US Foods Holding Corp.

Earlier this year, we successfully launched two pilot markets and the early results are positive with much stronger independent case growth. We have four additional markets planned for later this year and pronto is now on track to generate nearly $700 million of annualized sales this year. Turning to slide nine, our profit pillar. Our proven operational playbook, merchandising excellence work, and team-based selling approach increased adjusted gross profit by 8% in the second quarter to $1.7 billion. We also continue to make progress on growing our private label brands, which grew approximately 100 basis points year over year to more than 52% penetration with independent customers. Our continued focus on private label penetration represents a pathway to profitable growth for US foods. These high quality innovative products enable competitive pricing for our customers while also improving our margins. Great companies are constantly adapting and looking for ways to become more efficient, continuously driving productivity and reinvesting a portion of those savings to fuel future growth. As we continue to identify ways to become more efficient and take steps to streamline our corporate and field interactions, we took additional cost actions this quarter. We now expect to achieve $80 million in expense savings in 2024 and $120 million on an annualized run rate. These changes underscore our commitment to achieving our 3 to 5% annual productivity target while more effectively serving our customers. Finally, as we announced during our investor day, given the lack of synergies, we believe ChefStore would benefit from focused investment under new ownership. We are still in the process of exploring strategic alternatives and

will

provide updates as appropriate. Throughout the process, we remain fully committed to supporting the ChefStore business, our business associates, and our customers. Before I hand it over to Dirk, I would like to acknowledge one of our drivers, Jason Buck, who works in our Knoxville distribution center. One of our cultural beliefs at US Foods is deliver excellence, and Jason embodies this belief every day. Jason joined US Foods in 2004 and has been named driver of the year twice. He also runs our weekly driver skills course with all new drivers and plays a lead role on our local safety team. Importantly, Jason's efforts contributed to the distribution center exceeding its on-time service metrics during the deployment of our card grounding platform. I thank Jason for all he does to deliver excellent service to our customers and ensure a safe work environment for our Knoxville associates. As we approach Labor Day, I also want to thank all our associates for their hard work, their commitment to our safety culture, their relentless focus on providing superior customer service, and for making US Foods a great place to work. Let me now turn the call over to Dirk to discuss our second quarter results in more detail in our 2024 guidance.

Thank you, Dave. Good morning, everyone. Second quarter results were largely consistent with our expectations with continued top line growth and further margin expansions, leading to record adjusted EBITDA and adjusted EBITDA margin. We delivered this record profitability through our balanced approach to drive top and bottom line growth despite the softer operating environment. Starting on slide 11, second quarter net sales increased .7% to $9.7 billion, driven by total case volume growth of .2% and food cost inflation of 2.9%, while mixed with a headwind of 40 basis points. We drove case growth faster than the market and captured share gains in the second quarter, including our 13th consecutive quarter of market share gains with independent restaurants. Our independent restaurant volume grew 5.7%, including 250 basis points from acquisitions. Healthcare growth remained strong at 6%. Hospitality growth improved .1% as we successfully onboarded new business. Adjusted EBITDA grew .2% from the prior year to a quarterly record $489 million from a combination of profitable volume growth, strong gross profit gains, and disciplined expense management. In addition to strong EBITDA dollar growth, our adjusted EBITDA margin expanded by 25 basis points to an all-time high of 5% as adjusted gross profit dollars grew over 200 basis points faster than adjusted OPEX dollars. Finally, adjusted EPS increased .7% to $0.93. We continue to grow adjusted EPS at a faster rate than adjusted EBITDA and expect that trend to continue while deploying more of our strong free cash flow to our repurchases. Turning to slide 12, we once again expanded adjusted gross profit per case faster than adjusted operating expense per case, resulting in further adjusted EBITDA per case improvement. Adjusted gross profit per case grew by 22 cents, or nearly 3% over prior year. Primarily driven by our cost of goods sold initiatives and disciplined pricing. The COGS initiatives delivered $50 million for the first six months. For the full year, we expect approximately $70 million in savings. We are well on track to achieve over $220 million in COGS savings from 2022 through the end of this year from our strategic vendor management work. Adjusted operating expense per case increased 4 cents, or less than 1%, driven primarily by increased labor costs, partially offset by continued distribution productivity improvement, from routing efficiency gains, turnover reduction, and process standardization, as well as actions to streamline administrative processes and costs. Growing our GP per case 5.5 times faster than our OPEX per case led to a record adjusted EBITDA per case of $2.27, up 16 cents, or .6% from the prior year. We continue to drive strong leverage throughout the P&L with a combination of profitable volume growth and continued progress on gross margin and operating expense initiatives. We expect continued adjusted EBITDA per case expansion as we execute our initiatives while also consistently meeting our customers' needs. Moving on to slide 13. We have generated strong cash flow year to date, including $621 million of operating cash flow and $467 million of free cash flow, driven by increased profitability and disciplined working capital management. However, this was lower than the prior year as we had more working capital benefit in the first half of 2023 due to the inventory reduction benefits from the replenishment optimization initiative that Bill Hancock discussed during our investor day. Excluding the working capital impact, operating cash flow is modestly above the prior year. Our durable stream of cash flow enables us to invest in the business and return capital to shareholders. We invested $156 million in cash cap backs for the first six months, mainly focused on projects to support growth, including information technology, property and equipment, as well as maintenance of our distribution facilities. On June 1, 2024, the board authorized a new $1 billion share repurchase program. Under this new authorization, we repurchased $21 million in June 2024. In the third quarter today, through August 7, we have repurchased approximately $61 million. We have approximately $918 million remaining in the authorization. Since the inception of our buyback program in November 2022, we have repurchased 10 million shares for a total cost of $425 million. Rounding out capital deployment, we have completed three acquisitions over the past 18 months and will continue to be opportunistic in selectively pursuing a creative tuck in M&A. We are currently focused on integrating these acquisitions and will lean in on more share repurchase for the remainder of 2024. Turning to slide 14, we remain well within our two to three times net leverage target with a strong balance sheet as we ended the quarter at 2.6 times leverage, which is a .4 turn reduction from the same period last year. This includes paying $220 million for IWC and $41 million for share repurchases in the second quarter, which were funded through operating cash flow. We are also pleased to report two positive developments related to our credit ratings. Our corporate credit rating was upgraded one notch by Moody's to BA2 and S&P revised their outlook on U.S. Foods to positive, each reflecting the continued execution of our long-range plan and expectation that the initiatives outlined in our investor M&A will drive further earnings growth and credit metric improvement. Now turning to guidance on slide 15. Given our strong first half of the year and outlook for the remainder of 2024, we are reiterating our fiscal year 2024 net sales, adjusted EBITDA, and adjusted diluted EPS guidance. Moving to modeling assumptions. For 2024, we continue to track total case growth of 4 to 6%. We are updating our sales inflation assumption to a range of 1 to 2%. Despite the operating environment, we continue to grow top line, gain share, expand our margins, and deploy our strong free cash flow against our capital allocation priorities. We are well positioned to deliver on our 2024 financial targets and remain committed to our closing remarks.

Thanks, Dirk. We continue to execute our strategy, gain market share, and improve profitability. We delivered double-digit adjusted EBITDA growth and record adjusted EBITDA margin of 5% while gaining share in our highest margin customer types. Our strong business model serving independent restaurants, healthcare, and hospitality, which are among the fastest growing and most profitable customer types in the food service industry, combined with the execution of our strategic initiatives, supports our ambition to be the undisputed best in our industry. And we have a long runway of profitable growth in front of us, including delivering our 2025 to 2027 growth algorithm, which includes a 10% adjusted EBITDA growth taker. We remain laser focused on improving the business to generate profitable growth while executing our capital deployment priorities. And with that, Carrie, please open up the line for questions.

Thank you. We'll now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. We do request for today's session that you please limit your question to one and one follow-up. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. And your first question will come from Edward Kelly with Wells Fargo.

Hi, good morning, guys. Nice to see you. Thank you. Dave, I was hoping, could you maybe just elaborate or talk a bit more about what you're seeing from an end demand standpoint, maybe even by customer type? I'm just kind of curious how the quarter evolved and then specifically what you saw in July. And then as part of the start, how are you feeling about the 2% to 4% organic case volume target for the year? I think you do need maybe a little bit of acceleration with that cap.

Well, I'll take that last part of that question first. I think we were confident in that 2% to 4% case growth and reiterated our full guidance for the year, as Dirk just outlined. So we're confident in that. But as you point out, I think the macro is a little softer than we expected coming into the year. What you've seen us do is control the controllables very well, which is what we always say we're going to do. We can't control the macro, but we can control our ability to drive growth on the top line, which we continue to do in the second quarter, and also into July, to your point, despite what's going on in the macro. Things around the macro will ebb and flow, but our ability to drive our initiatives and make this thing as strong as it can possibly be is completely within our control. And so we've seen lower foot traffic, as we pointed out, down 3% in the second quarter. I think the back half of the quarter was a little slower than the first half, and that trend kind of continued into July. Healthcare remains very strong. You saw our robust growth there. The hospitality, as we said last quarter, we were onboarding new business. You've seen us pick up in our case growth there. We expect that will continue into the third quarter and into the back half. So that's kind of how we see it, and we're not counting on the market helping us in the back half to achieve what we said we were going to achieve, and we'll continue to execute our playbook.

This is a follow-up, Dave. Can I just ask you on any adjustments that you are making to the business in this backdrop? I know you're controlling what you can control, but today you talked about some cost action that was incremental. Curious on the selling side, if there's any fine-tuning that you make there in this type of backdrop, is there any additional color there?

Yeah, I think we've modified our TM compensation plan going into the year. We're pleased with the progress we're making there and how that's playing out. As you recall, we've variable-ized more of that to incent our sellers to drive more aggressive growth and also incentive them to grow our private label brands. As you heard, we were up 100 basis points year over year with independent restaurants with our brands. I think at the root of that is our continued ability to bring innovation and great products to the marketplace, supplemented with those compensation plans changes. To your point on the expense side, I said since the day I got here, we were going to drive 3% productivity, and we've been ramping that up through the course of the last 18 months. We've really been driving that aggressively in the first half of this year. I think that fits with what we said we're going to do. It also fits with the operating environment that we're in. I point to those adjustments, and I think you can expect more of the same. On the sales side, we're continuing to be committed to growing our sales headcount and the low to mid-single digits despite what's going on in the world.

What you really continue to see from our results is continued top line growth, especially in our target customer types, continued focus and execution on gross profit expansion, and the cost management. It's really across all three of those, and that balance is what makes us feel good about the results that we have and expect to continue to generate. Thank you.

Your next question will come from Jeffrey Bernstein with Barclays.

Great. Thank you very much. Dave, just wanted to follow up on your comments about the market share gains. You've talked about, I guess, 13 consecutive quarters. I think you actually said your share gains improved each month of the second quarter. I'm just wondering if you're going to provide some color behind that data. I'm just wondering how you measure that, and what do you think you're at all vulnerable to maybe slowing independent sales growth and your largest peers more aggressively hiring and competent in their sales people. I'm just wondering how you think about that independent case growth market share gains going forward with, again, the competition getting a little bit more aggressive, and then I had one follow up.

Yeah, well, as we've been stating for a while, the data that we use to judge our market share is the CIRCANA, formerly NPD data, third party independent data that looks across the industry, so it's not our data. When I tell you that we're one gaining share and two that accelerated in the quarter, that's as supported by the CIRCANA data. And I keep saying we're going to control what we can control. We can't control the macro. And even though that foot traffic was down sequentially each month in the quarter, you just heard us say that we ramped up our share gains throughout the quarter. I expect that will continue. Our team is laser focused on driving growth. And while penetration may be a challenge when foot traffic is down, our ability to generate new accounts is not inhibited at all by what's going on in the macro. And as you guys heard me say a lot, we still have a relatively small market share position with independent restaurants. And as I tell our team all the time, three out of every four cases are ours. So don't worry about the macro. Go run our plays and drive that growth. And that's what we continue to do. So regardless of what's going on there, Jeff, we'll continue to run our plays. And I'm confident that those share gains will continue.

Understood. And then just you mentioned about the private label being up 100 basis points now, I guess, to independent customers now to 52%. Do you see increased demand? I don't know whether you're pushing more of that or whether the customers are asking more of that. Seemingly it's lower cost to them, higher margin to you. So I'm wondering how you incentivize that. It would seem like that would be a big opportunity with some of your smaller independent competitors not really having a platform like that. So how do you accelerate that in this type of environment to benefit you and your customers? Thank you.

I think it's a combination of great products. And we pride ourselves on our scoot process, but more broadly the way we bring innovation to our product line with our exclusive brands, we've been doing for the better part of a dozen years now. And so we believe we're the leader in innovation. And what we do is we bring great quality products to market that help our customers be more efficient in their kitchens. And it's a great time for that need given the inflation that's been absorbed in some of the foot traffic challenges is they're looking to have these great products at a bit lower cost position. You couple that with the changes that we made to the TM incentive plan this year to incentive them to drive the brand growth more. And I think you're starting to see that play out. And as I said before, I don't see any near term ceiling to our ability to penetrate the market with our exclusive brands.

Jeff, the last couple of quarters, you've heard us talk a lot about since vendor supply stabilized and we've increased the focus again with our sellers. You're not seeing that really come to fruition in the form of growth. And this has been now a couple quarters where we're seeing that growth. Big data, we expect that to continue. Thank you. Thank you.

Your next question will come from Mark Cardin with UBS.

Great. Good morning. Thanks so much for taking the questions. So to start, just another question from the sales force and essentially controlling the controllables, how is it returning just given some of the softening and traffic? Does this shift to more variable compensation act as a double wedge sword in any sense? Or if not, what have you been able to do to weather the headwinds quite well?

Yeah, I think, you know, we do a great job of onboarding new TMs. In fact, I had the opportunity to talk to our latest class on Tuesday this week. We had an incoming class of 50. We get asked a lot, you know, with what's going on in the marketplace, whether we have challenges finding great sales, we are not having problems finding great sales talent. That's why I'm confident that we'll continue to hit that low to mid single digit headcount growth as we've committed to for the full year. You know, and it's really about how we onboard our sales talent, how we give them a portion of business, you know, and this route splitting is very important. We outlined a couple quarters ago, you know, we take and see these new sellers with some business that they can they can grow from. And we also have ongoing training, you know, throughout their first couple of years here. So it's not a one and done. It's not that we put them through an intense training program and throw them on the street and let them go find their way. We continue to nurture them. And as we said before, you know, it really depends on where that sales talent comes from. You know, we hire operators, hire competitive reps. We hire people from outside the industry with strong sales backgrounds. And it really depends on what their experience is, whether they bring a book of business or not, in terms of how quickly they ramp up their productivity. We know exactly who they are with all the various cohorts that come in. We know what those classes look like. And we make sure we give them the ongoing support that they need, including some pretty intense product training, which our suppliers are helpful at helping us deliver in the local markets. So we've got a great plan. Retention is not a challenge. And we're continuing to ramp up sales force.

Great. And then turning to hospitality for a second, how are you thinking about hospitality growth in the back half of the year? And you guys have some new businesses been on boarded in the process of being on board. But just when you think about the broader macro, how do you think the balance of those two dynamics?

What are you Mark? When you think of the broader macro, to your point, it's facing some of the same headwinds that restaurants are facing. However, back to the point of the control of the controllables, we talked about the business we want. We continue to have a strong pipeline of business that we're expecting and planning to onboard. So our expectation is that it continues strengthening of the growth there with hospitality. We've got a lot of differentiation in healthcare and hospitality. And we think that that growth rate, so we'll build accelerate. Great.

Thanks so much. Good luck, guys. Thank you.

Your next question will come from Lauren Silverman with Deutsche Bank.

Thank you. Congrats, guys. So I wanted to ask about the promotional environment. I think there are some concerns that we're seeing an increase in promotional activity as sort of distributors fight for case growth, new customer acquisition. Obviously, you guys are seeing strong market gains in your key segments. Are you seeing any increase in promotional activity? And how does that usually play out in more challenging economic backdrops?

Yeah, I think we have seen increased promotional activity, which is not uncommon at any point, given the various cycles that the different companies have in terms of when their year end is and all that, but probably a little bit more intense given the macro backdrop. But again, Lauren, I would just point to our results. I don't think that's impacted our ability to drive growth. We have our own promotional activity that we bring to market from time to time. And so we're not immune to that. And we know how to navigate the market during those times. But it's out there. I don't see that intensity inhibiting our ability to execute what we need to get done in any way.

Great. And a follow up and somewhat related, growth profit growth per case, obviously very strong. Can you help unpack the drivers? How much of that is company specific versus benefits from inflation? And with the promotional activity kind of increasing, any thoughts on it being a risk or headwind as you think through the back half of the year? Thank you.

Good morning, Lauren. So almost all of that is company specific from our initiatives. Inflation did tick up, but it's still within that historical level that drives a very, very small gain. But again, we will still take it, but a very small gain. Cost of goods, smart pricing, effective logistics management, each of those are things that all contribute to it. I think as we talked about, we've seen $50 million in year of gains from our cost of goods work. So we continue, that's really continue to believe that's why growth profit is so durable and why we expect to continue to grow a growth profit per case and grow it faster than we grow OPEX per case. So we feel good about the durability and the strength of that.

Thank you. Next

one.

Your next question will come from John Heimbuchel with Guggenheim Securities.

Dave, I want to start with, can you address the cadence of rolling out, you did a little bit, but the rollout of Daycart and UMOS. And I know 50% Daycart by the end of this year, how does that play out in 25, UMOS, where are we going to be in that journey? And does that get us as you roll out a lot of this in 25, you think about that 3 to 5% productivity gains, it would almost seem like there's going to be a sweet spot here, where you're closer to 5-ish for a period of time before settling back down. Is that fair?

Yeah, good morning, John. Good questions. You know, we will have the cart fully rolled out by about this time next year with the 50% at the end of this year. It would be late Q2, probably more likely the first part of Q3 next year. And that combined with the great work that we've done with our historical routing process led to that .7% improvement in cases per mile. We would expect that to continue as we ramp out the cart and we'll continue to find new ways with that new system fully implemented across the company to drive further gains. I'm confident of that. And as I talked in my prepared remarks, UMOS is part of the process standardization work that we've got going on across the company. We will have that probably rolled out middle of next year to second half of next year. Being thoughtful about that. And in each rollout, we're learning more. That would make sense in that process standardization. So we're being thoughtful about tweaking that process as we go forward. But you're right to point out that part of this 3% to 5% productivity improvement is not just taking costs out, but it's driving this process standardization and doing things more consistently, making sure that we're doing it right the first time and not adding and burdening the system with those inefficiencies that drive cost up. So we're excited about it. We believe we control our own destiny there and this 3% to 5% is fully in view.

And maybe as a follow-up, just philosophically, what is your thought or maybe the board's thought on buyback timing, frontloading, right? I think about frontloading within a year, buying maybe early, funding that with the revolver, frontloading in front of Chef Store, buy before those proceeds are in, or even as your leverage ratio comes down and the low two's taking on some debt if you think these shares are incredibly undervalued. What is the thought on all of that? Do you like that idea or no?

We certainly believe our shares are undervalued. We're excited that the board authorized that billion dollars twice the size of the initial authorization back late 2022. And as you heard Derek say this morning, and I also supported, we're leaning in more heavily on share repurchases. That's why we gave a little bit of color on that accelerated ramp up already in Q3. And you've started to see that. So we believe we're undervalued. We're going to buy our shares back appropriately here and ramp that up through the course of time. Okay, thank you. Thank you.

Your next question will come from Kelly Bania with BMO Capital Markets.

Thanks for taking that question.

Hi, morning. This is Kelly Bania from BMO. I'm just wondering if you could just unpack a little bit the drivers of the independent case growth, the contribution you're seeing from new sales reps, penetration versus new account growth, and then geographic differences. And I'd also like to tag onto that just the investment that you're seeing across the industry in terms of Salesforce head count. We know obviously what that is with the public competitors, and maybe that's accelerating a little bit. But what are you seeing across the private competitors on that front? And I appreciate it could widely vary, but what maybe have you seen historically? Are you seeing any difference? Any color there I think would be helpful.

Sure. So the first part of your question there, Kelly, was around kind of unpacking the growth. Overwhelmingly, our growth is coming as it has been for quite some time now from new account generation and customer growth. We expect that would continue, especially in a slower foot traffic environment. And again, we believe that's completely within our control. As I referenced a little bit earlier, where you first see foot traffic challenges is in penetration. The customers are still buying the same number of lines, but they're buying less cases on those lines because their volume is challenged. And so we've certainly seen that and felt it, but our ability to drive new account generation and hold on to our business to the fullest extent and drive that loss number down, that's where we're squarely focused. Really haven't seen anything play out geographically, where we're having challenges or greater areas of strength. And to your question on the sales force, as I mentioned earlier, the productivity ramp of those new sellers varies greatly dependent upon their background. And we have targeted those account additions where we believe one, there's great market growth and penetration opportunity and maybe we're a little underrepresented. So any geographic change that we've seen there is really probably more driven by where we've added headcount versus where we haven't. And the last part of your question here, I think I got them all on the private competitors. Really no change. I don't think we've seen any impact on our ability to attract sellers or drive growth based on anything that's going on with the privates.

Thank

you. That's helpful. I was wondering if I could also just maybe follow up. We talked about restaurant traffic down three, that sounds consistent with what we've heard from others, but can you just talk a little bit more about what you're seeing in restaurant cohorts or different types of restaurants as well as the pace of new restaurant openings and what you're seeing in the growth there?

Yeah, I wouldn't say, you know, the foot traffic challenges, you know, we see a lot or hear a lot about the consumer challenges, particularly at the lower end. I think some of those that have reported this week have spoken to some of the challenges of QSR, fast casual. I think some of the challenges in foot traffic have been pretty broadly spread across most of the cohorts. Maybe the higher end is holding up a little bit higher or better than others, but you know, even that's challenged a little bit. So I wouldn't point to any really significant area of strength or more challenge based on what's going on.

Thank you.

Thank you.

Your next question will come from Alex with Jeffries.

Hey, thanks. Good morning. Good to see the OPEC for case growth really flattening out. And you talked about the indirect spend reduction forecast, which was a pretty big jump, I think, from the last outlook. But just wanted to dig into that a little more, what changed in your views and where that's coming from.

Good morning, Alex. I'm Derek. So I'm assuming you're talking about the increase of the $80 million of savings. That's a combination of people and non-people related costs. And it really is not different than what you've heard us talk about the last few quarters, where continuing to proficiencies, the combination of use of technology, simplifying the interactions between field and function, and if we're not getting value in some of the functional resources, either redeploying or in some cases, producing those. And so it really all fits into this balance that I highlighted earlier in one of the other questions about top line growth, GP expansion, and then cost reduction to manage productivity. As far as indirect specifically, we continue to attack this $1 billion plus spend pool and to reach the $60 million of savings by 2027. We're continuing to see more initiatives come online to generate savings and we'll give an update more concretely as we go further into here. But good progress continues there.

Okay. And a follow up on the routing, I guess, process improvement. I mean, it seemed like you're doing good work with the existing system in place. And I mean, I guess there are additional enhancements coming just in terms of what you're doing with the process just in this initial, just in the existing systems, kind of before you even get to see the separate benefits from the deployment of the new routing technology, just trying to understand, like, is there more to come here of the benefit of all the process changes? And, you know, that'll come, you know, on top of that, we'll have the new system rollout, just a little more on that.

Yeah, I think Alex, the way to think about that is, you know, we've been delivering routing improvements here for the better part of the last couple of years. And in large part, until we initiated the cart rollout, that was largely driven by what you're pointing out, the process changes and improvements as we've gotten better at that. And now we're overlaying new technology in a new system that we believe is going to take it to the next level. So, I'm sure and I'm confident we'll continue to optimize the process as we go through this and learn more about the new technology. But I think this technology overlay is really going to be with fuels to future productivity improvements with routing once we get that fully deployed.

Hey, Alex, the other thing is on the routing, to Dave's point of it being a driver for the last few years, what we've been pleased with is it's not a once and done. It is a standardized process. And you see markets each week and each month that continue to add additional opportunities on that executed against. And then the piece on the technology on Descartes, as I think a couple of years ago, David talked about is when you put it in place, there's some improvement. But as we get it in place, so we optimize it more, but we expect further to come from that. So a long way of saying we think there's still plenty of opportunity for further savings, which in this case, typically results in a better customer experience as well.

Thank you.

Your next question will come from Brian Harbor with Morgan Stanley.

Yeah, thanks. Good morning, guys. Just on your inflation outlook, do you, you know, you're a little bit above that in two Q. Do you expect it to therefore kind of come down a bit in the second half? Could you give more color on that? And just, I don't know if there are any product mix dynamics that kind of affect that. You could talk about that.

Sure. So when we think about the inflation, we also consider the impact of mix in there as well. And so that's one thing to consider. We did see, as you've gotten into kind of past the second quarter, you see a little more moderation. Proteins were the biggest piece that turned more inflationary in the second quarter, but didn't see that continue. So overall, what we're not seeing is we're not seeing any significant levels of inflation across the board. And I think that what we feel good about is whether it ends up at one to two or a little above or a little below that is very manageable, very modest. And so we'll be able to effectively manage our way through that.

Okay, sounds good. We've talked a bit about kind of your operating expenses, but was there anything you kind of pulled forward, you know, anything that you think was more impactful in the second quarter that drove the pretty good performance in operating expense?

Nothing specific that I would call out. You know, a good portion of it is the different cost actions that we've taken over this past six months or so, combined with significant supply chain productivity that you referenced on the call today. So there's no, there's not. And I think when Dave talked earlier, when we talk about this three to five percent productivity, it's not just to be able to say that's how we're operating, it's how we're holding the teams accountable and focusing on, all while doing it smartly, while keeping an eye toward not damaging or hurting the business for that continued growth and further market expansion.

Thank you. Thanks Brian.

Your next question will come from Peter Salo with BTIG.

Great, thanks and congrats on a nice quarter guys. I wanted to ask about Moxie, if you guys could maybe give us an update on the adoption of that platform and if you're still seeing the incremental case count growth or the ticket growth from customers using Moxie. I think previously it said one and a half more cases per customer. And then just lastly on that, is Moxie helping to drive any of the private label penetration as you do more suggestive selling through the app?

Yeah, great questions Peter. Thank you and yes, we're very excited about Moxie. As we previously mentioned, you know, we're 100 percent hold out across our independent restaurants. We continue to ramp that up in our chain business. It's now in 75 percent of our national chain business. We expect to ramp that up between now and the end of the year. And to your point, yes, and as we said in the investor day, on average customers are buying 10 percent more. And we have great algorithms within Moxie. One of those is, you know, our ability to sell our private label brands and make product recommendations. And so yes, we believe that coupled with some of the things that I commented on earlier, relative to the focus that we have on our brands and the way we can set our sales force, all of that is working together to help support that growth that we talked about.

Great and then just, Derek, I don't know if I missed it, but did you guys provide the indirect cost figure that or at least the run rate that you have for 2024 as you ramp up to the 60 million by 2027?

Hi, Peter. No, I didn't. I was more of a color commentary and we'll give some more specifics as we get further into the year. But we are continuing, as I said, to make progress with real concrete savings and well on our way toward our target.

Thank you very much.

Thanks, Peter.

Your next question will come from Andrew Wolf with C.L. King and Associates.

Thank you. Good morning. On the performance, you know, in the market, particularly I want to focus on with the independent restaurants. Are you gaining, are the sales team gaining any lines per stop or any additional penetration in that? Or is it all really just mainly almost all driven by new customer wins, net new customer wins?

It's overwhelmingly handy, new customer wins, but, you know, penetration is an important part of our algorithm. And as I said, given some of that is being overridden currently with the foot traffic. So kind of hard to get a handle on that exactly. But certainly we're working hard to drive penetration with our customers.

Got it. And, I think you said the COD savings year to date are 50 million and 70 million is for the year. So it's like a 20 million back half. Is that just the timing thing on initiatives or like, you know, what is going on with that increment being, you know, a little less than the first half? It

is. It is. It doesn't hit equally, but as you probably remember from our investor day, we talked about a $260 plus million for the new long-range plan. So we clearly have a lot of work going on, expect a lot of value to continue to come. And I think that the important thing is even in this environment that we are continuing to grow, we're continuing to expand gross profit, and we're continuing to drive productivity, which is not something that a lot of companies are doing right now.

Okay. And just one last thing. You mentioned, you know, the delivery window accuracy or on-time deliveries in these test markets for Moxie customers was up, I think you said 40%. What behavior is being changed here through the tracking? Is it just, you know, the drivers, like what's going on? Are the drivers just not wanting to get called up by the customers? Or is there some internal tracking that's better? Like, you know, what is changing, you know, make this, you know, that's quite a dramatic improvement. So just kind of curious what that is.

So this isn't anything to do with the driver, the customer. This is our ability to predict when the route will get to the customer. And so we've applied some significantly enhanced capabilities using artificial intelligence machine learning to be able to predict that. And that increased capabilities are allowing us to be more accurate in telling the customer when we think that that truck will get to their stops. So this is really increasing our capability. It's just a good example of using, I guess, used a lot in a lot of places, but where we're using it for real practical things to improve our results. And there's plenty of those real concrete places that we continue to do work on that we'll bring to life in the coming quarters.

Thank you. Got it. Thank you.

And once again, ladies and gentlemen, for any questions or comments, please press star one on your touchstone phone at this time. Your next question will come from Fred Whiteman with Wolf Research.

Hey, guys. Good morning. I wanted to touch on prompt how it looks like the expected contribution came up pretty meaningfully versus what you talked about before. So I'm wondering if you could just dig into that and maybe where you're seeing the most opportunity.

We're excited about pronto. And as we said, yesterday, we've just recently started to roll that out with existing independent customers, which is largely an untapped opportunity. Because to this point, you know, we've only sought new business with pronto. And so we've proven the model there. We've now started to roll that out more aggressively for new customers, but importantly, for our existing customers. And I think all that is at the root of our acceleration on the top line here. So we're excited about it. I don't see any reason why over the midterm that can't be a billion dollar plus business for us.

Perfect. And then just thinking about the sales guidance, the inflation outlook came out a little bit, cases were unchanged and the total dollar sales number was unchanged. So I'm wondering maybe what the offset is. Dave, you did talk about a little bit of continued pressure into July. So is the case trajectory maybe towards the lower end of the prior range or how should we think about that?

So foot traffic does play a little bit. The primary is if you look at that small of a change, it's a couple hundred million dollars in savings. So ultimately, when you think of the range that we have, it doesn't really change the broad outlook that we have for sales for the year.

Fair enough. Thanks.

And once again, ladies and gentlemen, for any questions or comments, please press star one. Your final question will come from Jake Bartlett with Truist Security.

Great. Thanks for taking the question. I wanted to ask again about the cadence throughout the quarter. You mentioned your market share gains improving, but also your restaurant traffic decelerating. So was your case growth, how did it trend throughout the quarter? Also, when I look at the guidance, the 2% to 4% independent or organic case growth guidance, it doesn't apply if you're going to get towards the middle of that acceleration from the levels in the second quarter. So your question is the cadence and then maybe what hopefully you can comment on kind of recent trends and how that should give us confidence or not in the acceleration towards the back half of the year.

Yeah. So as we commented, foot traffic slowed. I would say our case growth generally followed what was happening with foot traffic, but we continued to drive growth in the quarter and importantly drove outside share gains. Those trends continued into July. And we have a lot of confidence in that case growth guidance as Dirk highlighted here. And our ability to drive that outcome, both in terms of share gains and the work that we've got going on to generate new business should help us to continue to hit that guidance that we gave you for the full year.

Okay. And then just another chunk that we haven't talked much about on the call is this all other in terms of case growth that was negative in the last two quarters. What is the pipeline look like there or what should we expect from that driver in the back half? And then one more follow up.

So the all other is as you'd expect, it's a school, it can be some government, retail, et cetera. So we're similar to change. We're thoughtful in the way we pursue that business. So that's not a key area. It would be opportunistic in how we grow it. The main areas that we expect to drive our overall growth to be coming from our independent healthcare and hospitality and again, opportunistic in those.

Got it. And then last is kind of a cleanup question, but M&A guidance, the impact, I think the prior that you talked about was about a 2% impact on the year. You're running ahead of that. You've made acquisitions since. So what we expect from the acquisition impact on case growth in twenty four?

Sure. Our update in the back when we had, we estimate sort of two to three percent coming from the M&A overall. And as Dave said earlier, continue to expect overall case growth to continue at four to six percent.

Okay. Thank you very much. Thanks,

Jay. And that concludes our Q&A session. I'll now turn the conference back over to Mr. Dave Feldman for any questions for any opening closing remarks.

Thank you very much. Thanks for joining the call this morning. We continue to control the outcomes we control. We're confident in our future and we're also confident in our new long term algorithm. Thanks a lot. Have a great day.

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