US Foods Holding Corp.

Within independent restaurants, our momentum is strengthening, supported by healthy new account growth and improved penetration with existing customers. This top line momentum translated into strong financial performance. We grew adjusted EBITDA 10% and adjusted diluted EPS 21% through a combination of volume growth and 29 basis points of margin expansion to a record 5.7%. Our strong and accelerating cash flow generation provides substantial financial flexibility, and during the quarter, we invested in key growth initiatives while repurchasing more than $370 million of shares, underscoring our commitment to creating long-term shareholder value. Just as important as our financial results is how we are achieving them. Across the business, our teams are applying a continuous improvement mindset while leveraging investments in technology, including artificial intelligence, to raise customer service levels, improve productivity, and create a stronger foundation for sustainable long-term growth. These efforts are strengthening our competitive position and creating additional opportunities to deliver value. I'll provide more details on our AI capabilities a bit later. This quarter represents one of our strongest since I joined U.S. Foods three and a half years ago. As we navigated a dynamic and volatile environment during the second quarter, our team stayed focused on controlling what we could control while acting decisively in response to what we could not. I am incredibly proud of our team for delivering these results through outstanding execution in what remains a challenging operating environment. As we look to the balance of 2026, we will remain grounded in disciplined execution and focused on the actions that will strengthen our business. We are also committed to further strengthening the competitive advantages that differentiate our business while delivering consistent volume growth, double digit earnings growth, and long term value creation for our shareholders. I thank our 30,000 associates for their unwavering commitment to delivering excellence in serving our customers and to pursuing our ambition to become the undisputed best in our industry. The strength of our team is what reinforces my confidence in our continued success. I'll now highlight the progress we made in the second quarter under each of our four strategic pillars. Dirk will then provide additional detail on our second quarter financial performance and full year guidance. Turning to slide four, our strong culture is a competitive differentiator We remain focused on keeping our people safe, investing in their development, and building an empowered workforce that supports our long-term growth. Safety remains our top priority, and we are making meaningful progress in protecting our associates while strengthening our operations. In fact, we have improved our injury and accident rates by over 50% over the last three and a half years. Aiding this improvement is the deployment of approximately 2,500 center-ride pallet jacks across our distribution network. Our rollout is now 87% complete, and we anticipate full deployment by the end of this year. This investment is reducing exposure to one of our most serious workplace hazards and reflects our ongoing commitment to providing a safer work environment for our associates. Where we have converted the center-ride pallet jacks The most serious injuries associated with this type of equipment have essentially been eliminated. Our commitment to building a strong culture also extends to talent acquisition and development. During the second quarter, we launched our Valor campaign to advance our Mission 2030 goal of hiring 3,000 military veterans by the end of the decade. Through Valor, we are expanding our veteran recruiting efforts with a dedicated webpage New Strategic Partnerships, and Ongoing Investments to recognize and support the more than 1,500 and growing number of veteran associates already contributing to our business. Veterans bring proven leadership, a strong work ethic, discipline, and teamwork to U.S. Foods, and we are honored to support those who have served while strengthening our workforce for the future. Our focus on people is also reflected in our recently published 2025 Sustainability Report, which highlights our progress across key focus areas and our commitment to building a stronger and more sustainable business. In 2025, we invested 1.2 million hours in training to build critical skills, develop leaders, and equip our teams to execute at a high level. I encourage you to read the report on our website to learn more about our sustainability journey and the initiatives we have underway across the business. Moving to slide five in our service pillar, we strive to deliver a best-in-class customer experience by continuously improving the consistency of our service reliability across our network. A key measure of that progress is Operations Quality Composite, or OPTQC, which tracks our ability to deliver accurate Thank you for joining us today. and the early results have been encouraging. We believe this technology will help to further improve inventory accuracy and warehouse efficiency. Based upon the results of the pilot, we plan to expand testing to six additional locations by year end. Our focus on operating discipline is improving our efficiency and strengthening our customer value proposition by helping us deliver the reliable, consistent service our customers count on and deserve every day. Now, let's turn to our growth pillar on slide six. We are consistently accelerating profitable growth and gaining market share across our target customer types, highlighting the durability of our model during times of macro uncertainty. I'm very pleased with the progress we've made over the last five quarters in accelerating our independent restaurant case volume growth. Pronto, our small truck delivery service, is a key enabler of that growth and remains a powerful competitive differentiator. Through Pronto, we provide customers with greater convenience and flexibility, including later cutoff times, smaller order sizes, and more frequent deliveries. This opens up our addressable market by enabling us to compete more effectively with local and specialty distributors. We're expanding the reach of Pronto, which is now live in 52 markets. At the same time, Pronto Next Day, which extends the service to our existing independent customers, is now live in 35 markets with plans to add an additional eight markets this year. The overall Pronto program is growing at strong double-digit rates. After delivering $1 billion in sales in 2025, we estimate Pronto will deliver approximately $1.3 billion in sales this year. Based on our recent success, we now believe Pronto can generate more than $1.7 billion in sales in 2027, up from our prior estimate of $1.5 billion. Moving now to our sales compensation change. Our new seller compensation plan successfully went live across the company in June, an important milestone to further align our sales force incentives with our business strategy and long-term growth objectives. Early results are very encouraging. We are already seeing positive indicators in seller engagement are consistent with our strategy and key growth priorities. Sellers understand how to maximize their earnings, have confidence in the plan and their leaders, and are moving quickly to align their actions and behaviors in ways that will accelerate long-term profitable growth. Year-over-year attrition remains flat, which we believe reflects our robust investment in seller training, sales leader preparation, and clear ongoing communication and support over the last year and throughout implementation. As we have previously discussed, we've taken a very thoughtful approach to this transition and it may take two to three years for the majority of our local sales force to fully transition to 100% variable compensation. Together, Pronto and our seller compensation change underscore our confidence in our ability to accelerate profitable growth and drive further share gains with independent restaurants. Finally, our healthcare and hospitality businesses, which represent over 25% of total sales, continue to deliver strong performance. Backed by a strong pipeline and the success of our vitals and signature programs, we see meaningful opportunities to drive growth through the remainder of 2026 and into the years ahead. Now let's move to our profit pillar on slide seven. Our disciplined execution and self-help initiatives drove another quarter of profitable growth and margin expansion. Adjusted EBITDA grew over 10% to a record $604 million, and EBITDA margin expanded by 29 basis points to a record 5.7%. Strategic vendor management remains a key contributor to margin expansion and a clear example of our self-help initiatives delivering measurable value. During the first half of the year, We generated more than $50 million in additional cost of goods savings, and we are highly confident in our ability to deliver more than $300 million over the three-year long-range plan ending in 2027. We are also driving measurable value from our initiatives in inventory management and indirect spend. For inventory management, we expect to generate an additional $10 million of gross profit benefit in 2026. building on the $35 million realized last year. Importantly, this work is also improving in-stock performance, product quality, and service levels for our customers. In the area of indirect spend, we completed the baseline deployment of our new indirect procurement system during the first half of this year, creating a stronger platform to capture additional savings. Year to date, we generated more than $20 million in incremental savings, and we expect this initiative to deliver more than $75 million of benefit this year. We remain on track for over $100 million of savings in 2027. Next on slide eight, I'll highlight the ways we are leveraging AI to further widen our competitive moat. AI is embedded in the way we serve our customers, enable our sales force, optimize our supply chain and manage core enterprise functions. Our approach remains focused on deploying AI against the highest return opportunities and tying those initiatives to measurable business outcomes. The key area of focus is Salesforce productivity. Visit Assistant Insights is an internally developed AI-enabled tool that provides sellers with customer-specific insights to identify priority opportunities, improve sales call preparation, and make those visits more productive. By streamlining the preparation work that sellers would otherwise do on their own, Visit Assistant allows them to spend more time engaging with customers. In the first six weeks, the tool delivered more than 700,000 actionable insights to our sellers across independent restaurant accounts. As the AI model continues to learn and scale, we expect these insights to become increasingly valuable, supporting stronger sales execution, deeper customer engagement, and sustained growth over time. In parallel, we are piloting our AI Sales Assistant, known internally as SUE AI Assistant, which is a generative AI-powered chatbot that enables sellers to ask questions and receive real-time answers, insights, and recommendations directly within their daily workflow. We are also applying AI across our supply chain. AI-driven product demand forecasting, labor planning, and Descartes Routing are helping improve service and productivity while reducing working capital. Better forecasting supports stronger in-stock performance and less waste, while more efficient routing enables better delivery execution and fewer miles driven. When we talk about AI, we are talking about practical capabilities embedded in our core business processes that are already improving how we operate. While we are still in the early innings, we see meaningful opportunities to deepen our differentiation, accelerate volume growth, and improve our supply chain productivity. Of course, technology and stronger processes only create value when paired with talented associates who bring them to life every day. I saw that firsthand at my third annual CEO award ceremony, where we celebrate associates who ignited excellence across U.S. foods, while exemplifying our cultural beliefs. One of those outstanding associates was Lori Miracle, who is the manager of inventory control in Tampa and received a CEO award. Lori and her team streamlined South Florida's inventory tracking efforts by getting to the root cause of over-shipment occurrences and building a new system for tracking inventory discrepancies that enabled real-time selector coaching to stop future errors. Her work optimized product recovery, reduced excess stock, and improved receiving accuracy, generating $4 million in annual inventory adjustment savings in her area. Her processes have been scaled company-wide and are now used across all markets. Thank you, Lori, for your commitment to embracing our cultural beliefs of deliver excellence and stop waste to drive meaningful cost savings. With that, let me now turn the call over to Dirk to discuss our second quarter financial performance and 2026 guidance.

Thank you, Dave, and good morning, everyone. Our second quarter results demonstrate the financial benefits of discipline execution, continued progress on our self-help initiatives, and effective capital allocation. We delivered profitable volume growth, expanded adjusted EBITDA margin to a record level and generated adjusted diluted EPS growth that significantly outpaced adjusted EBITDA growth. Starting on slide 10 with our financial results. Second quarter net sales increased 4.5% to $10.5 billion from total case volume growth of 1.9% plus food cost inflation and mixed impact of 2.6%. Total and independent restaurant case growth both accelerated this quarter Independent restaurant volume grew 5.1%, while healthcare increased 3.5%, and hospitality grew 4.4%. Chain restaurant volume declined 1.5%, 30 basis points better than industry traffic, as reported by BlackBox. Turning to profitability, second quarter adjusted EBITDA grew 10.2% to a record $604 million, driven by volume growth with our target customer types and progress on our continuous improvement efforts to increase gross profit and enhance operational efficiency. Finally, adjusted diluted EPS increased 21% to $1.44, meaningfully outpacing adjusted EBITDA growth. We expect adjusted EPS to grow faster than adjusted EBITDA over time as it has for the past several years, supported by earnings growth, and the disciplined deployment of our strong cash flow towards share repurchases. Turning to slide 11, we again drove operating leverage with adjusted gross profit per case growing faster than adjusted operating expenses per case and resulting in strong adjusted EBITDA per case growth. Adjusted gross profit per case increased 41 cents or 5% compared to the prior year, supported by profitable volume growth, and our self-help initiatives, including strategic vendor management and improved inventory management. Adjusted gross profit per case was higher this quarter primarily due to timing of strategic vendor management gains and higher customer fuel surcharges to offset the higher fuel expense we incurred. Adjusted operating expenses per case increased 21 cents or 3.7%. We continue to offset a portion of operating cost inflation through productivity improvements across the business, including warehouse productivity gains, process standardization, labor planning, and disciplined expense management. Our adjusted operating expenses were also higher this quarter, with roughly a third of the increase versus prior year from higher fuel costs, combined with a higher sales cost related to the compensation plan transition. As a result, adjusted EBITDA per case increased 21 cents, or 8.3%, to $2.73. Importantly, adjusted gross profit per case grew 130 basis points faster than adjusted operating expenses per case, demonstrating our consistent ability to drive operating leverage through profitable growth and disciplined cost management. As you can see on slide 12, Our strong cash flow generation and balance sheet provides significant flexibility and support our balanced capital allocation priorities. Year to date, we generated $725 million of operating cash flow from strong earnings and effective working capital management. This performance enables us to invest in the business to drive growth, return capital to shareholders through share repurchases, and pursue a creative tuck in M&A. During the second quarter, we repurchased $374 million of shares, bringing year-to-date repurchases to approximately $500 million. We ended the quarter with net leverage of 2.6 times, well within our 2 to 3 times target range, and our leverage profile remains among the strongest in the industry. Finally, we successfully refinanced our ABL facility during the quarter. extending the maturity to 2031 and modestly increasing the size of the facility to $2.5 billion. Our debt structure is strong, and we have no long-term debt maturities until 2028. Together, our cash flow generation, disciplined capital allocation, and industry-leading leverage position demonstrate the financial strength of our business and support further investment in our growth. Now, turning to our guidance on slide 13. Given our year-to-date performance and outlook for the balance of the year, we are reaffirming our fiscal year 2026 guidance. We expect net sales growth of 4 to 6%, adjusted EBITDA growth of 9 to 13%, and adjusted EPS growth of 18 to 24%, driven by total case volume growth of 2.5 to 4.5%. As a reminder, Our full year guidance includes the impact of a 53rd week, which we expect to add approximately 1% to total case growth and adjusted EBITDA growth. While there is a range of potential outcomes depending on how macro conditions evolve, including restaurant industry traffic, inflation, and fuel prices, the midpoint of our guidance represents our best estimate for 2026. And we are confident in our ability to deliver within our reaffirmed guidance range. The business is positioned for consistent double-digit adjusted EPS growth over time as we focus on achieving our long-range plan. With that, I'll now pass it back to Dave for his closing remarks.

Thanks, Dirk. Reflecting on the second quarter, I am encouraged by the strength of our performance and the momentum we are building across the business. We are gaining profitable share and strengthening our competitive position because our model is working, supported by greater alignment throughout our sales force, growth initiatives like Pronto, and continued productivity improvements, all increasingly enabled through the application of AI. Our strong cash flow and balance sheet provide significant flexibility to invest in growth, return capital to shareholders, and pursue accretive tuck-in acquisitions that strengthen our local market presence. I have never been more confident in our ability to deliver our long-range plan and sustain our momentum well beyond next year. That confidence is grounded in the quality of our team and the durable competitive advantages that we continue to strengthen. As a reminder, U.S. Foods maintains a unique position in the industry as the only pure play U.S. focused food service distributor with national scale. That focus allows us to go deep on broad line distribution and concentrate our resources on the three fastest growing and most profitable customer types in the industry. independent restaurants, healthcare, and hospitality, where our differentiated service model, digital capabilities, and track record of share gains position us to win in any environment. We are also the industry leader in digital innovation with an ecosystem increasingly enhanced by AI that makes it easier for customers to do business with us, improves seller productivity, and strengthens our supply chain. At the same time, We continue to advance our operational excellence initiatives and see a meaningful opportunity to gain further share, improve productivity, and expand margins over the long term. We are also just beginning to unlock the benefits of AI and automation, which we believe will further enhance the customer experience, drive efficiencies across our operations, and support profitable growth for years to come. Let me close with one final point highlighted on slide 14. Since 2023, we have consistently delivered volume growth and double digit adjusted EPS growth, creating meaningful shareholder returns through the combination of compounded earnings growth and accretive share repurchases. Importantly, our earnings growth over that period has significantly outpaced our food service distribution peers, industrial distributors, and consumer staples companies. Yet, we do not believe our current valuation fully recognizes our track record of execution, sustained margin expansion, disciplined capital allocation, and the substantial runway we see for continued earnings growth and shareholder value creation. Our strategy is working. Our strong execution is delivering results, and our competitive position continues to strengthen. We are building a more differentiated, profitable, and durable U.S. Foods, and I am confident in our ability to create compelling long-term value for our associates, customers, suppliers and shareholders. Thank you for your continued interest in U.S. foods. With that, operator, please open up the line for questions.

Thank you. We will now conduct the question and answer portion of today's conference call. As a reminder, to ask a question, please press star followed by the number one. Once again, please limit yourself to one question and a follow-up. Our first question is coming from Lauren Silverman with Deutsche Bank. Please go ahead.

Hey, thanks so much and congrats on the great quarter. I guess I'll just start on the independent case growth. Real strong, I think best in over two years. Can you talk about the cadence you saw throughout the quarter? And given traffic has been pretty steady in the industry, it seems like you're accelerating your pace of share gains there. What's driving that? As the sales compensation transition happens, do you think you can help further accelerate share gains over the next few years?

Good morning, Lauren. Thanks for the question. I think we saw a fairly consistent case growth throughout the quarter. I feel really good to your point, the strongest since Second quarter of 2023, lots of good momentum consistent with what we've been accelerating over the past four or five quarters here. So if we're really good about that, you know, at the heart of it is our net new account generation, which has always been the lifeblood of our growth. Our teams have really focused on that over the past couple of years, and we're seeing that continue to gain traction. Really confident that we're going to continue to lean into independence and expect that volume to continue to accelerate. Importantly, the sales comp change will be a long-term growth driver. Really pleased with the startup here. I think Randy Taylor and the team have been working on that for a year and a half. Did a really good job of leading up to the implementation here in June. Pleased with the start. That will definitely impact our growth going forward. But as I said, it's going to take a while to get everybody up to that full commission rate. Early returns are exciting. Importantly, our turnover remained flat, as I said in the prepared remarks. and we're off to the races and excited about the future.

Great. You guys originally guided in Q2 to, you know, mid-single to upper single digit, I believe, EBITDA growth. You beat that with 10% despite elevated fuel. What drove the upside relative to your expectations? And Dirk, what are you embedding for fuel costs in the back half of the year?

Good morning, Lauren. So there's a couple of main things that drove the beat. One is our fuel recovery was Thank you, Dirk. 30-40% was more like 70% for the quarter. So pleased with the execution on the team there. And then the second piece was some of the strategic vendor management negotiations and outcomes that we expected to be completed in the second half of the year were completed sooner and so that team delivered some incremental value. Otherwise, the business performed largely as we expected and our outlook for the year of the The range and then my comments in there about the midpoint being our best estimate assumes fuel stays around where it's at currently. So we feel very good about coming out of Q2 where we are and the balance of the year and thus the strong confidence in delivering the guidance.

Your next question comes from the line of Jacob Akin Phillips with Malleus Research. Please go ahead.

Good morning. Thanks so much for taking our question. This is Sam Barton for Jacob. You described the early results from the new sales compensation plan as encouraging. I'm just wondering if you could double-click on that a little bit. What behaviors or results specifically changed, if there's anything results-wise that you could provide for us? And how do you distinguish the early impact of the compensation plan from the independent momentum that was already building before the rollout? Thanks.

Yeah, I think it's early to comment on a lot of that, but I would just say that the early behaviors that we've seen around growth, and as you'll recall, we aligned specifically this compensation plan exactly with our strategy. So things around our brands, independent restaurants, growth, importantly, and sending pronto. You know, we're starting to see some early returns and the focus that we like to see in those areas. It'll take a while for that to impact our growth in a big way. But I said, you know, we just started this a month or so ago and turnover is flat. Our teams are excited and we're starting to see good behaviors.

Your next question comes from the line of Alex Slagle with Jefferies. Please go ahead.

Thanks and good morning. Wanted to ask on Pronto's progress. on the incremental investments you're making in the business this year and clearly seeing results from the top line. If you're curious where you're seeing the most success, if there are certain markets or customer types that really stand out and really like how the team is managing this growth, managing the margins as they continue to accelerate the growth.

Yeah, good morning, Alex. Thanks for the question. Just as you recall, you know, this is a multi-year journey around Pronto. We did a lot of piloting work, you know, first as we were applying the new model to just looking for new customers. We spent several years doing that, and it was only a couple years ago we actually started to pilot the work to our existing customers. And importantly, you know, there were two pieces of work that we went slow to go fast around as we took it to our existing independent customers. That was exactly what you asked about. was, will we maintain the margins and the profitability to support the incremental costs of that service? And then secondly, importantly, we just didn't want to cannibalize our existing broad line business and just shift those volumes over to smaller, more inefficient deliveries. And we proved that. We're thoughtful as we take it into new markets to make sure that those two key pieces are performing as intended. But what you've seen us do then over the past few quarters is start to accelerate that penetration across our existing markets with our existing customers because we are confident in the model. So, as I highlighted there, we're pleased with the performance last year. We're looking at a billion three this year, and we expect that model to continue to drive growth for the future.

Just to add, Alex, so as you pointed out, the return on this investment is quite high and quite strong, and we see a long runway, a lot of years of growth here. And we've got good partnership across my team, Randy's team, as we deploy more trucks into markets and being very thoughtful and, like Dave said, speeding up the pace of deployment, but not lose the pragmatic approach we have to achieving such good outcomes on volume growth and margin growth overall. So there's nothing that we see that will slow our pace of investments in pronto, and we continue to be as excited as ever on that. Great.

And a follow-up on the gross profit per case growth, which continues to be really strong, ramping year over year, and you explained the op-ex per case bump as well. And I realize going into the third quarter, we're going to be lapping a bump from Food Fanatics, I think. That event was last year. Just curious. if that's a recurring event that you expect to be able to sort of grow the growth crop per case on top of that and what the op-ex per case might look like or if we should expect some sort of moderation.

Sure. So the increase last year from the event in the third quarter has been spread throughout this year. So this is not an every year event. So you've seen The gross profit gains and the OPEX happening throughout the different quarters. So you're right, you will see a slowing of increase in gross profit per case and OPEX per case in the third quarter. Our expectation is that we will still grow GP per case meaningfully in the quarter. Just expectation is not as strong as it's been. We feel very good about our ability to grow gross profit per case for the back half of the year and for a number of years to come. because of the various initiatives we've talked about, two of which were mentioned today in strategic vendor management and the inventory adjustments work.

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

Hi. Good morning, guys. Great quarter. Dave, I wanted to follow up. You mentioned on independent case buy-ins that you expect this business to continue to accelerate. Curious, you know, specifically what you saw in July and then, you know, your compares do get harder in the back half of the year. So I just want to parse out, you know, so that comment about acceleration.

Yeah, great question. Appreciate it, Ed. So I would say largely July was consistent with what we saw in the second quarter. So maintain that momentum. And my point around continued expectations, not only for the back half of this year, but going forward when you combine the differentiation that we bring, the focus that we have on this segment, our continued ability to add high quality sellers to our team. and importantly, just the deep focus that we have, not only on generating new business, but also penetrating our existing customers, you know, gives me the confidence that that momentum will continue. You overlay the sales comp change on top of that. And as I've said before, I believe that's going to be the key unlock for the future in this organization to accelerate growth. Couldn't feel better about the momentum and what the future looks like.

Great. And just to follow up on, you know, on the AI, I mean, food service seems like a business where you could really generate some large benefits over time. You've been the tech leader, I think specifically as it relates to customer facing stuff. How much of the opportunity are you capturing so far? I think you've kind of said you're in your early innings. And then if we zoom out, Dave, you captured a lot of opportunity and upside from better sort of like operational execution. Is the opportunity with the implementation of AI into the Salesforce and the supply chain as big as that over time? Just kind of curious as to how you're thinking about sizing, like the size of the prize long term here.

Yeah, I mean, we've been working on this for quite some time in very practical applications for the business. And as we talked about there in the prepared remarks, it's touched supply chain, it's touched sales. You think about MOXIE and some of the things that we've talked about over the last couple years, anything from where's my truck to improving product recommendations for customers. You know, did you forget something? Last quarter, I believe we talked about our rollout of Menu IQ. All of these applications are AI-based and very practically oriented around our customer, making it easier to do business with us. And then importantly, also our Salesforce productivity, because the extent the customers are helping themselves more, it gives our sellers more time to go find the next customer and importantly, drive penetration. And then more recently, things like Visit Assistant that we talked about this morning, all AI-based, helping our salespeople just be more productive. and you think about Descartes, which has AI embedded in it and how we do our routing, the labor planning tools we've developed there, some back office work that we've got going on. So while I believe that we're in the early innings, I do believe long term there will potentially be some transformational opportunities as we apply this more broadly across the business. But I think for the near term, what you can expect us to do is more of the same. and all of this I would point to helping to support our underlying performance and the strength of both our top line and bottom line growth that you guys have come to expect from us.

And I think the other thing and when we talk about the early innings is although quite pleased with the progress that our team has made in the last few years of applying these and measuring the results where it's helped drive whether it's additional case growth, improved working capital management slash customer service levels, and productivity. We know the pace of change in the models and the capabilities for AI is rapidly advancing. And as we continue to take advantage of that, that's why we believe there's significant opportunity and that will continue to be across a growth in the customer experience as well as productivity.

Your next question comes from the line of John Highbuckle with Guggenheim. Please go ahead.

So Dave, I want to start. I know that that account growth, right, is the biggest driver. Where do we stand now on drop size? I think we may be in positive territory. You know, you think about penetration, right, versus cases per line. You know, maybe talk about that and this, you know, between the AI and the change in compensation, can penetration, we've been sort of waiting for penetration for all you guys really to move. Do you think we're on the cusp of that? You know, where that can be the biggest change in local case growth?

Yeah, I do, John, actually. And, you know, as I've commented the past few quarters, our penetration, while still pressured, has improved sequentially for several quarters in a row, including in the second quarter. That's continuing to show up based on all the good work that our teams are doing and some of the AI support that we've given our sellers. Importantly, lines per customer continues to improve consistent with that penetration. I think where you see the foot traffic pressure show up in penetration is those cases per line, which are still a little bit pressured and I think more reflective of the foot traffic challenges. But the things that we look at to say whether we're winning or losing continue to move in the right direction and they have been for several quarters and I expect that will continue.

And maybe switching gears, the three to five percent productivity target. So where are we within that? I think last we heard maybe it was between three and four. You know, where are we and how are we when you think about differences between transportation, right, and the warehouse? Are there material differences today between those two buckets or no?

Good morning, John. So we're still in that three to four percent range, and depending on the year, warehouse or delivery can be a little higher or a little lower, but every year we have activities and technology enablements that support both of those. And I think that that'll continue to be the case going forward. I think as we think about some of the tools, whether we talk about AI and or continue just process improvements, that will benefit both of those. You know, one thing that is, as when you were asking about same store penetration, as the market stabilizes and those get back to positive, that will help that just broadly across the network as well.

Your next question comes from the line of Kelly Banya with BMO Capital Markets. Please go ahead.

Hi and congrats on a great quarter. I was wondering if we could go back to just the independent case growth, obviously quite strong, accelerating. You mentioned penetration, but also it sounds like maybe a little bit more from new account growth. Maybe you can clarify that. But I'm curious if there's any behavior changes that you're maybe already starting to see from the sales force in advance of the comp changes or at the start of the comp change. that are working to incentivize the behaviors that you'd like. And if that's kind of already maybe starting to come through as the sales force has been aware of that and prepared for some of these changes coming through, if you feel like there's just more to come on that front.

Yeah, I'll take the first question first there. You know, really excited about the net new account generation. It's continued to accelerate for the past several quarters. In fact, this quarter, Kelly, our net new account generation was the strongest it's been in three years. So really good momentum there. It continues to be the lifeblood of our growth. And as I commented earlier, we are starting to see some early green shoots around the reshaping of the comp plan, particularly around independent growth. Pronto, which gives us the confidence to put out the forecast that we did this morning around Pronto. Importantly, our brand penetration. The things that we talked about previously that we embedded into this comp plan, we're starting to see early returns on that. Again, we're 30, 40 days into this, so a lot more to come in that regard. We'll continue to give color as time goes on. I think for me, we've launched this quite successfully. I give our team a lot of credit. Very thoughtful approach. Change management was big. Communication is ongoing. Importantly, we haven't seen an uptick in turnover. We continue to attract new sales talent to the company. Feel really, really good, and I think we get an A-plus for execution on this one.

Agreed. Thanks. Dave, if I could just ask one other one on AI, maybe a little bit different. Obviously, you guys have been on the technology and digital front. And maybe this is empowering that further. But how do you think AI impacts some of the smaller private distributors? As you talk about penetration improving, presumably that's coming at the cost of some of those smaller private regional distributors. And is this something that you think further widens the gap between some of these you know smaller competitors that may not have this level of technology?

I think over time it can for sure I think we've commented in the past Kelly that you know the amount of investment that we make in this area of the business consistent with you know the larger competitors out there who can afford to do this work at scale like we are it will be a competitive differentiator over time because I think it becomes increasingly more difficult for the smaller competitors to make those sort of investments over time. Not that there's not capability out there that they can't leverage, and I'm sure they are. But I just stay focused on the things that we can control and accelerating independent case growth. The momentum that we've seen here in the past five quarters, the team feels really good about, and we expect that will continue over time.

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

Morning. Thanks so much for taking the questions. So how did headcount growth play out for your Salesforce in 2Q? Any shifts to how you're approaching this in the back half of the year? And then you talked about continued success in attracting talent to your Salesforce. Do you guys think that the formal move to the more variable model impacted what you're seeing from a talent pool perspective? Thanks.

Yeah, appreciate the question on headcount. So I'll start with nothing has changed in terms of our expectations around what the right headcount growth number is for us. That's around the mid single digits. I will tell you in the second quarter, we're up 8% in seller headcount. As you might expect, in anticipation of any potential turnover uptick that we might have seen, we hired in advance of that. So again, another area that the team was very thoughtful about thinking about all eventualities. I think you'll see that settle out a bit to get right back into the normal range that we expect here as we go into the back half of this year. What was the second part of your question, Mark?

Just in terms of now that you guys have formally moved over to the more variable model, has that impacted what you're seeing from a talent pool perspective with respect to potential Salesforce candidates?

Yeah, I think, and I've commented previously on that, I think it will through the course of time. It's a bit early to have seen anything material there. I think it will attract a different type of seller to the company long term who has thrived on and maybe in other industries or other businesses at 100% commission model. We'll see, you know, it's early days.

Gotcha. That's great. Thanks. And as my follow-up, just on the independent side of the business, have you seen much of a shift in demand between more value-oriented independent operators and some of the more premium concepts? Did your case growth performance stick up pretty consistently across concepts? Any call-outs on that front?

Yeah, I wouldn't say there's anything material I'd call out in the second quarter where we've seen any significant meaningful shifts. You know, we've been in this foot traffic challenge for quite some time. I think I wouldn't, I call the market pressured but stable. I didn't see anything change around that in the second quarter. So I think any of those shifts are already built in in terms of what we've seen.

Just a reminder, as David commented earlier, that a big driver of our growth was the continued acceleration in net new accounts, and that's across the spectrum that we focus on in independence. Despite, I think, for sales or penetration, it did continue to strengthen, but that net new machine continues to accelerate, and we feel very good about that.

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

Yeah, thanks. Good morning, guys. I was curious actually about healthcare and hospitality. How much of that is sort of being driven by account wins versus like, for example, I think hotels have actually had a pretty healthy run here year to date. Could you dig into that a little bit?

Sure. There is some that's same store penetration, but a big part of it is the continued growth of the pipeline and converting that into new business and that team's done a really nice job of continuing to have a very robust pipeline, bring our value proposition to life for those customers and bring them on and continue to serve them. So to answer your question, the strength in hospitality has been a contributor, but the net new is still a bigger driver and our expectation is both will continue over time and within healthcare and hospitality. The tools, for example, around vitals and signature will both continue to be utilized widely and we expect will help us serve existing customers better and continue to convert the pipeline.

Okay, got it. Would you consider moving faster on the compensation change if, you know, you've spoken positively about it so far? Would that influence the speed at which you do it?

Well, I think, so the comp change is fully implemented for all sellers. And just a recall here, Brian, you know, there's a click down process that supports that at the individual level. You know, we're having very individualized conversations. There is a time period and expectation around that click down for each individual. I think the team was thoughtful about that and we'll let that play out as it's been designed.

Your next question comes from the line of Peter Salah with BTIG. Please go ahead.

Peter Salah Great. Thanks and congrats on the quarter. I want to ask about the EBITDA margin, a really great performance this quarter. I know you guys are getting a lot of help from the cost of sales implementation that you guys have been doing, the indirect cost savings as well. Do you see a cap here on this EBITDA margin? Or maybe ask another way, you know, when you look at are there parts of the country or regions of the country that are operating at a much higher level than the current system that you can act as a North Star? Thank you.

Good morning, Peter. So we're quite pleased and appreciate the recognition on the continued work around margin expansion. And we think that balance along with volume growth driven by our three target types is is the right balance over time to profitably grow the business. Because we're driving that growth through various initiatives, we really don't see a cap. I'm sure maybe there's one out there, but it's going to be long down the road. and, you know, year over year, that 20 base points that we're focused on delivering, we expect that we continue to deliver on. To your question, yes, I mean, we have markets, we have parts of the country that are higher margin than others as far as our facilities, maybe within customers. So, we know that there is further opportunity out there to continue to grow meaningfully and we don't see a ceiling anytime in the even mid-term.

Great. And then can I just ask, have you guys seen anything or any change in behavior, consumer behavior, regarding GLP-1s in the most recent quarter?

Nothing remarkable here in the quarter. I think that trend will play out long term. But as we said, almost half of everything we sell is fresh in one way or another. And as those culinary desires shift and portion sizes change, we're supporting our customers around that. We don't think there's a big overhang on the industry here and certainly we haven't seen that in terms of our growth trajectory.

Your next question comes from the line of Karen Holthaus with Citi. Please go ahead.

Hi, congrats on a great quarter and thanks for taking the question. How are you thinking about, I think there's a comment and prepared remarks in the slides about a good pipeline for Tug-in M&A. How are you thinking about that contribution to independent case growth in the second half?

Good morning. For the second half, we expect M&A to be a pretty small contribution. We have the one very small transaction that's continuing to wrap through the early part of the fourth quarter, and the other ones that are out there, depending on timing. Again, I don't expect it to have a meaningful impact for the quarter, but It's not for lack of effort with the teams. The team continues to work the pipeline and finding the right transactions to bring within the U.S. Foods Network. But overall, in the meantime, we're going to continue to work on accelerating organic growth as we have independence, as Dave said, for the last five quarters. And we feel very good about the strength across that and the rest of the overall case volume for the second half of the year.

And then just as a follow-up on the inflation side, within the 1.5% combined for inflation and mix, any particular call-outs of commodities being outsized contributors to inflation or deflation?

But maybe just for context, when you look at Q1 at the 1% year-over-year going up to 2.3% in the second quarter, Proteins continued to have strong levels of inflation. We saw produce with inflation in the second quarter. Dairy had less deflation than it had a year ago. So there's some smaller things here and there. Broad grocery continues to be modestly inflationary. So it continues to be right in that spot that we feel good about managing and passing through and that customers can handle and not all that volatile. Like I said, there's always going to be a category here and there that's moving around, but We have the processes to effectively manage through that.

Your next question comes from the line of Danilo Gargiulo with Bernstein. Please go ahead.

Great. Thank you. You mentioned earlier the dynamics of gross profit margin relative to OPEX margin, specifically for the third quarter. But I'm wondering if you can give color on how should we think strategically about the evolution of this trend in light of the different puts and takes on the cost management initiatives that you have, but also the portfolio mix that is consistently skewing toward more profitable segments of your business.

Good morning. So overall, our expectation is that we'll continue to grow gross profit dollars 100 to 150 basis points faster than OPEX. And so that really is unchanged in any given quarter. It can be a little more, a little less, but that's how we think about it. It's really because we have the portfolio of initiatives and actions that we're taking across both gross profit and OPEX productivity. So it's unchanged and we expect that we can do that still for a long time to come. And as you pointed out, customer mix and product mix, so that will continue to be a contributor to those gains as well over time.

Thank you. And then I'm wondering if you can give some color on what you're seeing on truck driver availability within your business, given the recent regulatory tightenings. And perhaps you can share your expectations on the turnover for the rest of the year and the labor cost inflation that you're embedding in the guidance. Thank you.

I would just say we have no challenges with drivers. As I've commented before, and that played out again in the second quarter, our turnover is very consistent with where it was pre-COVID, and our driver productivity is strong and improving. No real challenges there. I think from a productivity standpoint, both in the warehouse and with our outbound drivers, very, very strong, has improved quite a bit over the past couple years, and again, right on par with where we were pre-COVID.

Yeah, I think to Dave's point, part of the big part of the reason we don't have challenges in hiring and retaining on that customer basis, you know, we offer a pretty attractive compensation base and they do an important role, job, and we try to compensate people fairly for that as well. And from an inflation perspective, just like we talked about productivity in the three to five percent, cost inflation is in that three to five percent as well, the way we think about the outlook.

Your next question comes from the line of Margaret May Binstock with Wolf Research. Please go ahead.

Good morning, guys. Thank you for taking my question. I just wanted to ask, given some of the elevated costs that we've seen, I guess, over the last couple of years that could be impacting your restaurant customers, have you seen operators becoming more willing, I guess, to trade into your exclusive brand's private label today perhaps versus a year ago? and is that driving any uptick in penetration? And also just on menu IQ, is that playing into that at all? Thank you.

Yeah, I think importantly, both of those are connected. You know, we feel really good about our private label penetration and given the challenges these operators have faced really going into COVID and coming out of it that we've talked about, you know, labor, rent, food cost, inflation, all of that has really underscored the momentum we've got in our private label brands. And then things like Menu IQ that helps them really look at their menu costs and optimize it in a way that many of them, you know, know is there but really don't know how to get at. really helps them reshape their thinking and also plays to the strength of our private label brands, which are sitting at about 53% with independent restaurants, very strong, and we expect that will continue to grow through the course of time.

Thank you.

Thank you.

Your next question comes from the line of Andrew Charles with TD Cowan. Please go ahead.

Great, thank you. You know, the health care case volumes in two Qs flowed a bit from one Q in both a one and two year stack basis. Can you walk us through the dynamics behind that easing and how do you think about health care case growth for the back half of the year?

Good morning. I think, you know, when you talk about still being in that three and a half percent or so, that's pretty strong case volume. And from quarter to quarter, depending on Individual customers, timing of onboards, etc. It can move around a little bit, but I think both healthcare and hospitality being sort of at those same strong points, we feel very good about the growth rate that we generated in the second quarter and have confidence that we can continue to grow both of those at a healthy rate for the balance of the year and for periods well beyond 2026. We have differentiation and each of those. And our team's doing a nice job of bringing that differentiation to customers.

And importantly, our pipelines in both are quite strong.

Great. Okay. And then you talked about how the higher sales force costs, you know, drove about a third of the increase in operating expenses. Was that largely one time you expect that to endure?

So the one third was fuel related comments that was there. The sales cost, we do expect to continue to drive some incremental costs for the next couple of quarters. That was largely contemplated in our outlook. Dave said that the team was so we're looking ahead as to Thanks, guys.

As we look forward philosophically, how should we think about reinvesting some of the productivity benefits from the AI and the deployed capabilities versus passing through to the bottom line? And then specifically on the sales force and headcounts, where do you think is the ceiling for span of control or in adding or managing accounts per salesperson? And will the productivity increase lead you to hiring more sales members? to capture share aggressively or less than previously anticipated and have a follow-up.

Yeah, well, I think, again, I'll take your second question first. I think the mid-single-digit headcount range is the right one for us to consistently onboard, do a high-quality job of bringing those folks up the learning curve with U.S. Foods. I think what you see with the application of AI and all that is improved productivity of our sellers, where they're spending their mindshare and their time, how they're supporting their customers. to the extent AI helps our customers help themselves more, it frees up that valuable time and resource of our sales force to go drive new growth. I think about AI in terms of productivity. We've taken a lot of costs out of the business in the past two years. In 2024 and 2025, we've talked about $150 million of cost out in the business. that was aimed at really decentralizing the organization, putting resources closer to the customer, not AI generated at all. And as we think about AI, and I won't repeat my comments from earlier, All the things that we're doing is aimed at labor planning, efficiency, and productivity. I think all of that factors into the 3% to 5% annual productivity target that we have. AI is going to be an increasingly important part of that and an enabler to consistently drive that productivity across the business.

Year in and year out, we're always looking at reinvestment back in the business. When we talk about whether it's cost and productivity or a gross profit expansion we think about okay how do we reinvest a portion of that back with customers with advanced capabilities I mean with our data science teams for AI etc so that's not something new and AI would just be another piece that we would think about as we think about reinvestment over time.

Thank you and then the scanner test expansion to six locations is interesting to see As you start focusing more on the physical or the hardware focused solutions, are there any purpose-built robotic or automation opportunities in the near term that could make sense for you to test or look at?

Specifically, the robotics that we're testing now and moving, as you pointed out, from the one to six, we're seeing good early results from those, helping with Better accuracy in the warehouse and much more efficiency so our other local teams can spend more time on other things and understanding the why and improving process. And that's the main place we've seen right now. We evaluated several providers before we decided on the one that now we're moving ahead. As robotics continues to advance, we continue to evaluate and we'll make that determination over time whether there's other uses.

That concludes today's question and answer session. I will now turn the call over to Dave Flitman, CEO, for closing comments.

Thanks everyone for joining the call today. We're more excited about our future than we've ever been. Appreciate your support. Have a great rest of the week.

This concludes today's conference call. Thank you for your participation and you may now disconnect.