Thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the US Foods First Quarter 2024 Earnings Conference Call. Thank you. I will now turn the conference over to Mike Neese, Senior Vice President of Investor Relations. Mike, you may begin.

Thank you, Krista. Good morning, everyone, and welcome to the US Foods First Quarter Fiscal 2024 Earnings Call. On today's call, we have Dave Flitman, our CEO; and Dirk Locascio, our CFO. We will take your questions after our prepared remarks conclude. 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 2024 to the same period in our first quarter fiscal year 2023. In addition to historical information, certain statements made during today's call are considered forward-looking statements. Please review the risk factors in our Form 10-K for a detailed discussion of the potential factors that could cause our actual results to differ materially from those anticipated in those statements. During today's call, we will refer to certain non-GAAP financial measures. All reconciliations to the most comparable GAAP financial measures are included in the schedules on our earnings press release as well as in the presentation slides posted on our website. Finally, we're excited to host our Investor Day on June 5 at our headquarters in Rosemont. If you're interested in attending, please reach out to us in Investor Relations. 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 sharing the progress we've made executing on our strategy and several key achievements from the first quarter, which set us up for a strong year ahead. I will then hand it over to Dirk to review our first quarter financial results and our fiscal 2024 guidance. Following a slower start to the year due to adverse weather and labor disruptions, our first quarter earnings came in as expected. The continued execution of our strategy and long-range plan resulted in adjusted EBITDA of $356 million, representing approximately 6% growth. As we highlighted in February, adjusted EBITDA was negatively impacted by approximately $20 million from increased costs to serve our customers and volume headwinds from labor disruption and weather-related issues in January. Of the $20 million impact, approximately $15 million was incremental operating expense to support the business during the labor disruption. Excluding this negative impact, our underlying adjusted EBITDA growth was approximately 12%, and we remain confident in achieving our full year guidance. This performance demonstrates the strength of our business model, the commitment of our 30,000 hard-working associates, and our ability to win in any environment. Total case growth was 4.2% for the quarter with share gains continuing in target customer types, and our independent case volume grew 4.6%. In fact, for independent restaurants, our share gains accelerated from the fourth quarter to the first quarter as we grew share for the 12th consecutive quarter. In early April, we closed on our previously announced acquisition of IWC Food Service, and we are excited to have them on our team. As a result of deploying capital towards our tuck-in M&A strategy, we did not purchase a significant number of shares in the first quarter. However, we do plan to lean in on share repurchases more aggressively through the balance of this year. Despite a slight year-over-year decrease in restaurant foot traffic, broadliners increased their volume within the overall foodservice distribution channel, as measured by Circana, underscoring the resilience of our industry. Our team captured profitable market share with our target customer types and improved profitability as we remain focused on controlling the outcomes that we can control. Furthermore, we continue to identify cost savings, including streamlining administrative processes and costs. More specifically, cost actions we have taken to date are expected to generate more than $55 million in expense savings for 2024 and $75 million on an annualized run rate. We are pursuing additional operating expense and cost of goods actions to drive further savings in 2025 and beyond. I have confidence in our ability to drive growth and profitability well into the future. We are controlling what we can control to generate long-term shareholder value. Turning to Slide 4. As a reminder, our team's work is guided by 4 strategic pillars, and I will discuss our progress on each of them over the next few slides. Moving to Slide 5, our first pillar is culture. Keeping our associates safe is a key part of our culture. And during the first quarter, our injury and accident rates were 30% better than the prior year. And importantly, these results were our best since 2020. Despite our recent success, there is still significant room for improvement to reach our goal of 0 injuries. We are excited about our Spring Scoop where we launched 26 new products to help our customers offer high-quality, innovative, and labor-saving products on our menus. As part of this Scoop, we introduced Serve You, including 20 new products within a portfolio of more than 3,000 products of delicious, plant-forward, gluten-free, and clean labels, such as our Chef's Line Organic Purple Rice and Quinoa Blend. Importantly, since the introduction of our popular Scoop program 12 years ago, nearly 75% of the products that have been launched are still sold today. Finally, we are increasing our commitment to 3 strategic community giving areas: hunger relief, culinary education, and disaster relief. Our increased investment of $2 million in 2024 is part of our Helping Communities Make It program, which provides nourishment and opportunity to the communities we serve and builds on our 2023 investment of more than $12 million. Turning to Slide 6, our second pillar, service. Providing best-in-class delivery and a high-quality service experience to our customers is essential to our growth and our overall success. The investments we are making in operational rigor and modernizing our technology platforms continue to pay off. We exited the first quarter quite pleased with the progress that we made in both on-time delivery and service levels to customers, which continued to show year-over-year and sequential improvement. We also recently completed an 18-month initiative in our replenishment organization. This program standardized and improved the processes and technology we use as we strive to deliver best-in-class service levels to our customers. This work resulted in our delivered as ordered Net Promoter Score improving by 7 percentage points while yielding $15 million in annualized operating expense savings and $120 million in working capital reduction. We continue to build on the routing efficiency gains that we delivered in 2023, and we remain focused on driving further improvement in on-time deliveries. In fact, our cases per mile were a company record in February and March. Furthermore, our routing initiative delivered a 4% improvement in cases per mile during the quarter compared to the first quarter of 2023 in a 2-year stack improvement of 12%. Our team's focus on this important work is making a difference for our customers and for US Foods. Taking this work a step further, we extended our Descartes routing deployment to 4 additional markets during the first quarter, building upon the 2 markets we piloted late last year that are now fully deployed. In the markets where Descartes is live, we are compounding further improvements in our routing effectiveness. For example, in deployed markets, we are already seeing this technology produce an incremental 2% improvement in cases per mile, which we expect will continue to accelerate. We are confident that we have the right plan in place to successfully implement this technology across the company by mid-2025. And we continue to further transform our customer experience through our differentiated MOXe digital solutions platform. MOXe has been fully embedded with our independent restaurant business. As customers move to MOXe, they buy 10% more, are more profitable, and stay with us longer. We have migrated over 65% of our national chain business with full deployment anticipated in the second half of 2024. MOXe also has a new Spanish translation feature, further enhancing the user experience. We are excited to share the MOXe roadmap and growth plans for this digital platform during our upcoming Investor Day. Let's now turn to our growth pillar on Slide 7. We remain focused on accelerating profitable growth and gaining market share with our target customer types. We are on track to achieve our 1.5x market growth goal for restaurants for the full year, driven by faster growth with independents. Our 4.6% independent case growth resulted in an acceleration of share gains from the fourth quarter, again, marking our 12th consecutive quarter of market share gains. Our Pronto small truck delivery service is a true competitive differentiator and continues to gain traction with our customers. Through this platform, we are able to offer our customers significant benefits, including flexibility of delivery, which allows us to compete with local and specialty competitors. At the end of the first quarter, we were live in 36 markets and expect to add 5 additional markets in 2024. Pronto is on track to deliver approximately $600 million of annualized sales this year with plenty of runway ahead. We also recently launched what we are calling Pronto Penetration in 2 markets, which, for the first time, extends the Pronto service to existing independent customers who will be able to order on non-routed days. Once fully implemented, this offering is expected to further increase our share of wallet with our existing customer base. Last quarter, I provided you with an update on our sales compensation plan. As you'll recall, the variable components of our plan are now more meaningful for our sellers. While it's only been 1 quarter, our plan is working as designed. Many of our sellers are exceeding their targets and receiving higher compensation for that profitable growth. For example, one of our sellers in South Carolina grew cases 50% faster than the fourth quarter, exceeded his target, and earned a 10% compensation increase. For those who are not growing as fast with our new targets, we believe they will rebound in the quarters ahead. Turning to Slide 8, our profit pillar. Adjusted gross profit grew nearly 7% in the first quarter to $1.5 billion. We drove further progress on initiatives such as cost of goods sold by collaborating with additional vendors. In total, we have addressed 60% of our COGS, which translated into approximately $120 million in savings over the past 12 months. We have initiated work to address the remaining 40% of our spend this year. We are also continuing to make progress on growing our independent restaurant private label brands, which increased 90 basis points year-over-year to over 52%. Increasing private label penetration remains a significant opportunity for US Foods. We believe we can add customer value through our innovative and high-quality products at a competitive price while also improving our margins. Finally, our delivery productivity improved 4% over the prior year, and we continue to improve our overall supply chain productivity through turnover reduction, flexible scheduling, and process standardization. The 4% delivery productivity is in line with our goal of 3% to 5% annual gains to offset wage inflation. This productivity improvement is additive to the operating expense reduction I spoke about earlier. Before I hand it over to Dirk, I would like to acknowledge 2 recent winners of our first-ever CEO awards: Mark Schuster, Warehouse Manager; and Timothy Gephart, Data Warehouse Supervisor at our culinary equipment and supply business in Allentown, Pennsylvania. This distribution center celebrated 11 years of injury-free operations last year. During that time, they nearly doubled the cases shipped while improving productivity by approximately 50%. Mark and Tim made safety a top priority for regular training programs and team huddles to ensure that the entire team took personal accountability for safety. Thanks, Mark and Tim, for your outstanding leadership. As we approach Memorial Day, I want to thank all of our veterans for their service, including our associates who have served our great country. On this Memorial Day, we pay tribute to those who have served our country and made the ultimate sacrifice. Each day, we have the privilege to enjoy our freedom because of their fearless service. As you spend time with your loved ones on this holiday, please join me in remembering the heroes who courageously gave their lives for our country and for our freedom. Let me now turn the call over to Dirk to discuss our first quarter results and our 2024 guidance.

Thank you, Dave, and good morning, everyone. Our performance for the first quarter was consistent with our expectations as we executed well despite the challenging start to the year, highlighting our strong financial discipline and our focus on what we can control. Starting on Slide 10. First quarter net sales increased 4.8% to $8.9 billion, driven by total case volume growth of 4.2% and food cost inflation of 1.5%. Mix was a headwind of nearly 90 basis points. Independent restaurant volume increased 4.6% overall and 2.9% organic. Health care and hospitality grew 6.4% and 0.9%, respectively. Health care growth remains strong while hospitality growth was less than we expected due to softer same-store sales and a tougher compare versus a strong prior year. We expect hospitality to accelerate through the second quarter and the second half of this year as we onboard new customers. Adjusted EBITDA grew 5.6% from the prior year to $356 million. This was slightly above the high end of our guidance, driven by a combination of profitable volume growth, strong gross profit gains, and solid expense management. Adjusted EBITDA margin remained largely unchanged at 4% despite the headwind of incremental costs to serve our customers during the January labor disruption. Absent these costs, plus the volume headwinds from labor and weather, which altogether totaled approximately $20 million, we estimate that our adjusted EBITDA growth rate over the prior year would have been approximately 12%, and adjusted EBITDA margin would have increased approximately 20 basis points. Turning to Slide 11. We increased adjusted EBITDA per case again this quarter despite incurring higher incremental costs related to the labor disruption. Adjusted gross profit per case growth continued at a strong $0.17 improvement over prior year, driven by our cost of goods sold initiative and disciplined pricing. On an annualized basis, this improvement would result in more than $100 million in incremental gross profit. Adjusted operating expense per case increased $0.15 with more than $0.07 related to incremental expenses from the labor disruption. Adjusted EBITDA per case was $1.75, up $0.02 from the prior year. Excluding the incremental costs, adjusted EBITDA per case would have been a $0.09 improvement over the prior year. We are focused on driving further operating leverage improvement and growing adjusted EBITDA per case by continuing to execute on initiatives that are within our control. We are making steady progress with our cost of goods sold optimization work, improving supply chain productivity, and streamlining administrative processes and headcount, as Dave noted, as well as increased indirect spend management savings as more initiatives in this area are deployed. Moving on to Slide 12. We continue to generate strong operating cash flow driven by earnings and effective working capital management. Operating cash flow for the quarter was $139 million, which was driven by strong profitability. However, this was lower than the prior year as we had more working capital benefit in the first quarter of 2023 from extending payables with certain suppliers. Absent the working capital impact, operating cash flow was modestly above the prior year. We continue to actively manage working capital and expect to drive further improvements in 2024 from initiatives targeted in inventory and payables. We expect operating cash flow growth over 2023 for the full year. We will continue to invest in the business for growth and remain focused on our capital allocation priorities to maintain net leverage within our target range of 2.5 to 3x, return capital to shareholders via share buybacks, and opportunistically pursue accretive tuck-in M&A. We repurchased $13 million of shares during the first quarter. Repurchases were muted as we were in the process of acquiring IWC. We're excited to welcome the IWC team to US Foods. As we closed on the acquisition in April, it was priced at approximately $220 million, which was funded through operating cash flow. Turning to Slide 13. We ended the quarter with net leverage of 2.8x, which is a 0.4x reduction versus the same period last year and consistent with where we ended 2023. In February, we successfully repriced our term loan due in 2028 and reduced the interest rate margins by 50 basis points. As a reminder, we do not have any debt maturities until 2026. Now turning to guidance on Slide 14. Given our performance for the first quarter and outlook for the balance of the year, we are reaffirming our fiscal year 2024 guidance. We continue to expect adjusted EBITDA to be in the range of $1.69 billion to $1.74 billion and adjusted diluted EPS between $3 and $3.20. The macro environment remains a little softer than we and many anticipated going into the year. But as you heard from Dave, we continue to outpace the growing broadline distribution channel. Our industry is resilient, and US Foods is well positioned for above-market growth with our differentiation, diverse customer base, and customer-focused strategy to drive share gains. As a result, we continue to expect our full year case volume growth to be within our guidance range of 4% to 6%. In addition to continued volume growth, we have the right strategies in place and are expanding gross margins through initiatives such as cost of goods management and driving operating expense productivity through improved routing, administrative process streamlining, and indirect spend management. With that, I'll pass it back to Dave for his closing remarks.

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

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

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

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

Congrats on the progress.

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

I want to start by noting that there's been a significant amount of unusual activity in the first quarter. What do you think the trend line looks like for independent case growth? I understand it was impacted by weather and a strike, resulting in a 2.9% organic growth. Do you believe we're in the 4% to 5% range? Additionally, is all of that growth coming from new accounts? It seems like penetration overall has stalled. Is that an accurate reflection of our current situation?

Yes, I think in that mid-single-digit range, John, kind of as you framed it, is probably the right trajectory. We were relatively flattish in January year-over-year, which I thought was a win for the team given the challenges that we had and then it accelerated from there. As we flipped into the second quarter, it's roughly on par with the way we exited the first quarter. And so, yes, the foot traffic is a challenge, but our ability to generate new business is key to our success. Penetration is a challenge just with the foot traffic piece of it, but we also have an opportunity to shore up lost business, which hasn't been a problem for us, but there's always opportunity to do a better job there. So that combination of net new account generation, that difference between new accounts and shoring up the loss is where our team stays focused and, obviously, continues to look for every penetration opportunity we can. You heard me talk this morning about the Pronto Penetration opportunity. That's new for us. We're excited about it to take that offering to our existing customer base. And we think that's going to mean good things on the penetration front as we ramp that up across the company.

I believe the 1.4% organic total case growth we achieved in the first quarter, which is faster than the industry average, underscores the diverse mix of customers we serve. This reflects our focus on targeting specific customer types to drive smart and profitable growth.

I wanted to follow up on the 60% of the product base where you've achieved over $120 million in savings. Considering the remaining 40%, I assume it may not be as productive as the first 60%, although I could be mistaken. Looking ahead, do you anticipate being able to exceed $120 million in savings over several years?

I think you're on the right track; the 40% is unlikely to be as large as the 60%. There's still a lot of work to do moving forward. Regarding your point about cycling back, I anticipate there will be more momentum on the existing side than we’ve seen before. The advantage is that in a month, during our Investor Day on June 5, we will provide a detailed overview of this and discuss the contributions and expectations for the next three years.

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

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

Well, 2 I'd point to: one, I commented on and the other one, I didn't. But the work that we've done around replenishment yield is $15 million of expense reduction. That's been an ongoing piece of work. I think there's likely still more to come there as we ramp up technology in that part of the business. And so we're excited about that. The team has worked hard to achieve the numbers that I spoke about. But importantly, also, Brian, you've heard me talk over the course of the last year about shifting our focus and our resource back into the field given the responsibility to the P&L owners and unwinding a bit of the centralization that has been done over the company over a number of years. And with that move back to the field comes efficiency gains. I'm a firm believer that the folks that own the P&L are going to determine whether they need the headcount, whether it's adding value or not. You've seen some of that initially pop out from the work that we've done here, particularly over the last 6 months, and there's likely more to come on that journey as well.

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

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

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

Nice quarter in a tough environment.

Thank you.

I wanted to ask you about the spread between gross profit per case and operating expense per case, slightly negative in Q1, which is obviously uncharacteristic for you, and there was a strike issue. Maybe tease out Q1 performance a bit more. And then what I'm really interested in is looking ahead, there's obviously a ton of self-help that you've been talking about, mix benefits, inflation is coming back. Can you just maybe talk about how you see that spread evolving? And what's a realistic target for the remainder of the year?

Ed, this is Dirk. Overall, we expect to maintain a healthy spread as part of our balanced growth strategy. Although inflation has increased slightly, it remains modest at 1.5% for the first quarter. As I have mentioned before, this will have a minor impact and won't be a key factor in our overall growth discussions. I anticipate continued improvement in gross profit and productivity, which should help mitigate a significant portion of inflation. The positive impacts we see are a result of our internal initiatives. We also expect adjusted EBITDA per case to keep rising.

I wanted to ask about mergers and acquisitions briefly. It appears that you experienced a 2.8% benefit from M&A during the quarter. With IWC joining in Q2, I assume that benefit will increase. However, the guidance suggests a 2% benefit from M&A. Could you explain how that is coming together? Additionally, regarding your pipeline, you've completed several deals, so what is your perspective on the outlook moving forward? I noticed M&A seems to be a lower priority compared to share repurchases on that slide.

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

Yes. And Ed, on the pipeline, it remains strong. We'll give a little bit more color on that at Investor Day here coming up on June 5. But I will just reinforce a couple of points that I've always said around M&A. First of all, I think it can be an accretive add to the business for the right deals with the right management teams at the right time, but we don't need to do any of them. And so we're not going to force anything, and we're not going to overpay and we haven't in the 3 deals that we've done. And to your point around share repurchases, look, we've done 3 deals here in less than 12 months. We've got some integration work ahead of us. You'll likely see us take a breath around M&A here for a little bit and lean in harder to share repurchases as the year progresses, as we said in the script.

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

My first is on the channels and the organic growth within them. So you've given overall case growth in independent organic. But how do the acquisitions impact health care, hospitality, and chain? And then, building on that, chain case growth accelerated pretty meaningfully. If it's not acquisitions, what is driving that pretty strong acceleration? Then I have a follow-up.

So health care and hospitality, the acquisitions had very little impact on either of those from a growth rate perspective. Chains did have a much more significant impact, and that's primarily, as you may remember from our discussions before, around Saladino's which has had a stronger chain base of the business. So we talked about 3.7% overall chain growth, but organic was down around 4%. So very similar to what Black Box indicated for the first quarter, so really not too different from a trend there.

Okay. So you said organic was down 4%, just maybe repeat that?

The chain is down 4%, which was pretty much right in line where the Black Box data was for the quarter.

Got it. Great. And then my other question was just about the size of your sales force. And I believe you're growing your sales force slower than your 2 largest peers. And so just wondering what your thoughts are on how that might impact your share gains going forward? How much of the share gains do you think has been driven by investments in your sales force? And could that become a headwind as your larger competitors, I believe, are adding to their sales force quicker?

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

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

Congrats on a good quarter here.

Thank you.

Just wanted to ask, you gave some of the figures here on the Pronto initiatives that were interesting. With the numbers that you disclosed here, I'm assuming this is really impacting independents. Is that initiative kind of driving a low- to mid-single-digit lift for independents? Correct my math if I'm wrong there. But can you just talk a little bit more about how that's working, if that's new accounts, increased wallet share, and how that impacts the P&L?

Yes. So first of all, we've been ramping up Pronto over the last 18 to 24 months. And so we've progressively gotten increased benefit and felt like it was time to disclose the importance of that business to our total, and that's why we quantified the $600 million we anticipate this year. But I tried to make that distinction, and let me be clear, up until now, Pronto was only focused on attracting new customers. We had not deployed that to our existing customer base until we were confident in the model and we knew that we had all the bugs worked out in that model. And so now when we go to Pronto Penetration, we are offering that to existing customers on their nonstandard routed days. We think that will enable us to continue to penetrate those accounts, giving our customers less reason to go to specialty and other suppliers to get their needs met. So we're excited about not only the ability to continue to attract new customers through Pronto but now importantly, penetrating our existing customers further. So more to come on that, but we're really excited about the model and what it's meant so far and where we can take it.

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

Overall, we anticipate significant acceleration in hospitality starting in Q2 and continuing in the latter half of the year. Much of this stems from visibility with customers who have begun onboarding in the second quarter, along with additional clients we expect to see. These figures will manifest over time. We emphasize independents because our key customers are very profitable, while health care, hospitality, and other segments also represent valuable and profitable opportunities. Our differentiation is evident, and our growth across these three target types, along with strategic opportunities in other customer categories, is crucial to our overall expansion. We will remain intentional in our approach, which resulted in stronger growth rates in Q1 compared to the market, particularly from the perspective of our target customer segments.

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

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

Yes, I'm not an economist, but I can share my perspective. The challenges facing consumers stem from inflation over the past few years, which has made them more cautious about spending their disposable income. This is largely driving the foot traffic challenges we've observed. Our customers have also felt the impact of inflation during this time, and these difficulties continue. At the core, I believe this is a consumer issue. Looking ahead, I think independents will outperform chains, and foot traffic trends indicate that. While independents face their own challenges, their business model aligns better with the culinary trends and experiential dining that consumers desire. Therefore, we are optimistic about the future of independents. Despite any short-term obstacles, we believe they will ultimately succeed.

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

Yes, I believe that number is about right, perhaps with some variance, but there has certainly been a strong recovery from the pandemic. However, I still feel that the total count is lower than pre-pandemic levels, which continues to make the industry very competitive and presents challenges for customers trying to attract people to the restaurants, although it's likely still a bit down from pre-pandemic levels.

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

To start, I wanted to touch on CHEF'STORE. How is this business performing in the current macro backdrop? Have you guys seen demand pick up much just given some of the pressure on the lower end?

Mark, so we have seen CHEF'STORE return to case growth, which has been encouraging. As you remember, we talked about with some of the ERP and related challenges from last year. I would say, so overall, the fact that if the business is back growing, we are encouraged by that. And our focus is to continue to work through and accelerate that growth over time. And we're continuing to add stores with 5 stores planned for this year, and it does play a niche in the overall market for us, especially that customer base that you're talking about as well as fill-ins.

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

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

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

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

Yes, I believe it's a mix of factors, with compensation being significant for us moving forward. I’m excited to see that increase. However, as we mentioned, after the pandemic, manufacturers faced challenges in supplying those products. It has really only been in the past couple of quarters that our sales force has regained the confidence to engage more actively with those products compared to the previous years. We had strong performance in the fourth quarter, and I'm pleased to see our penetration rise above 52% in the first quarter. As I've mentioned before, I don't anticipate any near-term limits on that, and I feel that momentum will keep growing for our exclusive brands.

You mentioned that your customers on MOXe are purchasing about 10% more. However, I wonder if some customers have been using the platform for a longer time than others. Are those long-term customers buying more, or can we consider that 10% as a reliable figure for the future?

Yes, I believe that's a reasonable figure to use moving forward. Our objective is to get new customers onto that platform as soon as possible, ideally right after we engage with them, due to the various benefits it brings for both the customer and the efficiency of our sales team. That's the reason we shared that figure, and I think it's a reliable one to consider in the future.

And your next question comes from Andrew Wolf with CL King.

I wanted to clarify a point. Dave, I believe you mentioned, or perhaps it was Dirk, that cases were flat in January. I just want to confirm whether that was referring to independent organic cases or total cases. What is the reference point for comparing January's flat numbers?

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

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

Yes. As we said, it was a combination of both. That was kind of the net impact in the month of January where we had the labor disruptions for about 3 weeks of the month overlapping the weather challenges that everyone experienced.

Okay. I wasn't completely sure about the situation. So it involves both monetary and sales impacts. Dave, regarding the new cases per mile metric, is it solely based on logistics? Does it emerge from your logistics operations? Or can it also assist in driving sales and marketing efforts to boost customer density in other ways? Is it strictly logistical, meaning the sales and marketing teams will operate independently without being affected by the efforts to reduce logistics costs?

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

Your next question comes from the line of Fred Wightman with Wolfe Research.

I wanted to come back to the independent case growth numbers. And if we just go back and look at what you guys disclosed for Q2 from last year, you talked about a softer March and April and then some sequential improvement in May and June. So I'm just wondering how we should think about the net impact of some of these headwinds from Q1. So the weather and the labor that you just touched on rolling off, but then also facing some of those tougher compares on a monthly basis later in the quarter.

I think as you pointed out, Fred, that the weather and the labor are largely behind us. We have a few of the labor impacted markets that haven't fully recovered as far as lost customers, but that's a minority. And those teams are laser-focused on getting that back. I would say, overall, I'm not going to specifically comment beyond what Dave did where he talked about April volume being pretty similar to March. Our focus as we get to this normalized environment without the weather, without labor, et cetera, is to get back on pace for the strong independent growth that we've generated and continue to take share. As you heard Dave say, we accelerated our share gains in Q1, and we don't expect to slow down on that versus continuing to charge ahead.

Great. And then on Pronto, I think you guys made a comment that that's a $600 million top-line contribution currently. Is there a way to size the potential market for the Pronto Penetration? Is that bigger, smaller, sort of in line with the core Pronto offering?

It's still early, and we'll have more information to share as time goes on. We are just starting with this, Fred, and we're enthusiastic about it. We believe it has significant potential, but it is still in the early stages.

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

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

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

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

It's similar to the overall independent margins. In this case, customers are willing to pay a slight premium due to the flexibility, which offsets our slightly higher delivery cost. This makes it profitable and attractive. As Dave mentioned, when we combine this with our larger truck delivery service, it provides the right service for each customer.

And with no further questions, I would now like to turn the call back to Mr. Dave Flitman for any additional or closing remarks.

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

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