US Foods Holding Corp. (USFD) Earnings Call Transcript & Summary

Good morning, and welcome to the 2021 Annual Stockholders' Meeting of U.S. Foods Holding Corp. I would now like to introduce the first presenter, Pietro Satriano, Chairman and CEO. Please go ahead.

Good morning, and welcome, everyone. I will be presiding as the Chairman over today's meeting. I'd like to thank everyone for joining us today and for your investment in U.S. Foods and for placing your trust in us. Before we begin, I would like to take a moment to recognize the extraordinary progress that has been made in the fight against the COVID-19 pandemic. It was just over a year ago that shelter-in-place orders were put in place across most of the country with a very significant impact on many of our customers. Yet with the widespread availability of COVID-19 vaccines, the recovery is well underway, and we are participating in the recovery in a meaningful way. We are grateful for the tireless efforts of our country's health care workers and the essential workers who helped get us to this point as well as everyone who participated in the design, development and deployment of the various vaccines. I'd also like to recognize our 26,000 associates at US Foods, who have worked so hard to help our customers make it through the many challenges of the pandemic, whether it was through delivering groceries to our customers or assisting our customers navigate these challenging times. Their tireless efforts contributed to the remarkable resiliency that we have seen in our industry. There is no doubt that addressing the many challenges of 2020 helped us become a stronger company by leveraging technology and collaborating across the business in new ways, we've become a more agile, more effective and more efficient company. We've also continued to expand our differentiated offerings and strengthen our multichannel strategy through the acquisition of Smart Foodservice last year. As the pandemic eases and more restrictions are lifted, we are well positioned to take advantage of the recovery and to continue to focus on creating value for all our stakeholders. Joining us online for today's meeting are members of our Board of Directors and the executive leadership team. I would like to thank each of our directors for their insight and direction during the past year as we confronted novel challenges resulting from the pandemic. I also want to thank the executive leadership team for their outstanding leadership and their commitment to our associates and our customers. Kristin Coleman, our Corporate Secretary, has advised me that a quorum is present and the meeting is now called to order. She will present the proposals being voted upon at the meeting today. Following voting, we will take any questions. Kristin?

Thank you, Pietro, and good morning. Before turning to the matters that will be voted upon today, I'd like to mention a few housekeeping items. First, on the webcast, you'll find the meeting agenda and the rules of conduct. In addition, if you have not voted or you'd like to change your vote, you may do so by using the voting button on the website. During the formal business of the meeting, questions or comments from stockholders will be limited to only the proposals being voted on today. But after the voting is complete, we'll take general questions. If you would like to ask a question or make a statement you can do so by submitting it through the Q&A section on the website. I see we already have a couple of questions. There are 3 items of business set forth in the notice of meeting that our stockholders are being asked to vote upon. Details of those proposals are set out in the proxy statement for the meeting. I have proof by affidavit that notice of this meeting was first distributed, and the proxy statement and proxy card were made available on April 2, 2021, to our stockholders of record at the close of business on March 22, 2021. The Board has appointed a representative of Broadridge financial services to serve as the inspector of election for this meeting, and we'll go to the first item of business, which is the election of 7 directors whose terms are expiring at this meeting. 6 of the nominees named in the proxy statement; Cheryl Bachelder, Court Carruthers, John Lederer, Andy Pforzheimer, David Tehle and Ann Ziegler will be elected by our common stockholders and the holders of our Series A preferred stock voted together as a single class. And the one additional nominee, Nate Taylor will be elected by the holders of our Series A preferred stock, voting separately as a class. Each director will serve for a term expiring at the 2022 annual meeting. The Board unanimously recommends a vote for each of the nominees. The second item of business is the advisory vote on a resolution to approve the compensation paid to our named executive officers, as described in the proxy statement. The Board unanimously recommends a vote for the resolution. And then the third and last item of business is the ratification of the appointment of Deloitte & Touche as the company's independent registered public accounting firm for fiscal 2021. The Board unanimously recommends a vote for this proposal. Are there any questions or comments concerning any of the proposals? I don't see any, but maybe I'll just give it 1 more second. And while we're waiting, I'll just, again, say, if you've already voted, you do not need to vote at the meeting. If you've not yet voted or you wish to change an earlier vote, you may do so by submitting your vote online at this time. Only the verified votes will be included in the final vote tabulation. Okay. I'm still not seeing any questions. So we're going to close the polls. Any votes that are submitted online will be included in the final voting results, which we'll disclose in a Form 8-K, which we'll file with the SEC. The inspector of election has advised me that based upon the preliminary count of the shares voted in person or by proxy at today's meeting, the results for each proposal are as follows: item 1, each Director nominee has received more votes cast in favor of his or her election than against. And therefore, has been reelected to the Board. For Item 2, the holders of a majority of the shares represented or present -- or represented by proxy at the meeting have voted in favor of the advisory say on pay resolution, and therefore, it has been approved. And for Item 3, the holders of a majority of the shares present or represented by proxy at the meeting have voted for Deloitte & Touche's appointment, and therefore, it has been ratified. So that concludes the formal business of the meeting, and I will hand it back to Pietro, and we'll take some questions.

Okay. Thanks, Kristin. So I see some questions that are in the queue here. I think the best way to do this, Kristin, is just to read the questions as they come up. And then Kristin and I will answer them or we'll direct them if appropriate. So the first question is from someone representing the Carpenter Funds. And the question says, we believe that the company's executive compensation plan should drive the successful execution of the Board's long-term strategic business plan. Today's public executive compensation plans are largely formulaic peer-related plans with simplistic annual say on pay voting, reinforcing plan homogeneity. Would you or the Chair of the Compensation Committee speak to whether U.S. Foods might be better served by an executive compensation plan that is tailored specifically to the company's particular circumstances and its unique long-term strategic business plan? Okay. So let me answer that question. So I would say that our executive compensation plan, and in fact, the compensation plan that extends beyond the executive team to all other eligible associates does reflect both our strategic plan, the nature of our industry and as well the nature of where we are today with COVID 19. So the -- and I'll give a few examples. Let's start with short-term incentive or the annual incentive plan, which is typically based on EBITDA performance. Last year, the executives was not paid bonus as a result of COVID-19, but there was a onetime share grant that was related to 3 things: market share, integration of the 2 acquisitions and reimagination of our plan. So that is an example of where we mid course adjusted the various forms of compensation to take into account our circumstances. And we moved to LTI, long-term incentive, which typically is a function of EBITDA and return on capital because we want to ensure that there's a balance not only on growing profit dollars, but to do so in a judicious way that also makes judicious use of capital given the uncertainty related to setting targets, longer-term targets. We've suspended that for now, but that will in all likelihood come back in 2022. So I would say that to the degree that we can, and we, as the compensation committee, which obviously has a very significant hand to play in this, we have taken into account our particular circumstances of the industry and our company. Let me go to the next question, again from the Carpenter Funds. So the Carpenter Funds believe that the audit firm independence is critical to protecting the integrity of corporate financial reporting. Given that audit firm and corporate client relationships are generally long tenured, federal regulations require that the lead engagement partner be rotated out of that position every 5 years. Deloitte has been the company's independent auditor since 2006. Could the Chair of the Audit Committee or the representative of Deloitte describe the lead audit partner rotation process that should take place this year and indicate who makes decision in the selection of the new leading engagement partner? So we agree. The process has taken place. Todd Louderback, who was the representative of Deloitte for the last 5 years stepped down and is replaced by [ Pete Lundstrom ]. 2021 is his first year. And typically, the process is a recommendation from management to the Audit Committee, but ultimately, the Audit Committee has the ultimate authority in terms of the choice of the audit partner.

And Pietro, I think we have [ Pete Lundstrom ] on the line. If [ Pete ] would like to add any comments?

Oh, great.

Yes. Can you hear me?

Yes.

Yes.

Okay. Just wanted to make sure. So yes, I agree with what Pietro described again. In advance of the rotation, the firm works with the Audit Committee and the Audit Committee Chair to identify the next lead audit partner. And ultimately, the decision is made by the Audit Committee as to who is best served in that role on a go-forward basis.

Thanks, [ Pete ]. Nice to hear from you.

Thank you, [ Pete ]. So Pietro, I think we have -- I think we have no more stockholder questions, and we can conclude the program.

Okay. So as Kristin said, this concludes our program for today. I appreciate everyone joining the meeting. Thank you for being a stockholder. Please stay safe and healthy. Take care, everyone.

The 2021 Annual Stockholders' Meeting of U.S. Foods Holding Corp. has now come to an end. You may now disconnect.