022 to 2024 and is anchored on the following strategy, setting ourselves apart on reliable service and fresh quality, continuing to offer differentiated solutions that help our customers make it, be it innovative products, digital commerce, expert resources, and the only true omnichannel offering in our industry. And lastly, bringing an intense focus on cost reduction and operational efficiency. Joining me for that discussion will be Andrew Iacobucci, Chief Commercial Officer, and Bill Hancock, Chief Supply Chain Officer. The Board and I have a high degree of confidence that our plan will deliver against the targets we are sharing today. So let me go to the takeaways for today's call, which are summarized on slide two. First, fourth quarter results were in line with the expectations that we outlined on our third quarter call. Strong execution resulted in a 58% increase in adjusted EBITDA compared to fourth quarter 2020. Second, throughout 2021, we continue to take actions that solidify the foundation of the business and put in place a new operating model that underpins our recent performance and gives us great confidence in our ability to grow EBITDA from here. And third, we are presenting a long-range plan that generates $1.7 billion in adjusted EBITDA in 2024. This plan reflects a combination of initiatives that are underway and the continued recovery of our industry. Let's move to slide three with a brief review of our 2021 highlights. Starting with the first pillar of profitable market share gains. which increased across all target customer types. The biggest increase came in nationally managed business, which includes healthcare, hospitality, and national and regional chains. The team has won approximately $1 billion in new business over the last two years, net of optimizing lower margin business. On the independent restaurant side, we also saw year-on-year market share gains. Contributing to our share gains was the Solid Service Foundation. Based on monthly research with 4,000 customers, Our net promoter score on service indicate that we are faring same or better than our major competitors. Our differentiated offerings and continued enhancements to our digital strategy also contributed to our market share gains. A good example of which is our online marketplace, or US Foods Direct, which saw a sales increase of fourfold year on year. Moving to the second pillar of optimizing gross margins. This is where we had the greatest success, with gross profit per case the highest it has been since 2016. Contributing to this were our continued efforts to optimize our portfolio of customers. We drove 110 basis point increase in private brand penetration compared to the same quarter a year ago, and we continue to successfully pass on inflation to both contract and non-contract customers. The third pillar, operational efficiency, is where we are intensely focused. On selling and administrative expenses, we fully realize the cost saves we put in place in August 2020, aside from reinvestments in our sales force. Distribution cost per case has been significantly impacted by industry-wide staffing and turnover challenges and higher than historical wage increases that every company has faced. Our goal over time is to completely offset the headwinds on distribution cost per case through a combination of gross margin optimization and productivity initiatives. Over the last three months, as a result of our efforts, we've seen turnover improve and we've reduced the time to full productivity for new selectors, which ultimately will result in lower costs. And lastly, we made changes to strengthen our leadership in almost one-third of our distribution centers. Yet the biggest foundational change we made was to our operating model, reducing the number of regions to four and creating operations and commercial excellence teams dedicated to driving standardization more effectively, and more quickly than before. We're already seeing the results, as illustrated by our 15% reduction in assortment last year. I will now turn to our 2024 long-range plan, a plan that has been developed over the course of last year. The plan is expected to increase EBITDA to $1.7 billion in 2024, a $650 million increase over 2021, and $250 million over 2019 pro forma. This increase comes from a combination of volume growth and EBITDA margin expansion. The initiatives you see here represent the most significant ones and are a combination of programs that have successfully created shareholder value in the past with some new initiatives, which we've been piloting this year. I will introduce each of the pillars and ask my colleagues to elaborate on some of the newer ones. Starting with profitable market share. which we expect to account for roughly 40% of the EBITDA growth. Profitable growth starts by offering reliable, consistent service and consistent quality on fresh. Our customer research indicates that no broadliner does this consistently well, which is why we see this as a big opportunity. Reliable service and quality then enables us to engage customers on those differentiated solutions that truly set us apart and have fueled our consistent market share gains heading into the pandemic. And last but not least, our omnichannel offering consisting of Chef's Store and US Foods Direct, both of which have enormous growth potential that we are investing in. After opening two stores in 2021, we are set to accelerate our store opening program, having secured the real estate to open four to six stores in 2022. Turning next to the pillar of gross margin, which we expect to generate around 40% of the EBITDA growth. Optimizing gross margin is an area in which we have excelled over the years, generating an 83 basis point increase, excluding acquisitions, in the four years leading to COVID through some of the programs that you see here. I'm now going to call on Andrew Iacobucci to give you a highlight or two from each of the market share and gross margin pillars. Andrew was appointed Chief Commercial Officer in April 2021. He joined as Chief Merchant in 2017. and is responsible for a significant portion of the gross margin expansion over that period. Andrew, over to you.