US Foods Holding Corp.

Thank you, Krista. Good morning, everyone, and welcome to the US Foods first quarter fiscal 2024 earnings call. On today's call, we have Dave Flipman, our CEO, and Dirk LoCascio, our CFO. We will take your questions after our prepared remarks conclude. Please limit yourself to one question and one follow-up. Our earnings release issued earlier this morning in today's presentation can be found on the investor relations page of our website at ir.usfoods.com. During today's call, unless otherwise stated, we're comparing our first quarter 2024 to the same period in our first quarter fiscal year 2023. In addition to historical information, certain statements made during today's call are considered forward-looking statements. Please review the risk factors in our Form 10-K for a detailed discussion of the potential factors that could cause our actual results to differ materially from those anticipated 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 presentation slides posted on our website. We are not providing reconciliations to forward-looking non-GAAP financial measures. Finally, we're excited to host our Investor Day on June 5th at our headquarters in Rosemont. If you're interested in attending, please reach out to us in investor relations. Thank you, and I'd like to turn the call over to Dave.

Thanks, Mike. Good morning, everyone, and thank you for joining us. Let's turn to today's agenda. I'll start by sharing the progress we've made executing our strategy and several key achievements from the first quarter which set us up for a strong year ahead. I will then hand it over to Dirk to review our first quarter financial results and our fiscal 2024 guidance. Following a slower start to the year due to adverse weather and labor disruptions, our first quarter earnings came in as expected. The continued execution of our strategy and long-range plan resulted in adjusted EBITDA of $356 million, representing approximately 6% growth. As we highlighted in February, adjusted EBITDA was negatively impacted by approximately $20 million from increased cost to serve our customers and volume headwinds from labor disruption and weather-related issues in January. Of the $20 million impact, approximately $15 million was incremental operating expense to support the business during the labor disruption. Excluding this negative impact, our underlying adjusted EBITDA growth was approximately 12%, and we remain confident in achieving our full-year guidance. This performance demonstrates the strength of our business model, the commitment of our 30,000 hardworking associates, and our ability to win in any environment. Total case growth was 4.2% for the quarter, with share gains continuing in target customer types, and our independent case volume grew 4.6%. In fact, for independent restaurants, our share gains accelerated from the fourth quarter to the first quarter, as we grew share for the 12th consecutive quarter. In early April, we closed on our previously announced acquisition of IWC Food Service, and we are excited to have them on our team. As a result of deploying capital towards our tuck-in M&A strategy, we did not purchase a significant number of shares in the first quarter. However, we do plan to lean in on share repurchases more aggressively through the balance of this year. Despite a slight year-over-year decrease in restaurant foot traffic, Broadliners increased their volume within the overall food service distribution channel as measured by Sercana, underscoring the resilience of our industry. Our team captured profitable market share with our target customer types and improved profitability as we remain focused on controlling the outcomes that we can control. Furthermore, we continue to identify cost savings, including streamlining administrative processes and costs. More specifically, cost actions we have taken to date are expected to generate more than $55 million in expense savings for 2024 and $75 million on an annualized run rate. We are pursuing additional operating expense and cost of goods actions to drive further savings in 2025 and beyond. I have confidence in our ability to drive growth and profitability well into the future. We are controlling what we can control to generate long-term shareholder value. Turning to slide four, as a reminder, our team's work is guided by four strategic pillars, and I will discuss our progress on each of them over the next few slides. Moving to slide five, our first pillar is culture. Keeping our associates safe is a key part of our culture, and during the first quarter, our injury and accident rates were 30% better than the prior year, and importantly, these results were our best since 2020. Despite our recent success, there is still significant room for improvement to reach our goal of zero injuries. We're excited about our spring scoop, where we launched 26 new products to help our customers offer high quality, innovative, and labor-saving products on their menus. As part of this scoop, we introduced ServeU, including 20 new products within a portfolio of more than 3,000 products of delicious, plant-forward, gluten-free, and clean labels, such as our Chef's Line Organic Purple Rice and Quinoa Blend. Importantly, Since the introduction of our Popular Scoop program 12 years ago, nearly 75% of the products that have been launched are still sold today. Finally, we are increasing our commitment to three strategic community giving areas, hunger relief, culinary education, and disaster relief. Our increased investment of $2 million in 2024 is part of our Helping Communities Make It program, which provides nourishment and opportunity to the communities we serve and builds on our 2023 investment of more than $12 million. Turning to slide six, our second pillar, service. Providing best-in-class delivery and a high-quality service experience to our customers is essential to our growth and our overall success. The investments we are making in operational rigor and modernizing our technology platforms continue to pay off. We exited the first quarter quite pleased with the progress that we made on both on-time delivery and service level to customers, which continued to show year-over-year and sequential improvement. We also recently completed an 18-month initiative in our replenishment organization. This program standardized and improved the processes and technology we use as we strive to deliver best-in-class service levels to our customers. This work resulted in our delivered-as-ordered net promoter score improving by 7 percentage points while yielding $15 million in annualized operating expense savings and $120 million in working capital reduction. We continue to build on the routing efficiency gains that we delivered in 2023, and we remain focused on driving further improvement in on-time deliveries. In fact, our cases per mile were a company record in February and March. Furthermore, our routing initiative delivered a 4% improvement in cases per mile during quarter compared to the first quarter of 2023 in a two-year stack improvement of 12%. Our team's focus on this important work is making a difference for our customers and for U.S. foods. Taking this work a step further, we extended our Descartes routing deployment to four additional markets during the first quarter. building upon the two markets we piloted late last year that are now fully deployed. In the markets where Descartes is live, we are compounding further gains in our routing effectiveness. For example, in deployed markets, we are already seeing this technology produce an incremental 2% improvement in cases per mile, which we expect will continue to accelerate. We are confident that we have the right plan in place to successfully implement this technology across the company By mid 2025, and we continue to further transform our customer experience for our differentiated Moxie digital solutions platform. Moxie has been fully embedded with our independent restaurant business. As customers move to Moxie, they buy 10% more. Are more profitable and stick with us longer. We have migrated over 65% of our national chain business, with full deployment anticipated in the second half of 2024. Moxie also has a new Spanish translation feature, further enhancing the user experience. We're excited to share the Moxie roadmap and growth plans for this digital platform during our upcoming Investor Day.

Let's now turn to our growth pillar on slide seven.

We remain focused on accelerating profitable growth and gaining market share with our target customer types. We are on track to achieve our 1.5 times market growth goal for restaurants for the full year, driven by faster growth with independents. Our 4.6% independent case growth resulted in an acceleration of share gains from the fourth quarter, again marking our 12th consecutive quarter of market share gains. Our Pronto small truck delivery service is a true competitive differentiator and continues to gain traction with our customers. Through this platform, we're able to offer our customers significant benefits, including flexibility of delivery, which allows us to compete with local and specialty competitors. At the end of the first quarter, we were live in 36 markets and expect to add five additional markets in 2024. Pronto is on track to deliver approximately 600 million dollars of annualized sales this year with plenty of runway ahead. We also recently launched what we are calling Pronto Penetration in two markets, which for the first time extends the Pronto service to existing independent customers who will be able to order on non-routed dates. Once fully implemented, this new offering is expected to further increase our share of wallet with our existing customer base. Last quarter, I provided you with an update on our sales compensation plan. As you'll recall, the variable components of our plan are now more meaningful for our sellers. While it's only been one quarter, our plan is working as designed. Many of our sellers are exceeding their targets and receiving higher compensation for that profitable growth. For example, One of our sellers in South Carolina grew cases 50% faster than the fourth quarter, exceeded its target, and earned a 10% compensation increase. And for those who are not growing as fast with our new targets, we believe they will rebound in the quarters ahead. Turning to slide 8, our profit pillar. Adjusted gross profit grew nearly 7% in the first quarter to $1.5 billion. We drove further progress on initiatives such as cost of goods sold by collaborating with additional vendors. In total, we have addressed 60% of our COGS, which has translated into approximately $120 million in savings over the past 12 months. We have initiated the work to address the remaining 40% of our spend this year. We also continue to make progress on growing our independent restaurant private label brands, which increased 90 basis points year-over-year to over 52%. Increasing private label penetration remains a significant opportunity for U.S. foods. We believe we can increase customer value through our innovative and high-quality products at a competitive price while also improving our margins. Finally, our delivery productivity improved 4% over the prior year, and we continue to improve our overall supply chain productivity through turnover reduction, flexible scheduling, and process standardization. The 4% delivery productivity is in line with our goal of 3 to 5% annual gains to offset wage inflation. This productivity improvement is additive to the operating expense reduction I spoke about earlier. Before I hand it over to Dirk, I would like to acknowledge two recent winners of our first ever CEO awards. Mark Schuster, warehouse manager, and Timothy Gephardt, day warehouse supervisor at our culinary equipment and supply business in Allentown, Pennsylvania. This distribution center celebrated 11 years of injury-free operations last year. During that time, they nearly doubled the case of shift while improving productivity by approximately 50%. Mark and Tim made safety a top priority through regular training programs and team huddles to ensure that the entire team took personal accountability for safety. Thanks, Mark and Tim, for your outstanding leadership. As we approach Memorial Day, I want to thank all of our veterans for their service, including our associates who have served our great country. On this Memorial Day, we pay tribute to those who have served our country and made the ultimate sacrifice. Each day, we have the privilege to enjoy our freedom because of their fearless service. As you spend time with your loved ones on this holiday, please join me in remembering the heroes who courageously gave their lives for our country and for our freedom. Let me now turn the call over to Dirk to discuss our first quarter results and our 2024 guidance.

Thank you, Dave, and good morning, everyone. Our performance for the first quarter was consistent with our expectations as we executed well despite the challenging start to the year, highlighting our strong financial discipline and staying focused on what we can control. Starting on slide 10, first quarter net sales increased 4.8% to $8.9 billion, driven by total case volume growth of 4.2% and food cost inflation of 1.5%, mixed with a headwind of nearly 90 basis points. Independent restaurant volume increased 4.6% overall and 2.9% organic. Healthcare and hospitality grew 6.4% and 0.9% respectively. Healthcare growth remained strong, while hospitality growth was less than we expected due to softer same-store sales and a tougher compare versus a strong prior year. We expect hospitality to accelerate through the second quarter and the second half of this year as we onboard new customers. Adjusted EBITDA grew 5.6% from the prior year to $356 million. This was slightly above the high end of our guidance, driven by a combination of profitable volume growth, strong growth profit gains, and solid expense management. Adjusted EBITDA margin remained largely unchanged at 4%, despite the headwind of incremental costs to serve our customers during the January labor disruption. Absent these costs, plus the volume headwinds from labor and weather, which altogether total approximately $20 million, we estimate that our adjusted EBITDA growth rate over the prior year would have been approximately 12%, and adjusted EBITDA margin would have increased approximately 20 basis points. Turning to slide 11, we increased adjusted EBITDA per case again this quarter, despite incurring higher incremental costs related to the labor disruption. Adjusted growth profit per case growth continued at a strong 17 cent improvement over prior year, driven by our cost of goods sold initiative and discipline pricing. On an annualized basis, this improvement would result in more than $100 million in incremental growth profit. Adjusted operating expense per case increased 15 cents with more than 7 cents related to incremental expenses from the labor disruption. Adjusted EBITDA per case was $1.75, up 2 cents from the prior year. Excluding the incremental costs, adjusted EBITDA per case would have been a 9 cent improvement over prior year. We are focused on driving further operating leverage improvement and growing adjusted EBITDA per case by continuing to execute on initiatives that are within our control. We are making steady progress with our cost of goods sold optimization work, improving supply chain productivity, and streamlining administrative processes and headcount, as Dave noted, as well as increased indirect spend management savings as more initiatives in this area are deployed. Moving on to slide 12, we continue to generate strong operating cash flow driven by earnings and effective working capital management. Operating cash flow for the quarter was $139 million, which was driven by strong profitability. However, this was lower than prior year as we had more working capital benefit in the first quarter of 2023 from extending payables with certain suppliers. Absent the working capital impact, operating cash flow was modestly above prior year. We continue to actively manage working capital and expect to drive further improvements in 2024 from initiatives targeted to inventory and payables. We expect operating cash flow growth over 2023 for the full year. We will continue to invest in the business for growth and remain focused on our capital allocation priorities to maintain net leverage within our target range of 2.5 to 3 times, return capital to shareholders via share buybacks, and opportunistically pursue a creative tuck and egg. We repurchased $13 million of shares during the first quarter. Repurchases were muted as we were in the process of acquiring IWC. We're excited to welcome the IWC team to U.S. Foods as we closed on the acquisition in April at a price of approximately $220 million, which was funded through operating cash flow. Turning to slide 13, we ended the quarter with net leverage of 2.8 times, which is a .4 term reduction versus the same period last year and consistent with where we ended 2023. In February, we successfully repriced our term loan through 2028 and reduced the interest rate margins by 50 basis points. As a reminder, we do not have any debt maturities until 2026. Now, turning to guidance on slide 14. Given our performance for the first quarter and outlook for the balance of the year, we are reaffirming our fiscal year 2024 guidance. We continue to expect adjusted EBITDA to be in the range of 1.69 to 1.74 billion dollars and adjusted diluted EPS between 3 dollars and 3 dollars and 20 cents. The macro remains a little softer than we and many anticipated going into the year. But as you heard from Dave, we continue to outpace the growing broadline distribution channel. Our industry is resilient, and U.S. Foods is well-positioned for above-market growth with our differentiation, diverse customer base, and customer-focused strategy to drive share gains. As a result, we continue to expect our full-year case volume growth to be within our guidance range of 4% to 6%. In addition to continued volume growth, we have the right strategies in place and are expanding gross margins through initiatives such as cost of goods management and driving OPEX productivity through improved routing, administrative process streamlining, and indirect spend management. With that, I'll pass it back to Dave for his closing remarks.

Thanks, Dirk. Looking ahead, we remain intensely focused on executing our strategy and we'll maintain our disciplined approach to capital deployment to drive long-term shareholder value. We see tremendous opportunities ahead as we focus on what we can control and continue to deliver on our commitments, regardless of the operating environment. Our future is promising, and I am highly confident in our ability to continue to outpace industry growth over the long term and to leverage that growth effectively to the bottom line. Finally, we are excited about our upcoming Investor Day on June 5th, where we will share our new long-range plan targets and why we believe we have the right strategy and the best associates in the business to execute that plan. We hope you can join us here at our company headquarters or via the webcast. With that, Krista, please open up the call for questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure your phone is not on mute. when asking your question. And please limit your question to one question and one follow-up. Your next question comes from the line of Alex Slagle with Jefferies. Please go ahead.

Thanks. Good morning. I guess question more on the macro, just high level. I mean, in some segments, the management teams, the companies we cover have ratcheted down their growth expectations because of the softer traffic environment. I'm trying to figure out, I mean, has this impacted your internal targets to certain degrees? And maybe you could talk to some of the incremental offsets that you're seeing that allow you to reiterate your outlook.

Yeah, thanks. Good morning, Alex. So, look, I think it's well documented that there have been some foot traffic challenges in the industry, but as I continue to say to you all, and I say to our team internally, you know, we have so much opportunity to continue to focus on the things we can control, like gaining profitable market share. And look, I couldn't be more pleased or proud of our team on the performance in the first quarter. Obviously, the well-documented weather situation was out there. On top of that, we had a labor disruption that lasted for the majority of the month of January. And still, we outperformed the market, accelerated share gains. And so that is what gives me confidence in our ability to continue to outpace the market growth, regardless of what's going on in the world around us. And then secondly, you heard a lot this morning from both me and Dirk about our continued work around self-help. And there's so much of that going on. And again, with all the distraction we had in January, our team's ability to stay focused and put up the productivity numbers that we talked about here this morning just gives me great confidence that that momentum will continue.

We have a strong pipeline of initiatives, as you heard, and we're continuing to stay focused. Thanks.

Congrats on the progress.

Thanks a lot, Alex.

Your next question comes from the line of John Heimbockel with Google Heim Securities. Please go ahead.

Hey, guys. I want to start with there's a lot of noise, right? An unusual amount of noise in the first quarter. Where do you think the trend line on independent case growth is? I know it was the organic piece, right? So that was 2.9 impacted by weather and strike. Do you think we're 4 to 5? And wherever we are,

is all of that coming from new account growth right and so penetration you know for everybody right it's kind of stalled out is that that kind of where we are composition wise yeah i think in that mid single digit range john kind of how you framed it is probably the right trajectory you know we were relatively flash in january year over year which uh i thought was a win for the team given the challenges that we had and then it accelerated from there you know as we flipped into the second quarter it's roughly on par with The foot traffic is a challenge, but our ability to generate new business is key to our success. Penetration is a challenge just with the foot traffic piece of it, but we also have an opportunity to shore up lost business. which hasn't been a problem for us, but there's always opportunity to do a better job there. So that combination of net new account generation, that difference between new accounts and shoring up the loss is where our team stays focused and obviously continue to look for every penetration opportunity we can. You heard me talk this morning about the Pronto penetration opportunity. That's new for us. We're excited about it to take that offering to our existing customer base. And we think that's going to mean good things on the penetration front. It was a ramp that up across the company.

Hey, John, the other thing that shows through in our 1st quarter results with our 1.4% organic total case growth, which is sort of faster than the industry and others is really, I think it highlights the diverse mix of customers that we have. And so it's about our target customer types and that overall smart, profitable growth.

Maybe the follow up, right? I think you maybe sized for the first time the 60% of the product base that you've gone through, 120 million savings. So when you think about the next 40%, I assume that's not as productive as the first 60%, which may be wrong, and then you'll go back around again. So when you think about, on a go-forward basis, in aggregate, is there a lot more than 120 million to go over a multi-year period or no, do you think?

Well, I think you're thinking about it right. The 40% won't likely be as large as the 60, just to size that a little bit for you, John. But there is a lot to do going forward. And to your point around cycling back, I think there'll be existing momentum or more momentum than we've had on the existing side. And look, the beauty is, you know, in a month, we're going to lay all this out for you at our investor day on June 5th and talk about that contribution and where it comes from over the next three year time horizon.

Thank you. Thank you.

Your next question comes from the line of Brian Harber with Morgan Stanley. Please go ahead.

Yeah, thanks. Good morning. I'm sure you'll talk about this next month too, but just, you know, what's the source of some of the additional kind of cost savings opportunities that you mentioned in your comments, Dave?

Well, two, I'd point to. One, I commented on, and the other one, I didn't. But the work that we've done around replenishment deal with $15 million in expense reduction, that's been an ongoing piece of work. I think there's likely still more to come there as we ramp up technology in that part of the business. And so we're excited about that. But importantly, also, Brian, you know, you've heard me talk over the course of the last year about shifting our focus and our resource back into the field, giving the responsibility to the P&L owners and unwinding a bit of this centralization that has been done over the company over a number of years. And with that move back to the field comes efficiency gains. You know, and I'm a firm believer that the folks that own the P&L are going to determine whether they need the headcount and whether it's adding value or not. You've seen some of that initially pop out from the work that we've done here, particularly over the last six months, and there's likely more to come on that journey as well.

Okay, thanks. Just on the healthcare and hospitality side too, you know, how quickly do you expect some of this new business to pick up on the hospitality side? You know, is healthcare sort of outsized still, or do you think, you know, a similar pace can sustain? How do those pieces sort of factor into your case growth outlook for the year?

Yeah, I think, you know, let me take hospitality first. You know, we're a little over-indexed in our hospitality mix around lodging. I think that was challenged a bit with same-store sales and Put traffic even in spring break, you know, we didn't see the uplift that you normally see. I think there's probably some more international travel that's happened this spring break versus prior years coming out of coven and things like that going on. But look, we've got line of sight to a very strong pipeline and not just in health care and hospitality, but also in our independent business. And we're in the process of ramping up that business here in the second quarter. And that's what I point to when I share the confidence in the earlier question about the momentum continuing here. Really good progress, lots of momentum, strong pipeline that we expect to convert in the second quarter and beyond here.

Your next question comes from the line of Edward Kelly with Wells Fargo.

Please go ahead.

Yeah, good morning, everyone. Nice quarter in a tough environment. I wanted to ask you about the spread between gross profit per case and OpEx per case. Slightly negative in Q1, which is obviously uncharacteristic for you, and there was the strike issue. Maybe ease out Q1 performance a bit more. And then what I'm really interested in is looking ahead. There's obviously a ton of self-help that you've been talking about, mixed benefits, inflation's coming back. Can you just maybe talk about how you see that spread evolving and what's a realistic target for the remainder of the year?

Good morning, guys. This is Dirk. So, overall, you know, we do not going to give a specific number, but we do expect to continue to have that healthy spread as part of our balanced growth strategy. I think the overall inflation, although it's picked up some, it's still pretty modest at 1.5% for the first quarter. As you've heard me say a number of times, when it's like that, it's going to be a small contributor, but it's not going to be the key thing you hear us talk about of driving the overall growth. I expect continued improvement in GPE. I expect continued productivity to offset a good portion of inflation. And each of those impacts really come from the things that we're doing within our four walls on the different activities and initiatives. But we do continue to expect adjusted EBITDA per case to continue to increase.

Maybe just a quick follow-up. I wanted to ask you about M&A real quick. It looks like you had about a 2.8% benefit in the quarter from M&A. IWC comes in in Q2, so I guess that's going to ramp. But the guidance, I think, includes a 2% benefit from M&A. So maybe could you just talk about how that's layering in? And then from a pipeline standpoint, Like, how are you, you've done a few deals, so how are you thinking about, you know, the outlook from here? I did note that it looks like M&A is kind of below share recall on the priority list on that slide, I think.

Sure, well, why don't I start with just the overall M&A and so, yes, IWC will come in. So we'll have a couple of months of overlap, but Renzi will roll off later in the second quarter. So it really will be one-on-one off over the period and then Saladino's through most of the rest of the year. So overall, expected to be pretty similar. And I think as Dave talked about with our organic case growth, we get past some of the January challenges and some of the things that he talked about on our pipeline. And that's why we feel so good about reiterating our guidance on volume.

Yeah, and on the pipeline, it remains strong. We'll give a little bit more color on that as investor day here coming up on June 5th. But I will just reinforce a couple points that I've always said around M&A. First of all, I think it can be a pretty but we don't need to do any of them. And so we're not going to force anything and we're not going to overpay. And we haven't in the three deals that we've done. And to your point around share repurchases, look, we've done three deals here in less than 12 months. We've got some integration work ahead of us. You'll likely see us take a breath around M&A here for a little bit and lean in harder to share repurchases as the year progresses, as we said in the script.

Great. Thank you. Thank you.

Your next question comes from the line of Jake Bartlett with Truist Securities. Please go ahead.

Great. Thanks for taking the question. You know, my first is on the channels and the organic growth within them. So you've given, you know, overall case growth and independent organic, but how does the acquisitions impact healthcare, hospitality, and chain? And then building on that, you know, chain case growth accelerated pretty meaningfully. If it's not acquisitions, what is driving that pretty strong acceleration? Thanks. I have a follow-up.

Good morning, Jake. So healthcare and hospitality, the acquisitions had very little impact to either of those from a growth rate perspective. Chains did have a much more significant impact, and that's primarily, as you may remember from our discussions before, on Saladinos, which has a stronger chain base of the business. So we talked about 3.7% overall chain growth, but organic was down around 4%, so very similar to what

uh black box indicator for the first quarter so really uh not too different from a trend there okay so you said organic was was down four percent just maybe repeat that which is pretty much right in line with the black box data was for the quarter got it great and then my other question was just about the size of your of your sales force and you know i believe you're you're growing your sales force you're slower than your two largest peers and so wondering what your thoughts are on how that might impact your share gains going forward. How much of the share gains do you think has been driven by investments in your sales force? And could that become a headwind as your larger competitors, I believe, are adding to their sales force quicker?

So, first of all, I'll take the second part of your question. No, I don't think it'll be a headwind at all, Jake. You know, we reiterated last call and I'll say it again. We believe low to mid single-digit addition to our sales force on an ongoing basis is the right number. You know, we've got that built into our algorithm and the productivity around that and, you know, the time it takes new hires to ramp. I think that I'd point to a couple of things, maybe relative to others. First of all, our digital platform and the efficiency gains that that enables for our sales force and the focus that allows them to have on the customer and selling our great products and penetrating that business and importantly helping our customers solve problems. So I would point to Moxie and the advent of that is a real productivity help for our sales force. And the other one is our team based selling, which we've been at longer than others and for a very long time that's part and parcel to how we go to market and that also affords our territory managers some efficiency gains because of the help and support that they get from the specialists and the restaurant operation consultants on a day-to-day basis in front of the customer so feel really good about it i don't think there will be any headwind at all in our ability to drive growth based on our algorithm great thank you so much thank you

your next question comes from the line of kelly abania with bmo capital markets please go ahead hi good morning and uh thanks for taking our questions and congrats on good quarter here um just wanted to um ask you you gave some of the figures here on the pronto initiative that were interesting um with the numbers that you disclosed here i'm assuming this is really impacting independence is that initiative kind of driving a low to mid-single-digit lift for independents. Correct my math if I'm wrong there, but can you just talk a little bit more about how that's working, if that's new accounts, increased wallet share, and how that impacts the P&L?

Yeah, so first of all, we've been ramping up product over the last the $600 million we anticipate this year. But I tried to make that distinction, and let me be clear. Up until now, Kelly, Pronto was only focused on attracting new customers. We had not deployed that to our existing customer base until we were confident in the model, and we knew that we had all the bugs worked out of that model. And so now, when we go to Pronto penetration, we are offering that to existing customers, on their non-standard routed days. We think that will enable us to continue to penetrate those accounts, give our customers less reason to go to specialty and other suppliers to get their needs met. So we're excited about not only the ability to continue to track new customers through Pronto, but now importantly, penetrating our existing customers further. So more to come on that, but we're really excited about the model and what it's meant so far and where we can take it.

Great.

Can I just add one more just on the hospitality? If I missed it, I apologize. But can you just help us understand the magnitude of what you expect in terms of new wins coming on over the course of the year? And also just maybe incorporate what the competition looks like for those contracts, the profitability level of those contracts.

Good morning, Kelly. So, overall, we expect hospitality to meaningfully accelerates sort of summit Q2 and then we're in the back half of the year and that a lot of the that comes from really visibility to to customers that have started to onboard already here in the second quarter and more that we know are coming. And so those numbers will show up as we go over time and. It's the reason that we keep talking a lot about, you know, independence, our core key customers, highly profitable, but also healthcare, hospitality and other is those are all valuable customers that are attractive, profitable. Our differentiation shows up. And so really our growth in those 3 target types and then opportunistically and other customer types are key to grow and continue to be. Thoughtful and like I said, that result resulted in. stronger than the market's q1 overall growth rate and stronger than overall from a target customer type perspective thank you your next question comes from the line of jeffrey bernstein with barclays please go ahead great thank you very much my first question dave just on the broader restaurant industry

You know, we've talked about how the macro is a little softer than expected at the start of the year. It seems like it's changed more than independence. But you get a chance to look at all segments. I'm just wondering, big picture, to what do you attribute the slowdown? There's been lots of talk about outsized restaurant industry menu pricing may be hurting and the lower-income consumer may be feeling incremental pressure. Based on your 30,000-foot view, what would you attribute the slowdown? And then I had one follow-up.

Yeah, this is why I'm not an economist yet, but I'll give you a perspective for sure. I think it is more around the challenges that the consumer has, given what's happened around inflation over the past few years. And they're thoughtful about how they spend their disposable income. And so I think that's really driving a lot of the foot traffic challenges we period of time and those challenges persist. I really think at the root of it is a consumer issue. I do think and I believe this long-term trend will continue. I think independents will win over chains and I think, you know, the foot traffic is certainly reflecting that. Not that independents don't have challenges just the same, they do, but I just think their model is more in line with today's culinary desires and the experiential dining that the consumer is looking for. So we're bullish on independence over the long term, and whatever short-term bumps in the road there may be, we think they're going to win.

Understood. And then just my follow-ups on the broader industry, just the number of doors in America. I feel like through the pandemic, many people talked about losing roughly 10% of the restaurants, or at least having them close. I'm just wondering, where do you think we stand today relative to that peak? pre-COVID, do you buy into that 10% reduction, and where do you think we are now relative to that? Thank you.

Yeah, I think roughly that number's in line, maybe close to minus, but there's been a strong rebound, obviously, from the pandemic and the deaths thereof, but I do still think there's, while it's challenge to attract folks into the restaurants, but probably still down a little bit from pre-pandemic levels.

Thank you. Thank you.

Your next question comes from the line of Mark Cardin with UBS. Please go ahead.

Good morning. Thanks so much for taking the questions. To start, I wanted to touch on ChefStore. How is this business performing in the current macro backdrop? Have you guys seen demand pick up much, just given some of the pressure on the lower end?

Good morning, Mark. So we have seen Chef's Store return to case growth, which has been encouraging, as you remember we talked about with some of the European-related challenges from last year. I would say, you know, so overall, the fact that the business is back growing, we are encouraged by that, and our focus is to continue to work through and accelerate that growth over time. And we're continuing to add stores with five stores planned for this year. And it does play a niche in the overall market for especially that customer base that you're talking about as well as fill-ins.

Great. That's helpful. Thanks. And then just on the labor backdrop, are you guys seeing any impact in California just given the shift to the $20 minimum wage for QSR workers and really any related wage pressure that might have caused in the state?

No, not really. Most of our associates are paid well above that, so a pretty limited impact from our perspective. I'd say from an overall customer volume, it's pretty early to tell and really talk much about what that may do to overall demand more broadly.

Okay, great. Thanks so much, and good luck. Thanks, Mark.

Your next question comes from the line of Peter Sallow with BTIG. Your line is open.

Great. Thanks and congrats on a good quarter. I did want to ask about the increase in the private label penetration. Can you just talk a little bit about what drove that this quarter and how much of that you think is attributable to the change in the Salesforce compensation that you indicated, I guess, earlier this year?

Yeah, I think I think Peter, you know, it's a combination of factors. The compensation being 1 that I think will be a meaningful 1 for us going forward. So I'm very excited to see that increase. But as we said, you know, coming out of the pandemic, the manufacturers were challenged to supply those products for us. And it's just really been over the last couple of quarters that we've gotten the confidence of the sales force back to go lean into those products more aggressively than they have over the past few years. And, you know, we had a good performance in the fourth quarter, excited to see, you know, us, our penetration up over 52% in the first quarter. And as I've said before, I don't really see any near-term ceiling for that. And I feel like the momentum will continue to build on our exclusive brands.

Thank you for that. And then just on Moxie, you indicated that your customers are buying, I believe, 10% more, but I suspect you have some customers that have been on the platform longer than others. Is the behavior of customers that have been on it longer, are they buying more, or is that 10% kind of a good figure to use going forward? Thank you.

Yeah, I think that's roughly a good figure to use going forward. And, you know, our goal is to get our customers, the new customer, onto that platform immediately, if not sooner, once we get into the account, because of all the things that we've talked about here in terms of benefits both for the customer and for the productivity of our sales force. And so that's why we disclosed that figure.

I think that's a solid one to think about going forward.

Thank you very much.

Thanks a lot.

And your next question comes from Andrew Wolfe with CL King. Your line is open.

Thanks. Good morning. I just want to start with a point of clarification. Dave, I think you said, or maybe it was Dirk, that cases were flat in January. I just want to make sure, was that with reference to independent organic cases or total cases? What is the reference point when we think about when to compare the flat January to?

That was specific to Independence, that comment. Overall, we did see some stronger case growth just more broadly for the quarter, but that comment was geared to Independence.

So, more like an organic thing, your typical distribution center not impacted by it? Okay. And was it all weather or did any of the labor actions also have an effect on January sales?

As we said, Andy, it was a combination of both. That was kind of the net impact of the month of January where we had the labor disruptions for about three weeks of the month overlapping the weather challenges that everyone experienced.

Okay, because I thought it was just, I wasn't sure. Okay, so it was both monetary impact and a sales impact. Okay. Dave, on the new cases per mile metric, is that purely logistical? It sort of falls out from what you're doing in logistics? Or can it sort of help drive sales and marketing, let's say, to increase customer density in other ways? Or is it purely logistical and the sales and marketing people are going to do their own thing and not be influenced by this, you know, getting the logistics costs down?

Yeah, at the root of it is, you know, we're helping ourselves in terms of efficiency of getting the products to the customer. But importantly, there is a very positive customer impact because as we take miles out of our system to get the products from our distribution centers to the customers, you know, we're more likely to be on time and show up when the customer has requested it. So there's a double benefit there. So it very much impacts the customer in a positive way. And so we're excited about continuing that work.

Okay, sounds good. Thank you. Thank you.

And as a reminder, if you would like to ask a question, please press star 1. And your next question comes from the line of Fred Whiteman with Wolf Research. Your line is open.

Hey, guys. Good morning. I wanted to come back to the independent case growth numbers. And if we just go back and look at what you guys disclosed for 2Q from last year, You talked about a softer March and April and then some sequential improvement in May and June. So I'm just wondering how we should think about the net impact of some of these headwinds from 1Q. So the weather and the labor that you just touched on rolling off, but then also facing some of those tougher compares on a monthly basis later in the quarter.

i think as you pointed out good morning fred that's the weather and the labor largely behind us we have a few of the labor impact markets that haven't fully recovered as far as uh lost customers but that's the minority and those teams are laser focused on getting that back i would say you know overall i'm not going to specifically come up beyond what dave did where he talked about april volume being pretty similar to to march our focus as we get to this you know normalized environment without the weather without labor etc is to get you know back on pace for the strong independent growth that we've generated and continue to take share as you heard dave said we accelerated our share gains in q1 and we don't expect to slow down on that versus continuing to charge ahead great and then on pronto i think you guys made a comment

That's a $600 million top line contribution currently. Is there a way to size the potential market for the Pronto penetration? Is that bigger, smaller, sort of in line with the core Pronto offering?

It's early days. We'll have more to say about that through the course of time. We're just really getting started with that, Fred. And so we're excited about it. We think it's got a large potential. But it's very early days there. Fair enough. Thanks a lot.

And your next question comes from the line of Rahul Crow with JP Morgan. Your line is open.

Good morning, guys. Thanks for taking the question. It's on pronto again. Like you guys did mention the ability to compete against specialty and local. Is that mostly because of the delivery window flexibility? And we also saw that many operators succeed here because of their ethnic, mates, produce, and whatnot. So are you considering adding more SKUs to the offering, or you can compete with the current assortment?

I think we've got great product line that falls right on top of a lot of the specialty suppliers. What this gives us a role is the ability to actually get that product in a more timely fashion to the customers versus our maybe couple per week, we can deliver those products every day now with Pronto, whatever frequency the customer needs it. And obviously, delivering it on the smaller trucks gets us into some of the more urban-type areas that are more challenging to take a larger vehicle into. So I think there's good upside there and allows us to compete in a way that we haven't been able to prior to Pronto.

Understood. That's helpful. Is there a sense of how the profit per cases in these deliveries being very different from what you have or is it very comparable?

It's comparable to our overall independent margins. So, in this case, the customers are willing to pay a slight premium because of the flexibility, which mitigates our slightly increased delivery costs. So, it's profitable, it's attractive, and Dave said when you pair this up with our larger truck delivery service, it really allows the right service for the right customer.

Perfect. Thanks, guys.

And as a reminder, please press star 1 if you would like to ask a question. And with no further questions, I would now like to turn the call back to Mr. Dave Flipman for any additional or closing remarks.

Thank you, Krista, and thanks for joining us today. We're excited about the underlying momentum that the business has and certainly the focus of our 30,000 associates on continuing to drive that momentum. We look forward to seeing many of you at our June 5th Investor Day. Have a great week. Thanks a lot.

And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.