US Foods Holding Corp.

Second quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Mike Neese, Senior Vice President of Vesta Relations. You may begin.

Thank you, Jordan. Good morning, everyone, and welcome to the U.S. Food Second Quarter Fiscal 2025 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 and today's presentation can be found on the investor relations page of our website at IR, During today's call, unless as otherwise stated, we're comparing our second quarter fiscal year 2025 to the same period in fiscal year 2024. 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 forward-looking statements. Lastly, during today's call, we will refer to certain non-GAAP financial measures. All reconciliations to the most comparable GAAP financial measures are included in the schedules on our earnings press release, as well as in the presentation slides posted on our website. We are not providing reconciliations to forward-looking non-GAAP financial measures. With that, I'll turn the call over to Dick.

Thanks, Mike. Good morning, everyone, and thank you for joining us. Let's turn to today's agenda. I'll start with our key results for the second quarter and first six months of the year, which are underpinned by significant achievements across our strategic pillars as our team continues to execute very well. I will then hand it over to Dirk to review our second quarter financial results and our updated fiscal 2025 guidance. Turning to slide three. we delivered strong second quarter and year-to-date financial results as we continue to demonstrate consistent progress against the long-range plan we presented at our investor day last year. Importantly, our year-to-date earnings and EPS are in line with our long-range plan algorithm. Year-to-date, we grew adjusted EBITDA 11%, expanded adjusted EBITDA margin by nearly 30 basis points, and grew adjusted EPS 27%. which highlights our team's consistent execution and the strength of our differentiated business model. This momentum has fueled further market share gains with our independent restaurant, healthcare, and hospitality customers. I am incredibly proud and appreciative of our talented team of 30,000 associates whose dedication and hard work are delivering on our promise to help our customers make it. Moving to slide four. we delivered record second quarter adjusted EBITDA of $548 million and a record adjusted EBITDA margin of 5.4%, a 40 basis point increase through a combination of top line growth, strong gross profit gains and disciplined cost management. Our record adjusted EBITDA margin is not a ceiling and we have significant margin expansion opportunity for years to come. largely through continued improvement in the execution of our core business processes and benefits from improved customer mix. And, again this quarter, we gained market share with our target customer types of independent restaurants, healthcare, and hospitality. This is the 17th consecutive quarter of market share gains with independent restaurants and the 19th consecutive quarter of market share gains with healthcare. In addition to our strong financial performance, we remain committed to delivering shareholder value through our capital return strategy. On our last earnings call, we stated we would accelerate share repurchases in the second quarter and balance of the year given our strong cash flow. We did just that and repurchased $250 million of shares in the second quarter. We will remain prudent as we allocate capital, first by investing in the business to drive growth and then balancing share repurchases with tuck-in M&A opportunities. Let's turn to our case growth and our perspective on the industry. We continue to outperform the market and take shares. Our independent volume growth was 2.7% in line with our 2 to 5% guidance for the year. Our organic independent case growth accelerated 100 basis points from Q1 to Q2, and we gained share in every month of the second quarter. Total independent restaurant volumes per circana increased from the first quarter to the second quarter similar to our improvement in case growth. Our organic independent case volume also accelerated throughout the second quarter, with June growing at approximately 3%. July continued the approximately 3% growth rate. During the second quarter, we grew net accounts approximately 4% over the prior year, which was our strongest growth rate since the fourth quarter of 2023. As a result of continued acceleration in our net accounts, we expect to build further momentum in our independent growth rate through the back half of the year. Additionally, healthcare and hospitality continue to help drive our overall volume growth with approximately 5% and 2.4% case growth, respectively. Turning to our chain business, restaurant foot traffic, as reported by Black Box, improved sequentially throughout the second quarter versus the first quarter, but remained down 1.1% from the prior year. We continue to be disciplined in optimizing our chain portfolio to improve profitability. In the second quarter, our chain restaurant volume declined 4%, primarily driven by a strategic exit, which negatively impacted our total chain volume growth by approximately 300 basis points. We've recently onboarded several new business wins and expect our chain volume performance will improve in the back half of the year. Additionally, in the first quarter, we divested Freshway, a small produce processing business that provided us with higher volume but with lower margin. The divestiture resulted in nearly a 50 basis point impact to our total case growth in the second quarter. Regardless of the operating environment, we remain guided by four strategic pillars. and I will highlight key elements of our progress over the next several slides. Moving to slide five, our first pillar is culture. We remain committed to our goal of zero injuries and accidents for our associates. In the second quarter, our injury and accident rates were 21% better than the prior year. And over the past two years, we've improved our safety performance by 35%. Our team has made great progress in creating a strong safety culture but we have more work to do. This past May, we published our 2024 sustainability report, highlighting our progress in the three focus areas of products, people, and planet. I am proud of the work we accomplished in 2024 to further align our approach to sustainability with our strategy and our operating model. We have reduced our scopes one and two greenhouse gas emissions by 16% since 2019, and are nearly halfway to our goal of reducing these emissions by 32.5% by 2032. Turning to slide six, our second pillar, service. Our focus on service is one of the many reasons that our customers choose US Foods. Our ability to deliver service excellence is driven by our initiatives to improve reliability, enhance operational efficiency, and provide a best-in-class customer experience through our MOXIE digital platform. We improved routing productivity again this quarter as we continued the Descartes rollout across our distribution network. We are now live or in active deployment in 65 markets representing approximately 90% of routed miles and remain on track to be fully deployed by year end. We delivered more than a 2% improvement in cases per mile over the prior year and nearly 6% over two years via our routing initiatives. And in the second quarter, we achieved our best cases per mile performance in our company's history. Our routing initiatives helped to drive greater delivery efficiency while enabling a better customer experience. As we discussed last quarter, an important element of our service is our Operations Quality Composite, or OPSQC, which measures our ability to deliver products to our customers without errors. During the second quarter, we made steady progress on OpsQC, resulting in nearly 28% improvement from the prior year. Over the past few quarters, we have also implemented new inventory control processes, including scanning technology, which reduces manual inputs and results in fewer errors. We continue to sequence new opportunities to improve our service and reduce costs for our customers. We also recently completed an independent net promoter score study where customers provided their feedback and views regarding digital technology leadership in our industry. The results show that U.S. Foods' Moxi platform has a distinct advantage over the competition. We also have the highest customer digital adoption in the industry. Significantly, more U.S. Foods customers use Moxie for all of their self-help needs, including purchasing, delivery tracking, and bill payments, which is a testament to our online leadership versus our competition. As we remain focused on enhancing our technology leadership, we drove record independent restaurant e-commerce penetration of 78% and total company of 89%. We are on track to hit our goal of 95% penetration by 2027. Turning to our growth pillar on slide seven. We remain focused on accelerating profitable growth and gaining market share with our three target customer types. We have continued investing in our Pronto small truck delivery service and are now live in 44 markets with plans to add a few more this year. We are nearly complete in launching Pronto Legacy across the company but still have plenty of growth opportunity ahead by adding more trucks within our existing markets. In addition to Pronto Legacy, we have expanded Pronto Penetration to 15 markets to further grow our share of wallet with our existing customer base. We continue to see a double-digit percent uplift in overall case growth with customers in the program, and we will be in a total of 20 markets by the end of 2025. Given the success of both Pronto Legacy and Penetration, the overall program is on track to deliver over $900 million in sales this year, and we now believe it will reach $1.5 billion in sales by 2027, up from the $1 billion that we've previously discussed. Beyond Pronto, we remain committed to investing in the business to fuel growth and enhance operational efficiencies. I'm excited to announce that we began limited shipping from our first new semi-automated facility in Aurora, Illinois last month. This 310,000 square foot distribution center is a state-of-the-art facility that will enable us to be more efficient, accelerate productivity, improve our OPSQC metric and inventory accuracy, and further reduce accidents and injuries. Finally, we broke ground on a semi-automated expansion at our distribution center in Austin, Texas which will effectively expand our capacity in another high growth market. Targeted investments in semi automation will support our growth initiatives and help us accelerate our supply chain excellence work while delivering strong capital returns for the business. Moving to slide eight, our profit pillar. Our consistently strong execution drove adjusted gross profit growth during the second quarter and the first six months of the year. Second quarter adjusted gross profit was $1.8 billion, up 5% from the prior year, driven by volume growth, improved cost of goods, more disciplined inventory management, and increased private label penetration. Our strategic vendor management initiative has delivered more than $50 million in year-to-date cost of goods savings, and for the full year, we expect to drive more than $110 million. As we realize these benefits, we are reinvesting a portion of those savings to help accelerate growth. And we now have line of sight to exceed our 2027 long range plan commitment of 260Million dollars. Private label penetration with our core independent restaurants grew by more than 80 basis points to over 53%. These margin driving high quality, innovative products. enable us to deliver significant value as we help customers offset inflationary pressures with lower costs. Before passing it to Dirk, I'd like to highlight one of our distribution centers and associates. Last month, several U.S. Foods military veteran associates from our Manassas, Virginia Distribution Center and I took part in a wreath laying ceremony at the Arlington National Cemetery Tomb of the Unknown Soldier. to honor the sacrifices of our nation's service members. We are proud of our veteran workforce and remain committed to recognizing the leadership, integrity, and service that our military community brings to U.S. foods. And we are committed to increasing veteran new hires through our Mission 2030 recruitment initiative, in which we intend to hire an additional 3,000 military veterans by 2030. I thank our Manassas team, our veteran associates across the company, and all veterans for their service. Let me now turn the call over to Dirk to discuss our second quarter results and our updated 2025 guidance.