US Foods Holding Corp. ($USFD)

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 U.S. Foods today live from Paris. With us, we have Chairman and CEO, Dave Flitman; and CFO, Derek Locascio. I appreciate you both being here. Nice to see you.

Good to see you, Lauren. Thanks, Lorne. Good to see you.

So I'll just run this 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 have 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, not 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 combination 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 consumers, 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 a 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% Healthcare, 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 built over the past many years, competitive moats in each 1 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 1 of those, we've built 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, focused 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 swap of the spot of the industry. Can you just talk a little bit about the health of the independent restaurant as you see it any comparison to chain restaurants or anything else that you're observing with the independent restaurant?

Yes. I would count 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 cost 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 change 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 use 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 Moxy 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 1 else has anything like that and it's a huge differentiator for them. And when you think about multi-unit health care operators being able to see all of that consistently across all their operations within that vital tool is very, very helpful and meaningful as they work to optimize all of that.

On the hospitality side, also very important in the key customer segment. Just 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 and 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 cost 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.

Okay. Awesome. I'll shift to the cost side for a little bit. Q1 yet some weather disruptions, fuel costs. How much of a little bit of the elevated costs 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 million 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 of it 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 headwind we'd rather not have for a lot of reasons, but it is 1 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 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 auto despite some of the top line industry pressures over the last couple of years in are in terms of opportunity and how you see the pipeline of initiatives from here?

But 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 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 initiatives. 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 in 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. As everyone is going to get to 7%, 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 at 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 the chef's 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.

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 that 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 to meet their needs and reviewing the assortment regularly and adding products where we think there's a demand or an unmet need. .

Switching is 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 prospects 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. really excited that 60 days in, we had 15% of our customers adopt Menu IQ, which is embedded in our Moxi application was very, very exciting and a strong out-of-the-gate performance for us. Last 1 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 the 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 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 Moxi platform. It's got more AI capabilities. And so it's giving customers better answers, and it gives them sort of but our first answers, and it also takes time away from them calling the seller. The things that we build on 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 1 of 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 could 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 and 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 and 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 Moxy that we've had for a few years now, but Moxi is really aimed at making it easier to do business with us, take out the friction out 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 as a follow-up on Moxy 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 attributor versus a small distributor? .

Well, I think if you think about the investment that it takes to develop something like a Moxi, which we have -- we've been the leader in digital commerce for a very long time in this industry. and Moxy 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. Steve, 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 was a seminal moment for us, unlocking growth for our sales force and really unleashing 1 of the strongest sales forces in the industry for a long time to come.

Great. This has been in pilot and you've been testing and I know you're taking a prudent approach 1 of your large competitors had some bumps in the road when they may change their sales force. I guess, what have you learned from the pilot and 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 in 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 they changing the comp structure. 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 U.S. 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. Every -- 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, then 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 for 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.

Pronto is a program that you guys have been investing in for several years. Can you talk about what prompt it is evolution of it and how you're thinking about the opportunity from here? -- contextualize maybe the potential size of the price 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 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 in our 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, a 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 need it 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, so 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. Talk a little bit about what you're looking for a 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 work 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 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 so we spent 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 1 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 & 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 in 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 starrheadlights. 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 with any of our competitors in terms of leveraging top line 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 in 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 2x 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 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. 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've 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 is 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 of our shareholders need for us to deliver. .

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

Thank you, Lauren. Thank you. Appreciate it.