US Foods Holding Corp. Aktie

Good afternoon, everyone. Thank you very much for joining us as we move through the afternoon of day 2. I hope everyone had a chance to grab some lunch. My name is Jeff Bernstein. I'm the restaurant and foodservice distribution analyst here at Barclays. We're thrilled to have our next presenting company with us today, US Foods.

With us on stage from Rosemont, Illinois, we have Dirk Locascio, the CFO. By way of background, for those not familiar with US Foods, they are a leader in the U.S. foodservice distribution industry, partnering with roughly 250,000 restaurants and foodservice operators from 70-plus broadline locations and 90-plus cash and carry stores. Their 2026 guidance calls for 4% to 6% revenue growth supported by 2.5% to 4.5% case growth and ultimately culminating in 9% to 13% EBITDA growth and a very impressive 18% to 24% EPS growth.

So I have a slew of questions for Dirk, but we wanted to thank everyone for joining us. And again, thank US Foods for making the trip, and I will kick it off with some Q&A.

Thank you, Jeff, glad to be here. Thank you.

So figured rather than mincing words, we would just start with a question about current environment and trends. We are in the midst of your third quarter. Wondering what you could share in terms of volumes and how they're trending, if anything?

Sure. Well, it's an interesting world out there where things change regularly, it seems like. Overall, when I think about our target customer types of independent, health care, and hospitality, growth rates continue to be very healthy in those. I'd say pretty similar broadly to Q2. So just -- so that's the key takeaway. Our team continues to be pleased with the 21 quarters of share gains in independents that we had through the second quarter, 23 with health care.

And then if you go sort of broader than that, we have on chains, our expectation is it continues to be similar to Black Box. We've seen Black Box soften a little bit from Q2 through Q3 so far. I'd say the industry has had a little bit of a short-term challenge from the Cyclospora recalls and that, but that's begun to normalize on produce volumes. So that's soon to be behind us. And then I think overall, a few sort of all other type of noise that we've talked about before with a retailer that closed some stores for us, education, just later back-to-school and customer losses there. But otherwise, key customers, very similar and feel like our ability to continue to gain share in those is well on track.

Being that you service 250,000 restaurants and food service operators, you have your finger on the pulse from a consumer standpoint. As you think about the consumer and the restaurant industry, how would you characterize that health of the consumer? I know it sounds like trends have been stable. Clearly, the restaurant industry traffic, at least the big chains that we talk about are still somewhat challenged. I'm just wondering what you're seeing across different customer types and what levers can operators, you think, pull to sustain the sales and profit growth?

Well, I think on our last quarterly call, I think Dave Flitman, our CEO, put it well, challenged but stable, I think, is a good way to describe it out there. You see within specific concepts, to your point, you see winners and losers and those that are challenged. It seems like those that have found on the chains, those that have found that right value proposition seems to be winning. I think independents continue to be positioned well.

They tend to have a loyal customer base, and they've fared well. So they will lean into values in some ways. There's specials in that, but they're not really the meal deals and some of that like a lot of the chains tend to be. So overall, I think the consumer continues to be pretty stable as we think about their overall consumption ability. And I think the K-shape continues to be unfortunately fully enforced.

Yes. The independent case growth, seems like that's the area of focus for you, the most profitable, and they have obviously a loyal customer base themselves. You had a very strong first half of this year. It seems like momentum has continued into the third quarter based on your comments moments ago. I'm just wondering what do you think is driving that acceleration in the share gains? And again, why you believe maybe the independents are outperforming those chains?

Sure. Well, I'm pleased, although we believe we can do more. I'm pleased with the continued acceleration 5 quarters in a row of acceleration in our independent case growth. And it really comes down to just core execution. So Randy Taylor, who leads our field sales organization and field operations period, he is overall with that team. They focused a lot on whether it's underperforming markets and/or capabilities to be able to advance those, and that's helped to increase. We've seen our net new customer accounts acquisitions continue to grow for those 5 quarters, same as our overall case growth. So we're encouraged by that.

And then we have things like our digital platform, our Pronto platform, which both continue to support the growth. Within the digital platform, for example, we continue to deploy new capabilities, leveraging AI to be able to enhance sales growth, cross-sell, upsell type of things, and each of those all contribute. What I get really excited about, though, is we have a number of markets that are growing well north of 5%. So we know that over time, 5% is something we can definitely well exceed even in a current environment. So we try not to lose the -- so whatever the noise of the day or the week is into the march toward continued acceleration.

And I know we have the 3 largest players here over the 3 days. I think the common theme being when we talk about market share that the big 3, put aside your differences, collectively have 35 -- less than 40% market share. How do you see that trending over time? It would seem like there are other industries that are way north of a number like that.

I think that's exactly right. You -- I would expect us to continue to see consolidation. There's still far more fragmentation in our industry than there are in many others. I think historically, there were very low barriers to entry in this industry. So someone had few trucks in the rental warehouse that could get in, just the cost of real estate, the technology expectations of customers, it gets harder and harder. So I would expect that consolidation to continue.

And I think your point was right on where the 3 of us only have about 40%. So there's still plenty of opportunity for growth. And we'll get the question sometimes how can each be winning? And that's the point, there's still a lot out there that's from other customer types. And we think that through our continued, again, organic growth, leveraging our core service platform, our Pronto, our digital is a good enabler of that and then supplementing that with tuck-in M&A where it makes sense. And our team continues to work that pipeline robustly. And sometimes you have more that come to fruition and sometimes less, but I would expect that consolidation to continue in the industry over time.

Yes. And putting aside M&A for a moment because that could obviously drive sales growth. But if you just think about the other ways to do it is either you're adding new accounts, which you mentioned new account growth has been strong versus further penetrating existing accounts, which would seem like that's a no-brainer to just drop off more packages at an existing customer. So how much of the independent growth do you think is coming from new accounts versus deeper penetrating of existing accounts and maybe how those economics differ?

Sure. Well, in our case, almost all the growth is coming from net new accounts. And the reason being, although sellers are focused on winning additional lines with an existing customer, it gets masked by just slower underlying traffic. So you don't see that show up as much. So the positives that are happening there in conversions get offset by the traffic.

So our trend line on the net new account acceleration looks an awful lot like our 5 quarter in a row acceleration in independent case growth. And that will still always be the main driver. But I think as you get back to a more normalized where you have traffic growth, our expectation is that penetration or same-store will be a contributor on that over time.

Yes. And we talk about the primary being new account growth. People talk about the restaurant industry and just how it's such a competitive industry and the closures in the space. Like what have you seen? We know with COVID, there were a fair amount of closures, but how would you size up the industry in terms of closures and reopenings and the number of boxes now versus a few years ago as you think about adding more new accounts?

Well, it's -- I think in the last few years, you've seen fewer new restaurants, but you've also seen fewer closures. And so sort of on net, they don't seem to be all that different sort of from a year-to-year than they've been in the past. And I think the thing sometimes that gets forgotten in our industry is if you want to go out to eat, even if there's not as many new restaurants in your neighborhood or where you may go, you're probably just going to go to someplace else that you like or you want to go to. So again, that's a benefit of serving a whole portfolio of different customer types and cuisine types is -- we are essentially an index of a lot of different options out there for people to dine. So we benefit when you go out no matter whether it's to a new door or to an existing restaurant.

Yes. There was a lot of discussion and there has been around your new sales compensation model or the changes you're making to that compensation model. I think it officially launched in June a couple of months ago. Maybe you can explain to people just what that change was? And then I just have a few questions about that.

Sure. So this was a change for us going from our local sellers going from 50% fixed and 50% variable in their structure to 100% variable. And so in June, all of those sellers cut over to this new structure. But an important point is that on day 1, hardly anyone comes in at 100% variable. So it's not as though we come in and it's good luck. Almost every seller comes in on day 1 at 100% fixed or essentially on a stipe. And then they earn their way through this program all the way to 100% variable.

And in the first 2.5 months, we've actually had quite a few sellers that have done extremely well that are already on 100% commission and others, again, that maybe are earlier in their tenure that are still mostly through the fixed. So we've been pretty pleased. I give, again, Randy that I mentioned earlier, a lot of credit. He's really spearheaded a lot of this and 1.5 years or so ago, had a lot of conviction around making sure we did the right amount of work upfront on planning and communicating ongoing and modeling and discipline, et cetera. So that's the overall change. And we're encouraged by seeing a number of the behaviors that we were looking for starting to show up already.

So what -- I know I wanted to ask about seller behavior, like what changes were you hoping to see that you are seeing now that obviously gives you confidence in the plan?

Yes. There's a few things. One is it makes it -- so we -- although the construct of the plan of essentially gross profit or contribution margin per drop is not that different than it was before. And then there are additional incentives for private label, for independent restaurants, for Pronto, et cetera. But we've simplified the plan and the -- increased the understanding for sellers. So it's much easier for someone to understand now, if I do this, here's how it impacts my pay. We've also enhanced some of the technology that they can see that on a more real-time basis. And so it's made it, again, more effective. And you have certain sellers who have fully embraced it and again, are running and making quite a bit more than they did.

And others, if I'm still finding my way through it, at least I still know if I'm in with a particular customer that there's these things they're not buying from us or they used to or this is an opportunity, then I'm still going to focus on picking up those extra few cases. So we are seeing that increased behavioral of wanting to own more of that relationship with customers and understanding how I get paid. And also, they still have autonomy where if they want to invest in certain products in order to make sure they get a basket or more of the basket, they can do that. So it's balancing the structure with the autonomy.

And you're not the first. Others have made that move towards more variable compensation. How do you think about it in terms of retention versus your expectation perhaps and recruiting new salespeople, which seemingly for a very eager aggressive salesperson, getting 100% variable comp would be quite attractive. What are you seeing in terms of early days retention and the ability to recruit new salespeople?

We've been very pleased. So our retention for the broader sales force and the more tenured groups has actually been in line or less than what it's been historically. So leading into this, it's one of those things where handling this transition again, communication, deliberation, making sure people understand it and transitions to the 100% over the right time was important to us. And so there's -- one of the insurance steps we took was to increase our hiring leading up to it. So if you remember on our second quarter earnings call, we talked about that our seller headcount was up about 8% year-over-year. And part of that was we wanted to make sure that if we did see increased turnover that we were ready for it.

And so ultimately, I think we've taken the right steps for insurance. The other thing is as we've gone through this in a couple of months -- over the couple of months, again, like I said, we've seen a number of sellers move to the 100%. We've got others that we're still kind of protecting as they're being coached and worked through it. And so our transition costs are running a little higher than we expected. But I would take something like that any day because it's temporary over a flawed execution where you have sellers that feel like you didn't do right by them versus -- or some other issue. I mean, Dave has been very clear all along. We want sellers to make as much money as they possibly can, and we want them to be there to support their customers and really help those customers make it.

And being that it's only a couple of months in and this transition can take some time, like how do you think about investors might see the changes translate into more meaningful presumably case growth penetration, private label gains? Like how do you think that a change will flow through your system?

I would think relatively quickly. You try to parse out some of the macro, you start to see -- again, we're starting to see the behaviors show up already. So I don't think this is a year. I think this is within the quarter or 2 quarters, again, because we're seeing the behaviors already and very pleased with the reception and the understanding and how people are owning and running with it.

Yes. And there's often talk about more your Pronto business, which is more of your small order delivery business. I think our understanding was it was roughly $1 billion in 2025. We're talking about $1.7 billion in 2027, which is a meaningful acceleration. How would you describe or prioritize the drivers of that meaningful acceleration in such a short period of time and maybe how those customers differ from broadline?

Well, Pronto has been well received from the beginning. And so Pronto, $1 billion last year, as you mentioned, on track for $1.3 billion this year, $1.7 billion next year, and that's up from -- we took that up on our last call. We were originally expecting $1.5 billion. The thing that's exciting is I think Pronto will be a continued growth engine for US Foods for a lot of years to come. And I think the reason that it's been successful is we listen to customers and we listen to what customers want.

We're trying to meet customers with what they want. And there's 2 elements of it, one that's been in place for 8 or 9 years, Pronto legacy, which was for customers that were either smaller and needed more frequent deliveries or those that were in dense urban areas that we couldn't get to with the big trucks. And so this is a way for us to give them that more flexible service. And -- but yet, they get some of our advanced digital tools, our broader assortment and that then they're getting from a specialty provider, and that's been very well received.

And the second piece that we just began to put in place a little over a year ago is Pronto Next Day, and that's for our delivered customers, larger truck delivered customers, where they can do fill-ins. And this is basically saying instead of ordering those fill-ins from a specialty provider, why don't you order them from us. So it's simpler to have one fewer distributor. And when you're doing fill-ins, instead of just getting whatever that particular, whether it's produce or protein, et cetera, you can fill in groceries, et cetera, from us as well. And that's been in place, again, and well received, seeing -- not seeing cannibalization. And that's one where -- just because you could see that cannibalization. So we went slow to go fast. And so we took our time.

But just to give you all that context, in these markets that we've deployed, which is -- the legacy Pronto in almost 60 markets and then the Pronto Next Day in almost 40. And that one, when it's deployed, it has 1 or 2 trucks. And so in order to make sure we're using it with the right customers, the right deliveries, we continue to add trucks. So in 2026, we made our biggest investment in trucks. In '27, I would expect we'll be talking about another bigger investment, but well received, a lot of runway ahead, and Pronto is an area that we get excited about because it's just as profitable as our overall independent business. And again, it's an area where customers are asking for and demanding it, and we want to meet their needs.

But seeing no cannibalization to the broader broadline business.

No, we're not. In fact, when we put this in place to begin with, we did A/B testing to make sure that we weren't seeing that cannibalization. And then now as we've rolled it out more broadly, we have the right metrics in place where we can see that. And so when you have that many customers on in that many markets, it's not as though it's going to be foolproof. But we have where we can flag and the deployment team will work with the local markets and then they'll go and work with, okay, do you have the right customers on, or I see this customer move from 2 big deliveries to 6 smaller deliveries and they'll manage our way through. But again, that's why we're being thoughtful in creating that scarcity value of deploying it. But more to come, but Pronto is pretty exciting.

$1.25 billion, $1.7 billion recently raised number in '27, like it sounds like there's a lot of growth still to come. Like how do you size up what the total market could potentially be over the time frame to achieve something like that?

Yes, I get asked that question quite a few times today already, and we get asked it. And I don't like the answer. I don't know too many things, but this is one where we don't know what the actual number is, but we know it's significantly higher than the $1.7 billion. I think as we get in more places with the Pronto Next Day, that will continue to inform how we think about what that TAM is over time. And we will -- we've learned a lot over a year of how we, again, gain more of that market share. We're going to continue to learn and get better, I think, at gaining more of that share. So again, what I do know is that Pronto will be a meaningful growth driver for US Foods for a lot of years to come.

And I think as most of the investment community look at your business, we're ultimately looking at adjusted EBITDA and the margin there and the improvements you've already made, which have been very strong. I think you talk about at least 20 basis points of margin improvement each year on that adjusted EBITDA margin. What gives you the confidence that you can sustain that in good times and bad? Oftentimes, people talk about the broader macro being more challenged. I feel like I can hear you in my head saying this is more self-help initiatives. But just curious, your level of confidence that you can continue to achieve that margin expansion for years to come.

Well, hopefully, what people have seen is since it's not a flash in the pan, we've been doing this for years, that self-help. It's not a buzz phrase that we like to use versus really how we're running and operating the business. And it's across things like gaining market share. It's activities like strategic vendor management and private label in gross profit. It is things like routing and other admin productivity in the bottom part of the P&L. So each of those from year-to-year, it varies, but there's -- if you think of in a continuous improvement mindset, it continues to build upon itself.

And oftentimes, it's some form of technology enablement, whether it's more traditional technology in the past, now leveraging more AI capabilities for the past year. And I expect that the bigger opportunity is yet to come on that as the capabilities have advanced there. But we've done this for the last 3.5 or 4 years and where we've actually exceeded our 20 basis points, and I think that will continue to come. But we do think that the balance of that margin expansion with top line growth is important. Top line growth is a key enabler for the long term.

And I think I'd be remiss to not focus on -- so we're very pleased with how that's translated into our EBITDA growth. But then we've also leveraged it to EPS growth far stronger than anyone in the industry and/or even a lot of other distributors out there by putting that together with accretive capital allocation on top of our core and pleased with that. And we think that, again, healthy EPS growth is also out there for quite a long time to come.

Yes. We all appreciate the distribution business. And you mentioned AI and the potential opportunities there, and that's obviously a big catch phrase. But between technology and AI, like where do you think they're producing the clearest measurable benefits across your different parts of your business, whether it's sales, supply chain, customer experience? How do you see technology and AI contributing to that?

Sure. Well, we've seen it support us the last few years in a few different ways. And we've talked about it in components on different earnings calls, et cetera. Here on our second quarter call, we chose to bring it together in a more comprehensive story and a page in our materials. And we're going to let the multi-hundred-billion-dollar investments leave that to the Metas and others of the world. But we have a pretty sophisticated and good-sized data science team. Myself, that is part of my team, I work closely with our Chief Information and Digital Officer, and our teams work together to deploy these.

And when we put a lot of them in place, we do A/B testing so we can measure the impact. And so I'll use maybe a few examples of where we've seen benefits to date. Our recommendations to customers on cross-sells, upsells, things like that, those are places where historically, they're not new concepts, but they were very generic recommendations that retail, we, others use. The last 1.5 years, we've been able to get far more specific. And so when we put those in place, we can see the conversion rates are higher than they were in the past. And so when you put one of those in place and it's a couple of million more cases, it adds up pretty quickly when you do that.

Another place is we have a third-party tool we use for procuring our inventory and ordering that, doing the forecast, and it has AI embedded in it, but our team identified some opportunities to add a couple of additional models on top of that. And just in the last 6 to 9 months, we've been able to increase that forecast accuracy by over 300 basis points, which may not sound like a lot, but in the interest of accuracy of inventory, that's been significant. I mean we've taken a number of actions over the last 3 years and improved working capital by several hundred million dollars. And I'm proud of what the work the team has done, but AI has been part of that.

Then I would say the third piece would be around labor planning, around routing and things like that, that are all AI, and they generate real value there. The thing that's the unlock now that we've -- we will still have some, I'll call it, point solutions, but the real unlock now is thinking about more end-to-end process transformation. And that is the models have come so far with the agentic capabilities that are out there and ability to create digital twins on so many things. We really have to and are thinking bigger on several end-to-end processes now of how do you redesign the process and leverage AI far more significantly across there.

And a lot of times, like there's one that I'm thinking of where the individuals that are working out are working with my data science team, and they are excited as can be because it's taking a lot of the work that was very manual, more error prone for them, and it's automating it into workflow and yet, but they still have the decision rights over the key parts where the thinking is taking place, but the machine is doing a lot of the gathering and work for us. So a lot to come there, and it's still pretty early innings. I think our business and our industry is very conducive to this just because of the number of people in it. And so hopefully, what we can do is take a lot of the, call it, more labor-intensive parts of the work out that humans may not want to do and let them have things that are more fulfilling.

Right. And over time, would you expect the larger opportunity to come from revenue growth, productivity or both? I mean most people think of technology as saving from a cost standpoint, but it seems like it could be a revenue opportunity as well.

I think it will be both. I would expect that revenue will probably be the bigger piece. If you think of revenue, it unlocks an unlimited potential, et cetera. I mean labor is a certain pool. Now I think on the labor side, where if you think of just what we talked about on the last call, the visit assistant for our sales force, this is something that takes a lot of things that they would have to go to different places and sort out and figure out and look up, et cetera. And this AI tool gathers a lot of that for them and tees it up in front of them. So you think in the spirit of helping sellers reduce the amount of administrative work they're doing, this frees up essentially their time to be able to be in front of more customers, whether it's existing customers or future companies, customers. And that's a great way for productivity because then they're out there ultimately converting that into sales growth.

Shifting gears a little bit. I can hear Dave Flitman, the CEO, in my head right now saying that you guys focus on the 3 most profitable strong growth segments in U.S. foodservice distribution, which is restaurants, health care and hospitality. And I feel like it's health care and hospitality that maybe doesn't get as much attention as restaurants do. But why do you view health care and hospitality? What specific attributes make those attractive to you? And how differentiated do you think US Foods is in delivering that to those customers versus your peers?

We view those as very important customers for us. They are, again, profitable and fast growing. We -- in health care, we're the industry leader. And each of those are areas where we've created some form of differentiation. We have a strong value offering for customers, whether it's the expertise we bring or the digital capabilities. We have separate suites of tool and process around both of them. So VITALS is the one for health care, and it goes far beyond just what we do interact with that customer from an ordering perspective, but it helps them understand nutritionals menu, understand retail sales performance, et cetera. And customers that use that historically have saved roughly 5% overall. So there's different value that we bring to those customers as well.

SIGNATURE is a little newer, but it's the same idea for hospitality, and it's bringing a suite of, again, tools and expertise together to help them operate more effectively. Those are tough businesses, tough industries. And so we're striving to help them find those places that they can be more effective. And then just with our own business either directly with those customers or through some larger GPOs, we found a good economic balance with those customers that also creates a very attractive economic profile. And so each of those 2, along with the independent restaurants, we think we can add value with our products, our digital expertise and therefore, continue to drive share gains. As I mentioned earlier, we've seen with independents, 21 quarters in a row; health care, 23 quarters in a row. And in health care and hospitality, our team continues to have very strong pipelines, and you see that converting to case growth over time.

I think if I understand it correctly, with health care, it's VITALS; with hospitality, it's SIGNATURE. And clearly, they've had some momentum there. But maybe just help understand how big the total addressable market could be in those? Like we understand how the market share is for restaurants, but where do you see yourself in the TAM for health care and hospitality?

From a share perspective, it's not all that different in those. I mean there's still a significant amount of share to be had in both of those. And that's why we bring the focus on what's the value we can bring to those customers so that they want to do business with us, we show them the value we can bring. So we see each of them being significant growth drivers. And I think -- you see -- we talk from time to time on calls about the pipelines. And the way -- the best way I describe to people, you can see us converting into case growth is our case growth has been quite healthy in both health care and hospitality, call it, that 3% to 4% for several years. And if that pipeline wasn't strong and converting, you wouldn't see them growing at that because the industry is not growing at that pace. And so the work that the team is doing to serve existing customers and win new customers is definitely showing up.

And we do get a lot of questions. I think investors increasingly recognize the execution improvement that you guys have delivered. So it's always the durability of that algorithm and how long you can continue to sustain that. What do you think is maybe still underappreciated about the durability of the long-term growth and margin algorithm?

Well, a few things. I think that just, first of all, if I zoom up a little bit, just the resiliency of our industry period, I think, is underestimated. Just you have industries that are talking about plus and minus 30%. We're talking about in the Great Recession, down 4%, 5%, kind of mid-single digits on cases. And so I think that's misunderstood. But our focus, to your point, on the execution is -- we've been doing this for multiple years. This is not new. And again, in the spirit of the continuous improvement culture, there's always opportunity. It's not going to be the same things. It's going to be what's the next step to drive that improvement.

But core execution, although we've made improvement in a lot of areas across the business, there's still more to do, and that will come with time. And also, the final thing on that is some of it is process, but some of it is, again, as technology continues to advance, we pair technology in with the process, and that allows whether it's productivity, more efficient, accurate outcomes. And so this -- the durability for our business is there, and we expect it to be able to produce sustainable results for a long time to come.

Right. And in terms of -- in our last few minutes, thinking about maybe capital allocation. Clearly, you have strong cash generation and the shares to your credit are at a higher valuation than perhaps they were. How do you balance the reinvestment in organic growth versus M&A versus share repurchase? How do you think about balancing all of those levers?

Sure. Well, investment in the business, the core business for organic is job 1, and that's priority one. And so if we have the right return projects and/or the things in order to make sure we're keeping the business maintained, et cetera, we will continue to invest in that. We're investing capital at record levels and where we have those things, we'll continue to do that. And then after you go to that because our leverage is at a sort of healthy mid-2s, strongest among peers that we really don't need to use cash to pay down debt. So then it's the toggle back and forth between repurchase and M&A.

And M&A, our team continues to work a solid pipeline. And the nice thing is if nothing comes to fruition there, then we can toggle it over to share repurchase. And just to your point, historically, with our shares being where they were from a valuation perspective, we've deployed excess cash flow, and you've seen that really show up in the form of supporting the stock and also, we bought a lot of it at a lot lower prices than we've been at today. So we think it's a good use of cash. And we view ourselves as an important part of my job and our job is to be prudent allocators of capital.

And investors often talk about the M&A opportunity when you say that the big 3 have sub 40% market share. I think it's often talked about tuck-in M&A. But what do you think are the biggest opportunities there for US Food in terms of M&A opportunity?

I think it will continue to be tuck-in M&A. I think there's periodically where we'll look at something just because it's our responsibility from a strategy perspective that may be bigger, but the tuck-in M&A is really more of our core. I think there's elements of specialty that are interesting just because of our success with Pronto that could be out there. But I think that tuck-in or maybe even on the larger end of tuck-in is really where you'd probably expect us to continue to focus. And we're going to continue to do deals if we think they're the right deals as opposed to just doing M&A for the sake of M&A.

In our final minute, we are rolling towards the end of 2026. And as we think about 2027, I'm wondering if there's any particular initiative or milestone that you think has the greatest potential to change the earnings power of the company, maybe the leading indicators that the investors should be watching for as we think about looking to big things for 2027.

I think for us, the acceleration we've seen in independents, I think that's a big unlock. Again, in this environment, we're very pleased to be at that 5% plus. And we think with -- because we know we have a number of markets that are growing faster -- meaningfully faster than 5%. So we know that's a big unlock. And then as we leverage technology across the business, that will continue to be a big unlock. And as I said, with AI, I'm pleased with the work we've done. We've leaned in very heavy. We will continue to lean in extensively there.

I think there's a lot of opportunity to be harvested there, both from a sales growth and productivity. And then there'll be things like strategic vendor management, indirect spend that have multiyear horizons that will continue to yield value. So I think for us, what you'll continue to see is more from share gains, GP expansion and OpEx productivity. That balance is healthy, and our execution story is in full force. And pleased with what we've been able to accomplish, but there's much more to do.

Yes. Well, thank you very much. We've exhausted our time limit, but we want to thank Dirk and US Foods for attending and joining us today. Thank you very much.

All right. Thanks, Jeff. Yes. I appreciate being here.

Good morning, and welcome to US Foods Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

I will now turn the conference over to Mike Neese, Senior Vice President, Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and welcome to US Foods Second Quarter Fiscal 2026 Earnings Call. On today's call, we have Dave Flitman, Chair of the Board and 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.usfoods.com. During today's call and unless otherwise stated, we're comparing our second quarter fiscal 2026 results for the same period in fiscal year 2025. 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 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.

Thank you. I'd like to turn the call over to Dave.

Thanks, Mike. Good morning, everyone, and thank you for joining us. Before we begin, our thoughts are with our associates, customers and communities impacted by the devastating wildfires in Spokane, Washington. While our operating facilities were thankfully not impacted, we have 3 associates who tragically lost all or a portion of their homes. The US Foods family is rallying to support them, our customers, the affected communities and the brave firefighters and first responders serving on the front lines. At the same time, we remain focused on the safety of our associates while actively supporting our customers through our business continuity plans.

With that, let me turn to our second quarter performance. Starting on Slide 3. We delivered a strong quarter with record adjusted EBITDA and adjusted EBITDA margin and another quarter of double-digit adjusted EPS growth. Importantly, independent restaurant case growth of 5.1% was the strongest since the fourth quarter of 2023 and marks our fifth consecutive quarter of acceleration despite persistent pressure on industry foot traffic. Additionally, health care grew 3.5% and hospitality grew 4.4%. We also gained share with our target customer types, marking our 21st consecutive quarter of share gains with independent restaurants and our 23rd consecutive quarter of share gains with health care.

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 US Foods 3.5 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 4 strategic pillars. Dirk will then provide additional detail on our second quarter financial performance and full year guidance. Turning to Slide 4. 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 3.5 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 to 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 web page, 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 US 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 5 and 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 Ops QC, which tracks our ability to deliver accurate error-free orders to customers. In the second quarter, Ops QC improved 13% compared to the prior year. And over the last 2 years, it has improved 37%, reflecting disciplined execution and ongoing improvement work in this important customer experience metric.

Additionally, earlier this year, we began testing autonomous inventory scanning robotics in one of our warehouses 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 6 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 6. 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 5 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 8 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, and we are already seeing positive indicators in seller engagement that 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 2 to 3 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 health care 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 7. 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 3-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 8, 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. A key area of focus is sales force 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 6 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 [ Su ] 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 US 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 overshipment occurrences and building a new system for tracking inventory discrepancies that enables 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 disciplined 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 mix impact of 2.6%. Total and independent restaurant case growth both accelerated this quarter. Independent restaurant volume grew 5.1%, while health care increased 3.5% and hospitality grew 4.4%. Chain restaurant volume declined 1.5%, 30 basis points better than industry traffic as reported by Black Box.

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 $0.41 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 $0.21 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 1/3 of the increase versus prior year from higher fuel costs, combined with the higher sales cost related to the compensation plan transition. As a result, adjusted EBITDA per case increased $0.21 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 accretive 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 2.6x, well within our 2 to 3x 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 provides 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, US Foods maintains a unique position in the industry as the only pure-play U.S.-focused foodservice distributor with national scale. That focus allows us to go deep on broadline distribution and concentrate our resources on the 3 fastest-growing and most profitable customer types in the industry, independent restaurants, health care 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, improve 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 foodservice 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 US 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 US Foods.

With that, operator, please open up the line for questions.

[Operator Instructions]. Our first question is coming from Lauren Silberman with Deutsche Bank.

Congrats on the great quarter. I guess I'll just start on the independent case growth, real strong, I think, best in over 2 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. So what's driving that? And as the sales compensation transition happens, do you think you can help further accelerate share gains over the next few years?

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 4 or 5 quarters here. So we feel really good about that. 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 you're seeing that continue to gain traction. Really confident that we're going to continue to lean into independents and expect that volume to continue to accelerate.

Importantly, the sales comp change will be a long-term growth driver. Really pleased with the start-up here. I think Randy Taylor and the team have been working on that for 1.5 years, 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 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?

So there's a couple of main things that drove the beat. One is our fuel recovery was higher and better than we expected. So we expected, as we commented before, about a 2% headwind from fuel and ended up being less than half of that. And it really relates to just the discipline and making sure that we were enforcing the surcharges that we have and also with fuel getting to higher levels some of the surcharges for some of our larger customers that don't kick in until higher prices did go into effect. And so our recovery rate instead of our typical 30%, 40% was more like 70% for the quarter. So pleased with the execution of 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 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 Aiken-Phillips with Melius Research.

This is Sam Barton on for Jacob. You described the early results from the new sales compensation plan as encouraging. I was 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?

Yes. 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, incenting Pronto, we're starting to see some early returns and the focus that we like to see in those areas. It will take a while for that to impact our growth in a big way. But as I said, 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.

I wanted to ask on Pronto, just the progress on the incremental investments you're making in the business this year and clearly seeing results on the top line. I guess 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.

Alex, thanks for the question. Just as you recall, this is a multiyear journey around Pronto. We did a lot of piloting work. 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 of years ago when we actually started to pilot the work to our existing customers. And importantly, there were 2 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 broadline 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 2 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 $1.3 billion this year, and we expect that model to continue to drive growth for the future.

Just to add, Alex, that -- 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 a 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 investment 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 OpEx 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 gross profit per case on top of that and what the OpEx per case might look like 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, 2 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.

Great quarter. Dave, I wanted to follow up. You mentioned on independent case volumes that you expect this business to continue to accelerate. Curious specifically what you saw in July. And then your compares do get harder in the back half of the year. So I just want to parse out sort of that comment about acceleration.

Yes. Great question. Appreciate it, Ed. So I would say largely, July was consistent with what we saw in the second quarter, so maintained 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, 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. I couldn't feel better about the momentum and what the future looks like.

Great. And just a follow-up on the AI comments. I mean, foodservice 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 here are you capturing so far? I think you've kind of said you're in the early innings. And then if we zoom out, Dave, you've captured a lot of opportunity and upside from better sort of like operational execution. Is the opportunity with the implementation of AI into the sales force 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.

Yes. 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 MOXe and some of the things that we've talked about over the last couple of years, anything from where is my truck to improving product recommendations for customers, 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 sales force productivity because to 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 I'm 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/customer service levels and productivity. And 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 growth in the customer experience as well as productivity.

Your next question comes from the line of John Heinbockel with Guggenheim.

So Dave, I want to start. I know 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 think about penetration, right, versus cases per line. Maybe talk about that. And this -- 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 where that can be the biggest change in local case growth?

Yes. I do, John, actually. And as I've commented in 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 3% to 5% productivity target -- so where are we within that? I think last we heard maybe it was between 3% and 4%. Where are we? And how are -- when you think about differences between transportation, right, and the warehouse, are there material differences today between those 2 buckets or no?

John, so we're still in that 3% to 4% range. And depending on the year, warehouse or delivery can be a little higher, a little lower. But every year, we have activities and technology enablements that support both of those. And I think that, that will continue to be the case going forward. I think as we think about some of the tools, whether we talk about AI and/or continued just process improvements, that will benefit both of those. One thing that is -- as 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 Bania with BMO Capital Markets.

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 or if you feel like there's just more to come on that front?

Yes, I'll take the first question first there. 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 as strong as it's been in 3 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+ for execution on this one.

Agreed. Dave, if I could just ask one other one on AI, maybe a little bit different. Obviously, you guys have been ahead 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 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 the amount of investment that we make in this area of the business, consistent with 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 5 quarters, the team feels really good about, and we expect that will continue over time.

Your next question comes from the line of Mark Carden with UBS.

So how did headcount growth play out for your sales force 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 sales force. Do you guys think that the formal move to the more variable model impacted what you're seeing from a talent pool perspective?

Yes. I 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 sales force candidates?

Yes, I think -- and I've commented previously on that. I think it will through the course of time. It's a bit early to haven't seen anything material there. I think that it will attract a different type of seller to the company long-term who has thrived on maybe in other industries or other businesses at 100% commission model. But we'll see. It's early days.

Got you. That's great. And then 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 pick up pretty consistently across concepts? Any call outs on that front?

Yes, I wouldn't say there's anything material I'd call out in the second quarter where we've seen any significant meaningful shifts. And 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.

And 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 focused on in independents despite sales or penetration 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 Harbour with Morgan Stanley.

I was curious about health care 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. It's -- 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 has done a really nice job of continuing to have a very robust pipeline, bring our value proposition to life with 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 bigger driver. And our expectation is both will continue over time. And within health care 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'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, there's a click down process that supports that at the individual level. 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 Saleh with BTIG.

Congrats on the quarter. I wanted to ask about the EBITDA margin, 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 asked another way, when you look out, 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?

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 3 target types is the right balance over time to profitably grow the business. Because we're doing -- driving that growth through various initiatives, we really don't see a cap. I mean I'm sure maybe there's one out there, but it's going to be long down the road. And year-over-year, that 20 basis points that we're focused on delivering, we expect that we can 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 and even 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 midterm.

Great. And then can I just ask on -- 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 Holthouse with Citi.

Congrats on a great quarter. How are you thinking about -- there's a comment in prepared remarks or in the slides about a good pipeline for tuck-in M&A. How are you thinking about that contribution to independent case growth in the second half?

For the second half, we expect M&A to be a pretty small contribution. We have 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 US Foods network. But overall, in the meantime, we're going to continue to work on accelerating organic growth as we have independents, as Dave said, for the last 5 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 callouts of commodities being outsized contributors to inflation or deflation?

But maybe just for context, the -- 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 say 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.

Great. 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 recent puts and takes on the cost management initiatives that you have, but also the portfolio mix that is consistently skewing towards more profitable segments of your business?

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. And -- 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, our customer mix and product mix, that will continue to be a contributor to those gains as well over time.

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 tightening. 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.

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 of years and again, right on par with where we were pre-COVID.

Yes. And I think to Dave's point, the big part of the reason we don't have challenges in hiring and retaining on that customer base is 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 talk about productivity in the 3% to 5%, cost inflation is in that 3% to 5% as well, the way we think about the outlook.

Your next question comes from the line of Margaret-May Binshtok with Wolfe Research.

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 brands 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?

Yes. I think importantly, both of those are connected. 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, 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 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.

Your next question comes from the line of Andrew Charles with TD Cowen.

The health care case volumes in 2Q slowed a bit from 1Q in both the 1- and 2-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?

I think when you talk about still being in that 3.5% or so, that's pretty strong case volume. And from quarter-to-quarter, depending on individual customers, timing of onboards, et cetera. It can move around a little bit. But I think both health care 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 in each of those, and our team is 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 drove about 1/3 of the increase in operating expenses. Was that largely onetime? Do you expect that to endure?

So 1/3 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. As Dave said, that the team was so we're looking ahead as to getting ahead of any potential turnover. This was, we believe, the right choice to hire ahead. And as you said, as that ramps back down to the mid-single digits, then we would expect the headwind to ease. But right now, for the next couple of quarters, we do expect it will result in some elevated selling costs.

Your next question comes from the line of Rahul Krotthapalli with JPMorgan.

Dave, 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 headcount, where do you think is the ceiling for span of control or 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 I have a follow-up.

Yes. 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 US 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 mind share and their time, how they're supporting their customers. To the extent AI helps our customers help themselves more, it frees up that time and resource, that valuable time and resource of our sales force to go drive new growth.

And I think about AI in terms of productivity, we've taken a lot of cost out of the business in the past 2 years. In 2024 and '25, 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, but 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. And AI is going to be an increasingly important part of that and an enabler to consistently drive that productivity across the business.

And year in and year out, we're always looking at reinvesting back in the business. And so when we talk about whether it's cost and productivity or 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, et cetera. 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.

And then the scanner test expansion to 6 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 1 to 6, we're seeing good early results from those, helping with better accuracy in the warehouse and sort of 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 are moving ahead. As robotics continues to advance, we continue to evaluate and we'll make that determination over time when 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. I 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.

Hi. I'm Lauren Silberman, the equity research analyst covering restaurants and food distributors here at Deutsche Bank. Sorry, I can't be there today in person, but I'm very happy to introduce US Foods today live from Paris. With us, we have Chairman and CEO, Dave Flitman; and CFO, Dirk Locascio. I appreciate you both being here. Nice to see you.

Good to see you, Lauren.

Thanks, Lauren. Good to see you.

So I'll just run this on with Q&A, and I will start with the consumer. Your business has been very resilient through cycles. Can you just give your latest views on the state of the consumer environment? Have you seen any impact from rising gas prices on consumer demand?

Sure. Well, first of all, good afternoon to everybody here in the room in Paris, and good morning in the U.S., good early morning. And Lauren, congrats to you on your upcoming wedding. I can't imagine there's anything more important you had to do today than spend a few minutes with us, so we appreciate it.

I think relative to the consumer, I think I would gauge it as pressured as it has been for quite some time, but stable. And I'll come back to the stable comment here in a minute. But if you think about all the consumer hits that have been taken since COVID from an inflationary standpoint and you just translate that to the restaurant space, foot traffic has been pressured for 2.5 years in the industry. And then to your point, you throw on top of that the Iran conflict that started at the end of February and what's happened to fuel prices. It's just another headwind for the U.S. consumer.

However, I think the consumer has proven quite resilient. When you think about that foot traffic pressure being down between, say, 1% and 3% over the last couple of years, just under 2% in the first quarter, I think that speaks to a couple of things. One is the resiliency of the U.S. consumer. And secondly, and importantly, the resiliency of the U.S. restaurant space in that industry. And I think through many macro cycles, it's proven time and time again to be very resilient. I point back to the Great Recession where volumes were down, we were flat on EBITDA, but volumes were down just mid-single digits.

And short of a major cataclysmic event, that's as bad as it gets. And all through those cycles, the restaurant industry has bounced back. And importantly, now just turning to us, I was really pleased with our performance in the first quarter, given all that pressure and backdrop. We grew EBITDA over 6%. Importantly, we expanded EBITDA margin by 14 basis points and delivered double-digit 15% earnings per share growth. And underlying all of that was an acceleration of our independent case growth.

Actually, it was the strongest in the last 2 years in the first quarter. We felt really good about that. It's just the culmination of all the work that we've been doing. And as you always hear me say about our team, these macro events, we can't control them. What we can control is the things within our 4 walls and importantly, serving our customers extremely well and making sure that we're focused on taking market share. So -- and if you look at our 3 targeted customer types, we did that in the first quarter.

And then to the stability in the consumer, as you flip the calendar into here in the second quarter, Black Box was down like 1.7% in April and just recently came out from May down 2%, so fairly stable backdrop, bouncing around that 2%. But importantly, for us, we saw case growth acceleration from the first quarter into April, and that maintained itself in May. So we're feeling really good about our momentum here in the second quarter.

That's great. On the case growth point, you've been accelerating over the last few quarters across the key segments. And to your point, Q1, independence, 4.6%, hospitality, 5%, health care, 3.7%. Has anything changed internally? Or what do you attribute the most meaningful drivers of the accelerating momentum?

I think the simplicity of our strategy and the long-term focus that we've had, those 3 targeted customer types are the fastest growing and most profitable in the industry. Importantly, we've built over the past many years, competitive moats in each one of those areas. We talk about our digital leadership. We talk about our go-to-market strategy. As you point out, this isn't a fluke. We've gained market share consistently 20 consecutive quarters with independent restaurants. 22 with health care.

And in each one of those, we've built a significant differentiated capability. And importantly, the hearts and minds of our sellers is on serving our customers very well despite what's going on in the macro and staying focused. As you know, net new account generation is really what's been fueling our growth in the independent restaurant side. That's been accelerating for the past several quarters. Again, focus, dedication, commitment to generating that new account growth. Really pleased to see penetration improve in the first quarter, strongest in quite some time. We're just going to keep doing what we're doing because it's working.

Great. You see just such a broad swath of the industry. Can you just talk a little bit about the health of the independent restaurant as you see it and any comparison to chain restaurants or anything else that you're observing with the independent restaurant?

Yes. I would couch it like I do the consumer. I mean there's been a lot of pressure over the past several years thrown at these independent operators coming out of COVID, anything from labor to rent costs, to food cost inflation, and that has persisted. And time and time again, they proved very resilient. Importantly, it plays to our strength in helping them take cost out, an important role.

Our exclusive brands play in that. Those tend to be lower cost offerings for our customers, very high quality. And importantly, oftentimes, those are prepackaged, preprepared and takes time out of the kitchen. Anything that we can do to help them be more productive is very helpful for them. But I would say relative to your question on chains, I think independents have been taking share for quite some time away from the chains.

I think a couple of differentiators there, Lauren, they've got a pretty loyal customer base. They're very flexible. Unlike chains, I mean, they can pivot their menus very, very quickly to the extent that they need to, a little more challenging for chains to do that. And I don't see anything that's going to change that trend of independents taking share over the long haul.

So US Foods is the leader in health care, which has been growing cases low to mid-single digits consistently over the last couple of years. What's your source of differentiation in that channel?

I'd say a couple of things, very analogous to the independent restaurant space. We've got a dedicated sales force that really understands that industry. Importantly, we've got a lot of health care professionals on our staff. Many of them were health care operators before they joined us. So they really understand the pain points that those operators live with each and every day.

And then just like MOXe for independent restaurants and hospitality, we've got an analogous technology called VITALS, which we developed fully in-house that really speaks to those pain points and helping them optimize their costs, understanding their nutritionals. Importantly, no one else has anything like that, and it's a huge differentiator for them. And when you think about multiunit health care operators, being able to see all that consistently across all their operations within that VITALS tool is very, very helpful and meaningful as they work to optimize all of that.

On the hospitality side, also very important and a key customer segment. How are you thinking about growth there? Any thoughts on sort of the competitive dynamics in that segment?

Yes. Over time, I think the trends in hospitality generally follow the restaurant trends. The numbers are different, but I think they go arm in arm. In similar fashion, we've got dedicated support there. Both in health care and hospitality, we have long-term GPO relationships that help provide market access for us. We also drive growth in both of those on our own as well. Excited that we announced on our earnings call a couple of weeks ago, a month or so ago that we launched SIGNATURE for hospitality.

And that, again, brings together the best of what we've got to offer in terms of technology and capability for the hospitality customer. We'll help them with similar labor and staffing challenges and help them optimize that and importantly, also bring the capability to help them optimize costs for their menus when you think about large banquets or catering events or even greater scaled entertainment events. So we're really excited about what SIGNATURE is going to bring to the hospitality space.

Awesome. I'll shift to the cost side for a little bit. Q1, you had some weather disruptions, fuel costs. How much of a little bit of the elevated cost was a Q1 dynamic? And just any thoughts on flow-through as we move through the rest of the year. You guys obviously have a great track record of execution.

Lauren, so in the first quarter, we had about 400 basis points we estimate of impact combined from the weather and from fuel. About 300 of that from weather with our distribution centers having roughly twice the number of closure days this year as they did last year. It's just a more severe and widespread winter weather and then about 100 basis points from fuel. And fuel really, as you know, escalated into March and then it stayed elevated. I think it's up 60% diesel is from the beginning of the year.

And that's an area where we and the industry mitigate a portion of that through fuel surcharges, in our case, about 30% to 40%. We also have about 1/3 of our fuel locked in on forward contracts. So about 2/3 have been mitigated with the balance flowing through and impacting the P&L. So a headwind, but not to the point of 1.5 points or 2 points, but not overly significant to the business.

And the good thing about that is as that fuel price normalizes, that benefit flows right back into the P&L. So it's a headwind we'd rather not have for a lot of reasons, but it is one that we work our way through and mitigate.

How are you thinking about the impact of rising fuel costs on other input costs through the supply chain? How quickly do you usually see that to the extent you know?

So we haven't seen a lot yet from the fuel just because it's -- depending on the week, it's -- are we close to being resolved? Are we not close to being resolved? But when you have things like fertilizer that have had elevated costs for a little longer period of time, we've seen vendors have some level of pass-through. But what we have seen is still pretty modest levels of inflation.

If you look at our first quarter, inflation was only up 1.5% that's inflation plus mix. And as a reminder, in our industry, sort of that 2% to 3% inflation is sort of that sweet spot. So very, very modest. Most of the inflation is still coming from proteins. So we'll watch it closely, and it does get passed through ultimately to our customers. But part of our mantra and focus is we help you make it with our customers.

And so there are other things that we're trying to help them with on managing their costs because their job is hard enough and whether it's converting more to our private label or helping them use our new tool Menu IQ, which helps them understand their menu profitability, leveraging some of our incremental AI capabilities that we deployed just a few months ago. So we're going to continue to find those ways to help our customers make their job just a little bit easier.

Great. You guys have done a great job of implementing self-help initiatives to deliver on the algo despite some of the top line industry pressures over the last couple of years. What inning are we in, in terms of opportunity? And how you see the pipeline of initiatives from here?

Well, we've been living off of self-help for a long time, as I alluded to earlier. I think we're in the early to mid-innings depending upon the initiative. I think the point to keep in mind is our self-help starts at the top of the P&L around outgrowing the market, which we've been doing consistently, and we will continue to do. And as we pointed to on the second quarter call, we anticipate our growth to accelerate as the year progresses.

I was encouraged by the comments I made in the early part there of the second quarter and what we've seen to date. But also at the gross profit level, we've talked about things like strategic vendor management, continuing to improve our mix with our private label brand penetration, kind of at all-time highs of that with 54% with independent restaurants and still a lot of room to go there. We've talked a lot about supply chain work, operating expense productivity, and we're driving to that 3% to 5% annual target, which we're very, very committed to in an attempt to offset inflation, and we have invest a portion of those savings back into the business to fuel further growth.

But importantly, if you've watched us over the last couple of years, from time to time, we'll talk about new initiatives. I'll point to our inventory waste optimization that we've talked about recently, our operations quality composite that has both a positive impact on our productivity and also positively impacts the customer. About a year ago, we rolled out our indirect spend initiative.

So I think what you can expect to hear from us in the future is as certain initiatives come to maturity, there will be more into the pipeline that will go well beyond this current LRP that ends next year at the end of '27 and for many years to come. So we've got a machine built around this self-help. We very much believe in continuous improvement and making the business better all the time, and we will continue to find ways to drive efficiency and serve our customers better.

Great. On that private label point, 54% independents, I think 35% total business. What are you doing to expand that private label mix? Is it growing assortment, awareness? -- incentives to the sales force?

Yes, we do all of what you just said. Scoop is our innovation process. Twice a year, we launched new products aimed at solving operator pain points, staying on point with global culinary trends. Our team has been at that for 15-plus years, really deep experience, a lot of culinary experts on our team. We've got incentives in our sales force to both accelerate independent case growth and penetrate with our private label brands.

We've been talking more recently just because we've been getting this question a lot, Lauren, about the ceiling that we see at 54% kind of all-time highs, we're bumping up against the top of that. Specifically with independent restaurants, we've got 1/4 of our customers that are 70% penetrated with our exclusive brands or even higher. And so there's a long runway here.

Is everyone going to get to 70%? Likely not. But the point being 54% is not a ceiling, and there's a lot of opportunity to continue to drive further penetration. And our whole organization is aligned around that. And again, it starts with solving problems for our customers. These are lower-cost products, very high quality. The company makes more money selling those in a manufacturer brand. So we share more of that profit with our sales force. So it's kind of a virtuous cycle.

On the 70%, is there anything unique to those -- that customer set that gets you to 70% or not?

No, we wouldn't have thrown that out there if there was. I think it's indicative of the potential. And like I said, not everyone is going to get there. If you think about the journey that we've been on, a lot of the low-hanging fruit is behind us when you think about tabletop and those sort of things. We're really into formulations of menus and specific dishes now.

And that's the piece that takes time. These chefs are very concerned about what they put in front of their customers as they should be. And there's a lot of work to test those products and make sure that they're giving the experience and the taste and quality that the chefs demand. And so it's harder at this point, but there's no ceiling over the near term or even midterm to what that number can be.

And really, because as a consumer in that restaurant, we know what the brand is on very little that they buy. Most of it is to Dave's point, ingredients and things. So it really is that quality and value focus that operators can focus on. And as they test it in recipes, that's what takes away a lot of the ceiling and limits that retailers may have that we do not face and why operators have more flexibility and why, in our case, with our good, better, best brand hierarchy, we continue to focus on having high-quality products that meet their needs and reviewing the assortment regularly and adding products where we think there's a demand or an unmet need.

Okay. Shifting to AI, it's been a big area of focus. Can you talk about how AI can help the business on top line as well as some of the bottom line initiatives?

Let me just start and then I'll let Dirk do most of the talking here. Really excited about AI, and we're applying it in all aspects of the business. I'll just give you a couple of examples on the sales side recently that we've talked about. We talked about our menu order guide as long ago as 18 months. And if you think about our salespeople being able to understand a prospect's menu and translate that menu into what our offerings can be, you can educate the salesperson even before they've met the customer and have a much more relevant conversation.

Now they used to do that work on their own. It was a very manual exercise. It would take them 3 to 4 hours. With AI behind it, you can scour all of that and prepare the salesperson in about 15 minutes. So it's a really force multiplier for sales force productivity. Dirk talked about Menu IQ. We talked about that on the earnings call, the ability to understand and help optimize menu costs for our operators. They're very busy. They think about this stuff, but they don't have the time to work on it necessarily.

And for AI embedded tools to be able to assess their menu and make recommendations on where they can optimize cost while still creating great value and a great dining experience for their customers. We're really excited that 60 days in, we had 15% of our customers adopt Menu IQ, which is embedded in our MOXe application was very, very exciting and a strong out-of-the-gate performance for us. Last one I'll talk about here is just prospecting for our sellers.

Again, typically a very manual process. We've got an outside partnership, and we've created through AI, a very relevant prospecting tool for our sellers. So they don't have to spend the time thinking about where they need to go. They get those opportunities presented to them. And while those aren't necessarily fully qualified through AI, it gives them a very strong starting point to take that next step and know what to target. Again, just aimed at helping our sellers become a lot more productive. But we're extending AI across the totality of the business. Our analytics and data science team actually reports to Dirk, so I'll let him comment on some of that work.

And really, our approach to it is unchanged. It's a combination of build and buy and where we have some tools that we buy that have good capabilities with AI, we leverage them. So Descartes, our routing platform that we just replaced and put in by the end of last year that has some AI capabilities that we leverage across the network. Our procurement tools have the same. So we do take advantage of that where they're available. Earlier this year, one other example is we replaced the search engine and our MOXe platform. It's got more AI capabilities.

And so it gives -- it's giving customers better answers, and it gives them sort of better first answers, and it also takes time away from them calling the seller. The things that we build then are where it's either proprietary or we think we can do it better or more effectively or broader than what a third-party solution is. And we think about it the way you talked about it. There's -- the biggest pool is from the revenue and margin opportunity and then the secondary pool is around productivity. And it's things from recommendations for products to customers around where our trucks.

And some of those are concepts that have been around for a number of years, but they were typically very generic recommendations and now we can be very targeted, very specific as to what relates to you in your specific concept. So we continue to get better there. We also use it pretty extensively in our forecasting and buying processes. So we take what our existing tool has. We have some additional models we put on top of it, and that's allowed us to get to a more accurate and better service level for customers. In fact, we're at best levels that we've had historically for service levels. And at the same time, over the last 2.5 years, we've been able to take out inventory and reinvest a portion of that even into other product categories and better service levels.

So that's -- those are real things where we're applying them. Dave is a good example, I think, with sellers. So sellers, it's the combination of the prospecting. And then also, we have another tool that's been in market for several months. It's around helping sellers organize and manage their sales calls, and it's helping them with how they should spend their time. It's things that brings together things they should talk about with that customer. It will actually sometimes go out to social media and focus on what are the 2 or 3 key things that, that operator is talking about on social media.

And so you pair that then with the prospecting tool that Dave talked about, where it's doing a lot of that diligence for you. And so there's a series of agents running in the background that are doing all this. So from a seller perspective, you're spending less time researching it yourself and you can spend more time with customers, with prospects and selling. So our job is -- we talk a lot about the seller and the machine being partners is making that job easier for the sellers. They can spend more time with customers and driving that overall case growth and making their job more effective.

Great. There's obviously an effectiveness element to AI and the sales force. Do you expect that this would replace some of the growth in the sales force or it's purely a tool?

That's not the way we're thinking about it now. I think it's more what you've heard us comment on. It's really about the seller productivity. The restaurant space in the U.S. is very much a relationship business. People still buy from people that they like, first of all, and that they trust. You've got to earn that trust. And so yes, the machine can be very helpful in the background. And we haven't talked about MOXe that we've had for a few years now, but MOXe is really aimed at making it easier to do business with us, take out the friction of the relationship, allow the operator to do a lot of self-help.

We've given them visibility to our inventory if they order something. They can track their trucks, as Dirk said, and understand when their deliveries are going to show up. All of this stuff used to be a burden on the sales force because what they would do would be called the seller, hey, when is my delivery coming? Hey, I want to order this product. Do you have any of it? All of that now is very transparent to the customer, and all of this is aimed at making our sellers more productive. And I think that's what you'll see us do for the near term to midterm.

Great. I guess I'll ask a follow-up on MOXe and digital being a differentiator for US Foods. I guess, how is it a competitive advantage? Are you seeing other distributors with similar platforms? Is it more a large distributor versus small distributor?

Well, I think if you think about the investment that it takes to develop something like a MOXe, which we have -- we've been the leader in digital commerce for a very long time in this industry, and MOXe was the next natural evolution of making the one-stop shop for our customers. So there's been a lot of investment behind that. And importantly, to your point, while others may be driving down this journey as well, we continue to make it better.

And we just talked -- gave you a bunch of examples on how we're making it smarter and more effective and more useful for both our sellers and for our customers. That's the way we stay ahead of the game. Importantly, there is an investment threshold that just some smaller operators, distributors just can't afford and can't make those investments. And that's why it's important that we continue to step on the gas and make this thing better, easier to use, more effective.

Shift to sales force compensation. You're currently in the process of transitioning to 100% commission. Dave, I know this is something that you've thought about for several years at US Foods. Why is now the time to do it? Just talk a little bit about the rationale for the change.

Yes. We're very excited about this, Lauren. And in fact, you referenced a while. I've been thinking about it since the day I got here. And to your point, just really looking for the right time. And we just spent the last 25 minutes or so talking about all the things that we've done to make the business better and stronger. That's why it's the right time now. We've got a very strong core business that we continue to strengthen.

We've got a very strong leadership team that's focused on driving execution. And if we didn't have all that strength, it wouldn't be the right time to take that next step. To me, this is the next evolution in our journey with the sales force, and it's an important unlock. The way I think about it is an unlock for accelerating growth over the long term. I think the benefits over the short term are going to be limited, particularly in the way we're driving the implementation here. But I think we're going to look back on this in 2 or 3 years and say this is a seminal moment for us, unlocking growth for our sales force and really unleashing one of the strongest sales forces in the industry for a long time to come.

Great. Now we've been in pilot and you've been testing and I know you're taking a prudent approach. One of your large competitors had some bumps in the road when they made changes to their sales force. I guess what have you learned from the pilot in some of the tests? And how are you managing disruption risk?

Yes. So importantly, we started this 1.5 years ago, started thinking about the structure, how do we take complexity out of our existing compensation system and make it easier for the sellers to understand what drives their compensation. The second important thing that we did was link it to our business strategy. So the base of this comp plan is similar to the other one. It's based on gross profit per stop. So there's no fundamental change in that.

But we're also incenting them for things like growth in Pronto, growth in our exclusive brands, growth in independent restaurants. So again, back to our core strategy. But we've been managing change by driving some pilots. We talked about this in the fall. We're organized in 4 geographic regions. We actually piloted this change in all 4 of those geographies, made what I would call some minor tweaks, nothing major and structural just in our approach as we finalize the design here in the first quarter.

And importantly, we've given all of our sellers visibility to the new comp plan before we've ever changed their compensation. So for a while now, they've been able to see -- they obviously understand what they're making today. They can see if there's no change in behavior, what they're going to make in the new comp plan without changing how they get paid, just giving them visibility. The other thing we did was we trained all 500 of our sales leaders in detail around this comp change.

We brought them to Rosemont to our headquarters in the first quarter. Before they left the room, they had to be able to explain it on the back of a napkin. That's how simple the comp plan is. And so they've been engaging in individual conversations with their sellers as we've given them visibility. And then the last thing I'll say to manage risk is, and I've said this a lot, but I think it's still lost on some. We are changing the comp structure this month. Everybody is going live on the new comp structure, but everyone is not going to 100% commission this month. So if you think about our existing 50-50 structure, everybody starts in the company, a new seller comes into US Foods, they're at 100% base salary.

And then they go through a journey, time-driven journey to get to 50-50. Think about that approach as we insert all of our existing sellers into that new comp plan. Some may start at 100%, some may start at 20%. It depends on where they are in that journey. And that's why I say it's going to take 2 to 3 years to get the majority of our sellers actually up to 100% commission. And that's okay. For us, it's more important that we start that journey and head that direction than we flip a switch and cause a lot of upheaval and churn.

And I guess the last thing I'll say is I was most encouraged by our more senior sales turnover in the first quarter, those with 5 years of experience with the company and above, actually improved from the first quarter of 2025. So I think we've been thoughtful about this. We've had a robust change management process. I know our sales leaders and our sellers are excited about this, and we're excited to start that journey.

Great. Pronto is a program that you guys have been investing in for several years. Can you talk about what Pronto is evolution of it and how you're thinking about the opportunity from here, contextualize maybe the potential size of the prize as it continues to expand?

I'm very excited about Pronto. I might take the rest of your time talking about that one, Lauren. So we're very excited about this and the growth trajectory we're on for it. To your point, we started several years ago. And for those that aren't familiar, this is our small truck delivery service that has later cutoff times and more frequent delivery opportunities for our customers. And so we started this, to your point, several years ago, aimed at proving the model and just going after new customers, not opening it up to existing customers until we prove the model.

We call that Pronto Legacy. It's now live in 47 of our markets. And as we've gone through that journey and proven out the model, we started to take it about 1.5 years ago to our existing customer base, and we call that Pronto next-day. And we were very thoughtful and probably slow to start that because we needed to make sure of a couple of things. One, that we weren't just going to merely cannibalize our existing broadline business and take now 2 deliveries per week, which happened on 52-foot trailers and put them on less efficient, more frequent deliveries and not capture the margin that we needed.

So we needed to make sure that we prove that out. We did that and that's why you see us accelerating that work now. We're very confident in the model. We're very confident that our sales force understands the cost burden created by the smaller deliveries and the need to cover that with price. The good news for our customers and for us is really what this does for us is it opens up a part of the TAM that we couldn't compete against. So you think about where our existing customers are buying on box trucks today, it tends to be from smaller specialty suppliers of fresh product, either think center-of-the-plate proteins, produce, vegetables, all that sort of stuff, fruit.

All of that stuff that spoils quickly is why they go to these specialty suppliers. Well, if you think about for us, we've got 10,000 to 15,000 SKUs in all of our distribution centers around the country. We have access to all those great products. What we didn't have was the service offering that the customers needed, the later cutoff times, 5 days a week delivery if we needed -- if they wanted it. And now we've got that. And I think that's why you see Pronto getting such good traction. And for the operator, the less distributors they can have, the simpler their operations become. And I think that's why they lean into it.

Just a data point for you, when I joined the company 3.5 years ago, Pronto was a little over $300 million in revenue. Last year, we hit $1 billion, and we're committed to $1.5 billion in 2027. And I think there are 2 vectors of long-term growth here for Pronto. First, continuing to penetrate additional markets. We're live in 26 markets with Pronto next-day. We're going to do 10 more this year. We've got 47 with Pronto Legacy. So we'll continue to ramp up markets. And then beyond that, when we enter a market with Pronto, it's typically just with 1 or 2 trucks until that market proves the capability to drive the outcomes that we need with Pronto.

We have many markets today that have 10, 12, 14, 15 or more trucks as they've grown and proven that capability. And so that's another vector of growth to ramp up capacity within a market once we start Pronto. So we're excited about it, not just for the near term, but also over the long term.

And that approach to earn the rights to more trucks has worked quite well. Our field teams really like the Pronto program. They want more trucks. And so when we monitor it closely, how they're doing and how they're utilizing the trucks, are they getting the right margins, et cetera? They're targeting the right customer types.

It works quite well. And so that's why this year, we're making our biggest investment we've ever made in Pronto. And our message we've given the team is we keep doing well with that, and we'll continue to increase our capacity there. And that $1.5 billion for next year, to Dave's point, is probably just the beginning.

On M&A, you guys have completed a handful of deals over the last couple of years, tuck-in acquisitions. Just talk a little bit about what you're looking for potential target, your commitment that the focus is more tuck-in and where you get some of these synergies.

Yes, I'll take your first part of your question, and I'll have Dirk talk about synergies. For us, and I always start by saying this, we don't need to do any M&A. We've got a very strong footprint. We've got 75 distribution centers, all the major MSAs covered. But when you look at what we've done over the past 3 years, we've had 5 of these tuck-in acquisitions. All of them were either in existing markets or in markets that we were serving, but from a greater distance away. And so that's really the driver of our motivation is to increase our local market density, take miles out of our distribution network and capture some of these synergies that Dirk will speak about.

But it starts with what we look for, which was your question, which was a heavy mix of independent restaurants. That's what we look for. We look for strong management teams. We don't typically go after depressed businesses. That's not what we're looking for. We're looking for well-respected, capable organizations with strong performance over time. And we always say this, it takes a long time to develop these relationships because many times, these are family-owned, multigenerational businesses that maybe don't have the next family member coming through on that journey, but they're very concerned about what they've spent their whole life and career building, and they want to make sure they hand it off to someone that's going to nurture and improve that business like they have.

And so that's why it takes a long time to build these relationships. And you never know when something is going to come out of the pipeline, which is what you've seen us do. There's been a couple of quarters where we've done 1 or 2, and there's been several quarters where we haven't done any. It just depends. But I will tell you, our pipeline is very active as it always has been. and we've got a very strong M&A team. And Dirk, do you want to talk a little bit about.

I say we work hard also to build a good reputation as a good acquirer, where sellers feel comfortable that their business is going to be in good hands. I'd say different deals can have synergies show up in different ways, but 2 main buckets are around procurement synergies just from our scale, applying that to their markets and then taking miles out of the system by increasing route density. When we go in and look because we do -- when we complete transactions, we do convert them to our systems over time. We're thoughtful at the pace in which we do that.

But those are the 2 main areas that allow us to see the synergies. And we spend a lot of time on making sure that sellers, local teams, customers understand when those changes are coming. And as you would expect any time in the process, we continue to learn. And I'd say the sort of secondary lens we will apply sometimes to deals is around capital avoidance or asset quality. So that's not primarily.

Primarily, what we're focusing on is exactly what Dave said. But there's -- there are some assets that we have bought where they just have nice new buildings and they come with some EBITDA, and we were able to pay a very fair price for them and be able to add that capacity to the network for cheaper than it would cost us to build it ourselves. So we look at it from that lens secondarily as well.

Great. You guys operate more than 90 CHEF'STORE locations, cash and carry businesses. We have one of your big competitors process of acquiring a large cash and carry business. Is there any change in how you're thinking about that cash and carry industry and CHEF'STORE and playing in that arena?

No, there's no change, Lauren. And as you recall, we attempted to make a sale of that business shortly after I joined the company and pulled back from that because while I don't feel we're the rightful owner for that, and just for context, it's a very small portion of our total business, less than 5% of our earnings. I believe it's always going to be a very small portion of our business. And the reason we went down the potential divestiture path is the acquisition that we did there, there were some assumed synergies with our broadline business and just the location of those facilities are far enough away from our core broadline business and customers that those synergies just haven't materialized, and I don't believe they ever will.

Now having said that, we're not going to give the business away. And what we said and what you've seen us do for the last couple of years now, 1.5 years, as we said we would continue to improve the business and focus on serving our customers well, and that's exactly what we're doing.

Just on guidance, you guys have long-term targets for 5% sales growth, 10% EBITDA, 20% EPS growth, which covers '25, '27. As we think beyond '27, any color on even qualitatively, how you're thinking about the growth trajectory for the business?

Well, we feel good about the trajectory now. We've got 1.5 years left in this LRP, so I don't want to get ahead of our headlights here over stare our headlights. We've got a lot of work to do on the execution front to deliver. But we've been delivering. We've been doing exactly what we said we were going to do, leading the industry in EPS growth for 3 years. I think we've got the best leverage across our P&L of any of our competitors in terms of leveraging top line growth to bottom line outcomes, and I expect that will continue. All of that is driven by our self-help work.

And as you heard me say earlier in the conversation, I think we've got a long journey of that ahead. I won't say that when we roll out our next long-range plan in a year, plus or minus, that you won't see some new things in there, but I think the fundamentals of how we're operating the business will continue. I don't see major shifts in our strategy. Ours is very much an execution and self-help story. I think that will always be the case, and we'll stay focused on controlling the outcomes that we can control.

Great. Capital allocation perspective, just your priorities and balancing investments in the core acquisitions and repurchases.

Yes. So our debt overall is in a very good place, sort of right in almost in the middle of our 2 to 3x target range, the strongest among peers. And so we don't need to pay down debt. We're investing record levels of capital -- CapEx into the business. So there's no starving the business of capital. So then that really results in a lot of excess cash flow for repurchases and M&A. And as you heard Dave say earlier, with M&A, although the team can work hard on the pipeline, you don't know when things are going to close. So what we like is how you can toggle back and forth between those 2 and repurchases are a good tax-efficient way to return capital to shareholders.

And if you recall in our long-range plan, we set out an expectation to generate over $4 billion of operating cash flow and deploy about $2 billion of that toward repurchases. And last year, just in the first year, we did $930 million, and we expect to do another significant pool this year. So we think it's a good way to return capital to shareholders and you take our strong core earnings growth with 10% EBITDA growth and you put the accretive capital allocation on top of it and then you get to that 20-plus percent EPS growth again, which is far above the peers in this space. And like Dave said, a lot of runway ahead of us still.

Great. We talked about a lot today. Anything that you would like to leave investors with?

Yes. We're excited about our journey. We're doing a great job of controlling the outcomes. We've got a very strong leadership team that's focused on execution. I think you will continue to see us do exactly what we say we're going to do. That's our hallmark. We're all aligned around that, and we're going to continue to drive the outcomes our shareholders need for us to deliver.

Great. Dave, Dirk, thank you guys so much.

Thank you, Lauren. Thank you. Appreciate it.

Hello. My name is Karen, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the US Foods Holding Corp. Q1 '26 Earnings Call. [Operator Instructions] I'd like to turn the call over to Mike Neese, Senior VP of Investor Relations. Please go ahead.

Thank you, Karen. Good morning, everyone, and welcome to US Foods First Quarter Fiscal 2026 Earnings Call. On today's call, we have Dave Flitman, 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.usfoods.com. During today's call, unless otherwise stated, we're comparing our first quarter fiscal year 2026 results to the same period in fiscal year 2025. 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.

Thank you. I'll turn the call over to Dave.

Thanks, Mike. Good morning, everyone, and thank you for joining us. Before we begin, I want to thank our dedicated team of 30,000 associates for their unwavering commitment to serving our customers, which was clearly evident in the first quarter. Through their hard work, despite the significant weather-related challenges and increased macro uncertainty related to the Iranian war, we again accelerated our case growth and made further progress on our self-help initiatives.

Perhaps more than any other quarter during my tenure, this performance reflects our ability to win in any environment. I'll move now to highlights from the first quarter, followed by an overview of our performance and the progress we've made in executing our strategy, all of which positions us for further growth in 2026. Dirk will then review our first quarter financial results in more detail and provide an update to our 2026 guidance.

Starting on Slide 3. During the first quarter, we delivered strong results amid headwinds from severe weather, the conflict in the Middle East and rising fuel costs, with consumer sentiment declining to an all-time low in March, all of which impacted our industry. Importantly, we accelerated year-over-year and sequential organic independent restaurant case growth by more than 300 basis points and 70 basis points, respectively. We posted 15% adjusted diluted EPS growth despite a deteriorating macro environment that persisted well beyond early February when we provided our first quarter guidance.

We delivered strong case growth with our target customer types. The first quarter marks our 20th consecutive quarter of market share gains with independent restaurants and 22nd consecutive quarter with health care. We achieved our strongest organic independent case growth in more than 2 years at 4.4%. This achievement reflects the continued momentum we are building by winning new business and bringing increased value to our customers.

Case growth started out strong before storms hit a significant portion of the country beginning in late January and persisted through much of the quarter. Despite these challenges, we again posted profitable growth by focusing on what we can control. And we grew adjusted gross profit 50 basis points faster than adjusted operating expenses, increased adjusted EBITDA 6% and delivered 15% adjusted EPS growth. The winter storms and higher fuel costs impacted our P&L with nearly twice as many distribution center closure days this year compared to the first quarter of last year.

Adjusting for these external impacts, we believe our adjusted EBITDA growth would have been approximately 10%. Importantly, our April independent case growth remained strong and was in line with our first quarter. We are focused on executing our strategy with discipline and consistency, underscoring the strength of our business model, the significant momentum we've built over the past several years and our ability to win in any environment.

Let's now take a look at our progress within each of our strategic pillars. Starting on Slide 4. Our first pillar is culture. Keeping our people safe is paramount. During the first quarter, we improved injury and accident rates by 12% compared to prior year and 45% over the past 3 years. While we're making steady progress, our ultimate goal is 0 injuries. As part of our commitment to safety, we continue to replace our end ride powered industrial equipment with safer center ride models to greatly reduce the risk of one of our most serious injury types.

We have completed 80% of that rollout, and we remain on track to finish by year-end. Beyond improving safety, we continue to invest in the business, focusing on developing our people and strengthening our capabilities. During the first quarter, we brought together more than 500 leaders for our Sales Leadership Academy, a multi-day workshop focused on strengthening critical leadership skills, building high-performing sales teams and preparing them for the rollout of our new seller compensation plan. Feedback was very positive and reinforced the value of this continued investment in the development of our associates.

Moving to Slide 5, our service pillar. To enhance our customer experience and the value we provide, we continue to advance our digital capabilities and drive operational excellence across the business. We have embedded new AI capabilities into our MOXe platform that empowers our customers and helps them run their business more efficiently.

We recently launched Menu IQ, an AI-powered tool that helps restaurant operators better manage food costs and gives them real-time visibility into menu profitability.

Menu IQ is built the way operators work, bringing together essential capabilities that make menu management intuitive and actionable. Operators can upload recipes and automatically calculate food costs, monitor which menu items drive margins and identify underperforming dishes. Recently, a chef at one of our independent restaurant customers shared their experience. He said, Menu IQ is easy to use and super fast. I can cost out new menu items and try ingredient swaps in a few minutes on my phone, something that used to take hours juggling spreadsheets.

Customer adoption has been strong. In just 2 months since launch, 15% of our independent customers are using Menu IQ, which is double our early expectations. AI remains an important opportunity for us, and we continue to expand the use of our proprietary and third-party tools. We are building momentum as we apply these capabilities to enhance the customer experience while driving productivity and more effective execution across the business.

We are also thrilled to introduce Signature, our new differentiated solution for hospitality customers, which provides similar value that our highly successful VITALS program does for our health care customers. Importantly, SIGNATURE goes deeper than just our customers' ordering relationship with us. It's a comprehensive suite of industry-leading products, smart technology and support designed to help our hospitality customers solve some of their biggest challenges.

Managing labor and staffing, identifying cost savings opportunities and improving menu profitability for high-volume events such as catering and banquets. In addition to providing the right tools and resources to help our customers make it, we are building a best-in-class supply chain to ensure customers get the products they ordered on time and in full.

A key driver of service level improvement is our focus on operations quality composite or Ops QC, which measures how well we deliver accurate error-free orders to customers, enhancing the quality of service that our customers experience.

We made strong progress with Ops QC in the first quarter, improving by 21% and building upon the 20% improvement we achieved last year. In fact, Q1 represented our best performance since the first quarter of 2019. In summary, we continue to enhance our customer value proposition to help our customers make it while executing our self-help initiatives to drive sustainable improvement in our operations and generate annual productivity gains.

Now let's turn to our growth pillar on Slide 6. Pronto, our small truck delivery service, is a powerful competitive differentiator and strong contributor to our growth strategy. Through Pronto, we offer our customers more convenience and flexibility, including smaller order sizes, more frequent deliveries and fill-in orders, which enables us to more effectively compete with local and specialty distributors.

We continue to expand the reach of Pronto and have recently gone live in our 47th market. And Pronto Next Day, which extends the Pronto service to existing independent customers, is now live in 26 markets with plans to add approximately 10 more this year. The overall Pronto program is growing at strong double-digit rates and remains on track to generate $1.5 billion in sales in 2027, demonstrating this model's success and Pronto's role as a key long-term growth driver.

Another expected driver of our long-term growth is our new seller compensation plan, which will go live across the company next month. As a reminder, our local sales force will transition from their current 50-50 fixed and variable compensation plan today to a fully variable plan. We are committed to ensuring a smooth transition for our sellers and our business. As we have previously discussed, it may take 2 to 3 years for the majority of our local sales force to fully transition to 100% variable compensation.

Doing this well rather than adhering to a strict time line is the right approach to fully support our sellers through this important change that we believe will unlock future growth. The new compensation structure will create better alignment to our business strategy, enhance the earning potential of our sellers and fuel future case growth. I am pleased with the progress we're making towards our launch and our sellers and sales leaders remain excited about the opportunity ahead.

Let's now move to our profit pillar on Slide 7. Our team effectively managed this challenging quarter through the disciplined execution of our self-help initiatives, resulting in consistent profitable growth and margin expansion. Adjusted gross profit was $1.7 billion, up 4.4% from the prior year and was driven by volume growth and improved cost of goods sold. We continue to make progress with our strategic vendor management work aimed at generating additional cost of goods savings.

As we realize these benefits, we are reinvesting a portion of those savings to help accelerate growth. We continue to expect to deliver at least $300 million in cost of goods savings over our 3-year long-range plan ending in 2027, which is up from our original $260 million commitment.

We also remain focused on growing our private label brands. Our penetration remains strong and stood at 54% with our core independent restaurant customers. Private label remains a meaningful growth opportunity as it benefits both our customers and US Foods by offering more cost-effective products and supporting stronger margins.

In addition to improving gross profit, we are offsetting operating expense inflation by accelerating productivity, simplifying administrative processes and capturing savings on indirect spend procurement. In the first quarter, we delivered a 3% improvement in year-over-year warehouse and selector productivity, driven in part through our US Foods Market Operating System, or UMOS for short.

UMOS is our supply chain process standardization and continuous improvement platform to operate more effectively. It is a key enabler of our annual productivity improvement goal of 3% to 5%. UMOS is now live in 70 markets, and we expect to finish deployment by the middle of this year.

Lastly, indirect spend remains an important lever in our expense management efforts, and we continue to generate strong results. This year, we expect to deliver more than $75 million in savings, up from $45 million last year. And we remain on track for more than $100 million of savings in 2027.

Before I hand it over to Dirk, I'll take a moment to acknowledge our exceptional associates who consistently deliver excellence. May holds special significance for us as it marks the 10th anniversary of the US Foods IPO, and it is also National Military Appreciation Month.

On May 26, 2016, US Foods debuted on the New York Stock Exchange with an initial public offering at $23 per share. We've come a long way over the last 10 years, transforming into the strong and resilient company we are today. I extend my sincere gratitude to our 30,000 associates for their dedication and their hard work.

I'll also highlight an associate who achieved an extraordinary accomplishment. Jaden Fonomdang, a Night Selector in our Sacramento distribution center, has taken the every case matters mentality to the next level, selecting more than 1 million cases without a single error since June 2023. Each and every case he selects reflects his commitment to accuracy and his pride in ensuring our customers receive exactly what they ordered every time. Thank you, Jaden, for your commitment to delivering excellence to our customers.

With this being National Military Appreciation Month, I am incredibly grateful for our 1,500 veteran associates and the unique expertise they bring to our company. At US Foods, we highly value the skills gained through military experience, and I am proud that we are on track with our Mission 2030 commitment to hire 3,000 military veterans by the end of the decade.

As Memorial Day soon approaches, we remember all the courageous men and women who have made the ultimate sacrifice to defend our freedom. To all our active military and veteran associates, customers, partners and investors, thank you for your unwavering dedication and steadfast commitment to our great nation.

Now let me turn the call over to Dirk to discuss our first quarter results and our 2026 guidance.

Thank you, Dave, and good morning, everyone. Our first quarter performance reflects our continued focus on controlling the controllables, driving profitable volume growth and delivering on our self-help initiatives. We again grew adjusted EBITDA, expanded margins and grew adjusted diluted EPS meaningfully faster than adjusted EBITDA.

We also generated significant operating cash flow and remain disciplined with our capital allocation priorities, investing in the business to support growth and repurchasing shares while maintaining a strong balance sheet.

Starting on Slide 9 and our financial results. First quarter net sales increased 2.8% to $9.6 billion, driven by total case volume growth of 1.4% and food cost inflation and mix of 1.4%. Excluding the Freshway divestiture, which we completed in the first quarter of last year, total case growth was 1.6%. Our independent restaurant volume accelerated again and grew 4.6%, including 20 basis points from acquisitions.

Healthcare grew 3.7% and hospitality grew 5%. Our chain restaurant volume was down 2.3%, largely in line with industry foot traffic trends as reported by Black Box. Turning to our financial results. First quarter adjusted EBITDA grew 6.2% to $413 million, driven by volume growth with our target customer types and ongoing progress on our self-help initiatives to improve gross profit and enhance operational efficiency.

We estimate that the combined net impact from weather and higher fuel costs reduced our adjusted EBITDA growth by approximately 4 percentage points. Finally, adjusted diluted EPS increased by 14.7% to $0.78. We again grew adjusted EPS meaningfully faster than adjusted EBITDA and expect this trend to continue, supported by earnings growth and deploying our strong cash flow towards share repurchases.

Turning to Slide 10. We drove operating leverage gains as we again grew gross profit per case faster than adjusted operating expenses per case, resulting in healthy adjusted EBITDA per case growth. Adjusted gross profit per case maintained its strong and steady growth trajectory and increased $0.23 or 2.9% compared to the prior year. This was primarily driven by our self-help initiatives, including our cost of goods sold work.

Adjusted operating expenses per case increased $0.14 or 2.3% with $0.04 related to incremental expenses from weather and higher fuel. We remain focused on offsetting a portion of operating cost inflation by driving efficiencies through supply chain productivity gains, indirect spend procurement savings and administrative process streamlining.

First quarter adjusted EBITDA per case increased by $0.08 to $1.98 as we grew adjusted gross profit per case 60 basis points faster than adjusted OpEx per case.

Moving to Slide 11. We continue to generate strong cash flow and deploy capital consistent with our capital allocation priorities, namely funding strong capital investment to maintain our business, support growth and drive attractive returns, returning capital to shareholders through share repurchases, maintaining a strong balance sheet with net leverage remaining well within our long-term target range and pursuing accretive tuck-in M&A.

Operating cash flow in the first quarter was $294 million. Cash flow was below prior year due to less working capital benefit in the current year. Excluding the working capital impact, operating cash flow was above prior year. We expect our full year operating cash flow to grow this year versus 2025. During the first quarter, we invested $98 million in cash CapEx to support our business and enable organic growth, enhance our capacity and further strengthen our technology leadership.

We also repurchased 1.4 million shares for $125 million and have $1 billion remaining on our share repurchase authorizations. Finally, we ended the quarter at 2.6x net leverage. Our debt structure is strong, and our leverage is the lowest among our large public peers. In addition, we have no long-term debt maturities until 2028.

Now turning to guidance on Slide 12. We are reaffirming our 2026 guidance based on the strength of our business and outlook for the balance of the year. We continue to expect adjusted EBITDA growth to be in the range of 9% to 13% and adjusted diluted EPS growth to be between 18% and 24%, which includes the impact of a 53rd week. Given the macro uncertainty, OpEx timing shifts and higher fuel costs, which we believe will remain elevated in the near term, we expect second quarter adjusted EBITDA growth will be mid- to upper single digits.

If fuel remains at these elevated levels and macro uncertainty persists into the second half of the year, we believe we will be at the lower end of our full year guidance range. Absent those pressures, we expect growth to be in line with our long-term algorithm. As a reminder, and specific to fuel, we typically recover 30% to 40% of fuel cost increases through surcharges, although this recovery process tends to lag fuel price changes by about a month.

Additionally, we have approximately 1/3 of our expected 2026 fuel gallons locked into fixed price contracts at lower than current market prices. Fuel costs do impact our business and industry. However, I am confident we can effectively manage through this likely transitory period of higher costs with our self-help initiatives.

We are executing our plan. We are accelerating independent case volume, driving profitable growth and prudently allocating capital to drive shareholder returns. I remain encouraged by our first quarter progress and confident in our ability to deliver results within our guidance range this year while continuing to position the business for double-digit EPS growth over time and advance our long-range plan.

Now let me turn the call back to Dave.

Thanks, Dirk. As we look ahead, I remain highly confident in our ability to deliver our long-term growth algorithm. Even in a quarter shaped by external headwinds, we accelerated independent case growth, continued to gain share with our target customer types, expanded EBITDA margin and delivered double-digit adjusted EPS growth.

This performance speaks to the strength and resiliency of our team and our business model, the quality of our execution and the value we continue to bring to our customers. We operate in a large, fragmented and resilient industry, and we remain focused on the most attractive and profitable customer types within it, independent restaurants, health care and hospitality.

We will continue to run our proven playbook, investing in the business to improve our customers' experience and accelerate growth, driving productivity and operational excellence and deploying capital with discipline. And I am confident that we will continue to win in the marketplace and drive shareholder value for many years to come.

With that, Karen, please open up the line for questions.

Your first question comes from the line of Jeff Bernstein of Barclays.

This is Pratik on for Jeff. Dave, a question about the elevated gas prices. You talked about how you expect it to potentially impact your profitability. But I just wanted to ask about how you're thinking about it from the top line perspective, perhaps restaurant customers may pull back on orders as their foot traffic maybe declines further. Just anything you can help us understand what's going on there.

Yes. Well, thanks for the question. And please pass along our best to Jeff on his pending retirement. It's been a pleasure working with him. 25 years is a long time in any industry, and we appreciate his dedication and support here over that long period of time.

Yes. I think the headwinds related to fuel are just another pressure point on the consumer. And as we mentioned, consumer sentiment dipped in March to record lows. But really, that's nothing new for this industry, and that's why I finished my comments with the resiliency. People want to go out and have a good time and enjoy their families and have a meal out every once in a while. I think that speaks to the resiliency of the industry. I point back to the Great Recession where volumes were down mid-single digits.

Love to hear -- see the tailwinds come back. That will happen. But again, we're 2.5 years into a declining foot traffic environment. The macro uncertainty right now is just another pressure point. I'd just point you back to our results here. Even given the macro and the weather, we delivered very strong results, expanded margins, accelerated growth importantly across our 3 targeted customer types.

Given all those headwinds, I feel really good about our ability to control the outcomes here going forward, just as I always have. And as I said in my opening, I think this quarter speaks to that resiliency in our business model and the commitment we've got to deliver in any environment. So we're feeling good about our momentum. Love to have foot traffic bounce back in a stronger macro, it's going to happen, but we're not concerned about the timing of it.

Got it. I appreciate that color. And Dirk, just a quick one on the inflation outlook. Obviously, moderation in the first quarter to 1% easing from the fourth quarter. Just how are you guys thinking about the cadence of the rest of the year? Are there any particular drivers that we should be aware of that could change things materially going forward?

I think the -- our outlook for the year of the 1.5 between inflation and mix is still our best estimate. We know that, as you pointed out, things moderated as they ended last year and then further into the first quarter that the movement around from quarter-to-quarter tends to still be primarily protein and commodity related. The underlying grocery is pretty stable. So that is not really that change from what we were looking at a quarter ago.

Your next question comes from the line of Jeff Bernstein of Barclays.

You guys hear me?

Yes, we can hear you.

Okay. Great. Could we just first maybe dig in on the guidance a little bit more. As you think about, I guess, Q2, I'm just curious as to how we're thinking about the headwinds, like some of the headwinds persisting around the way that you guided the second quarter, specifically, I guess, related to fuel. And then as we think about the full year and the dynamics around the full year around what could get you to the low end, what could get you to the high end, could you maybe just speak a little bit more about what that means from a traffic standpoint, what that means from a fuel standpoint, just additional color there.

Sure. It's Dirk. It's for the second quarter, it really is -- we assume that fuel remains elevated. And as we saw, it really spiked earlier in April, and then it's moderated a bit, but still elevated. So we assume it stays around where it's at now. If we see it spike further, that would obviously put us -- put an additional headwind on the business for the quarter. But we don't assume it gets significantly better for the quarter. As we go through the year, it's why I gave the comments about how we think about the range.

If we see fuel moderate back to where it was more quickly and we see the macro strengthen a bit, that would be something that propels us to the higher end. And if fuel remains quite elevated for the year and the macro weak, then that would be the lower end of the range. And so outside of those sort of factors which can influence the outcomes, we still feel very good about our core performance and the self-help initiatives that we've talked about and ultimately achieving the algorithm in a normalized environment.

Okay. And just taking a step back, Dave, I'm curious if you could maybe talk a little bit about M&A and M&A pipeline. And a couple of things here. One, you have a large competitor doing a big cash and carry deal. Does that change the way you think about anything strategically? And then could you talk about the pipeline generally? We haven't seen that much from the company in the last sort of year or so. I'm curious as to how that might be shaping up.

Yes. So I appreciate the question, Ed. So our strategy around M&A hasn't changed. To answer your question directly about the Jetro transaction, that doesn't change at all the way we think about it. We're aimed at driving tuck-in acquisitions. And just as a reminder, we did do Shetakis in the fourth quarter in Las Vegas. We've done 5 tuck-ins of scale in the past 2.5 years or so.

And that remains the opportunity for us. I love our footprint. We've got scale in all the major MSAs. This is really about driving further productivity within our markets, taking miles out of our distribution network and finding the right companies that fit our culture with very strong management teams and good brand recognition locally with a high mix of independent restaurants.

Those are the key elements that we look for that's really driving our pipeline activity and their pipeline remains extremely strong right now. We're active in several conversations. And as we always like to say, you never know when something is going to pop out of that. You can't really control the timing, but we're very active as we have been.

Your next question comes from the line of Lauren Silberman of Deutsche Bank.

I guess I just want to start with a follow-up on the expense side. In Q1, how much did weather impact expenses versus fuel? And can you just help us understand what percentage of the business you implement surcharges for? I think you may have mentioned 30% to 40% of fuel costs are covered, but I believe you have a higher mix of contract business. So I would have thought that number was higher. So just trying to help understand the dynamics.

So out of the $0.04 in the first quarter we called out, it was about half and half between fuel and weather impacts within the quarter, so about $0.02 each. And overall, for fuel surcharges, we recover about 30% to 40%. So we have them in place for the majority of our customers, contract and noncontract. And those where they are in place, they are essentially a grid that's very tied to actual fuel costs.

And the recovery rate is more of just what's charged versus what the expenditures are for fuel. And that process just runs every single month as we work through there. In the first quarter, as I think one of our peers talked about as well, you had the dynamic of fuel really spike in the last month of the quarter. And because of the 1-month delay that's typically in place for surcharges, there wasn't any offset to it. But going forward, that would be -- the recovery rate would be at a more normalized level. And then as I mentioned during the call, we also have almost 1/3 of our gallons for this year that are locked in at a contractual rate that we will pay less than market rates for.

Okay. And it's fair to assume that the Q2 guide embeds like a low single-digit headwind from fuel?

It does. Fuel sort of within the quarter, roughly a couple of points or so of headwind within the period.

Okay. And on the independent case growth side, really good during the quarter, even a little bit surprising given the magnitude of the weather headwinds you called out. Can you help us understand like why expenses were seemingly more pressured than what the case growth would suggest? I guess April sounds like it's off to a good start, too, but not sure if there's a consumer dynamic going on.

Yes. I appreciate the question. Really excited about our continued acceleration of independent case growth, Lauren. That's been not just a flash in the pan, that's been several quarters in a row now. We've got really good momentum. As you know, that net new account generation is the lifeblood of that activity. But I'm also pleased, and I've alluded to this in prior calls that our penetration continues to improve. It was actually the best in Q1 since the fourth quarter of 2023 with the focus that we've had on both net new account generation and penetrating our customers.

We also saw lines per customer be the best that it's been in quite some time. So I think it's just the focus and the consistency here. And to your second part of your question around the expenses opposite the case growth, I think I'd point to the weather. So when we gave our guidance in February, we were -- we had about the same weather impact that we had in Q1 of the prior year. That continued throughout February and even expanded a bit even into March with some spring storms and tornadoes in the Midwest.

As it turns out, per the comments we made in the prepared remarks, we had almost twice as many closure days as we did in the first quarter of last year. And when you get on those days, it's -- first of all, it's pure demand destruction because those cases don't come back. But on those days, you've got a lot of costs because you're still paying people and operating, but you don't have the volume coming in. And that's really the productivity headwind.

And then even coming out of the storm, particularly in the Southeast, where the cold persisted and all that, you show up at a customer's door and they're not open the next day. And so you're round tripping multiple times. It just added a pretty significant cost burden to the quarter. Completely isolated to those events.

Structurally, nothing has changed. We still feel very good about our self-help. Our selector and driver turnover is the lowest it's been since 2019. All those productivity initiatives are still in place. UMOS, as I talked about. So I feel really good about the structural things and the things that we can control. We just got hit with some challenges in the quarter.

Your next question comes from the line of John Heinbockel with Guggenheim.

Dave, I want to start on that drop size topic, right? It looks like that kind of got back to flat. Maybe try to dig a little more into wallet penetration in terms of where that opportunity is. I know it's hard to deal in averages, but where that opportunity is, are you making headway in COP, particularly, right? And do you think that those lines per account, can they improve a lot more here in the next, I don't know, 6 to 12 months to offset the macro or not really?

John, I appreciate the question. And as I pointed to, really feel good about the Penn momentum that we've got. It's been a point of focus for us for the last couple of years despite the foot traffic challenges. And as you know, that's where the traffic challenges show up is within that penetration portion.

But we've had a really strong focus on it. Our team has embraced it. To your point, COP is a strong point for us, has been for quite some time, and we have seen the penetration there amongst other categories like produce. But also really excited about the acceleration that we've had. We've got a strong focus on our Stock Yards brand.

And in fact, we're going to have a ribbon cutting for our new opening in just outside of Charlotte in Lexington, North Carolina next month, a large comprehensive facility that will do all center of the plate, including seafood and beef. Chicken, we're very excited about it. It's going to be a great shot in the arm for our team in the Southeast. So a lot of good momentum. And to your point, I think there's more to come.

And then secondly, if you think about the compensation changes you're making, right. And I know you want to go slow, and that's fair. But when you think about incentivizing folks, right, with regard to wallet penetration. And I do think your focus is going to be more local case growth, net new account wins. But maybe talk about what you want to initially get out of that transition as it relates to driving local cases.

Yes. I feel really good about all the work that Randy Taylor and the team have done across the company preparing for this. Just a recall here, we started on this in the first quarter of 2025. So we've been at it for a year. Change management is really important. I alluded to the training of our sales leaders that we had here in the past quarter. Everyone remains really excited about it. And again, these are very individualized conversations as we roll them out, hence, the time line here.

I think we're going to look back on this as a transition point that's going to be meaningful for growth for the company. Feel really good about it. Stability is important in the sales force, John. I'm excited that actually in the first quarter, our turnover for our territory managers with 5 years or more experience is actually better than it was a year ago, just underpinning the excitement that the sales force has here.

Many of our sellers that have been with us more than 20 years experienced a 100% commission plan in prior times. They're great advocates for the change here. They grew up under that sort of plan. So I feel really good about it. We're watching all the key metrics, as you would expect. We're launching next month, a key enabler to independent case growth.

Your next question comes from the line of Mark Carden of UBS.

So to start, I wanted to see if you're seeing any shifts in the competitive front. You guys called out consumer sentiment continuing to fall as the quarter went on. Were upfronts pushed any more in the industry as fuel prices climbed to close out the period? Just curious, historically, in these kinds of environments, what have you seen, especially as fuel prices cross certain thresholds?

Yes. I'll start here and maybe Dirk will add a little bit of color. But competitive intensity is always high in this industry. And I'd just point back, Mark, to the challenged foot traffic that we've had in here for so long. It's been really intense for the past couple of years. It ebbs and flows in a given market at any given time. I wouldn't point to any significant pressure that we've seen directly as a result of the fuel, but it's early days because it's so competitively intense all the time, it's hard to tease those things out. Dirk, anything you'd point to?

I was just going to say, to your point on the upfront, as Dave said, nothing really as we went through the quarter. That is an area where you've seen that as an industry increase a bit over the last few years, but it's still the minority of rebates. And us as a business, we don't try to lead with that as opposed to address it more reactively if competitors come in with it. But no meaningful change, as Dave said.

Okay. Great. And then as a follow-up, your hospitality business put together some of the strongest organic case growth that we've seen in that category in recent periods. What's driving the incremental strength there? And would you expect for it to see much of an impact if fuel prices remain elevated, I guess, any more so than the rest of the business?

We've got great teams, both in health care and hospitality. We're excited about SIGNATURE, that analogous capability to VITALS that I alluded to in the prepared remarks. So we're bringing some new technology to that part of the market in hospitality, bringing together a lot of our existing tools and capability, leaning in heavily to our brands in hospitality and our teams really embracing that with our customers. As we talked about last quarter, the pipeline for both health care and hospitality remains strong. We expect continued momentum that will carry into the back half of this year and even into '27.

Your next question comes from the line of Kelly Bania with BMO Capital.

Dave, I wanted to go back to kind of the outlook for total case growth this year. And if it's reasonable to expect that at the low end of that 2.5% to 4.5% target or if the mid-3 is still on the table for the full year, can you walk us through some of the expectations by channel to get to that, acknowledging it's really early in the year and there was the weather impact. But just trying to kind of think about the phasing to get to that case growth target for the year.

Yes. I appreciate the question, Kelly. Let me just start with the punchline. We remain confident in our case growth guidance for the year. We saw acceleration from Q4 to Q1 here, as we talked about, despite the macro and weather challenges. So we feel really good about that. Underpinning all of that is our 3 targeted customer types, which we remain very, very focused on.

I already commented on both. So we feel good about our momentum with independents. We've got strong pipelines in hospitality and health care. And I think the way to think about it coming off of that first quarter performance is that you can expect to see sequentially continued improvement as the year progresses, particularly in the back half of the year.

Okay. That's very helpful. Dave, can you also just give us any color and feedback that you got from the sales force and the managers during the pilot program for the new sales force comp plan, acknowledging that you may want to keep some of that tight, but I guess, for competitive reasons. But I'm just curious if there were any significant tweaks to the plan, if there were any and just kind of what you learned through that pilot phase.

Yes. Great question. We got really good feedback and color, and that's why we're thoughtful and ran those pilots for quite some time. Very engaged sales force. They sought to understand clearly the impact on their customers and how they can lean in more with them and how they'll get compensated for that. And I would just say, Kelly, any changes that we made were really tweaks, and I'm using that word thoughtfully. There was nothing structurally that we felt we missed and the team really felt good about that.

And then to the trainings that we've had and the launch -- the prelaunch work that's been going on here for quite some time. We're into sharing detailed information with markets, with our sales leaders and right now with individuals in terms of what, as I mentioned previously, we would do, how they're getting compensated today and what that looks like in the new structure without any behavior changes and importantly, giving them some guidance around things they may or may not need to do differently.

I think the beauty of this plan with 100% commission is the simplicity of it. And at the heart of a lot of the feedback that we've gotten is that it's a lot less complicated than our prior compensation plan. They have clear line of sight to their activities and how it's going to reward them, and we feel very, very good about that.

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

I wanted to ask on the SIGNATURE program launch to help the hospitality operators. It really was eye-opening. I know you offered some of this technology and the capabilities, but just seemed like a big step. I'd love to hear some perspective around sort of the magnitude of this and where it takes you. Just it does seem like a meaningful catalyst to accelerate new customer growth, but love to hear your thoughts on where this goes.

Yes. That's really the way we're thinking about it, Alex. I appreciate the question. And I think in many ways, it's a simple launch because it brings together the best of the company and what we've offered to other segments of the business in a way that's directly supportive of those hospitality customers.

It brings together capability on the technology side and many of the pieces that we have today, linking together our exclusive brands, some of the training and offering to those customers, how that can impact their profitability and just from a process standpoint, lining our team up behind that.

So -- and as I mentioned in my prepared remarks, similar to what VITALS does, it's going to help them with labor planning and staffing, how they optimize their costs and helping them drive improved satisfaction for their hospitality customers. So I feel really good about it. At the heart of it, it's pretty simple when you think about what we've done in other segments of the business, and our team is really embracing it, and we look for more good things to come.

And that's really, Alex, that's been a good unlock of VITALS. It ties together these different solutions solves that help customers in the way they think about their business holistically, and this is doing that same thing for hospitality customers. And we would expect similar levels of success and help for our customers that VITALS provides for health care.

Your next question comes from the line of Jacob Aiken-Phillips with Melius Research.

This is Sam Barton on for Jacob. Can you hear me?

So inflation has moderated meaningfully and you reiterated roughly 1.5 points of inflation for the year. Can you step back and talk about how US Foods performs across different inflation environments? Is there a level of inflation that is most constructive for the model? And how do the drivers of EBITDA growth change in a low inflation environment like today versus a more normal low single-digit environment for higher, more volatile inflation backdrop?

Sure. So typically, as a business and as an industry, 2% to 3% cost inflation is what we like over time. It's -- it provides a small positive to distributors. It's manageable for operators over time in order to pass through.

And -- so being in this area where you're a little above or a little below that 2% to 3%, it provides a little bit of a positive or negative depending on what side you're on to the sales line more so than it does earnings. The thing that we continue to be, again, encouraged by is that the grocery part of the business stays pretty stable, very, very modest inflation.

And a lot of the movement you see from quarter-to-quarter tends to be around a few commodity categories, and that is where operators do have some flexibility in menu engineering and focusing more on one particular COP category, for example, if that is deflationary in the period or less inflationary than others.

So in the environment that we're in, we can effectively pass it through. And even in those periods of high inflation coming out of COVID as a distributor, you have to have good processes around inflation, deflation. And our expectation is we'll continue to operate very well here.

Your next question comes from the line of Peter Saleh of BTIG.

Great. Given all the noise in the quarter with weather and higher gas prices and the tax refunds, I was hoping you guys give us a little bit more detail maybe by cuisine or by region, if you're seeing any strengths or pockets of weakness that really stand out. Just any detail on that would be really helpful as we look a little bit closer at the consumer given all the noise that we're seeing here.

Yes, Peter, appreciate the question. Let's start geographically. I wouldn't point to anything in particular, except just highlighting the obvious where the storms were. There were some challenges there. I think cuisine types, as you think about our strength, bar and grill remains a strength. Hispanic is doing well. That mid-scale family dining is doing well for us.

And of course, white tablecloth has held up pretty well through these challenges. And I would point to those as 3 or 4 areas where our share gains in the quarter outpaced the average for the company. But not surprising, those are areas we've been focused on for a while, and so it's good to see the continued momentum there.

Your next question comes from the line of Brian Harbour with Morgan Stanley.

Just the compensation changes, are you -- is that all markets that are going to go next month? And I guess, I know it could take a couple of years, right? But like could you just give us a little bit more of a sense for some of the timing? And is it more of kind of a tail of folks that will transition over a longer time frame?

Yes. So to answer your first question, Brian, yes, everyone will go live across the company next month. We've been building this for a long time, starting with those pilots in the fall and the communications that we've talked about. And really, the timing is driven by the individual nature of each of these conversations and any tweaks in roles and those sort of things that we're talking about.

And that's why we're going to lean into this with pace. But to be clear, everyone is going to be paid on the new compensation structure beginning next month. So we do expect it to ramp up through the course of time. I expect some limited impact in the back half of this year and then into '27 and '28, we expect more meaningful impacts here. But again, we're excited. This is a long-term play for us, and we're going to do it right.

Okay. Got it. Dave, with some of the like AI-enabled tools, how do you sort of, like, measure the success of those? I mean, are customers that -- are you seeing better penetration with customers that use those? I mean maybe on like the sales force side, are you seeing salespeople be more effective? And I guess, like how do you kind of judge that over time?

Yes. I think all of that. And for each one of these, we do have measures in place. And at the heart of it has been 2 things from the very beginning around all our technology and capability that we're wrapping with AI is to drive that relationship deeper with our customers and provide more meaningful capability and importantly, make it easier for them to do business with us.

And then secondarily, improve our sales force productivity. So just the example I used today, Brian, around Menu IQ, the chef comment that I quoted there, something that used to take hours and spreadsheets, they can do seamlessly very quickly with AI and get those recommendations and understand their menu costs, understand where the profitability is coming from or not and where they may need to make changes. That's powerful.

And that is something that our salespeople partner with our customers on, and it helps the customers. It moves it quickly, and it frees up our salespeople to go drive future growth. And I think it's really hard to point to any one thing at the heart of our success and the important acceleration that I spoke about with independent case growth, but it's all working together. And I see -- I think the traction that you see us getting, importantly, the penetration that I talked about here, it's all part of it.

Your next question comes from the line of Karen Holthouse with Citi.

I wanted to dig in a little bit about how you're thinking about the hospitality business as we head into the peak kind of summer travel season. I think there's a number of moving pieces. Last year, you had a pretty soft summer for inbound international tourism into the U.S. this year, potentially the benefit around World Cup games being played in the U.S.

And then on the macro side, I think the debate of our gas prices and that headwind in the broader people are trimming spending sense or potentially a positive if it keeps people domestic and the kind of mental idea of a staycation summer potentially being good for restaurant spending. Just how are you thinking about that when we think about 2Q guidance and the year?

Yes. I appreciate the question, Karen. And so just at the highest level, hospitality trends tend to follow what's going on with the restaurant traffic, kind of ebbs and flows there. I think at the highest level and the way to think about it for us is like you think about the other pieces of our business, we don't need the macro to improve to control the outcomes.

And that's why when I spoke to the pipeline that we had, both in health care and hospitality remaining strong. That's really what's been fueling our growth despite some of these macro challenges that you mentioned last year and all that. You see us to continue to lean into that growth and accelerate that going forward. And that's really going to be the driver.

Now the World Cup could be a nice shot in the arm that we're all counting on here through the summer, but that's going to come and go, and that's not structurally going to change our performance. What's going to change our performance is our ability to continue to win and take market share, and that's what our team is focused on.

Your next question comes from the line of -- sorry, Danilo Gargiulo of Bernstein.

Dave, I want to go back to your last point of having resilient performance through the cycles. And as you pointed out, the traffic has been quite elusive for multiple quarters now. So do you think we are entering a phase of permanently low or declining volumes? And if that were to be the case, what would be a reasonable top line algorithm for US Foods?

This is Dirk. I'll take that one. I think it's -- ultimately, our expectation is that we would continue to outperform the macro. So you've seen -- I think if you think about what would be reasonable look at how we've grown relative to the industry in the last few years when traffic has been slower using Black Box as the proxy where especially in our 3 target customer types of independent health care and hospitality, we've outgrown the market, and that would be our expectation going forward.

Chain and other, we'd expect to perform more like the overall market. So since we don't know exactly what that looks like, the thing that we continue to focus on is our share gains and what we can control. And broadly speaking, there's -- we're pleased with the progress we're making and continue to work the pipelines hard in each of those.

And then a few quarters ago, you were looking for strategic options for CHEFSTORE and ultimately decided to retain the business. So now that you've observed the evolution of the performance over more quarters, do you see more revenue synergies from the integration of a Cash & Carry business with your delivery business? And what is your expectations of the business going forward?

Yes. I appreciate the question, Danilo. We hadn't talked about CHEFSTORE for a while. The way we left it was that I -- and I still haven't changed my belief. I think fundamentally, we're not the right term -- right long-term owner for that business. And I would point you back to -- at the heart of our desire to sell it originally was just the synergies in that acquisition have not played out. And just recall, most of those assets were purchased west of the Mississippi River, and they just are not in the heart of our broadline markets.

So if you think about existing customers going into those stores, it becomes more challenging when they're 20 to 30 miles away from your core customers and markets. But having said that, we remain focused on that, and we will retain that business as long as we need to, and the business has improved dramatically. One comment I would make is you've seen one of our large competitors announce an acquisition in the space. That really does not change at all how I think about our CHEFSTORE business at all.

But it's going to be an interesting one there with the #1 broad liner buying the largest cash and carry, certainly getting a lot of industry attention. The independent restaurant coalition is potentially intervening in the case. And so it's going to be interesting to see how that progresses, including the regulatory process here over the next little while. So we're watching that, of course.

Your next question comes from the line of Margaret-May Binshtok of Wolfe Research.

I just wanted to ask on Pronto. I know you guys just went live in your 47th market. As you guys make these investments in Pronto this year, where do you see the biggest opportunities to accelerate? Is it more trucks in existing markets, new markets or just deepening Pronto next-day penetration with existing customers?

Appreciate the question. It's all of the above. Again, originally, we launched that in markets aimed at identifying and obtaining new customers several years ago. We're excited about Pronto Next Day. necessarily new launch for us.

Importantly, you heard me talk about 27 markets today with 10 more to come -- and also, we have the opportunity to penetrate our existing markets with new trucks, which we continue to do. So it's really all of the above. We're excited about Pronto and fully committed to that $1.5 billion revenue next year.

And your final question comes from the line of [ Cristina Lugo-Rocha ] of JPMorgan.

This is Cristina on for John. On private label, you kept it at 54 with core independents and mentioned it as a growth opportunity. What actions are being taken to grow this mix? And are you currently happy with the selection you have? Or is there any gaps?

Yes. I'm really pleased with the progress we've made over the last couple of years with our exclusive brands. We've got a great portfolio of exclusive brands, more than 22 brands, 10,000 products. Our sales force is really leaning into those brands. And again, as I stated in my prepared remarks, it saves our customers money and they're more profitable for the company.

And importantly, in the new sales compensation structure, our sales force is going to be heavily incented to sell our brands. And so I think we've got it lined up structurally where we will continue that momentum. The thing I would point to the most and what excites me about the future, and I say this all the time, we don't have a ceiling in our ability to penetrate the market with our exclusive brands. 25% of our existing independent restaurants are already penetrated at 70%.

And importantly, 45% are above 60%. So we've got a long track record of success there, but importantly, a long runway of further penetration and growth with our brands, and you'll continue to hear us talk about that momentum.

I will now turn the call back over to Dave Flitman, CEO, for closing remarks.

Appreciate everyone joining us today. We're excited about our momentum. The structural improvement that we're driving in the business will continue, and we are fully committed to achieving our long-term growth algorithm. Have a great day and a great week. Thanks.

Thank you all for joining. That concludes today's call. You may now disconnect. Have a great rest of the day.

All right. If we could all find our seats, we'll kick off our next presentation. It is my pleasure to welcome back US Foods to CAGNY. US Foods is a $20 billion-plus market cap company that generated more than $39 billion in sales and increased their adjusted EPS over 26% in fiscal '25. US Foods maintains a unique position in the industry as the only pure-play U.S.-focused broadline foodservice distributor with national scale. The company's differentiated go-to-market strategy focuses on the three fastest-growing and most profitable consumer types in the industry or customer types in the industry, independent restaurants, health care and hospitality. The company is an industry leader in both digital and food innovation, providing its customers the right tools, resources and products on time and in full. Please join me in welcoming US Foods Chief Executive Officer, Dave Flitman.

Dave, over to you.

Thanks, Andrew. Good afternoon, everyone. It's great to be at CAGNY for the second consecutive year. I'm Dave Flitman, as Andrew said, and I'll spend the next few minutes talking you through our great story. You can read the disclaimer page on your own. We're excited to be here. Just as we get started, one quick change to the agenda. Our Chief Financial Officer, Dirk Locascio, was scheduled to present with me today. He had a family emergency associated with the health of one of his parents. So Dirk is exactly where he needs to be with his family today. So I'll cover the slides that he was prepared to cover with you this afternoon. The first part of the presentation, I've got 5 clear key messages for you. First of all, we are focused on growing the most profitable and fastest-growing segments in all of foodservice distribution in the United States. That is independent restaurants, health care and hospitality.

Secondly, we have large national scale, and we're an industry leader in what remains a highly fragmented industry today. Third, we are driving with the most consistency in the industry, top and bottom line growth and doing the best job of leveraging that top line growth to bottom line profitability. As a result of that, we have a robust and growing free cash flow base that we are deploying to the business first; secondly, to tuck-in acquisitions; and third, and we'll talk about this, returning capital to shareholders. And importantly, we are executing well and delivering industry-leading EPS growth that we've delivered for the past several years, and we expect that to continue for a long time to come.

So first, let's talk about our simple 4-pillar strategy. And here it is on one page, culture, service, growth and profit. And we built this early in my tenure 3 years ago to align our team and determine exactly what we needed to do to execute well. I won't read the elements of it to you, but we'll refer to it throughout the presentation. Equally important to our strategy is how we execute. And I love these 5 cultural beliefs. They're the hallmark of how we deliver our results, which is just as important as the results themselves. Let me bring this all to life for you and run a quick video.

[Presentation]

All right. Well, I get excited and also hungry every time I see that video. So we have taken the roots of this great company, which many of you don't know. We can trace back nearly 170 years to Reed and Murdoch selling provisions to dreamers chasing the California Gold Rush in the 1850s.

From that, through the course of many decades, we've built this company into the great company you see represented here. In the bottom left, we have 76 distribution centers across the U.S. And importantly, we cover all of the major MSAs. We also have 22 Stock Yards operations, which are meat cutting and seafood operations spread across the country. We've got 30,000 associates. As Andrew said, we delivered just under $40 billion in revenue last year, and we are servicing 0.25 million customers every day.

In the bottom right, you can see the breakdown of revenue and importantly, the industry structure. So even given the scale that we've got in the company, we only own about 10% of the market share in foodservice distribution. And I underscore that point because we have a long runway of growth ahead of us. In the center part of that -- the center wheel, it's important that we are serving the fastest-growing and most profitable segments of the industry. If you combine the restaurant space, that represents about 56% of our revenue. And importantly, health care and hospitality are about 27%. So those 3 targeted segments that I spoke about represent about 83% of all of our revenue. Scale matters in foodservice distribution. Importantly, 2 key elements really matter if you need the scale to serve your customers well. That is center of the plate. So think about proteins and seafood and also fresh produce.

Those 2 product categories represent over 40% of the revenue of the company. So we've got great scale to serve our customers well. In addition to what we do ourselves to drive the growth in the company, we are benefiting from the trend that you see here, which I've shown for the last decade. But importantly, this trend in food away from home growing faster than food at home has persisted since 1970 with all but a handful of years. That is a very nice tailwind to expand growth in an industry that continues to take share. That translates to what you see on the left-hand portion of this slide. So since 2019, foodservice distribution in the U.S. has grown from $306 billion to $377 billion last year, about 23% growth. It's important to understand those 3 targeted customer types that we are focused on represent about 75% of the growth that we've seen in the industry over the last 6 years.

So we are fishing where the fish are and expect to drive growth for a long time to come. I talked about scale and the importance of scale in this industry. And what you see on the bar charts on the right-hand portion of the slide from 2019 to 2025, in the green portion of that, that's the combination of our share and our 2 large public peers. And as you can see, we've gained 600 basis points of share to the detriment of the rest of the industry. You can also see on this slide just how fragmented the industry remains. And so I expect that share growth to continue for the big 3 for a long time to come. So let's zoom out and talk a little bit about our key differentiators. There's 8 on the page. I won't drain the slide for you. You can read them, but there's a few that I wanted to point out.

Andrew mentioned in his introduction, the one I feel the best about is we are the only pure-play U.S.-focused foodservice distributor with national scale. That matters. Focus matters, simplicity of our business model matters, and it helps us tremendously with execution. Secondly, we are focused on the 3 most profitable and fastest-growing customer types in the industry. We've got an industry-leading digital ecosystem, and we've been the industry leader in digital for well more than a decade now. I'm going to talk about that at length, but it's a great differentiator for us. It drives customer loyalty, and it also makes it very easy to do business with US Foods compared to the broader base of our competition. I spoke of our 4-pillar strategy earlier. Underlying that, we have a very proven operational playbook that we're executing to deliver that top and bottom line growth.

We're leveraging that to industry-leading adjusted EPS growth, and we will be an earnings compounder, not just through the length of this long-range plan, but for many years to come. Okay. Let's look at those 3 targeted customer types. Why are we focused on them? And why are we doing so well? First of all, we have deep expertise in each one of these areas. We've been at this for a very, very long time. Not only do we have human resources, but we've got great digital capability that we've deployed. If you think about independent restaurants, we've been growing for 19 consecutive quarters and taking market share in that space. Underpinning that is our digital MOXe platform, which we introduced about 3.5 years ago now. And there's 2 things that MOXe does. First of all, it helps our salespeople be more productive because it helps our customers serve themselves efficiently and effectively. And importantly, because of that, it takes friction out of the relationship with the customer. We become much easier to do business with.

Secondly is health care. We are the industry leader in health care and have been for a long time. We have a lot of health care professionals on staff, including nutritionists and people that have been in the industry for a very long time. And analogous to MOXe, we have a platform called VITALS, which helps optimize patient feeding costs, helps the operator -- health care operators track not only their cost, but also the nutritionals for the patients. We built that in-house. No one else has anything like it, and it is a real differentiator as we go to market. And then we've been accelerating our focus in hospitality, took share every quarter in 2025, and we leverage that differentiation with large-scale GPO relationships to help us access that customer base and drive significant growth. On the right-hand side, you see the relative contribution margin of each one of those segments, those first 2 independent restaurants in health care. And I put on here specifically chain restaurants. So you can see the relative profitability of what we're focused on compared to what's out there in the restaurant space.

This is our data, but this margin profile also mirrors the industry. So as we think about our customer value proposition, we talk often, we do a lot of customer surveys and our customers tell us what's important to them. And they told us 3 things. They want the product availability at scale and high quality that we bring. They want more tools and capability to make it easy to do business with us and serve themselves. And importantly, they want great service, including more frequent deliveries. And so what I'd like to do in each one of these areas is just give you an example as we walk through these next several slides. First of all, I love our exclusive brand portfolio. We've been at that for a long time.

We have a tiered good, better and best, as you see in the middle portion of this slide. Importantly, we've got 22 exclusive brands representing more than 10,000 products, and we develop those through a process we call SCOOP. So twice a year, we've got culinary experts that scour the globe, literally scour the globe for the next trends in culinary needs in all areas of product capability. We bring those products to life twice per year, and we're constantly innovating. Importantly, we design these products with quality first. But secondly, these products cost less for our customers than buying a manufacturer's brand. As a result of that, they're also more profitable for the company. So it's a win-win. Our salespeople are comped more to sell our exclusive brands. Our customers win because these are great products that they can buy at a lower cost and the company makes more money. That's why you see our exclusive brand portfolio now represents about 35% of the company's revenue.

And importantly, in areas like independent restaurants, we've penetrated our exclusive brands at a much higher rate. In fact, we just covered last week that we were 54% penetrated with independent restaurants, a record level for us in the fourth quarter of last year. Secondly is MOXe. I mentioned earlier, we've been the industry leader in digital for a very long time, more than a decade. In the fall of '22, we launched MOXe. It was the first one-stop shop for digital e-commerce in the industry. We were the first to market. We continue to plow money and effort and resource into it to maintain that industry leadership. As you can see on this slide, our customers love it, 86% satisfaction rate. We are now nearly 90% penetrated with our customers all over the company, all over the country. And importantly, in the bottom part of this slide, there are 2 reasons why we drive our digital e-commerce.

First, it helps our salespeople be more productive. And you can see there's a 30% reduction in the work that the sellers have to do. Why is that important? Because our sales force can then go find the next customer, more importantly, continue to build those customer relationships and find out how to further penetrate those customers. In the middle part there, you see that it results in more sales. That's why we do it. It helps our customers. Our [ CIDO, ] who's fantastic, by the way, and thinks about the business first, he's got this thing and he says the machine never gets tired of asking for the order. And I think that's at the heart of why you see that we grow faster where we penetrate our customers with digital commerce. And finally, and I love our Pronto platform. We introduced Pronto in 2018 to find new customers. It's a different service model than the company has. Let me just explain that to you. It combines the scale and the assortment that we have in our broadline business with a very flexible service model. These are smaller, more frequent deliveries with later cutoff times.

The important part of that is there's a portion of the market that we hadn't historically been able to compete with and that's specialty suppliers who are into customers 3, 4, 5 times a week with very small orders and very late cutoff times. And where they found their success was in fresh product. So think about that center of the plate and protein offering. We have those great products. We just didn't have the service offering and a way to get that to market with the capability that some of the specialty suppliers have. Well, we figured it out in the form of Pronto. And what I'm disclosing here today, we talked about achieving $1 billion in revenue in Pronto last year, but we haven't shown the ramp-up previous. So you can see in the last 3 years, we have tripled the revenue of Pronto. And we believe it's going to be a long-time growth driver for the company for many years to come. So let me just tie a bow around what we delivered in 2025. You can see that listed in each one of our 4 pillars of our strategy.

I'm not going to drain the slide, but a couple I wanted to highlight. In the area of culture, we improved our safety performance by 16% last year, and that's following a 20% improvement in 2024. Keeping our people safe, our 30,000 associates is paramount to everything that we do. In the area of service, we talked about MOXe. What we didn't talk about is the digital AI that we are embedding within MOXe. We talked last week on our earnings call about one capability where MOXe can now take any sort of text document or even a handwritten note and immediately translate that in the system into a customer order. This is a great capability that saves our customers and our sellers a lot of time. In the area of growth, we've talked about gaining share in the 3 targeted customer types. Over on the right-hand side of this slide, where we talk about the importance of produce and the center-of-the-plate proteins. We grew those last year with independent restaurants 150 basis points faster than the market grew. And over the last 2 years, we've grown at 400 basis points faster.

So we're getting great traction in those important product categories. And finally, we achieved record adjusted EBITDA last year of $1.93 billion. And also, while we did that, we expanded our EBITDA margins by 30 basis points. We've done that by driving consistent productivity on operating expenses and importantly, continue to expand our gross profit through our self-help initiatives. The last year was not a flash in the pan. So these are our results for the last 3 years, and you can see we have compounded revenue growth at a 5% CAGR. And through the self-help work that I just spoke about, we have delivered a 14% adjusted EBITDA CAGR over that same period. And through our growing cash flow and the way we've deployed that to share repurchases, we have leveraged that to a 23% adjusted EPS CAGR, and we expect all of those trends will continue going forward. So '25 was a very strong start to our 3-year long-range plan. And what you see on the left-hand side and the left-hand column is our algorithm that we committed to in June of 2024 for the '25 to '27 time line.

And you can see on the right-hand side what our results delivered last year, a 4.1% top line growth, 11% adjusted EBITDA margin growth, 30 basis points of EBITDA margin expansion. And importantly, we led the industry last year in adjusted diluted EPS growth of 26%, and we expect that to continue. We also generated $1.4 billion of operating cash flow, repurchased $930 million of stock and made 2 tuck-in acquisitions for about $130 million last year. We also reduced our net leverage down to 2.7 from 2.8 in 2024, and we now have the best leverage profile of anyone in the industry. Okay. I'm going to switch over and talk about our financials in a little bit more detail, and this is the portion that Dirk would have covered had he been here. Four key messages here.

We are driving superior financial performance with our differentiated strategy. And importantly, we've been focused for the last 3 years on operational rigor and consistent execution. We've got great alignment of our team around our strategy, and we are executing very, very well. We're growing market share, as we've discussed, and we're accelerating productivity and combining that with gross margin expansion to deliver that consistent double-digit earnings growth. We've got a robust and growing operating cash flow that we are deploying first to the business; secondly, to tuck-in acquisitions when they're appropriate and when they're available. And third and importantly, returning capital to shareholders, and we'll talk about that. And we believe we are on track to deliver this long-range plan and continue to deliver that algorithm well beyond 2027. Last week, we reported both fourth quarter and full year 2025 results. And as you can see, very much consistent in the fourth quarter with what we delivered for the full year.

So in the fourth quarter, our sales were up 3.3%, 11.1% adjusted EBITDA growth, EBITDA margin expanded 35 basis points and just under 24% adjusted diluted EPS growth. On the right-hand side, you can see very consistent numbers for the full year and again, leveraging that 30 basis points of EBITDA margin expansion and EBITDA growth of 11% to industry-leading adjusted EPS growth of over 26%. Importantly, we have disclosed and are consistently driving earnings per case. That's how we think about the business, not just in dollar terms, but relative to how many cases that we sell. In the fourth quarter, we grew our adjusted EBITDA per case by $0.22 and $0.21 for the entire year last year. And as you look from 2019, importantly, we've grown $0.63 of adjusted EBITDA per case or 40% over the last 6 years. We've leveraged that earnings growth to generate strong cash flow of almost $1.4 billion in 2025. And you can see on the right-hand side of the slide here how we deployed that. We invest first in the business.

So we put a record level of cash CapEx back into the business, $410 million. I mentioned the 2 tuck-ins that we did, $130 million and importantly, repurchased $934 million of shares. And we have been very consistently repurchasing shares. And over the last 3 years, we've repurchased $2.2 billion and returned that capital to our shareholders. M&A is an important element of our growth strategy, but it's aimed at tuck-ins. So think about smaller opportunities within existing markets that help us do 1 of 2 things, either take miles out of our distribution network and become more effective and efficient or importantly, add capacity and help us improve our local market density. You can see our investment criteria here, which I won't read to you, but we are a seasoned acquirer. Culture is very important to us. Strong management teams are very important to us and the mix of business within these targets, importantly aimed at independent restaurants are also very important to us. We have a robust pipeline of more than 100 targets, representing $15 billion.

The important thing to note is we leverage our cash flow and either deploy that to tuck-in M&A or to share repurchases depending upon the opportunity. It's really hard to predict when the right target will be ready to sell. Some of these take years of relationship building. But when they happen, we've got the cash flow to pull them into US Foods. Last week, we also gave guidance for 2026, and I'll hit a couple of highlights here. 4% to 6% sales growth. Importantly, that is underpinned by 2.5% to 4.5% case growth in total for the company. Underneath that, we committed to 4% to 7% independent restaurant case growth this year. We're leveraging that top line sales growth to, again, double-digit EBITDA growth of 9% to 13% and 18% to 24% adjusted diluted EPS growth. And it's important to note, we do have a 53rd week in 2026, and that adds about 1% to both our case growth and our EBITDA growth ranges that you see here. We have delivered profitable growth quite consistently across multiple years.

And you can see for the last 3 years, that sales growth has been 5% CAGR, as I mentioned earlier, 14% adjusted EBITDA CAGR and industry-leading 23% adjusted diluted EPS growth, and all of that helped deliver more than 1,000 basis points of return on invested capital. We've got great earnings power. We are leveraging through our self-help initiatives, that top line growth to bottom line growth, and we expect this model will continue well into the future. Let's move away from earnings a little bit and talk about cash flow. I've spoken about the robust cash flow that we are generating. In our 2025 to 2027 long-range plan, we committed to generating $4-plus billion of deployable capital, and we intend to spend about 1/3 of that, 30% or so, reinvesting back into the business, about 20% towards tuck-in M&A. So think about $250 million towards tuck-in M&A every year. And then importantly, we committed to about $2 billion of capital returns to shareholders through share repurchases. And I already highlighted that we delivered $934 million of that in the first year last year.

Here's a slide that compares our performance, which is industry-leading, both in terms of top line growth and EBITDA margin expansion to our 2 large peers. So our 2 large peers that are public are compared to us on the gray bars here. So you can see our adjusted EPS growth compared to theirs. Importantly, our adjusted EBITDA growth. Importantly, we lead the industry in margin expansion over the past several years. We delivered 30 basis points last year compared to our 2 large peers at 4 basis points. And importantly, we have grown our adjusted EBITDA margin by 110 basis points over the last 3 years to 4.9%. And you can see the combination of our 2 large peers last year. Now all of that has resulted in us trading at a slight premium to our 2 large peers. on a PE basis, on a forward-looking PE basis. I expect that will continue. When you think about many of the consumer staples companies, they trade at a much higher PE multiple. So as we continue to deliver and execute and leverage to that adjusted EPS growth that I covered, I expect that multiple will continue to expand over time.

We can move into some Q&A now, and I'll leave you with this slide. This is the algorithm we committed to over the 3-year period of time at our 2024 Investor Day, 5% top line sales CAGR, 10% adjusted EBITDA CAGR, at least 20 basis points per year of annual EBITDA margin expansion and at least 20% adjusted diluted EPS growth. And in all cases, we've been exceeding those commitments in the first year.

All right. So let's open it up for Q&A.

Kelly?

I was wondering if you could talk about the sales force growth plans, which I don't think you touched on. And if at all your AI tools change how you think about investing in the headcount there in coming years? Or do you really look at that as kind of more of an efficiency dynamic, which I think you talked about.

I appreciate the question, Kelly. So we believe the right level of headcount additions every year is in that mid-single digits. So think about 4% to 6% -- and over the last 3 years, that was 6, then 5 and almost 7 last year with some internal transfers. So I think that's the right way to think about it for the future for us. It's important that we grow organically with our sales force. The digital tools and the AI capability, that will help be a force multiplier for our sales force. That's the way I think about it. That's the way the organization thinks about it, helping them be more efficient and effective in what they do. And that is why I believe we have some of the most productive sellers in the industry.

Jeff Bernstein from Barclays. What I think a lot of people find most interesting about the segment is the tremendous tailwind you have from a market share opportunity perspective. So I think you said 38% in 2025, and that was 32% in 2019. So 6 years, 600 basis points, makes it easy.

That's for the big 3, Jeff. Big 3.

Just curious the opportunity you see there because that's not a very large share relative to other industries where the big 3 might have a lot more than that. So one, what do you anticipate for the next 5 or 10 years? And two, like are you surprised that the independents hold up as well as they do? Because it would seem like based on the tools you have, you have tremendous opportunities that some of the smaller players for better or for worse, unfortunately, don't have...

Yes. And I think the scale affords us the capability to buy well, importantly invest in things like digital that some of the smaller players can't do. I think the smaller players compete mostly on 2 things. One is relationship because they're there and they've known those customers in those markets for quite some time. And the other one is service. And that's why I'm so passionate about improving our service capability and not giving our customers a reason to look for someone else as a supplier. It's really, really important. No one has stood out consistently on service in this industry for a very, very long time. And that's why we're doing so much good. And we've reached all-time service levels in the company, but there's a lot more for us to do. And to your first part of your question around share, I expect more of the same. I think the scaled players, both through a combination of organic growth and M&A will continue to take share in this industry as we roll it up and importantly, outpace growth with the breadth and strength of our sales forces.

Karen.

Karen Holthouse from Citigroup. I can appreciate you've talked a lot about AI tools on operations efficiency, routing. How can they ultimately play into the service aspect of things? And are there tools out there, whether it's cameras watching, pallets being put together, trucks being loaded, things that can help make sure you're getting the right things on the right truck every time.

Yes. I appreciate the question, Karen. There's a lot of things that we can do around service. I'll give you one example. We're deploying robots within our operations right now to count our inventory. the deployment of those, they can count the inventory 100% accurately within 24 hours within each distribution center. You don't have the manual errors that create -- get created by humans doing that. That's just one example. AI tools, similar to things that we've embedded in MOXe, for instance, where is my truck, so the customer can actually track it their delivery individually.

And what we've proven through the advent of AI and how we've embedded it in the tool, the tool is actually about 35% more accurate in telling the customer when the delivery will be there than our drivers are telling them when they're going to show up. So there's a lot of things that we can do. As you're aware, we are deploying advanced technology in our new Aurora operation around automation. I think there's 2 benefits that will come from that. One is productivity, obviously, but importantly, a much better service experience for our customers.

So if you think about the manual nature of the selection of product that happens in our distribution centers, to the extent we can automate that, it eliminates errors and the customer will see a much more consistent product and offering coming to their operations every day. So there's a lot. There's really no end to how we're using AI and ways we can embed it for the good of our customers and our service levels.

Ann Gurkin with Davenport. I have 2 questions. One, very impressive slide seeing the adjusted EBITDA per case growth, up 40%. I think it was since 2019, up 10% over the past year. What is your level of confidence of continuing that momentum beyond 2027? And what would be the key drivers behind expectations there? And then within the independent segment, you are bumping up on 54% sales from private label. Are you going to issue a new target? Or is there any kind of time line or strategy we should think about driving further private label penetration within the independent segment?

Yes. So let me take those in reverse order. We're excited about our exclusive brands. We talked about the penetration. I think that the reason I'm so confident that there's no near-term ceiling is -- and we talked about this a little bit last week on our earnings call, about 25% of our independent customers are 75% or higher percent penetrated with our exclusive brands. So at 54% on average, it tells me we have a long runway of opportunity and growth there. And to your point around EBITDA per case, we are very much an execution and a self-help story. And we talked earnings call after earnings call and all the public forums about all the self-help that we have and a long runway of that, both in EBITDA margin expansion as well as operating expense productivity. I expect that will transcend well beyond 2027, and you can expect this earnings profile to continue for a long time to come.

Forgot to mention my name, Kelly Bania, I have one more for you. I was wondering if you could talk about private label. You mentioned your good, better, best portfolio. What's working in private label and what's not? You had one competitor mentioned, they're a little under penetrated in value and going to be investing in kind of the value component of private label. So I was just curious if you could talk a little bit about how you feel positioned. What's working? Are all 3 cohorts working and also the innovation front?

Yes, they really are. And I think the hallmark of our success has been the long-standing approach that we've had to our private label, and we hadn't backed off on that for a very, very long time. This innovation team that I spoke about from the stage a few minutes ago has been in place for a very long time. These are culinary experts, very good at what they do and driving innovation, very engaged with the customer base. As I said, they scour the globe for culinary trends, and they're doing that constantly and bringing new innovative thoughts to our sales team and to our customers.

And so all 3 components of that good, better and best are working well. We've had no challenges or issues. We're excited about it. The only little blip we've had along the journey was during COVID. And that was just purely a matter of supply when we couldn't get the products from the manufacturers. But other than that, we've got the sales force confidence exactly where it needs to be to lean into those brands.

Jeff?

Thank you. CAGNY is all about the consumer, and you guys service the consumer through the restaurant industry, and I think the food away-from-home chart demonstrates the opportunity you have there to continue to grow. But can you share any thoughts just broadly on the consumer from a sales perspective, it seems like that's the area where the industry has had a tougher time more recently. And clearly, you've still demonstrated you can beat your EBITDA and your EPS targets even if sales are more challenging. But your perspective on the consumer and the outlook over the next 12 months relative to maybe the last 12 months, how you feel about that?

Yes. I think pretty well documented. No new news here. I mean the consumer has been under a lot of pressure for a long time. That showed up in reduced foot traffic in our industry for really the last 2.5 years, Jeff. And to your point, we've been executing well and significantly taking share and driving growth. I expect that, that will continue. I think the consumer is still pressured. We were pretty encouraged in the third quarter in terms of what we saw going into the government shutdown in terms of trends and momentum. Importantly, coming out of the fourth quarter in the first several weeks of January, we had a very good and very strong momentum, and we're quite encouraged until Fern and a couple of storms hit. But the other important data point I would give you is coming out of that, now that we've got the weather behind us, we've seen a significant rebound right back to those trends that we saw in early January, including last week and so far to date this week. So we feel really good about that.

Hopefully, that points to the improving health of the consumer. But I think it also speaks, Jeff, to the resilience of this industry. So you think about the consumer even when they're under pressure, it doesn't cost as much money to go out to eat and enjoy meal and relax a little bit, especially when you're under stress intention as it does to go on vacation or remodel your kitchen or buy a new car. I think those things get under a lot of pressure, but people want to go out and relax a little bit. And the other data point I would give you is back during the Great Recession, our case volumes were flat and sort of a pandemic-like event. That's about as rough as things will get. And our EBITDA was only down mid-single digits. And I think that also underscores the resilience of the industry we're serving here.

Okay. No further questions in here. Please join me in thanking US Foods for being here and join us in the breakout. Thanks again.

Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the US Foods Holding Corp. Q4 '25 Earnings Call. [Operator Instructions].

I would now like to turn the call over to Michael Neese, Senior Vice President, Investor Relations. Michael, please go ahead.

Thank you, Tiffany. Good morning, everyone. And welcome to US Foods Fourth Quarter and Full Year Fiscal 2025 Earnings Call. On today's call, we have Dave Flitman, 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.usfoods.com.

During today's call, unless otherwise stated, we're comparing our fourth quarter and full 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 press release as well as in appendices to the presentation slides posted on our website. We are not providing reconciliations to forward-looking non-GAAP financial measures. Thank you.

I'd like to turn the call over to Dave.

Thanks, Mike. Good morning, everyone, and thank you for joining us. Let's turn to today's agenda. I'll start by providing highlights from 2025, including our team's strong execution during the first year of our 2025 to 2027 long-range plan. I'll then hand it over to Dirk to review our fourth quarter and full year financial results and provide our fiscal 2026 guidance.

Starting on Slide 3. Our 2025 earnings exceeded the long-range plan we outlined at our June 2024 Investor Day. We delivered these strong results despite a softer macro environment by continuing to focus on controlling the controllables, something that we have been doing well for the past several years. These include capturing incremental market share across our target customer types and executing our operational excellence and productivity initiatives.

For the year, we grew adjusted EBITDA 11% to a record of more than $1.9 billion and expanded EBITDA margin by 30 basis points. At the same time, we delivered record adjusted earnings per share of $3.98. Our adjusted EPS growth of 26% led the industry and was more than twice our double-digit adjusted EBITDA growth rate. Now that we are 1/3 of the way through our long-range plan, I remain highly confident that we'll reach our 2027 goals.

Highlights of our 2025 results driven by the continued progress of our operational excellence and margin initiatives include delivering share gains across independent restaurants, health care and hospitality, our 3 target customer types, growing adjusted gross profit dollars 190 basis points faster than adjusted operating expenses, driving more than $150 million in cost of goods savings, expanding adjusted EBITDA margin by 30 basis points to a record 4.9% extending our technology leadership position through new embedded AI capabilities and executing our capital allocation strategy by repurchasing approximately $930 million of our shares and completing 2 small tuck-in acquisitions for more than $130 million.

In short, 2025 was a strong start to our new long-range plan. Through the extraordinary dedication and focus of our 30,000 associates, we continue to execute our strategy, serve our customers well, capture profitable market share and strengthen margins. The momentum we carried into 2026 is a testament to their tireless efforts to deliver excellence to our customers. Let's turn to broader industry trends.

Chain restaurant foot traffic, as published by Black Box, was down 2.8% for the fourth quarter and decelerated 230 basis points from the third quarter. Our chain business was down approximately 3.4%. Headwinds from the government shutdown, winter storms in December and a challenged lower income and younger demographic affected industry demand. We were not immune to these events as they impacted the volume acceleration we were seeing coming out of the third quarter. While these headwinds created short-term pressure, we remain confident in continuing to grow the top line and capture profitable market share in what remains a highly fragmented industry.

Despite fourth quarter foot traffic being the slowest of the year, we grew independent restaurant case volume 4.1%, which accelerated from the third quarter and resulted in our 19th consecutive quarter of share gains. In the fourth quarter, we delivered our strongest net new independent account growth of the year, increasing approximately 4.7% over the prior year. This marks our best performance since the second quarter of 2023. Healthcare and hospitality, which together comprise more than 25% of our sales, grew 2.9% and 3.1%, respectively, in the fourth quarter.

We continue to gain share in both customer types. And in fact, we just posted our 21st consecutive quarter of share gains in healthcare. Our 2026 case growth was strong in January until the widespread storms and weather-related closures at the end of the month and beginning of February. Although the weather meaningfully impacted the industry's case volume, we were encouraged by our start to the year and are optimistic volume will recover as the weather moderates.

Turning to Slide 4. Let's review some of the key achievements our team delivered under our 4 strategic pillars in 2025. Our first pillar is culture. The safety of our associates is and always will be paramount. Our injury and accident frequency rates improved 16% from the prior year on top of our 20% improvement in 2024. I'm very proud of our team for these results, but we will not rest until we reach our goal of 0 injuries and accidents.

Supporting our commitment to safety is the continued rollout of the center ride powered industrial equipment across our distribution centers. We are more than 60% through this deployment and expect to fully complete the rollout by the end of this year, dramatically reducing the potential for one of our most serious injury types.

Finally, we also donated more than $12.5 million to hunger relief, culinary education and disaster relief efforts last year. This contribution included more than 5 million pounds of food and supply donations to the equivalent of approximately 4 million meals. Turning to our service pillar. We are striving to differentiate our customer service platform and provide a best-in-class delivery experience. We made strong progress with our operations quality composite, which measures our ability to deliver products to our customers without errors with performance improving by 15% for the full year.

These results reflect our ongoing commitment to improving our customer service experience, and we expect further improvement in 2026. We remain excited about our ability to improve routing efficiency through our enterprise routing initiatives, including market-led routing and Descartes. In 2025, we completed the deployment of Descartes across our distribution network and achieved an approximately 2% improvement in cases per mile across our broadline deliveries compared to the prior year.

And while we are pleased with this early success, more opportunities remain to further increase our routing productivity. Also in 2025, we made significant advancements in our MOXe platform, including additional AI capabilities. One example is the launch of our new AI-driven ordering feature, which enables customers and sellers to upload photos, PDFs and even handwritten notes directly into MOXe and seamlessly translate them into an order, saving them both time and effort.

Now let's turn to our growth pillar. In 2025, net sales grew 4.1% to $39.4 billion through continued market share gains. Our go-to-market strategy and consistent addition of new seller headcount, which was up nearly 7% in 2025, remain at the core of our growth plan. Pronto, our small truck delivery service continues to expand and is now live in 46 markets with plans to launch in 10 to 15 additional markets in 2026. We also see excellent traction from Pronto next-day, formerly known as Pronto penetration, which we introduced in mid-2024. This service is already live in 24 markets, and we expect to add approximately 10 markets in 2026.

Last year, Pronto generated over $1 billion in sales, underscoring its importance as a long-term growth driver. Additionally, we remain focused on enhancing our center-of-plate protein and fresh produce offerings. Several years ago, we upgraded our assortment and focus on quality in these key product categories. Last year, we grew our fresh produce and center-of-plate categories with independent restaurants approximately 150 basis points faster than the industry and nearly 400 basis points faster over the past 2 years.

Moving now to our sales compensation change. As we discussed last quarter, we are transitioning to a 100% variable compensation structure for our local sales force, which we believe will be an additional long-term growth driver and enable higher earnings potential for our sellers. For context, currently, a seller enters our company at a 100% base salary. From there, we execute a click-down process at a pace specific to each individual that moves them to a 50-50 fixed and variable mix over time.

Moving forward, we will transition our sellers to our new 100% variable commission plan following a similar individualized click-down process. We believe that managing this transition well is more important than getting everyone to full commission by a date certain. As a result, while we plan to launch the new compensation plan in the middle of this year, it may take us 2 to 3 years to get the majority of our sales force to the 100% variable commission structure. We strongly believe this thoughtful transition plan will enable us to effectively and fully support each of our sellers through this important change.

We are currently piloting the plan in several areas across the company and feedback thus far has been very positive. And recently, through our sales leadership academy, we have trained all of our frontline sales leaders on the design and execution of the new compensation structure. Our sales leaders have given us great feedback and are excited for the launch of our new plan. Finally, we are highly confident the new compensation structure will drive stronger alignment to our business objectives and unleash our world-class sales force to help us further accelerate long-term growth.

Finally, let's move to our profit pillar. Our strong execution and margin initiatives resulted in adjusted EBITDA margin expanding by 30 basis points to a record 4.9%. We continue to drive gross profit gains and offset a portion of operating expense inflation with supply chain and other productivity improvements. I'd like to highlight 4 key drivers of our industry-leading margin expansion. We continue to make progress on cost of goods through our strategic vendor management efforts, realizing more than $150 million in savings last year.

Our execution and our win-win collaboration with suppliers are delivering more than we expected. We now believe we can deliver at least $300 million of cost of goods savings over our 3-year plan compared to our original $260 million goal laid out at our 2024 Investor Day. We also remain focused on growing our private label brands where our full year penetration was up approximately 90 basis points to nearly 54% with our core independent restaurant customers. Private label growth remains a significant opportunity for US Foods as we have ample room to drive penetration higher.

Our enhanced inventory management process to eliminate waste resulted in an approximately $40 million gross profit benefit, up from our prior $35 million estimate. We believe there is more to do in this area and expect to generate additional savings in 2026. Furthermore, we achieved approximately $45 million in indirect cost savings in 2025. This is another area where our initiatives are delivering greater benefits than we had originally anticipated. Based on the progress we've seen, we now expect to generate over $100 million in indirect savings by 2027.

Finally, for 2025, we accelerated our overall operating expense productivity gains as we make progress toward our 3% to 5% annual improvement goal. We remain committed to building a foundation that not only drives efficiency today, but also positions us for sustained growth and value creation in the years ahead.

Turning to Slide 5. As you can see, we are consistently driving sales growth, expanding margins and delivering double-digit earnings growth. When combined with our capital allocation framework, we are compounding that earnings growth to an industry-leading adjusted EPS growth of more than 20%. We have been and will continue to be prudent stewards of capital, consistently increasing our return on invested capital year after year, which also underscores our commitment to creating long-term shareholder value.

We remain confident in the earnings power of our operating model, and we believe we are well positioned to compound results for years to come, driving sustainable growth and reinforcing the strength, diversification and resilience of our business model.

Before I hand it over to Dirk, I'd like to recognize our inventory adjustments team led by Jason Hall, our Senior Vice President of Transportation and Logistics. Jason led a cross-functional team that worked together to develop a strategy and implement solutions to reduce waste and improve our inventory health. As I alluded to earlier, this team, along with our field teams and our distribution centers across the country, delivered more than $40 million in gross profit benefit in 2025.

In addition to driving stronger profitability across the business, this team's efforts resulted in better in-stock performance, quality and freshness for our customers to support sales growth. Thank you, Jason and team for your commitment to delivering excellence through this important company-wide initiative.

Let me now turn the call over to Dirk to discuss our fourth quarter results and our 2026 guidance.

Thank you, Dave, and good morning, everyone. Our fourth quarter performance capped off a solid 2025, underscoring the strength and resilience of our business model, profitable growth engine and disciplined capital allocation framework.

Starting on Slide 7 and our financial results. Fourth quarter net sales increased 3.3% to $9.8 billion, driven by total case volume growth of 0.8% and food cost inflation and mix impact of 2.5%. Excluding the Freshway divestiture, total case growth was 1.2%. Our independent restaurant volume continues to accelerate and grew 4.1%, including 40 basis points from acquisitions. Healthcare grew 2.9% and hospitality grew 3.1%.

Our chain restaurant volume was down 3.4%, primarily driven by slower industry traffic as well as the strategic exit we discussed in the second quarter, largely offset by new business wins. Broadly speaking, our chain volume was in line with the industry. Moving to our financial performance. We again delivered strong earnings growth and margin expansion, driven by continued operating leverage gains.

Fourth quarter adjusted EBITDA grew 11% from the prior year to $490 million, driven by continued volume growth with our target customer types, increased gross profit and operating expense productivity. Adjusted gross profit dollars grew 250 basis points faster than adjusted operating expenses. As a result, adjusted EBITDA margin expanded 35 basis points to 5%.

Finally, adjusted diluted EPS increased 24% to $1.04, demonstrating our continued ability to grow adjusted EPS significantly faster than adjusted EBITDA. We expect this trend to continue as we deploy our robust and growing cash flow towards share repurchases, which I will talk more about shortly. When we step back and look at the full year, our performance was strong. We grew adjusted EBITDA by 11% to more than $1.9 billion, expanded adjusted EBITDA margin by 30 basis points to 4.9% and increased adjusted diluted EPS by 26% to $3.98, all while navigating a difficult macro environment.

Turning to Slide 8. We continue to drive significant gains in operating leverage, and we again grew adjusted gross profit per case faster than adjusted operating expenses per case. In the fourth quarter, adjusted gross profit per case increased by $0.23 or 2.9% compared to the prior year. We continue to gain leverage through improved cost of goods savings, reduced waste through better inventory management and increased private label penetration. These focus areas led to success in 2025, and we expect further improvement in these areas for 2026.

Adjusted operating expenses per case increased $0.02 or 0.3%. We continue to successfully mitigate a portion of operating cost inflation through disciplined cost management and initiatives focused on driving productivity gains. These include routing enhancements, greater process standardization in our operations and increased savings through indirect spend procurement. As a result, fourth quarter adjusted EBITDA per case increased by $0.22 to $2.34. Our fourth quarter and full year results demonstrate our ability to drive strong leverage through the P&L.

For the full year, we grew adjusted gross profit per case 180 basis points faster than adjusted OpEx per case, which is above the 100 to 150 basis point annual target that we highlighted as part of our long-range plan. In 2025, our adjusted EBITDA per case increased nearly 10%. Importantly, since 2019, we have increased our adjusted EBITDA per case by $0.65 or approximately 40% through continuous improvement across gross profit and operating expenses.

Turning to Slide 9. Our robust and growing cash flow, coupled with our strong balance sheet, enables us the financial flexibility to deliver on our capital allocation priorities. In 2025, we generated nearly $1.4 billion in operating cash flow and deployed that capital to fund strong investments in our business, execute share buybacks and pursue accretive tuck-in M&A.

As Dave mentioned earlier, we are on track to deliver our 2025 to 2027 financial targets, including generating more than $4 billion of cumulative operating cash flow over that period. Over the past year, we invested $410 million in cash CapEx to support our business and enable organic growth, including enhancing our capacity and strengthening our technology leadership. Additionally, share repurchases and tuck-in M&A remain important components of our capital allocation strategy to drive shareholder value creation.

In 2025, we repurchased 11.9 million shares for $934 million and completed 2 tuck-in acquisitions for $131 million. We have approximately $1.1 billion remaining under share repurchase authorizations. Since 2022, we have repurchased 36.1 million shares for $2.2 billion. Finally, we ended the year at 2.7x net leverage, well within our 2 to 3x target range and our leverage profile is the strongest within our industry. I'm also pleased to report another positive development related to our credit rating. Our corporate credit rating was recently upgraded 1 notch by Moody's to Ba1 based on our continued solid operating performance and credit metric improvement.

Moving on to Slide 10 and our guidance and modeling assumptions. Our fiscal year 2026 includes a 53rd week, which is expected to add approximately 1% to total case growth and adjusted EBITDA growth. This assumption is included in the fiscal year 2026 guidance we are providing today. We expect to grow total company net sales by 4% to 6% compared to the prior year, driven by total case growth of 2.5% to 4.5%. We are projecting independent case growth of 4% to 7% for the full year. We expect a lower inflationary environment than we had for much of 2025 with sales inflation mix impact of approximately 1.5% -- we expect to grow adjusted EBITDA 9% to 13% and adjusted diluted EPS 18% to 24%. The midpoint of our outlook for the full year assumes the macro environment remains largely unchanged.

Now let's look at our first quarter outlook. Due to the severe and widespread weather-related issues that impacted the industry in January and February, many of our customers and our distribution centers in impacted areas experienced closures and other disruptions, particularly in the Southeast, which is our largest region. We have already had approximately 35% more distribution center closure days in 2026 than all of Q1 of last year, which negatively impacts our volume and cost. As a result, we expect first quarter adjusted EBITDA will be upper single-digit growth over the prior year.

We fully expect we will achieve our 2026 full year guidance despite the weather-related disruptions we experienced in January and February. Last year, we started with weather-related slower EBITDA growth in Q1, yet we ultimately delivered our full year adjusted EBITDA and EPS targets through strong execution in the remaining quarters even against a softer macro backdrop. I remain confident in our ability to deliver solid top line performance and double-digit adjusted EBITDA growth. This isn't new for us. Over the past 4 years, we have consistently delivered strong profitable growth while significantly improving our return on invested capital.

While consumer sentiment remains cautious, we are optimistic about 2026. We operate in a resilient industry and continue to run our proven playbook. We are executing our strategy to enhance the customer experience, drive profitable volume growth, improve supply chain productivity and return capital to shareholders, which enables our continued ability to compound double-digit earnings growth. In closing, I'm encouraged by our financial performance and the progress we've made completing the first year of our long-range plan.

I'll now pass it back to Dave for his closing remarks.

Thanks, Dirk. At its core, our story is one of growth, operational excellence and execution with a long runway of top and bottom line growth ahead of us. We will continue to run our proven playbook, execute our strategy with discipline and deploy capital in ways that maximize value creation. As we enter 2026, I have strong conviction that we will deliver the remaining 2 years of our long-range plan and hit our financial targets. And we also believe we are positioning ourselves to deliver sustained growth well beyond 2027.

Before we move into Q&A, I'd like to draw your attention to Slide 11, which highlights what truly differentiates US Foods from our competition, a differentiated value proposition and meaningful scale across the 3 most profitable customer types in the industry, independent restaurants, healthcare and hospitality. An industry-leading digital ecosystem embedded with AI-powered features that enhances customer engagement, drives efficiency and strengthens loyalty. Substantial opportunities ahead to drive sustained profitable growth as we are in the early innings of our operational excellence journey. And finally, industry-leading adjusted EPS growth, supporting our confidence in remaining a double-digit earnings compounder through 2027 and beyond.

With that, Tiffany, please open up the line for questions.

[Operator Instructions] Your first question comes from the line of Edward Kelly with Wells Fargo.

Congratulations on a good quarter and a choppy backdrop. Dave, I wanted to ask you, I mean, things have been all over the place between shutdown and weather. It certainly seems like Q1 is choppy to date. Could you just maybe, I guess, one, provide a little bit more color on quarter-to-date volumes and kind of what you're seeing?

And then if you could parse out sort of like weeks without weather and give us maybe your thoughts on what the underlying momentum in the business. And I'm hoping that you can tie all of this to your outlook for 4% to 7% independent case growth for the year because obviously, that's an acceleration.

Sure. Starting off with a great question here, Ed, I appreciate it. But as I answer that, let me go back to the fourth quarter because I was very encouraged with the momentum that we saw, as you recall in my prior remarks about the momentum coming out of Q3 until we hit the government shutdown and the weather and choppiness there in December. We had a lot of good momentum there. The great news is we rebounded from that in the early part of January. Actually, the first several weeks were very strong, actually stronger than our exit from Q4 and then we hit the choppiness.

The really good news is, since we've gotten past the weather, we're right back to where we were in early January. So the rebound has been -- it's taken a little bit just with the cold weather and all the ice and snow. But I'm just really encouraged by the underlying momentum. I'd point out also, Ed, that the fourth quarter was our strongest organic independent case growth in 2 years. And as we've been talking about for a while, the bellwether of our growth to come is that net new independent account generation, which was the strongest in the fourth quarter, again, at Q3, it was the strongest also since the second quarter of 2023.

So I give all the credit to our teams, their focus on execution and driving our capability into the marketplace. So I'm really encouraged ex weather, none of us can control that. It ebbs and flows, but we're controlling the things we can control, and we will continue to do that in 2026.

Great. And then maybe just a follow-up on the inflation guidance. I mean, obviously, we're seeing disinflation. Maybe you could talk a little bit more about your expectations there, sort of key drivers. And I'm just curious, on the surface, it seems like it would make it a little bit harder to grow gross profit per case, but the devil is always in the details. And I'm curious as to how you think about that? And then have you needed to make any adjustments on the self-help side of the story in that backdrop? Or is the impact really just kind of minimal?

Ed, it's overall, as we've said many times, you're not going to hear us talk about that as a key driver. Our self-help initiatives are the large lion's share of our drivers of gross profits pretty much every quarter. So unlike -- or like the rest of the industry, disinflation had a bit of a negative impact in the fourth quarter, but again, we still put up strong results. I think the -- we are still seeing inflation year-over-year so far in the year, and it's going to be one where you're going to continue to see, I think, more of an impact on the top line and the bottom line, and we'll manage our way through it just as we have.

Your next question comes from the line of John Heinbockel with Guggenheim.

So Dave, 7% sales force expansion, what do you -- which is a big number for you, high end of your range. Maybe talk about when you think about the maturation of that. Is that a key factor, 26 local case growth, maybe tail end of the year, right? So is there a cadence that's later in the year? Is the sales force productivity from that 7% a key factor? And then maybe the last part of that would be, when you think about improving net account growth, how much opportunity do you think is still left in lost accounts, right? Because it just strikes me that, that's still low double digit, and that could be better.

Yes, I appreciate the question. To the first part of it, that 7% included some of the internal transfers that we talked about last quarter. So if you back that out, we were right in the middle of our range in that 4% to 5% range in terms of external hires. So we executed exactly what we've been doing. To your point, I believe that the productivity of those sellers, particularly with the numbers that we've had internally shifted over, will ramp up and have a meaningful impact here in the back half of '26, not to mention the consistent sales force hiring we've done over the last 3 years. I think you're starting to see that pay off.

Every quarter last year, we accelerated organic independent case growth. We continue to accelerate net new, and I expect our growth will continue to accelerate as we go forward here. The second part of your question, sure. We run all parts of the NLP. We look at all that. We've talked a lot about the penetration pressure that we've seen just given the foot traffic. Lost is an opportunity. I will tell you that lost is fairly stable to improving. It hasn't increased at all, and the opportunity remains here to get that a bit lower. But again, given the pressure in the industry, our focus has really been on this net new, which is at the heart of our growth acceleration, and we're going to keep the team focused there.

Maybe as a follow-up, right, you did phenomenally well on OpEx per case in the fourth quarter, right? But there's still an opportunity for Descartes to make a bigger impact in UMOS next year. So kind of what drove that in the fourth quarter? And I don't know how sustainable that is in your mind?

Yes. Well, we had -- we talked about a lot of the initiatives there in the prepared remarks that are getting traction. And so it's really more of the same. To your point around UMOS, we continue to implement that. We're about 80% implemented across the company now in our key markets. We'll finish the UMOS rollout here by the middle of this year. And again, that's the template for consistency in roles and job functions in our operations, and it's had a meaningful impact.

On Descartes specifically, we commented on a 2% increase in cases per mile. We think there's at least that much opportunity again now that we've got that fully deployed across the company going forward. So we're expecting continued and ongoing benefit from that rollout.

And John, just as we talked about last quarter, when OpEx was a little higher, you have shifts from year-to-year that can happen from quarters. So any given quarter, you can be higher or lower on costs. And really, I would think about -- if you look at all of 2025, we were up $0.10, $0.11. So you saw really come to fruition where we offset a portion of our cost inflation with the productivity things that Dave has talked about.

Your next question comes from the line of Lauren Silberman with Deutsche Bank.

Congrats on the quarter. Dave, you talked about strong net new business growth this quarter, which is accelerating. Is the net new business primarily driven by your headcount growth or your existing salespeople expanding their book of business? And then are you seeing any change in the competitive environment? Are things getting more promotional?

Yes, Lauren, I would say that it's coming from both. Our existing sales force being increasingly productive as well as -- and that's why I mentioned our consistency in hiring sellers over the past 3 years. That productivity continues to ramp up across all of our cohorts. And so this is our model, right, a mid-single-digit headcount increase year after year, continuing to do route splits effectively as they make sense, seeding new sellers with business. They build from that, the sales reps that you take that business from, you pay them for that business for a while as well to encourage them to make sure those transitions are smooth and then they go build a new book of business.

And so that's the model, and it's working quite well for us, and I expect that to continue. To your second question around promotional activity, it ebbs and flows, Lauren. I would say the promotional activity we've seen, and I think there's been some talked about publicly here recently has been particularly at the QSR level and all that and some in chains. But I don't see that, that's changed a lot here from the last quarter.

I think we had -- saw similar effects, but I wouldn't see it increasing from here. We'll see what happens with foot traffic. But that promotional activity ebbs and flows. It's always there. I wouldn't point to anything significant right now.

Okay. And then just a follow-up on the sales comp change. I believe you mentioned it could take 2 to 3 years to transition everyone to the new structure. It sounds a little bit more gradual than I think what you were originally communicating. Is that a fair takeaway? And any sort of feedback or attrition that you may be seeing? Anything else that you could share?

Yes. So actually, it's not a change. And what I'm trying to do here because I know there were a lot of questions about it when we first began to talk about it was just provide more clarity. And so the reason I commented specifically about how we bring people into the company today at 100% base is -- it takes a long time to get the majority of your sellers to the 50-50 commission today. It's very dynamic, as you would expect. You're always bringing new sellers in. We've always got retirements and all that. It's going to be the same thing going forward.

It is no change in our plan. It's just the reality of how we operate the business. And I wanted to provide some clarity on that. So getting to 100% commission could take a couple of years for the majority of our sellers. That's fine. That's situation normal. It's the same game we've been playing for a long time. And then I'm very encouraged with the way the rollout is going, the feedback that we've gotten, particularly as I commented with our sales leaders who we've had in here over the past several weeks.

There's a lot of buzz and a lot of excitement. But I guess I would say I'm most encouraged looking at our turnover. Actually, since we started -- first started talking about this, all of our experience cohorts, and we have different experience cohorts in different buckets, they've all improved since we've started to talk about this. So that's a very encouraging sign, and we'll continue to watch that closely and again, be very, very thoughtful about how we transition each individual here over time.

Your next question comes from the line of Kelly Bania with BMO.

Congrats on a strong year. I wanted to also dive into the outlook for the case growth for this year, the 2.5% to 4.5%. Maybe just with a little deeper dive into the customer types and then the cadence, are those all similar ranges that you outlined kind of as part of your algorithm? Just kind of curious what you're assuming maybe within chains, if you're assuming that gets back to flat or slightly positive?

And any comments with new business wins in healthcare and hospitality? And then also within the independent cases in particular, should we expect that to kind of ramp throughout the year because the comparisons are also tougher, as you pointed out, they've kind of really improved throughout this entire year. So just wondering if you had any comments on those points.

Yes. So let me start with the IND guidance, that 4% to 7%, Dirk talked about the 1% at the 53rd week adds that takes it to 3% to 6%. You add 200 basis points to that, that's right on the algorithm that we talked about at Investor Day when the foot traffic gets to what the basis was for that, which, as you recall, is about 2%. And we haven't smelled 2% since we put that algorithm out there. It's been relatively flat to down. So it's right in the heart of what we committed to do.

The total case growth takes into account healthcare and hospitality. And let me just talk about those for a second. We're very encouraged by -- we talked last quarter about the $100 million of onboarding in both of those target customer types. We expect to have all of that fully onboarded by the end of the first quarter here. And I would also tell you that the pipelines for both of those have never been stronger.

So we'd expect more through the course of time. And then to the last part of your question around independent case growth. Sure, the comps get a bit more challenging, but we're not deterred by that. We've got a lot of really good momentum. Our sales force has never been more focused. Our leadership knows what we need to achieve, and I give our team a lot of credit for the momentum that we've built thus far. And I would expect you would continue to see us ramp up our growth rate. That's the plan.

That's very helpful. If I can just follow up on one more with the comp model change. It sounds like it's launching midway through the year. And so assuming maybe no real impact this year, maybe correct me if that's wrong. But just wondering if you could talk generally about the kind of magnitude of unlock that you think that this could drive for case growth over time over the next couple of years?

Yes. It's hard to quantify it, but I really believe, as I said in my prepared remarks, this is going to really unleash our sales force through the course of time. I think this is the last major unlock. We've got all the process stuff right. We've got the organic growth going. We've got our headcount plan, consistent mid-single-digit headcount additions. This is the last piece that's been missing. And as I've talked about before, I've contemplating this since the day I got here. I feel like with the strength we've -- underlying strength we've built in the business over the last 3 years, this is exactly the right time to launch this plan going forward. And I'm really excited about what it's going to mean over time.

Your next question comes from the line of Jacob Aiken-Phillips with Melius Research.

So on the comp transition, I'm curious how we should think about seller productivity throughout the 3-year multiyear transition. Would you expect it to dip a little bit towards the beginning and then -- but then be heightened afterwards? Or should it be more neutral and then climbing over time?

Yes. Good question, Jacob. I think it will be the latter more than the former. And the reason for that is, and that's why I emphasized it earlier, these are very individualized tailored conversations. When you make a change like this, you're going to have some people out of the gate that do better and some people that are more challenged. And that's the piece that we're working through with each individuals.

And that's why we're taking a very thoughtful and deliberate approach on these pilots. There's a lot -- when you got a sales force of over 3,000 people, you want to do this well and you want to have those individual conversations and make sure you're making the right decisions. So I would not expect us to step back. I would expect us to be neutral to going forward with this as we implement it.

Got it. And then separately, as you continue to layer in AI capabilities into MOXe and across your platform, should we think about that mainly as a cost productivity tool? Or do you see revenue and wallet share upside as well?

Yes, good question. I think it's both. And we've talked about since we implemented MOXe over 3 years ago that we've seen the customers that use MOXe buy more from us on average and they stick with us longer. So there is growth upside to it as well an important part of it is ease of doing business with us, kind of taking the friction out of the relationship with our customers, which we've gotten very good traction with.

And importantly, also improving the sales force productivity because the things that the customer can now do self-serve in a very effective way within MOXe takes that burden off of our sales force and frees up time for them to go talk about our brands, find the next customer, drive further penetration within those customers. And that's where we want to see our sellers spending their time. And so it's really both within MOXe.

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

All right. And great work in 2025. The share gains, execution, I mean, seemingly, everything has been just so strong across so many initiatives. Is there anywhere that's not where you want it to be where execution is just not ramping like you hoped and maybe is an underappreciated opportunity that you want to highlight?

Well, I'm glad our team is making it look easy because it's anything but this is hard work, and it takes consistency and focus and simplification in the journey, and that's what we've done here. We've got a very focused team. I put our leadership team up against anybody anywhere in terms of knowing what we need to get done and ability to execute it.

I'm one of these guys that's never satisfied in anything. And this theme of continuous improvement is real within our company and our organization. And so I just continue to see so much opportunity across the P&L for us to strengthen what we've got going on. We talk about all the good things that we have in the company, but there's plenty of opportunity to improve in areas that we've talked about this morning and in plenty of other areas of the company.

In a company of 30,000 people and 75 distribution centers and $40 billion in revenue, there's a lot that needs worked on every single day. And that's why I'm so bullish on this continuous improvement journey and our ability to hit our targets. Everywhere I look, there's more opportunity for us to get better.

That's great. And on the CapEx increase for '26, how much of that is Pronto versus other initiatives that you're looking to do?

It is a combination. So Pronto is a meaningful portion of that. And then the rest just it comes from building spend, maintenance spend just across the board. And if you think of it just as our business continues to get bigger and we continue to invest in capability and capacity that's driving it. But overall, you see we still expect to have very strong EPS growth, so making sure that we're leveraging our investment into things that are paying off.

Your next question comes from the line of Jeffrey Bernstein with Barclays.

My first question is just on the M&A environment. I know you did a tuck-in with Shetakis in the fourth quarter, and I think 2 transactions for the year. Both are relatively small compared to your business. I'm just wondering how you think about the opportunity for more sizable M&A in this challenged macro? Maybe any thoughts on what you've seen around availability or receptivity from potential targets or where multiples are versus historical? Just wondering where you think the greatest opportunity are to enhance the U.S. food platform that you could potentially consider pursuing.

Thanks for the question, Jeff. I'll tag team this one with Dirk, and I'll take the first part of your question. First of all, I just take you back to our strategy. Our strategy has been and will continue to be targeting tuck-in M&A. I love our footprint. We've got density in all the major MSAs across the country. And as you look back over the ones that we've acquired over the past 3 years, they've all been helping us with local market density in this tuck-in area. Putting a distribution center in the part of the market that either we haven't had a location in or that is growing faster than where we have our footprint.

And it helps us get more productive, take miles out of our distribution network. And obviously, there's a lot of synergy around those. And that's our plan. It has been and it will continue to be going forward because given the fragmented nature of the industry, that's where the opportunity is. And thankfully, we don't need to do anything of scale. We just don't. Obviously, if something comes along that makes sense, we'll take a look at it, but it's not our day-to-day focus in M&A. Dirk?

And just our team continues to do outreach, work on building the pipeline and -- as you know, many times when we've talked about, it's -- sometimes it takes many years of dialogue and engagement before things come to fruition. So that's -- again, that's why we continue to like the toggle that we can do between M&A and share repurchase so that when that M&A comes to fruition with our strong cash flow, we can move ahead on it. And if not, we'll continue to buy shares back. But as far as the multiples, we've not seen that be an inhibitor. People always want to get paid fairly for their business, but that's continued to be, I'd say, rational.

Got it. And just one clarification. I think you mentioned in the press release and even on the call, I think you were talking specifically to EPS beyond '27. I think the reference was to sustain double-digit growth. I know currently, the EPS algo is for 20%. I'm just wondering whether you view that language similar to the 20% or maybe that's just a reminder that over time, 20%, it's more realistic to think of double digits. But trying to just compare that to kind of the 10% EBITDA growth. So kind of how you think about things as we look past this current algo relative EBITDA versus EPS?

Yes. I appreciate the question, Jeff. We'll talk about beyond 2027 when we get there. But our message here is quite clear. We are and we expect to be a double-digit earnings compounder for a very, very long time in the company. We're not messaging anything about something coming down or something going up. We've been doing this for a while, and we expect to continue to do it given the strength of our model and our focus on execution here. That's it.

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

My first question was on the macro outlook. You mentioned that you expect a similar macro environment than '25, but there's also been a decently strong start to the year aside from the weather, some tailwinds from tax refunds, for instance. I guess I'm asking about your confidence on '26 and maybe whether you think that there should be some potential upside from kind of that base level.

Yes. I just want to make one comment here. We've been operating in a very soft macro for the most part of my tenure here. and we've been executing extremely well. And we expect in a flat macro that we will continue to execute well and deliver results that are consistent with what you've come to expect out of US Foods. Any tailwinds that come would be upside to that. And I'll let Dirk put it in a little more context for you.

Yes. Just as we said in the materials and the comments, so our -- we provide a range like we always do, and the center point of that range really assumes status quo. So to the extent the environment is better from refunds, stimulus, anything like that, then that would benefit us as it does the industry in addition to, of course, the end consumer. But in the meantime, we still even down the middle, expect to accelerate case growth and really coming from our own ability to drive share gains, as Dave pointed out.

Got it. And then my follow-up question was on the margin drivers in '26. And forgive me if I missed it, but I'm wondering if you can quantify some of those drivers, like the vendor management, there's $150 million to go between '26 and '27, how much you expect in '26, inventory management, indirect costs. If you can quantify those like you did in '25, that would be helpful.

Well, in some of those, we continue to expect meaningful growth. So we're not going to specifically lay out the components and the pieces. But hopefully, you see is what we've generated and what we've called out just in those few examples of what we expect to. There's not a cliff, so to speak. So we expect to make more progress in '26 and then further in '27. But quarter after quarter, hopefully, what you continue to glean from our commentary is when we talk about this portfolio initiative initiatives that continues to mature, advance, some of them that come on, come off, that is how we're managing the business.

And that's part of how continuous improvement works and driving that through gross profit through productivity. And so each of those will continue to generate significant value. But when you think about continuing to improve EBITDA margin, you see that concreteness that is there from specific things that we're doing, and we've provided that level of transparency that is really unprecedented in the industry as far as where values are coming from. And we think that's important. So you and investors build that confidence that US Foods will continue to build upon what we've done in the last 4-plus years.

Your next question comes from the line of Mark Carden with UBS.

So to start, another one on the compensation shift. Just now that the news has been out there for a few quarters, have you seen any shifts in your ability to attract the kinds of salespeople you'd like to get from an experience standpoint? So by that, do you see a higher proportion of more seasoned salespeople perhaps seeking you out than they may have before? Just any change in composition from the pool?

Yes, Mark, I would say it's still early. We haven't had a lot of shift in that at this point. And recall that we don't typically hire competitive reps for the majority of our sellers that's a minority of who we sell. I expect over time, that will continue to be the minority of who we hire. But we do expect to be able to attract some experience over time. But really no shift. I think it's early days yet. But again, I would just underscore, we do not have trouble attracting new sellers to the company, continue to bring new ones in, have new cohorts every month.

Got it. Makes sense. That's helpful. And then on the OpEx front, there have been some recent labor contract announcements in the industry that have included some meaningful bumps in compensation. Just how are you thinking about labor is impacting your OpEx per case in the year ahead? And then would you expect incremental productivity gains to be able to fully offset any pressure?

Sure. Mark, it's -- I'd say what we've seen is not that dissimilar to what we've seen over the last 3 or 4 years. In any given year, we have a number of contracts that come up, and we reach agreements and levels of increases. In a number of cases, they're catching up with increases we've given other groups in prior years. So I don't expect it to be any meaningful change to what we've seen from an OpEx trajectory, and we still feel highly confident in our ability to grow GP dollars to 100 to 150 basis points faster than OpEx dollars.

Your next question comes from the line of Karen Holthouse with Citi.

Congratulations on the quarter and the year and thanks. Just on the restaurant side, I feel like we're talking a lot about GLP-1s these days. Is there anything filtering up from the field in terms of what customers are concerned about, what they're asking for from an innovation standpoint and how that might play into your scoop kind of strategy for the year?

Yes. I think we haven't seen significant shifts. I think to the extent that, that GLP-1 transition or it impacts healthier choices for customers and ultimately, our customers. It will play very well to our portfolio. And again, over 1/3 of what we sell is center of plate or produce. Actually, it's slightly more than that. And so we feel like we're well positioned. We can bring in whatever products we need. I think some of the early things that we've seen from customers is help with menu design. There are things looking at portion sizes, healthier options and all that, I think, plays to our strengths. So while the impact remains to be seen fully in the industry, I don't expect a significant impact outside our realm of capabilities to deliver whatever our customers need.

And then on the guidance for 4% to 7% independent case growth, if we think about what kind of pushes to the lower or higher end of that range, is that really more dependent on weather, macro, kind of the industry? Or are there things on more of the internal or self-help side you could see pushing yourself towards one end or the other?

Well, we'll continue to push the self-help consistently. I think as Dirk said, the midpoint of that, you would expect the macro to remain fairly consistent with what we saw coming out of 2025. Any downside in foot traffic would probably pull us to the lower end and any upside, some of the things that we had in an earlier question could potentially push us higher. But I think down the middle is what we're planning for as we get into the year.

Your next question comes from the line of Peter Saleh with BTIG.

Great. Just one more question on the sales force compensation. Just curious if -- as we go through the year and you start to transition, is there any impact to the financials, any lumpiness as we do this? Any seasonality that we should be aware of in the model?

Peter, at this point, no, nothing of significance as we get further in the year, if there's any anomalies to call out, we'll do that. But really, it will be one sort of as we go probably into future years and you get more and more people on the plan, we may see some subtle moves quarter-to-quarter just based on the volume, but no, nothing of significance.

Great. And then just -- I think you highlighted a couple of incremental cost savings that you guys have found on cost of goods and indirect costs. Can you just provide a little bit more color on where those are coming from? Do you think this is the top end of those cost cuts? Or do you think there could be more to come in the future?

Well, I'll start with -- we're very pleased with each of those examples. And in the cases, these -- the teams are really able to get more out of the initiatives than we had originally contemplated. And so what's exciting is it spans gross profit, various elements of OpEx, and it is healthy ways to improve GP, healthy ways to improve OpEx. And so those are things that as we go in, the teams are continuing to push for those opportunities, and they're sustainable and they're part of that continuous improvement that Dave mentioned earlier.

So for each of those, the top end, I mean, you're never going to hear me 1 year and say that's the most we can do. And Dave talked about our lack of satisfaction as we want to recognize the good work the teams have done. But internally, we're doing what you would want us to do is continuing to identify where we can in a healthy way, continue to get more out of our different initiatives. So we're highly encouraged. And again, that all adds to the confidence that we have in our ability to deliver this year and our long-range plan.

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

And once again, congratulations on a very strong quarter and year so far. I wanted to follow up on a question that was asked earlier regarding the guidance, but I want to take a slightly different spin. And specifically, I want to ask, among what is it within your control, what do you have to believe for you to hit the high end of your EBITDA guidance? And conversely, what you may need to believe for you to go to the low end of your guidance?

It really comes down to just -- so there's the macro pieces that we've talked about. And then within ours, there's always the range of execution effectiveness. And that is -- that really is the primary variable. And no different than we've talked about the last few years, that is the part we would rather have the control over because we can influence that. And in each of those cases, we're going to continue to work on getting the most that we can in a healthy way out of our initiatives. But we are confident in our ability to deliver the guidance that we've outlined.

Okay. And then earlier, you mentioned that the comp changes to your sales force is the last major unlock to drive case growth. So are we to assume lower case growth once the comp changes lapses? Or are you contemplating other major opportunities in the pipeline that will help you sustain very healthy case growth going forward?

Thanks, Danilo. Not expecting anything to slow down. We think this will unleash our sales force to its fullest over the course of time. And both Dirk and I have expressed a lot of confidence here in our ability to drive both the top line and double-digit earnings for a long time to come in this company. And our sales force is strong. We believe this comp plan fully aligned to business objectives will unlock them to drive further growth and make a lot more money individually in the process, and that's what we want to have happen here.

Your next question comes from the line of Rahul Kro with JPMorgan.

Question is on Pronto. In 46 markets now and about half of them on Pronto next-day or penetration. Can you share what kind of lift in independent case volumes and specifically wallet share increase are you seeing in existing customers or even when you onboard new customers in the markets with Pronto next-day penetration?

Sure. Rahul. So we haven't shared specific numbers, but we do see a meaningful uplift in those in both the legacy Pronto and the Pronto next-day. We look very closely in those markets to make sure that we're not seeing cannibalization of our core broadline business. And we've seen meaningful -- typically, it's double-digit levels of uplift on customers that are in there. And the great thing about that, just like on the Pronto legacy is when we first launch a Pronto next-day market, it typically has 1 or 2 trucks. And so that's -- again, that's why we expect and believe that Pronto will continue to be a meaningful growth driver for US Foods for a lot of years.

That's helpful. One follow-up on the AI tools, in the context of sales force training and deployment, can you share some opportunities or challenges when you're onboarding new sales force or even like training the existing sales force given the broad set of productivity-enhancing tools you have talked about? And do you see a future where given this is a relationships business that maybe the number of clients like your sales force can handle can double or even like take a significant step up from where we are today, given all the tools at disposal?

Yes. Well, the second part of your question here, absolutely, and we're already seeing that in terms of productivity. That freeing up of time for our sellers that the digital capabilities and the embedded AI helps with is real, and we're starting to see that. I mean we started a couple of years ago talking about automated order guides and taking something that took 3 to 4 hours for a seller to prepare down to 15 minutes. They're doing something with that freed up time, and it's going to see more customers or spending more time with existing customers and trying to drive penetration.

And we have a very thoughtful and deliberate sales onboarding process that includes a lot of face-to-face training over a long period of time. But as you think about areas where AI could help in that in the future after the initial training, things like product training and all that could be an area of opportunity for AI, and we may or may not be already thinking about and doing some of that. So I believe the AI opportunities here are limitless with our digital technology, and we're continuing to explore ways to both drive productivity and help us accelerate our sales force productivity.

Your next question comes from the line of Margaret-May, Binshtok with Wolfe Research.

I just wanted to ask, it seems like you guys are seeing some acceleration in private label penetration. As we look ahead into '26, can you give a little bit of color on the specific levers that you guys have to continue to push that penetration higher?

Yes, great question. We've been at this for a very long time in private label, and it adds a lot of value for our customer. Recall those products are cheaper than manufacturer brands. Importantly, they're designed with great quality in mind. We've been doing this for a very long time, and they're also more profitable for the company, which means our sales force gets comped higher when they sell that. So we feel like we've got the incentives right. That's obviously designed into our new sales compensation plan.

What gives me confidence when we talked about being at 54% penetrated with independent restaurants, and I keep saying this, and we talk about this a lot that there really is no near-term ceiling. Here's a new data point. 25% of our independent restaurant customers have greater than 70% penetration with our brands. That's the key data point that gives me confidence to say that there's a lot more upside to come. And so our sales force has their arms around this. They're excited about our brands. Our innovation team brings out high-quality brands a couple of times a year here and puts new powder in the hands of our sales force to get in front of our customers with. So we've got a great machine built around our private label brands. It's been accelerating penetration since I've been here, and we expect that will continue.

That concludes our question-and-answer session. I will now turn the call back over to Chief Executive Officer, Dave Flitman, for closing remarks.

Thanks a lot, Tiffany. We appreciate everybody's time this morning. Our team is focused. We're executing well, and we expect everything to continue that you've come to appreciate about US Foods. Thanks for your time. Have a great week.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.

All right. Let's kick things off. So good afternoon, everyone. I'm Mark Carden, I'm North American food retail and food distribution analyst from UBS. Thank you, everyone, for joining us this afternoon. Thanks to ICR for putting together another great event.

Super excited right now. I've got with me today the team from US Foods. For anyone new to the story, leading food distributor, partners with roughly 250,000 restaurants and food service operators across the country. We have Dave Flitman, the company's CEO; Dirk Locascio, the company's CFO, with us today. And with that, thanks, Dave and Dirk, and just having some questions.

Appreciate it.

Thanks for having us.

So maybe to start, we'll just start with the consumer. Obviously, we faced an extended period of demand softness in the food away-from-home space overall. How are you guys just thinking broadly about the health of the consumer today?

Well, I think to your point, I mean, the consumer has been under pressure for 2.5, 3 years now coming out of COVID. I don't really think anything has changed in that regard recently. We were encouraged coming out of Q3, as we talked about on our earnings call about momentum in the early part of the fourth quarter. It got a little choppy between the government shutdown and some weather in December. But I think for us, fundamentally, nothing has changed.

I think we've got a stable consumer backdrop. We'd love to see it stronger, but it's stable. And ours is very much a self-help story as it has been for a very long time. So our ability to continue to take market share in our 3 focused customer types, along with the work we've got going on in gross profit and operating expense productivity is really what's carrying the day for us. We've been at this for a very long time, and we've got a long runway of doing more of the same.

That's great. And then as we think about 2026 and the year ahead, there's some tailwinds that are potentially on the horizon. You've got potential for higher tax refunds. You've got the potential for some stimulus. What have you guys seen typically with your business demand in situations like these in the past?

Well, I'm hopeful that both of those that you pointed to, could be nice tailwinds for 2026. But importantly for us, I think the key is interest rates. As you think about the consumer and the pressure that they've had over the past few years, anything from mortgage rates to buying a car, the leases and all that is really tied up in the interest rate piece. And so I think as we start to see that continue to come down, I was encouraged last week to see that get below 6% the first time in 3 years.

So if that's a bellwether of things to come, I think that will only strengthen consumer sentiment. The tax piece, any stimulus will certainly help. Looking -- I'm encouraged and I think '26 will be a stronger consumer backdrop than we've seen for the past few years.

Got you. And then just from a general spend standpoint, we've also got a situation, of course, where household savings tend to be a bit lower than what we've seen historically. To the extent that we do see consumers get incremental dollars into their pockets, do you think that it could be any different this time around, just given the different consumer set up in that sense? Or do consumers would you expect them to continue to spend?

Well, I think for us in our space, particularly the restaurant space, very resilient. Again, I'd point to the great recession for us specifically. That's about as bad as it will get separate from a big cataclysmic event like COVID. We saw a mid-single-digit decline in cases.

And I think the food traffic in the industry, albeit pressured over the last couple of years is still held up relatively well, certainly better than other parts of the consumer sentiment industries and other places. So very resilient industry. I think it will rebound very quickly once the consumer sentiment starts to rebound.

Makes sense. And then, I guess, to that resiliency, I think 1 dynamic that's been pretty interesting is that we've seen independent restaurants, have continued to outperform chain restaurants. And this has come in a setup where -- I mean, independents in a lot of cases, they're going to have higher cost structures. Presumably, they want to some of the managers at large chains have on cost. I mean, would you expect for independents to continue to outperform in 2026? How do you think about that general setup?

We would. And really that's not just a more recent trend. That trend has been a long-term trend where independents have been taking share from chains and even QSR. I think the difference around independence is they have a very loyal local customer base. And they come in for a dining experience, tougher to get that on a consistent basis with change. Now there's changes that do a great job, but we really believe that the decade-plus trend that we've seen of independents gaining share from other segments, the restaurant space will continue in '26 and beyond.

Makes sense. In terms of pivoting a little bit over to your overall algorithm, your initial 3-year algorithm built in 5% to 8% annualized independent case growth, contingent on the industry, return to 2% traffic growth industry traffic growth. I mean, obviously, it hasn't materialized outside of your control. You guys have still been able to hold firm on the 10% EBITDA, 20% EPS CAGRs, what's allowed you guys to really sustain such strong profit growth even with some of the industry-related top line pressures.

More effective execution. It really boils down to that. It's not -- it's more complicated, I guess, to do, but that straightforward. And it's really what we've talked a lot about the last few years of control the controllables and keeping the teams focused on what the things are that we can influence. We can't influence the macro, but we can influence whether we gain share, we can influence how we drive gross profit initiatives. We can influence how we drive productivity.

And that is a big change over the last few years, just the effectiveness in which we've done that. And that the thing that I continue to -- and we continue to be very excited about and really like is the balance in which we're doing it from -- we know top line growth is important. So gaining share in those 3 core customer types of independents, health care and hospitality. Along with continuing to drive increased gross profits and drive productivity to offset a good portion of our cost changes.

And you see that balance really show up in our P&L when you see against some of the top line growth. You see gross profit has been a big driver of our improvement. Our costs are going up, but we are offsetting a good portion of that with productivity. And so you see, though, we are investing in the business that shows up still in higher cost. It shows up in our record levels of CapEx. So we think that we've got a long time of that to come, not only for this long-range plan, but well beyond.

Dirk made a lot of good points there. Just let me reiterate. We are the only 1 of the large food service distributors that are focused on the 3 fastest growing and most profitable segments in the space, that being independent restaurants, health care and hospitality.

In each 1 of those cases, we've got significant differentiation, be it our people on expertise, the technology, the way we go to market and our message is, I'd love to have a stronger economic backdrop, but our ability to continue to take share in those segments is completely within our control, and that's where you see our team executing.

And it seems like you have been able to do this without really cutting into any muscle, so to speak.

No. And we get this question a lot. We're driving productivity and efficiency at 3% to 5% because it's the right thing to do. And our focus is on offsetting inflation. We are still investing heavily in the business, both in terms of capital expense, and we've never invested more in fact. And our operating expenses continue, while we're driving productivity, they continue to escalate. So we will continue to invest in the business aggressively to support our growth.

That's great. Turning on to M&A. Obviously, you guys explored a merger with performance. And as we know, those talks didn't really progress beyond initial diligence. Can you walk through maybe just what attracted you to performance initially and just your decision to end negotiations mutually.

Yes. I've probably limited a little bit, Mark, in terms of what I can say at this point. But I would say initially, you don't get a chance to take a look at a large transformative acquisition that would actually transform both companies and also the industry very often. So our executive management team and the Board felt it was worthwhile looking at. And we did a lot of work before we engaged with PFG just on our own and had a point of view. And for us, it really came down to 3 key points.

1 is synergies, 2 is the regulatory environment and 3 is return for our shareholders. And while we had a point of view on all that until we actually engage and exchange information through the clean team, you really didn't know what the data would tell you. And as a result of that analysis, we decided that it didn't make sense. I will tell you that the synergies were strong, and we felt would be solid. There's really those other 2 pieces that didn't make sense. And so we backed off quickly. Did not want it to be a distraction for ourselves or for our shareholders than it wasn't.

Great. Then just in terms of M&A, you guys still have been pretty active in it. You guys have targeted a lot of, call it, smaller companies that fit quite well with your existing strategy, as looking at performance though, has that changed at all how you might think about -- there's a lot of players that are larger independents that might be in, call that 2% to 10% range. I mean, does that -- does that open up your thoughts more on some of those larger players? Are you still thinking mainly the smaller players or what makes the most sense?

Yes. I think, obviously, we're open to anything that makes sense. But our focus has been strategically on the tuck-in M&A I think there's a long runway of opportunities for us to continue to acquire small companies in certain markets to help our local market scale, take miles out of our delivery system, and that's where we will remain focused. Anything opportunistic that comes along, we'll take a look at it, if it make sense, but that's not our day-to-day focus.

Yes. Our team continues to work the pipeline, continues the outreach and some of these transactions that come to fruition. We know them, we're engaged with them for a number of years, and they're at that point where they're ready to finally engage in a discussion. And -- we're going to continue to do that because there's still a number of opportunities out there that we think would be good fit within our network.

That's great. Then in terms of moving maybe to your compensation model, it's obviously been a big topic of discussion as well. You guys are moving now to 100% commission model, similar to what you operated in a previous life when you were at PFGC. Why is now the right time to go over to a 100% variable compensation model, maybe you can walk through that thought process?

Yes. I think -- well, first of all, to your point, in the background that I've got in the industry prior to this was in 100% commission system. So I actually contemplated that change the day I showed up at US Foods. And for me, it was all about timing and when to get there to your question, to your point. We had a lot of work to do over the last 3 years.

I think we've got very good momentum on the top line, focused on taking share, where it makes sense for us to take share driving the productivity and efficiency and just strengthening the core of the company. And now it makes sense. The other thing we've been working on it for quite some time. And when I said on the earnings call, back in November that we've been working on it the entire year of 2025, that's reality.

So it's not something that we stepped into quickly or thoughtlessly. We spend a lot of time on this. And -- for us now, we're in the middle of some pilots. So we're organized geographically, and we've got a pilot going in each 1 of those geographies. And we're not changing any compensation in those pilots. We're just giving visibility to the old comp plan and the new comp plan and how that will look.

And when we go forward to take this across the company, we'll take whatever learnings from those pilots, make any tweaks that make sense. But we'll do exactly the same thing as we take this across the company, meaning that we will not change comp for some period of time, give visibility, gives us a chance to have important individual conversations with our sellers and make sure that we're doing this thoughtfully and right.

And another key point, I think, that's lost on people, we have a 50-50 commission plan today. No seller comes into the company at 50-50, they all start at 100% base, and they work their way into a 50% commission. We will do the same thing as we move to this 100%. So there won't be a date certain by which we will take every 1 to 100% commission.

In fact, Mark, it may take us a few years to get the majority of our sellers to 100% commission, and that's okay. It's more important for me and for the organization that we moved thoughtfully and start this journey, than it is that we get there by a date certain. So we've got a robust change management process in place.

And the important quarter also to point out is we've had no increased turnover since we started these pilots. It's been 4 months now since we announced this to the sales organization, they're excited about it and looking forward to the change and what it can mean for them personally.

Because overall, I mean, this is not a head count play, it's not a cost play, it's really about effectiveness of the go-to-market, allowing our sellers to actually have the opportunity to make a lot more money, as Dave often says, maybe we want our sellers to make as much money as they can. So this really is about taking 1 more step in aligning their incentives and our incentives to the business.

And then in terms of just this whole click-through process, it sounds like your initial move to a 50%-50% compensation structure also involved, similar phasing. Is everyone, I guess, phased over to the 50%-50% plan before you guys go over to this 100% variable plan?

Not necessarily, right? They can insert themselves into that click-down process wherever they are in the existing process. It's just a different ramp now gets to 100% versus it would be 50%, so we're not going to force this in any sort of timing, either collectively for the company or for any individual.

Got you. And so in terms of within your test markets, I mean, has turnover been any higher than expected in any basis?

We've not seen any increase in turnover at all.

That's great. And then just in terms of independent restaurants, obviously, you guys continue to do a nice job taking market share. I think it's what, 18 quarters?

18 consecutive quarters.

Market share gains. How are you guys thinking right now just about the balance between new account growth and penetration growth? I mean, obviously, in this kind of environment, there can be limits on the penetration front, but as you guys think about how you target your focus and with the new compensation model, how do you think about that balance?

Well, we work on all of them every day. The new, the lost and the penetrated. I think there's opportunities for us to continue to improve in all those areas. But the reality is the lifeblood of our growth is the new account generation and minimizing lost business. And that's why we're so excited on the third quarter to point out that we grew that net new account generation, the difference between new and lost by 4.4%. That was the highest since the second quarter of 2023.

And so we focused on this, particularly because the penetration to your point, that's where the foot traffic challenge shows up. While we continue to drive that, it's been masked by the foot traffic. So we've leaned into that pretty hard and really glad and excited that the sales force is delivering as they are.

And then just in terms of another initiative you guys are pretty excited about is Pronto. Obviously, investing more into the concept in 2026. How do you guys think about the opportunity both between legacy Pronto and Pronto penetration? How the 2 can kind of back off each other.

Well, we're excited about both. We've been at Pronto legacy much longer several years. And that's, again, as a reminder, where we took Pronto to just new customers. Really proving the model and trying to aggressively grow our new customer base. Pronto penetration is only about a year old, a little more than a year now. and that's offering it to our existing customer base.

And by the way, we're calling that Pronto next day now because it speaks to the service model and the attentions of later cutoff deliveries and the ability to deliver the next day overnight. We've got that in 20 markets now. And to your point, we announced that we're going to make the largest single investment in Pronto in 2026, and that's aimed at continuing to expand that to more markets. But also importantly, and another very important element of growth is when we enter a market, we may go in with 1 or 2 trucks.

And as the market continues to prove out the model and it supports that growth, we'll continue to invest in trucks and drivers to do that. And so that will drive that growth in Pronto for a number of years to come. So we're very excited about it. We just took our long-term projections up to $1.5 billion revenue over the midterm from $1 billion and making that large investment kind of speaks to our excitement around Pronto.

And much of this is opportunity that we otherwise really couldn't effectively reach for their big trucks in the past because either they wanted more frequent deliveries or they were in dense geographic areas that we could get to as easily. So this really allows us to serve a broader array of customers, address essentially more of the TAM and better serve our existing customers that are buying some from us rather than have them split with others now can buy more from us, the more operators that someone buys from our distributors and someone buys from it is more complicated for them.

Sure. And you guys have talked about this as an opportunity for you guys to compete in some of the specialty business that you guys might have in the past. Maybe walking through a little bit of opportunity on that front?

Yes. To Dirk's point, that's where the TAM opens up for us because those specialty suppliers, oftentimes that's focused on center of the plate or produce -- we have all those great products in our distribution centers. What was missing for us was the service model.

Broadline deliveries are typically larger trucks and a couple of weeks, deliveries a week. The service model around Pronto could be as frequently as daily if they want it, smaller deliveries, fresh product. So it's really opening up that competitive opportunity for us, and we're getting really good traction, and that's why we'll continue to invest.

In fact, we've been investing in our capabilities in proteins and in produce over these last several years, and they're each growing faster than the overall business. And so it really makes it even more conducive to the Pronto.

Maybe quickly in health care. I know it's obviously, I mean, a big focus for you guys. Just you guys have continuously taken margin in this category. I think that from a market share standpoint, you guys have even more consecutive quarters of growth relative to even independent restaurants. What you guys just really been most impactful in terms of helping you guys outperform in what's a pretty complex category?

Yes. So overall, on health care and independent health care and hospitality, it's different forms of differentiation to effectively serve those customers. So in health care, specifically, it's -- it's some of our expertise within the particular team, our go-to-market, but also our technology suite, vitals we have there, which in health care, our technology suite even reaches further into the customer to help them beyond just their interaction with us.

Vital has things that help them with understand their own patient feeding costs, understand retail performance, nutritionals. So it really is a very robust offering. And as you know, that's a tough business to operate in. So it really helps us help them again, our own capabilities with some of our own dieticians and nutritionals on staff that help operators because that's important to them.

And then lastly, I would just comment to our significant partnerships with several large group purchasing organizations across health care and hospitality that we've had in place for decades. And that really allows for effective economics for the end customer, but also allows them to still be profitable customers for us. So you put that together, it makes it a very attractive value proposition and we're taking it to market, and that's why we've been able to continue to onboard significant amounts of net new business there, and hospitality is very similar.

That's great. And I want to save you some time at the end. But 1 question I do want to ask before we get to that is just, obviously, Dirk, you've talked a lot about in the past, the self-help opportunity that you guys have at US Foods, you have some pretty big initiatives in place between strategic vendor management, indirect spend, the cart, a number of other margin opportunities as well. You guys are doing some exciting work with AI. Just how do you think about in terms of impact, which ones will be the most impactful over the course of the next couple of years? And just how they fit together?

Sure. Well, I think I'll start with the end. How they fit together is I love -- like I said earlier, that balance that we're approaching with the top line growth for share and then the combination of GP and OpEx. Strategic vendor management by itself is probably the biggest initiative that we have. But really, it's each of those that you mentioned drive significant value in our formal sustainable improvement. And then there's a number of other smaller items that go together with it.

But in each of these are just the great examples of, as they reach maturity, we have other initiatives that continue to come online and on board and I look back over the last decade plus, and we've continued to improve EBITDA per case pretty much year in and year out.

And that's why when we get the question of sustainability of our ability to do this for a long period of time, we're both highly confident that we'll be able to continue to improve our EBITDA margins for a long time to come. And our overall earnings because the combination of process improvement, technology and some of the technology enablements, now will probably enable step changes over time that we haven't seen historically, so we're excited, and we know there's a lot more to go, but very pleased with the execution we've seen across each of those.

That's great. Then with the time we got left, Dave, you're quite excited about this company overall, what excites you most?

Everything. We've got a lot of very good momentum. And as excited as I am about the journey we've been on for the last 3 years, I'm more excited about our future than I've ever been. We're the only pure-play foodservice distributor U.S.-focused with national scale. Our business model was simple. It's easy to communicate both inside and outside the company, what we're focused on, and we're staying true to that.

We're the only 1 of the big 3 that are focused on the 3 most profitable segments and taking share which we've been doing for quite some time. And I think I get this question all the time, like what's most misunderstood about the company? We just talked about a lot of it here. The amount of self-help that we have both at the GP level and the operating expense level is not a flash in the pan. It will continue for a long time to come. And in the same context of that question, we get asked, are we starving the business in anyway?

Well, first of all, we wouldn't be growing the top line and continuing to deliver the bottom line, if we were starving. We're making significant large investments, both in capital and operating expense as that continues to grow, and we will continue to invest aggressively in the business. So the results you've seen for the last 10 quarters in a soft backdrop are sustainable. We're excited about the future, and we're going to deliver.

Fantastic. With that, please join me in thanking Dave and Dirk. And appreciate you guys all coming in today.

Thanks, Mark. Appreciate.

Thanks for having us.

Hi, everyone. Thank you for being here. I'm Brian Harbour, cover restaurants and food distributors, at Morgan Stanley. Real quickly for important disclosures, please see morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. And now we're going to talk US Foods. Dave Flitman, CEO; Dirk Locascio, CFO. Thank you guys for being here. Much appreciate it.

Thank you, Brian.

Maybe just let's begin real quick. Last week, so you said you were no longer going to pursue a transaction with PFGC. Maybe make some comments just on the drivers behind that. You did reaffirm, of course, all short-term, long-term guidance, but how does this affect any aspect of your strategy or your market approach going forward?

Well, first of all, it doesn't affect it in any way. And this was a distinct and separate piece of work. We wanted to take a look at it to see if there was industrial logic there, and if it made sense in any way. And there was really 3 key components to why we wanted to take a look and it had to do with potential synergies. Obviously, regulatory was a consideration. And importantly, from the beginning, this had to make sense for our shareholders. And what you saw last week was the culmination of that. What I will tell you is we had a point of view going into those discussions around synergies, and that was affirmed through the process.

But at the end of the day, we decided it wasn't the right thing for our shareholders. So we, in fact, never did make an offer. But back to our business, the core strategy is intact exactly as it was. Importantly, you saw us announce just a new tuck-in acquisition on our earnings call. We haven't deviated from the core strategy, continue to grow the top line, take share in independent, health care and hospitality, which we've done for a long time and leverage that to double-digit bottom line growth and industry-leading earnings per share growth and that will continue.

Makes sense. Do you think the bigger M&A opportunities are more limited at this point in this industry?

I don't know that's true. I mean, obviously, the details matter around that. But importantly, what you see in the big 3 is about just a shade more than 1/3 of the market. So it remains a very highly fragmented industry. And importantly, for our strategy, it's always been about tuck-in M&A. We've done 5 of those in the last 2.5 years. There's a whole bunch of those that we'll continue to take a look at. And importantly, for us, it's about finding the right opportunity, a well-run company. Importantly, independent mix is important for us. But it also helps us scale in markets that we already have a position in.

And as you look at those 5 acquisitions that we've done, that was the answer for all of them. It helped us take miles out of our distribution network and/or added an increment of capacity to help us in those local markets. And there's a lot of opportunities there ahead.

Okay. Got it. Maybe let's shift to demand top line drivers. I guess just a bigger picture question. Obviously, you serve a very broad swath of the U.S. food service market. So how are you feeling about -- then there's certainly mixed signals here, but how are you thinking about demand right now? How are you feeling about demand as sort of going into next year at this point?

Well, I think importantly, for a while, all of us have seen foot traffic challenged more than 2 years in this industry. And importantly, we've continued to execute our strategy and deliver our outcomes. I'm hopeful for next year, foot traffic will see a rebound. I think at the heart of it is consumer confidence, which has been challenged really since COVID. I think we'll need to see interest rates come down as a boost to that. I'm hopeful what may happen here as the month progresses. But importantly for us, we talked about it on our call, September was the strongest month of the third quarter for us, and we saw that continue into October.

Overlay the government shutdown. We talked about choppiness. For us, importantly, we've got about 8% of our revenue is directly linked to government business, whether it's through the military or other government institutions. So that was the root of the choppiness. But importantly, since the shutdown is over, we've seen that growth recover to levels where we exited the third quarter. So we're actually quite encouraged that the government shutdown didn't have any long-term lasting effects once it was over, we're seeing the rebound.

Good. Okay. Yes. I mean data would also suggest that independents are doing better than chains. Also, I mean, we know very clearly that full service tends to be doing better than quick service on average. I mean do you have any views on why that is or what's driven that?

Well, I think it's a trend that's continued for a long time. I don't think it's new that independents have been taking share a decade or longer. I personally believe that's going to continue. I just think the independents lend themselves more to what diners are looking for, which is more an overall experience in dining. It ebbs and flows, and it's not that there aren't some chains that are strong and are going to do well. But I just think the game will continue to be won by independents, which is why we've got such an intense focus on it.

Yes. I mean, certainly, value prop, I think, has been a question for restaurants, too. I mean do you think independents have done a better job protecting their value prop in some way?

I think they have, and it is about that experience. And I think what independents have is a very loyal local customer base, where they've got relationships. They tend to live close by and I think that's at the heart of why the independents hold up very well, particularly in tougher economic times.

Yes. Are you also seeing your -- some of your full service customers doing a little bit better currently?

We are. I mean, we've got a big focus on casual dining, full-service casual dining, bar and grill is big for us. Those have been hallmarks of our focus with independents for a long time. And on a relative basis, they're holding up well.

Okay. The targets that you laid out last year, so 2% to 4% case growth over time, 3% to 5% in health care and hospitality, 5% to 8% with independents. What are sort of the puts and takes of getting to those in the coming year, which of those pieces would you say you have the most confidence in.

Well, I think when we laid out those targets at Investor Day, the independent targets was predicated on a normalized 2% foot traffic growth year-over-year, which we haven't seen since we laid those targets out. But importantly, we've got 18 consecutive quarters of taking market share. And when that foot traffic comes back and rebounds and it will, we're going to be very well positioned there. Health care is a little more agnostic to the economy and the ebbs and flows of that. You've seen us take share for 20 consecutive quarters there. I think that will continue.

Hospitality, that consumer linkage, it feels a bit more like restaurants, in terms of how that ebbs and flows. But importantly, we continue to grow that faster than the market, and we've made some shifts in our targeting and hospitality. Historically, we've been over-indexed a bit to lodging. We've gone more down to entertainment and those sort of venues, and I think that will play out well for us in time.

Yes. And I mean those are the 2 segments where you probably have some pipeline visibility, too, because it tends to be kind of contracting business. Is that still robust as you sort of...

Very strong in both health care and hospitality.

Yes. Okay. Got it. Maybe explain the rationale just for moving to the fully variable sales force compensation structure and how you're kind of managing that changeover?

Yes. I can talk a long time about this. We've gotten a few questions about it, as you can imagine, since we announced it. So first of all, that was something I was contemplating since I joined US Foods 3 years ago in fact, and for me, it was about having the company in the right position, ramping up the execution as we had. And importantly, we felt like this was the right time to lean into that change. But there's a few important pieces that I think might have been missed when we first communicated it. First of all, we've been working on it all year. It wasn't a new thought. We've been thoughtful about what that needs to look like and the shape of the comp plan. And secondly and probably most importantly, and I think what's underappreciated we're moving from a 50-50 fixed and variable to 100% variable.

No one enters our company today at a 50-50 mix. Everyone starts at 100% base, and then there's a click down process that eases those individuals into that commission plan. And it's a very individualized conversation and ramp based on whether they have industry experience or not, whether they've sold before or not, importantly, whether we see them with new business or not. So it really is a tailored approach. So you think about this move then, it's going to be very similar. So there's not going to be a date certain where we're going to say now here this and everyone is on 100% commission. There'll be a similar click down process.

And importantly, in the meantime, we talked about this a bit on our call, we've got 4 pilots going on around the country. And those pilots are nothing more than running the new comp and the old comp to give visibility to the sellers around what that will look like if they don't change their behavior, we haven't changed anyone's pay. We're having those individual conversations. We may or may not learn some things that might tailor our approach to when we take it company-wide next year.

But importantly, when we do take it company-wide, it will be a similar process to the pilots. We'll give them some lengthy visibility to what their comp might look like in the new plan before we make any changes, and then we'll ease people into that click-down process. So the reality is it may take us a couple of years to get the majority of our sellers on to a 100% commission. And for me, that's okay because it's more important that we start moving that direction than it is that we get there by a date certain. If that makes sense.

That does. Yes. I mean presumably, things will unlock sales. But I mean, is there any other behavioral change that this causes or will cause in your view?

Well, I think the way we've tailored it, we've simplified the commission plan. It's largely going to be based on gross profit per drop as it has been historically for commissions, but there's some kickers in there around independent case growth importantly, our exclusive brands and also Pronto acceleration. So it lines up perfectly with our strategy, right? Our sales force will be selling in the way that is consistent with what -- how we want to drive growth. And importantly, it will be simple and they'll all understand it.

Okay. And so it seems like some of the other initiatives like Pronto or driving private label. So do you think this will be an accelerant to those sales drivers that you laid out in 2024 as being key to your plan?

Right. I'm confident we'll look back on this in a few years and view it as kind of the final unlock to accelerating our growth.

Yes. Okay. Used to hire different people at all? Does it change how you hire people?

It may attract a different type of seller through the course of time. But importantly, we've got a home for all of our sellers that are with us today. Let me give you 1 example. I've used this, and it's helped resonate. Even as we move to 100% commission, we may have some sellers that have a very large territory and a ton of customer relationships, but they don't grow. And that's why these individual conversations are so important. That person, very important to the company may not fit in a 100% commission plan. We may move them more to a base plus of variable pay component versus 100% commission. So that's why we've got to be thoughtful about having these conversations and making these changes.

Yes. Okay. Makes sense. What -- I mean food inflation has come back in a few different pockets. Has there been any change in customer buying behavior due to that? I mean, are you -- is that potentially an accelerant for private label as we work through that.

I think, Dirk, you can chime in here. But I think we have seen our private label accelerate really since COVID when you think about all the costs. And these are great products. And importantly, they're cheaper for our customers and save them money, and it helps them in many ways. And so yes, I think that's part of why we've seen the acceleration in the past couple of years. We're really excited about our private label penetration and where it can go.

Yes. Let me shift to the cost side a little bit. Even in this year has been -- I think it's fair to call it still a variable sales environment, but you've actually probably over delivered on the cost side and certainly on bottom line. What's made the most difference in that? And I guess, what's kind of high on your list for 2026 when you think about the cost side?

Really, it's -- any year, we have things that we're working on across supply chain productivity, admin productivity and then the indirect spend. So it's the non-people, noncost of goods spend reduction. And it's all going toward our goal of 3% to 5% productivity per year. And so I'll just use a few examples this year. So one of them that we've talked a lot about is our Descartes routing system. So that will be fully deployed here by the end of the year. We've driven last quarter, a little over 2% improvement in cases per mile, and that is one where we think there's more opportunity still in the next few years.

When you put it in as a new system, you only want to turn the dial so much to start with. So you don't change the customer experience all that much. So in that case, it's been a productivity improvement, but also the actual on-time performance the customer has improved as well. So that's been a driver. UMAs, which is our standardization of our supply chain operating system continues to deploy to more markets. That's been a positive for us. Our indirect spend that I mentioned is on track to deliver $50 million. We continue to in sort of the admin or back office selling type of things. Those that make most sense to be for full accountability. We're moving those into the field. Those that have scale across the network, considering to scale those, leverage technology. So there's not 1 thing. But really, whether it's that, whether it's gross profit or other things that drive market share. Each of them have a portfolio of activities that we're working and think of it as different stages of the maturity cycle.

Yes. I mean, do you think you've delivered on sort of just vendor management, some -- is there more of that comes next year as well?

Yes, there is. So there will be some that comes to the next 2 years, across all 3 years of the plan. As we said earlier this year, we see line of sight to exceed our $270 million target that we outlined. This is one where the team has done an excellent job. They've overdelivered on the initiative -- the vendors they worked with to date. And this is one where for vendors, it really is a win-win that we see between us and them with our gaining share and helps vendors drive there and grow their volume. We're looking for things that we can do to simplify the way we interact with them.

And so vendors there as a result, are willing to compensate us more for that. So we think there'll be more there also. This is one where we've done this multiple times since I've been here so there's always further opportunity. You continue to get smarter on how you can improve the process over time.

Remind us where we are in Descartes rollout.

It will be fully deployed here by the end of the year across all of the markets.

And was your comment that even once it's fully deployed, there's sort of ongoing optimism -- presumably like the software kind of gets smarter as it learns your routing...

It does have some AI capabilities in it. And I think importantly, there's the opportunity to have more dynamic routing than we've ever had. And it was more event-driven where we had to drive it episodically throughout a quarter or throughout the year. And importantly, this helps us drive continuous optimization. So I think we will, now that we've got it fully deployed, continue to yield benefits.

Okay. You mentioned kind of the 3% to 5% annual productivity savings, anything else within that bucket that drives that? Or do we basically talk about the main things, but anything else that...

Those are some of the biggest. I mean, there's a variety of things, places where we put technology in that streamlines sort of what people have to do that allows us to operate those processes more efficiently. So there's not -- and most of these, a lot of times, we'll get asked, what are the 2 or 3 big levers. And distribution is typically not 2 or 3 big levers. There's a number of different activities. But the thing that we don't do after productivity is say, Dirk, I just need you to work harder versus how do we work smarter through either technology, process improvements or better insights.

I mean this year, you're slated to over deliver on bottom line versus your plan, what could cause that to continue as we go into next year? I guess, that's maybe the overarching question.

Well, it's really -- the thing that you're seeing us do again this year for really kind of the third straight year is execute our self-help story. I mean this is -- there's not a lot new. Like I said, some of the initiatives change that continue to mature through the process. But it's that balance of gaining share, especially with independent health care and hospitality, drive gross profit expansion faster than OpEx. And so that's what will continue to drive the next 2 years, and we're highly confident that we can deliver against this long-range plan and for a number of years to come.

I do really think, Brian, people under appreciate the amount of self-help and the line of sight that we have to that over the long term. And through the course of this year, we've talked about new initiatives that have come on. And as we go into '26 and '27, you'll hear more new things through the course of time as it just speaks to the length of that runway that we've got.

Okay. Do you still see good, I guess, not just on the sales side, but good labor availability, hiring has sort of been status quo, no real issues on that side.

Yes. No issues finding labor. We're back to pre-COVID levels of turnover with drivers right on top of it in selectors. So labor availability has not been a problem for the last year or so for us.

Okay. Got it. Maybe just on the tech side. What -- I probably have to ask this is 2025, but what are sort of the best uses of AI in your business today? Where are you seeing real benefit from that?

Well, I think the last comment that you made, those last couple of words are important. That's the way we approach it. What are the real benefit things that we can deliver in the business and it's really to aid growth and to help drive productivity, all while aiding and improving the customer experience. So I'll give you a few examples. On the growth side, in our last earnings call, we talked about did we put a new AI-powered search engine in place for MOXe, which is our digital platform. It's getting customers, better search results, which is converting into more sales from those items that they've searched in the past. It also frees up time for sellers so the sellers aren't answering those questions.

The other piece that we're doing in that case is continuing to power our product recommendations, availability, inventory ordering, all with AI-powered engines, some of them from things we buy, some of them our internal team develops. And then productivity is using it against labor planning against our order guide that we talk about, which is our proposal process for local sellers and taking something that used to take local sellers roughly 3 hours to do that now takes them about 20 minutes. And so we let the machine do where it can help, but the seller still has the final steps in ownership of that process. So we're really looking for those things that can deliver against true benefit in the near term as opposed to what can be the great idea in 5 to 7 years.

One of the things -- the internal development team as part of my group, we worked together with our digital team, but we -- a key part of success for us has been getting the AI development team very close with the business teams and the AI team some of your job is to help the business team with things that they didn't even know they needed and was it capable. And that really has been a big unlock over the last year to 1.5 years for us.

Yes. And so it sounds like those are things you've seen today, right? You're seeing actual time freed up for some of these people you're seeing better search recommendations.

We are. And I think just like we all know and see as much of sort of the latest generation is about 1 year, 1.5 years old. So I'm sure the things that are coming to life over the next 1 to 1.5 years will be more meaningfully advanced from there and already just even what our teams can do as far as stitching together different models that allow you to be more accurate, provide more effective outcomes is light years ahead of where it was not very long ago.

Yes. Are there also things sort of on the corporate side that like from your seat, does it sort of speed up processes and does it reduce the extent to which you have to hire people.

There are. There's some pieces there. I'd say we're earlier in the stage there. There are some pieces within, again, some of the software tools we have that have some AI capabilities embedded. And that's one where similar, I would expect that it will have a meaningful benefit as we go forward over the next couple of years.

Okay. How has warehouse automation gone...

I mean we're excited about it, just started up in July in Aurora. We've got about 50% of our volume in the Chicago market going through that facility, we'll continue to ramp it up. Obviously, with any new technology, there's a learning curve. But we're excited about what that means for the company for 2 reasons going forward. First of all, there's obvious productivity and efficiency gains that we'll get from implying -- using that technology. But secondly is the customer experience. So you think about the selection process now, people in the night warehouse, making product selections, palletizing product, putting it on trucks fraught with errors, right? Human intervention. This takes a lot of that away. You think about a product that doesn't get selected properly or put on the wrong pallet delivered to the wrong customer. Those sort of errors go away with automation. So not only will we see a productivity benefit, I think our customers are going to see a better quality and service experience as well.

Yes. So you've seen essentially lower error rates?

Exactly.

So far. Yes. Is the reliability good is what you'd expect? Okay. Maybe just a few kind of capital allocation questions so I mean leverage has come down, you're sort of within range. I mean, should we expect buybacks or kind of the main swing factor next year, more or less?

Sure. Well, we're quite pleased with where leverage is, I expect it to likely drift a little bit lower but more through earnings growth versus debt paydown because as you pointed out, our capital structure is strong and -- so really, we're investing in the business at record levels. So we're definitely not starving the business there at all. And so then you write it. And that's one of the things we like about the combination of the tuck-in M&A and the share repurchases is with the tuck-in M&A. You never know when that phone call is going to -- on the other end, result in, yes, we're willing to have a discussion, we're ready to sell or not.

And if not, we'll continue to buy back our shares. And we still believe compared to where our stock should be and will be in the next few years that it's a good use of cash. And also within really a couple of years, almost 3 years into our capital return policy that another year of that will be a good use of our cash.

And how would you characterize the M&A environment right now aside from big M&A, which we know like for smaller things.

No, I think it's robust. And I think importantly, it is in our sweet spot, which is those tuck-ins hence the Shetakis announcement we made on our earnings call, the one in Las Vegas. That's our fifth in the last 2.5 years. Importantly, given the fragmented nature of the industry, we're kind of fishing where the fish are. And I think importantly, that local market density that I spoke about earlier is really the targeted play that we have with the tuck-ins. So I think we've got a long runway of doing those and the right deals that make sense for us.

And like that -- using that as an example. I mean you're already in that market, right? So is this sort of adding customer exposure, you are running out of space with your existing facility?

It wasn't a facility play. This was a market play. So you think about what we do in Vegas, it's equally split between independents and we have a relatively high share in the casino business in that market. And that's where Shetakis has played. So it was the right overlay for us in that market, made total sense. Now others that we've done have been more capacity play. We're always thinking about whether we expand or put steel in the ground versus an acquisition target. So it could be either. It just happened to be this was more of a market play for us in Vegas.

Okay. Got it. And other sort of like CapEx buckets so is there any sort of step changes you see, whether it's tech, new capacity fleet over the next couple of years, anything you'd call out.

No. I would say -- so fleet stays pretty steady. We target an age plus growth of the fleet. So we spend on that. Same with a lot of the aspects of maintenance, whether it be buildings and/or technology. Buildings in tech can ebb and flow a little depending on where different projects are throughout their life cycle within that particular year. But overall, I think we'll stay at a similar to where we have been as far as the split how we spend it. In most years, it tends to be pretty distributed of roughly 1/3, 1/3, 1/3 of fleet billings and technology.

Okay. Got it. I have a couple of sort of like bigger picture things. I mean, if I think like over the next 5 years, is there anything you see as more of a structural change in your industry or any like bigger trends that you're watching specifically.

On the technology?

Not just tech, sort of if I think about food distribution, where your customers are going, anything you think will be a bigger structural change?

Nothing that I would call out, Brian.

Do any of your customers ask about sort of adapting to GLP-1s? Or like how can you help, hey, we want like Max protein on our menu. Anything -- has that occurred at all?

We have those conversations with customers. I think importantly for us, the high-quality fresh product is 1/3 of everything that we sell today. So we're well positioned for any shifts in culinary desires driven by GLP-1. We really haven't seen a negative volume impact. I think all the data says people still go out to eat, they may take some of that home with them, but they're still going out for that meal and that dining experience with friends or family that will continue.

And that's 1 of the places our chefs and our menu design team will work with customers regularly on helping them, whether it's profitize on a menu, whether it's how to add new dishes or if you have certain proteins that are inflationary and other deflationary, how you do menu swap-outs and this is just another flavor of how they would do that.

Have you had to help customers adapt to tariffs on certain products? Or is that something you've had your salespeople worked on?

Well, I think importantly for us, tariffs is a relatively minor impact. We import mid-single-digit kind of volume. But importantly, it lends itself to things like our private label, right? To the extent there are -- we think of tariffs as just another inflationary impact on our customers, which really plays into our business model and what we do to help our customers every day, get more efficient, save time in their kitchens, take these great quality products in there and save them money.

Yes. Okay. Is there any changes in sort of the competitive environment that you've noted lately or think will happen in the near term.

Haven't really seen anything. We get asked that question a lot. I think at the heart of it is it's such a fragmented industry, Brian, that it's very competitive all the time. And things may ebb and flow in a certain market from time to time. But you step back big picture, I don't see the competitive dynamic shifting.

Yes, right? It's more market by market. Okay. I was going to finish with my lightning round questions. I think we've sort of covered these, but just to have it officially in the right so demand outlook relative to recent trends, how do you expect consumer demands over the next 12 months, accelerate, stable, decelerate?

I think stable to accelerate. And I think, as I said earlier, consumer confidence, interest rates key unlock to that, I think, going forward, and we'll see what happens, but I'm bullish.

Okay. Cool. And on the margin side, over the next 12 months, would you expect margins to face more tailwinds, more headwinds, balance of the 2.

So for us, it will be more tailwinds, but really driven by our self-help, more of the same of what you've seen in the last few years. Again, as Dave mentioned earlier, we think the competitive environment stays pretty neutral. So that probably is really all our own self-help continuing to come to fruition.

Okay. And on capital allocation, you kind of covered your priorities, but any of those buckets moving up or down in importance as you go into the next year?

No, all are important. We're going to continue to invest across all 3. And as I mentioned earlier, we're investing in record levels of CapEx for maintenance and growth of the business, and we think it's a very good use of our cash.

Okay. And 2 subquestions. CapEx for technology, increase, stable, decrease.

Stable to increase.

Okay. And lastly, focus on portfolio optimization, acquisitions or footprint rationalization increase, stable decrease?

Stable.

Okay. I think that does it then. We'll leave it there. Thank you, guys.

Thanks, Brian.

Thank you, Brian.

Ladies and gentlemen, thank you for standing by. My name is Abbie, and I will be your conference operator today. At this time, I would like to welcome everyone to the US Foods Holding Corporation Third Quarter 2025 Earnings Call. [Operator Instructions].

And I will now turn the conference over to Mike Neese, Senior Vice President of Investor Relations. You may begin.

Thank you, Abbie. Good morning, everyone. And welcome to US Foods Third Quarter Fiscal 2025 Earnings Call. On today's call, we have Dave Flitman, our CEO; and Dirk Locascio, our CFO. We will take your questions after our prepared remarks conclude. Please limit yourself to 1 question and 1 follow-up. Our earnings release issued earlier this morning, in today's presentation can be found on the IR page of our website at ir.usfoods.com.

During today's call, unless otherwise stated, we're comparing our third quarter of 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 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. Thank you.

I'd like to turn the call over to Dave.

Thanks, Mike. Good morning, everyone, and thank you for joining us. Let's turn to today's agenda. I'll start with our third quarter and first 9 months results. I'll then hand it over to Dirk to review our third quarter financial results and our updated fiscal 2025 guidance.

Turning to Slide 3. We delivered strong financial results for both the third quarter and year-to-date. Our performance aligns with our long-range plan algorithms, underscoring the strength of our execution. For the first 9 months, we delivered 4.4% net sales growth, 10.9% adjusted EBITDA growth, 29 basis points of adjusted EBITDA margin expansion and 26.7% adjusted EPS growth. These results reflect our team's focus on and ability to consistently deliver sustainable growth, which is a testament to our operational rigor and long-term value creation. I thank our associates for their commitment to our customers' success and to serving them with excellence.

Moving to Slide 4. We delivered a double-digit adjusted EBITDA increase this quarter alongside a notable acceleration in independent case growth. These results demonstrate our continued ability to deliver earnings growth through consistent share gain and margin expansion.

Now that we're 1/4 of the way into our 3-year long-range plan, I'm even more confident in achieving our algorithm. We're focused on delivering long-term shareholder value and disciplined capital allocation, investing for growth while executing share repurchases and targeted tuck-in M&A. Today, we announced an agreement to acquire Shetakis, an independent food distributor based in Las Vegas, with strong market share in casinos and independent restaurants. This is our fifth acquisition in 2.5 years and aligns perfectly with our tech in M&A strategy.

Now let's turn to our case growth and the industry backdrop. We gained share with independent restaurants again this quarter as case volume grew 3.9%, in line with our full year guidance range of 2% to 5%. Notably, we gained share each month of the third quarter. Independent case growth accelerated by 120 basis points from Q2 to Q3, reflecting strong momentum and outperforming the broader market. We exited the quarter on a high note as we grew approximately 4% on an organic basis in September, and that momentum carried through October.

During the third quarter, we achieved our strongest performance of the year in net new independent account wins, which grew approximately 4.4% over the prior year. This was our highest net new account growth rate since the second quarter of 2023, and we expect this momentum will continue. Additionally, health care and hospitality are helping to drive our overall volume growth with 3.9% and 2.4% case growth, respectively. We have new business wins in both customer types coming on board throughout the fourth quarter, supporting further growth. We continue to gain market share with our target customer types of independent restaurants, health care and hospitality. This is our 18th consecutive quarter of market share gains with independent restaurants and the 20th consecutive quarter with health care.

Turning to our Chain business. Volume declined by 2.4%, a 160 basis point sequential improvement over the second quarter. That acceleration was ahead of restaurant industry foot traffic as reported by Black Box, which improved roughly 60 basis points, but was still down 0.5% in the third quarter.

Turning to our strategy. We are guided by our 4 strategic pillars, and I will discuss progress on each over the next several slides. Moving to Slide 5. Our first pillar is culture. We remain committed to achieving zero injuries and accidents for our associates. In the third quarter, our injury and accident rates improved by 16% compared to the same period last year. And over the past 2 years, we have improved our safety performance by 35%. There is still work to be done, and we will keep pushing forward to ensure every associate goes home safely every day.

We're proud to announce a new partnership between U.S. Foods and Hiring our Heroes, a nationwide initiative of the U.S. Chamber of Commerce Foundation dedicated to connecting transitioning service members, veterans and military spouses with meaningful career opportunities. This partnership will accelerate military hiring and reflects our deep commitment to honoring military service and strengthening our workforce with the talent, leadership and dedication that veterans and military families bring to companies like US Foods.

Turning to Slide 6, our second pillar, service. We remain focused on providing reliable on-time deliveries that customers can count on. Our commitment to service excellence is reinforced by our flagship MOXe, e-commerce platform, which enables us to deliver a transparent, best-in-class experience tailored to the evolving needs of our customers. Broadly, we are deploying AI across our business to enhance the experience of both our customers and our associates. This includes within MOXe, where this quarter, we launched AI-powered search, a significant upgrade that's already delivering measurable results. Customers are finding products faster and more intuitively, leading to a 3% higher conversion rate of products added to their cart and purchased, resulting in approximately 1.3 million incremental cases on an annualized basis.

Importantly, this upgrade is also improving seller productivity by surfacing more relevant and higher quality search results.

Turning to supply chain. We are improving routing productivity for the Descartes route across our distribution network. We are now live or actively deploying in all markets. In Q3, we achieved a 2.3% improvement in cases per mile compared to last year. Our UMOS deployment is delivering value across our safety, service and profitability, key results. We continue to make meaningful progress on our operations quality composite, which measures our ability to deliver products to our customers without errors with performance improving by 24% compared to the prior year. These results reflect our commitment to improving our customer service experience.

Turning to Slide 7, growth. We are accelerating profitable growth and expanding market share across our target customer types. A key driver of this growth is our Pronto small truck delivery service. The Pronto program is now expected to deliver approximately $950 million in sales this year, and more than a $1 billion run rate by year-end. Pronto Legacy is now live in 46 markets with plans to expand into 3 more markets next year. Significant growth opportunity remains as we add more trucks to many of these markets.

In parallel, we expanded Pronto penetration to more than 20 markets, deepening our share of wallet with current customers. This initiative doubled -- delivered a double-digit percent uplift in overall case growth among participating customers during the third quarter. Given the success of Pronto, we plan to make our largest annual investment in the program in 2026 to fuel future growth.

In addition to Pronto, we continue to invest in the business to support growth and drive operational efficiencies. As we discussed last quarter, we began limited shipping from our first new semi-automated facility in Aurora, Illinois, and we continue to ramp up volume served out of this facility. To date, we have transitioned approximately 50% of the volume out of our Pharma facility into Aurora and expect to be fully operational over the next several months. We will leverage our early learnings and use these insights to help guide our approach as we plan and execute future semi-automation rollouts in select distribution centers.

In August, we held our Food Fanatic Live show, which was our largest customer event ever. We hosted more than 3,500 customers and prospects over 2 days, showcasing each area of our customer value proposition. We expect more than $150 million in potential new customer wins coming out of this event with nearly half of that realized to date.

Additionally, we're in the process of onboarding more than $100 million of annualized new business wins in health care and hospitality by leveraging our expertise, differentiated model and unique digital capabilities. Our tools and technology, like our VITALS program, which is our proprietary technology suite that helps health care operators solve some of their biggest challenges are easy to use and generate real results. For example, this year, we're on track to complete approximately 4,500 individual customer interactions, leveraging tools within VITALS, which helps our customers save 5% of their total costs on average.

Looking ahead, we believe that we will further accelerate our profitable growth and share gain momentum through 2 important changes: one, to our sellers compensation structure, and one to our team-based selling approach.

Starting with sales compensation. In January of 2024, we returned to a 50-50 split between base salary and variable compensation for our local sellers, reinstating the structure we had in place prior to COVID. Otherwise, the core sales compensation framework has remained largely unchanged for the past 8 years. Over the past year, we've conducted a thoughtful review of our sales compensation model through the lens of further accelerating growth while fueling seller success. We are excited to announce that we will be transitioning to a 100% variable compensation structure for our local sellers. The new incentive structure will continue to be based on gross profit dollar growth with their total compensation uncapped.

Additionally, the new compensation model will reward sellers for accelerating independent case growth, private label penetration and Pronto volume growth. We're conducting pilots in several markets during the fourth quarter, and we will use those learnings to inform our full deployment in early 2026. We believe these changes will accelerate profitable volume growth while creating greater earnings potential for our sales force.

In parallel, we've streamlined our team-based selling model to better reflect what customers value most from US Foods and where we truly differentiate quality products, excellent service and industry-leading technology. As part of this change, we've transitioned individuals in some sales support roles into customer-facing seller positions, bringing our expertise closer to the customer. Initial feedback from our sales team has been positive on both the compensation change and the role realignment.

Moving to Slide 8, our profit growth. Our consistently strong execution resulted in adjusted gross profit growth in the third quarter and across the first 9 months of the year. Third quarter adjusted gross profit reached $1.8 billion, a 6.4% increase over the prior year. This growth was fueled by increased volume, improved cost of goods and inventory management. Our strategic vendor management initiative is now on track to deliver more than $120 million in cost of goods savings for 2025. These results reflect our disciplined approach to sourcing and supplier partnerships. As we realize these benefits, we're reinvesting a portion of the savings to fuel growth by supporting innovation, expanding customer relationships and strengthening our competitive position in the market.

Private label penetration among our core independent restaurant customers grew again this quarter and was over 53%. By helping customers offset inflationary pressures with lower costs, our private label offerings continue to strengthen loyalty and differentiate US Foods in a highly competitive market. We are also improving operating expense productivity through UMOS and our enterprise routing initiatives including market-led routing and our cart deployment. These initiatives help support our ongoing commitment to driving 3% to 5% annual productivity well into the future.

In summary, I am pleased with the progress we made in the first 9 months against the 4 pillars of our strategy and remain confident in our ability to deliver on our long-range growth algorithm.

Before I pass it to Dirk, I want to recognize one of our outstanding associates, a veteran of the U.S. Marine Corps, Kevin Connelly. As warehouse manager at our Albany, New York distribution center, Kevin has been instrumental in driving operational excellence. Since stepping into the role nearly a year ago, he has led improvements in cross-functional communication and execution across sales, inventory replenishment and operations. By elevating key frontline deliverables of operational quality composite and inventory accuracy, Kevin and his team have successfully reduced errors and delivered year-over-year improvement in shrink, a testament to disciplined leadership and a commitment to continuous improvement. As a result, the team successfully reduced errors per 1,000 and delivered a significant improvement in inventory management within the Albany facility.

As Veterans Day approaches next week, we pause to honor and recognize the members of our team who have served in the U.S. armed forces. We are incredibly grateful for your selfless service and your personal sacrifice for our country. Thank you, Kevin, and thank you to every veteran past and present. Your courage and dedication inspire us all.

Let me now turn the call over to Dirk to discuss our third quarter results and our updated 2025 guidance.

Thanks, Dave, and good morning, everyone. This quarter, we delivered a combination of top line growth and margin expansion, once again, demonstrating the power of our strategy and execution. Our unwavering commitment to continuous improvement and operational excellence continues to advance the service experience we provide to our customers while improving our overall financial performance. These results reflect our focus on creating long-term value for our shareholders and building a more resilient customer-centric business.

Moving to our third quarter performance on Slide 10. Net sales increased 4.8% to $10.2 billion, driven by case volume growth of 1.1% and food cost inflation and mix impact of 3.7%. If you exclude the Freshway divestiture impact, total case growth was approximately 1.6%. Independent restaurant volume growth accelerated 120 basis points from the second quarter, increasing 3.9% year-over-year, which includes 40 basis points of M&A. Health care performed well, growing 3.9% and hospitality was up 2.4%. We lapped some larger wins in hospitality from the prior year and continue to see growth supported by a strong pipeline.

Our chain restaurant volume improved 160 basis points sequentially, but remained down 2.4% compared to prior year, primarily due to the strategic exit that we discussed last quarter, partially offset by the recent onboarding of new business wins.

Shifting to our financial performance. We delivered earnings growth and drove margin expansion again this quarter. Adjusted EBITDA of $505 million increased 11% through a combination of volume growth, gross profit improvement and operating expense productivity. As a result, adjusted EBITDA margin expanded by 28 basis points.

Finally, adjusted diluted EPS increased 26% to $1.07 per share. We expect to continue growing adjusted EPS at a meaningfully faster rate than adjusted EBITDA through a combination of earnings growth and share repurchases.

Turning to Slide 11. Our focus on driving continuous improvement resulted in another strong quarter of operating leverage gains. Adjusted gross profit per case improved $0.41 or 5.2% compared to the prior year. This is driven by our progress on various gross profit initiatives, including strategic vendor management and inventory loss reductions that Dave addressed earlier. Our inventory management initiative is on track to generate $35 million in savings for the full year. This initiative focuses on reducing losses from product that can't be sold due to damage or spoilage through improvements in process and insights.

We've made strong progress and expect to drive additional savings in 2026. Adjusted operating expense per case increased $0.22 or 3.8%. We are offsetting a portion of operating cost inflation by driving productivity improvement in both operations and administration through eliminating waste and supply chain and instituting greater process discipline across the business. Both gross profit and operating expense include an approximate $0.07 per case year-over-year increase related to the Food Fanatics live show versus these amounts being spread out across quarters in the prior year.

Our third quarter and year-to-date performance demonstrates our ability to drive meaningful leverage through the P&L and deliver consistent financial results in a dynamic environment. As a result of the strong execution of our strategy, adjusted EBITDA per case increased $0.21 or 9.9% to $2.33.

Turning to cash flow and capital allocation on Slide 12. Our robust operating cash flow, combined with our strong balance sheet enables us to deliver on our capital allocation priorities. Year-to-date, operating cash flow increased by $185 million to nearly $1.1 billion, driven by earnings growth and a reduction in tax payments. We continue to fund strong capital investment, which ensures the vitality of our business, promotes healthy growth and generates attractive returns. And we remain focused on our capital allocation priorities to maintain net leverage within our target range of 2 to 3x, return capital to shareholders via share buybacks and opportunists that we pursue accretive tuck-in M&A.

During the third quarter, we repurchased approximately $335 million of shares. And to date, in 2025, we have bought 7.6 million shares for over $600 million and have $467 million remaining on our $1 billion share repurchase authorization. We ended the quarter at 2.6x net leverage. Our debt structure is strong, and we have no long-term debt maturities until 2028.

And finally, subsequent to quarter end, we signed a definitive agreement to acquire Shetakis, an independent food distributor in Las Vegas.

Now turning to our guidance and modeling assumptions on Slide 13. Given our year-to-date performance and outlook for the remainder of this year, we are updating our fiscal year 2025 guidance. Given the continued lower restaurant foot traffic and dynamic macro environment, we are tightening our total case volume growth to 1% to 2% from 1% to 3%. We now expect net sales growth to be in the range of 4% to 5%. Due to our solid progress this year and our ability to deliver profitable growth, and enhance margins, we are now projecting adjusted EBITDA growth of 10% to 12%. We are increasing the low and high end of our guidance for adjusted diluted EPS, and we now expect adjusted diluted EPS growth of 24% to 26%.

I am pleased with the progress we've made this year in executing across our business. We are growing our top line, gaining share, expanding margins and deploying our strong cash flow toward our capital priorities. Our disciplined approach to strategic investment, operational efficiency and shareholder returns positions us well for sustained success, and we remain fully committed to achieving the financial targets outlined in our long-range plan.

With that, I'll now pass it back to Dave for his closing remarks.

Thanks, Dirk. Our third quarter and year-to-date results are strong. We're accelerating independent case growth, sharpening our focus on productivity and operational excellence to better serve our customers and consistently delivering top and bottom line growth. We have a clear ambition to become the undisputed best of our industry. We have the right strategy and the right initiatives in place, and we will continue to execute with discipline and purpose in support of our customers, our associates and our shareholders.

Our most important differentiator, however, remains our strong and highly talented team. I couldn't be more pleased or proud of how our 30,000 associates embrace our ambition. In my 40-plus-year career, I've not witnessed a level of alignment, dedication and passion that our associates bring each and every day to help our customers make it. Their commitment to our success is the heartbeat of our company and the foundation of everything we're building for the future.

Before we move to Q&A, I do not have any new information to share regarding a potential combination with PFG. We will not be taking any questions on that subject today.

Let me finish by underscoring how highly confident I remain in our stand-alone feature and ability to deliver our long-range plan and financial algorithm, which, as a reminder, is a 5% sales CAGR, 10% adjusted EBITDA CAGR, at least 20 basis points of annual adjusted EBITDA margin expansion and a 20% adjusted EPS CAGR through 2027. And we will remain disciplined as we execute our capital allocation strategy, which will enable us to be a consistent double-digit earnings compounder for many years to come.

With that, Abbie, please open up the line for questions.

[Operator Instructions] And our first question comes from the line of Edward Kelly with Wells Fargo.

Dave, your execution in this backdrop has been very strong, obviously, and you're demonstrating share gains. I wanted to ask you about overall total case growth, which still remains somewhat sluggish. Full year guidance there [indiscernible] touch. So I'm curious if you could maybe talk to us about some of the incremental pressure that you might be seeing outside of the independent channel where things are going very well. And maybe as part of this, could you talk about quarter-to-date commentary and what your thinking is on Q4?

Sure. Let me start with independents and just point out, I feel really good about our momentum. We just put up the strongest number we have in the last 7 quarters on independent restaurants and a backdrop that remains, I would describe it as sluggish. We haven't been anywhere close to historical foot traffic in this industry for most of my tenure here at the company, and yet you continue to see us execute very, very well.

Dirk commented about the Freshway sale and the 50 basis points roughly impact that had on our total case growth, right in the middle of our prior range had we not made that divestiture. So underlying momentum is still very strong.

For the quarter, I was pleased to see that we gained share each month of the quarter and importantly, finished at the strongest growth rate in September, which, as I commented, carried over into October. I'd say, with the government shutdown, some choppiness out there and just remind everyone that we are over-indexed with government business. It shows up in our other category through our GPO relationships. We serve a lot of military bases. And it's not as much just the impact on that volume. And I think it's more about people not knowing if they're going to get paid and not going out to eat and all the things that are impacting the local markets there, up and down the East Coast. But that's going to correct itself.

And what we're focused on is the same thing we've been focused on for the last 3 years is controlling our own destiny through our own initiatives. And importantly, taking share consistently, which we continue to do, and I fully expect that, that's going to continue.

Great. And then along the lines of control of your own destiny, Dave, I was hoping that you could provide a little bit more color around the change in sales force compensation. I don't think it's unique that you're going to 100% variable. So -- but it is a change for your sales force. Could you just maybe talk about what a typical salesperson at US Foods is going to see here? Will some people make less money, some people make more money initially? And how you mitigate any risk associated with potential turnover?

Very good questions, Ed. And let me just tell you, I have high confidence in our ability to execute this transition. As I commented, this isn't something that we just thought about last weekend. We've been working on this since the better part of this year. And importantly, just some inside thinking here, I was contemplating this change the day I showed up here because I think it's the right way to compensate our sellers. I want them to be incented to grow as fast as they possibly can. And importantly, make as much money as they possibly can. And if you have the comp plan design, right, the more they make, the better it is for them and the better it is for growth and for the business and for the company.

And so obviously, we'll be thoughtful about the change management process here. We've got a very robust plan in place. Most excited about, obviously, you would expect I didn't announce this to our sales force on this call today. We've been talking a lot about this internally. And as I commented, people are excited about it and eager, and I believe it's going to help us further accelerate our growth. So we'll manage it thoughtfully. We'll manage the transition thoughtfully with each individual. We're already having those conversations. And I think it means great things for the future.

And our next question comes from the line of John Heinbockel with Guggenheim.

Dave, I wanted to start with the team-based selling change. So how many of those folks because I think it's -- that piece is a good size number. How many of those are transitioning to this new role? Is that new role -- is it customer facing in the sense that they will be actual salespeople from where they were before? And what does that do? If that's relatively true? What does that do to sort of the growth rate in the sales force going into next year?

Yes, I think the overall majority of those folks that were in those roles have been offered seller roles, definitely customer-facing it. They're excited about it. They see the logic behind the change. And importantly, we're retaining all of that expertise inside the company. So they're up and running. It will have a onetime bump effect in terms of our seller head count, but that's not the way we're thinking about it. This is a onetime change. Importantly, we're running about 5%, plus or minus sales headcount additions through this year, we'll finish in that 5% to 6% range for the full year and staying consistent with our approach to mid -- low to mid-single-digit headcount additions.

And then the follow-up is, you talked about the double-digit increase in penetration accounts in terms of their -- I guess, their volume. Where does that take -- if you look at where they were on penetration before, where they are afterwards, what does that take? And that obviously is a pretty good lift. What's the -- and I know you want to make sure that it's totally incremental. Sort of what's the gating factor, right? I know you increased markets, trucks, et cetera, but the gating factor on rolling that out?

Yes, you're talking about Pronto penetration, right?

Yes. Yes.

Just as a reminder, when we go into a new market, we go with a limited number of trucks to prove the model. And we did enough piloting that we're confident that we're going to maintain the profitability and importantly, not cannibalize our existing broadline business. But that's something we have to check every market, John. And that's why we go in with a relatively small number of trucks. That's why I made that comment that we will continue to drive growth through additional trucks in these markets as they make sense.

The double-digit uplift is exciting. But again, it's to a limited number of customers. But importantly for us, it just validates the model market by market, and it gives us the confidence to go lean and harder. Exiting the year at $1 billion is a significant uptick in where we hope to be. And we'll see that $1.5 billion comes along.

And our next question comes from the line of Lauren Silberman with Deutsche Bank.

So I wanted to start with the sales comp model. How do these changes impact the flow-through given just the more variable contracts? And are you contemplating accelerating your pace of sales growth over the next few years with the shift?

What was the last part of your question, the accelerated...

Are you contemplating accelerating the pace of the sales force growth above 4%, 5%?

Lauren, this is Dirk. I think overall, we still continue to like that low to mid-single digits increased rates, and that's where we expect to continue to be. The flow through our expectation is it's very similar to today. So this really wasn't intended to be an increase or decrease in compensation versus more linkage to the compensation with the growth. And therefore, as Dave pointed out earlier as sellers have that 100% compensation that it brings it more with their growth and opportunity for them to earn more all while accelerating growth is our expectation.

And then it's nice to see the leverage in the P&L despite the softer top line. One of the top questions we get is your ability to hit the long-term algo if the macro backdrop remains challenging. So if we -- the current trends persist into '26, what's your confidence in being able to hit that algo?

Well, I think I reaffirm my confidence several times in my prepared remarks, I couldn't be more confident. And I would just point out to those that are concerned, we've been doing it for about 10 quarters now and a very soft macro backdrop that continues to remain sluggish. We have a tremendous amount of self-help. We've got a very clear strategy, Lauren, and our team is 100% focused on execution. Confidence is high.

And our next question comes from the line of Kelly Bania with BMO Capital Markets.

I wanted to ask also about the change in the commission structure. It's a pretty significant change. And I guess investors historically can be pretty cautious about how disruptive that can be on a near-term basis. So can you just maybe talk a little bit more about the change management that you're planning to support this -- the kind of turnover that you do expect, if you expect some? And what kind of lift can this drive and based in what you've seen from maybe testing this in terms of the productivity of that cyclical sales reps?

Well, I'll take the last part first, Kelly. First of all, we wouldn't be doing it if we didn't have high confidence it was going to accelerate growth because you've heard me say many times, when you change sales compensation, you have to be really thoughtful about how you do it and what potential unintended consequences you could have. And that's why we've been thinking about this for a while. We've been working on it for quite some time. And the change management process is quite robust. I do not expect an increase in our turnover. We are handling this seller by seller, giving them good visibility to how they're currently compensated and what the new change will make. Any required behavior changes, we're going to give them a long runway, and we're going to be thoughtful about how we bring them into that 100% commission plan.

The goal here is to ease people into this and make sure they have a chance to perform and understand those expectations. All that's being worked on has been worked on for quite some time already. And we'll be thoughtful about how we roll this out in 2026. So I've got a high degree of confidence not only in the change having the right output that we intend, but also our ability to manage this quite well with our sales team. And as I said, and I'm not making it up, we're excited.

Okay. That's helpful. And just on the strategic vendor management, it sounds like that's coming in a little bit better than plan, which is -- there's been strong progress on that initiative already, but you've mentioned kind of reinvesting some of that. Can you just talk about that decision, the magnitude of that and where we should see the benefits of those reinvestments?

I'll start and then just have Dirk to pick it up. I would liken that work and that comment around reinvesting to the same thing, the same way we think about productivity gains. Great companies find ways to drive productivity and efficiency, and they take a portion of that and reinvest it back into growth for the company, whether that's new people, new capabilities, investment in technology, investment and competitiveness, whatever you need to do to make sure that you can compete well. We've got to make our own way like there's nothing free here. So we continue to invest in growth and find ways to get more efficient and drive better outcomes and win-win [indiscernible]. you add?

One thing I would add, this is not new. We've been talking about this for a number of quarters where it's -- as we drive this value, then it does allow us to be thoughtful on how we reinvest in that growth with different customers.

And our next question comes from the line of Jeffrey Bernstein with Barclays.

First question is, Dave, I know you mentioned no update on the performance food discussions. Totally appreciate that. Just wondering, as you run your business -- business as usual. I'm just wondering whether you're seeing any change in how people look at your business, whether customer behavior, perhaps holding off on giving new business until the process settles or perhaps hesitation by salespeople to join, not know in the future, I could see where there would be some uncertainty. I presume, therefore, a rapid resolution would be the best scenario. But just wondering if there's been any implications on your business as this process unfolds. And then I had 1 follow-up.

Thanks, Jeff, for the question. And really, there hasn't been any impact. We haven't seen that at the customer level. We certainly haven't seen it internally. As we said going into this, we would maintain our focus on day-to-day execution. Hopefully, our results support that. And importantly, we haven't had any challenges attracting new sales talent. I talked about being in that 5% to 6% range for the year. And we've been at this for a while now. So we're still having robust incoming new sales classes and people are excited to be here.

Understood. And then my follow-up is just on the restaurant industry. We've heard from many restaurants over the past week, and they will talk about a slowing trend in October, which you haven't seen, which curious to know why you think that is. But they've talked specifically about the younger age cohort and the lower income and perhaps Hispanic. Just wondering whether you see any evidence on any of those specific groups based on your customer demand? And then just right, why you perhaps haven't seen any change in trajectory in October, there's a lot of the restaurants are talking about such.

Yes. And I don't want to misrepresent anything. I think I used the word sluggish more recently. I think it's related to the government shutdown and some of the uncertainty. We're operating in an environment here for several years now where consumer confidence has been a challenge. The knock-on effect from the government shutdown certainly impacts consumer confidence. And I think that's what we're saying and seeing broadly. Certain markets, as I mentioned earlier, and a response up and down the East Coast are more challenged with the more government headcount and those challenges.

But again, I just keep coming back to our execution is our execution. We have significant ability to take market share, and that's where our team is focused. And when the shutdown gets resolved, when a consumer confidence gets back to where it needs to be, we're going to be extremely well positioned because of the work our team has done over the past 2, 3 years.

Got it. But no change in different cohorts that you've noticed or different segments of the industry may be seeing a change in trend?

Well, I think we pointed to the low-income consumer being pressured for a while. That's not a new thought. I don't think anything has changed there. Some of the ethnic challenges, I think that ebbs and flows. And for us, PAUSE it's really a market-by-market impact. We've seen some of that in some markets, not so much in others. But I would just, again, just point back to consumer confidence being challenged, low-end consumer has been challenged. No real change in that, and then you overlay the shutdown and all that uncertainty. And yes, it's a little choppy out there.

Our next question comes from the line of Alex Slagle with Jefferies.

[indiscernible] comps? And then I guess just stepping back [indiscernible]. So on the role realignment, [indiscernible], more broadly around decentralizing portions [indiscernible]

And our next question comes from the line of Jacob Aiken-Phillips with Melius Research.

So I wanted to ask a follow-up on the sales compensation change. You said it's late 2026 rollout, but also that you're working with all the salespeople. I'm just curious should we expect it to be more phased throughout 2026? Or is there a date where a large percentage of the sales force will change over. I understand you're trying to minimal turnover, but I would expect at least some level, and I'm trying to see if that's more phased or if there's a point in time?

Yes. The phasing is more around the piloting work we're doing in the fourth quarter that I referred to. We'll do some transition, and we'll give visibility into both methods of payment for some period of time. And then we'll pick a date certain and make the move.

All right. Got it. And then I guess, more broadly, you highlighted like strong progress across vendor management, inventory loss reduction [indiscernible] private label bunch of stuff. And a lot of these are transitions from like you've been building capabilities to running them now, which does have the most incremental runway in the next, like, 1 to 2 years? And which of them are most insulated from the current restaurant traffic environment?

This is Dirk. I'd say really, all of them -- almost all of them are insulated, they drive. I mean they're really part of the self-help focused and story that we have here, the things that we can control. And all of them continue to have runway ahead of them. They contribute at different levels. So strategic vendor management is one of our larger initiatives. So that one we expect to continue to generate incremental value. But each of those that you cited will continue to drive value. That's why that portfolio approach we have to things that we're doing to drive, whether it's gross profit gains, market share gains, OpEx productivity, -- it's -- there's not 2 or 3 things that are driving it. There's a managed portfolio. And as different aspects of that come to maturity, then we have other things that are ramping up, and that's what really gives us that confident that Dave alluded to again yet today of our ability to continue to drive earnings growth and achieve our long-range plan algorithm we've outlined.

And our next question comes from the line of Brian Harbour with Morgan Stanley.

Dirk, what's roughly the [indiscernible] M&A contribution as we think about the coming quarter and maybe also just how are you thinking about kind of inflation and mix?

M&A has been in that 30, 40 basis points. I would expect it probably stays around that level. You have one that rolls off as you get a little later in the quarter, but then the other smaller one that we announced today, we'll close at some point in the quarter. And so I think it will stay around that 30, 40 basis points of impact.

Inflation, we saw pretty stable. It ticked up a little bit in the quarter, right at 3 and all the categories that you've heard others talk about, whether be [indiscernible] and other COP categories. But other than that, grocery stays pretty stable. So our commodities are moving around, but I think it's still in that healthy spot of 2% to 3%, and that's where I would expect that in likely continue to stay.

Okay. Got it. What -- the comment about kind of AI was interesting is how that's driving conversion. What are some other uses of that you see in the business?

We're really using it, as Dave mentioned in his comments, pretty broad-based [indiscernible] informs that it informs some of our online recommendations to customers of the products that they haven't bought or others have various aspects of the digital marketing and also informs a lot of the models behind our routing or letting customers know where their truck is, where it's -- when it's supposed to arrive. And then the thing we've talked a lot about is the order guide for customer -- for our sellers, where they can basically pull together the proposal for a customer, for a local customer in 15 or 20 minutes for something used to take them 2 or 3 hours.

And so we're applying it broadly for sales growth and productivity, but a big focus on things that have some impact now as opposed to what's just going to be neat and cool or deliver value in 5 to 7 years. So our team, it's the business team and the digital team and the AI development team that are all working together to really prioritize and bring these things to market. And in advance those capabilities.

And our next question comes from the line of Mark Carden with UBS.

So I want to start with a follow-up on the -- I want to start off with a follow-up on the Shetakis acquisition. Just how does it mix the business compared to some of the other recent purchases you made like Jake's, [indiscernible] and Saladinos? And then more broadly, how are you thinking about your approach in pacing some more traditional bolt-on M&A essentially while you undergo the cleanroom exercise?

Well, Shetakis, it fits exactly our model. It's got a pretty even mix of casino business in independent restaurants. And if you think about our footprint in Vegas. That's exactly where we're focused. So we love it from that standpoint. And just M&A strategy in general, Mark, as you've heard us say, is really a market-by-market play around tuck-in acquisitions really to improve our local market density, take miles out of our routing. And we lean heavily on our core target customer types, but specifically independent restaurants, and this one fits that exactly.

Our pipeline is strong. As we've said, you never can control and one of these things comes out. But we continue to have robust conversations in our Broadline business and really focused on the independent space.

Okay. Great. And then it sounds like some continued good demand in health care and hospitality. You called out some nice anticipated wins there. Would you consider the pipeline of business to be deviating much from your initial expectations on that front? And then I guess within hospitality, how is growth progressing between your lodging and non-lodging segments?

Sure. We're quite pleased with the pipeline there. Our team continues to do a quite nice job of maintaining a strong pipeline. And I think that's really more of a testament to the value proposition that we can bring to customers. And so I'm confident that we'll continue to drive healthy levels of growth in both of those customer types.

I think overall from a hospitality perspective, lodging has actually been pretty solid for us in the last few months. I know there's been some challenges in occupancy and whether it's Vegas or some other places. So that's still kind of inter miss across the country, whether it be fewer international travelers, et cetera. But it's holding up well. But at the same time, a big part of the growth there for us continues to be this net new account business that the team has converted and we will continue to convert going forward.

And our next question comes from the line of Jake Bartlett with Truist Securities.

Mine is about the market share gains in independents. And all 3 of the large players are accelerating case growth in independents. It seems like there's an acceleration of market share gains by the larger players in general. I guess I'm wondering why you think that's happening. Is that a trend? Or are there dynamics in the marketplace where that is particularly suited for share gains from the larger players and whether you'd expect that to continue or even accelerate from here?

I don't think I would point to anything different in terms of the market dynamics, Jake, around that. I mean, you go back even to our Investor Day, the big 3 have consolidated this industry and taken share for a long time, broadly at ebbs and flows. Importantly for us, we've got 18 consecutive quarters in independent restaurants. It's nothing new for us. We've talked in the past about how we use the [indiscernible] to really target by ZIP code where the opportunities are. Our sales force has really embraced that and make sure we have the right assortment in place before we target a certain type of customer within those markets.

And so it's our process continuing to mature is what I'd really point to that's driving our success. Nothing really new, and I don't really see any changes in the market dynamic there.

Great. And then I'm sorry if this was answered before, if it was, I missed it. But independent case growth or actually just traffic growth. For the change that we've been following, October has been pretty pressured, I think, broadly. But you're talking about an acceleration for your business, one of your competitors you mentioned the same. And so is it independent traffic doing much better than chain. Is there kind of an outperformance there that's been accelerating in recent months, do you think?

It's Dirk. So we didn't talk about that acceleration in October. It's really that sort of strength relative to the quarter that we saw in September, that carried through October. I think the -- Dave made the comments there that in these last few weeks choppy, I think, is the word he used, which is I think a good word. I've heard a number of others out there use it just with a lot of things happening together. It's harder to get a good solid read. But in the meantime, our case growth, as you said, held up solid through October, and our team is going to continue to focus on gaining share and driving top line growth.

And our next question comes from the line of Peter Saleh with BTIG.

I wanted to ask on the change in the sellers' compensation. Do you anticipate that will drive the private label penetration higher? And can you just remind us, again, the profitability on private label versus branded? And how you guys plan to proceed there with change in sellers compensation?

Yes. I think private label, in general, is roughly twice as profitable for the company and for our sellers as manufacturers brands. And importantly, as I commented, we're incenting for growth with independents with our private label and with Pronto and our compensation plan. So we do expect an uplift in that. And as you've heard me say many times, I don't see any near-term ceiling to our private label brand penetration opportunity. Our sellers are embracing that aggressively. I think that's why you've seen our success over the last 18 to 24 months.

Importantly, our customers are embracing it because it solves problems for them to help them deal with inflation in a big way, and these are at their heart. These are great quality products that our customers are embracing. So lots more to come. We're excited about it. And certainly, we're incenting our sellers in a way to lean into our private label products.

Great. And I just wanted to follow up on the comments on October. I know last October, there were some storms, so maybe a slightly easier compare, but then this year, we've got the government shutdown. Any more details you guys can provide on the October trend this year versus last?

Not really, Peter. I'd just point to my comments earlier. We roughly finished with the same growth rate we did in September, normally about 4% and a little stronger in the first half, a little choppier in the back half, really driven by the government shutdown. But again, we've got good momentum, and we're focused on gaining share.

And our next question comes from the line of Karen Holthouse with Citi.

Kind of continuing on the theme of the government shutdown, thinking about more on the hospitality side of the business, would we want to think about travel disruptions and whatnot ultimately maybe filtering down and hitting that a little bit in the fourth quarter?

I think this is the one where we'll watch like everybody else, what the implications may be. I think I don't want to diminish the impact of the shutdown, especially on the individuals impacted. But I think when you think of for the industry, our expectation would be that gets addressed pretty quickly. And so when we think about what our business looks like going beyond this period of time. Again, we continue to feel very good about our ability to gain share and drive growth and we'll manage through this period as we face some of the same macro challenges as most other businesses.

And then one other one on the chain side of the business. I know there was a pretty big exit in 2Q and then more recently spoke to some business coming on board. How should we think of the sort of net onboard offboard evolving through the next couple of quarters for that piece of the business?

Well, most of the main business came on second quarter and through the third quarter. So we expect to be improved here in the fourth quarter, but then it really is going to be dictated more by just the overall traffic within our concepts. And as you probably know, Black Box is a good proxy, but really it comes down to more of a chain-by-chain performance because it's quite differentiated across them. So that's an area where we'll continue to optimize the business. But overall, the onboardings that we've talked about previously are playing out as we had expected.

[Operator Instructions] And our next question comes from the line of John Ivankoe with JPMorgan.

The question is about independent restaurants. And specifically on the credit side, which obviously broadliners and foodservice distributors are somewhat in the business of issuing credit even if extremely short term to your customers. So the question was around the benefit that your sales force being close to customers and maybe even AI to some extent, giving you some data putting you close to customers that are maybe helping you make more informed credit decisions. In some cases, people deserve a little bit more time or more help, especially to open new restaurants, in other cases that actually might make sense to pull back credit and not extend some terms. So it's not something I don't think we've talked about in some time, but just with obviously a lot of disruption just going on in various pockets of economies across the country, how you kind of feel about the credit side of your business and how it could potentially be an opportunity for you?

John, I feel good about where our team is from a credit perspective. We really try to balance the use of what the data and the tools to just tell us, but also, as you pointed out, those sellers and those local teams being close to the customer. That communication back and forth between them and our credit teams is a regular occurrence. And to your point, there's not one answer on everything. Sometimes the answer is that you need more time. Other times, you have to have the harder decisions and other times as much as you can do all those things, you still get caught with some of that. So our team is really, I think, doing a pretty good job of managing through it and has been back to Dave's point on that consumer confidence and some of the challenges out there, they're not new this quarter. They just spent different versions in the last couple of years. And our team has managed pretty effectively through that, and I'm pretty confident that they can going forward. But we're definitely not taking our eye off the ball on it.

And our final question comes from the line of Danilo Gargiulo with Bernstein.

I was wondering if you can provide maybe more color on the progress on a semi-automated warehouse. And then specifically, if you started shipping out of your [indiscernible] in Aurora, how has your [indiscernible] increased? And stepping back, what is your long-term activation in terms of automation?

So it's still pretty early since we're transitioning through there. And as you can imagine, with any transition, you work through sort of things that work well and some learnings and our team is doing that. But we are making -- continue to make progress. So at this point, I'm going to hold off on any commentary on impacts on whether it be gross profit, productivity, et cetera. But the thing that we remain quite encouraged by is we're learning from it. And we expect that automation in warehouses will place a meaningful part over time. It's just it's almost inevitable, and it's just a matter of what we learn out of it and how do we continue to find the best ways to leverage it across our network. So more to come.

Okay. And then on the Pronto investment, I was wondering if you can make some -- or can you give some incremental color on the statement of the largest investment in Pronto. So is it purely in terms of trucks and in terms of markets that you're entering? Or are you contemplating some incremental support to increase the amount of penetration. So any incremental color on how Pronto could be leaving some step change in penetrating more in independent accounts?

Yes. I think with the work that we've done over the past several years, we've got great confidence in both Pronto legacy and Pronto penetration. We've got a lot of work going on to support that business today. So I don't think the investments are more around that. It's more trucks and people to drive those trucks. And with the confidence that we've got, you'll see us leaning in pretty hard in that in 2026. The model is proven. It's working. Our salespeople love it. It's serving our customers in a way that we had a gap. And I think it's proven out by the growth rate. So we're bullish about Pronto and we're going to continue to invest in it.

And it really -- just it did well with our balanced focus of earnings growth and improvement in return on invested capital. And as you've seen probably in our trends, we've made significant improvements in that and progress over recent years. And many of the decisions we make apply them with that lens as well. And this is pretty capital light and it is a great service for our customers.

And that concludes our question-and-answer session. I will now turn the conference back over to Mr. Dave Flitman for closing remarks.

Thanks, Abbie, and thanks, everyone, for joining us today. Our team remains focused. We're executing very well, and my confidence in our future has never been brighter. Have a great day. Appreciate you joining us. Thanks.

Ladies and gentlemen, this concludes today's call. We thank you for your participation. You may now disconnect.

Okay. Thank you, everyone. I'm Brian Mullan, the restaurant and food distribution analyst. Very happy to have Dirk Locascio from US Foods, the CFO.

Thanks, Dirk, for being here.

Thanks for having us.

Just to start, I think you had a press release out this morning for those in the room or on the webcast who didn't see it. Maybe if you could just say what it was...

Yes. So we just put a press release out this morning really just reiterating our guidance for the full year and for the long-range plan. We remain more confident today than we were a year ago when we did our Investor Day and our ability to hit our long-range plan, earnings algorithm and the 10% EBITDA growth and 20% EPS. So to reiterate that before today.

Okay. Thanks, Dirk. And so just going to ask a question on M&A, maybe address the Performance Food Group issue, which has been the news. On your call in late July, you acknowledged there potentially could be interest from the US Foods side. Dirk, maybe I could just ask with the information you have, what do you think some of the merits of a potential combination might be? What's behind the desire to even explore this?

Sure. Well, I don't have anything new to share today other than just reiterate that we do think there's value for the various stakeholders and therefore, remain interested in exchanging information mutually with Performance and hope at some point, they will agree to exchange information mutually as well. But we think, nonetheless, no matter what happens on that going forward, as I just said, we remain highly confident in US Foods future and our ability to continue to generate significant value for stakeholders for a long time to come.

Okay. And then shifting to the business, we'll start with the restaurant part of the business. On the last call, you talked about expecting to build momentum in independent case growth in the second half of this year. I just wanted to kind of clarify, is that really a function of the comparisons do get a little bit easier? Or is it maybe a little more something to it and then there's some underlying momentum? And I'm asking, you called out 4% new account growth. That's an attractive number, the best you've had in some time. And so just a sense of the magnitude or the factors behind some of the improvements you're expecting?

Sure. So we do expect improvement in performance just from our core improvements as we continue to mature our sales force as we continue to drive our differentiation, continue to deploy Pronto, all those things. As we do get later in the year, yes, there are some comps that will help as well. But we're encouraged that organic independent gates growth accelerated through the second quarter with June finishing at approximately 3% organic growth. July continued at that level. In August, we actually saw some further sequential improvement in our growth rates. So again, we're encouraged. And it's one thing that although we can't control the macro, we do continue to focus on gaining share, which we continue to gain in independents as well as health care and hospitality. And that's the part we're going to continue to control.

Okay. Great. And then obviously, you reaffirmed the long-term targets this morning. So with that as some context, one -- and things are great at US Foods. One area where I think you probably get an ongoing question is just the underlying assumption of the restaurant industry having traffic growth of 2% through the -- so maybe at US Foods, you're on track this year, you reaffirmed this morning. But can you stay on track even if the restaurant industry doesn't get the traffic up to that 2% over the next couple of years?

Yes. We expect -- we're -- like I said, we're confident in achieving our long-range plan. I do and we do expect that traffic will improve over a period of time. But in the meantime, the thing when we talk about self-help or control the controllables. It's not because they're cute buzzwords we like. It really is how we have the team focused on what we can control. And the other thing that we -- I like a lot is our balance of market share gains, a number of things to drive gross profit expansion and some things to drive sustainable OpEx productivity to offset a portion or most of the cost inflation. And it's that portfolio of things and the continued improvement on -- as we have new initiatives coming on that we expect to allow us to achieve this long-range plan as well as growth for a long time to come.

Okay. Then I want to ask on the chain restaurant business. You had a strategic exit in the quarter. I think you called out a 300 basis point drag to chain case growth in the second quarter. Is that now a headwind for the next 3 quarters? And then -- but I think you're also onboarding new business as well. So I just wanted to give you a chance to kind of clarify net-net, what's the outlook on the chain part?

Sure. So you're right. And we do have line of sight into some new concepts that are coming on board, 3 primarily to replace that. One came on board in the second quarter, another one in the third quarter and another in the fourth quarter. And so we do expect that headwind to get less and less as we go through the year. We continue to focus on optimizing our chain business, and we have a lot of good partnerships still in chain, and we're going to continue as a good base for our business. And that is an area where you're not going to hear us focus on a lot of growth there. We're going to focus our growth efforts a lot in gaining share in the independent health care and hospitality. But chain does provide a good baseload for the business and optimize is what we'll continue to do there.

Okay. And then I wanted to talk about Pronto. On the most recent earnings call, the Pronto legacy business, it's basically everywhere across the company now, I believe, where you want it to be. But you did discuss maybe being able to grow that by adding trucks. And I just want to confirm for everyone that's separate from Pronto penetration is my understanding. And so maybe anything you could offer on the opportunity on the legacy side, an example of what that looks like with the trucks before I have a follow-up on the penetration.

Sure. So Pronto has 2 aspects of it, as you pointed out, Brian. There's Pronto legacy, which we've had in market for the last 7 or 8 years, and that is in 44 markets through the second quarter. And what that is, is it's smaller box trucks that deliver to more dense geographic areas that are harder to get big trucks into and/or operators that have smaller spaces, need more frequent deliveries. That's been a great win for us. And then we've continued to add not only locations over the years, but adding trucks. So we have markets that have had Pronto legacy for 7, 8 years, and we continue to add trucks because getting it right as far as the geographies and then filling those trucks up and adding more is important because in order to use those assets efficiently. So we think there'll still be a lot of growth opportunity there.

As you pointed out, the newer piece is Pronto penetration. And what that is, is it's allowing our existing broadline delivered customers to have fill-in orders in between on the smaller Pronto trucks in certain geographies. And that's really more of a share of wallet focus. And in that case, the benefits that we're typically competing with a specialty provider. But when they have their fill-ins, they can not only fill in with those few items, but they have the access to our 10,000 or 12,000 SKUs with us. And so that one is one we started to slowly roll out last year. We're in 15 markets now, expect to be in 20 by the end of the year. That is one that we've gone slow to go fast because we want to make sure that we're not cannibalizing our core business as we deploy that.

And an important thing to remember there is when we say we're in a market, it's going in with 1 or 2 trucks to start. And then again, this will be an engine for a period of time. That's why we've updated our outlook that we think Pronto, both pieces will be over $900 million in sales this year, and we updated our 2027 estimate from $1 billion to $1.5 billion on our last earnings call. And we think Pronto, it's an excellent differentiator, and it's an area to be able to serve customers that we couldn't serve as well before and then better serve our existing customers out there, all leveraging our existing inventory, our existing broadline distribution centers. So it's also a very capital-efficient way to grow. So as you can tell, we're passionate and pretty excited about what this can do for a long time to come.

That's great. And a follow-up. You touched on 20 markets by the end of the year. You took up the revenue out through '27. You've said before, I think you're seeing a double-digit uplift in overall case growth with those customers. Obviously, that's a very powerful stat. Does this continue to roll out across '26 and '27? And is that how you built up the revenue? And would you be done then? Or do you think that you want to go slow to go fast and it could be longer?

I would expect that by '27, we probably will be in many of the markets. But again, that doesn't mean we won't continue to add trucks over time. So I would expect that for quite a few years to come well beyond this long-range plan, Pronto will be a point of discussion and a driver of growth for US Foods. So it's definitely not done at the end of this long-range plan by any stretch.

Okay. I'm going to pivot over to the cost and the margin side. Just starting with gross margins. Maybe a way to ask this, as you look forward over the forecasted time period you have between private label penetration, strategic vendor management, you have a new inventory loss initiative. You have overall customer account mix, which is helping. Do all of these areas continue to contribute? Is one more important than the other? I know you like the balance, but is one more important than the other? And are there any headwinds to consider offsetting all those positives? Any risk you're monitoring on the...

Yes. Really, it's -- each of them contribute. As you pointed out, strategic vendor management tends to be among the larger, but all of them contribute to it, and that's what we like. And the bulk of those really don't involve charging the customer anymore. It's really about continuing to do our core business better and/or partnering with our vendors more effectively to simplify our interactions with them, bring them additional above-market growth, especially with independents, health care and hospitality. And in return, we get compensated a little bit more for those. The inventory loss initiative that I talked about on our last earnings call that we expect to generate about $30 million this year.

That's just a great example of just better process discipline and organizational effectiveness where there's a little bit of technology, but the bulk of it is not. It's about doing -- taking best practices and standardization and doing them more effectively. And that's why it was -- it's been in our long-range plan. It just was sequenced a little later, and that's why that portfolio and things that we continue to pursue is why I have such confidence that we will continue to generate this value for a period of time. And also why when we talk about improvements, whether it's in gross profit and/or OpEx productivity, we're looking for sustainable improvements. We're not focusing on what's in the quarter, what's in the next couple of quarters versus what's something that's going to make our business better than it was last year and that we can continue to build on over time. So thinking of it really as essentially a continuous improvement platform.

Okay. And then on the OpEx productivity, it's been ongoing. It's been great to see. I wanted to ask on Descartes. I think you're at 90% of routed miles now. I'm just wondering how long it takes for the benefits to start to show up? Is there an initial lift in the market and then there's continuous improvement over time, what you saw in some of the earlier markets? And I think the spirit of the question is, as you get into '26, is there still a tailwind from this initiative?

Yes. To answer your question, yes, there is. And it is -- so you're right, it's in about 90% of routed miles. It will be fully implemented by the end of this year. We're happy we're seeing about a 2% improvement in cases per mile. And the other thing, though, that this brings that we like about it is that there is an efficiency play. But when you're driving fewer miles, it's translating typically into a better on-time performance for the customer. So service and the improvements in service level, which I can come back to, is not something we talk a lot about, but it is a lens that is critical, and we've got a lot of things we're doing to continue to get better and better at that to better serve that customer.

But this is one where the 2% is a good start. Our expectation is there's more benefits in years to come. We're taking an older system where it was more episodic to do routing, where now you can do more regular dynamic, the machine does more of the work. But we want to be thoughtful as we're working with customers in the local market of putting this in to sort of only turn the dial so much in the beginning, and then we'll continue to get better in learning and using it. But this is something that will add value for the next several years.

Okay. Great. And then indirect spending, you've called it $1 billion cost bucket in the past. You've been talking about this for some time. I think you've already made some good progress against it. I guess just to take a snapshot of where we are now, are you going to be through this opportunity by the end of next year? I know you always look to optimize, but I'm just curious if you've gotten through the big part of the opportunity already. And then as a little bit of a follow-up, we're some time away from the Investor Day. AI is a topic that is very relevant for everyone. Is there anything coming on that front that gets you excited maybe you could attack it further...

Sure. Well, I'll start with the indirect. So I'm really proud of the work the team has done there. You're right, it's a $1 billion bucket that is -- we've tackled pieces of it, but not holistically. And this is the first time we've done it holistically. And it really is a combination of some talent upgrades, process and a little bit of technology. And the team, you're right, it's a $1 billion bucket. Our expectation is to generate at least $60 million of savings by '27. We did generate $30 million last year. We're on track for $45 million this year. TBD on sort of whether we're all the way at that target next year or not. But what I would tell you is with the good work the team is doing is I wouldn't expect when we get through this that we're done as opposed to there's more opportunity to go there.

On the AI piece, if I go to there, so the AI, I get pretty excited on this one. This is one where my team, I have the data science team, and we partner quite closely with our tech and digital team on this. And it really shows up in a couple of forms. One is as we're buying new technology, so Descartes, our procurement tools, they have AI embedded within them to improve whether it's routing, procurement forecast, et cetera. And then there are a number of things that we're developing in-house. And the in-house is -- those things like as models get better, we can offer better suggestions and/or substitution products for customers than we could just a year or 2 ago. When we tell customers when we think their order will be there, we're continuing to get more and more accurate on that. That's all powered by AI. So think of it as kind of the back end of a lot of what we're helping customers and sellers with on recommendations and marketing and accuracy is all powered by AI.

Our first sort of in-house developed Gen AI tool was -- which I've talked about before, is our advanced order guide, which we began to deploy late last year for our local sellers. And what this does is it takes -- it's a tool that can read menus, invoices, product boxes that can break it down into ingredients. And it took something that a seller would often do on nights and weekends that would take them several hours per to do and can do it in about 20 minutes now. And really, what it does is it's intended to make it easier for that seller. So they're not doing the grunt work. And the machine can do 90% of the work and then -- but the seller still reviews it, and they still make their decisions and they can tweak and adjust, but it's geared toward seller ease and efficiency. We're continuing to deploy that to higher and higher usage. We're now working on that for our larger national customers.

And then we continue to use AI and sort of our sales force sales call optimization within our CRM, adding capabilities within there. So I would say we're challenging ourselves to bring things to market that we think can improve our business and our customer experience in the next 3, 6, 12 months. But at the same time, I'm a realist. I know that we are at the early innings of what's going to come. But I'm excited with the team and the team is doing. We have a very strong partnership. I talked about the data science and the IT teams, but also with our business teams. So anything we do, it's not about just, oh, it's a cool new tool as opposed to is there a value that's coming through the supply chain or the commercial side that is bringing that value or if it's something that, like I said, we're bringing for sellers, we have seller feedback early on, and we're doing that so that it's something that really helps them and allows them to be more efficient and effective.

Understood. Okay. And then automated warehouse facility is something you're doing. Maybe for those who aren't aware, remind us what you've done in Illinois and then in Texas. Talk about what you're seeing so far. And if you could just take a really big step back, how might this evolve? And what might the road map look like for this over the next 5, 10 years?

Sure. So we just brought to life our first semi-automated warehouse outside of suburban Chicago and Aurora, Illinois. It is live mid-July for a small number of customers that will ramp up over the coming months to more customers. And we're pretty excited. It's really not about -- the technology has been out there for several decades in retail. Just for our industry, because that last mile is so important and so expensive, we don't run near as big of distribution centers as retail does. So you haven't seen as much of it in broadline distribution. And -- but it makes sense now. And so we're looking forward to this and really testing out what it means for us. It's too early to give really any early insights.

But it's -- there's some productivity elements to it, but also there's a customer quality aspect to it, where we think the accuracy will be better. The build of the pallets will be better for the driver, so we'll make the driver's life easier. And those are sort of the things that we'll be looking to prove out. That is -- this is a new warehouse. And so it's hard to retrofit these in existing facilities because of the ceiling height differences. But where we do larger scale expansions, we can build the expansion to be able to accommodate this. And so we talked about one in Texas. We're just starting to work there. It's a large-scale expansion, and we will have automation in that facility as well. So we think it provides a lot of opportunity going forward. And as we learn more, we'll share more. But having this sort of our -- getting our hands on some real-life results from here will be great.

Okay. And then I wanted to ask about the health care business. Case growth has been very impressive. If you kind of start looking at a 2-year stack or 3-year stack, case growth, some add up to some big numbers. Just wanted to ask kind of 2 different ways. One, are you seeing same-store traffic growth, whatever the right way to talk about it is with the existing customers? And is it -- are there powerful demand drivers in that industry? And then separately, I think you've been investing in the business development function as well. So I'm just wondering if you could touch on, yes.

Sure. Well, health care has been a -- it's an important area for us. To your point, we've continued to invest in that area. It's -- so restaurant operators, it's a tough business to be an operator in. Health care, it's a tough operator. They're just some different challenges that they face. But that's an area where I'm pleased with the strength of the growth there and the work the team has done. To your point, new business -- net new business is always going to be the lifeblood of the growth, but we have seen some gains there from same-store sales or penetration as well. And it really -- our success in that area comes down to sort of the 3 similar areas or some different aspects as it is in others. It's our service model and trying to be easier to do business with them, fewer touch points.

Technology. We have a VITALS platform that helps them to more effectively manage their inventory, their business, understand retail sales performance, understand patient feeding costs, things like that. And then we've had these multi-decade-long partnerships with some large group purchasing organizations that offer attractive economics to customers while also making these one of our more profitable customer types. So we really think that it's a great value proposition we can bring to customers, and I expect us to continue to grow at a very healthy rate in health care.

Okay. And then the hospitality side, can you talk about what you're seeing on the lodging customer side? And then maybe remind everyone or talk about your efforts to focus on some of the non-lodging segments and also business development, are you investing in that area for hospitality, too?

Sure. So we are investing in business development for both of those. So yes, similar to health care. I'd say we're really investing in sales and business development across all 3 of our target customer types of independent health care and hospitality. Within hospitality, as you point out, Brian, our historical sort of stronger suit has been full-service lodging. We've increased our focus the last couple of years in recreation. So think of it as large-scale venues for sporting events, concert events, theme parks, things like that. And that's an area we were just underpenetrated in, and we've seen some good progress in that space.

So it continues to grow at a pretty healthy rate. And so it doesn't mean we're not focusing on growing lodging. We definitely still are, and we have a good base there. And it's bringing those similar value drivers to investors, our service model, our technology and then the strong economics.

Okay. And then I wanted to ask on the specialty business, just talk about the opportunity to grow the business both organically and inorganically over the next few years. And on the organic front, I think you've had a lot of success on the produce side. At the Investor Day, you talked about seeing similar opportunities with protein. So maybe you could just talk about where you are in those specialty efforts...

Sure. Yes. And different distributors take different approaches. We've chosen to invest in the capabilities and just strengthen those things through our broadline. Produce, to your point, we've made some investment in people, process and technology over the last 4 or 5 years, we've seen quite strong share gains. It's one of our strongest share gain categories there, bringing better selection, higher quality product to customers over that period of time. But yet they don't -- the operator doesn't have to have another delivery from someone else as opposed to they can just buy it through our broad line.

Protein, we've made some investments in some of our capabilities. We continue to invest. We have a facility that we're working on right now to bring some more capabilities into market. And that is really we're just choosing to build or invest versus buy in that case. And we still think that those will be good opportunities for growth. And then you put around that also Pronto, again, which just brings some of that specialty service to more and more customers that is -- but yet they get the benefit of the broadline and our large assortment.

Okay. Then I wanted to ask on digital. Maybe just remind us where the business is today. I think -- and I think you've got some goals out through '27. So talk about that. And I'm just curious, is it a concentrated effort to get to a specific target? Does it happen naturally because that's where the world is going? And just maybe remind everyone or talk about what that does for your business?

Sure. So it is -- we are at about 78% independent restaurant penetration, meaning 78% of our cases are going through digital, about 89% of our overall business. We're working towards 95% as a goal. Some of it is natural. It moves there. And then some of it is just having our -- making sure all of our sellers are comfortable and different operators get more comfortable using it. And so it's a little bit of both. And the -- it's -- people are still a critical part of our business. Our sellers, we're investing meaningfully in our double digits, mid-single digits in our local sellers. They still are an important part of relationship with customers.

So the digital and the technology are really about making it easier to do business with us and making it so that when those sellers are interacting with customers, it's more value-add and interaction as opposed to taking an order. And so on digital, we'll continue to invest. Our MOXe platform, which is what we use, has been live now for about 3 years. And when we replatformed it, one of the things that allowed us to do is release updates about every 3 or 4 weeks versus a few times a year. And that's heavily informed by customer feedback, and we continue to invest meaningfully in that and enhance that. And we will continue to do that over time because we think it's a great way for -- from a customer and a seller perspective to, again, make us easier to do business with.

Okay. And with that, we are up on time. So thank you, Dirk, for be here. Appreciate it.

All right. Thanks, Brian.