All right. Good afternoon. I guess it is. My name is Jake Bartlett. I'm the food service distribution analyst at Truist Securities, and I'm joined up on the stage by Performance Food Group's Chairman and CEO, George Holm, and incoming CFO, Patrick Hatcher. For those of you who don't know them, George is a longtime industry veteran and founder of Vistar, one of Performance's segments. Patrick was previously the President and COO of Vistar, and has recently become the new CFO. Joined the company I believe in 2010. I wanted to start with a big picture question and really kind of the aftermath of what we've gone through in the last few years with the pandemic. It seems like it's been an environment where the largest players have been able to gain a lot of share, been able to provide service, be able to service customers. Also margins, you know, have been pressured overall, but gross profits have been really kind of, I think, record high or fairly high. The question is: what remains? The situation going forward, of those changes over the last three years, how does that impact, you think, the industry going forward? Well, I think the biggest thing is labor right now. That's what really hasn't normalized to pre-COVID levels. The other thing that still exists is this big variance versus the previous year from a week-to-week basis. An example would be last year, December was actually pretty strong. People were back with Christmas parties and, you know, holiday parties and all that. Then Omicron hit, and it really went down. What we've seen is couple weeks of really tough comparisons, and then all of a sudden last year's numbers are easy to significantly jump over. We still have that inconsistency. The margins, as you stated, the gross margins have been good, but the labor costs have been high and productivity's been low. What we're seeing now is the stabilization of the margins, which is good to see. A big percentage of our business is contractual, so we've redone just about every agreement that we have with the customer to get a better margin profile. Now it's a matter of getting the productivity back to pre-COVID levels. That'll do a lot for our business. Also the inflation is dropping, and it's dropping at a fairly quick pace, at least inflation versus previous year to the point where there's no real sequential inflation. That period of time where we went through the sequential inflation was very good from an inventory gain pickup, so that offset a good bit of the labor issues. Moving forward, I think the most important thing is to get some stability, which we're not gonna have this quarter. I think we're gonna have easy comparisons early in the quarter. Right around Valentine's Day last year, Omicron kind of blew through. People had a lot of cabin fever, and, you know, the end of February and March were probably outsized period of time. We need to get that stabilization, because that helps with labor, too. It's very difficult from a labor standpoint if you've got, you know, 4% growth one week and then 18% and then 5% and then 10%. You know, it's really difficult. We should see, we should see some better costs. Got it. Got it. You know, I wanted just this is a bigger picture question, you know, and also playing into how it, how it might, you know, impact your performance in what could be a slowdown. Can you just go into a little more detail as to how Performance, you know, operates differently than some of its larger competitors and how you've, you know, very consistently grown cases faster than most of your peers? In a nutshell, kind of what is that what do you attribute that to? Also, you know, in a pressured environment, does that advantage become a greater advantage or less so? You know, how does it position? I think I'd have to preface that with, you know, the market seems to throw three of us in the same bucket, you know, us and Sysco and US, when we actually have quite different customer mixes. Yeah. When you get to independent foodservice where, you know, that's kind of head-to-head competitors. You go west, Other than Texas, we only have one broadliner in the western part of the country, you know, we're very different. You know, all industries, people look at things differently, you know, we've kind of really chosen to invest heavily in people to be a follower, you know, from an IT standpoint or a system standpoint. We try from a customer facing to be in front of the customer as much as is possible, we're reluctant to give up face time. I think that helps us. The two times where we gained the most share, at least according to what we see in NPD, which does have all the broadliners in there, the two times we gained the most share were during the recessionary period and then big in COVID, particularly when COVID first hit. We kept our entire sales force intact. We did furlough some people that were in training to be in sales, but not existing salespeople. I think that was probably a key. We also had a good customer base on the restaurant side of our business for independent for COVID, because pizza did extremely well. The Hispanic business did extremely well, and we're kind of outsized shares in those two businesses. I like to believe that our autonomy's done a good bit for us because particularly going through a situation like COVID, everybody was in a different situation. We just found that we couldn't throw a blanket over the company and make decisions and say, "You're all gonna do this." It just doesn't work. Right. You mentioned, on your last call that your growth is coming more from new account generation than existing accounts, that the existing accounts are, you know, likely having some pressure on traffic. As you think about an environment, you know, where it's recessionary, traffic goes down, Are you feeling optimistic that the amount of new accounts that you can generate is gonna be sufficient to offset the pressure from existing accounts or? I do. Is there that opportunity? Yeah, I do. The situation has continued to get. The market, we're more dependent on new accounts than we've ever been. Mm-hmm. Even more so than when I last spoke. The increase in new accounts that we have today would typically for us produce a double digit, low double digit, but double digit, case growth. We're not seeing that today. It's the first time that we've grown our customer base faster than we've grown our cases. When you really dig into it, even at the SKU level within the accounts, we're growing, they're just not using as much of the product or buying it as frequently as they were buying it before. That has to be our focus right now is new business. Agreed. I imagine you're not gonna change your long-term guidance up here on stage with me today. You know, I'm wondering which you provided this summer. I'm wondering whether there's been any changes you can talk about in terms of how you get there. I think of, you know, in recent quarter, at least the recent quarter, some slower growth at the chain business. I think you're not alone on that front. Do you think we can get to that long-term guidance in a different way, maybe more dependent on independence than chain than you were thinking about six months ago? Yeah. Well, you know, if you look at it today, you know, we had a few quarters where inflation, inventory gains helped us. Didn't last quarter, but, you know, we still overcame that. Our case growth and independent for us is a disappointment. Of course, national accounts being down, our brands have been a real bright spot, and that comes with better margins. Mm-hmm. You know, if you go into Vistar, they're just still a little slow with theater and office coffee, everything has come just roaring back. They're doing phenomenal. With Core-Mark, we're, you know, we're running outside of tobacco. We're running mid-teens in growth. The tobacco's been down more than normal. Yeah. Of course, that's been going down for years and will for years. I think that right now we're getting there a little different path than we thought we would get there. That's encouraging to me because our underlying numbers, the increase in number of accounts, the increase in SKUs that we sell the accounts, they're not producing the sales growth we're used to, but it's really encouraging for, you know, as the industry gets better. I think one of the other things that has affected the individual restaurateur is there's just more and more restaurants. I look at where I live, and I have a place down here. I was down there for four days, and the restaurants that were closed before, almost every instance, there's somebody new in there. Mm-hmm. Because they're single purpose buildings, really. I mean, it's unusual to see, a restaurant be vacant and then something else come in and take that space. I mean, you've got equipment in there. You've got cooler. You've got refrigeration. I think that's part of the slowness at the account level. You know, we'll just see if we were in maybe a little bit of a bubble period last year and, you know, what the next quarter looks like. It's very hard to predict, and like I said, that's part of the labor issues is volume swings week to week. Right. I'm gonna get to labor. I wanted to start with a question on gross profits per case. They've obviously been elevated across the industry. I'm wondering how much do you think that is temporary? You know, Your customers have been much more focused on service, like getting service. You know, is it sustainable, the level I think there's some concern from investors that maybe, you know, there's been some overearning in that environment, and that you have to kind of give that back. I'll comment on that. I'm gonna have Patrick comment specifically on Vistar with this one. I won't go the Vistar route with it. Core-Mark, most of our agreements, almost all of them are on a margin basis. That contributed, you know, well to the gross profit per case and made up for a portion of the increased labor that they've experienced. Almost all the customers are on a contractual agreement, so I don't see it having any impact there. There certainly isn't gonna be deflation. Coffee's really the only commodity that they're involved with. When you go to the foodservice side in the national account area, we renegotiated our terms with almost every customer. Where we weren't successful, we exited the business, and we didn't have to exit much business, which was good. But a lot of our margin and gross profit per case growth was just a change in mix of business, with national down, independent up, and then our brands up significantly. That's kinda where we're at today. I don't really see that changing. The only thing from a gross margin I see is that pretty doubtful we'll have the kind of inventory gains this calendar year that we had last calendar year, at least the first three quarters of last calendar year. Otherwise, I don't really see a change mainly because it was mix driven. You comment on Vistar. Yeah. Thank you. When it comes to Vistar, you know, it's very similar actually to core-mark, very nationally driven, very contract driven. Really don't expect to see that to change. What's happening within Vistar, though, is some mix of business just between the different channels. Some of the channels are still recovering while others have already recovered back to 2019 levels and are continuing to grow. Because of that channel mix, they're actually seeing positive gross profit per case as well. Got it. This next question has a lot of moving pieces, so it's gonna be interesting to try to answer it succinctly. Without notes. Right. Right. The question is, you know, sometimes we hear, you know, the larger foodservice distributors have exposure to so many different kinds of restaurants that they'll be okay no matter kind of what happens on a macro basis. There will be impacts to the margins, right? To what types of, you know, customers are having, you know, growing sales. The question is, you know, on balance, if there is a pressured environment, what happens to margin? Seems like you'll benefit, for instance, from, you know, the Performance brand mix going up. Vistar, you know, has some segments that are just recovering independent maybe of the macro environment. How should we think of margins, you know, if you think there's gonna be a recession, the consumer's gonna be pressured, what does that mean kind of on average for Performance Food Group? Are you talking about gross margins or EBITDA margins? I guess we can answer in both. Okay. Our gross margins is going to be driven a lot by our mix of business. Yeah. A good bit. Right now we have that going in our favor. You know, he mentioned Vistar in different channels. We have channels in Vistar that run very high gross margins and very high operating expenses. We have parts of the channels in the business that have very high case costs, so they have very low gross margins and very low cost to serve. Since I talked about the, you know, three of us being in the same bucket, if we had the same type of customer mix, you would think that we were horrible on the margin side, but we were wizards controlling expenses, and neither one of those things are true. Particularly, you know, when I look at, once again, the percentage of our business that's just locked in and that's contractual and we have most of it structured where it's long- term and it's negotiated well before the ending of it, I don't see big moves in our margin either way. I also think that our industry's always been very competitive. Our customers have always been very price sensitive. You know, the margin comes where, you know, you have some type of skill or product offering that others don't have. I think if you look at the large ones in our business, all of us have certain parts of the business where we're clearly the best. For the most part, we avoid those areas where we're not the best. I just don't, I just don't see, you know, big changes because of a weakened economy in where the margin levels would be. Okay. Great. Switching just to the, to the labor side, the operating expenses. You know, it's been a long time since you said you've had a normal environment. Productivity has been relatively low. When do you think that you'll get to a place where productivity is back to pre-COVID levels? Yeah. I'll turn that to Patrick, because I don't know. Either does he. No, I don't. Maybe you can make some comments on that. I mean, what I can tell you is, I mean, this has persisted probably a little longer than we would have imagined, the teams are doing a lot of work, around, as we've talked about in the past, we've gotten the contract labor out, and we're focusing on the overtime labor. It's something we're focusing on and how do you hire, retain, and train that employee. That's where we'll really start to see those efficiencies that you're talking about, and it's gonna take a while, we are seeing that improvement already. It's regional or it's local. Mm-hmm. Some markets are doing quite well and others are still having challenges. Got it. You know, within restaurants, my other coverage area, there's been a real change, I think a permanent change on labor costs. I mean, just a dramatic increase from where they were three, four years ago. I think that, you know, still having trouble attracting workers at the higher level. There seems like a real structural change. Has there been much of a structural change in your business? I know your, you know, the pay per hour is much higher than for restaurants, you can start there. You know, as we come out the other side of the pandemic, you know, what's gone on in the last three years, do you think that labor is really structurally significantly higher or it's more temporary issues that you're still dealing with now, not structural? Yeah. Well, there's markets that we just gave a raise. Yeah. We needed to get at market, and we probably weren't where we should have been. Those are long-term expenses that don't go away. We don't do wage reductions. Yeah, yeah. It doesn't quite work. Our labor costs are coming down. They're not coming down at the rate in which we would like to see them come down, but they're coming down. You know, there's a learning curve in our business and in a lot of jobs. You know, we made the decision to keep all our salespeople 'cause it took years and years and years to build the sales force that we have. Our average person does close to triple the business that they did just in 2008 or 2008. When I say we, probably the industry, we underestimated the learning curve that's involved in being a warehouseman or being a driver. We give a good bit of autonomy, particularly to people that run our businesses. Vistar was much more aggressive reducing force in warehouse delivery. Core-Mark was not part of our company, but they were very aggressive doing it. Performance Foodservice, less aggressive. They came out of it quicker because they still had some of the enough of the people around that understood the job and were, even though not trainers, were still significant in the training and retention of new people. Because you take, like, a night crew of, you know, 40, 50 people in our business, a night warehouse crew, six or seven can make everything tick. But you gotta have those six or seven that really make it tick. I think it's just a matter of climbing the rest of the way in that learning curve. Probably like a lot of companies, we had fairly strict, I mean, this many absenteeisms, you know, you're no longer with us. This many late, you're no longer with us. It reached a point for a while there where, you know, if you were late half the time and you missed one day a week, you were pretty good. Right. Yeah. You know? Our rules all went out the door. Mm-hmm. no different than bringing people back to work. You just kind of gradually get back to the disciplines that you had in the business before, and I think we'll get there. Okay, great. I wanna switch to the- You asked with the customers, too. I had somebody ask me how our customers, when you talk to them, how are they feeling about the economy? I said, "I don't know. All they talk about is labor. Yeah. I mean, they've got labor issues beyond what we deal with. Right. A lot of them just aren't open the amount of days and the amount of hours that they used to be open. Yeah. A lot of them aren't coming back. I mean, they're not gonna go back to those type hours. Quite frankly, probably a good decision on their part. Great. I wanna switch to the convenience business and, you know, with the Eby-Brown acquisition and Core-Mark, you really transformed the business as we see it. The question is, what was attractive to you to get into become a major player of the convenience business? Do you think there's anything that investors might be missing about the strength of that business and the kind of the rationale for being such a big player? You know, what I liked about it was that, there really is two big players. Mm-hmm. You know, we're one of those two big players, and the two are probably pretty comparable in size. Most quarters, convenience has been the biggest grower within the food service business. Mm-hmm. We think that that's gonna continue, and we think we can be a big part of that. So far, I mean, what we're dealing with now is mid-teens in growth in nontobacco and negative in tobacco, in spite of the price increase, you know, still most weeks negative. I think that just puts further, I don't know if pressure is the right word, but for the convenience operator to do better and be less dependent on the gross profit that they get from tobacco. The other thing with it, if you go into a convenience store, I did this my first time I went in to Core-Mark at night, with Scott, and they've got a convenience store. That operates a convenience store, but they have a setup like that in the building. I told him, other than tobacco and automotive, we couldn't find one supplier in that store that we didn't buy from at Vistar, Performance, or both. We're dealing with the same supplier base that we were dealing with already. Right. It's helped us. It's helped us a good bit. I just think it's a good business for us to be in. It's great to watch the synergies develop between Vistar and Core-Mark and also between Core-Mark and Performance. We've got a long way to go, so I think it gives us plenty of runway. You know, that's 40,000 new accounts. Right ... that we can do other things with. Part of it, too, that certainly hasn't materialized yet, but I think long term will, I go back to doing the initial acquisition when we got what was then called VSA, the vending business. A lot of the business was done direct. Over the years, we've been able to get most of that product onto our truck. It's very expensive to run, you know, DSD-type business, and a lot of people are still doing that within convenience stores. We think that can be a part of our future. It may be a while from now, but we feel it can be. Self-distribution is another area, where, you know, you get into food service and even a McDonald's doesn't self-distribute. I mean, it's hard to be both, and you lose some density. We think that can be a potential area of growth for us. The only negative when we looked at it, and this was a long time coming together, because the negative was such a big negative, and that's that we didn't wanna sell tobacco. In the end, we couldn't be in the business without it. We can't sell it anyway. We can't market it. Yeah. All we're doing is filling demand. Right. That's what kinda got us over the hump. Good. Great. You know, that's all the time we have. I appreciate everyone for joining us. Thank you. Thank you. Thank you.